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 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. 1-13727
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 14, 2002)
FFP MARKETING COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except number of shares)
(Unaudited)
June 30, December 30,
2002 2001
--------- ------------
ASSETS
Current assets -
Cash and cash equivalents $8,187 $8,406
Marketable securities 4,227 5,203
Trade receivables 20,810 15,763
Inventories 23,349 20,742
Notes receivable, current portion 2,174 2,156
Receivables from affiliates, current portion 0 722
Deferred income taxes 898 898
Prepaid expenses and other current assets 1,376 1,147
-------- --------
Total current assets 61,021 55,037
Property and equipment, net 33,924 35,906
Notes receivable, excluding current portion 4,415 4,330
Other assets, net 7,292 8,734
-------- --------
Total assets $106,652 $104,007
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities -
Current installments of long-term debt $11,835 $7,577
Current installments of capital
lease obligations 184 299
Accounts payable 17,093 14,769
Money orders payable 16,433 16,894
Advances from affiliates 103 1,527
Accrued expenses and other current liabilities 13,564 13,655
-------- --------
Total current liabilities 59,212 54,721
Long-term debt, excluding current installments 26,668 27,461
Capital lease obligations, excluding
current installments 3,677 3,742
Deferred income taxes 898 898
Other liabilities 2,555 2,571
-------- --------
Total liabilities 93,010 89,393
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 (7,548) (6,819)
Accumulated other comprehensive loss (1,045) (802)
-------- --------
Total stockholders' equity 13,642 14,614
-------- --------
Total liabilities and stockholders' equity $106,652 $104,007
======== ========
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
----------------------- --------------------
June 30, July 1, June 30, July 1,
2002 2001 2002 2001
(As restated- (As restated-
see Note 6) see Note 6)
---------- ------------ -------- -----------
Revenues -
Motor fuel $123,568 $153,410 $225,347 $284,179
Merchandise 27,618 26,292 50,903 50,321
Miscellaneous 3,944 3,609 7,625 7,104
-------- -------- -------- --------
Total revenues 155,130 183,311 283,875 341,604
Costs and expenses -
Cost of motor fuel 116,503 144,091 212,647 270,003
Cost of merchandise 20,085 18,264 36,600 35,551
Direct store expenses 10,301 11,316 20,807 23,217
General and administrative
expenses 4,755 4,136 9,179 8,488
Depreciation and amortization 1,941 1,896 3,878 3,730
-------- -------- -------- --------
Total costs and expenses 153,585 179,703 283,111 340,989
-------- -------- -------- --------
Operating income 1,545 3,608 764 615
Interest income 173 317 680 588
Interest expense 951 1,189 2,173 2,323
-------- -------- -------- --------
Income (loss) before income taxes 767 2,736 (729) (1,120)
Deferred income tax expense (benefit) 0 930 0 (381)
-------- -------- -------- --------
Net income (loss) $767 $1,806 $(729) $(739)
======== ======== ======== ========
Net income (loss) per share -
Basic $0.20 $0.47 $(0.19) $(0.19)
Diluted $0.20 $0.47 $(0.19) $(0.19)
Weighted average number of common
shares outstanding -
Basic 3,819 3,819 3,819 3,819
Diluted 3,819 3,822 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
-------------------------
June 30, July 1,
2002 2001
(As Restated
- See Note 6)
--------- -------------
Cash Flows from Operating Activities -
Net loss $(729) $(739)
Adjustments to reconcile net loss to
net cash used by operating activities -
Depreciation and amortization 3,878 3,730
Provision for doubtful accounts 150 307
Deferred income tax benefit 0 (247)
Gain on sale of properties (488) (1,039)
Change in stocks and bonds (1,177) (733)
Net change in operating assets and liabilities (5,722) (2,875)
-------- ---------
Net cash used in operating activities (4,088) (1,596)
-------- ---------
Cash Flows from Investing Activities -
Repayments of advances to affiliate 700 54
Net proceeds from sale of securities 1,789 0
Additions of property and equipment, net (1,087) (1,638)
Increase in notes receivable 606 477
-------- ---------
Net cash provided by (used in) investing activities 2,008 (1,107)
-------- ---------
Cash Flows from Financing Activities -
Advances from (payments to) affiliate (1,424) 439
Net borrowings (payments) on debt and
capital leases 3,285 (370)
-------- ---------
Net cash provided by financing activities 1,861 69
-------- ---------
Net decrease in cash and cash equivalents (219) (2,634)
Cash and cash equivalents at beginning of period 8,406 14,572
-------- ---------
Cash and cash equivalents at end of period $8,187 $11,938
======== =========
Supplemental Disclosure of Cash Flow Information:
- ------------------------------------------------
Cash paid for interest $2,173 $2,323
======== =========
See accompanying Notes to Condensed Consolidated Financial Statements.
FFP MARKETING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002
(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, Direct Fuels
Management Company, Inc., and Nu-Way Beverage Company. These companies are
collectively referred to as the "Company."
The condensed consolidated balance sheet as of June 30, 2002, 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
June 30, 2002, 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
30, 2001, 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
June 30, 2002, and as discussed below.
2. Net 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 period. Diluted net
income (loss) per share is net income divided by the weighted average number of
common shares outstanding for the period plus potentially dilutive common
shares. Outstanding options to acquire 303,667 common shares were excluded from
the diluted computation for each of the three-month and six-month periods ended
June 30, 2002, respectively, and 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, 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 June 30, 2002 and July 1, 2001:
Three Months Ended Six Months Ended
------------------ ----------------
June 30, July 1, June 30, July 1,
2002 2001 2002 2001
-------- ------- --------- -------
(In thousands)
Weighted average number
of common shares outstanding 3,819 3,819 3,819 3,819
Effect of dilutive options 0 3 0 0
----- ----- ----- -----
Weighted average number of
common shares outstanding,
assuming dilution 3,819 3,822 3,819 3,819
===== ===== ===== =====
3. Operating Segments
------------------
The Company and its subsidiaries are principally engaged in two operating
segments: (i) the retail sale of motor fuel, merchandise and other ancillary
products and services at convenience stores, truck stops, and other gasoline
outlets ("Retail Operations"), and (ii) the wholesale sale of motor fuel and the
operation of a motor fuel terminal and processing facility ("Wholesale and
Terminal Operations"). For the second quarter and first half of 2001, the
Company identified its wholesale operations in the same segment with its retail
operations, but realigned the wholesale operations in 2001 to be in the same
segment with its terminal operations since both of those operations sell motor
fuel to wholesale customers. The Company identifies 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 second
quarter and first half of 2002 and 2001 (with the results for the second quarter
and first half of 2001 being restated as described in Note 6 of the Condensed
Consolidated Financial Statements):
Wholesale
Retail and Terminal Elimin- Consoli-
Operations Operations ations dated
---------- ----------- ------ --------
(In thousands)
First Half of 2002
- ------------------
Revenues from external sources $183,641 $100,234 $0 $283,875
Revenues from other segment 0 19,129 (19,129) 0
Depreciation and amortization 3,297 581 0 3,878
Income (loss) before income taxes (2,119) 1,390 0 (729)
First Half of 2001
(as restated-see Note 6)
- ------------------------
Revenues from external sources $222,153 $119,451 $0 341,604
Revenues from other segment 0 18,515 (18,515) 0
Depreciation and amortization 3,373 357 0 3,730
Income (loss) before income taxes (3,886) 2,766 0 (1,120)
Second Quarter of 2002
- ----------------------
Revenues from external sources $98,373 $56,757 $0 $155,130
Revenues from other segment 0 10,042 (10,042) 0
Depreciation and amortization 1,652 289 0 1,941
Income before income taxes 413 354 0 767
Second Quarter of 2001
(as restated-see Note 6)
- ------------------------
Revenues from external sources $118,055 $65,256 $0 $183,311
Revenues from other segment 0 10,536 (10,536) 0
Depreciation and amortization 1,716 180 0 1,896
Income (loss) before income taxes (324) 3,060 0 2,736
4. Comprehensive Net Income (Loss)
-------------------------------
The components of comprehensive net income (loss) for the three and six
month periods ended June 30, 2002 and July 1, 2001 (as restated), are set forth
below:
Three Months Ended Six Months Ended
------------------ ----------------
June 30, July 1, June 30, July 1,
2002 2001 2002 2001
-------- ------- --------- -------
(In thousands)
Net income (loss) $767 $1,806 $(729) $(739)
Unrealized net gains (losses)
on available-for-sale
securities, net of tax (344) (31) (243) 262
------ ------- ------ ------
Comprehensive net income (loss) $423 $1,775 $(972) $(477)
====== ======= ====== ======
5. Notes Payable
-------------
The monthly payments and the outstanding principal balances at June 30,
2002 and December 30, 2001, under the Company's notes payable are summarized in
the following table:
Outstanding Balances
---------------------
Monthly June 30, December 30,
Payments 2002 2001
--------- --------- -----------
(In thousands)
Type of Loan Purpose of Loan
- ---------------------- -----------------------------
Sewer financing Truck stop improvements $2 $20 $34
7 to 15 year financing 1998 refinancing of 44 stores 101 7,581 7,852
7 to 15-year financing 1999 purchase of 4 stores 13 804 841
15-year financing 1999 refinancing of bank debt 256 21,497 21,946
15-year financing Purchase of 3 stores 5 484 493
Bank line of credit Operations 0 8,117 3,872
---- ------- --------
Total notes payable $377 38,503 35,038
Less: current portion ==== (11,835) (7,577)
------- --------
Long-term notes payable $26,668 $27,461
======= ========
In June 1998 the Company obtained 44 loans in the original aggregate
principal amount of $9,420,000 secured by a lien against the Company's leasehold
improvements, equipment, and inventory at 44 specific convenience stores, truck
stops and gas-only outlets. 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. Although it did not maintain the
required fixed charge coverage ratio under these loans at June 30, 2002 and
December 30, 2001, the Company obtained a waiver of such non-compliance for all
44 loans. At June 30, 2002 and December 30, 2001, $7,581,000 and $7,852,000,
respectively, remained outstanding on the 44 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 four of the 11 stores with four
fully-amortizing mortgage loans in the aggregate original principal amount of
$1,012,000 secured by a lien against the Company's leasehold improvements,
equipment, and inventory at those four convenience stores. The loans provide for
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. Although it did
not maintain the required fixed charge coverage ratio under these loans at June
30, 2002 and December 30, 2001, the Company obtained a waiver of such
non-compliance for all but two of the loans. The Company classified the
remaining principal balances of $528,000 and $542,000 under those two loans as a
current liability on its consolidated balance sheets at June 30, 2002 and
December 30, 2001, respectively. At June 30, 2002 and December 30, 2001,
$804,000 and $841,000, respectively, remained outstanding on those four loans.
In June 1999 the Company refinanced a prior revolving credit facility and
term loan with the proceeds of fixed rate financing from a third party lender in
the form of 49 fully-amortizing loans in the original aggregate principal amount
of $23,800,000. These 49 loans provide for 180 equal, monthly payments, interest
payable 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. The loans are secured by a lien against the Company's leasehold
improvements, equipment, and inventory at 49 specific convenience stores, truck
stops and gas-only outlets. Although it did not maintain the required fixed
charge coverage ratio under these loans at June 30, 2002 and December 30, 2001,
the Company obtained a waiver of such non-compliance for 44 of the 49 loans.
Accordingly, the remaining principal balances of $1,705,000 and $1,722,000 under
those five other loans have been classified as a current liability on the
consolidated balance sheets at June 30, 2002 and December 30, 2001,
respectively. At June 30, 2002 and December 30, 2001, $21,497,000 and
$21,946,000, respectively, remained outstanding on those 49 loans.
In August 2001 the Company purchased three convenience store properties
that it previously operated under a lease. The Company financed its purchase
with a fully-amortizing mortgage loan in the original principal amount of
$500,000, payable over a 15-year term, with interest accrued and payable at a
fixed rate of 8% for the first five years but variable thereafter at prime plus
an index, and aggregate monthly payments of principal and interest of $5,000.
The Company's monthly loan payments equal its previous monthly rental payments
prior to the purchase. At June 30, 2002 and December 30, 2001, $484,000 and
$493,000 remained outstanding on the loan.
In November 2001 the Company closed a new revolving credit facility with a
third party lender providing for borrowings up to $20,000,000. The amount
available at any time under the new revolver is calculated with a borrowing base
of 85% of its eligible trade receivables plus 70% of the inventory at its
terminal facility. The new revolver replaced a prior revolving credit facility
that provided for borrowings up to $10,000,000. The revolving credit facility
bears interest at the lender's prime rate plus three-fourths of one percentage
point (5.5% at June 30, 2002), payable monthly, and matures in 2005. The new
loan is subject to a Loan and Security Agreement dated November 5, 2001 between
the lender and two subsidiaries of the Company, namely FFP Operating Partners,
L.P. and Direct Fuels, L.P. The agreement contains numerous, but customary,
covenants including, but not limited to, a financial covenant requiring Direct
Fuels, L.P. to maintain a specified minimum amount each quarter of earnings
before interest, taxes, depreciation and amortization. At June 30, 2002 and
December 30, 2001, the Company met the required fixed charge coverage ratio
under the loan agreement for the revolving credit facility. In the event of a
default under the loan, liens on certain assets of FFP Operating Partners, L.P.
also take effect. At June 30, 2002 and December 30, 2001, the Company was not in
compliance with the terms of its new revolver because it had not met the
required fixed charge coverage ratio under its loan documents with its other
lenders. The Company's borrowing base under its revolving credit facility was
$10,277,000 at June 30, 2002, compared to $5,473,000 at year end 2001. At June
30, 2002 and December 30, 2001, $8,116,000 and $3,872,000, respectively, were
outstanding under the revolving lines of credit and are classified as a current
liability on the consolidated balance sheets.
6. Restatement
-----------
In early 2002, the Company became aware of certain inadvertent bookkeeping
errors made in the accounting records of one of its subsidiaries. A subsequent
analysis determined a charge of $214,000 and $260,000, net of taxes, should be
made to the net income (loss) of the Company in the first and second quarters of
2001, respectively. The adjustment results from bookkeeping errors regarding
credit card accounts receivable and related fuel payables, and their resulting
effect on cost of motor fuel sold, and then the related effect on income tax
expense or benefits. For that reason, the Company's quarterly results for the
first two quarters of 2001 have been restated to correct those errors
attributable to those quarters, rather than the amounts previously reported for
the quarters. For further discussion of these matters, refer to the Company's
Form 10-K for the year ended December 30, 2001.
7. Recent Accounting Pronouncements
--------------------------------
Effective January 1, 2002, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 141, entitled "Business Combinations", SFAS
No. 142, entitled "Goodwill and Intangibles Assets", and SFAS No. 144, entitled
"Accounting for Impairment or Disposal of Long-Lived Assets".
SFAS No. 141 eliminated the pooling method of accounting for business
combinations initiated after June 30, 2001. SFAS No. 141 also addressed the
accounting for intangible assets and goodwill acquired in a business combination
completed after June 30, 2001. The implementation of SFAS No. 141 had no effect
on the Company's financial statements.
SFAS No. 142 revised the accounting for purchased goodwill and intangibles
assets. Under SFAS 142, goodwill and intangibles assets with indefinite lives
will no longer be amortized, will be tested for impairment annually and in the
event of an impairment indicator, and must be assigned to reporting units for
purposes of impairment testing and segment reporting.
The Company has historically amortized goodwill on the straight-line method
over 20 years. Beginning January 1, 2002, quarterly and annual goodwill
amortization is no longer recognized. The Company completed a transitional fair
value based impairment test of goodwill as of June 30, 2002, and no material
impairment losses were recognized.
Net carrying values of intangible assets at June 30, 2002 and December 30,
2001 were as follows:
June 30, December 30,
2002 2001
------ -----------
(in thousands)
Intangible assets subject to amortization -
Real estate leases from affiliated companies $267 $293
Real estate leases from non-affiliated companies 300 310
Deferred investment of convenience store improvements 1,466 1,587
Capitalized research and development costs 47 61
Loan costs 1,597 1,731
------ ------
Total 3,677 3,982
Intangible assets not subject to amortization -
Goodwill 453 453
------ ------
Total $4,130 $4,435
====== ======
Amortization expense related to intangible assets was $376,000 and $340,000
for the first half of 2002 and 2001, respectively. The aggregate estimated
amortization expense for intangible assets remaining as of June 30, 2002 is as
follows (in thousands):
Remainder of 2002 $260
2003 579
2004 543
2005 371
2006 317
2007 275
Thereafter 1,332
------
Total $3,677
======
Net income (loss) per share for the second quarter and first half of 2002
and 2001, adjusted to exclude goodwill amortization expense, was as follows:
Three Months Ended Six Months Ended
------------------ ----------------
June 30, July 1, June 30, July 1,
2002 2001 2002 2001
-------- ------- --------- -------
(In thousands)
Reported net income (loss) $767 $1,806 $(729) $(739)
Goodwill amortization 0 18 0 36
----- ------ ------ ------
Adjusted net income (loss) $767 $1,824 $(729) $(703)
===== ====== ====== ======
Basic net income (loss) per share -
Reported net income (loss) $0.20 $0.47 $(0.19) $(0.19)
Goodwill amortization 0.00 0.01 0.00 0.01
----- ------ ------ ------
Adjusted net income (loss) $0.20 $0.48 $(0.19) $(0.18)
===== ====== ====== ======
Diluted net income (loss) per share -
Reported net income (loss) $0.20 $0.47 $(0.19) $(0.19)
Goodwill amortization 0.00 0.01 0.00 0.01
----- ------ ------ ------
Adjusted net income (loss) $0.20 $0.48 $(0.19) $(0.18)
===== ====== ====== ======
SFAS No. 144 addressed financial accounting and reporting for the
impairment or disposal of long-lived assets. The implementation of this standard
did not have an effect on the Company's financial statements.
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 Name and Type Date Formed Principal Activity
- ------------------------------ ---------------- -------------------------
FFP Operating Partners, L.P. December 1986 Operation of convenience
Delaware limited partnership stores and other retail
outlets and ancillary
services
Direct Fuels, L.P. December 1988 Operation of fuel terminal
Texas limited partnership and wholesale fuel sales
FFP Financial Services, L.P. September 1990 Sale of money orders and
Delaware limited partnership other financial services
and supplies
Practical Tank Management, Inc. September 1993 Underground storage tank
Texas corporation monitoring
FFP Transportation, L.L.C. September 1994 Ownership of tank trailers
Texas limited liability company and other transportation
equipment
FFP Money Order Company, Inc. December 1996 Sale of money orders through
Nevada corporation agents
Nu-Way Beverage Company July 1985 Sale of alcoholic beverages
Texas corporation in Texas
The Company and its subsidiaries are principally engaged in two operating
segments: (i) the retail sale of motor fuel, merchandise and other products and
services at Company-operated convenience stores, truck stops, and gas-only
stores, and (ii) the wholesale sale of motor fuel and operation of a motor fuel
terminal and processing facility. (See Note 3 of Notes to Condensed Consolidated
Financial Statements.)
Results of Operations
- ---------------------
The Company earned $767,000 in the second quarter of 2002, compared to
earnings of $1,806,000 in the second quarter of 2001. The Company's net income
in the second quarter of 2002 showed significant improvement compared to its
previously announced net loss of $1,496,000 in the first quarter of 2002. The
primary factor for the decline in the second quarter of 2002, compared to the
same quarter of the prior year, was a reduction in gross margin from motor fuel
sales of $2,254,000, which was partially offset by additional miscellaneous
revenues of $335,000, reduced direct store expenses of $1,015,000, and a
decrease of $930,000 in income tax expense.
In the first half of 2002, the Company incurred a net loss of $729,000,
compared to a net loss of $739,000 in the first half of 2001. Primary factors
for the slight improvement were reduced direct store expenses of $2,410,000 and
additional miscellaneous revenues of $521,000, which offset a reduction in gross
margin from motor fuel sales of $1,476,000. In addition, the Company did not
record an income tax benefit in the first half of 2002, compared to an income
tax benefit of $381,000 in the first half of 2001.
As previously announced, the Company in early 2002 became aware of certain
inadvertent bookkeeping errors made in the accounting records of one of its
subsidiaries. A subsequent analysis was completed in late April 2002 and
determined that a charge of $214,000 and $260,000, net of income tax effect,
should be made to the net income or loss of the Company in the first and second
quarters of 2001, respectively. The adjustments resulted from bookkeeping errors
regarding credit card accounts receivable and related fuel payables, and their
resulting effect on cost of motor fuel sold, and then the related effect on
income tax expense or benefits. For that reason, the Company's results for the
three and six months ended July 1, 2001 have been restated to correctly state
the results for those periods, rather than the amounts previously reported for
those periods.
The Company continues to review its administrative, accounting and
operational policies, procedures and personnel relating to its recording and
reconciliation of credit card receivables, fuel receivables and payables, and
compliance with those policies and procedures, to identify potential areas where
improvements and increased efficiencies may be implemented. Improvements to
previous policies, procedures and personnel have been made, and will continue to
be implemented, as quickly as practicable.
Fuel Sales and Margins
----------------------
Second Quarter Year-to-Date
--------------------------------- ---------------------------------
Change Change
--------------- ---------------
2002 2001 Amount % 2002 2001 Amount %
-------- -------- -------- ------ -------- -------- -------- ------
(In thousands, except average prices and per gallon data)
Fuel sales $123,568 $153,410 $(29,842) (19%) $225,347 $284,179 $(58,832) (21%)
Fuel margin $7,065 $9,319 $(2,254) (24%) $12,700 $14,176 $(1,476) (10%)
Gallons sold -
Retail 50,940 59,380 (8,440) (14%) 103,359 115,923 (12,564) (11%)
Wholesale 33,112 26,228 6,884 26% 58,644 47,731 10,913 23%
Terminal 19,705 25,604 (5,899) (23%) 43,011 52,291 (9,280) (18%)
Total 103,757 111,212 (7,455) (7%) 205,014 215,945 (10,931) (5%)
Average per
gallon sales
price $1.19 $1.38 $(0.19) (14%) $1.10 $1.32 $(0.22) (17%)
Margin per
gallon (cents) 6.8 8.4 (1.6) (19%) 6.2 6.6 (0.4) (6%)
The Company sold less motor fuel, in dollars and in gallons, in the second
quarter and first half of 2002 than in the corresponding periods of the prior
year. Motor fuel sales decreased by $29,842,000 (19%) in the second quarter of
2002 and by $58,832,000 (21%) in the first half of 2002, compared to the
corresponding periods of 2001. Motor fuel sales decreased principally because
motor fuel prices declined for such periods by 14% and 17%, respectively,
compared to the corresponding periods of the prior year. Retail motor fuel sales
decreased by $21,335,000 (24%) and by $39,572,000 (24%) in the second quarter
and first half of 2002, respectively, compared to corresponding periods of 2001.
Retail motor fuel sales decreased principally because of lower fuel prices,
increased retail competition and revised fuel-pricing strategies of the Company.
Wholesale motor fuel sales increased by $3,452,000 (10%) and by $1,188,000 (2%)
in the second quarter and first half of 2002, respectively, compared to
corresponding periods of 2001. Wholesale motor fuel sales increased in spite of
lower fuel prices principally as a result of fuel sales to locations owned by
third parties and managed by the Company under management contracts with the
third parties. Motor fuel sales at the terminal declined by $11,959,000 (39%)
and $20,448,000 (35%) in the second quarter and first half of 2002,
respectively, compared to corresponding periods of 2001. Terminal fuel sales
decreased primarily as a result of reduced fuel prices and revised fuel-pricing
strategies.
In gallons, total motor fuel sales decreased by 7,455,000 gallons (7%) in
the second quarter of 2002, and by 10,931,000 gallons (5%) in the first half of
2002, compared to gallons sold in the corresponding periods of 2001. Wholesale
sales increased by 6,884,000 gallons (26%) and 10,913,000 gallons (23%) in the
three and sixth-month periods of 2002, compared to the corresponding periods of
2001. Wholesale motor fuel sales increased principally because of sales to
locations managed by the Company under management contracts with the third
parties. Offsetting those increases were decreases in retail sales of 8,440,000
gallons (14%) and 12,564,000 gallons (11%) in the three and six-month periods of
2002, respectively, and terminal sales of 5,899,000 gallons (23%) and 9,280,000
gallons (18%) in the three and six-month periods of 2002, respectively, compared
to comparable periods in 2001. Retail and terminal fuel sales decreased
primarily as a result of revised fuel-pricing strategies.
The Company's overall gross profit margin on all types of motor fuel sales
decreased by $2,254,000 (24%) and $1,476,000 (10%) in the in the second quarter
and first half of 2002, respectively, compared to the corresponding periods of
2001. Fuel margins, in total dollars, decreased principally as a result of
decreasing sales prices, fewer gallons sold and a lower average gross margin per
gallon. Average fuel sales prices declined by 14% and 17% in the three and
sixth-month periods of 2002, compared to the comparable periods of 2001. Fuel
margin per gallon on all types of fuel sales decreased by 1.6 cents per gallon
(19%) and by 0.4 cents per gallon (6%) in the second quarter and first half of
2002, respectively, compared to corresponding periods of 2001. Average gross
profit margin per gallon resulted because an improved retail margin per gallon
was offset by a lower margin per gallon on wholesale and terminal sales, in both
the second quarter and the first half of 2002, compared to comparable periods of
2001.
Merchandise Sales and Margins
-----------------------------
Second Quarter Year-to-Date
--------------------------------- ---------------------------------
Change Change
--------------- ---------------
2002 2001 Amount % 2002 2001 Amount %
-------- -------- -------- ------ -------- -------- -------- ------
(In thousands, except average weekly sales data)
Mdse sales $27,618 $26,292 $1,326 5% $50,903 $50,321 $582 1%
Mdse margin 7,533 8,028 (495) (6%) 14,303 14,770 (467) (3%)
Mdse margin %,
conven. stores
and truck stops 28.0% 28.4% (0.4%) (1%) 27.8% 27.7% 0.1% 0%
Average weekly
mdse sales per store -
Conven. stores $11,409 $12,069 $(660) (5%) $11,302 $11,226 $76 1%
Truck stops 16,510 16,702 (192) (1%) 16,077 16,081 (4) 0%
Merchandise sales increased by $1,326,000 (5%) in the second quarter of
2002, and by $582,000 (1%) for the first half of 2002, compared to the
comparable periods of the prior year. A principal factor for the increase in
merchandise sales was increased cigarette pricing, resulting from higher
cigarette costs, offsetting the effects of a decrease of 8% and 9% in the
average number of convenience stores in the second quarter and first half of
2002, compared to the corresponding periods of 2001. The decrease in
Company-operated stores resulted from implementation of the Company's previously
announced strategy of converting Company-operated stores to gas-only outlets.
Merchandise gross profit margin, in total dollars, decreased by $495,000
(6%) and by $467,000 (3%) for the three and six month periods of 2002,
respectively, when compared to the corresponding periods of the prior year.
Total merchandise margins declined for these comparative periods principally
because of a decrease in margin on cigarette sales and because the Company
operated fewer convenience stores in the applicable periods of 2002 than in
2001, as described above.
Other Income and Expenses
-------------------------
Miscellaneous revenues include management fees, 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,
realized gains or losses on investments in available-for-sale securities,
exchange and motor fuel trading gains and losses, and various other types of
income. Miscellaneous revenues were $3,944,000 and $7,625,000 in the second
quarter and first half of 2002, respectively, constituting improvements in both
comparative periods (9% and 7%, respectively) over miscellaneous revenues of
$3,609,000 and $7,104,000 in the corresponding periods of 2001.
Miscellaneous revenues increased in the second quarter in 2002 principally
as a result of additional management fees and the proceeds of an arbitration
award. The increases in miscellaneous revenues were achieved in spite of the
Company operating 14 and 15 fewer convenience stores, on average, in the second
quarter and first half of 2002, respectively, than in the same periods of 2001.
The overall improvement in miscellaneous revenues was also achieved in spite of
lesser gains being recorded in 2002 from the sale/conversion of Company-operated
convenience stores to gas-only stores than in 2001. These sales/conversions
continued in considerable numbers (10 sales and 13 sales in the second quarter
and first half of 2002, respectively, compared to 13 sales and 19 sales in the
second quarter and the first half of 2001, respectively), but lesser total gains
were recorded in 2002. Specifically, gains from the sale/conversion of
Company-operated convenience stores to gas-only outlets were $298,000 and
$488,000 in the second quarter and first half of 2002, respectively, compared to
gains of $763,000 and $1,231,000 in the second quarter and first six months of
2001, respectively.
Direct store expenses decreased by $1,015,000 (9%) in the second quarter of
2002, compared to the second quarter of 2001. Direct store expenses for the
applicable six-month period also decreased by $2,410,000 (10%). Direct store
expenses decreased in both instances as a result of operating fewer
Company-operated stores in 2002 than in 2001.
General and administrative expenses increased by $619,000 (15%) and
$691,000 (8%) in the three and six-month periods ended June 30, 2002,
respectively, compared to the corresponding periods of 2001. These increases
resulted largely from additional legal, accounting and consulting fees,
increased personnel costs associated with supervising stores under management
contracts, additional costs for permits and licenses, and increased insurance
costs.
Depreciation and amortization increased by $45,000 (2%) in the second
quarter of 2002, compared to the corresponding quarter of 2001. For the first
half of 2002, compared to the corresponding period in 2001, depreciation and
amortization increased by $148,000 (4%). These increases resulted principally
from additional amortization of loan costs and depreciation of property and
equipment additions made during recent years.
Interest income declined by $144,000 (45%) and increased by $92,000 (16%)
in the second quarter and first half of 2002, respectively, compared to
corresponding periods in 2001. The second quarter decrease was largely
attributable to a decline in interest rates on Company investments, while
interest income in the first half increased as a result of additional
interest-earning investments.
Interest expense decreased by $238,000 (20%) and by $150,000 (6%) during
the second quarter and first half of 2002, respectively, when compared to
corresponding periods of 2001. Interest expense decreased for in both periods
because of a $3,321,000 (9%) reduction in interest-bearing indebtedness,
declining interest rates, and a lesser interest rate charged under the Company's
new revolving line of credit facility than its prior facility.
The Company did not record any federal income tax expense in the second
quarter or first half of 2002, compared to federal tax expense of $930,000 in
the second quarter of 2001 and a federal income benefit of $381,000 in the first
half of 2001. Federal income tax expense was not recorded in the second quarter
of 2002, even though the Company had positive earnings, because the expected tax
expense for the year is zero. However, this expectation will be reassessed
during the remainder of the year.
Liquidity and Capital Resources
- -------------------------------
The Company's working capital is provided by several sources, including
short-term investments, cash flows generated from operating activities,
borrowings under a revolving line of credit facility, short-term vendor credit,
and the availability of funds provided by the sale of money orders prior to the
payment of those money order obligations. The Company believes, but cannot be
certain, that its future sources of capital will provide sufficient liquidity to
fund its future operating costs, debt service requirements, and capital
expenditures. Risk factors involved in determining the adequacy of liquidity and
capital resources include, but are not limited to, the insufficiency of cash
flows from operations for any reason, such as, for example, in the event of poor
retail fuel margins, such as that incurred in the fourth quarter of 2001 and the
first two months of 2002 (although the Company has experienced improved retail
fuel margins since then); the inability of the Company to meet its goals of
increasing store revenues and decreasing direct store expense and general and
administrative expense; bad debts or uncollectible accounts; possible actions of
the Company's long-term lenders and revolving credit lender in accelerating such
indebtedness and charging additional interest and loan fees; possible
restrictions on the availability of credit from vendors; and a possible loss of
the Company's money order sales license. The Company believes it will be able to
adjust its actual capital expenditures based on the level of cash flow generated
from operating activities and funds available from financings.
The Company's notes payable at June 30, 2002, and December 30, 2001, are
summarized in the notes to the condensed financial statements. (See Note 5 of
Notes to Condensed Consolidated Financial Statements.) In November 2001 the
Company closed a new revolving credit facility with a third party lender
providing for borrowings up to $20,000,000. The amount available at any time
under the revolver is calculated with a borrowing base of 85% of its eligible
trade receivables plus 70% of the inventory at its terminal facility. At June
30, 2002 and December 31, 2001, the borrowing base under the revolver was
$10,277,000 and $5,473,000, respectively, and the principal balance under the
revolver was $8,116,000 and $3,872,000, respectively.
Management is actively involved in a focused effort designed to improve
bottom-line results and liquidity of the Company, although no assurance is given
that its strategies will prove to increase profitability. Several of these
strategies are summarized below:
1. Strengthen Core Businesses. The Company is attempting to strengthen
its core businesses in order to increase its revenues and decrease its cost
and expenses. This analysis and resulting action may include the sale of
assets or components of its businesses, the closing of certain stores, or
other actions considered necessary to increase net profitability. Like many
other convenience store operators in the industry, the Company has
experienced decreasing retail motor fuel margins per gallon at its stores,
especially from September 2001 until mid March 2002. The Company
implemented a pricing structure in 2002 designed to increase its retail
motor fuel margins and merchandise margins. The Company's fuel margins
began to improve during the month of March 2002, but no assurance can be
given that those margins will be at acceptable levels. For that reason, the
Company is in the process of aggressively reassessing its store operations,
not only to cut store operating and inventory costs but also to find new
sources of additional store income. Many of those possible new revenue
sources are described below. Although the Company has experienced an
increase its general and administrative expenses in recent years,
management believes that its efforts to cut those costs, if successful,
will be an important factor in increasing future profitability. In that
regard, management continues to analyze a reorganization of certain
departments in order to streamline their function and improve their
performance.
2. Seek Additional Fee Income. The Company has also been involved in
efforts to generate other sources of revenue to obtain additional profit in
2002 from its own retail stores, as well as from third party locations that
sell its money orders across the country. In so doing, the Company will
attempt to capitalize on its network of retail locations serving customers
in small towns and larger cities in several states. Multiple sources for
expanded fee income involved in this effort include selling additional
financial products and services, selling additional telephone products and
services, collecting utility payments at the Company's stores for a fee,
expanding the Company's check cashing services, and expanding the Company's
ATM network.
3. Convert Company-Operated Stores to Gas-Only Stores. In situations
where management believes that profitability will be improved, the Company
intends to continue implementing its strategy of selling/converting certain
of its Company-operated convenience stores to independent third party
operators and continuing such outlets as Gas-Only Stores. The Company
converted 13 stores in the first half of 2002, 26 stores in 2001 and 34
stores in 2000 in that manner and has targeted an additional 50
Company-operated stores as suitable candidates for future conversions and
will continue to search for qualified purchasers for these locations.
4. Growth of Wholesale Business. Utilizing its new $20 million
revolving credit facility obtained in November 2001, the Company believes
it will be able to expand its Wholesale and Terminal Operations in 2002.
The Company believes that its wholesale business in the last few years was
curtailed by its lack of a larger line of credit, and the increase in
availability from its new line of credit is expected to facilitate the
profitable expansion of this growing segment.
5. Manage Convenience Stores for Third Parties. The Company obtained
management and fuel supply contracts in early 2002 for 114 convenience
stores from two different lenders that had acquired those stores through
foreclosures from other convenience store operators. In addition to
receiving monthly management fees, the Company may sell motor fuel to those
locations and has contracted to sell its money orders at those stores under
money order agency agreements. In May 2002, one of those owners sold 40 of
the stores under its management contract, at which time the management
contract for those stores ended. Although the other management contract for
57 stores was terminated in July 2002, the Company continues to sell its
money orders at such stores.
6. Possible Expansion at the Terminal. The Company continues to
investigate potential new sources of profits at its terminal located in the
growing Dallas/Fort Worth Metroplex. The Company's current operations at
the terminal only utilize 13 acres of land, and its remaining 20 acres are
available for expansion.
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 2002.
The Company sells money orders in several states at its own stores and
through agents at other locations. 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 (usually twice per week) from its third party money order sales
agents.
The Company had positive working capital of $1,809,000 at the end of second
quarter 2002, compared to a negative working capital of $1,352,000 at the end of
the first quarter of 2002 and a positive working capital of $316,000 at year end
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
currently believes, but can give no assurance, 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.
Critical Accounting Policies
- ----------------------------
Many significant accounting policies affecting the financial statements of
the Company are summarized in the Notes to the Consolidated Financial Statements
included in Form 10-K of the Company for December 30, 2001. Management believes
that three critical accounting policies adopted by the Company are its policies
relating to the accounting treatment of the following: marketable securities,
gain on sale/conversion of merchandise operations at convenience stores to third
parties who then operate the location as a Gas-Only Stores, and investments in
operating and capital leases.
The Company classified all of its investments in marketable securities
through September 30, 2000, as "trading securities". Trading securities are
securities that are bought and held principally for the purpose of a resale in
the near term. On October 1, 2000, the Company changed its intention in holding
its marketable securities to a longer term outlook. Accordingly, since October
1, 2000, the Company has classified all of its marketable securities as
"available-for-sale" securities. Under SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities", net unrealized and realized gains
and losses from trading securities are included in earnings, while 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. Had the Company classified its marketable
securities as trading securities since October 1, 2000, instead of as
available-for-sale securities, the Company would have recorded an additional
loss of $344,000 and $243,000, both net of tax, in second quarter and first half
of 2002, respectively, and an additional loss of $31,000 and additional income
of $262,000, both net of tax, in second quarter and first half of 2001,
respectively. Dividend and interest income, including the amortization of any
premium and discount arising at acquisition, are included in earnings for both
trading securities and available-for-sale securities.
In 2001 and in past years the Company has sold the merchandise operations
and related inventories of certain convenience store locations to various third
parties in exchange for cash and notes receivable. The notes receivable
generally are for terms of five years, require monthly payments of principal and
interest, and bear interest at rates ranging from 8% to 15%. Gains on sales
which meet specified criteria, including receipt of a significant cash down
payment (usually 20% or more) and projected cash flow from store operations
sufficient to adequately service the debt, are recognized upon closing of the
sale. Gains from sales that do not meet the specified criteria are recognized
under the installment method as cash payments are received. Had the Company
recorded all gains on this type of sale under the installment method,
miscellaneous income would have been reduced by $108,000 and $298,000 in the
second half and first half of 2002, and by $763,000 and $1,231,000 in the second
quarter and first half of 2001, respectively. Gains being recognized under the
installment method are evaluated in years subsequent to the year of sale to
determine if full recognition of the gain is then appropriate. Under these
sales, the Company generally retains the real estate or leasehold interests and
leases or subleases the store facilities (including the store equipment) to the
purchaser under five-year renewable operating lease agreements. The Company
usually retains ownership of the motor fuel operations and pays the purchaser of
the store commissions based on motor fuel sales. In addition, the new store
operators may purchase merchandise under the Company's established buying
arrangements. All of the Company's leases are treated as operating leases,
except for the building portion of l4 leases executed in 1999. In 1999, FFP
Partners purchased 14 improved real properties and immediately leased the
properties to the Company under 15-year leases. The Company's total rental
payments to FFP Partners under those leases are $99,000 per month. Of that
amount, $28,000 per month is allocated to the land portion of those leases and
classified as rent expense under operating leases, while $71,000 per month is
allocated to the building portion of those leases and classified as payments
made in retirement of its capital lease obligation. Had those 14 leases instead
been classified as operating leases, the entire $71,000 in rent payments for the
buildings would be reported as rent expense, instead of being reported partially
as interest expense and partially as principal payments on the Company's capital
lease obligation and the Company would not report depreciation expense from
those building. In addition, the balance sheets of the Company would not report
the building portion of those 14 real properties as an asset and capital lease
obligation, as it presently does.
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. Accordingly, 21% of the Company's notes payable
at the end of the second quarter of 2002 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 June 30, 2002.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
- --------
Ex. 99.1 Certifications pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
Reports on Form 8-K
- -------------------
The Company did not file any reports on Form 8-K for the quarter
covered by this report.
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 14, 2002 By: /s/ John H. Harvison
------------------------------
John H. Harvison
Chairman and
Chief Executive Officer
Date: August 14, 2002 By: /s/ Craig T. Scott
-------------------------------
Craig T. Scott
Vice President - Finance and
Chief Financial Officer