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 26, 2000, 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 May 9, 2000)
<PAGE>
FFP MARKETING COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
MARCH 26, DECEMBER 26,
2000 1999
ASSETS
Current assets -
Cash and cash equivalents $18,634 $20,868
Investments in debt securities and
certain equity securities 5,008 3,355
Trade receivables, net 21,534 18,430
Notes receivable, current portion 1,073 1,003
Receivables from affiliates, current portion 765 878
Inventories 24,164 23,825
Prepaid expenses and other current assets 2,189 2,236
Total current assets 73,367 70,595
Property and equipment, net 39,541 40,072
Notes receivable, excluding current portion 1,284 1,059
Environmental reimbursement claim 1,215 1,283
Other assets, net 5,410 5,397
Total assets $120,817 $118,406
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities -
Current installments of long-term debt $1,231 $1,231
Current installments of capital lease
obligations 244 250
Accounts payable 25,796 23,221
Money orders payable 14,791 12,749
Advances from affiliates 881 0
Accrued expenses 17,524 18,747
Total current liabilities 60,467 56,198
Long-term debt, excluding current installments 31,887 32,205
Capital lease obligations, excluding current
installments 4,541 4,627
Deferred income taxes 1,949 2,365
Other liabilities 1,892 2,046
Total liabilities 100,736 97,441
Stockholders' equity -
Common stock ($0.01 par value) 22,235 22,235
Accumulated deficit (2,154) (1,270)
Total stockholders' equity 20,081 20,965
Total liabilities and stockholders' equity $120,817 $118,406
See accompanying Notes to Condensed Consolidated Financial Statements.
<PAGE>
FFP MARKETING COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
THREE MONTHS ENDED
MARCH 26, MARCH 28,
2000 1999
Revenues -
Motor fuel sales $123,432 $72,687
Merchandise sales 28,680 25,758
Miscellaneous 3,509 2,635
Total revenues 155,621 101,080
Costs and expenses -
Cost of motor fuel 117,508 66,386
Cost of merchandise 20,196 17,780
Direct store expenses 12,877 11,552
General and administrative expenses 3,760 3,774
Depreciation and amortization 1,724 1,499
Total costs and expenses 156,065 100,991
Operating income (444) 89
Interest income 351 326
Interest expense 1,170 682
Income (loss) before income taxes (1,263) (267)
Income tax expense (benefit) -
Current 0 0
Deferred (379) (77)
Total (379) (77)
Net income (loss) $(884) $(190)
Net income (loss) per share -
Basic $(0.23) $(0.05)
Diluted (0.23) (0.05)
Weighted average number of common shares
outstanding -
Basic 3,818 3,818
Diluted 3,818 3,818
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 26, MARCH 28,
2000 1999
Cash Flows from Operating Activities -
Net income (loss) $(884) $(190)
Adjustments to reconcile net income
(loss) to cash provided (used) by
operating activities -
Depreciation and amortization 1,724 1,499
Provision for doubtful accounts 22 0
Deferred income tax expense (benefit) (379) (77)
Increase in trading securities (1,653) 0
Gain on sale of convenience stores (210) 0
Net change in operating assets and
liabilities 749 (3,012)
Net cash provided (used) by operating activities (631) (1,780)
Cash Flows from Investing Activities -
Additions of property and equipment, net (1,193) (4,000)
Net cash (used) by investing activities (1,193) (4,000)
Cash Flows from Financing Activities -
Net borrowings (repayments) of long-term
debt and capital lease obligations (410) 6,596
Net cash provided (used) by financing activities (410) 6,596
Net increase (decrease) in cash and cash equivalents (2,234) 816
Cash and cash equivalents at beginning of period 20,868 9,537
Cash and cash equivalents at end of period $18,634 $10,353
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION (IN THOUSANDS):
Cash paid for interest $1,170 $673
Purchase of inventory/equipment for note to affiliate $0 $2,692
See accompanying Notes to Condensed Consolidated Financial Statements.
<PAGE>
FFP MARKETING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 26, 2000
(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. These companies are collectively referred to as the
"Company."
The condensed consolidated balance sheet as of March 26, 2000, and the
condensed consolidated statements of operations and cash flows for the three
month periods ended March 26, 2000, and March 28, 1999, 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 26, 2000, 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 26,
1999, 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 26, 2000, and as discussed below.
2. Income (Loss) per Share
Basic net income (loss) per share is computed by dividing net income (loss)
by the weighted average number of common shares outstanding for the year.
Diluted net income per share is computed by dividing net income (loss) by the
weighted average number of common shares outstanding for the year plus
potentially dilutive common shares. Outstanding options to acquire 231,667 and
230,667 common shares at March 26, 2000, and March 28, 1999, respectively, have
been excluded from the diluted computation because the effect would have been
anti-dilutive. A reconciliation follows of the denominators of the basic and
diluted income (loss) per share calculations for the applicable first quarter
periods in 2000 and 1999:
2000 1999
(in thousands)
Weighted average number of common shares outstanding 3,818 3,818
Effect of dilutive options 0 0
Weighted average number of common shares outstanding,
assuming dilution 3,818 3,818
<PAGE>
3. Operating Segments
The Company and its subsidiaries are principally engaged in two operating
segments: (i) the retail and wholesale sale of motor fuel, merchandise and other
products and services at convenience stores, truck stops, and other gasoline
outlets ("Retail and Wholesale"), and (ii) the operation of a motor fuel
terminal and processing facility ("Terminal Operations"). The Company has
identified 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 first quarters of 2000 and 1999:
Retail and Terminal
Wholesale Operations Eliminations Consolidated
(In thousands)
First Quarter 2000
Revenues from external sources $140,444 $15,177 $0 $155,621
Revenues from other segment 0 7,541 (7,541) 0
Depreciation and amortization 1,577 147 0 1,724
Income (loss) before income
taxes (1,453) 190 0 (1,263)
First Quarter 1999
Revenues from external sources $100,918 $162 $0 $101,080
Revenues from other segment 0 2,767 (2,767) 0
Depreciation and amortization 1,368 131 0 1,499
Income (loss) before income
taxes 12 (279) 0 (267)
<PAGE>
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 was
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 Date Formed Principal Activity
FFP Operating Partners, December 1986 Operation of convenience
L.P., a Delaware limited stores and other retail outlets
partnership
Direct Fuels, L.P., a Texas December 1988 Operation of fuel terminal and
limited partnership wholesale fuel sales
FFP Financial Services, September Sale of money order services
L.P., a Delaware limited 1990 and supplies
partnership
Practical Tank Management, September Underground storage tank
Inc., a Texas corporation 1993 monitoring
FFP Transportation, L.L.C., September Ownership of tank trailers and
a Texas limited liability 1994 other transportation equipment
company
FFP Money Order Company, December 1996 Sale of money orders through
Inc., a Nevada corporation agents
The Company and its subsidiaries are principally engaged in two operating
segments: (i) the retail and wholesale sale of motor fuel, merchandise and other
products and services at approximately 430 convenience stores, truck stops, and
other gasoline outlets ("Retail and Wholesale"), and (ii) the operation of a
motor fuel terminal and processing facility ("Terminal Operations"). See Note 3,
above.
RESULTS OF OPERATIONS FOR FIRST QUARTER 2000 COMPARED WITH FIRST QUARTER 1999
Fuel Sales and Margins
First Quarter Change
2000 1999 Amount Percent
(In thousands, except per gallon data)
Fuel sales $123,432 $72,687 $50,745 69.8%
Fuel margin 5,924 6,301 (377) (6.0%)
Gallons sold
Retail 59,633 62,738 (3,105) (4.9%)
Wholesale 37,486 22,717 14,769 65.0%
Total 97,119 85,455 11,664 13.6%
Margin per gallon (cents)
Retail 9.4 9.1 0.3 3.3%
Wholesale 3.5 1.8 1.7 94.4%
The Company sold more motor fuel, in both dollars and gallons, in the first
quarter of 2000 than in the first quarter of 1999. Motor fuel sales, in dollars,
increased substantially (69.8%) in the first quarter of 2000, primarily as a
result of the industry-wide fuel price increases that have continued throughout
1999 and thus far into 2000 and also from additional sales from 25 additional
stores purchased on February 26, 1999. To illustrate the rise in prices, the
Company's $1.32 per gallon average retail price of motor fuel sales in the first
quarter of 2000 was $0.44 (50.0%) higher than the $0.88 per gallon average
retail price of motor fuel sold in the first quarter of 1999. As a result, the
Company's motor fuel sales increased by $50,745,000 in the first quarter of 2000
compared to the corresponding period of 1999.
In all, the Company sold 97,119,000 gallons of motor fuel in the first
quarter 2000, an 11,664,000 gallon increase (13.6%) over the volume of motor
fuel sold in the comparable 1999 period. This increase was primarily
attributable to additional wholesale fuel sales of 14,760,000 gallons, which
offset a 4.9% reduction in retail gallons sold resulting from increased retail
competition. In pursuit of alternative strategies for profit improvement, the
Company expanded its wholesale sales efforts and its processing activities at
its terminal facility. Through this motor fuel blending and transmix processing
at the terminal, the Company now supplies wholesale motor fuel on a very
competitive basis. Because motor fuel prices for the Company's inventory in the
South remained relatively constant in the first quarter and did not offset motor
fuel prices increased in the Northeast as a result of its significantly colder
winter, the Company incurred an exchange and motor fuel hedging loss of
$1,002,000 in the first quarter of 2000 as the Company sought to protect its
motor fuel inventory values. Motor fuel retail and wholesale fuel margins per
gallon improved during the first quarter of 2000, as reflected in the above
table which excludes the exchange and hedging loss, while the Company's overall
gross profit on motor fuel sales declined by 6.0% when compared to the
corresponding 1999 quarter. Those margins increased principally as a result of
additional volumes of product being processed at the Company's terminal facility
after connecting in late 1999 to a pipeline transporting motor fuel from the
Texas Gulf Coast. Those increased volumes and margins are expected to continue
in future months with this processing activity, although no assurances can be
given that such expectations will be realized.
Merchandise Sales and Margins
First Quarter Change
2000 1999 Amount Percent
(In thousands, except average weekly sales data)
Mdse sales $28,680 $25,758 $2,922 11.3%
Mdse margin 8,484 7,978 506 6.3%
Margin percentage, convenience
stores and truck stops 28.3% 31.0% (2.7%) (8.7%)
Average weekly mdse sales per store:
Convenience stores $10,585 $10,137 $448 4.4%
Truck stops 16,269 16,629 (360) (2.2%)
Merchandise sales increased by $2,922,000 (11.3%) in the first quarter of
2000. Principal factors for that increase were an increase in the sales price of
tobacco products, which earn a lower retail margin than the average merchandise,
and sales from the additional stores purchased on February 26, 1999. Merchandise
gross profit increased by $506,000 (6.3%) as a result of the additional
merchandise sales and overcame an 8.7% decline in gross margin percentage.
Other Income and Expenses
Miscellaneous income rose to $3,509,000 in the first quarter of 2000 from
$2,635,000 in the first quarter of 1999, a 33.2% increase. As with fuel and
merchandise volumes, the increase in miscellaneous revenues was impacted
favorably by the purchase of 25 additional stores on February 26, 1999.
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.
The $1,325,000 (11.5%) increase in direct store expenses also relates, in
part, to the additional direct store costs associated with operating the 25
additional stores acquired in February 1999. General and administrative expenses
remained constant in the 2000 period, although the Company operated a greater
number of convenience stores than in prior years.
Depreciation and amortization increased by $225,000 (15.0%) in the current
quarter. This increase resulted in part from depreciation of the fixtures and
equipment acquired in the February 1999 acquisition of 25 additional convenience
stores and truck stops.
Where interest income remained constant in the first quarter of 2000,
compared to the corresponding period in the prior year, interest expense
increased by $488,000 (71.6%) as a result of higher debt levels in the first
quarter of 2000 than in the first quarter of 1999. The Company has obtained
fixed interest rates for its new debt, which could be beneficial in the future
if interest rates continue to rise as they have since the loans were closed. In
future years, these loan payments will convert slowly toward a higher
percentage of principal payments and a lower percentage of interest payments.
Liquidity and Capital Resources
The majority of the Company's working capital is provided from three sources:
(i) liquid, short-term investments since receiving the proceeds of the pay off
of a note receivable from FFP Partners in October 1999, (ii) cash flows
generated from its operating activities, and (iii) borrowings under its new
revolving line of credit facility. The Company believes that these investments,
operating activities, and short-term working capital facilities, will provide
sufficient liquidity to fund current commitments for operating and capital
expenditure programs, as well as to service debt requirements. Actual capital
expenditure funding will be dependent on the level of cash flow generated from
operating activities and the funds available from financings.
Since October 1999, net funds of approximately $10,000,000 provided the
Company by the repayment of debt by FFP Partners have been invested in
short-term, liquid investments. These funds earned approximately $573,000 (plus
interest) in the first quarter of 2000 and provide a new source of liquidity for
future operations.
In December 1999, the Company obtained a new revolving line of credit
providing for borrowings of up to $10,000,000, with the amount available at any
time limited to a borrowing base equal to 80% of certain of its trade
receivables plus 60% of its inventory at the terminal; provided, however, that
any amounts which would cause outstanding borrowings under the facility to
exceed $5,000,000 are limited to 140% of the net value of debt and equity
securities in the Company's trading account at a brokerage firm. At March 26,
2000, the borrowing base was $9,800,000, but the Company was not obligated under
such revolving credit facility. The net value of the Company's securities at the
brokerage firm was approximately $7,831,000 on that date. The revolving credit
facility bears interest at the lender's prime rate plus one percentage point,
payable monthly on amounts borrowed, and matures in December 2002. The loans are
subject to a Loan Agreement and a Security Agreement between the lender, the
Company and two subsidiaries of the Company. The agreement contains numerous,
but typical, restrictive covenants including a financial covenant relating to
the maintenance of a specified fixed charge coverage ratio of 1.25 to 1, all as
defined in the agreement. The loan is secured by all of the Company's trade
accounts receivables and its inventory at the terminal.
Subject to obtaining satisfactory deal terms, the Company in 2000 intends to
increase significantly (i) the outright sales of convenience stores, and (ii)
the sales of its convenience store operations to independent operators while
retaining a motor fuel concession at those locations. It has identified numerous
Company-operated convenience stores that it would consider converting to
gas-only stores in such a manner. The Company may or may not purchase additional
convenience stores in 2000 and beyond as the convenience store industry goes
through as period of greater competition and consolidation. Any such
dispositions or acquisitions will impact the Company's financial results and
liquidity. Through March 26, 2000, the Company has closed on the sale of six on
those stores and several others were under contract for sale.
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 not significant at March 26, 2000.
Over the last few years, the Company's money order sales have increased
significantly. For example, money order payables at the end of fiscal year 1996
were $7,809,000, compared to money order payables of $14,791,000 at March 26,
2000. 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 from its third
party money order sales agents. In 1998 the Company incurred an additional bad
debt loss from its money order operations. The Company is currently attempting
to recover a substantial portion of these losses that were attributable to two
reasons: bank encoding errors and fraudulent actions by a third party money
order agent. The Company is subject to the risk of failing to receive money
order payments on a timely basis from its money order agents, although the
Company does believe that it has sufficiently strengthened the necessary
controls in its money order operations.
The Company had positive working capital of $12,900,000 at March 26, 2000,
compared to $14,397,000 at the end of 1999. 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. The Company is now entering its typically strongest period of the year
when revenues and cash flows generally increase. Consequently, management
believes 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.
Year "2000 " Issues
Over the past several years, the Company has prepared for the possible
disruptions that might have resulted from the date change to year 2000. No
significant year 2000 problems were experienced, and the Company believes that
no material exposure to year 2000 issues exist. Total expenditures prior to the
year 2000 related to modifications of existing software and conversions to new
software for the year 2000 issue were approximately $700,000, of which
approximately $350,000 was capitalized.
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 new 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.
However, the Company had no borrowings under that facility at March 26, 2000. As
a result, all of the Company's obligations for the first quarter of 2000 were
not subject to interest rate risk because it had refinanced such indebtedness
with fixed rate financing.
The Company is also subject to the market risk of increasing commodity prices
and sometimes attempts to hedge that risk by purchasing commodity futures and
forward contracts. An attempt to hedge that risk is subject to risk because the
commodities subject to the hedging contract are not the same commodities as
those owned by the Company in its business. Open positions under these futures
and forward contracts were not significant at March 26, 2000.
<PAGE>
EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
27 Financial Data Schedule.
Reports on Form 8-K
None.
<PAGE>
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: May 9, 2000 By: /s/John H. Harvison
---------------------------------
John H. Harvison
Chairman and
Chief Executive Officer
Date: May 9, 2000 By: /s/Craig T. Scott
---------------------------------
Craig T. Scott
Vice President - Finance and
Chief Financial Officer
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<PERIOD-START> DEC-27-1999
<PERIOD-END> MAR-26-2000
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