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 March 29, 1998, 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 3,779,415
(Number of shares outstanding as of May 13, 1998)
<PAGE>
FFP MARKETING COMPANY, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
March 29, December 28
1998 1997
ASSETS
Current Assets -
Cash and cash equivalents $9,802 $9,389
Trade receivables 12,500 10,732
Receivables from affiliates 2,244 426
Notes receivable 736 737
Inventories 15,701 15,820
Prepaid expenses and other 1,235 1,077
Total current assets 42,218 38,181
Property and equipment, net 32,038 32,095
Other assets, net 5,392 5,054
Total Assets $79,648 $75,330
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities -
Current installments of long-term debt $7,991 $1,208
Current installments of obligation under 622 917
capital lease
Accounts payable 15,871 15,319
Money orders payable 13,512 11,299
Accrued expenses 11,042 9,623
Total current liabilities 49,038 38,366
Long-term debt, excluding current 14,811 21,465
installments
Obligations under capital lease, excluding
current installments 3,068 3,110
Deferred income taxes 3,409 3,259
Other liabilities 2,723 2,866
Total Liabilities 73,049 69,066
Stockholders' Equity
Common stock and retained earnings 22,537 22,202
Reduction for joint debt obligations (15,938) (15,938)
Total Stockholders Equity 6,599 6,264
Total Liabilities and Stockholders'
Equity $79,648 $75,330
See accompanying notes to condensed consolidated financial statements.
<PAGE>
FFP MARKETING COMPANY, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended
March 29, March 30,
1998 1997
Revenues
Motor fuel $76,345 $77,117
Merchandise 22,579 13,987
Miscellaneous 2,319 1,698
Total Revenues 101,243 92,802
Costs and Expenses
Cost of motor fuel 69,867 72,650
Cost of merchandise 15,516 10,173
Direct store expenses 10,666 6,950
General and administrative expenses 3,120 2,745
Depreciation and amortization 1,320 1,121
Total Costs and Expenses 100,489 93,639
Operating Income/(Loss) 754 (837)
Interest expense 201 291
Income/(loss) before income taxes 553 (1,128)
Income tax expense
Current 47 0
Deferred 170 134
Total 217 134
Net Income/(Loss) $336 $(1,262)
Net income/(loss) per share -
Basic $0.09 $(0.33)
Diluted 0.09 (0.33)
Weighted average number of common shares
outstanding -
Basic 3,779 3,779
Diluted 3,827 3,779
See accompanying notes to condensed consolidated financial statements.
<PAGE>
FFP MARKETING COMPANY, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
March 29, March 30,
1998 1997
Cash Flows from Operating Activities -
Net income/(loss) $336 $(1,262)
Adjustments to reconcile net income/(loss) to
cash provided by operating activities -
Depreciation and amortization 1,321 1,121
Deferred income tax expense 170 134
Net change in operating assets
and liabilities (68) 5,030
Net cash provided by operating activities 1,759 5,023
Cash Flows from Investing Activities -
Additions of property and equipment, net (1,138) (3,636)
Net cash (used) by investing activities (1,138) (3,636)
Cash Flows from Financing Activities -
Net borrowings/(repayments) under
credit facilities (208) (1,178)
Net cash (used) by financing activities (208) (1,178)
Net Increase in cash and cash equivalents 413 209
Cash and cash equivalents at beginning of period 9,389 8,244
Cash and cash equivalents at end of period $9,802 $8,453
See accompanying notes to condensed consolidated financial statements.
<PAGE>
FFP MARKETING COMPANY, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 29, 1998
(Unaudited)
1. Basis of Presentation
The condensed consolidated financial statements include the assets,
liabilities, and results of operations of FFP Marketing Company, Inc., and its
wholly owned subsidiaries, FFP Operating Partners, L.P., Direct Fuels, L.P., FFP
Financial Services, L.P., Practical Tank Management, Inc., FFP Transportation,
L.L.C., FFP Money Order Company, Inc., FFP Operating LLC, and Direct Fuels
Management Company, Inc., collectively referred to as "FFP Marketing" or the
"Company."
The condensed consolidated balance sheet as of March 29, 1998, and
the consolidated statements of operations and condensed consolidated statements
of cash flows for the three month periods ended March 29, 1998, and March 30,
1997, 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 March 29, 1998, 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
28, 1997, include accounting policies and additional information pertinent to an
understanding of these interim financial statements. That information has not
changed other than as a result of normal transactions in the three months ended
March 29, 1998, and as discussed below.
Certain amounts previously reported in the 1997 condensed
consolidated financial statements have been reclassified to conform to the 1998
presentation.
2. Income/(Loss) per Share
The Company adopted Statement of Financial Accounting Standards No.
128, "Earnings per Share," in the fourth quarter of 1997. First quarter 1997
income/(loss) per share amounts have been restated to conform to the new
presentation. A reconciliation of the denominators of the basic and diluted
income/(loss) per share calculations for the 1998 and 1997 periods follows:
1998 1997
In thousands
Weighted average number of common shares outstanding 3,779 3,779
Effect of dilutive options 48 0
Weighted average number of common shares outstanding,
assuming dilution 3,827 3,779
The number of options that could potentially dilute basic
income/(loss) per share in the future that were not included in the computation
of diluted income/(loss) per share because to do so would have been antidilutive
were 50,000 and 241,999 in 1998 and 1997, respectively.
3. Reporting of Comprehensive Income
At the beginning of its 1998 fiscal year, the Company adopted
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income." SFAS No. 130 requires the presentation of "comprehensive
income" in financial statements. Comprehensive income includes net income and
all revenues, expenses, gains, and losses that had previously been recorded
directly to equity. The Company does not have any items of other comprehensive
income, therefore comprehensive income and net income are identical.
Accordingly, the effect of the adoption of SFAS No. 130 had no effect on the
Company's consolidated financial statements.
<PAGE>
FFP MARKETING COMPANY, INC., AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
FFP Marketing was formed in connection with the December 1997
restructuring of FFP Partners, L.P. ("FFP Partners"), in which the real estate
owned by FFP Partners and used in its retail operations was retained by it while
all other assets and businesses were transferred to FFP Marketing. FFP Marketing
then entered into agreements to lease the real estate retained by FFP Partners.
Unless the context requires otherwise, references in this report to "FFP
Marketing" or the "Company" for periods or activities prior to the completion of
the December 1997 restructuring include the activities of FFP Partners and its
then subsidiaries, which are now subsidiaries of FFP Marketing.
Results of Operations for First Quarter 1998 compared with First Quarter 1997
The gallons of motor fuel sold by the Company in the first quarter
1998 increased 15.4% over the volume of fuel sold in the 1997 period. The
principal factor causing the increase in gallons sold was sales from the 94
operating convenience stores acquired in December 1997. However, the industry
wide decline in fuel prices that began in 1997 and has continued into 1998
resulted in a decline of $772,000 (1.0%) in the Company's motor fuel revenues.
Although motor fuel revenues declined, the Company's profit on motor fuel sales
improved $2,011,000 (45.0%) in 1998 over the 1997 quarter due to the increased
fuel volumes from the additional convenience stores purchased in December 1997
and a 28.4% improvement in the margin per gallon realized on retail sales. The
retail fuel margin in 1998 was 10.4 cents per gallon as compared to 8.1 cents
per gallon in the 1997 quarter. Wholesale fuel sales, in gallons, increased 9.3%
in the first quarter 1998 over 1997, but the per gallon margin on the sales was
flat between the two periods.
Merchandise sales increased $8,592,000 (61.4%) in the first quarter
1998 due to the sales at the convenience stores acquired in December 1997.
Merchandise gross profit increased $3,249,000 (85.2%) as a result of the
additional merchandise sales and an improvement in the margin on merchandise
sales to 31.3% in 1998 from 27.3% in 1997. The improved merchandise margin is
the result of the management's emphasis on strengthening this key aspect of the
Company's operations.
As with fuel and merchandise volumes, the increase in miscellaneous
revenues is largely due to the additional revenue from the 94 convenience stores
acquired in December 1997.
The $3,716,000 (53.5%) increase in direct store expenses also
relates, in part, to the additional direct store costs associated with operating
the stores purchased in December 1997. In addition, as a result of the December
1997 restructuring by which FFP Marketing was formed, as mentioned above, the
Company now pays rent on a number of locations that were formerly owned by the
Company. This additional rent is also reflected in direct store expenses.
General and administrative expenses increased $375,000 (13.7%) in
the 1998 period. This increase is due to the addition of field supervisory
personnel to oversee the operations of the convenience stores acquired in
December and to operating costs at the Company's fuel terminal which began
operations in June 1997.
Depreciation and amortization increased $199,000 (17.8%) in the
current quarter. This increase is the net of increased depreciation related to
the relatively high level of property additions during 1997 (primarily
associated with the upgrade of underground storage tanks to meet 1998
environmental requirements), depreciation of the fixtures and equipment acquired
in the December 1997 purchase of the 94 operating convenience stores, and
depreciation of equipment at the Company's fuel terminal, offset by the
reduction in depreciation on buildings that were retained by FFP Partners in the
December 1997 restructuring, mentioned above.
The $90,000 (30.9%) reduction in interest expense resulted from the
retention by FFP Partners of a significant amount of debt in the December
restructuring offset by the additional interest on the debt incurred to purchase
the convenience stores acquired by the Company in December 1997.
In 1997 and prior years, the Company was treated as a publicly
traded partnership for income tax purposes. Accordingly, it recorded deferred
income taxes associated with differences in the timing of the recognition for
financial and tax reporting of those items that were expected to reverse after
the Company became taxable as a corporation in January 1998. The current income
tax "expense" or "benefit" that would otherwise have been recorded by the
Company had it been taxable as a corporation was allocated to its partners.
However, in January 1998, as a result of the expiration of its grandfather
status as a publicly traded partnership and in connection with the December 1997
restructuring of FFP Partners, the Company became taxable as a corporation and
has begun recording income tax expense accordingly. Therefore, the income tax
expense reflected in the accompanying consolidated statement of operations for
1998 is not comparable to that shown for the prior year.
Liquidity and Capital Resources
The Company's working capital at the end of the first quarter was a
negative $6,820,000 as compared to a negative $185,000 at year end 1997. This
change resulted primarily from the reclassification to current liabilities of
the bridge loan used to finance the acquisition of the December 1997 convenience
store purchase. The Company expects to complete the refinancing of this debt
with a term loan by the end of the second quarter 1998. Although the terms of
the permanent financing are being negotiated, the Company expects that the
bridge loan will be replaced with fully amortizing loan with a term of 12 to 15
years.
In addition, the Company is entering its typically strongest period
of the year when revenues and cash flows generally increase. Consequently,
although the Company has negative working capital, management believes that the
completion of the refinancing, referred to above, together with internally
generated funds and the Company's traditional use of trade credit, along with
its bank line of credit, are such that operations can be conducted in a
customary manner.
In connection with the December 1997 restructuring of FFP Partners,
referred to previously, the balances due at year end 1997 on certain bank and
other debt were retained by FFP Partners. However, pending its refinancing,
subsidiaries of FFP Marketing remain liable on such debt, and could be required
to repay the debt if FFP Partners were unable to do so. FFP Partners has
indemnified FFP Marketing against this liability and has granted to FFP
Marketing the right to offset any payments FFP Marketing might be required to
make on the debt against any amounts otherwise due to FFP Partners by FFP
Marketing. However, since subsidiaries of FFP Marketing are liable on this debt
and continue to access the bank revolving credit facility, this debt must be
reflected as a liability on the balance sheets of both FFP Marketing and FFP
Partners and it reduces the reported equity of FFP Marketing. (It is reflected
in the equity section of FFP Marketing's consolidated balance sheets as
"reduction for joint debt obligations.") At such time as FFP Partners completes
the refinancing of the debt, the liability will be removed from FFP Marketing's
balance sheet and its reported equity will be increased by $15,938,000.
Forward-Looking Statements
Certain of the statements made in this report are forward-looking
statements that involve inherent risks and uncertainties. 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,"
"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, or other aspects of
competitors' operations; increases in the cost of fuel and merchandise sold or
reductions in the gross profit realized from such sales; expense pressures
relating to operating costs, including labor, repair and maintenance, and
supplies; and, unanticipated general and administrative expenses, including
costs of expansion or financing.
<PAGE>
EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
27 Financial Data Schedule.
Reports on Form 8-K
A report on Form 8-K dated January 12, 1998, was filed with the
Securities and Exchange Commission reporting the December 1997 restructuring of
FFP Partners, L.P., by which FFP Marketing Company, Inc., succeeded to the
convenience store, retail motor fuel marketing, and other businesses previously
conducted by FFP Partners, L.P.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities and Exchange Act of 1934, the Registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
FFP MARKETING COMPANY, INC.
Registrant
Date: May 18, 1998 By: /s/John H. Harvison
---------------------------------
John H. Harvison
Chairman and Chief Executive Officer
Date: May 18, 1998 By: /s/Steven B. Hawkins
---------------------------------
Steven B. Hawkins
Vice President - Finance and
Chief Financial Officer
<TABLE> <S> <C>
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-27-1998
<PERIOD-START> DEC-29-1997
<PERIOD-END> MAR-29-1998
<CASH> 9,802
<SECURITIES> 0
<RECEIVABLES> 13,256
<ALLOWANCES> (756)
<INVENTORY> 15,701
<CURRENT-ASSETS> 42,218
<PP&E> 61,846
<DEPRECIATION> 29,808
<TOTAL-ASSETS> 79,648
<CURRENT-LIABILITIES> 49,038
<BONDS> 17,879
0
0
<COMMON> 22,537
<OTHER-SE> (15,938)
<TOTAL-LIABILITY-AND-EQUITY> 79,648
<SALES> 98,924
<TOTAL-REVENUES> 101,243
<CGS> 85,383
<TOTAL-COSTS> 85,383
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 42
<INTEREST-EXPENSE> 201
<INCOME-PRETAX> 553
<INCOME-TAX> 217
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 336
<EPS-PRIMARY> 0.09
<EPS-DILUTED> 0.09
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