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 28, 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 August 10, 1998)
<PAGE>
FFP MARKETING COMPANY, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
June 28, December 28,
1998 1997
ASSETS
Current Assets -
Cash and cash equivalents $8,224 $9,389
Trade receivables 13,798 10,732
Notes receivable from affiliates 1,828 426
Notes receivable 736 737
Inventories 16,379 15,820
Prepaid expenses and other 1,811 1,077
Total current assets 42,776 38,181
Property and equipment, net 32,876 32,095
Note receivable from affiliate 13,630 0
Other assets, net 5,512 5,054
Total Assets $94,794 $75,330
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities -
Current installments of long-term debt $1,556 $1,208
Current installments of obligation under
capital lease 648 917
Accounts payable 15,574 15,319
Money orders payable 11,712 11,299
Accrued expenses 12,379 9,623
Total current liabilities 41,869 38,366
Long-term debt, excluding current installments 21,182 21,465
Obligations under capital lease, excluding
current installments 3,214 3,110
Deferred income taxes 3,616 3,259
Other liabilities 2,578 2,866
Total Liabilities 72,459 69,066
Stockholders' Equity
Common stock and retained earnings 22,335 22,202
Reduction for joint debt obligations 0 (15,938)
Total Stockholders Equity 22,335 6,264
Total Liabilities and Stockholders' Equity $94,794 $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 Six Months Ended
June 28, June 29, June 28, June 29,
1998 1997 1998 1997
Revenues
Motor fuel $85,059 $82,209 $161,404 $159,326
Merchandise 24,902 15,482 47,481 29,469
Miscellaneous 2,608 1,631 4,927 3,329
Total Revenues 112,569 99,322 213,812 192,124
Costs and Expenses
Cost of motor fuel 78,535 76,660 148,402 149,310
Cost of merchandise 17,346 10,694 32,862 20,867
Direct store expenses 11,201 6,691 21,867 13,533
General and administrative 4,355 3,053 7,475 5,906
expenses
Depreciation and amortization 1,348 1,393 2,668 2,514
Total Costs and Expenses 112,785 98,491 213,274 192,130
Operating Income/(Loss) (216) 831 538 (6)
Interest expense 119 357 320 648
Income/(loss) before income taxes (335) 474 218 (654)
Income tax expense/(benefit)
Current 50 0 97 0
Deferred (182) 134 (12) 268
Total (132) 134 85 268
Net Income/(Loss) $(203) $340 $133 $(922)
Net income/(loss) per share -
Basic $(0.05) $0.09 $0.04 $(0.24)
Diluted (0.05) 0.09 0.03 (0.24)
Weighted average number of
common shares outstanding -
Basic 3,779 3,779 3,779 3,779
Diluted 3,911 3,797 3,877 3,824
See accompanying notes to condensed consolidated financial statements.
<PAGE>
FFP MARKETING COMPANY, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended
June 28, June 29,
1998 1997
Cash Flows from Operating Activities -
Net income/(loss) $133 $(922)
Adjustments to reconcile net income/(loss)
to cash provided by operating activities -
Depreciation and amortization 2,668 2,514
Deferred income tax expense/(benefit) (12) 268
Net change in operating assets
and liabilities (1,830) 4,672
Net cash provided by operating activities 959 6,532
Cash Flows from Investing Activities -
Advances from affiliate, net of reduction
for joint debt obligations 1,165 0
Additions of property and equipment, net (3,189) (5,822)
Net cash (used) by investing activities (2,024) (5,822)
Cash Flows from Financing Activities -
Net borrowings/(repayments) under
credit facilities (100) (47)
Net cash (used) by financing activities (100) (47)
Net Increase/(Decrease) in cash and
cash equivalents (1,165) 663
Cash and cash equivalents at beginning of period 9,389 8,244
Cash and cash equivalents at end of period $8,224 $8,907
See accompanying notes to condensed consolidated financial statements.
<PAGE>
FFP MARKETING COMPANY, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 28, 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 June 28, 1998, and
the consolidated statements of operations and condensed consolidated statements
of cash flows for the three and six month periods ended June 28, 1998, and June
29, 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 June 28, 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
June 28, 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. Notes Payable and Long-Term Debt
On June 30, 1998, the Company completed the financing of the
purchase of 94 convenience stores in December 1997. This financing consists of
44 fully amortizing mortgage loans in the aggregate principal amount of
$9,420,000, at an interest rate of 8.66%, with maturities of 112 to 180 months,
and requiring initial aggregate payments of principal and interest of $101,000
per month. The proceeds of these loans were used to repay the $5,735,000 balance
on the bridge loan used to finance the purchase of the outlets and for general
corporate purposes. Because the refinancing was completed prior to the issuance
of these condensed consolidated financial statements, the accompanying condensed
consolidated balance sheet as of June 28, 1998, reflects the reclassification of
the bridge loan balance between current maturities and long-term debt.
Effective June 28, 1998, the Company, FFP Partners, L.P ("FFPLP"),
and the Company's primary bank lender reached an agreement to restructure the
debt due to the lender for which FFPLP had retained the liability in connection
with its December 1997 restructuring. The Company acquired its operations in
connection with the December 1997 restructuring of FFPLP. Under this agreement,
the lender will permit a subsidiary of FFP Marketing to make a loan to FFPLP for
approximately $14,773,000 (the current balance on the debt due to the lender for
which FFPLP had retained liability in the restructuring) and will release FFPLP
from all obligations under the Loan Agreement covering its loans to the Company.
The interest rate and repayment terms of the loan to FFPLP will mirror such
terms (which are unchanged from year end 1997) of the debt to the lender. The
agreement with the lender also requires that the loan be secured by all real
estate owned by FFPLP and be pledged as additional collateral on the debt to the
lender, that all proceeds received by the Company from the loan to FFPLP be
applied to the term loan of the lender to the Company, and that FFP Marketing
Company, Inc., be added as a primary obligor under the Loan Agreement. As a
result of this agreement, there is no longer any joint liability on the debt
obligations to the lender and the reduction of stockholders' equity for such
liability has been removed as of June 28, 1998.
3. Income/(Loss) per Share
The Company adopted Statement of Financial Accounting Standards No.
128, "Earnings per Share," in the fourth quarter of 1997. Income/(loss) per
share amounts for 1997 periods 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:
Three Months Ended Six Months Ended
June 28 June 29 June 28 June 29
1998 1997 1998 1997
In thousands
Weighted average number of common
shares outstanding 3,779 3,779 3,779 3,779
Effect of dilutive options 132 18 98 45
Weighted average number of common shares
outstanding, assuming dilution 3,911 3,797 3,877 3,824
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 -0- and 70,000 in the three months ended 1998 and 1997, respectively, and
were -0- and 50,000 in the six months ended 1998 and 1997, respectively.
4. 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 condensed 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
Fuel Sales and Margins
---------Second Quarter--------- -----------Year-to-Date-----------
----Change---- ----Change----
1998 1997 Amount Percent 1998 1997 Amount Percent
In thousands, except per gallon data
Fuel sales $85,059 $82,209 $2,850 3.5% $161,404 $159,326 $2,078 1.3%
Fuel margin 6,524 5,549 975 17.6% 13,002 10,016 2,986 29.8%
Gallons sold
Retail 61,764 50,856 10,908 21.4% 119,259 99,717 19,542 19.6%
Wholesale 27,373 24,096 3,277 13.6% 47,216 42,248 4,968 11.8%
Total 89,137 74,952 14,185 18.9% 166,475 141,965 24,510 17.3%
Margin per gallon (cents)
Retail 9.7 9.5 0.2 2.1% 10.1 8.8 1.3 14.8%
Wholesale 1.7 2.6 (0.9) -34.6% 2.0 2.5 (0.5) -20.0%
The increases in the Company's motor fuel sales in both the quarter
and year-to-date periods is the net effect of the increases in the volumes of
fuel sold in the respective periods offset by declines in the price per gallon
during 1998 as compared to the 1997 periods. The wholesale fuel sales increases
are due to the Company's continued increase on this activity while the increase
in retail fuel volumes is due to the sales from the 94 convenience stores that
the Company purchased in December 1997.
The 17.6% increase in fuel margin in the second quarter is
consistent with the overall 18.9% increase in sales volumes for the period.
However, in the year-to-date period, the increase in fuel margin outpaced the
increase in volumes sold because of the 14.8% increase in the margin per gallon
realized by the Company in the 1998 period as compared to 1997.
Merchandise Sales and Margin
---------Second Quarter--------- -----------Year-to-Date-----------
----Change---- ----Change----
1998 1997 Amount Percent 1998 1997 Amount Percent
In thousands, except average weekly sales data
Mdse sales $24,902 $15,482 $9,420 60.8% $47,481 $29,469 $18,012 61.1%
Mdse margin 7,556 4,788 2,768 57.8% 14,619 8,602 6,017 69.9%
Margin percentage,
convenience stores and
truck stops 29.2% 29.3% -0.1% -0.3% 29.7% 27.4% 2.3% 8.4%
Average weekly mdse sales
Convenience
stores $9,624 $10,130 $(506) -5.0% 8,936 9,659 (723) -7.5%
Truck stops 17,685 18,592 (907) -4.9% 16,951 17,700 (749) -4.2%
The increases in merchandise sales both time periods is due
principally to the sales at the convenience stores acquired in December 1997.
The slight decline in the margin percentage on merchandise sales in the second
quarter 1998 as compared to 1997 is due to a decline in the margin percentage on
sales at the Company's two restaurants operated in conjunction with its truck
stops. Although the margin percentage declined, the absolute dollar margin at
the restaurants was up slightly in the 1998 period.
As with fuel and merchandise volumes, the increases in miscellaneous
revenues in both the quarter and year-to-date periods are largely due to the
additional revenue from the 94 convenience stores acquired in December 1997.
Direct store expenses are those expenses, such as salaries,
utilities, repair, maintenance, and rent, that are directly attributable to the
operation of the Company's retail outlets. These expenses increased $4,510,000
(67.4%) in the quarter and $8,334,000 (61.6%) in the year-to-date period due in
part to the expenses of operating the additional outlets acquired in December
1997. In addition, as a result of the restructuring by which FFP Marketing was
formed, the Company now pays rent on a number of locations that were formerly
owned by the Company. This additional rent, approximately $216,000 per month, is
reflected in direct store expenses.
General and administrative expenses increased $1,302,000 (42.6%) and
$1,569,000 (26.6%) in the quarter and year-to-date periods, respectively. These
increases are principally due to the additional field supervisory personnel to
oversee the operations of the convenience stores acquired in December 1997, to
operating costs at the Company's fuel terminal which began operations in June
1997, and, in the second quarter, increased bad debt expenses related to the
Company's money order activities.
Depreciation and amortization decreased $45,000 (3.2%) in the second
quarter and increased $154,000 (6.1%) in the year-to-date period. These changes
reflect the increased depreciation related to the relatively high level of
property addition during 1997, which were 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 convenience stores, and depreciation of equipment at the
Company's fuel terminal (which began operating in June 1997), offset by the
reduction in depreciation on the buildings that were retained by FFP Partners in
the December 1997 restructuring mentioned above.
The reductions in interest expense in both the quarter and
year-to-date time frames 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 second quarter was
$907,000 as compared to a negative $185,000 at year end 1997. This change
resulted from the agreement among the Company, FFP Partners, and the Company's
primary bank lender to restructure the debt due to the lender for which FFPLP
had retained the liability in connection with its December 1997 restructuring.
Under this agreement, the lender will permit FFP Marketing to make a loan to FFP
Partners for approximately $14,773,000 (the current balance of the debt due the
lender for which FFPLP had retained liability). The interest rate and repayment
terms of this loan will mirror such terms of the debt to the lender. The loan
will be secured by all real estate owned by FFP Partners and the loan will be
pledged as additional collateral on the debt to the lender. In addition, all
proceeds received by the Company from the loan to FFPLP must be applied to the
term loan of the lender to the Company, and FFP Marketing Company, Inc., will be
added as a primary obligor under the Loan Agreement. Since the repayment terms
of this loan will mirror the repayment terms of the debt to the lender, the
Company has a current receivable equivalent to the current amount due on the
debt. In addition, since there is no longer any joint liability on the debt
obligations to the lender, the reduction of stockholders' equity for such
liability has been removed as of June 28, 1998.
The Company also completed, on June 30, the permanent financing for
the purchase of the 94 convenience stores it acquired in December 1997. This
financing consists of 44 loans with an aggregate principal amount of $9,420,000.
All of the loans bear interest at 8.66% and have maturities ranging from 112 to
180 months. The loans require initial aggregate payments of principal and
interest of $101,000 per month. The proceeds of these loans were used to repay
the $5,735,000 balance on the bridge loan used to finance the purchase of the
outlets and for general corporate purposes. Because the refinancing was
completed prior to the issuance of these condensed consolidated financial
statements, the accompanying condensed consolidated balance sheet as of June 28,
1998, reflects the reclassification of the bridge loan balance between current
maturities and long-term debt.
The Company believes that its internally generated funds and
traditional use of trade credit, along with its bank line of credit, are such
that operations will be conducted in a customary manner.
Forward-Looking Statements
Certain of the statements made in this report are forward-looking
statements that involve inherent risks and uncertainties. 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, 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; changes in the cost of refined petroleum products, changes in the
cost of merchandise items sold by the Company, or changes in the gross profit
realized from sales of motor fuel and merchandise; expense pressures relating to
operating costs, including labor, repairs, maintenance, and supplies; and,
unanticipated general and administrative expenses, including costs of expansion
and financing.
<PAGE>
EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
27 Financial Data Schedule [included in electronic filing only].
Reports on Form 8-K
The Company did not file any reports on Form 8-K for the quarter
covered by this Report on Form 10-Q.
<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: August 17, 1998 By: /s/John H. Harvison
---------------------------------
John H. Harvison
Chairman and Chief Executive Officer
Date: August 17, 1998 By: /s/Steven B. Hawkins
---------------------------------
Steven B. Hawkins
Vice President - Finance and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-27-1998
<PERIOD-START> DEC-29-1997
<PERIOD-END> JUN-28-1998
<CASH> 8,224
<SECURITIES> 0
<RECEIVABLES> 15,601
<ALLOWANCES> 1,803
<INVENTORY> 16,379
<CURRENT-ASSETS> 42,776
<PP&E> 63,890
<DEPRECIATION> 31,014
<TOTAL-ASSETS> 94,794
<CURRENT-LIABILITIES> 41,869
<BONDS> 24,396
0
0
<COMMON> 22,335
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 94,794
<SALES> 208,885
<TOTAL-REVENUES> 213,812
<CGS> 181,264
<TOTAL-COSTS> 181,264
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,050
<INTEREST-EXPENSE> 320
<INCOME-PRETAX> 218
<INCOME-TAX> 85
<INCOME-CONTINUING> 133
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 133
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0.03
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