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 March 31, 2002,
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 May 20, 2002)
FFP PARTNERS, L.P. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 2002, AND DECEMBER 31, 2001
(In thousands)
(Unaudited)
2002 2001
-------- -------
ASSETS
Current assets --
Cash and cash equivalents $1,310 $50
Marketable securities 1,262 981
Receivable from affiliate 0 1,527
Investment in lease with affiliate, current portion 53 53
-------- -------
Total current assets 2,625 2,611
Real property -
Land and improvements 8,818 8,818
Buildings 21,286 21,286
-------- -------
Real property, excluding depreciation 30,104 30,104
Accumulated depreciation (14,229) (13,931)
-------- -------
Real property, net of depreciation 15,875 16,173
Net investment in direct financing lease with affiliate 3,711 3,729
Note receivable from real estate partnership 448 0
Notes receivable 12 15
Investment in real estate partnership 247 273
Deferred loan costs, net of amortization 762 773
-------- -------
Total assets $23,680 $23,574
========= =======
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities -
Current installments of long-term debt $682 $682
Margin debt on marketable securities 407 344
Payable to affiliate 28 0
Accrued expenses 142 194
-------- -------
Total current liabilities 1,259 1,220
Long-term debt, excluding current installments 19,344 19,509
-------- -------
Total liabilities 20,603 20,729
Minority interests in subsidiary 1,292 1,247
Commitments and contingencies -- --
Partners' capital -
Limited partners' capital 1,862 1,821
General partner's capital 27 26
Accumulated other comprehensive loss (104) (249)
-------- -------
Total partners' capital 1,785 1,598
-------- -------
Total liabilities and partners' capital $23,680 $23,574
========= =======
See accompanying notes to Condensed Consolidated Financial Statements.
FFP PARTNERS, L.P., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND MARCH 31, 2001
(In thousands, except per unit data)
(Unaudited)
2002 2001
-------- -------
Revenues -
Rental income $733 $731
Interest and other income 304 306
Gain on sale of property 0 52
Loss from real estate partnership investment (26) 0
Loss on sale of marketable securities (15) 0
-------- -------
Total revenues 996 1,089
Expenses -
General and administrative expenses 89 126
Depreciation and amortization 309 305
Interest expense 511 520
-------- -------
Total expenses 909 951
-------- -------
Income before minority interest 87 138
Minority interest in subsidiary (35) (55)
-------- -------
Net income $52 $83
========= =======
Net income per unit -
Basic $0.02 $0.04
Diluted $0.02 $0.04
Weighted average number of units outstanding -
Basic 2,272 2,272
Diluted 2,277 2,273
See accompanying notes to Condensed Consolidated Financial Statements.
FFP PARTNERS, L.P. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2002, AND MARCH 31, 2001
(In thousands)
(Unaudited)
2002 2001
-------- -------
Cash Flows from Operating Activities -
Net income $52 $ 83
Adjustments to reconcile net income to cash provided
by operating activities -
Depreciation and amortization 309 305
Gain on sale of property 0 (52)
Loss on sale of marketable securities 15 0
Accrued interest and discount (88) (71)
Minority interest in subsidiary 35 55
Net change in operating assets and liabilities (52) 9
-------- -------
Net cash provided by operating activities 271 329
Cash Flows from Investing Activities -
Reduction in direct financing leases 18 14
(Advances to) repayments from affiliate 1,555 (264)
Note receivable from real estate partnership (448) 0
Loss from real estate limited partnership 26 0
Proceeds from sale of property 0 76
Principal payments received on notes receivable 3 4
Additions of property, net 0 (6)
-------- -------
Net cash provided (used) by investing activities 1,154 (176)
Cash Flows from Financing Activities -
Repayments on long-term debt (165) (153)
-------- -------
Net cash used by financing activities (165) (153)
Net increase in cash 1,260 0
Cash at beginning of period 50 0
-------- -------
Cash at end of period $1,310 $ 0
========= =======
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest $ 511 $ 520
See accompanying notes to Condensed Consolidated Financial Statements.
FFP PARTNERS, L.P. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(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 "Partnership."
The Condensed Consolidated Balance Sheets at March 31, 2002, and December
31, 2001, and the Consolidated Statements of Operations and Condensed
Consolidated Statements of Cash Flows for the periods presented, have been
prepared by the Partnership without audit. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments, necessary to
fairly present the Partnership's financial position as of March 31, 2002, 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 Partnership completed a restructuring that 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 Partnership retained the real estate used
in the retail businesses and leased those properties to FFP Marketing.
The notes to the audited consolidated financial statements that are
included in the Partnership's Annual Report on Form 10-K for the year ended
December 31, 2001, contain 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 three months ended March 31, 2002, except as discussed below.
2. Net Income per Unit
A reconciliation of the denominator of the basic and diluted net income per
unit for general partner and limited partner units for the three months ended
March 31, 2002, and March 31, 2001, follows:
2002 2001
-------- -------
(In thousands)
Weighted average number of units outstanding 2,272 2,272
Effect of dilutive options 5 1
--------- -------
Weighted average number of units outstanding
assuming dilution 2,277 2,273
========= =======
Options to purchase 262,999 units were not included in the computation of
diluted net income per unit for the three months ended March 31, 2002 and March
31, 2001. Such options could potentially dilute basic income per unit in the
future.
3. Investments in Marketable Securities
The Partnership classifies all of its marketable securities as
"available-for-sale" securities. FASB No. 115, "Accounting for Certain
Investments in Debt and Equity Securities", provides that net unrealized gains
and losses from available-for-sale securities are included in the calculation of
"comprehensive net income" in the equity accounts of a company, instead of in
earnings. Dividend and interest income from available-for-sale securities,
including the amortization of any premium and discount arising at acquisition,
are also included in earnings.
Interest income from available-for-sale securities, the accretion of
discount arising at acquisition and net of margin interest expense, and realized
gains and losses from the sale of available-for-sale securities were included in
net income in the first quarters of 2002 and 2001, respectively, in the
following amounts:
2002 2001
-------- -------
(In thousands)
Interest income from marketable securities $46 $44
Discount from marketable securities 46 29
Loss from sale of marketable securities (15) 0
--------- -------
Totals $77 $73
========= =======
3. Comprehensive Net Income
The components of comprehensive net income for the first quarters of 2002
and 2001 are set forth below:
2002 2001
-------- -------
(In thousands)
Net income $52 $ 83
Unrealized net gains on available-for-sale securities 145 14
-------- -------
Comprehensive income $197 $ 97
======== =======
4. Real Estate Partnership Investment
The Partnership owns a 50% limited partnership interest in Brookside Villas,
Ltd. ("Brookside Villas"), a Texas limited partnership formed in December 2001
to purchase approximately five acres of land in Austin, Texas and then to build
and to sell 35 single-family condominium homes on said land. Brookside Villas
purchased the land in December 2001 from a third party for $1,225,000 with a
down payment of $300,000 and seller financing in the amount of $925,000. The
financing is payable with eight monthly principal only installments of $50,000,
lot release payments of principal only of $35,000 for each lot when a sale is
closed, and a maturity date in September 2002 for all remaining principal and
accrued interest at 8% per annum. The financing is secured by a deed of trust
lien on the property.
Brookside Villas had no income and minimal expenses in the three months
ended March 31, 2002 and was not organized during the three months ended March
31, 2001. The unaudited condensed balance sheets of Brookside Villas at March
31, 2002 and December 31, 2001, and the unaudited statements of operations of
Brookside Villas for the three months ended March 31, 2002, and March 31, 2001
are as follows:
Brookside Villas, Ltd.
Condensed Balance Sheets
March 31, 2002 and December 31, 2001
(Unaudited)
2002 2001
-------- -------
(In thousands)
Assets
Current assets-
Cash and cash equivalents $112 $0
Due from general partner 36 0
Construction-in-progress 279 0
Land 1,225 1,225
-------- -------
Total current assets 1,652 1,225
Model home furniture 6 0
Start-up costs, net of amortization 17 0
-------- -------
Total assets $1,675 $1,225
======== =======
Liabilities and Capital
Current liabilities-
Accounts payable $100 $0
Notes payable to limited partners 543 0
Upgrade deposits 9 0
Land note payable 793 925
-------- -------
Total current liabilities 1,445 925
-------- -------
Partners' capital 230 283
-------- -------
Total liabilities and $1,675 $1,225
======== =======
Brookside Villas, Ltd.
Condensed Statements of Operations
For the three months ended March 31, 2002 and March 31, 2001
(Unaudited)
2002 2001
-------- -------
(In thousands)
Revenues $0 $0
Expenses
General, administrative and marketing expenses 53 0
-------- -------
Total expenses 53 0
-------- -------
Net loss $(53) $0
======== =======
FFP PARTNERS, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
FFP Partners, L.P. (the "Partnership") restructured its operations in
December 1997 by transferring its convenience store, retail motor fuel, and
other businesses to FFP Marketing Company, Inc. ("FFP Marketing"). In the
restructuring, the Partnership retained the real estate formerly used in the
retail businesses and now leases those properties to FFP Marketing.
All of the Partnership's rental income is derived from the various
convenience store and other retail outlets that it leases to FFP Marketing on a
"triple net" basis. Under those leases, FFP Marketing as tenant, instead of the
Partnership as landlord, bears all taxes, insurance, operating costs, and
capital costs for the properties. The leases also provide for increased rent
payments after each five-year period during the term of the leases in accordance
with any increase in the consumers price index.
On December 17, 2001, FFP Properties acquired a 50% limited partnership
interest in Brookside Villas, Ltd. Villas ("Brookside Villas"), a newly formed
Texas real estate limited partnership. Brookside Villas was formed to purchase
35 developed lots on approximately five acres in Austin, Texas and to build and
sell single-family homes on those lots. The sole general partner of Brookside
Villas is Admiral Construction, Inc., a Texas corporation owned by T. David
Young, an experienced homebuilder in Austin, Texas.
At March 31, 2002, the Partnership intends to acquire limited partnership
interests in other partnerships to be formed with Admiral Construction, Inc. to
develop and build single-family homes in Austin, Texas with a structure and
purpose similar to Brookside Villas. The Partnership may also acquire additional
rental properties in the future but has no present plans to do so. Those
properties may be leased to FFP Marketing or to others, although no assurance
exists that additional properties will be acquired. Future leases may or may not
be on a "triple-net" basis.
Results of Operations for First Quarter of 2002
Compared with First Quarter of 2001
- -----------------------------------
Partnership net income was $52,000 in the first quarter of 2002, compared
to net income of $83,000 in the first quarter of 2001. The $31,000 decrease
(37%) was primarily attributable to a non-recurring gain on the sale of property
of $52,000 in the first quarter of 2001, a non-recurring loss on the sale of
marketable securities of $15,000 in the first quarter of 2002, and a loss from
the Partnership's investment in Brookside Villas real estate partnership. These
items were offset in part by a decrease in general and administrative expense of
$37,000.
Comprehensive net income was $197,000 in the first quarter of 2002, a
$100,000 increase (103%), over comprehensive net income of $97,000 in the first
quarter of 2001. Comprehensive net income in the first quarter of 2002 included
net income of $52,000 and an unrealized net gain on marketable securities of
$145,000. Comprehensive net income in the first quarter of 2001 of $97,000
included net income of $83,000 and an unrealized net gain on marketable
securities of $14,000.
Rental income in the first quarter of 2002 was $733,000, a $2,000 increase
(0%) compared to rental income of $731,000 in the first quarter of 2001.
Interest and other income of $304,000 in the first quarter of 2002
represented a decrease of $2,000 (1%) compared to interest and other income of
$306,000 in the first quarter of 2001. Components of interest and other income
in the first quarters of 2002 and 2001 is set forth in the following table:
2002 2001
-------- -------
(in thousands)
Interest income from direct financing leases $195 $199
Interest income from affiliate 16 33
Interest income from bond investments 46 44
Interest income on notes receivable 1 1
Bond discount income 46 29
-------- -------
Total interest income $304 $306
======== =======
General and administrative expense for first quarter of 2002 was $89,000, a
decrease of $37,000 (29%) compared to general and administrative expense in the
same quarter in 2001 of $126,000. This decrease resulted primarily from a
reduction in accounting and professional fees.
Interest expense decreased to $511,000 in the first quarter of 2002,
compared to $520,000 in the first quarter of 2001, a $9,000 (2%) decrease. This
reduction in interest expense was due to an overall reduction in company debt.
At March 31, 2002, Brookside Villas had started construction on seven
houses and had obtained sales contracts on four houses. Sales prices on those
contracts ranged from $160,000 to $190,000. Five of those sales are currently
scheduled to close in June 2002, with one in each of July and August 2002. In
the first quarter of 2001, the Partnership had made no such real estate
investments.
Comparison to REIT's
- --------------------
The Partnership 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 Partnership's operating
performance, or to cash flow from operating activities determined in accordance
with GAAP as a measure of either liquidity or the Partnership's ability to make
distributions or to fund its other operations.
The following table shows the Partnership's FFO for the three-month periods
ended March 31, 2002 and 2001:
2002 2001
-------- -------
(In thousands,
except per unit data)
Income before minority interests $87 $138
Adjustments -
Gain from sale of property 0 (52)
Depreciation and amortization 309 305
-------- -------
Funds from operations 396 391
Less - FFO attributable to 40% minority
interests in subsidiary (158) (156)
-------- -------
FFO for the Partnership $238 $235
======== =======
FFO per unit (based on units outstanding for diluted
income calculations) $0.10 $0.10
======== =======
Although the Partnership has generated positive FFO, it has not made
distributions to unitholders because substantially all of the positive cash flow
generated by the Partnership's operations have been utilized to make debt
payments to build equity in its properties and build reserves to make
investments in real estate partnerships, such as Brookside Villas. The
Partnership may make additional limited partnership investments in other
residential or commercial real estate projects in Austin, Texas with Admiral
Construction, Inc. or in other locales or with other parties, but no assurance
can be given that such investments will be made or be profitable.
The terms of Partnership long-term indebtedness provide that the
Partnership shall limit distributions to its partners such that, after making
any distribution, (a) the Fixed Charge Coverage Ratio for each of the 63 pledged
properties securing that loan (summarized below) shall not be less than 1.30 to
1.00, and (b) the Fixed Charge Coverage Ratio for the Partnership (summarized
below) shall not be less than 1.35 to 1.00. In general, the Fixed Charge
Coverage Ratio during any period for a pledged store equals the cash flow
(pre-tax income before minority interest, plus depreciation and interest
expense) of that store for that period, divided by the amount of debt payments
for that store for that period, and the Fixed Charge Coverage Ratio during a
period equals the cash flow (pre-tax income before minority interest, plus
depreciation and interest expense) of the Partnership for that period, divided
by the amount of debt payments of the Partnership for that period. Each Fixed
Charge Coverage Ratio is calculated for the 12-month period ending each December
31. Management has not yet determined if any Partnership distributions will be
made to the Partnership's unitholders in the future.
Liquidity and Capital Resources
- -------------------------------
The Partnership established its own bank account in December 2001. The
balance of that bank account was $50,000 and $1,310,000 at December 31, 2001,
and March 31, 2002, respectively. The increase in the account was primarily due
to the repayment of an obligation of FFP Marketing to the Partnership in the
first quarter of 2002. On December 31, 2001, FFP Marketing owed $1,671,000 to
the Partnership and repaid that debt in the first quarter of 2002. At March 31,
2002, the Partnership owed $28,000 to FFP Marketing.
The Partnership contracts with FFP Marketing to provide cash management
services on behalf of the Partnership. All of the Partnership's rental income is
received, and all of its operating disbursements are made, by FFP Marketing on
behalf of the Partnership, with the appropriate records being made to account
for amounts owed by the Partnership to FFP Marketing, or visa versa. Such
obligations between the companies bear interest at the prime rate.
Partnership revenues are subject to the receipt of rent payments from FFP
Marketing, its only tenant, and a failure of that tenant to pay rent to the
Partnership would most likely jeopardize the Partnership's ability to meet its
obligations. Although management currently believes that FFP Marketing will pay
its rent obligations to the Partnership, no assurance can be given that such
tenant will make its rent payments to the Partnership. Assuming that FFP
Marketing is timely in its rent payments and that no additional properties are
acquired or sold, based upon executed real estate leases with FFP Marketing, the
Partnership currently projects that it will have a positive cash flow of
approximately $30,000 per month in 2002. Such projection is calculated after
reduction for the 40% minority interest of the Harvison Family but prior to
making any additional capital contributions to, or receiving any cash
distributions from, Brookside Villas or any other real estate partnership
investment. As a result of its forecast of its projected increased in liquidity
in 2002 and projected positive cash flow, and assuming that accuracy of the
assumptions on which such forecast was based, management believes that the
Partnership will be able to meet its obligations and to fund any additional
capital contributions to Brookside Villas, which are discretionary.
The increase in the Partnership's cash balances in 2002 resulting from the
repayment of indebtedness by FFP Marketing will cause management to more
critically assess its cash flow requirements as it begins to participate in home
building projects such as Brookside Villas. Although management believes that it
will be able to make such decisions properly, no assurance can be given that all
such decisions will be properly made since those decisions will also be based
upon actions or non-actions of the general partner of Brookside Villas, over
which the Partnership has influence but no control.
All of the Partnership's real estate leases are "triple net" leases,
providing for the tenant (FFP Marketing), and not the landlord (the
Partnership), to pay all real estate taxes, insurance, operating and capital
costs for the properties. Therefore, the Partnership does not have any material
commitments for capital expenditures on those properties.
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 Partnership 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 Partnership 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," "projects," "in the opinion of management," "expects," "believes,"
and similar phrases.
Many factors could cause actual results to differ materially from the
forward-looking statements, including but not limited to the following: changes
in real estate conditions, including rental rates and the construction or
availability of competing properties; the financial strength, cash flow,
liquidity and other relevant business aspects of FFP Marketing, the primary
tenant of the Partnership's properties; changes in the industries in which FFP
Marketing competes; changes in general economic conditions; the ability of
management to identify acquisition and investment opportunities meeting the
Partnership's investment objectives; the timely leasing of unoccupied
properties; timely re-leasing of currently occupied properties upon expiration
of the current leases or the default of the current tenant; the Partnership's
ability to generate funds sufficient to meet its debt service payments and other
operating expenses; the inability of the Partnership to control the management
and operation of its tenant and the businesses conducted on the Partnership's
properties; financing risks, including the availability of funds to service or
refinance existing debt and to finance acquisitions of additional property, the
existence of complex tax regulations relating to the Partnership's status as a
publicly traded partnership and, if achieved, to its status as a real estate
investment trust and the adverse consequences of the failure to qualify as such;
the inability of Brookside Villas to sell its real properties at a profit; and
other risks detailed from time to time in the Partnership'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
Partnership 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.
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.
EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
- --------
None.
Reports on Form 8-K
- -------------------
The Partnership 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
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: May 20, 2002 By: /s/ Craig T. Scott
----------------------------
Craig T. Scott
Vice President - Finance,
Chief Financial Officer and
General Counsel