UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
- --------------------------------------------------------------------------------
FORM 10-Q
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|X| Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 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 August 14, 2002)
FFP PARTNERS, L.P. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 2002, AND DECEMBER 31, 2001
(In thousands)
(Unaudited)
June 30, December 31,
2002 2001
---------- ------------
ASSETS
Current assets -
Cash and cash equivalents $172 $50
Marketable securities 785 981
Receivable from affiliate 103 1,527
Investment in direct financing leases
to affiliate, current portion 53 53
Loans to real estate partnerships 1,086 0
------- -------
Total current assets 2,199 2,611
Real property -
Land and improvements 8,819 8,818
Buildings 21,286 21,286
------- -------
Total real property, excluding depreciation 30,105 30,104
Accumulated depreciation (14,527) (13,931)
------- -------
Total real property, net 15,578 16,173
Investment in direct financing leases
to affiliate, excluding current portion 3,693 3,729
Notes receivable 11 15
Investment in real estate partnerships 723 273
Loan costs and other assets, net 751 773
------- -------
Total assets $22,955 $23,574
======= =======
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities -
Current installments of long-term debt $682 $682
Margin debt on marketable securities 59 344
Accrued expenses 163 194
------- -------
Total current liabilities 904 1,220
Long-term debt, excluding current installments 19,175 19,509
------- -------
Total liabilities 20,079 20,729
Minority interests in subsidiary 1,307 1,247
Commitments and contingencies -- --
Partners' capital -
Limited partners' capital 1,911 1,821
General partner's capital 27 26
Accumulated other comprehensive loss (369) (249)
------- -------
Total partners' capital 1,569 1,598
------- -------
Total liabilities and partners' capital $22,955 $23,574
======= =======
See accompanying notes to Condensed Consolidated Financial Statements.
FFP PARTNERS, L.P., AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(In thousands, except per unit data)
(Unaudited)
Three Months Ended Six Months Ended
------------------- -----------------
June 30, June 30, June 30, June 30,
2002 2001 2002 2001
-------- -------- -------- --------
Revenues -
Rental income $705 $735 $1,438 $1,466
Interest and other income 268 320 572 626
Gain on sale of property 0 0 0 52
Loss from real estate
partnership investments (49) 0 (75) 0
Net gain on sale of
marketable securities 69 0 54 0
-------- -------- -------- --------
Total revenues 993 1,055 1,989 2,144
Expenses -
General and administrative expense 115 123 204 249
Depreciation and amortization 309 305 617 610
Interest expense 505 525 1,017 1,045
-------- -------- -------- --------
Total expenses 929 953 1,838 1,904
Net income before minority interest 64 102 151 240
Minority interest in subsidiary (26) (41) (60) (96)
-------- -------- -------- --------
Net income $38 $61 $91 $144
======== ======== ======== ========
Net income per unit -
Basic $0.02 $0.03 $0.04 $0.06
Diluted $0.02 $0.03 $0.04 $0.06
Weighted average number of units outstanding -
Basic 2,272 2,272 2,272 2,272
Diluted 2,273 2,274 2,275 2,273
See accompanying notes to Condensed Consolidated Financial Statements.
FFP PARTNERS, L.P. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2002, AND JUNE 30, 2001
(In thousands)
(Unaudited)
Six Months Ended
----------------------
June 30, June 30,
2002 2001
-------- --------
Cash Flows from Operating Activities -
Net income $91 $144
Adjustments to reconcile net income to cash
provided by operating activities -
Depreciation and amortization 617 610
Gain on sale of property 0 (52)
Gain on sale of marketable securities (54) 0
Accrued interest and discount (153) (107)
Minority interest in subsidiary 60 96
Net change in operating assets and liabilities (33) (1)
----- -----
Net cash provided by operating activities 528 690
Cash Flows from Investing Activities -
Advances from (to) affiliate 1,424 (440)
Reduction in direct financing leases 36 29
Net loss from real estate partnerships 75 0
Investment in real estate partnerships (525) 0
Loans to real estate partnerships (1,086) 0
Proceeds from sale of property 0 76
Purchase of available-for-sale securities 0 (51)
Principal payments received on notes receivable 4 7
Purchases of property, net 0 (7)
----- -----
Net cash used by investing activities (72) (386)
Cash Flows from Financing Activities -
Repayment of principal on long-term debt (334) (304)
----- -----
Net cash used by financing activities (334) (304)
Net increase in cash 122 0
Cash at beginning of period 50 0
----- -----
Cash at end of period $172 $0
===== =====
Supplemental Disclosure of Cash Flow Information:
- ------------------------------------------------
Cash paid for interest $1,017 $1,045
See accompanying notes to Condensed Consolidated Financial Statements.
FFP PARTNERS, L.P. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002
(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 Sheet as of June 30, 2002, and the
Condensed Consolidated Statements of Income 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 have
been made and consist only of normal, recurring adjustments necessary to fairly
present the Partnership's financial position as of June 30, 2002, and the
results of its operations and cash flows for each of the periods presented.
Interim operating results are not necessarily indicative of results for the
entire year.
In December 1997, the Partnership completed an organizational restructuring
in which it transferred all of its former operating businesses (convenience
stores, truck stops, money order business, wholesale fuel sales, et al.) to FFP
Marketing Company, Inc. ("FFP Marketing") and retained the improved real estate
used in the transferred retail businesses. At that time, the Partnership entered
into long-term real estate leases with FFP Marketing covering real properties
retained by the Partnership.
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, include a description of accounting policies and additional
information pertinent to an understanding of these interim financial statements.
That information has not changed other than as a result of normal transactions
in the six months ended June 30, 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 and six months
ended June 30, 2002, and June 30, 2001, follows:
Three Months Ended Six Months Ended
-------------------- --------------------
June 30, June 30, June 30, June 30,
2002 2001 2002 2001
------- ------- -------- --------
(In thousands)
Weighted average number of
units outstanding 2,272 2,272 2,272 2,272
Effect of dilutive options 1 2 3 1
------ ------ ------ ------
Weighted average number of
units outstanding assuming
dilution 2,273 2,274 2,275 2,273
====== ====== ====== ======
Options to purchase 312,999 and 262,999 units were not included in the
computation of diluted net income per unit for the three and six months ended
June 30, 2002, respectively, and options to purchase 312,999 units were not
included in the computation of diluted net income per unit for the three and six
months ended June 30, 2001, because to do so would have been anti-dilutive.
These options could potentially dilute basic net 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 and other income for the three and six months ended June 30, 2002
and June 30, 2001 is summarized as follows:
Three Months Ended Six Months Ended
-------------------- --------------------
June 30, June 30, June 30, June 30,
2002 2001 2002 2001
------- ------- -------- --------
(In thousands)
Interest income from
direct financing leases $194 $198 $390 $397
Interest income from
affiliate and bank 5 31 19 65
Interest income from
notes receivable 0 1 1 3
Interest income from
bond investments 35 54 81 97
Bond discount income 34 36 81 64
------ ------ ------ ------
Total interest and other income $268 $320 $572 $626
====== ====== ====== ======
4. Comprehensive Net Income (Loss)
-------------------------------
Comprehensive net income (loss) for the three and six months ended June 30,
2002 and June 30, 2001, was comprised of the following:
Three Months Ended Six Months Ended
-------------------- --------------------
June 30, June 30, June 30, June 30,
2002 2001 2002 2001
------- ------- -------- --------
(In thousands)
Net income $38 $61 $91 $144
Unrealized net gain (loss) on
available-for-sale securities (265) 21 (120) 36
------ ------ ------ ------
Comprehensive net income (loss) $(227) $82 $(29) $180
====== ====== ====== ======
5. Real Estate Partnership Investments
-----------------------------------
Brookside Villas.
----------------
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 detached, single-family condominium homes on that
land. The land had already been developed into a gated, garden-home condominium
community with streets, pond and utilities when purchased by Brookside Villas.
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 original
principal amount of $925,000.
At June 30, 2002, Brookside Villas had entered into contracts to sell, but
not yet closed, nine houses. Four of those sales subsequently closed in July
2002, and the other five contracts are scheduled to close in August 2002. The
Partnership's share of profits from those closings will be reported in the third
quarter of 2002. In addition, a tenth house was under construction at June 30,
2002, was subsequently completed, and is now being used as a model home.
The land acquisition financing is payable with eight monthly principal only
installments of $50,000. In addition, lot release payments of principal only in
the amount of $35,000 are payable for each lot when a bank construction loan is
obtained or a sale is closed. The land loan has a maturity date in September
2002 for all then unpaid principal plus accrued interest at 8% per annum, and
the Brookside Villas anticipates refinancing the loan at that time. The
financing is secured by a deed of trust lien on the lots. The principal balance
of such land debt of Brookside Villas on June 30, 2002 was $555,000.
In addition to the land loan, Brookside Villas was obligated on June 30,
2002 to banks in the amount of $409,000 under construction financing for five
houses in the project and to the Partnership in the amount of $827,000 under
construction financing for five houses in the project. The construction
financing payable to banks for four houses was subsequently repaid with funds
provided from closings in July 2002. The remaining construction financing
currently payable to banks and to the Partnership is to be repaid from sales
proceeds provided by closings scheduled for August 2002.
Brookside Villas had no income and minimal expenses in the three and six
months ended June 30, 2002 and was not organized during the three and six months
ended June 30, 2001. The unaudited condensed balance sheets of Brookside Villas
at June 30, 2002 and December 31, 2001, and the unaudited statements of
operations of Brookside Villas for the three and six months ended June 30, 2002,
and June 30, 2001 are as follows:
Brookside Villas, Ltd.
Condensed Balance Sheets
June 30, 2002 and December 31, 2001
(Unaudited)
June 30, December 31,
2002 2001
---------- -----------
(in thousands)
Assets
Current assets-
Due from general partner $148 $0
Construction-in-progress 815 0
Land 1,225 1,225
------ ------
Total current assets 2,188 1,225
Other assets 22 0
------ ------
Total assets $2,210 $1,225
====== ======
Liabilities and Capital
Current liabilities-
Accounts payable $115 $0
Notes payable to limited partners 827 0
Construction loans 409 0
Land note payable 555 925
Other liabilities 54 0
------ ------
Total current liabilities 1,960 925
Partners' capital 250 300
------ ------
Total liabilities and capital $2,210 $1,225
====== ======
Brookside Villas, Ltd.
Condensed Statements of Operations
For the three and six months ended June 30, 2002 and June 30, 2001
(Unaudited)
Three Months Ended Six Months Ended
------------------ ----------------
June 30, June 30, June 30, June 30,
2002 2001 2002 2001
-------- -------- -------- -------
(in thousands)
Revenues $0 $0 $0 $0
Expenses -
General, administrative and
marketing expenses 49 0 150 0
---- --- --- ---
Total expenses 49 0 150 0
---- --- --- ---
Net loss $(49) $0 $(150) $0
===== ==== ===== ====
Cannon Ridge.
------------
The Partnership owns a 50% limited partnership interest in Cannon Ridge,
Ltd. ("Cannon Ridge"), a Texas limited partnership formed in 2002 to purchase
approximately 4.1 acres of land in Austin, Texas, to develop that land into a
gated, garden home condominium community with streets, pond and utilities, and
then to build and to sell 32 single-family detached condominium homes on the
land. Cannon Ridge purchased the land from a third party for $460,000 for cash
in June 2002.
Cannon Ridge had no income and minimal expenses in the three and six months
ended June 30, 2002 and was not organized during the three and six months ended
June 30, 2001. The unaudited condensed balance sheets of Cannon Ridge at June
30, 2002 and December 31, 2001, and the unaudited statements of operations of
Cannon Ridge for the three and six months ended June 30, 2002, and June 30, 2001
are as follows:
Cannon Ridge, Ltd.
Condensed Balance Sheets
June 30, 2002 and December 31, 2001
(Unaudited)
June 30, December 31,
2002 2001
---------- -----------
(in thousands)
Assets
Undeveloped land $606 $0
------ ------
Total assets $606 $0
====== ======
Liabilities and Capital
Loan from limited partners $146 $0
------ ------
Total liabilities 146 0
Partners' capital 460 0
------ ------
Total liabilities and capital $606 $0
====== ======
Cannon Ridge, Ltd.
Condensed Statements of Operations
For the three and six months ended June 30, 2002 and June 30, 2001
(Unaudited)
Three Months Ended Six Months Ended
------------------ ----------------
June 30, June 30, June 30, June 30,
2002 2001 2002 2001
-------- -------- -------- -------
(in thousands)
Revenues $0 $0 $0 $0
Expenses 0 0 0 0
---- --- --- ---
Net income or loss $0 $0 $0 $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 all of its former operating businesses
(convenience stores, truck stops, money order business, wholesale fuel sales, et
al.) to FFP Marketing Company, Inc. ("FFP Marketing"). In the restructuring, the
Partnership retained the real estate formerly used in its retail businesses and
now leases those properties to FFP Marketing under long-term leases.
Substantially 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.
The Partnership may acquire or sell real estate properties in the future.
Acquired 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 and may or may not be convenience store
properties.
In December 2001 the Partnership began to invest in residential real estate
development in Austin, Texas through limited partnerships and intends to
continue that activity. At June 30, 2002, the Partnership had acquired a 50%
limited partnership interest in its initial real estate partnership, called
Brookside Villas, that was actively involved in building single-family houses on
a 35-lot parcel in Austin, Texas. In addition, the Partnership had acquired a
50% limited partnership interest in its second real estate partnership, called
Cannon Ridge, that had just started the development of land purchased for
building single-family houses on a 32-lot parcel in Austin, Texas. The
Partnership intends to make similar limited partnership investments in the
future, subject to obtaining satisfactory terms with a similar profit potential.
Although the Partnership anticipates that such activities will be profitable,
such activities are subject to material uncertainties and no profits are
assured.
Results of Operations
- ---------------------
Rental income of $705,000 in the second quarter of 2002 represented a
decline of 4%, or $30,000, compared to rent income of $735,000 in the second
quarter of 2001. In the first half of 2002, rent income of $1,438,000 showed a
2% decrease compared to rent income of $1,466,000 in the first half of 2001. The
slight decline in rent income resulted in both comparative periods as a
consequence of selling a few properties in the second half of 2001.
Interest and other income in the second quarter and first half of 2002 was
$268,000 and $572,000, respectively. These amounts reflected decreases of 16%
and 9%, respectively, compared to interest and other income in the corresponding
periods of 2001. The Partnership earned less interest income on advances to an
affiliate because those advances were repaid in 2002.
Gain on sale of properties decreased by 100% in the first half of 2002,
compared to the first half of 2001, as no property sales were made in the first
half of 2002. The sales in 2001 were unsolicited.
Loss from real estate partnership investments reflects the Partnership's
allocable share of net losses from its real estate partnership investments. Such
amounts were $49,000 and $75,000 in the second quarter and first half of 2002,
respectively, being a 100% change compared to the prior year. The Partnership
did not own any real estate partnership investments in the first half of 2001.
Those partnerships are involved in the construction, marketing and sale of
single-family houses. Nine house sales by the Brookside Villas partnership are
scheduled to close in the third quarter of 2002.
Net gain on sales of marketable securities was $69,000 and $54,000 in the
second quarter and first half of 2002, respectively, reflecting a 100% increase
compared to comparable periods of 2001, when no gains or losses were incurred.
General and administrative expense in the second quarter of 2002 was
$115,000, a 7% decrease compared to general and administrative expense of
$123,000 in the second quarter of 2001. General and administrative expense in
the first half of 2002 was $204,000, an 18% decrease compared to general and
administrative expense of $249,000 in the first half of 2001. The primary reason
for this improvement was a reduction in accounting fees.
Interest expense in the second quarter of 2002 was $505,000, compared to
$525,000 in the second quarter of 2001, a 4% decrease. Likewise, interest
expense fell to $1,017,000 in the first half of 2002, compared to $1,045,000 for
the first half of the prior year, a 3% decrease. Interest expense decreased
principally because of an overall reduction in debt.
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 presents the
determination of FFO for the Partnership for the three and six months ended June
30, 2002 and 2001:
Three Months Ended Six Months Ended
------------------ ----------------
June 30, June 30, June 30, June 30,
2002 2001 2002 2001
-------- -------- -------- -------
(in thousands, except per unit data)
Net income before minority interests $64 $102 $151 $240
Adjustments -
(Gain) on sale of property 0 0 0 (52)
(Gain) on sale of marketable securities (69) 0 (54) 0
Depreciation and amortization 309 305 617 610
-------- -------- -------- -------
Funds from operations ("FFO") 304 407 714 798
Less - FFO attributable to 40% minority
interests in subsidiary 122 163 286 319
-------- -------- -------- -------
FFO attributable to the Partnership $182 $244 $428 $479
======== ======== ======== =======
FFO per unit (based on units
outstanding for diluted net income
per unit calculations) $0.08 $0.11 $0.19 $0.21
======== ======== ======== =======
Although the Partnership has generated positive FFO, it has not made
distributions to unitholders because substantially all cash generated from the
Partnership's operations has been utilized to make debt payments to build equity
in its properties, invest in marketable securities, and invest in real estate
partnerships.
The terms of the Partnership's long-term financing provide that the
Partnership shall limit distributions to its partners such that, after making
any such distribution: (a) the Fixed Charge Coverage Ratio for each of the 63
pledged properties secured by 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 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. Likewise, 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, or how much of, any Partnership
distributions will be made to the Partnership's unitholders.
Liquidity and Capital Resources
- -------------------------------
The Partnership established its own bank account in December 2001. The
balance of that bank account was $172,000 and $50,000 at June 30, 2002 and
December 31, 2001, respectively. The increase in the account was primarily due
to the operating cash flow of the Partnership in the first half 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. The Partnership has utilized such
proceeds to invest in real estate partnerships.
The Partnership contracts with FFP Marketing to provide certain cash
management services on behalf of the Partnership. FFP Marketing is the tenant at
all of the Partnership's rental properties, and FFP Marketing makes all
operating disbursements on behalf of the Partnership. Appropriate records are
maintained to account for amounts owed by the Partnership to FFP Marketing, and
visa versa. Such obligations between the companies bear interest at an agreed
market rate.
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.
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
continue to 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 or loans 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 or loans to Brookside Villas, which are discretionary.
The Partnership's involvement in its real estate partnership investments
causes management to more critically assess its cash flow requirements as it
begins to participate in home building projects such as Brookside Villas and
Cannon Ridge. Furthermore, the Partnership's success with respect to its limited
partnership investments in real estate partnerships will be dependent on the
general partner of those entities. The Partnership believes that the general
partner of those real estate partnerships will be able to manage the cash flow
requirements properly, but no assurance can be given that all necessary
management decisions will be properly made. The Partnership will have certain
influence, but no control, over the action and non-actions of the general
partner of those partnerships.
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 the real estate partnerships in which the Partnership makes
investments to develop and sell its real properties at a profit; the ability of
the general partner of the real estate partnerships in which the Partnership
makes investments to project accurately and to satisfy the liquidity needs of
those projects; 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.
OTHER INFORMATION
Unsolicited Offer
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On July 29, 2002, the Partnership received an unsolicited offer from Sutter
Holding Company, Inc. (OTC BB: "SRHI") to enter into an agreement to exchange
shares of Sutter Holding Company for all of the limited partnership units of the
Partnership at a value of $2.00 per unit. The proposal was contingent on several
conditions and was to expire on August 2, 2002. The board of trustees of the
general partner of the Partnership analyzed the offer and determined not pursue
the proposal.
Legal Proceedings
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A case styled Richard Snyder v. FFP Partners, L.P., et al. was filed in the
Chancery Court of the State of Delaware in Kent County on July 12, 2002 for the
purpose of obtaining access to the books and records of the Partnership.
Plaintiff also made several allegations and a claim for monetary damages in the
petition but did not state any factual grounds to support the allegations.
Management believes that all of the allegations are false. The Partnership will
vigorously contest all allegations in this matter and believes the case will
ultimately be dismissed. However, the outcome of any lawsuit cannot be predicted
with absolute certainty. The Partnership will be required to expend Partnership
funds to defend the case, which could potentially cause a material reduction in
any future profitability of the Partnership. No adjustments have been reflected
in the accompanying financial statements regarding this matter.
EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
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Ex. 99.1 Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
Reports on Form 8-K
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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: August 14, 2002 By: /s/ John H. Harvison
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John H. Harvison
President and Chief Executive Officer
Date: August 14, 2002 By: /s/ Craig T. Scott
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Craig T. Scott
Vice President - Finance,
Chief Financial Officer and
General Counsel