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 September 27, 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 3,787,081
(Number of shares outstanding as of November 12, 1998)
<PAGE>
FFP Marketing Company, Inc., and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
September 27, December 28,
1998 1997
Assets
Current Assets -
Cash and cash equivalents $9,646 $9,389
Trade receivables 15,374 10,732
Notes receivable from affiliates 1,689 426
Notes receivable 752 737
Inventories 16,315 15,820
Prepaid expenses and other 2,369 1,077
Total current assets 46,145 38,181
Property and equipment, net 33,115 32,095
Note receivable from affiliate 13,344 0
Other assets, net 5,907 5,054
Total Assets $98,511 $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 638 917
Accounts payable 15,954 15,319
Money orders payable 14,809 11,299
Accrued expenses 10,618 9,623
Total current liabilities 43,575 38,366
Long-term debt, excluding current 22,755 21,465
installments
Obligations under capital lease, excluding
current installments 2,870 3,110
Deferred income taxes 3,727 3,259
Other liabilities 2,616 2,866
Total Liabilities 75,543 69,066
Stockholders' Equity
Common stock and retained earnings 22,968 22,202
Reduction for joint debt obligations 0 (15,938)
Total Stockholders Equity 22,968 6,264
Total Liabilities and Stockholders' Equity $98,511 $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 Nine Months Ended
Sept 27, Sept 28, Sept 27, Sept 28,
1998 1997 1998 1997
Revenues
Motor fuel $77,871 $79,032 $239,275 $238,257
Merchandise 24,199 15,633 71,680 45,114
Miscellaneous 2,367 1,394 7,294 4,702
Total Revenues 104,437 96,059 318,249 288,073
Costs and Expenses
Cost of motor fuel 70,402 73,472 218,803 222,686
Cost of merchandise 16,046 10,853 48,909 31,719
Direct store expenses 11,261 7,035 33,128 20,567
General and administrative 3,824 3,008 11,299 8,901
expenses
Depreciation and amortization 1,518 1,472 4,186 3,986
Total Costs and Expenses 103,051 95,840 316,325 287,859
Operating Income 1,386 219 1,924 214
Interest expense 349 460 669 1,108
Income/(loss) Before Income Taxes 1,037 (241) 1,255 (894)
Income tax expense
Current 137 0 234 0
Deferred 287 134 275 403
Total 424 134 509 403
Net Income/(Loss) $613 $(375) $746 $(1,297)
Net income/(Loss) Per Share -
Basic $0.16 $(0.10) $0.20 $(0.35)
Diluted 0.16 (0.10) 0.19 (0.35)
Pro Forma Information (Note 5) -
Historical income (loss) before taxes (241) (894)
Pro forma income tax (benefit) (94) (349)
Pro Forma Net Income (Loss) $(147) $(545)
Pro Forma Net Income (Loss) Per Share -
Basic $(0.04) $(0.14)
Diluted (0.04) (0.14)
See accompanying notes to Condensed Consolidated Financial Statements.
<PAGE>
FFP Marketing Company, Inc., and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Nine Months Ended
September 27, September 28,
1998 1997
Cash Flows from Operating Activities -
Net income/(loss) $746 $(1,297)
Adjustments to reconcile net income/(loss)
to cash provided by operating activities -
Depreciation and amortization 4,185 3,986
Deferred income tax expense 468 403
Net change in operating assets
and liabilities (1,533) 2,750
Net cash provided by operating activities 3,866 5,842
Cash Flows from Investing Activities -
Advances from affiliate, net of reduction
for joint debt obligations 905 0
Additions/(reductions) in notes
receivable (772) 92
Additions of property and equipment, net (4,881) (7,127)
Net cash (used) by investing activities (4,748) (7,035)
Cash Flows from Financing Activities -
Proceeds from exercise of stock options 20 0
Net borrowings under credit facilities 1,119 203
Net cash provided by financing activities 1,139 203
Net Increase/(Decrease) in cash and cash
equivalents 257 (990)
Cash and cash equivalents at beginning of
period 9,389 8,244
Cash and cash equivalents at end of period $9,646 $7,254
See accompanying notes to Condensed Consolidated Financial Statements.
<PAGE>
FFP Marketing Company, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 27, 1998
(Unaudited)
1. Basis of Presentation
These 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 September 27, 1998,
and the Consolidated Statements of Operations and Condensed Consolidated
Statements of Cash Flows for the three and nine month periods ended September
27, 1998, and September 28, 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 September
27, 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 Company was formed in connection with the December 1997
restructuring of FFP Partners, L.P. ("FFP Partners"). In that restructuring
transaction FFP Partners retained, and leased to the Company, certain real
property now used in the Company's retail operations and transferred all of its
other assets and businesses to the Company. Unless the context requires
otherwise, references in these Financial Statements 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 the Company.
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 a description of certain 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 nine months ended September 27, 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 refinanced its December 1997
purchase of 94 convenience stores. That financing consists of 44 fully
amortizing mortgage loans in the aggregate original principal amount of
$9,420,000, at an interest rate of 8.66%, with maturities ranging from 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.
Effective June 28, 1998, the Company, the Company's primary bank
lender and FFP Partners reached an agreement to restructure the debt due
to the lender for which FFP Partners had retained the liability in connection
with its December 1997 restructuring. The Company acquired its operations in
connection with the December 1997 restructuring of FFP Partners. Under the June
1998 agreement, the lender permitted a subsidiary of the Company to loan FFP
Partners approximately $14,773,000 (the then current balance on the debt due
to the lender for which FFP Partners had retained liability in the
restructuring) and agreed to release FFP Partners from all obligations under the
Loan Agreement covering its loans to the Company. The interest rate and
repayment terms of the loan to FFP Partners mirror such terms (which are
unchanged from year end 1997)of the debt to the lender. The revised agreement
with the lender also required that the loan be secured by all real estate
owned by FFP Partners and be pledged as additional collateral on the debt
to the lender, that all proceeds received by the Company from the loan to
FFP Partners be applied to the term loan of the lender to the Company, and that
the Company be added as a primary obligor under the Loan Agreement. As a result
of that agreement, joint liability no longer exists on the debt obligations to
the lender, and the reduction in the Company's stockholders' equity for such
liability was removed as of June 28, 1998.
3. Income/(Loss) per Share
The Company adopted Statement of Financial Accounting Standards
("SFAS") 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 Nine Months Ended
Sept 27, Sept 28, Sept 27, Sept 28,
1998 1997 1998 1997
(In thousands)
Weighted average number of common
shares outstanding 3,782 3,779 3,780 3,779
Effect of dilutive options 135 0 112 0
Weighted average number of common
shares outstanding, assuming
dilution 3,917 3,779 3,892 3,779
No options that could potentially dilute basic income/(loss) per
share in the future were included in the computation of diluted income/(loss)
per share for the three and nine months ended September 28, 1997, because to do
so would have been antidilutive.
4. Reporting of Comprehensive Income
At the beginning of its 1998 fiscal year, the Company adopted
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.
5. Income Taxes
FFP Partners was, and continues to be, a limited partnership.
Accordingly, the operations of FFP Partners prior to the December 1997
restructuring were subject to income tax treatment as a partnership. As a
partnership, such entity did not pay income taxes but allocated its income and
losses to its partners, who paid income taxes on such amounts. Because the
Company is a corporation and subject to income taxes itself, the financial
statements include a pro forma provision for income taxes during the 1997
periods presented as if the Company had been a taxable corporation for such
periods.
<PAGE>
FFP Marketing Company, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
General
The Company was formed in connection with the December 1997
restructuring of FFP Partners, L.P.("FFP Partners"). In that restructuring
transaction FFP Partners retained, and leased to the Company, certain real
property now used in the Company's retail operations and transferred all of its
other assets and businesses to the Company. Unless the context requires
otherwise, references in this report either 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 the Company.
Results of Operations
Fuel Sales and Margins
Third Quarter Year-to-Date
Change Change
1998 1997 Amount Percent 1998 1997 Amount Percent
(In thousands, except per gallon data)
Fuel sales $77,871 $79,03 $(1,161) -1.5% $239,275 $238,257 $1,018 0.4%
Fuel margin 7,469 5,560 1,909 34.3% 20,472 15,571 4,901 31.5%
Gallons sold
Retail 59,070 49,800 9,270 18.6% 178,329 149,517 28,812 19.3%
Wholesale 26,062 21,668 4,394 20.3% 73,278 63,916 9,362 14.6%
Total 85,132 71,468 13,664 19.1% 251,607 213,433 38,174 17.9%
Margin per gallon (cents)
Retail 11.7 9.9 1.8 18.2% 10.6 9.2 1.4 15.2%
Wholesale 1.8 2.0 -0.2 -10.0% 1.9 2.3 -0.4 -17.4%
The Company was able to maintain relatively constant motor fuel sales,
in dollars, in both the third quarter and the year-to-date period while
substantially increasing fuel margins when compared to comparable periods in
1997. Retail fuel volumes and fuel margins both improved for the three and nine
month periods as a result of the additional 94 convenience stores acquired late
in 1997. Wholesale fuel volumes increased for both the third quarter and the
year-to-date periods, while wholesale fuel margins decreased for the three and
nine month periods.
Overall fuel margins increased by 34.3% and 31.5% for the three and
nine month periods, respectively. The increase in retail fuel margins in the
third quarter and the year-to-date period offset a decline in wholesale fuel
margins in the comparable periods.
Merchandise Sales and Margin
Third Quarter Year-to-Date
Change Change
1998 1997 Amount Percent 1998 1997 Amount Percent
(In thousands, except average weekly sales data)
Mdse sales $24,199 $15,633 $8,566 54.8% $71,680 $45,114 $26,566 58.9%
Mdse margin 8,153 4,780 3,373 70.6% 22,771 13,395 9,376 70.0%
Margin percentage, convenience stores and
truck stops 31.8% 29.0% 2.8% 9.7% 30.4% 27.9% 2.5% 9.0%
Average weekly mdse sales per store:
Convenience
Stores $9,465 $10,258 $(793) -7.7% $9,122 $9,852 $(730) -7.4%
Truck Stops 18,014 17,224 790 4.6% 17,305 16,469 836 5.1%
Merchandise sales and merchandise margins increased significantly
in the third quarter and the year-to-date period principally from operations
at the additional 94 convenience stores acquired in December 1997. Merchandise
sales increased by 54.8% and 58.9% in the three and nine month periods,
respectively. At the same time, merchandise margins also improved significantly
for the same periods, by 70.6% and 70.0%, respectively.
As with fuel and merchandise volumes, miscellaneous revenues
increased in both the third quarter and the year-to-date period, largely as a
result of additional revenue achieved from the 94 convenience stores acquired in
December 1997. Miscellaneous revenues include lottery ticket sales income,
money order sales income, commissions received on alcohol beverage sales,
check cashing fees, state excise tax handling fees and various other types of
income.
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 by
$4,226,000 (60.1%) in the third quarter and $12,561,000 (61.1%)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 the Company was formed, the Company now pays rent on a
number of locations that were formerly owned by the Company. This additional
rent of approximately $216,000 per month is reflected in direct store expenses.
General and administrative expenses increased by $816,000 (27.1%)
and $2,398,000 (26.9%)in the third 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, operating costs at the Company's fuel terminal which
began operations in June 1997, and increased bad debt expenses related to the
Company's money order activities.
Depreciation and amortization expenses increased by $46,000 (3.1%)
and $200,000 (5.0%)in the third quarter and year-to-date periods, respectively.
These increases resulted from 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.
Interest expense decreased in both the third quarter and year-to-date
time frames as a result of the restructuring of debt by the Company, FFP
Partners and the Company's primary bank lender in June 1998, offset by
additional interest expense related to the debt incurred by the Company to
purchase the additional convenience stores in December 1997.
In 1997 and prior years, the Company was treated as a publicly traded
partnership for income tax purposes. However, the Company knew that the phase-in
rules under the Internal Revenue Code of 1986 would cause the Company to no
longer be treated as a partnership for income tax purposes at the end of 1997.
Accordingly, the Company 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 prior to 1998. However,
in January 1998, as a result of the expiration of its grandfathered 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
began recording income tax expense accordingly.
Liquidity and Capital Resources
The Company's working capital at the end of the third quarter was
$2,570,000, which compared favorably to a negative working capital of $185,000
at year end 1997. This change resulted from improved operations in the first
three quarters of 1998 and the agreement among the Company, the Company's
primary bank lender and FFP Partners to restructure the debt due to the lender
for which FFP Partners had retained the liability in connection with its
December 1997 restructuring. Under that agreement in June 1998, the lender
permitted the Company to loan FFP Partners approximately $14,773,000 (the then
current balance of the debt due the lender for which FFP Partners had retained
liability). The interest rate and repayment terms of that loan mirrors such
terms of the debt to the lender. The loan is secured by all real estate owned
by FFP Partners and the loan is pledged as additional collateral on the debt to
the lender. In addition, all proceeds received by the Company from the loan to
FFP Partners must be applied to the term loan of the lender to the Company,
and the Company has been added as a primary obligor under the Loan Agreement.
Since the repayment terms of this loan mirrors 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 was removed as of June 28, 1998.
On June 30, 1998, the Company completed refinancing of its purchase
of 94 convenience stores acquired in December 1997. This financing consists of
44 loans with an aggregate original 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. With the proceeds of these loans, the Company repaid the
$5,735,000 balance on the bridge loan used to finance the purchase of the
outlets and for general corporate purposes.
The Company believes that its internally generated funds and
traditional use of trade credit, along with its bank line of credit, will allow
its operations to be conducted in a customary manner.
Year 2000 Computer Issues
The Company uses a variety of computer software programs to
operate and manage its businesses. The functioning of such software is subject
to problems if it does not properly interpret dates in the year 2000 and beyond.
Software which properly handles dates beginning in 2000 is said to be "year 2000
compliant." The Company's principal accounting and management information
software is currently year 2000 compliant, as is its computer networking and
operating system software. The Company uses some internally produced software
which is not year 2000 compliant but believes that the cost to modify or
replace this software such that it is year 2000 compliant will not be
significant.
However, the Company is also dependent upon software used in
conjunction with or provided by third parties, such as its merchandise and fuel
vendors, banks, credit card processing companies, and check approval vendors.
While the direct cost of rendering any software provided by these vendors year
2000 compliant will be borne by the respective vendors, there could be an
adverse impact on the Company's operations if the necessary modifications are
not made in a timely manner. The vendors involved are large, sophisticated
organizations that the Company believes are responsible in managing their
businesses and business relationships and, accordingly, believes that they will
take appropriate steps to make their systems year 2000 compliant. However, the
Company is in the process of determining if such software is year 2000
compliant, and, if not, the timetable of the respective vendors to make it+
compliant and will monitor their progress in doing so.
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. Factors that could cause actual
results to differ materially from the statements made include, but are not
limited to, the following: general economic conditions; business conditions in
the local markets served by the Company's convenience stores, truck stops,
gasoline outlets, and 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 or merchandise items sold by the Company;
changes in the gross profit realized from sales of motor fuel or merchandise;
employment issues; loss of key management personnel; changes in credit markets;
increasing operating costs, including labor, repairs, maintenance, theft, and
supplies; changes in laws or regulations affecting the Company's businesses;
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.
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: November 16, 1998 By: /s/John H. Harvison
---------------------------------
John H. Harvison
Chairman and
Chief Executive Officer
Date: November 16, 1998 By: /s/Craig T. Scott
---------------------------------
Craig T. Scott
Vice President - Finance,
Chief Financial Officer and
General Counsel
<TABLE> <S> <C>
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<PERIOD-START> DEC-29-1997
<PERIOD-END> Sep-27-1998
<CASH> 9,646
<SECURITIES> 0
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0
0
<COMMON> 22,968
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