UNITED STATES
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 July 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 August 15, 2001)
FFP MARKETING COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except number of shares)
(Unaudited)
July 1, December 31,
2001 2000
------- -----------
ASSETS
Current assets -
Cash and cash equivalents $11,938 $14,572
Investments in stocks and bonds 3,602 3,084
Trade receivables 29,819 28,671
Notes receivable, current portion 1,728 1,391
Receivables from affiliates, current portion 716 770
Inventories 22,235 24,502
Deferred income taxes 1,046 1,181
Prepaid expenses and other current assets 1,445 676
-------- --------
Total current assets 72,529 74,847
Property and equipment, net 36,540 38,074
Notes receivable, excluding current portion 4,366 3,620
Other assets, net 9,914 8,320
-------- --------
Total assets $123,349 $124,861
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities -
Current installments of long-term debt $1,526 $1,642
Current installments of capital lease obligations 437 437
Accounts payable 22,243 21,190
Money orders payable 18,377 18,237
Advances from affiliates 1,846 1,407
Accrued expenses and other current liabilities 11,803 14,182
-------- --------
Total current liabilities 56,232 57,095
Long-term debt, excluding current installments 37,482 37,557
Capital lease obligations, excluding current
installments 3,863 4,042
Deferred income taxes 3,120 3,367
Other liabilities 1,936 2,081
-------- --------
Total liabilities 102,633 104,142
Commitments and contingencies - -
Stockholders' equity -
Common stock ($0.01 par value; 9,000,000
common shares authorized; 3,818,747
common shares issued and outstanding) 22,235 22,235
Accumulated deficit (812) (547)
Accumulated other comprehensive loss (707) (969)
-------- --------
Total stockholders' equity 20,716 20,719
-------- --------
Total liabilities and stockholders' equity $123,349 $124,861
======== ========
See accompanying Notes to Condensed Consolidated Financial Statements.
FFP MARKETING COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
------------------ -------------------
July 1, June 25, July 1, June 25,
2001 2000 2001 2000
-------- -------- -------- --------
(In thousands)
Revenues -
Motor fuel $153,410 $146,401 $284,179 $269,833
Merchandise 26,292 29,266 50,321 57,946
Miscellaneous 3,609 2,133 7,104 5,642
-------- -------- -------- --------
Total revenues 183,311 177,800 341,604 333,421
Costs and expenses -
Cost of motor fuel 143,697 137,401 269,285 254,909
Cost of merchandise 18,264 20,287 35,551 40,483
Direct store expenses 11,316 12,516 23,217 25,393
General and administrative expenses 4,136 4,041 8,488 7,801
Depreciation and amortization 1,896 1,736 3,730 3,460
-------- -------- -------- --------
Total costs and expenses 179,309 175,981 340,271 332,046
Operating income 4,002 1,819 1,333 1,375
Interest income 317 367 588 717
Interest expense 1,189 1,139 2,323 2,309
-------- -------- -------- --------
Income (loss) before income taxes 3,130 1,047 (402) (217)
Income tax expense (benefit) -
Current 110 0 110 0
Deferred 954 315 (247) (65)
-------- -------- -------- --------
Total income tax expense (benefit) 1,064 315 (137) (65)
-------- -------- -------- --------
Net income (loss) $2,066 $732 $(265) $(152)
======== ======== ======== ========
Net income (loss) per share -
Basic $0.54 $0.19 $(0.07) $(0.04)
Diluted $0.54 $0.18 $(0.07) $(0.04)
Weighted average number of
common shares outstanding -
Basic 3,819 3,819 3,819 3,819
Diluted 3,822 3,985 3,819 3,819
See accompanying Notes to Condensed Consolidated Financial Statements.
FFP MARKETING COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended
---------------------
July 1, June 25,
2001 2000
------- -------
Cash Flows from Operating Activities -
Net loss $ (265) $(152)
Adjustments to reconcile net loss to cash
used by operating activities -
Depreciation and amortization 3,730 3,460
Provision for doubtful accounts 307 22
Deferred income tax benefit (247) (65)
Net gain on sale of properties (1,039) (1,251)
Increase in stocks and bonds (733) (879)
Net change in operating assets and liabilities (3,349) (4,408)
------- -------
Net cash used by operating activities (1,596) (3,273)
------- -------
Cash Flows from Investing Activities -
Repayments of advances to affiliate 54 136
Additions of property and equipment, net (1,638) (2,832)
Increase (decrease) in notes receivable 477 (10)
------- -------
Net cash used by investing activities (1,107) (2,706)
------- -------
Cash Flows from Financing Activities -
Advances from affiliate 439 1,368
Net borrowings (payments) on debt and capital leases (370) (856)
------- -------
Net cash provided by financing activities 69 512
------- -------
Net decrease in cash and cash equivalents (2,634) (5,467)
Cash and cash equivalents at beginning of period 14,572 20,868
------- -------
Cash and cash equivalents at end of period $11,938 $15,401
======= =======
Supplemental Disclosure of Cash Flow Information:
- ------------------------------------------------
Cash paid for interest $2,323 $2,309
======= =======
See accompanying Notes to Condensed Consolidated Financial Statements.
FFP MARKETING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 1, 2001
(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 July 1, 2001, and the
condensed consolidated statements of operations and the condensed consolidated
statements of cash flows for the periods presented 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
July 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, which 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 six months ended
July 1, 2001, and as discussed below.
2. Income (Loss) per Share
Basic net income (loss) per share is net income (loss) divided by the
weighted average number of common shares outstanding for the year. Diluted net
income per share is net income divided by the weighted average number of common
shares outstanding for the year plus potentially dilutive common shares.
Outstanding options to acquire 253,667 and 303,667 common shares were excluded
from the diluted computation for the three-month and six-month periods ended
July 1, 2001, respectively, and outstanding options to acquire 0 and 228,667
common shares were excluded from the diluted computation for the three-month and
six-month periods ended June 25, 2000, respectively, because the effect would
have been anti-dilutive. The following table reconciles the denominators of the
basic and diluted net income (loss) per share calculations for the three-month
and six-month periods ended July 1, 2001, and June 25, 2000:
Three Months Ended Six Months Ended
------------------ -------------------
July 1, June 25, July 1, June 25,
2001 2000 2001 2000
-------- --------- -------- ----------
(In thousands)
Weighted average number
of common shares outstanding 3,819 3,819 3,819 3,819
Effect of dilutive options 3 166 0 0
----- ----- ----- -----
Weighted average number
of common shares outstanding,
assuming dilution 3,822 3,985 3,819 3,819
===== ===== ===== =====
3. Operating Segments
The Company and its subsidiaries are principally engaged in two operating
segments: (i) the retail and wholesales 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 three month and six month periods ended
July 1, 2001 and June 25, 2000:
Retail and Terminal
Wholesale Operations Eliminations Consolidated
--------- ----------- ----------- ------------
(In thousands)
Six Months Ended July 1, 2001
- -----------------------------
Revenues from external sources $283,586 $58,018 $0 $341,604
Revenues from other segment 0 18,515 (18,515) 0
Depreciation and amortization 3,407 323 0 3,730
Income (loss) before income taxes (2,019) 1,617 0 (402)
Six Months Ended June 25, 2000
- ------------------------------
Revenues from external sources $293,704 $39,717 0 $333,421
Revenues from other segment 0 15,780 (15,780) 0
Depreciation and amortization 3,163 297 0 3,460
(Loss) before income taxes (171) (46) 0 (217)
Second Quarter 2001
- -------------------
Revenues from external sources $152,618 $30,693 0 $183,311
Revenues from other segment 0 10,536 (10,536) 0
Depreciation and amortization 1,733 163 0 1,896
Income before income taxes 905 2,225 0 3,130
Second Quarter 2000
- -------------------
Revenues from external sources $153,260 $24,540 0 $177,800
Revenues from other segment 0 8,239 (8,239) 0
Depreciation and amortization 1,586 150 0 1,736
Income (loss) before income taxes 1,283 (236) 0 1,047
4. Comprehensive Net Loss
The components of comprehensive net income (loss) for the three and six
months periods ended July 1, 2001 and June 25, 2000, are set forth below:
Three Months Ended Six Months Ended
------------------- -------------------
July 1, June 25, July 1, June 25,
2001 2000 2001 2000
-------- --------- -------- ----------
(In thousands)
Net income (loss) $2,066 $732 $(265) $(152)
Unrealized net gains
(losses) on available-
for-sale securities,
net of tax (31) 0 262 0
------ ----- ------ ------
Comprehensive net income (loss) $2,035 $732 $ (3) $(152)
====== ===== ====== ======
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 July 1, 2001, and December 31,
2000, $8,111,000 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 July 1, 2001, and
December 31, 2000, $875,000 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 with FFP Partners
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 July 1, 2001, and December 31, 2000, the outstanding amounts
on loans of FFP Partners guaranteed by the Company were $8,824,000 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 July 1, 2001, and December 31, 2000, $22,366,000 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 second 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 $3,049,000 and $2,711,000 at July 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 July 1, 2001, and December 31, 2000, $7,484,000
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 restrictive covenants including 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. The Company was
in compliance with its loan covenants at the end of the second quarter.
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 were
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 and Type of Entity 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 orders
Delaware limited partnership
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 transportation of motor fuel
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 sales of motor fuel, merchandise and other products and
services (at 169 Company-operated convenience stores, 12 truck stops, and 243
gas-only stores, or a total of 424 retail locations), 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
- ---------------------
Fuel Sales and Margins
----------------------
Second Quarter Year-to-Date
----------------------------- -----------------------------
Change Change
------------ -------------
2001 2000 Amount % 2001 2000 Amount %
------- ------- ------ --- ------- ------ ------- ---
(In thousands, except average prices and per gallon data)
Motor fuel sales $153,410 $146,401 $7,009 5% $284,179 $269,833 $14,346 5%
Fuel margin $9,713 $9,001 $712 8% $14,894 $14,925 $(31) (0%)
Gallons sold
Retail 59,380 62,550 (3,170) (5%) 115,923 122,183 (6,260) (5%)
Wholesale 26,228 26,881 (653) (2%) 47,731 49,587 (1,856) (4%)
Terminal 25,604 23,181 2,423 10% 52,291 37,961 14,330 38%
------- ------- ------ --- ------- ------- ------ ---
Total 111,212 112,612 (1,400) (1%) 215,945 209,731 6,214 3%
Average per
gallon sales
price $1.38 $1.30 $0.08 6% $1.32 $1.29 $0.03 2%
Margin per
gallon (cents) 8.7 8.0 0.7 1% 6.9 7.1 (0.2) (3%)
The Company sold more motor fuel, in dollars, in the second quarter and
first half of 2001 than in the corresponding periods of the prior year. Motor
fuels sales increased by $7,009,000 (5%) in the second quarter of 2001 and by
$14,346,000 (5%) in the first half of 2001, compared to the corresponding
periods of 2000. Motor fuel sales increased principally because of additional
sales at the terminal. Terminal sales improved by $6,139,000 and $18,273,000 in
the second quarter and first half of 2001, respectively, compared to
corresponding periods of 2000, and offset a decline in retail and wholesale
motor fuel sales in the comparative periods.
In gallons, motor fuels sales decreased by 1,400,000 gallons (1%) in the
second quarter of 2001, but increased by 6,214,000 gallons (3%) in the first six
months of 2001, compared in each instance to sales in corresponding periods of
2000. These increases resulted from additional sales at the terminal, which
increased by 2,423,000 gallons (10%) and 14,330,000 gallons (38%) in the three
and six-month periods, respectively, and offset a decline in retail and
wholesale sales, compared to the corresponding periods of 2000.
The Company's overall gross profit on motor fuel sales was $9,713,000 in
the second quarter of 2001, a $712,000 (8%) increase over motor fuel gross
profit in the corresponding quarter in 2000. Second quarter fuel margins
increased principally as a result of favorable market conditions for wholesale
and terminal operations, which are not expected to remain at that level in the
future. For the first half of 2001, the Company earned an overall gross profit
on motor fuel sales of $14,894,000, a slight decline of $31,000 (0%) from motor
fuel gross profit in the corresponding period of last year. Fuel margins over
the first half of 2001 decreased principally as a result of increased
competition in retail operations but were largely offset by additional gross
profit on terminal sales.
Merchandise Sales and Margins
-----------------------------
Second Quarter Year-to-Date
----------------------------- -----------------------------
Change Change
------------ -------------
2001 2000 Amount % 2001 2000 Amount %
------- ------- -------- ----- ------- ------- -------- ----
(In thousands, except average weekly sales data)
Mdse sales $26,292 $29,267 $(2,975) (10%) $50,321 $57,946 $(7,625) (13%)
Mdse margin 8,028 8,979 (951) (11%) 14,769 17,463 (2,694) (15%)
Mdse margin %,
convenience
stores and
truck stops 30.5% 30.7% (0.2%) (1%) 29.3% 30.1% (0.8%) (3%)
Average weekly
mdse sales
per store -
Convenience
stores $12,379 $11,488 $891 8% $11,414 $11,081 333 3%
Truck stops 16,702 17,053 (351) (2%) 16,081 16,251 (170) (1%)
Merchandise sales decreased by $2,975,000 in the second quarter of 2001
(10%), compared to the second quarter of 2000, and decreased by $7,625,000 for
the first half of 2001 (13%), compared to the same period of the prior year. A
principal factor for the changes was that the Company operated an average of 16%
fewer convenience stores in the second quarter of 2001 than in same quarter of
2000 and 16% fewer convenience stores in the first half of 2001 than in the
first half of 2000. Likewise, the Company operated only 169 convenience stores
at the end of the second quarter of 2001 compared to operating 202 at the end of
the second quarter of 2000. Implementing the Company's previously announced
strategy of converting Company-operated stores to gas-only outlets caused the
decline in the number of convenience stores.
Merchandise gross profit, or margin, decreased by $951,000 (11%) and
$2,694,000 (15%) for the three and six month periods of 2001, respectively, when
compared to the corresponding periods of the prior year. Total merchandise
margins declined for these comparative periods because the Company operated
fewer convenience stores in 2001 than in 2000, as described above.
Other Income and Expenses
-------------------------
Miscellaneous revenues include lottery ticket sales income, money order
sales income, commissions received on alcohol beverage sales, check cashing
fees, state excise tax handling fees, gains on asset sales, unrealized gains or
losses on investments in trading securities (but not available-for-sale
securities), exchange and motor fuel trading gains and losses, and various other
types of income. Miscellaneous revenues were $3,609,000 and $7,104,000 in the
second quarter and first half of 2001, respectively, constituting improvements
in both comparative periods (69% and 26%, respectively) over miscellaneous
revenues of $2,133,000 and $5,642,000 in the corresponding periods of 2000.
The improvement in miscellaneous revenues in the second quarter in 2001 was
achieved in spite of the Company operating 34 fewer convenience stores, on
average, in the second quarter of 2001 than in the second quarter in 2000. A
material factor for the improvement in both comparable periods was that no
unrealized losses from trading securities were included in earnings in the
second quarter or first half of 2001, compared to unrealized losses from trading
securities of $1,894,000 and $1,321,000 included in earnings in the second
quarter and first six months of 2000. Also, exchange and motor fuel trading
gains of $328,000 and $302,000 were incurred in the second quarter and first six
months of 2001, compared to exchange and motor fuel trading losses of $171,000
and $1,012,000 in the second quarter and in the first half of 2000,
respectively. The overall improvement in miscellaneous revenues was offset, in
part, by lesser gains being recorded in 2001 from the sale/conversion of
Company-operated convenience stores to gas-only stores. These sales/conversions
continued in considerable numbers (13 sales and 19 sales in the second quarter
and the first half of 2001, respectively), but lesser total gains were recorded.
Specifically, gains from the sale/conversion of Company-operated convenience
stores to gas-only outlets were $763,000 and $1,231,000 in the second quarter
and first half of 2001, respectively, compared to gains of $1,240,000 and
$1,450,000 in the second quarter and first six months of 2000, respectively.
Direct store expenses decreased by $1,200,000 (10%) in the second quarter
of 2001, compared to the second quarter of 2000. Direct store expenses for the
six-month period decreased by $2,176,000 (9%). These decreases primarily
resulted from operating fewer convenience stores in 2001 than in 2000.
General and administrative expenses increased by $95,000 (2%) and $687,000
(9%) in the three and six month periods ended July 1, 2001, respectively,
compared to the corresponding periods of 2000. These increases resulted largely
from increased activity in fuel transportation and terminal operations and as a
result of bad debt and legal expenses of $178,000 incurred in the second quarter
of 2001 in connection with litigation to collect wholesale fuel receivables.
Depreciation and amortization increased by $160,000 (9%) in the second
quarter of 2001, compared to the corresponding quarter of 2000. For the
six-month period in 2001, compared to the corresponding period in 2000,
depreciation and amortization increased by $270,000 (8%). This increase resulted
from depreciation of property and equipment additions made during 2001 and 2000.
Interest income declined by $50,000 (14%) and by $129,000 (18%) in the
second quarter and first half of 2001, respectively, compared to corresponding
periods in 2000. These decreases were due to a decline in interest rates on
Company investments.
Interest expense increased by $50,000 (4%) and by $14,000 (1%) during the
second quarter and first half of 2001, respectively, when compared to
corresponding periods of 2000. These increases resulted from higher debt levels
in the first half of 2001 than in 2000. In future years, these loan payments
will slowly convert to a higher percentage of principal payments and a lower
percentage of interest payments.
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 second quarter of 2001, the borrowing base was limited under the loan
agreement to $9,800,000, and the Company's borrowings were $7,484,000 under such
revolving credit facility at that time. The net value of the Company's
securities at that brokerage firm was approximately $3,049,000 on that date.
The Company is currently pursuing, and has recently obtained a non-binding,
written proposal for, a new revolving credit facility with another lender 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 trade
receivables plus a percentage of its inventory at the terminal. The Company
currently anticipates closing this new facility in the fourth 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.
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 second quarter and first half of 2001, the Company closed on
the sale/conversion of 13 and 19 stores, respectively. The sale/conversion of
several other stores was under contract at the end of each period.
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 second
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 $18,377,000 at the end of
the second 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 $16,297,000 at the end of the
second 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 the facility. Approximately 11% of the Company's long-term
obligations at the end of the second quarter of 2001 was subject to variable
interest rates. The remainder of the Company's long-term debt is fixed rate
financing and not subject to interest rate risk.
The Company is also subject to market risks related to increasing fuel
prices and sometimes attempts to reduce that risk by purchasing commodity
futures and forward contracts. Such attempts to reduce commodity risk are also
subject to risk because the commodities under the financial contracts are
normally not of the same grade or location of fuel as that owned by the Company
in its business. Open positions under these futures and forward contracts were
not significant at July 1, 2001.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its 2001 annual shareholder meeting in Fort Worth, Texas,
on May 30, 2001. At that meeting Victor Puente, Sr. and Robert W. Ratliff were
elected to the Board of Director and John H. Harvison, E. Michael Gregory, and
Garland R. McDonald were re-elected to the Board of Directors. The voting
results by persons present at the meeting or by proxy were as follows:
Nominees
------------------------------------------------------
Victor Robert W. John H.
Puente, Sr. Ratliff Harvison
--------------- -------------- ---------------
Votes % Votes % Votes %
----- ----- ----- ----- ----- -----
(in thousands, except percentages)
For 3,537 93% 3,537 93% 3,537 93%
Withheld 113 3% 113 3% 113 3%
Abstain 0 0% 0 0% 0 0%
Non-votes 168 4% 168 4% 168 4%
----- ----- ----- ----- ----- -----
Totals 3,818 100% 3,818 100% 3,818 100%
===== ===== ===== ===== ===== =====
Nominees
-----------------------------------------
E. Michael Garland R.
Gregory McDonald
--------------- --------------
Votes % Votes %
----- ----- ----- -----
(in thousands, except percentages)
For 3,537 93% 3,537 93%
Withheld 113 3% 113 3%
Abstain 0 0% 0 0%
Non-votes 168 4% 168 4%
----- ----- ----- -----
Totals 3,818 100% 3,818 100%
===== ===== ===== =====
The other directors, whose terms of office as a director continued after
the meeting on May 30, 2001, were J.D. St. Clair, Michael Triantafellou, Robert
J. Byrnes, Joseph F. Leonardo, and John D. Harvison. At a meeting of the Board
of Directors immediately following the shareholder meeting, the Board of
Directors elected Victor Puente, Sr. and Robert W. Ratliff to its Audit
Committee.
OTHER INFORMATION
On or about June 18, 2001, Garland R. McDonald and E. Michael Gregory were
elected to the Board of Trustees of FFP Real Estate Trust, the general partner
of FFP Partners, L.P., and resigned from the Board of Directors of the Company.
EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
None.
Reports on Form 8-K
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: August 15, 2001 By: /s/ John H. Harvison
-----------------------------
John H. Harvison
Chairman and Chief Executive Officer
Date: August 15, 2001 By: /s/ Craig T. Scott
-----------------------------
Craig T. Scott
Vice President - Finance and
Chief Financial Officer