UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 1995, 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. 1-9510
FFP PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
Delaware 75-2147570
(I.R.S. employer
(State or other jurisdiction of identification number)
incorporation or organization)
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)
Securities registered pursuant to Section 12(b) of the Act
Title of Each Class Name of Each Exchange on Which Registered
Units Representing Class A American Stock Exchange
Limited Partnership Interests
Unit Purchase Rights American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act
None
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 -------
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]
The aggregate market value of Class A Units held by
non-affiliates of the registrant at March 29, 1996, was $11,485,000. For
purposes of this computation, all officers, directors, and beneficial owners of
10% or more of the Class A Units of the registrant are deemed to be affiliates.
Such determination should not be deemed an admission that such officers,
directors, and beneficial owners are affiliates.
Class A Units 3,442,872
Class B Units 235,000
(Number of units outstanding as of March 29, 1996)
<PAGE>
Part I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Part II
Item 5. Market for the Registrant's Units and Related
Security Holder Matters
Item 6. Selected Financial and Operating Data
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Part III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners
and Management
Item 13. Certain Relationships and Related Transactions
Part IV
Item 14. Exhibits, Financial Statements, Schedules and Reports
on Form 8-K
Signatures
<PAGE>
PART I
ITEM 1. BUSINESS.
General Background
FFP Partners, L.P. ("FFPLP," the "Partnership" or the
"Company"), through its subsidiaries, owns and operates convenience stores,
truck stops, and self-service motor fuel outlets over an eleven state area. It
also operates check cashing outlets and sells motor fuel on a wholesale basis,
both primarily in Texas. FFPLP, a Delaware limited partnership, was formed in
December 1986, pursuant to the Agreement of Limited Partnership of FFP Partners,
L.P. (the "Partnership Agreement"). FFP Partners Management Company, Inc.
("FFPMC" or the "General Partner") serves as the general partner of the
Partnership. FFPMC or a subsidiary also serves as the general partner of the
Partnership's subsidiary partnerships. References herein to the "Company"
include FFPLP and its subsidiaries.
The Company commenced operations in May 1987 upon the purchase
of its initial base of retail outlets from affiliates of the General Partner.
The purchase of these outlets was completed in conjunction with the Company's
initial public offering of 2,065,000 Class A Units of limited partnership
interest, representing a 56% interest in the Company. In connection with this
transaction, 1,585,000 Class B Units of limited partnership interest,
representing a 43% interest in the Company, were issued to affiliates of the
General Partner and the General Partner received its 1% interest in the Company.
(As permitted in the Partnership Agreement, certain of these Class B Units were
converted to Class A Units in January 1996.) The senior executives of the
Company had owned and managed these operations prior to their acquisition by the
Company. Although the companies from which the Company acquired these retail
outlets engage in other businesses which they conducted in the past, they agreed
not to engage in the convenience store, retail motor fuel, or other businesses
which compete with the Company without prior approval by a majority of the
General Partner's disinterested directors. The affiliates of the General Partner
that received Class B Units upon the Partnership's commencement of operations
were: Economy Oil Company; Gas-Go, Inc.; Gas-N-Sav, Inc.; Hi-Lo Corporation;
Hi-Lo Distributors, Inc.; Nu-Way Distributing Company; Nu-Way Oil Company;
Swifty Distributors, Inc.; Thrift-Way, Inc.; Thrift Distributors, Inc.; and
Thrift Wholesale Company.
The Company maintains its principal executive offices at 2801
Glenda Avenue, Fort Worth, Texas 76117-4391; its telephone number is
817/838-4700.
Operations
Description of Operations. The Company conducts its operations
principally through its 99%-owned subsidiary, FFP Operating Partners, L.P.
("FFPOP"), a Delaware limited partnership. FFPMC holds a 1% general partner's
interest in FFPOP. The Company has other direct or indirect subsidiaries: Direct
Fuels, L.P; FFP Financial Services, L.P.; FFP Illinois Money Orders, Inc.;
Practical Tank Management, Inc., and FFP Transportation, L.L.C. These companies
are engaged in the same businesses as FFPOP or in businesses that are
complimentary to its activities.
Convenience Stores. At December 31, 1995, the Company operated
127 convenience stores, the same number as at the previous year end. Although
the Company sold the the merchandise operations of ten outlets to independent
operators in 1995, it opened or converted from self-service gasoline outlets a
like number of stores. {See Store Development.} The Company's stores are open
seven days a week, offer extended hours (14 of the stores are open 24 hours a
day, the remainder generally are open from 6:00 am to midnight), and emphasize
convenience to the customer through location, merchandise selection, and
service. The convenience stores sell groceries, tobacco products, take-out foods
and beverages (including alcoholic beverages where local laws permit), dairy
products, and non-food merchandise such as health and beauty aids and magazines
and, at all except two of the stores, motor fuel. Five of the stores also offer
check cashing and related money transfer services. Food service in the
convenience stores varies from pre-packaged sandwiches and fountain drinks to
full food-service delicatessens (at 41 stores) with limited in-store seating.
During late 1993, the Company began installing small "express" franchises of
Kentucky Fried Chicken(R) and Subway Sandwiches(R) in selected convenience
stores and at the end of 1995 three of its convenience stores had such outlets
in them. {See Store Development; Products, Store Design and Operation.} The
convenience stores operate under several different trade names, all of which
were used by the predecessor companies. The principal trade names are "Kwik
Pantry," "Nu-Way," and "Economy Drive-Ins."
For fiscal year 1995, the convenience stores accounted for 39%
(44% in 1994) of the Company's consolidated revenues. They had average weekly
per store merchandise sales of $9,560 and motor fuel sales of 12,093 gallons. In
fiscal 1994, average weekly sales were $9,901 of merchandise and 12,013 gallons
of fuel.
Truck Stops. At December 31, 1995, the Company operated ten
truck stops, the same number as at the previous year end. The truck stops, which
principally operate under the trade name of "Drivers," are located on interstate
and other highways and are similar in their operations to the convenience
stores, although the merchandise mix is directed towards truck drivers and the
traveling public. Five of the truck stops have full service restaurants; the
Company operates two of the restaurants and leases the other three to
independent operators. The other five outlets offer prepared-to-order food
service, including two outlets which have a combination Kentucky Fried
Chicken/Taco Bell "express" franchise and one which has a Pizza Hut franchise
within the store. In 1995, the truck stops (including their associated
restaurants and food service facilities) accounted for 13% (15% in 1994) of the
Company's consolidated revenues, with average weekly per outlet merchandise and
food sales (including food service sales) of $17,506 ($18,160 in 1994) and fuel
sales of 68,274 gallons (79,348 gallons in 1994).
Self-Service Gasoline Outlets. The Company operated 194
self-service gasoline outlets at December 31, 1995, a net increase of 9 outlets
since the prior year end. This increase resulted principally from the sale of
the merchandise operations of certain convenience stores, referred to above.
Although these convenience store operations were sold, the Company retained the
motor fuel concession at these locations. In addition, the Company acquired some
outlets through the execution of new contracts with convenience store operators
and the re-opening of previously closed locations and closed or disposed of
other locations. The Company's self-service gasoline outlets consist of fuel
pumps and related storage equipment located at independently operated
convenience stores. These outlets are operated pursuant to contracts that
generally obligate the Company to provide motor fuel inventory, fuel storage and
dispensing equipment, and maintenance of the fuel equipment while the store
operator agrees to collection and remittance procedures. The convenience store
operators are compensated by commissions based on profits and/or the volume of
fuel sold. In addition, the contracts generally grant the Company the right of
first refusal to purchase the operator's convenience store should it be offered
for sale. Many of the contracts have renewal options and, based on past
experience, the General Partner believes that a significant number of those
contracts which do not have renewal options will be renegotiated and renewed
upon expiration. In addition to the contractual arrangement between the store
operator and the Company, 99 of these operators also lease or sublease the store
building and land from the Company or affiliates of the General Partner.
During fiscal 1995, the self-service gasoline outlets had
average weekly per outlet fuel sales of 7,794 gallons as compared to 7,579
gallons in fiscal 1994. In 1995, the Company's self-service gasoline outlets
accounted for 23% (20% in 1994) of the Company's consolidated revenues.
Wholesale Fuel Sales. The Company has sold motor fuel on a
wholesale basis to smaller independent and regional chains of fuel retailers
since it commenced operations. The wholesale fuel operation was expanded in
later years to include sales to commercial end-users of motor fuels, such as
local governmental units, operators of vehicle fleets, and public utilities. In
1995, the Company's wholesale operations contributed 24% of consolidated
revenues (20% in 1994). During 1995, the Company did not have facilities for the
bulk storage of motor fuel. Accordingly, purchases were made to fill specific
customer orders.
In March 1996, the Company completed the purchase of a
non-operating fuel processing facility and bulk storage terminal located in
Euless, Texas. The facility will require renovation to make it operational and
the Company does not anticipate its becoming operational until late 1996 or
early 1997.
The Company has been designated a "jobber" for Citgo, Chevron,
Fina, Conoco, Texaco, Coastal, Diamond Shamrock, Sinclair, and Phillips 66. This
designation enables the Company to work with independent fuel retailers to
qualify the retailers to operate as a branded outlet for the large oil company.
The Company then supplies motor fuel to such retailers on a wholesale basis
under contracts ranging from five to ten years.
Management believes the Company's fuel wholesale activities
enhance its relationships with its fuel vendors by increasing the volume of
purchases from such vendors. In addition, the wholesale activities permit the
Company to develop relationships with smaller fuel retailers that may, at some
future time, be interested in entering into a self-service gasoline marketing
arrangement with the Company. {See Self-Service Gasoline Outlets.}
Market Strategy. The Company's market strategy emphasizes the
operation and development of existing stores and retail outlets in small
communities rather than metropolitan markets. In general, the Company believes
stores in communities with populations of 50,000 or less experience a more
favorable operating environment, primarily due to less competition from larger
national or regional chains and access to a higher quality and more stable labor
force. In addition, costs of land, reflected in both new store development costs
and acquisition prices for existing stores and retail outlets, are generally
lower in small communities. As a result of these factors, the Company believes
this market strategy enables it to achieve a higher average return on investment
than would be achieved by operating primarily in metropolitan markets.
Store Development. From 1989 through 1993 the Company
increased the number of its convenience stores from 129 to 145, primarily by the
acquisition of existing stores, including five stores in Illinois that were
acquired, at no cost, by assuming the operation of stores previously operated by
a company owned by the Company's Executive Vice President - Convenience Stores
who was hired in the fourth quarter 1992, and five stores that were formerly
self-service gasoline outlets. In 1994, the Company reduced the number of its
convenience stores to 127. This decline resulted from the closing of the five
Illinois stores acquired in 1992 and the sale of the merchandise operations at
15 convenience stores. The Company also converted certain of its self-service
gasoline outlets to Company operated convenience stores and closed some other
outlets.
In early 1994 in its continuing endeavor to increase the
productivity and operating efficiency of its existing store base, the Company
identified outlets that it believed would contribute more to the earnings of the
Company if operated by independent operators rather than by the Company. The
Company undertook a program to sell the merchandise operations of these outlets
to independent operators. In 1995 and 1994 the Company sold the merchandise
operations at 10 and 15 of these outlets, respectively. Because of their
different overhead structure, independent operators are often able to operate
the stores less expensively than can the Company. These sales were structured
such that the Company retained the real estate or leasehold interest and leased
or subleased the land and building to the operator for a five year period with a
five year renewal option. The Company also entered into a self-service gasoline
agreement covering the fuel sales at these locations. Management believes that
the sales of these stores and the resulting combination of rents, fuel profits,
and other income enhance the profitability of these outlets to the Company. The
Company is continuing to negotiate the sales of the merchandise operation of
additional stores.
In addition to the sales of the merchandise operations at
certain convenience stores, discussed above, management is seeking other ways to
increase the productivity of the Company's present base of convenience store and
truck stop outlets. A part of this effort involves the installation of
limited-menu "express" outlets of national food franchises in Company outlets.
In March 1994, the Company commenced operating combination Kentucky Fried
Chicken/Taco Bell outlets in two truck stops, Kentucky Fried Chicken outlets in
two convenience stores, and a Subway Sandwich franchise in one convenience
store. In 1995 a Pizza Hut outlet was added in one of the Company's truck stops.
The Company's experience with this type of food service operation indicates that
it increases store traffic as it offers the advantage of national name-brand
recognition and advertising. In addition, the training and operational programs
of these franchisors provide a consistent and high-quality product to the
Company's customers. Management is evaluating the existing operations to
determine if it would be appropriate to install additional outlets of this type
in other locations. It is also evaluating the relative merits of the various
types of franchises.
Opportunities to expand self-service gasoline outlets are
limited by competitive factors, including the existence of established
facilities at most independent convenience stores. However, the Company
continues to pursue the acquisition of this type of outlet principally through
the development of relationships through its fuel wholesaling operations.
Products, Store Design and Operation. The number and type of
merchandise items stocked in the convenience stores vary from one store to
another depending upon the size and location of the store and the type of
products desired by the customer base served by the store. However, the stores
generally carry national or regional brand name merchandise of the type
customarily carried by competing convenience stores. Substantially all the
convenience stores and truck stops offer fast foods such as hot dogs,
pre-packaged sandwiches and other foods, and fountain drinks. Forty- one of the
convenience stores have facilities for daily preparation of fresh food catering
to local tastes, including fried chicken and catfish, tacos, french fries, and
made-to-order sandwiches. Also, as discussed above three convenience stores and
three truck stops have small "express" outlets of national fast-food franchises.
Although the stores vary in layout and design, schematic
diagrams for each store are used to direct the store manager in the placement of
products to maximize exposure of high turnover and high margin items to the flow
of customer traffic.
During 1992 and 1993, the Company aggressively priced certain
merchandise in its stores, especially cigarettes, in order to increase sales and
customer traffic. Having built its store traffic, during 1994 and 1995 the
Company became less aggressive in pricing certain items and focused on improving
its merchandise gross profit margin. As a result, average weekly merchandise
sales increased in 1992 and 1993 over the respective prior years and declined in
1994 and 1995. However, despite the sales declines in 1994 and 1995, managment
believes that its overall profitability has been enhanced.
The Company utilizes a team approach to its marketing function
rather than having a specific person who is responsible for that activity.
Senior operations executives and other management personnel continually review
and evaluate products and services for possible inclusion in the Company's
retail outlets. Special emphasis is given to those goods or services which carry
a higher than usual gross profit margin, will increase customer traffic within
the stores, or complement other items already carried by the stores. The
marketing teams, which include the Regional Managers, in conjunction with the
Company's vendors, develop and implement promotional programs and incentives on
selected items, such as fountain drinks and fast food items. In addition, new
products and services are reviewed on a periodic basis to ensure a competitive
product selection. Due to the geographic distribution of the Company's stores
and the variety of trade names under which they are operated, the use of
advertising is limited to location signage, point-of-sale promotional materials,
advertisements in local newspapers, and locally distributed flyers.
Over the last several years, the Company has increased the
number of its "branded" outlets, those which are affiliated with a large oil
company. In March 1996, the Company had 209 retail outlets which were branded,
as compared to 65 such outlets in 1990. The Company has outlets that are branded
Citgo, Chevron, Fina, Conoco, Texaco, Coastal, and Diamond Shamrock. Branded
locations generally have higher fuel sales volumes (in gallons) than non-branded
outlets due to the advertising and promotional activities of the respective
major oil company and the acceptance of such oil company's proprietary credit
cards. The increased customer traffic associated with higher fuel sales tends to
increase merchandise sales volumes, as well. The Company continues to evaluate
the desirability of branding additional outlets. In addition to the Company
operated convenience stores and self-service fuel outlets that are branded, the
Company also serves as a wholesale distributor to 160 branded retail outlets.
Merchandise Supply. Based on competitive bids, the Company has
selected a single company as the primary grocery and merchandise supplier to its
convenience stores and truck stops. Certain merchandise items, however, such as
bakery goods, dairy products, soft drinks, beer, and other perishable products,
are generally purchased from local vendors and/or wholesale route salespeople.
The Company believes it could replace any of its merchandise suppliers,
including its primary merchandise supplier, with no significant adverse effect
on its operations.
Motor Fuel Supply. The Company purchases fuel for its branded
retail outlets and branded wholesale customers from the respective oil company
which branded the outlet and for its unbranded outlets from large integrated oil
companies and independent refineries. In order to maintain flexibility in the
purchase of motor fuel, the Company does not have long-term contracts with any
suppliers of petroleum products covering more than 10% of its motor fuel supply.
During recent years, the Company has not experienced any
difficulties in obtaining sufficient quantities of motor fuel to satisfy retail
sales requirements. However, unanticipated national or international events
could result in a curtailment of motor fuel supplies to the Company, thereby
adversely affecting motor fuel sales. In addition, management believes a
significant portion of its merchandise sales are to customers who also purchase
motor fuel. Accordingly, reduced availability of motor fuel could negatively
impact other facets of the Company's operations, as well.
Competition
The convenience store industry is highly competitive. Most
convenience stores in the Company's market areas sell motor fuel; in addition,
merchandise similar or identical to that sold by the Company's stores is
generally available to competitors. The Company competes with local and national
chains of supermarkets, drug stores, fast-food operations, and motor fuel
retailers. It also competes with independently operated convenience stores and
national chains of convenience stores such as "7-Eleven" and "Circle K." Some of
the Company's competitors have large sales volumes, benefit from national or
regional advertising, and have greater financial resources than the Company.
Major oil companies are also becoming a significant factor in the convenience
store industry as they convert outlets that previously sold only motor fuel to
convenience stores; however, major oil company stores generally carry a more
limited selection of merchandise than that carried by the Company's outlets and
operate principally in metropolitan areas, where the Company has few outlets.
The Company believes each of its retail outlets competes with
other retailers in its immediately surrounding area, generally within a radius
of one to two miles. Management believes the Company's outlets compete based on
location, accessibility, the variety of products and services offered, extended
hours of operation, price, and prompt check-out service.
The Company's wholesale fuel operation is also very
competitive. Management believes this business is highly price sensitive,
although the ability to compete is also dependent upon providing quality
products and reliable delivery schedules. The Company's wholesale fuel operation
competes for customers with large integrated oil companies and smaller,
independent refiners and fuel jobbers, some of which have greater financial
resources than the Company. Management believes it can compete effectively in
this business because of the Company's purchasing economies, numerous supply
sources, and the reluctance of many larger suppliers to sell to smaller
customers.
Employees
At March 24, 1996, the Company employed 1,143 people (including
part-time employees). In addition to employees of the Company, the General
Partner employs five executive officers who perform services for the Company;
the Company reimburses the General Partner for the direct and indirect costs of
these personnel.
There are no collective bargaining agreements between the
Company and any of its employees. Management believes the relationship with
employees of the Company is good.
Trademarks and Trade Names
The Company's convenience stores and truck stops are operated
under a variety of trade names, including "Kwik Pantry," "Nu-Way," "Economy,"
"Dynamic Minute Mart," "Drivers," and "Drivers Diner." New outlets generally use
the trade name of the Company's stores predominant in the geographic area where
the new store is located. The Company sells money orders in its outlets, and
through agents, under the service mark "Financial Express Money Order Company."
The money orders are produced using a computer controlled laser printing system
developed by the Company. This system is also marketed to third parties under
the name of "Lazer Wizard."
Eight of the Company's truck stops operate under the trade name
of "Drivers;" the two other truck stops use the same trade name as the Company's
convenience stores in the area in which they are located.
The Company has registered the names "FFP Partners," "Kwik
Pantry," "Drivers," "Drivers Diner," "Financial Express Money Order Company,"
and "Lazer Wizard" as service marks or trademarks under federal law.
Insurance
The Company does not carry workers' compensation insurance in
the State of Texas. However, it has insurance policies, which limit the
Company's exposure to losses related to claims of failure to provide a safe work
environment. Management believes the limits, and related deductibles of this
coverage, are prudent in light of the Company's exposure to loss. The Company
maintains workers' compensation coverages in the other states in which it
conducts business.
The Company maintains liability coverages for its vehicles which
meet or exceed state requirements but it does not carry automobile physical
damage insurance. Insurance covering physical damage of properties owned by the
Company is generally carried only for selected properties. The Company maintains
property damage coverage on leased properties as required by the terms of the
leases thereon.
The Company maintains general liability insurance with limits
and deductibles management believes prudent in light of the exposure of the
Company to loss and the cost of the insurance. The Company does not maintain any
insurance covering losses due to environmental contamination. {See Government
Regulation - Environmental Regulation.}
The Company monitors the insurance markets and will obtain such
additional insurance coverages as it believes appropriate at such time as they
might become available at costs management believes reasonable.
Government Regulation
Alcoholic Beverage Licenses. The Company's retail outlets sell
alcoholic beverages in areas where such sales are legally permitted. The sale of
alcoholic beverages is generally regulated by state and local laws which grant
to various agencies the authority to approve, revoke, or suspend permits and
licenses relating to the sale of such beverages. In most states, such agencies
have wide-ranging discretion to determine if a licensee or applicant is
qualified to be licensed. The State of Texas requires that licenses for the sale
of alcoholic beverages be held, directly or indirectly, only by individual
residents of Texas or by companies controlled by such persons. Therefore, the
Company has an agreement with a corporation controlled by John Harvison, the
Chairman and a director of the General Partner, which permits that corporation
to sell alcoholic beverages in the Company's Texas outlets where such sales are
legal.
In many states, sellers of alcoholic beverages have been held
responsible for damages caused by persons who purchased alcoholic beverages from
them and who were at the time of the purchase, or subsequently became,
intoxicated. Although the Company's retail operations have adopted procedures
which are designed to minimize such liability, the potential exposure to the
Company as a seller of alcoholic beverages is substantial. The Company's present
liability insurance provides coverage, within its limits and subject to its
deductibles, for this type of liability.
Environmental Regulation. The Company is subject to various
federal, state, and local environmental, health, and safety laws and
regulations. In particular, federal regulations issued in late 1988 regarding
underground storage tanks established requirements for, among other things,
underground storage tank leak detection systems, upgrading of underground tanks
with respect to corrosion resistance, corrective actions in the event of leaks,
and the demonstration of financial responsibility to undertake corrective
actions and compensate third parties for damages in the event of leaks. Certain
of these requirements were effective immediately and others are being phased in
over a ten year period. However, all underground storage tanks must comply with
all requirements by December 1998. The Company has implemented a plan to bring
all of its existing underground storage tanks and related equipment into
compliance with these laws and regulations and currently estimates the costs to
do so will range from $2,800,000 to $3,425,000 over the next three years. Such
costs are included in the Company's anticipated capital expenditures.
All states in which the Company has underground storage tanks
have established trust funds for the sharing, recovering, and reimbursing of
certain cleanup costs and liabilities incurred as a result of leaks in such
tanks. These trust funds, which essentially provide insurance coverage for the
cleanup of environmental damages caused by an underground storage tank leak, are
funded by a tax on underground storage tanks or the levy of a "loading fee" or
other tax on the wholesale purchase of motor fuels within each respective state.
The coverages afforded by each state vary but generally provide up to $1,000,000
for the cleanup of environmental contamination and most provide coverage for
third-party liability, as well. Some of the funds require the Company to pay
deductibles up to $25,000 per occurrence.
Although the benefits afforded the Company as a result of the
trust funds are substantial, the Company may not be able to recover through
higher retail prices the costs associated with the fees and taxes which fund the
trusts.
Management believes the Company complies in all material
respects with existing environmental laws and regulations and is not currently
aware of any material capital expenditures, other than as discussed above, that
will be required to further comply with such existing laws and regulations.
However, new laws and regulations could be adopted which could require the
Company to incur significant additional costs.
Federal Income Tax Law
Under the Internal Revenue Code of 1986, as amended (the
"Code"), certain publicly-traded partnerships are treated as corporations for
tax purposes. However, due to a transitional rule, the Company will continue to
be treated as a partnership for federal income tax purposes until the earlier of
(i) its first tax year beginning after 1997 or (ii) its addition of a
"substantial new line of business" as defined by the Code. In addition, (i) the
passive loss rules under the Code are applied separately with respect to items
attributable to each publicly-traded partnership that is not treated as a
corporation for tax purposes and (ii) net income from publicly-traded
partnerships is not treated as passive income.
Legislation has been introduced into Congress which would extend
for a period of two years the "grandfather" provision which permits the Company
to continue to be treated as a partnership for tax purposes. However, the
likelihood of the passage of this legislation is not determinable at this point.
The Company is continuing to evaluate its alternatives with respect to its tax
status.
<PAGE>
Item 2. PROPERTIES.
The following table summarizes the ownership status of the
Company's retail outlets as of February 29, 1996:
Owned Leased from Leased from
by the Affiliates of the Unrelated
Company General Partner Parties Total
Number of Locations
Convenience Stores
Land 37 61 26 124
Buildings 93 8 23 124
Truck Stops
Land 2 6 2 10
Buildings 6 2 2 10
Self-service gasoline outlets
Land 10 89 92 191
Buildings 52 47 92 191
Other/Not Active
Land 10 13 14 37
Buildings 15 8 14 37
Total
Land 59 169 134 362
Buildings 166 65 131 362
The leases covering land and buildings leased from affiliates of
the General Partner generally expire on May 31, 1997, and have one or two
five-year renewal periods with renewal at the sole option of the Company. The
monthly rent upon renewal will be adjusted by the increase in the consumer price
index since the leases were entered into. Management believes the terms and
conditions of the leases with affiliates are more favorable to the Company than
could have been obtained from unrelated third parties.
The executive offices of the Company are located at 2801 Glenda
Avenue, Fort Worth, Texas, where it occupies approximately 15,000 square feet of
office space leased from three companies affiliated with the General Partner.
Item 3. LEGAL PROCEEDINGS.
The Company was a defendant in Billy R. Delp, et al., v. John H.
Harvison, FFP Partners Management Company, Inc., et al., Cause No.
141-127674-90, in the 141st Judicial District Court of Tarrant County, Texas,
filed on May 7, 1990. In this case, plaintiffs claimed unspecified damages
arising out of unspecified breaches of fiduciary duty by certain directors of
the General Partner. In late 1993, a company owned by John H. Harvison and
members of his immediate family acquired this cause of action in connection with
the liquidation of the bankruptcy estate of Mr. Delp. This lawsuit was dismissed
for lack of prosecution on May 19, 1995.
The Company is periodically involved in routine litigation
arising in the ordinary course of its businesses, particularly personal injury
and employment related claims. Management presently believes none of the pending
or threatened litigation of this nature is material to the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of Unitholders during 1995.
PART II
Item 5. MARKET FOR THE REGISTRANT'S UNITS AND RELATED SECURITY HOLDER MATTERS.
The Company's Class A Units are listed for trading on the
American Stock Exchange (symbol "FFP"). At March 29, 1996, there were 232
unitholders of record of the Class A Units.
As of March 29, 1996, there were two record holders of the
Company's Class B Units; the Class B Units are not listed for trading on any
securities exchange. {See Item 12. Security Ownership of Certain Beneficial
Owners and Management.}
In August 1989, the Company entered into a Rights Agreement and
distributed to its Unitholders Rights to purchase Units under certain
circumstances. Initially the Rights were attached to all Unit Certificates
representing Units then outstanding and no separate Rights Certificates were
distributed. Under the Rights Agreement, the Rights were to separate from the
Units and be distributed to Unitholders following a public announcement that a
person or group of affiliated or associated persons (an "Acquiring Person") had
acquired, or obtained a right to acquire, beneficial ownership of 20% or more of
the Partnership's Class A Units or all classes of outstanding Units. On August
8, 1994, a group of Unitholders announced that they had an informal
understanding that they would vote their Units together as a block. The
agreement related to units that constituted approximately 25% of the Class A
Units then outstanding. Therefore, the Rights became exercisable on October 7,
1994, the record date for the issuance of the Rights Certificates (the
"Distribution Date").
The Rights currently represent the right to purchase a Rights
Unit (which is substantially equivalent to a Class A Unit) of the Company at a
price of $20.00 per Unit. However, the Rights Agreement provides, among other
things, that if any person acquires 30% or more of the Class A Units or of all
classes of outstanding Units then each holder of a Right, other than an
Acquiring Person, will have the right to receive, upon exercise, Rights Units
(or in certain circumstances, other property) having a value of $40.00 per Unit.
The Rights will expire on August 13, 1999, and do not have any voting rights or
rights to cash distributions.
The following table sets forth the range of high and low sales
prices for the Partnership's Class A Units as
High Low
Dollars
1994
First Quarter 5 5/8 3 7/8
Second Quarter 4 1/2 3 1/2
Third Quarter 4 3/4 3 3/4
Fourth Quarter 6 3/4 3 1/4
1995
First Quarter 8 5/8 5 5/8
Second Quarter 7 5/8 5 3/8
Third Quarter 8 6
Fourth Quarter 7 15/16 6 3/4
The following table sets forth the distributions declared and
paid by the Company in 1994 and 1995:
Amount per
Class A and
Record Date Date Paid Class B Unit
April 26, 1994 May 12, 1994 $0.08
November 21, 1994 November 30, 1994 0.29
March 31, 1995 April 12, 1995 0.12
April 24, 1995 May 9, 1995 0.27
August 16, 1995 August 31, 1995 0.18
November 28, 1995 December 12, 1995 0.30
Prior to December 31, 1989, the Class B Units, which were held
by affiliates of the General Partner, were subordinated to the Class A Units
with respect to their right to cash distributions. However, with the payment on
March 15, 1990, of a cash distribution on the Class A Units, this subordination
terminated. Accordingly, any future cash distributions will be made pro rata on
both the Class A and Class B Units.
The Class A and Class B Units have identical rights with respect
to voting on matters brought before the partners and to cash distributions.
Distributions are dependent upon the actual level of earnings
and cash flow of the Company, capital expenditures required to maintain the
productive capacity of the Company's asset base, and requirements for servicing
the Company's debt. Management is evaluating re-instituting a regular quarterly
cash distribution to unitholders. However, a determination has not yet been made
with respect to whether or not to make distributions in such a manner, the
amount of any such distributions, or the date on which such distributions might
begin. Any future distributions will be dependent upon the continued
profitability of the Company, its debt service requirements, needs for capital
expenditures, and compliance with the restrictions in its Credit Agreement. {See
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations, Liquidity and Capital Resources.}
The Company has entered into a Credit Agreement with a bank
which contains various restrictive covenants, including restrictions on the
payment of cash distributions to unitholders. The Credit Agreement limits the
payment of cash distributions by requiring that the Company maintain certain
financial ratios which are predicated on, among other things, the level of cash
distributions. {See Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations for further discussion of the Credit
Agreement.}
<PAGE>
Item 6. Selected Financial and Opertating Data.
1995 1994 1993 1992 1991
Financial Data (in thousands,
except per unit data):
Revenues and Margins -
Motor fuel sales $296,887 $275,278 $246,023 $217,248 $211,203
Motor fuel margin 22,813 22,332 21,650 16,963 15,741
Merchandise sales 65,512 72,827 74,921 56,946 55,899
Merchandise margin 19,187 20,169 20,320 19,88 19,907
Miscellaneous revenues 7,646 7,408 5,706 5,086 3,277
Total revenues 370,045 355,513 326,650 279,280 270,379
Total margin 49,646 49,909 47,676 41,933 38,925
Direct store expenses 28,496 29,553 28,794 24,771 22,246
General and
administrative 11,795 11,056 10,527 9,415 9,585
Depreciation
and amortization 3,769 4,352 5,681 5,435 5,330
Total operating expenses 44,060 44,961 45,002 39,621 37,161
Operating incom 5,586 4,948 2,674 2,312 1,764
Interest expense (1,176) (1,173) (1,565) (1,724) (2,458)
Income before income
taxes/other items 4,410 3,775 1,109 588 (694)
Deferred income taxes (500) (244) (94) 0 0
Gain on extinguishment
of debt 0 200 0 0 0
Change in accounting
for income taxes 0 0 (297) 0 0
Net income/(loss) $3,910 $3,731 $718 $588 $(694)
Income/(loss) per unit -
From continuing
operations and
before accounting change $1.07 $0.97 $0.28 $0.16 $(0.19)
Net income/(loss 1.07 1.03 0.20 0.16 (0.19)
Cash distributions
declared per
Class A and Class B Unit $0.87 $0.37 $0.00 $0.00 $0.00
Total assets $69,332 $67,978 $70,277 $68,116 $61,525
Long-term obligations 7,100 9,527 10,755 17,164 20,196
Operating Data:
Gallons of motor
fuel sold 193,233 196,246 187,267 170,410 163,461
(retail, in thousands)
Retail margin per
gallon (cents) 10.9 10.1 10.0 9.2 8.9
Average weekly
merchandise sales -
Convenience stores $9,560 $9,901 $10,289 $8,370 $7,747
Truck stops 17,506 18,160 17,798 15,709 15,423
Merchandise margin 29.3% 27.7% 27.1% 34.9 35.6%
Number of locations
at year end -
Convenience stores 127 127 145 137 130
Truck stops 10 10 10 9 9
Self-service
fuel outlets 194 185 169 171 176
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
General
This discussion should be read in conjunction with the selected
financial and operating data, the description of the Company's business
operations and the financial statements and related notes and schedules included
elsewhere in this Annual Report on Form 10-K.
The Company reports its results of operations using a fiscal
year which ends on the last Sunday in December. Most fiscal years have 52 weeks
but some consist of 53 weeks. Fiscal 1995 was a 53-week year, while fiscal 1994,
1993, 1992, and 1991 were 52-week years. This variation in time periods most
affects revenues (and related costs of sales) and salary costs as other expenses
(such as rent and utilities) are usually recorded on a "monthly" basis. However,
differences in the number of weeks in a fiscal year should be considered in
reviewing financial data.
1995 Compared with 1994
The Company's motor fuel revenues for 1995 increased over the
1994 period by $21,609,000 (7.8%) due to increased wholesale fuel sales.
Wholesale fuel sales increased 14,184,000 gallons (17.4%) over 1994. This
increase was due to the presence for a full year of sales resulting from a
marketing arrangement begun in mid-1994 that emphasizes sales to contractors and
other commercial users of fuel as well as from growth in these sales. However,
the increase in wholesale fuel sales was offset by a decline in retail fuel
sales. Motor fuel sales at the Company's retail outlets declined by 3,013,000
gallons (1.5%) as a result of lower sales volumes at the Company's truck stops
due to increased competition from new outlets in several of the Company's
markets. The margin on fuel sales increased $481,000 (2.2%) in 1995 over 1994.
This increase resulted from improved retail fuel margins (10.9 cents in 1995 vs
10.1 in 1994) and the additional margin from the increased wholesale activity.
Merchandise sales in 1995 declined by $7,315,000 (10.0%) from
the previous year due principally to the sale of the merchandise operations at
ten convenience stores. The sales of these operations are the continuation of a
program begun by the Company in mid-1994 to sell the merchandise operations of
outlets that it believed would contribute more to the earnings of the Company if
operated by independent operators rather than by the Company. The Company seeks
to sell the merchandise operations of these outlets to independent operators
who, because of their different overhead structure, are able to operate the
stores less expensively than can the Company. These sales are structured such
that the Company retains the real estate or leasehold interest and leases or
subleases the land, building, and equipment to the operator. The Company also
retains the motor fuel concession at these outlets, which become self-service
fuel outlets for the Company. The merchandise sales decline was also affected by
the absence of a full year's sales at the 15 outlets whose merchandise
operations were sold in the third and fourth quarters of 1994.
The Company also experienced a decline in its average weekly per
store sales for convenience stores of $341 (3.4%) in 1995 as compared to 1994
and a decline of 3.6% in sales at the truck stops (combined with their
associated restaurants). These declines are attributable to the Company's
efforts to increase the margin on merchandise sales at all of its outlets. Total
merchandise margin declined by $982,000 due to the reduced merchandise sales but
the gross profit percentage on merchandise sales increased to 29.3% from 27.7%
reflecting the Company's program of selectively increasing prices on less price
sensitive items.
Miscellaneous revenues were up $238,000 (3.2%) in 1995 over
1994. This increase resulted primarily from increases in excise tax handling
fees (due to increased fuel volumes) and money order fees (due to increased
numbers of items sold and an increase in the per item fee) and a gain recognized
from the sale of the Company's fleet fuel franchise offset by declines in food
stamp commissions (due to the adoption in Texas of a "debit" card for this
activity) and in commissions on the wholesale sale of cigarettes (due to a more
competitive market).
Direct store expenses consist of those costs directly
attributable to the operation of the Company's retail outlets, such as salaries
and other personnel costs, supplies, utilities, repairs and maintenance, and
commissions paid to the operators of the self-service motor fuel outlets. In
1995 these costs declined $1,057,000 (3.6%) from the prior year. This reduction
was due to the elimination of payroll (and related costs), utilities, and other
operating expenses at the convenience stores whose merchandise operations were
sold to independent operators offset by increases in the fuel commissions paid
to the operators of those stores, and increases in wage and other personnel
costs at the stores operated by the Company.
General and administrative expenses increased $739,000 (6.7%) in
1995 over 1994. This increase was caused by increased professional fees,
principally attributable to the cost of consultants assisting in reorganizing
certain of the Company's back office processes, increased rental expense,
associated with the Company's increased use of leases to provide vehicles and to
finance certain equipment, increased insurance costs, and increases in bank
charges, associated with the trial use of a deposit pick up service at the
Company's convenience stores and truck stops. These increases were offset by a
reduction in bad debt expense due to better monitoring of receivables.
The $583,000 (13.4%) decline in depreciation and amortization
expense is due to the continued full depreciation of assets acquired upon the
Company's formation in 1987 and the somewhat limited additions to property and
equipment over the past few years.
Even though the Company's long-term bank debt declined by
$3,580,000 from 1994 to 1995, interest expense was flat between the two years
due to increased use of capital leases, which carry a somewhat higher but fixed
interest rate, to fund capital expenditures.
The Company adopted Financial Accounting Standards Board
Statement No. 109 "Accounting for Income Taxes" ("SFAS 109") at the beginning of
fiscal 1993. As a result of adopting this accounting principle, the Company is
required to record deferred income tax expense attributable to changes arising
in the current period in the temporary differences between financial and tax
reporting which are expected to reverse after 1997, when the Company will become
taxable as a corporation. These differences are due primarily to temporary
differences between the financial reporting amounts and tax bases of the
Company's property and equipment and the increase in the deferred tax expense in
1995 as compared to 1994 is principally due to additions to fixed assets which
are depreciated differently for financial reporting and tax purposes. The
deferred tax expense is expected to grow in 1996 and 1997 as the date at which
the Company will become taxable as a corporation grows closer since fewer of the
differences between tax and financial reporting will reverse prior to such date.
The $263,000 (0.5%) decline in the Company's total margin in
1995 as compared to 1994 was offset by significant reductions in operating
expenses and depreciation and amortization such that income before income taxes
and other items increased $635,000 (16.8%). However, due to the increase in
deferred income taxes, discussed above, and the occurrence in 1994 of a $200,000
gain from the early extinguishment of debt in connection with the refinancing of
the Company's bank debt in early 1994, net income increased by $179,000 (4.8%)
between the two years.
1994 Compared with 1993
Motor fuel revenues in 1994 increased $29,255,000 (11.9%) from
1993 principally due to increases in the gallons of motor fuel sold at both
wholesale and retail. Retail fuel gallons sold increased 4.8% due to an increase
in the average number of outlets selling fuel, primarily self-service fuel
outlets; same-store fuel sales (in gallons) were up 0.2% from 1993 to 1994.
Wholesale fuel volumes were up 40.8% because of the marketing arrangement begun
in mid-1994 which emphasizes sales to contractors and other commercial users.
Fuel margin increased $682,000 (3.2%) between the two years. Retail fuel margin
per gallon increased to 10.1 cents per gallon in 1994 from 10.0 cents in 1993
and wholesale fuel margin per gallon increased to 1.8 cents in 1994 from 1.7
cents in 1993.
The Company's merchandise sales declined $2,094,000 (2.8%) from
1993 to 1994 due to sales decreases at convenience stores offset by increases at
truck stops. The sales decline at the convenience stores resulted from the
closing in late 1994 of the Company's five convenience stores in Illinois, the
reduction in sales caused by the sale of the merchandise operations of 15
outlets (under the program discussed above), and a same-store sales decline of
2.0% from the prior year. The Illinois stores had not been performing well and
the Company elected to terminate its lease on those locations in August 1994,
while most of the sales of convenience store merchandise operations occurred in
the third and fourth quarters of 1994.
The increased sales at the truck stops resulted from the
addition of one outlet in May 1993 and from a same- store sales increase of
9.2%. The strong growth in same-store sales is attributable to re-merchandising
the truck stops and the impact of additional traffic generated by the Kentucky
Fried Chicken and Taco Bell express outlets at two of the truck stops. Because
of the success the Company has enjoyed with the branded fast food outlets, it is
expanding this concept to additional truck stops.
Merchandise margin decreased $151,000 (0.7%) in 1994 from 1993
due to the decreased merchandise sales. However, the gross profit percentage on
merchandise sales increased to 27.7% (from 27.1% in 1993) due principally to
higher margins realized at the truck stops as a result of the re-merchandising
of those outlets and the branded fast food outlets.
The $1,702,000 (29.8%) increase in miscellaneous revenues in
1994 over 1993 was principally due to the $829,000 gain recognized on the sales
of certain convenience store merchandise operations (discussed above) and
increases in lottery commissions at the Company's convenience stores and fuel
excise tax collection fees related to the increased volume of motor fuel sold.
Direct store expenses increased $759,000 (2.6%) in 1994 over
1993 principally due to increased personnel costs at the convenience stores and
truck stops related to routine wage increases and higher fuel commissions at the
self-service motor fuel outlets due to the increased volumes of fuel sold by
these outlets.
General and administrative expenses increased $529,000 (5.0%)
from 1993 to 1994. These increases resulted from increases in bad debt expense
related to the increase in self-service fuel outlets and increased wholesale
fuel business, increased professional fees related to the Company's underground
storage tank monitoring activity and increased efforts in marketing it's laser
money order printing system, increased commissions related to its wholesale fuel
sales to contractors and commercial users, and increased rent expense related to
the use of lease financing for vehicles and equipment. These increases were
offset by declines in uninsured claims and bank charges.
The $1,329,000 (23.4%) reduction in depreciation and
amortization expense for 1994 over 1993 was caused by the full amortization in
September 1993 of the value of self-service gasoline contracts and the complete
depreciation in late 1993 and early 1994 of certain other assets, all of which
were acquired upon the Company's initial formation in May 1987.
Interest expense decreased $392,000 (25.0%) for 1994 from the
prior year due to the refinancing of the Company's debt in February 1994. This
refinancing, which was with a different financial institution, resulted in a
reduced interest rate on the debt and also established a revolving line of
credit thereby enabling the Company to reduce the debt outstanding from time to
time by paying down on the credit line which also reduced interest expense.
Interest expense was further reduced because of reductions in the balances
outstanding due to scheduled payments on the Company's term debt. In addition,
in connection with this transaction, the company received a $200,000 discount on
the early payoff of the previous debt. This $200,000 gain on extinguishment of
debt is reflected as an extraordinary item in the 1994 consolidated income
statement.
The adoption of SFAS 109 at the beginning of fiscal 1993 was
accounted for as a cumulative effect of a change in accounting principle and
resulted in a noncash charge of $297,000 in the 1993 consolidated statement of
operations
The substantial increases in the Company's total margin (total
revenues less costs of fuel and merchandise) combined with the modest increases
in operating expenses and the substantial reduction in depreciation and
amortization, resulted in 1994 earnings of $3,731,000, an improvement of
$3,013,000 over the prior year.
Liquidity and Capital Resources
The Company has a Credit Agreement with a major bank under which
it has a $10,000,000 revolving credit line (with sublimits of $8,000,000 for
cash advances and $3,000,000 for letters of credit) to be used for working
capital purposes and a term loan which had a balance at year end 1995 of
$6,563,000. The revolving credit line matures on April 30, 1997, but the
agreement requires that it be repaid for seven consecutive days during each
calendar quarter. The term loan is due in quarterly installments of $312,500
through March 31, 2001. Both the term loan and the revolving credit line bear
interest at the bank's prime rate. Although the interest rates on both loans are
variable rates, the Credit Agreement provides the Company with the ability to
fix the rates on all or a portion of the term loan for varying periods of time
up to its maturity.
In March 1996, the Company amended its Credit Agreement
principally to provide an additional term loan of $1,000,000 to be used by the
Company to acquire and renovate a non-operating fuel terminal which the Company
acquired in March 1996. This term loan is to be repaid in quarterly installments
of $50,000 through March 31, 2001. The interest rate and related options on this
loan are the same as on the other term debt under the Credit Agreement.
The Credit Agreement contains various requirements and
restrictive covenants, including, a pledge of the Company's accounts receivable
and inventories, a negative pledge of the Company's fixed assets, and the
requirement to maintain certain financial ratios which have the effect of
limiting the Company's capital expenditures and distributions to unitholders. At
year end 1995, the Company was not in compliance with certain of the financial
ratios but in connection with the March 1996 amendment of the Credit Agreement,
mentioned above, the bank has waived compliance with these ratios.
During 1995, the Company has made cash distributions to its
unitholders. However, the distributions have not been made at regular, periodic
intervals nor at fixed amounts. The Company anticipates that it will continue to
make cash distributions to unitholders and is evaluating making such
distributions on a regular quarterly basis. However, a determination has not yet
been made with respect to whether or not to make distributions in that manner,
the amount of any such distributions, or the date on which such distributions
might begin. Further, any future distributions will be dependent upon the
continued profitability of the Company, its debt service requirements, needs for
capital expenditures, and compliance with the restrictions in its Credit
Agreement.
The Company's cash flows from operating activities were
$5,051,000 less in 1995 than in 1994. This decline was due principally to a
$2,429,000 decrease in accrued expenses which is related to the timing of fuel
excise tax payments relative to the Company's year end. Cash used for the
purchase of property and equipment and other investing activities increased
$1,970,000 in 1995 primarily due to increased purchases of property and
equipment, some which is related to compliance with environmental regulations,
and to other investments. The Company expects its level of capital expenditure
to increase modestly over the next three years as it completes the upgrades of
its underground storage tanks that are required to meet state and federal
environmental requirements. The Company has contracted with a firm to install
the necessary equipment and/or to modify existing installations to meet current
environmental requirements by the December 1998 deadline. The cost of this
upgrading is expected to be between $2,800,000 and $3,425,000 and is expected to
be incurred ratably over 1996, 1997, and 1998.
The Company will pay for some of these expenditures from its
operating cash flow. However, it has a $2,500,000 lease financing facility with
an affiliate of its primary bank lender which may be used to fund a portion of
these expenditures as well as to acquire other machinery and equipment (other
than underground storage tanks). Although this commitment expires in December
1996, the Company expects that it will be renewed for an additional amount at
that time. The Company believes that this lease financing along with its
operating cash flow and other financing alternatives that are available to it
will be adequate to fund necessary capital expenditures, including the
expenditures that are necessary to comply with environmental regulations.
The Company's cash used in financing activities decreased by
$5,518,000 in 1995 as compared to 1994. This significant decrease resulted
primarily from reduced payments on bank debt in 1995 as compared to 1994, when
the Company's debt was refinanced.
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 and both of which have off-balance sheet
risk. Changes in the market value of open futures contracts are recognized as
gains or losses in the period of change. These investments 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. {See Note 11
to the Consolidated Financial Statements.}
The Company had negative working capital at year end 1995 of
$4,147,000 as compared to a negative $100,000 at the prior year end. The decline
was largely due to the prepayment of $2,000,000 on the Company's term debt in
mid-1995. Although this prepayment negatively affected working capital it helped
the Company to minimize interest expense. The Company believes that the
availability of funds under its revolving line of credit and its traditional use
of trade credit will permit operations to be conducted in a customary manner.
Inflation and Seasonality
The Company believes inflation has not had a material effect on
operating results in recent years except for the upward pressure placed on
wages, primarily store wages, by the federal minimum wage increases which took
effect in 1990 and 1991. Some federal political officials have proposed
increasing the federal minimum wage again but it is uncertain at this time
whether such an increase will become law. Should there be an increase in the
federal minimum wage, the Company expects that it's operating margins would be
adversely affected in the short run as it would take some time to increase
prices in order to pass along this increased cost to customers but it does not
expect that it would be at a competitive disadvantage as the Company believes
its wage structure is in line with that of other convenience store operators.
Apart from the impact of the possible minimum wage increase, operations for the
foreseeable future are also not expected to be significantly impacted by
inflation. Generally, increased costs of in-store merchandise can be quickly
reflected in higher prices to customers. The price of motor fuel, adjusted for
inflation, has declined over recent years. However, significant increases in the
retail price of motor fuels could reduce fuel demand and the Company's gross
profit on fuel sales.
The Company's businesses are subject to seasonal influences,
with higher sales being experienced in the second and third quarters of the year
as customers tend to purchase more motor fuel and convenience items, such as
soft drinks, other beverages, and ice, during the warmer months.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements and supplementary data filed herewith
begin on page F-1.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
There were no changes in, nor disagreements with, accountants
during 1995.
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
General Partner
FFP Partners Management Company, Inc., a Delaware corporation
formed in December 1986, is the General Partner of and manages the Company. The
Unitholders have no power, as limited partners, to direct or participate in the
control of the business of the Company.
Management of the General Partner
Set forth below are the names, ages, positions, and business
experience of the executive officers and directors of the General Partner:
Name Age Position
John H. Harvison [1 62 Chairman of the Board and Chief
Executive Officer
Robert J. Byrnes [1] 55 President, Chief Operating Officer,
and Director
Avry Davidovich 42 Executive Vice President -
Convenience Stores and Director
Steven B. Hawkins 48 Vice President - Finance and Administration,
Secretary, Treasurer, and Chief
Financial Officer
J. D. St.Clair 61 Vice President - Fuel Supply and
Distribution and Director
Robert E. Garrison, II
[1,2] 54 Director
John W. Hughes [1,2] 54 Director
Garland R. McDonald 58 Director
John D. Harvison 39 Director
E. Michael Gregory 44 Director
- ----------------------------------------------------
[1] Member of Compensation Committee
[2] Member of Audit Committee
John H. Harvison has been Chairman of the Board of the General
Partner since the commencement of the Company's operations in May 1987. Mr.
Harvison is a founder and an executive officer of each of the companies from
which the Company acquired its initial base of retail outlets, and has been
active in the retail gasoline business since 1958 and in the convenience store
business since 1973. In addition, he has been involved in oil and gas
exploration and production, the ownership and management of an oil refinery and
other personal investments. Until April 1992, Mr. Harvison served on the Board
of Directors of Total Assets Protection, Inc. In March 1992, Total Assets
Protection, Inc., filed a voluntary petition under Chapter 7 of the United
States Bankruptcy Code. Mr. Harvison was an officer and director of
Tech-Management, Inc., a privately held corporation, against which an
involuntary petition in bankruptcy was filed in August 1991. In January 1995,
Mr. Harvison consented to the entry of a cease and desist order by the United
States Office of Thrift Supervision that, among other things, prohibits him from
participating in any manner in the conduct of the affairs of federally insured
depository institutions. This Order was issued in connection with Mr. Harvison's
ownership in a federal savings bank and transactions between him (and companies
in which he had an ownership interest) and that institution. In consenting to
the issuance of the Order, Mr. Harvison did not admit any of the allegations
against him and consented to the issuance of the Order solely to avoid the cost
and distraction that would be caused by prolonged litigation to contest the
positions taken by the Office of Thrift Supervision. Mr. Harvison is the father
of John D. Harvison, who is also a director of the General Partner.
Robert J. Byrnes has been the President of the General Partner
since April 1989 and has been a Director since May 1987. From May 1987 to April
1989, Mr. Byrnes served as Vice President - Truck Stop Operations for the
Company. Mr. Byrnes has been, since 1985, the President of Swifty Distributors,
Inc., one of the companies from which the Company acquired its initial retail
outlets. From 1975 through 1984, Mr. Byrnes was President of Independent
Enterprises, Inc., which owned and operated convenience stores and a truck stop.
During that period, he was also President of Enterprise Distributing, Inc., a
wholesaler of motor fuels. Prior to 1975, Mr. Byrnes was President of Foremost
Petroleum Corporation (which is now a subsidiary of Citgo Petroleum Corporation)
and was a distribution manager for ARCO Oil & Gas Company. He is currently a
director of Plaid Pantries, Inc., an operator of convenience stores
headquartered in Beaverton, Oregon.
Avry Davidovich has been Executive Vice President - Convenience
Stores and a Director of the General Partner since October 1992 when the Company
acquired the convenience stores operated by Mr. Davidovich. He had operated
these convenience stores since February 1992. From June 1989 through February
1992, Mr. Davidovich was the General Manager of Lincoln Land Oil Company. From
1977 through May 1989, Mr. Davidovich was employed in a number of management
positions by Emro Marketing, a convenience store chain owned by Marathon Oil
Company that operated 1,600 outlets.
Steven B. Hawkins has been Vice President - Finance and
Administration, Secretary, and Treasurer of the General Partner since May 1987.
From April 1980 through December 1987, Mr. Hawkins was employed as
Secretary/Treasurer, Controller and Chief Financial Officer by various companies
affiliated with the General Partner. Prior to joining such affiliates, Mr.
Hawkins was employed for nine years by Arthur Andersen & Co., an international
public accounting firm. He is a member of both the American Institute of
Certified Public Accountants and the Texas Society of CPAs.
J. D. St.Clair has been Vice President - Fuel Supply and
Distribution and a Director of the General Partner since May 1987. Mr. St.Clair
is a founder and an executive officer of several of the companies from which the
Company acquired its initial retail outlets. He has been involved in the retail
gasoline marketing and convenience store business since 1971. Prior to 1971, Mr.
St.Clair performed operations research and system analysis for Bell Helicopter,
Inc., from 1967 to 1971; for the National Aeronautics and Space Administration
from 1962 to 1967; and Western Electric Company from 1957 to 1962.
Robert E. Garrison, II, has been a Director of the General
Partner since May 1987. Mr. Garrison is a managing partner of Harris, Webb &
Garrison, a regional merchant and investment bank, and is also Chairman and
Chief Executive Officer of Pinnacle Management & Trust Co., a state chartered
independent trust company. From October 1992 through February 1994, Mr. Garrison
was Chairman of Healthcare Capital Group, Inc., a regional investment bank
focusing on the health care industry. From April 1991 through October 1992, Mr.
Garrison was Chairman and Chief Executive Officer of Med Center Bank & Trust,
one of the leading independent banks in Houston, Texas. Mr. Garrison served as
President of Iroquois Brands, Ltd. ("IBL"), a manufacturer of material handling
and construction equipment, pharmaceutical and personal care products, and
operator of convenience stores and retail fuel outlets in the United Kingdom
from 1989 until his resignation in September 1990. In June 1991, an involuntary
petition under Chapter 11 of the United States Bankruptcy Code was filed against
IBL and in November 1991, the Chapter 11 petition was converted to a Chapter 7
petition. From 1982 through March 1989, Mr. Garrison served as Executive Vice
President and director of Lovett Mitchell Webb & Garrison, Inc. ("LMW&G"), one
of the representatives of the underwriters in the initial public offering of the
Company in May 1987, where he managed the Investment Research and Investment
Banking Division, and Boettcher & Company, Inc., which acquired LMW&G in
September 1987. From 1971 to 1982, Mr. Garrison was First Vice President and
Director of Institutional Research at Underwood Neuhaus & Co. From 1969 to 1971,
Mr. Garrison was Vice President of BDSI, a venture capital subsidiary of General
Electric.
John W. Hughes has been a Director of the General Partner since
May 1987. Mr. Hughes is an attorney with the law firm of Garrison & Hughes,
L.L.P., in Fort Worth, Texas. From 1991 to 1995 he was an attorney with the firm
of Simon, Anisman, Doby & Wilson, P.C., in Fort Worth, Texas. Since 1963, Mr.
Hughes has been a partner of Hughes Enterprises, which invests in venture
capital opportunities, real estate, and oil and gas.
Garland R. McDonald, is employed by the Company to oversee and
direct a variety of special projects. He was elected to the Board in January
1990. He had previously served as a Director of the General Partner from May
1987 through May 1989 and served as a Vice President of the General Partner from
May 1987 to October 1987. Mr. McDonald is a founder and the Chief Executive
Officer of Hi-Lo Distributors, Inc., and Gas-Go, Inc., two of companies from
which the Company initially acquired its retail outlets. He has been actively
involved in the convenience store and retail gasoline businesses since 1967.
John D. Harvison was elected a Director of the General Partner
in April 1995. Mr Harvison has been Vice President of Dynamic Production, Inc.,
an independent oil and gas exploration and production company since 1977. He
previously served as Operations Manager for Dynamic from 1977 to 1987. He also
serves as an office of various other companies that are affiliated with Dynamic
that are involved in real estate management and various other investment
activities. Mr. Harvison is the son of John H. Harvison, the Chairman of the
Board of the General Partner.
E. Michael Gregory was elected to the Board of the General
Partner in September 1995. Mr. Gregory is the founder and President of Gregory
Consulting, Inc., an engineering and consulting firm that is involved in the
development of products related to the distribution and storage of petroleum
products and computer software for a variety of purposes including work on such
products and software for the Company. Prior to founding Gregory Consulting in
1988, Mr. Gregory was the Chief Electronic Engineer for Tidel Systems (a
division of The Southland Corporation) where he was responsible for new product
concept development and was involved in projects involving the monitoring of
fuel levels in underground storage tanks. He is a Registered Professional
Engineer in Texas.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Regulations issued under the Securities Exchange Act of 1934
require certain persons to report their holdings of the Company's Class A and
Class B Units to the Securities and Exchange Commission ("SEC") and to the
Company. To the best of the Company's knowledge, based upon copies of reports
and other representations provided to the Company, all 1995 reports required
under Section 16 of the Securities Exchange Act of 1934 were filed in a timely
manner except that the following reports were filed late: (i) reports for the
month of January 1995 for John H. Harvison, John D. Harvison, Randall W.
Harvison, 7HBF, Ltd., and HBF Financial, Ltd., covering units indirectly
acquired by them due to the acquisition by 7HBF, Ltd., of the 50% interest not
previously held by 7HBF, Ltd., of a record owner of Class B Units; (ii) a report
for the month of December 1995 for Robert E. Garrison, II, covering units he
donated to a charitable institution; (iii) a report for the month of August 1995
for Garland R. McDonald covering units purchased by his individual retirement
account; (iv) a report for the month of April 1995 for John D. Harvison covering
options granted to him upon his election to the Board; and, (v) reports for the
months of March 1995 and April 1995 for Avry Davidovich covering the exercise of
options and the related sale of the units so acquired.
Item 11. EXECUTIVE COMPENSATION.
The Company reimburses the General Partner for all of its direct
and indirect costs (principally officers' compensation and other general and
administrative costs) allocable to the Company. Cash bonuses to executive
officers of the General Partner are not chargeable to the Company as a
reimbursable expense.
Each director who is not an officer or employee of the General
Partner or the Company receives an annual retainer of $4,000 plus $1,000 for
each Board meeting, or committee meeting not held in conjunction with a Board
meeting, which he attends and $500 for each telephone meeting in which he
participates. Each director is also reimbursed for expenses related to
attendance at board meetings.
In addition, non-employee directors are generally granted
options to acquire 25,000 Class A Units at the fair market value of the
underlying units on the date of grant. The options become exercisable with
respect to one-third of the Units covered thereby on each of the anniversary
dates following the grant and expire ten years after grant. In the event of a
change in control of the Company, any unexercisable portion of the options will
become immediately exercisable. Upon exercise, the option price may be paid, in
whole or in part, in Class A Units owned by the director.
Messrs. Garrison and Hughes were each granted options, in
November 1992, to purchase 25,000 Class A Units at $3.75 per Unit; Mr. John D.
Harvison was granted options to purchase 25,000 Class A Units at $6.00 per Unit
in April 1995; and Mr. Gregory was granted options to purchase 25,000 Class A
Units at $7.00 in September 1995. Mr. Garrison exercised all of his options in
November 1995.
Directors who are officers or employees of the General Partner
or the Company receive no additional compensation for attendance at Board or
committee meetings.
The General Partner has employment agreements with Messrs.
Harvison, Byrnes, Hawkins, and St.Clair which provide that if the employment of
any such officer is terminated for any reason other than the commission of an
act of fraud or dishonesty with respect to the Company or for the intentional
neglect or nonperformance of his duties, such officer is to receive an amount
equal to twice his then current annual salary plus a continuation of certain
benefits provided by the Company for a period of two years. Any cost incurred
under these agreements is to be borne by the Company. The Company has an
employment agreement with Mr. Davidovich which provides that he is to receive an
annual salary of $125,000. The agreement with Mr. Davidovich also provides that
if his employment with the Company is terminated he will be paid his then
current salary for up to four months.
Summary Compensation Table
The following table provides information regarding compensation
paid during each of the Company's last three fiscal years to the Company's Chief
Executive Officer and to each of the Company's executive officers who earned
salary and bonus of more than $100,000 in the latest fiscal year:
Annual Compensation
----------------------------------
Other
Annual
Name Compen-
and Salary sation
Principal Position Year ($) ($)
John H. Harvison 1995 135,000 -
Chairman and Chief Executive Officer 1994 135,000 -
1993 135,000 -
Robert J. Byrnes 1995 135,000 -
President, Chief Operating Officer 1994 135,000 -
and Director 1993 135,000 -
Avry Davidovich 1995 125,000 -
Executive Vice President - 1994 125,000 -
Convenience Stores and Director 1993 125,000 20,359 [1]
- -------------------------------------------------------------------------------
[1] Relocation costs paid to or on behalf of Mr. Davidovich in
connection with his employment by the Company in October 1992.
There were no long-term compensation awards or payouts during
any of the last three years.
General Partner's Incentive Bonus. On an annual, non-cumulative
basis, the General Partner may earn incentive compensation (the "Incentive
Bonus"), pursuant to the FFPOP Partnership Agreement, with respect to each
fiscal year, only if (a) the net income of the Company for such year, as
determined in accordance with generally accepted accounting principles and
calculated prior to the payment of the incentive compensation, equals or exceeds
$1.08 per Unit, and (b) the total of the quarterly cash distributions for such
year to the holders of Units equals or exceeds $1.50 per Unit (such
distributions being those made for such year, even though the distribution for
the fourth quarter will actually be paid subsequent to year end). In the event
these tests are met, incentive compensation will be paid in cash, by the
Company, in an amount equal to 10% of net income before such incentive
compensation. Although there is no requirement to do so, management believes
that any such incentive compensation received by the General Partner would be
used to pay bonuses to its executive officers. The General Partner did not earn
any incentive compensation during 1995.
Class A Unit Options Exercised during Fiscal 1995 and Fiscal
Year End Option Values. The following table provides information about options
exercised during the last fiscal year and the value of unexercised options held
at the end of the fiscal year by the named executive officers:
Aggregated Option/SAR Exercises in Last Fiscal Year
and FY-End Option/SAR Values Value
Value of
Units Number of Unexercised
Acquired Unexercised In-the-Money
on Value Options/SAR's Option/SAR's
Exercise Realized at Fiscal at Fiscal
(#) ($) [1] Year End Year End
(#) ($) [2]
Name and Exercisable/ Exercisable/
Principal Position Unexercisable Unexercisable
John H. Harvison - 0 - - 0 - 40,000/0 $130,000/$0
Chairman and Chief
Executive Officer
Robert J. Byrnes - 0 - - 0 - 35,000/0 $113,750/$0
President, Chief
Operating Officer,
and Director
Avry Davidovich 28,000 $135,041 0/0 $0/$0
Executive Vice President
- Convenience Stores
and Director
- -------------------------------------------------------------------------------
[1] The value shown is determined by multiplying the difference
between the closing price of the Company's Class A Units on the date the options
were exercised, as reported by the American Stock Exchange, and the option
exercise price times the number of units underlying the options exercised.
[2] The closing price for the Company's Class A Units as
reported by the American Stock Exchange on December 31, 1995, was $7.00. The
value shown is calculated by multiplying the difference between this closing
price and the option exercise price times the number of units underlying the
option.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Class A and Class B Units
The following table sets forth as of March 29, 1996, information
regarding the only persons known by the Company to own, directly or indirectly,
more than 5% of each class of its Class A and Class B Units:
Title Name and Address Amount and Nature of Percent
of Classs of Beneficial Owner Beneficial Ownership of Class
Class A 7HBF, Ltd. 524,333 [1] 15.2%
2801 Glenda Avenue
Fort Worth, Texas 76117
Class A HBF Financial, Ltd. 738,297 [2] 21.4%
2801 Glenda Avenue
Fort Worth, Texas 76117
Class A Garland R. McDonald 194,167 [3] 5.6%
2801 Glenda Avenue
Fort Worth, Texas 76117
Class A The Murray Foundation for Eye 166,500 [4] 4.8%
Research, Inc.
280 Ridgeview Road
Princeton, New Jersey 08540
Class A Mark T. Boyer 134,200 [4] 3.9%
Mitchell J. Soboleski
353 Sacramento Street, 16th Floor
San Francisco, California 94111
and
Henry Garehime and Barbara Garehime
4570 Opal Cliff
Santa Cruz, California 94068
Class A Edmund & Mary Shea Real 126,700 [4] 3.7%
Property Trust
Edmund H. Shea, Jr., Trustee
655 Brea Canyon Road
P. O. Box 489
Walnut, California 91789-0489
Class B 7HBF, Ltd 175,000 [5] 74.5%
2801 Glenda Avenue
Fort Worth, Texas 76117
Class B Summit National Bank 60,000 25.5%
1300 Summit Avenue
Fort Worth, Texas 76102
- -------------------------------------------------------------------------------
[1] Consists of 524,333 Class A Units owned by eight companies
which are owned or controlled by 7HBF, Ltd., a limited partnership owned by John
H. Harvison and members of his immediate family. 7HBF, Ltd., may be deemed to
share beneficial ownership of 144,417 Units with Garland R. McDonald, 49,750
Units with Garland R. McDonald and Barbara J. Smith (John H. Harvison's sister),
83,417 Units with J. D. St.Clair, and 16,833 Units with Robert J. Byrnes.
[2] Consists of 738,297 Class A Units owned by a company which
is owned by HBF Financial, Ltd., a limited liability company owned by trusts for
the benefit of members of John H. Harvison's immediate family. In addition HBF
Financial, Ltd., owns 31% of the general partner of 7HBF, Ltd.
[3] Consists of 194,617 Class A Units owned by two companies of
which Mr. McDonald is deemed to be the beneficial owner. Mr. McDonald may be
deemed to share beneficial ownership of 144,417 of these Units with 7HBF, Ltd.,
and 49,750 Units with Barbara J. Smith and 7HBF, Ltd.
[4] According to Schedule 13Ds filed in August 1994 with the
Securities and Exchange Commission by The Murray Foundation for Eye Research,
Inc., and the Edmund and Mary Shea Real Property Trust, those two entities have
an informal understanding with Mark T. Boyer, Mitchell J. Soboleski, Robert J.
Bransten, and the John M. Bransten Trust that this group will vote the 524,600
Class A Units they hold, together as a block with regard to matters that require
approval of the limited partners of the Company.
[5] Consists of 175,000 Class B Units owned of record by a
company owned by 7HBF, Ltd. The beneficial ownership of these Units is in
dispute.
The following table sets forth as of March 29, 1996, information
with respect to the Class A Units and Class
Title Amount and Nature of Percent of
of Class Beneficial Ownership [1] Class [1]
Name of Beneficial Owner
John H. Harvison, Chairman Class A 0 [2,3] 0.0%
Robert J. Byrnes, President Class A 16,833 [4] 0.5%
and Director
Steven B. Hawkins,
Vice President Class A 2,000 [5] 0.1%
J. D. St.Clair Class A 88,417 [6] 2.6%
Vice President and Director
Avry Davidovich, Executive Class A 12,566 [7] 0.4%
Vice President and Director
Robert E. Garrison, II,
Director Class A 86,805 [7] 2.5%
John W. Hughes, Director Class A 0 0.0%
Garland R. McDonald,
Director Class A 194,167 [8] 5.6%
John D. Harvison, Director Class A 0 [9,10] 0.0%
E. Michael Gregory, Director Class A 0 0.0%
All directors and executive Class A 400,788 [11,12] 11.6%
officers as a group (10 persons)
- -------------------------------------------------------------------------------
[1] Excludes Class A Units covered by the options discussed in
Item 11. Executive Compensation.
[2] Excludes 524,333 Class A Units beneficially owned by 7HBF,
Ltd. (a Texas limited partnership of which John H. Harvison and members of his
family are partners), and 738,297 Class A Units beneficially owned by HBF
Financial, Ltd. (a Texas limited liability company which is 98%-owned by trusts
for the benefit of the children of John H. Harvison). 7HBF, Ltd., may be deemed
to share beneficial ownership of 144,417 Units with Garland R. McDonald, 49,750
Units with Garland R. McDonald and Barbara J. Smith (John H. Harvison's sister),
83,417 Units with J. D. St.Clair, and 16,833 Units with Robert J. Byrnes.
[3] Excludes 175,000 Class B Units owned of record by a company
owned by 7HBF, Ltd. The benefical ownership of these Units is in dispute.
[4] Shares are held by a company of which Mr. Byrnes is a
director and executive officer. Mr. Byrnes may be deemed to share beneficial
ownership of these units with 7HBF Financial, Ltd.
[5] Includes 1,300 Units held by an Individual Retirement
Account for the benefit of Mr. Hawkins and 700 Units held by a general
partnership in which Mr. Hawkins holds a 50% ownership interest. Mr. Hawkins
disclaims beneficial ownership of 50% of the 700 units held by the general
partnership.
[6] Includes 5,000 Units held directly and 83,417 Units held by
a company of which Mr. St.Clair is a director and executive officer. Mr.
St.Clair may be deemed to share beneficial ownership of the 83,417 Units with
7HBF Financial, Ltd.
[7] Units are held directly.
[8] Units are held by two companies of which Mr. McDonald is a
director and executive officer. Mr. McDonald may be deemed to share beneficial
ownership of 144,417 Units with 7HBF, Ltd., and of 49,750 Units with 7BHF, Ltd.,
and Barbara J. Smith.
[9] Excludes 524,333 Class A Units beneficially owned by 7HBF,
Ltd. (a Texas limited partnership of which John D. Harvison and members of his
family are partners), and 738,297 Class A Units beneficially owned by HBF
Financial, Ltd. (a Texas limited liability company which is 98%-owned by trusts
for the benefit of the siblings of John D. Harvison). 7HBF, Ltd., may be deemed
to share beneficial ownership of 144,417 Units with Garland R. McDonald, 49,750
Units with Garland R. McDonald and Barbara J. Smith (John H. Harvison's sister),
83,417 Units with J. D. St.Clair, and 16,833 Units with Robert J. Byrnes.
[10] Excludes 175,000 Class B Units owned of record by a company
owned by 7HBF, Ltd. Mr. Harvison is a manager of 7HBF, Ltd. The benefical
ownership of these Units is in dispute.
[11] Excludes the 524,333 and 738,297 Class A Units discussed in
notes 2 and 9 and the 32,167 Class A Units discussed in note 9.
[12] Excludes the 175,000 Class B Units discussed in notes 3 and
10.
General Partner
The General Partner makes all decisions relating to the
management of the Company. Companies owned, directly or indirectly, by certain
officers and directors (principally John H. Harvison and members of his
immediate family) of the General Partner are the sole shareholders of the
General Partner. Certain of these companies have executed proxies which assign
the right to vote their respective stock in the General Partner to their
respective stockholders on a basis pro rata to each stockholder's ownership of
the respective company. By virtue of this action and through ownership of the
equity interests in certain of these companies or their affiliates, John H.
Harvison and members of his immediate family, have the right to vote 92.2% of
the stock of the General Partner. Messrs. Byrnes, St.Clair, and McDonald
collectively have the right to vote 6.1% of the stock of the General Partner.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Related Transactions
The Company leases land or land and buildings for some of its
retail outlets and some administrative and executive office facilities from
various entities directly or indirectly owned by Messrs. John H. Harvison, and
members of his immediate family, Byrnes, St.Clair, and McDonald. During fiscal
1995, the Company paid $849,000 to such entities with respect to these leases.
The General Partner believes the leases with its affiliates are on terms that
are more favorable to the Company than terms that could have been obtained from
unaffiliated third parties for similar properties.
John H. Harvison, Chairman of the General Partner, owns 50% of
Product Supply Services, Inc. ("Product Supply"), which provides consulting
services and acts as an agent for the Company in connection with the procurement
of motor fuel for sale by the Company. Product Supply provides such services to
the Company pursuant to an agreement providing that the Company will pay Product
Supply $5,000 per month, supply it with office space and support services, such
as telephone and clerical assistance, and pay its reasonable out-of-pocket costs
in providing such services. The agreement may be canceled either by the Company
or Product Supply upon sixty days' written notice. During fiscal year 1995, the
Company paid $67,000 to Product Supply for its services.
John H. Harvison, Chairman of the General Partner, together with
members of his immediate family, owned 50% of Southwest Office Systems, Inc.
("Southwest") until September 15, 1995. During all of 1995, the Company paid
Southwest, and its subsidiary, $65,000 for the purchase of office supplies and
equipment. The Company believes that the prices paid to Southwest for such
supplies and equipment were comparable to those available from unrelated parties
E. Michael Gregory, a Director of the General Partner since
September 1995, is the owner and president of Gregory Consulting, Inc. ("Gregory
Consulting"), which provides engineering, consulting, and other similar services
to the Company. During the entire year of 1995, the Company paid Gregory
Consulting $235,000 for such services.
Under Texas law, the Company is not permitted to hold licenses
to sell alcoholic beverages in Texas. Consequently, the Company has entered into
agreements with Nu-Way Beverage Company ("Nu-Way Beverage"), a company wholly
owned by John H. Harvison, under which Nu-Way Beverage sells alcoholic beverages
at the Company's Texas outlets. Under this agreement, the Company receives rent
and a management fee relative to the sale of alcoholic beverages and it loans
funds to Nu-Way Beverage to pay for alcoholic beverage purchases. The Company
receives interest on such funds at 1/2% above the prime rate charged by a major
commercial bank and the loan is secured by the alcoholic beverage inventory
located in the Company's Texas outlets. During 1995, the highest balance due
under this loan was $485,000 and the balance at the end of the year was
$433,000. During 1995, Nu-Way Beverage sold $9,116,000 of alcoholic beverages at
the Company's Texas outlets. After deducting cost of sales and other expenses
related to these sales, including $1,217,000 of rent, management fees, and
interest paid to the Company, Nu-Way Beverage had earnings of $91,000 as a
result of holding these alcoholic beverage permits.
In June 1994, the Company concluded the settlement of a lawsuit
which it had filed against Nu-Way Oil Company and Nu-Way Distributing Company
(the "Nu-Way Companies"), both of which are controlled by John Harvison and
members of his immediate family, and a related suit which the Nu-Way Companies
had filed against the Company. Under the settlement, all claims in both of the
lawsuits were dismissed and the Company received cash, a promissory note from an
affiliated company (secured by first and second liens on real estate), and title
to a convenience store which was being leased by the Company from an affiliate.
The Company estimated the assets it received had an aggregate value of $485,000.
The affiliated companies received approximately $65,000 in cash (held in the
Registry of the Court) and 30,000 Class B Units owned by an affiliate that were
being held by an escrow agent. This agreement was approved by the disinterested
directors of the General Partner. The note which the Company received in
connection with this settlement is to be repaid over five years, with interest
at 9.5%; the highest balance outstanding during 1995 under the note was
$110,000, and the balance outstanding at year end 1995 was $92,000.
In 1980 and 1982, certain of the Affiliated Companies granted to
E-Z Serve, Inc. ("E-Z Serve"), the right to sell motor fuel at retail for a
period of ten years at self-serve gasoline stations owned or leased by the
Affiliated Companies or their affiliates. All rights to commissions under these
agreements and the right to sell motor fuel at wholesale to E-Z Serve at such
locations were assigned to the Company on May 21, 1987, in connection with the
acquisition of its initial base of retail operations. In December 1990, in
connection with the expiration or termination of the agreements with E-Z Serve,
the Company entered into agreements with Thrift Financial Co. ("Thrift
Financial"), a company owned and controlled by members of John H. Harvison's
immediate family, which grant to the Company the exclusive right to sell motor
fuel at certain retail locations. The terms of these agreements are comparable
to agreements that the Company has with other unrelated parties. During fiscal
1995, the Company paid Thrift Financial $261,000 under these agreements.
In 1995, the Company purchased four parcels of land, including
buildings and petroleum storage tanks and related dispensing equipment, from H
Investments, LLC ("H Investments"), a company indirectly owned by John H.
Harvison and members of his immediate family. The Company paid a total of
$144,000 for the real estate and related improvements. The Company is operating
one of these locations as a convenience store and one as a self-service motor
fuel outlet and intends to operate the other two as either convenience stores or
self-service motor fuel outlets. Robert J. Byrnes, President of the General
Partner, determined the puchase price by reference to similar properties
acquired by the Company from unrelated parties. These properties had been
acquired by H Investments in 1993 in connection with the acquisition of a
package of notes receivable one of which was secured by the real estate
discussed above as well as other assets. H Investments ascribed a value of
$70,000 to this note.
Cost Allocations. Determinations are made by the General Partner
with respect to costs incurred by the General Partner (whether directly or
indirectly through its affiliates) that will be reimbursed by the Company. The
Company reimburses the General Partner and any of its affiliates for direct and
indirect general and administrative costs, principally officers' compensation
and associated expenses, related to the business of the Company. The
reimbursement is based on the time devoted by employees to the Company's
business or upon such other reasonable basis as may be determined by the General
Partner. In fiscal 1995, the Company reimbursed the General Partner and its
affiliates $727,000 for such expenses.
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this Annual
Report on Form 10-K:
(1) Financial Statements.
See Index to Financial Statements and Financial Statement
Schedules on page F-1 hereof.
(2) Financial Statement Schedules.
See Index to Financial Statements and Financial Statement
Schedules on page F-1 hereof.
Schedules other than those listed on the accompanying Index to
Financial Statements and Financial Statement Schedules are omitted because they
are either not required, not applicable, or the required information is included
in the consolidated financial statements or notes thereto.
(3) Exhibits.
3.1 Amended and Restated Certificate of Limited Partnership of
FFP Partners, L.P. [3.7] {1}
3.2 Amended and Restated Certificate of Limited Partnership of
FFP Operating Partners, L.P. [3.8] {1}
4.1 Amended and Restated Agreement of Limited Partnership of FFP
Partners, L.P., dated May 21, 1987, as amended by the First Amendment to Amended
and Restated Agreement of Limited Partnership dated August 14, 1989, and by the
Second Amendment to Amended and Restated Agre dated July 12, 1991. {5}
4.2 Amended and Restated Agreement of Limited Partnership of FFP
Operating Partners, L.P. dated May 21, 1987. {2}
4.3 Rights Agreement dated as of August 14, 1989, between the
Company and NCNB Texas National Bank, as Rights Agent. [1] {3}
10.1 Nonqualified Unit Option Plan of FFP Partners, L.P. [10.2]
{1}
10.2 Form of Ground Lease with Affiliated Companies. [10.3] {1}
10.3 Form of Building Lease with Affiliated Companies. [10.4]
{1}
10.4 Form of Agreement with Product Supply Services, Inc. [10.5]
{1}
10.5 Agreement of Limited Partnership of Direct Fuels, L.P.
[10.6] {4}
10.6 Form of Employment Agreement between FFP Partners
Management Company, Inc., and certain executive officers dated April 23, 1989,
as amended July 22, 1992. [10.9] [{5}
10.7 Credit Agreement between Bank of America Texas, N.A., and
FFP Operating Partners, L.P., dated February 25, 1994. [10.9] {6}
10.8 First Amendment, dated March 30, 1994, to Credit Agreement
between Bank of America Texas, N.A., and FFP Operating Partners, L.P., dated
February 25, 1994. {7}
10.9 Second Amendment, dated August 31, 1994, to Credit
Agreement between Bank of America Texas, N.A., and FFP Operating Partners, L.P.,
dated February 25, 1994. {7}
10.10 Third Amendment, dated May 1, 1995, to Credit Agreement
between Bank of America Texas, N.A., and FFP Operating Partners, L.P., dated
Februrary 25, 1995 [10.12] {8}
10.11 Fourth Amendment, dated December 20, 1995, to Credit
Agreement between Bank of America Texas, N.A., and FFP Operating Partners, L.P.,
dated Februrary 25, 1995 {9}
10.12 Fifth Amendment, dated March 29, 1996, to Credit Agreement
between Bank of America Texas, N.A., and FFP Operating Partners, L.P., dated
Februrary 25, 1995 {9}
10.13 Employment Agreements between FFP Operating Partners,
L.P., and Avry Davidovich dated August 24, 1992, and September 30, 1992. [10.11]
{5}
10.14 Amendment dated May 17, 1994, to Employment Agreements
between FFP Operating Partners, L.P., and Avry Davidovich {7}
21.1 Subsidiaries of the Registrant. {9}
23.1 Consent of KPMG Peat Marwick LLP. {9}
27 Financial data schedule {9}
99.1 Financial statements of FFP Operating Partners, L.P., a
99%-owned subsidiary of the Registrant. {These financial statements are being
filed as an exhibit to facilitate compliance with certain state regulatory
requirements.} {9}
- --------------------------------
{1} Included as the indicated exhibit in the Partnership's
Registration Statement on Form S-1 (Registration No. 33-12882) dated May 14,
1987, and incorporated herein by reference.
{2} Included as the indicated exhibit in the Partnership's
Annual Report on Form 10-K for the fiscal year ended December 27, 1987, and
incorporated herein by reference.
{3} Included as the indicated exhibit in the Partnership's
registration statement on Form 8-A dated as of August 29, 1989, and incorporated
herein by reference.
{4} Included as the indicated exhibit in the Partnership's
Current Report on Form 8-K, dated February 10, 1989, and incorporated herein by
reference)
{5} Included as the indicated exhibit in the Partnership's
Annual Report on Form 10-K for the fiscal year ended December 27, 1992, and
incorporated herein by reference.
{6} Included as the indicated exhibit in the Partnership's
Annual Report on Form 10-K for the fiscal year ended December 26, 1993, and
incorporated herein by reference.
{7} Included as the indicated exhibit in the Partnership's
Annual Report on Form 10-K for the fiscal year ended December 25, 1994, and
incorporated herein by reference.
{8} Included as the indicated exhibit in the Partnership's
Quarterly Report on Form 10-Q for the first fiscal quarter ended March 26, 1995,
and incorporated herein by reference.
{9} Included herewith.
(b) No reports on Form 8-K were filed during the last quarter of
the period covered by this Annual Report on Form 10-K.
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 Annual
Report on Form 10-K to be signed on its behalf by the undersigned, thereunto
duly authorized.
Dated: April 12, 1996 FFP PARTNERS, L.P.
(Registrant)
By: FFP Partners Management Company, Inc.,
General Partner
By: /s/ John H. Harvison
John H. Harvison
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of
1934, this Annual Report has been signed below by the following persons on
behalf of the Registrant in the capacities indicated as of April 16, 1996.
/s/ John H. Harvison Chairman of the Board of Directors
John H. Harvison and Chief Executive Officer of FFP
Partners Management Company, Inc.
(Principal executive officer)
/s/ Robert J. Byrnes President, Chief Operating Officer,
Rober J. Byrnes and Director of FFP Partners Management
Company, Inc. (Principal operating officer)
/s/ Steven B. Hawkins Vice President - Finance and Administration,
Steven B. Hawkins and Chief Financial Officer of FFP Partners
Management Company, Inc. (Principal financial
and accounting officer)
/s/ J. D. St.Clair Director of FFP Partners Management Company, Inc.
J. D. St.Clair
/s/ Avry Davidovich Director of FFP Partners Management Company, Inc.
Avry Davidovich
/s/ Robert E. Garrison, II Director of FFP Partners Management Company, Inc.
Robert E. Garrison, II
/s/ John W. Hughes Director of FFP Partners Management Company, Inc.
John W. Hughes
/s/ Garland R. McDonald Director of FFP Partners Management Company, Inc.
Garland R. McDonald
/s/ John D. Harvison Director of FFP Partners Management Company, Inc.
John D. Harvison
/s/ E. Michael Gregory Director of FFP Partners Management Company, Inc.
E. Michael Gregory
<PAGE>
Item 8. INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE.
Page
Number
Independent Auditors' Report F-2
Consolidated Balance Sheets as of December 31, 1995,
and December 25, 1994 F-3
Consolidated Income Statements for the Years Ended
December 31, 1995, December 25, 1994, and December 26, 1993 F-4
Consolidated Statements of Partners' Capital for the Years
Ended December 31, 1995, December 25, 1994, and December 26, 1993 F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995, December 25, 1994, and December 26, 1993 F-6
Notes to Consolidated Financial Statements F-8
Schedule II - Valuation and Qualifying Accounts F-25
F - 1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners
FFP Partners, L.P.:
We have audited the consolidated financial statements of FFP
Partners, L.P. (a Delaware Limited Partnership) and subsidiaries as listed in
the accompanying index. In connection with our audits of the consolidated
financial statements, we also have audited the financial statement schedule as
listed in the accompanying index. These consolidated financial statements and
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial position of FFP
Partners, L.P. and subsidiaries as of December 31, 1995 and December 25, 1994,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1995, in conformity with generally
accepted accounting principles. Also in our opinion, the related financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
As discussed in Notes 2(l) and 10 to the consolidated
financial statements, the Company changed its method of accounting for income
taxes in 1993 to adopt the provisions of the Financial Accounting Standards
Board's Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes."
KPMG Peat Marwick LLP
Fort Worth, Texas
March 5, 1996, except for
the third and fourth paragraphs of
Note 5, which are as of March 29, 1996
F - 2
<PAGE>
FFP PARTNERS, L.P., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995, AND DECEMBER 25, 1994
(In thousands)
1995 1994
ASSETS
Current Assets
Cash and cash equivalents $8,106 $11,400
Trade receivables, less allowance
for doubtful accounts of $1,045
and $917 in 1995 and 1994, respectively 9,440 8,092
Notes receivable 453 452
Receivables from affiliated company 436 451
Inventories 11,260 11,346
Prepaid expenses and other current assets 615 607
Total current assets 30,310 32,348
Property and equipment, net 31,872 29,959
Noncurrent notes receivable, excluding
current portion 1,156 1,099
Claims for reimbursement of environmental
remediation costs 1,255 1,490
Other assets, net 4,739 3,082
Total Assets $69,332 $67,978
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities
Amount due under revolving credit line $4,003 $0
Current installments of long-term debt 1,028 2,131
Current installments of obligations
under capital leases 884 552
Accounts payable 13,030 13,180
Money orders payable 5,918 4,262
Accrued expenses 9,894 12,323
Total current liabilities 34,757 32,448
Long-term debt, excluding current installments 6,157 8,634
Obligations under capital leases, excluding
current installments 943 893
Other liabilities 1,774 1,153
Total Liabilities 43,631 43,128
Commitments and contingencies
Partners' Capital
Limited partners' equity 25,713 24,870
General partner's equity 257 249
Treasury units (269) (269)
Total Partners' Capital 25,701 24,850
Total Liabilities and Partners' Capital $69,332 $67,978
See accompanying notes to consolidated financial statements.
F - 3
<PAGE>
FFP PARTNERS, L.P., AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
YEARS ENDED DECEMBER 31, 1995, DECEMBER 25, 1994, AND DECEMBER 26, 1993
(In thousands, except unit information)
1995 1994 1993
Revenues
Motor fuel $296,887 $275,278 $246,023
Merchandise 65,512 72,827 74,921
Miscellaneous 7,646 7,408 5,706
Total Revenues 370,045 355,513 326,650
Costs and Expenses
Cost of motor fuel 274,074 252,946 224,373
Cost of merchandise 46,325 52,658 54,601
Direct store expenses 28,496 29,553 28,794
General and administrative
expenses 11,795 11,056 10,527
Depreciation and amortization 3,769 4,352 5,681
Total Costs and Expenses 364,459 350,565 323,976
Operating Income 5,586 4,948 2,674
Interest Expense 1,176 1,173 1,565
Income before income taxes,
extraordinary item, and
accounting change 4,410 3,775 1,109
Deferred income tax expense 500 244 94
Income before extraordinary item
and accounting change 3,910 3,531 1,015
Extraordinary item - gain on
extinguishment of debt 0 200 0
Cumulative effect of change in
accounting for income taxes 0 0 (297)
Net Income $3,910 $3,731 $718
Net income allocated to
Limited partners $3,871 $3,694 $711
General partner 39 37 7
Income/(loss) per limited partner unit
Before extraordinary item and
accounting change $1.07 $0.97 $0.28
Gain on extinguishment of debt 0.00 0.06 0.00
Change in accounting for
income taxes 0.00 0.00 (0.08)
Net income $1.07 $1.03 $0.20
Distributions declared per unit $0.87 $0.37 $0.00
Weighted average number of Class
A and Class B Units outstanding 3,632,221 3,589,337 3,585,233
See accompanying notes to consolidated financial statements.
F - 4
<PAGE>
FFP PARTNERS, L.P., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
YEARS ENDED DECEMBER 31, 1995, DECEMBER 25, 1994, AND DECEMBER 26, 1993
(In thousands, except unit information)
Limited Partners
-------------------- Gemeral Treasury
Class A Class B Partner Units Total
Balance, December 27, 1992 $15,391 $6,330 $218 $(269) $21,670
Exercise of Class A Unit
options by employees 15 0 0 0 15
Net income 407 304 7 0 718
Balance, December 26, 1993 15,813 6,634 225 (269) 22,403
Exercise of Class A Unit
options by employees 53 0 0 0 53
Distributions to partners
($0.37 per Class A and
Class B Unit) (761) (563) (13) 0 (1,337)
Net income 2,124 1,570 37 0 3,731
Balance, December 25, 1994 17,229 7,641 249 (269) 24,850
Exercise of Class A Unit
options by employees
and directors 238 0 1 0 239
Retirement of Class A Units (94) 0 0 0 (94)
Distributions to partners
($0.87 per Class A and
Class B Unit) (1,838) (1,334) (32) 0 (3,204)
Net income 2,254 1,617 39 0 3,910
Balance, December 31, 1995 $17,789 $7,924 $257 $(269) $25,701
See accompanying notes to consolidated financial statements.
F - 5
<PAGE>
FFP PARTNERS, L.P., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, AND DECEMBER 25, 1994, DECEMBER 26, 1993
(In thousands, except supplemental information)
1995 1994 1993
Cash Flows from Operating Activities
Net income $3,910 $3,731 $718
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization 3,769 4,352 5,681
Provision for doubtful accounts 459 804 460
Provision for deferred income taxes, including
$297 for cumulative effect of change in
acounting for income taxes in 1993 500 244 391
(Gain)/loss on sales of property
and equipment (256) (16) 220
(Gain) on extinguishment of debt 0 (200) 0
(Gain) on sales of convenience store
operations (791) (829) 0
Minority interest in net income
of subsidiaries 42 41 11
Changes in operating assets and liabilities
(Increase) in trade receivables (1,807) (2,018) (2,330)
(Increase)/decrease in notes receivable 733 80 (195)
(Increase)/decrease in receivables from
affiliated companies 15 24 (147)
(Increase)/decrease in inventories 86 2,211 (876)
(Increase)/decrease in prepaid expenses
and other current assets (8) 156 159
(Increase)/decrease in claims for
reimbursement of environmental
remediation costs 314 192 (52)
Decrease in other assets 0 0 516
Increase/(decrease)in accounts payable (150) 1,137 713
Increase in money orders payable 1,656 832 521
Increase/(decrease)in accrued expenses (2,429) 353 2,222
Net cash provided by operating activities 6,043 11,094 8,012
Cash Flows from Investing Activities
Purchases of property and equipment (4,762) (3,772) (3,374)
Proceeds from sales of property
and equipment 314 44 280
Investments in joint ventures and
other entities (1,350) 0 0
(Increase) in other assets (687) (787) (312)
Net cash (used in) investing activities (6,485) (4,515) (3,406)
Cash Flows from Financing Activities
Borrowings/(payments) on revolving
credit line, net 4,003 (7,116) 0
Proceeds from long-term debt 0 12,161 826
Payments on long-term debt (4,178) (13,576) (3,494)
Borrowings under capital lease
obligations 1,076 1,560 0
Payments on capital lease obligations (694) (115) 0
Proceeds from exercise of unit options 145 53 15
Distributions to unitholders (3,204) (1,337) 0
(Repayments to) General Partner, net 0 0 (332)
Net cash (used in) financing activities (2,852 (8,370) (2,985)
Net increase/(decrease) in cash
and cash equivalents (3,294) (1,791) 1,621
Cash and cash equivalents at
beginning of year 11,400 13,191 11,570
Cash and cash equivalents at end of year $8,106 $11,400 $13,191
Supplemental Disclosure of Cash Flow Information
Cash paid for interest during 1995, 1994, and 1993 was
$1,394,000, $1,283,000, and $1,603,000, respectively.
Supplemental Schedule of Noncash Investing and Financing Activities
During 1995, the Company (i) acquired fixed assets of $598,000
in exchange for notes payable and (ii) retired $94,000 in Class A Units in
connection with the surrender of 12,295 Class A Units in payment for the
exercise of options to acquire 25,000 Class A Units by a director of the General
Partner.
During 1994, the Company acquired property valued at $215,000
and a note receivable of $120,000 through settlement of a lawsuit.
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
FFP PARTNERS, L.P., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, DECEMBER 25, 1994, AND DECEMBER 26, 1993
1. Basis of Presentation
(a) Organization of Company
FFP Partners, L.P. ("FFPLP"), through its subsidiaries, owns
and operates retail convenience stores, truck stops, and self-service motor fuel
outlets over an eleven state area. It also operates check cashing booths and
conducts a wholesale motor fuel business, both primarily in Texas. FFPLP, a
Delaware limited partnership, was formed in December 1986. FFP Partners
Management Company, Inc. ("FFPMC" or the "General Partner"), serves as the
general partner of FFPLP. FFPMC, or a subsidiary, also serves as the general
partner of FFPLP's subsidiary partnerships. References in these notes to the
"Company" include FFPLP and its subsidiaries.
The Company commenced operations in May 1987 upon the purchase
of its initial base of retail outlets from affiliates of the General Partner.
The purchase of these outlets was completed in conjunction with the Company's
initial public offering of 2,065,000 Class A Units of limited partnership
interest, the issuance of 1,585,000 Class B Units of limited partnership
interest to the affiliates of the General Partner from which the retail outlets
were acquired, and the issuance of a 1% interest in the Company to the General
Partner.
The Company owns and conducts its operations through the
following subsidiaries (entity, date formed, percentage owned, and principal
activity):
FFP Operating Partners, L.P.
a Delaware limited partnership
Formed December 1986 - 99% owned
Operation of convenience stores and other retail outlets
Direct Fuels, L.P.
a Texas limited partnership
Formed December 1988 - 99% owned
Wholesale motor fuel sales
FFP Financial Services, L.P.
a Delaware limited partnership
Formed Septmeber 1990 - 99% owned
Operation of check cashing booths
FFP Illinois Money Orders, Inc.
an Illinois corporation
Formed January 1993 - 100% owned
Issuance of money orders in Illinois (inactive)
Practical Tank Management, Inc.
a Texas corporation
Formed September 1993 - 100% owned
Underground storage tank monitoring
FFP Transportation, L.L.C.
a Texas limited liability company
Formed September 1994 - 100% owned
Ownership of tank trailers leased to independent trucking company
The Company's Class A Units are traded on the American Stock
Exchange. The Class B Units, which are not registered and are not traded on the
American Stock Exchange, are held by entities affiliated with the General
Partner. The Class B Units may be converted into Class A Units on a one-for-one
basis at the option of the Class B unitholders. The Class A Units and Class B
Units have identical rights with respect to cash distributions and to voting on
matters brought before the partners.
(b) Consolidation
All significant intercompany accounts and transactions have
been eliminated in the consolidated financial statements. The minority interest
in the net income or loss of subsidiaries which are not wholly-owned by FFPLP is
included in general and administrative expenses.
(c) Reclassifications
Certain amounts previously reported in the 1994 and 1993
consolidated financial statements have been reclassified to conform to the 1995
presentation.
2. Significant Accounting Policies
(a) Fiscal Years
The Company prepares its financial statements and reports its
results of operations on the basis of a fiscal year which ends on the last
Sunday of December. Accordingly, the fiscal year ended December 31, 1995,
consisted of 53 weeks and the fiscal years ended December 25, 1994, and December
26, 1993, consisted of 52 weeks; certain other previous fiscal years consisted
of 53 weeks. Year end data in these notes is as of the respective dates above.
(b) Cash Equivalents
The Company considers all highly liquid investments with
maturities at date of purchase of three months or less to be cash equivalents.
(c) Notes Receivable
Notes receivable are recorded at the amount owed, less a
related allowance for impairment. The provisions of the Financial Accounting
Standard Board's ("FASB") Statement of Financial Accounting Standard ("SFAS")
No. 114, "Accounting by Creditors for Impairment of a Loan," have been applied
in the evaluation of the collectibility of notes receivable. At year end 1995
and 1994, no notes receivable were determined to be impaired.
(d) Inventories
Inventories consist of retail convenience store merchandise
and motor fuel products. Merchandise inventories are stated at the lower of cost
or market as determined by the retail method. Motor fuel inventories are stated
at the lower of cost or market using the first-in, first-out (FIFO) inventory
method.
The Company has selected a single company as the primary
grocery and merchandise supplier to its convenience stores and truck stops
although certain items, such as bakery goods, dairy products, soft drinks, beer,
and other perishable products, are generally purchased from local vendors and/or
wholesale route salespeople. The Company believes it could replace any of its
merchandise suppliers, including its primary grocery and merchandise supplier,
with no significant adverse effect on its operations.
The Company does not have long-term contracts with any
suppliers of petroleum products covering more than 10% of its motor fuel supply.
Unanticipated national or international events could result in a curtailment of
motor fuel supplies to the Company, thereby adversely affecting motor fuel
sales. In addition, management believes a significant portion of its merchandise
sales are to customers who also purchase motor fuel. Accordingly, reduced
availability of motor fuel could negatively impact other facets of the Company's
operations.
(e) Property and Equipment
Property and equipment are stated at cost. Equipment acquired
under capital leases is stated at the present value of the initial minimum lease
payments, which is not in excess of the fair value of the equipment.
Depreciation and amortization of property and equipment are provided on the
straight-line method over the estimated useful lives of the respective assets.
Leasehold improvements are amortized on the straight-line method over the
shorter of the lease term or the estimated useful lives of the respective
assets.
(f) Investments
Investments in joint ventures and other entities that are 50%
or less owned are accounted for by the equity method and are included in other
assets, net, in the accompanying consolidated balance sheets.
(g) Intangible Assets
In connection with the allocation of the purchase price of the
assets acquired in 1987 upon the commencement of the Company's operations,
$6,192,000 was allocated to contracts under which the Company supplies motor
fuel to various retail outlets and $1,093,000 was allocated as the future
benefit of real estate leased from affiliates of the General Partner. The fuel
contracts were amortized using the straight-line method over 6.3 years, the
average life of such contracts at the time they were acquired. The value
assigned to these contracts became fully amortized during 1993. The future
benefit of the leases is being amortized using the straight-line method over 20
years, the initial term and option periods, of such leases.
Goodwill of $2,020,000 is being amortized using the
straight-line method over 20 years. The Company assesses the recoverability of
goodwill by determining whether the amortization of the balance over the
remaining amortization period can be recovered through undiscounted future
operating cash flows of the acquired operations. The amount of goodwill
impairment, if any, is measured based on projected discounted future operating
cash flows using a discount rate reflecting the Company's average cost of funds.
The assessment of the recoverability of goodwill would be impacted if
anticipated future operating cash flows are not achieved.
(h) Sales of Convenience Store Operations
The Company sold the merchandise operations and related
inventories of 10 and 15 convenience store locations to various third parties
for approximately $900,000 and $1,834,000 in 1995 and 1994, respectively. Under
these sales, the Company retained the real estate or leasehold interests, and
leases or subleases the store facilities (including the store equipment) to the
purchaser under five-year renewable operating lease agreements. The Company
retains ownership of the motor fuel operations and pays the purchaser of the
store commissions based on motor fuel sales. In addition, the new store
operators may purchase merchandise under the Company's established buying
arrangements for which the Company receives a commission.
The proceeds from the sales in 1995 consisted of cash of
$357,000 and notes receivable of $543,000 and in 1994 consisted of cash of
$778,000 and notes receivable of $1,056,000. The notes receivable generally are
for terms of five years, require monthly payments of principal and interest, and
bear interest at rates ranging from 8% to 10%. Gains on sales which meet
specified criteria, including receipt of a significant cash down payment and
projected cash flow from store operations sufficient to adequately service the
debt, are recognized upon closing of the sale. Gains on sales which do not meet
the specified criteria are recognized under the installment method as cash
payments are received. Gains being recognized under the installment method are
evaluated periodically to determine if full recognition of the gain is
appropriate. During 1995 and 1994, the Company recognized gains of $791,000 and
$829,000, respectively (included in miscellaneous revenues in the accompanying
consolidated income statements), and deferred gains of $200,000 and $400,000,
respectively (included in accrued expenses in the accompanying consolidated
balance sheets).
(i) Environmental Costs
Environmental remediation costs are expensed; related
environmental expenditures that extend the life, increase the capacity, or
improve the safety or efficiency of existing assets are capitalized. Liabilities
for environmental remediation costs are recorded when environmental assessment
and/or remediation is probable and the amounts can be reasonably estimated.
Environmental liabilities are evaluated independently from potential claims for
recovery. Accordingly, the gross estimated liabilities and estimated claims for
reimbursement have been presented separately in the accompanying consolidated
balance sheets (see Note 13b).
(j) Motor Fuel Taxes
Motor fuel revenues and related cost of motor fuel include
federal and state excise taxes of $103,478,000, $103,117,000, and $82,890,000,
for 1995, 1994, and 1993, respectively.
(k) Exchanges
The exchange method of accounting is utilized for motor fuel
exchange transactions. Under this method, such transactions are considered as
exchanges of assets with deliveries being offset against receipts, or vice
versa. Exchange balances due from others are valued at current replacement
costs. Exchange balances due to others are valued at the cost of forward
contracts (Note 11) to the extent they have been entered into, with any
remaining balance valued at current replacement cost. Exchange balances due to
others at year end 1995 and 1994 totaled $-0- and $123,000, respectively.
(l) Income Taxes
Taxable income or loss of the Company is includable in the
income tax returns of the individual partners; therefore, no provision for
income taxes has been made in the accompanying consolidated financial
statements, except for applying the provisions of SFAS No. 109 "Accounting for
Income Taxes," which was adopted at the beginning of the Company's 1993 fiscal
year.
Under the Revenue Act of 1987 ("Revenue Act"), certain
publicly traded partnerships are to be treated as corporations for tax purposes.
Due to a transitional rule, this provision of the Revenue Act will not be
applied to the Company until the earlier of (i) its tax years beginning after
1997 or (ii) its addition of a "substantial new line of business" as defined by
the Revenue Act. Legislation has been introduced into Congress which would
extend for a two year period the Company's partnership tax status. However, no
action has yet been taken on this legislation. The General Partner continues to
evaluate the Company's alternatives with respect to its tax status.
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the estimated
future tax consequences attributable to existing differences between
financial statement carrying amounts of assets and liabilities and their
respective tax bases that are expected to reverse after 1997. Deferred tax
liabilities and assets are measured using enacted tax rates expected to be in
effect when such amounts are realized or settled. The effect of a change in tax
rates is recognized in income in the period that includes the enactment date.
(m) Fair Value of Financial Instruments
The carrying amounts of cash, receivables, amounts due under
revolving credit line, and money orders payable approximate fair value because
of the short maturity of those instruments. The carrying amount of notes
receivable approximates fair value which is determined by discounting expected
future cash flows at current rates.
The carrying amount of long-term debt approximates fair value
due to the variable interest rate on substantially all such obligations.
(n) Units Issued and Outstanding
Units outstanding at year end 1995 and 1994 were as follows:
1995 1994
Class A Units 2,137,076 2,073,104
Class B Units 1,533,522 1,533,522
During 1990, the Company acquired 13,300 Class A Units and
51,478 Class B Units which are being held in the treasury at cost.
In January 1996, 1,298,522 Class B Units held by affiliates of
the General Partner were converted to Class A Units, in accordance with the
Partnership Agreement.
(o) Income/(Loss) per Unit
The Partnership Agreement provides that net income or loss is
to be allocated (i) 99% to the limited partners and 1% to the General Partner
and (ii) among the limited partners based on the number of units held.
Accordingly, income/(loss) per unit is calculated by dividing 99% of the
appropriate income statement caption by the weighted average number of Class A
and Class B Units outstanding for the year. No effect has been given to the unit
purchase rights and options outstanding under the unit option plans (Note 9)
since the effect is immaterial or anti-dilutive.
(p) Cash Distributions to Partners
Distributions to partners represent a return of capital and
are allocated pro rata to the General Partner and holders of both the Class A
and Class B Units.
(q) Employee Benefit Plan
Effective January 1, 1994, the Company adopted a 401(k) profit
sharing plan covering all employees who meet age and tenure requirements.
Participants may contribute to the plan a portion, within specified limits, of
their compensation under a salary reduction arrangement. The Company may make
discretionary matching or additional contributions to the plan. The Company did
not make any contributions to the plan in 1995 or 1994.
(r) Use of Estimates
The use of estimates is required to prepare the Company's
consolidated financial statements in conformity with generally accepted
accounting principles. Although management believes that such estimates are
reasonable, actual results could differ from the estimates.
(s) New Accounting Standards
In March 1995, the FASB issued SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." SFAS 121 requires that long-lived assets and certain intangibles be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Management is
currently unable to reasonably estimate whether the adoption of SFAS 121 in 1996
will have a material effect on the Company's consolidated financial position or
results of operations.
In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation." SFAS 123 permits companies to retain the current
approach set forth in Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," for recognizing stock-based compensation.
Management believes that adopting the provisions of SFAS 123 in 1996 will not
have a material effect on the Company's consolidated financial position or
results of operations.
3. Property and Equipment
Property and equipment consists of the following:
1995 1994
(In thousands)
Land $4,319 $3,853
Land improvement 2,627 2,582
Buildings and improvement 24,515 22,701
Machinery and equipment 31,302 28,773
62,763 57,909
Accumulated depreciation and amortization (30,891) (27,950)
$31,872 $29,959
In September 1995, the Company entered into an agreement to
acquire a fuel terminal, including the land and equipment. This purchase was
completed after year end.
4. Other Assets
Other assets consist of the following:
1995 1994
(In thousands)
Intangible Assets (Note 2g)
Ground leases $1,093 $1,093
Goodwill 2,020 1,932
Other 1,984 1,406
5,097 4,431
Accumulated amortization (2,056) (1,676)
3,041 2,755
Investments in joint ventures and other entities 1,350 0
Other 348 327
$4,739 $3,082
In December 1995, the Company invested $1,200,000 for a 50%
interest in a joint venture formed to acquire certain loans that are secured by
convenience stores located in areas where the Company currently has operations.
These loans will be liquidated through collection or through acquisition of the
stores by the Company through foreclosure.
5. Notes Payable and Long-Term Debt
The Company has a Credit Agreement with a bank that provides a
$10,000,000 revolving credit line for working capital purposes with sublimits of
$8,000,000 for cash advances and $3,000,000 for letters of credit. The revolving
credit line bears interest at the bank's prime rate (8.5% at year end 1995) and
matures on April 30, 1997. The Credit Agreement requires that the cash balance
outstanding under the revolving credit line be repaid for seven consecutive
calendar days in each quarter beginning July 1, 1996. At year end 1995, there
was $4,003,000 due on the revolving credit line and there were outstanding
letters of credit totaling $625,000
The Credit Agreement also provides a term loan, which had a
balance at year end 1995 of $6,563,000. This loan bears interest at the bank's
prime rate, requires quarterly payments of $312,500, plus interest, and matures
on March 31, 2001.
On March 29, 1996, the bank and Company amended the Credit
Agreement principally to provide an additional term loan of $1,000,000 to be
used by the Company to finance the acquisition and renovation of a fuel terminal
and processing plant. This loan bears interest at the bank's prime rate, is due
in quarterly installments of $50,000 beginning June 30, 1996, and matures on
March 31, 2001.
All loans are secured by the Company's accounts receivable and
inventory. In addition the Company has provided a negative pledge of all its
fixed assets and real property and the bank has the right to require a positive
pledge of such assets at any time. The loans are guaranteed by the General
Partner and its subsidiary. The Credit Agreement also contains various
restrictive covenants including restrictions on borrowing from persons other
than the bank, making investments in, advances to, or guaranteeing the
obligations of other persons, maintaining specified levels of equity, and the
maintenance of certain financial ratios which have the effect of limiting cash
distributions and capital expenditures. At year end 1995, the Company was not in
compliance with certain financial ratios. In connection with the March 29, 1996,
amendment of the Credit Agreement, discussed above, the bank has waived
compliance, to a limited extent, with these ratios until the Company's second
1996 fiscal quarter at which time the Company believes it will be in compliance
with these ratios.
The Company has other notes payable which bear interest at 6%
to 10% and are due in monthly or annual installments through 2012. Such notes
are unsecured or secured by receivables or land and had aggregate balances of
$622,000 and $265,000 at year end 1995 and 1994, respectively.
The aggregate fixed maturities of long-term debt for each of
the five years subsequent to 1995 are as follows:
(In thousands)
1996 $1,028
1997 1,346
1998 1,296
1999 1,410
2000 1,289
Thereafter 816
$7,185
In February 1994, the Company refinanced its then existing
bank debt. In connection with this refinancing, the Company received a discount
of $200,000 for the early retirement of the existing debt. This discount is
reflected as an extraordinary item in the accompanying 1994 consolidated income
statement.
6. Capital Leases
The Company is obligated under noncancelable capital leases
beginning to expire in 1997. The gross amount of the assets covered by these
capital leases that are included in property and equipment in the accompanying
consolidated balance sheets is as follows:
1995 1994
(In thousands)
Machinery and equipment $2,636 $1,560
Accumulated amortization (425) (19)
$2,211 $1,541
The amortization of assets held under capital leases is
included in depreciation and amortization expense in the accompanying
consolidated income statements. Future minimum lease payments under the
noncancelable capital leases for years subsequent to 1995 are:
(In thousands)
1996 $1,079
1997 891
1998 121
Total minimum lease payments 2,091
Amount representing interest (264)
Present value of future minimum lease payments 1,827
Current installments (884)
Obligations under capital leases, excluding current installment $943
7. Operating Leases
The Company has noncancelable, long-term operating leases on
certain locations, a significant portion of which are with related parties.
Certain of the leases have contingent rentals based on sales levels of the
locations and/or have escalation clauses tied to the consumer price index.
Minimum future rental payments (including bargain renewal periods) and sublease
receipts for years after 1995 are as follows:
Future Rental Payments
------------------------------------------------------ Future
Related Sublease
Parties Others Total Receipts
(In thousands)
1996 $831 $668 $1,499 $623
1997 762 532 1,294 533
1998 712 476 1,188 495
1999 712 426 1,138 396
2000 677 383 1,060 113
Thereafter 2,700 1,624 4,324 0
$6,394 $4,109 $10,503 $2,160
Total rental expense and sublease income were as follows:
Rent Expense
------------------------------------------------------
Related Sublease
Parties Others Total Income
(In thousands)
1995 $849 $735 $1,584 $843
1994 842 912 1,754 592
1993 840 1,162 2,002 467
8. Accrued Expenses
Accrued expenses consist of the following:
1995 1994
(In thousands)
Motor fuel taxes payable $6,599 $8,232
Accrued payroll and related expenses 1,349 1,199
Accrued environmental remediation costs (Note 13b) 322 260
Other 1,624 2,632
$9,894 $12,323
9. Nonqualifying Unit Option Plan and Unit Purchase Rights
The Company has a Nonqualifying Unit Option Plan and a
Nonqualifying Unit Option Plan for Nonexecutive Employees that authorize the
grant of options to purchase up to 450,000 and 100,000 Class A Units of the
Company, respectively.
Following is a summary of activity under the stock option
plans:
Class A
Units Price
Options outstanding, December 27, 1992 377,000 $2.00 - $12.00
Options granted during year 7,000 $3.75
Options expired or terminated during year (70,000) $3.75 - $12.00
Options exercised during year (4,068) $3.75
Options outstanding, December 26, 1993 309,932 $2.00 - $3.75
Options granted during year 10,000 $3.88
Options expired or terminated during year (8,666) $3.75
Options exercised during year (17,336) $2.00 - $3.75
Options outstanding, December 25, 1994 293,930 $2.00 - $3.88
Options granted during year 50,000 $6.00 - $7.00
Options expired or terminated during year (6,999) $3.75
Options exercised during year (76,267) $2.00 - $3.88
Options outstanding, December 31, 1995 260,664 $3.75 - $7.00
Options exercisable, December 31, 1995 203,998 $3.75 - $3.88
The exercise price of each option granted under the plans is
determined by the Board of Directors, but may not be less than the fair market
value of the underlying units on the date of grant. The exercise prices of the
options outstanding at year end 1995 are:
Exercise Options
Price Outstanding
$3.750 203,998
$3.875 6,666
$6.000 25,000
$7.000 25,000
260,664
All options outstanding at year end 1995 are exercisable with
respect to one-third of the units covered thereby on each of the anniversary
dates of their grants. In the event of a change in control of the Company, any
unexercisable portion of the options will become immediately exercisable.
In August 1989, the Company entered into a Rights Agreement
and distributed to its Unitholders Rights to purchase Units under certain
circumstances. Initially the Rights were attached to all Unit Certificates
representing Units then outstanding and no separate Rights Certificates were
distributed. Under the Rights Agreement, the Rights were to separate from the
Units and be distributed to Unitholders following a public announcement that a
person or group of affiliated or associated persons (an "Acquiring Person") had
acquired, or obtained a right to acquire, beneficial ownership of 20% or more of
the Partnership's Class A Units or all classes of outstanding Units. On August
8, 1994, a group of Unitholders announced that they had an informal
understanding that they would vote their Units together as a block. The
agreement related to units constituting approximately 25% of the Class A Units
then outstanding. Therefore, the Rights became exercisable on October 7, 1994,
the record date for the issuance of the Rights Certificates (the "Distribution
Date").
The Rights currently represent the right to purchase a Rights
Unit (which is substantially equivalent to a Class A Unit) of the Company at a
price of $20.00 per Unit. However, the Rights Agreement provides, among other
things, that if any person acquires 30% or more of the Class A Units or of all
classes of outstanding Units then each holder of a Right, other than an
Acquiring Person, will have the right to receive, upon exercise, Rights Units
(or in certain circumstances, other property) having a value of $40.00 per Unit.
The Rights will expire on August 13, 1999, and do not have any voting rights or
rights to cash distributions.
10. Income Taxes
As discussed in Note 2(l), the Company adopted the provisions
of SFAS No. 109 as of the beginning of its 1993 fiscal year. In the 1993
consolidated income statement, the Company recorded a $297,000 noncash charge
which represented the cumulative effect of the change in accounting for income
taxes. Noncash charges of $500,000, $244,000 and $94,000 were recorded in 1995,
1994, and 1993, respectively, to record deferred income tax expense.
The tax effects of temporary differences that give rise to
significant portions of the deferred tax liabilities at year end 1995 and 1994,
are presented below. Those temporary differences which are expected to reverse
prior to the Company's being treated as a corporation for tax purposes (fiscal
year 1998) have been excluded.
1995 1994
(In thousands)
Deferred tax liabilities:
Property and equipment, principally
due to basis differences and
differences in depreciation (845) (583)
Other (290) (52)
$(1,135) $(635)
11. Futures and Forward Contracts
The Company is party to commodity futures contracts with
off-balance sheet risk. Changes in the market value of open futures contracts
are recognized as gains or losses in the period of change. These investments
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. Contract amounts are often used to express the volume of these
transactions, but the amounts potentially subject to risk are much smaller.
From time-to-time the Company enters into forward contracts to
buy and sell fuel, principally to satisfy balances owed on exchange agreements
(Note 2k). These transactions, which together with futures contracts are
classified as operating activities for purposes of the consolidated statements
of cash flows, are included in motor fuel sales and related cost of sales and
resulted in net gains as follows:
(In thousands)
1995 $87
1994 1,069
1993 730
Open positions under futures and forward contracts were not
significant at year end 1995 and 1994.
12. Related Party Transactions
The Company reimburses the General Partner and its affiliates
for salaries and related costs of executive officers and others and for expenses
incurred by them in connection with the management of the Company. These
expenses were $727,000, $733,000, and $737,000 for 1995, 1994, and 1993,
respectively.
In July 1991, the Company entered into an agreement with an
affiliated company whereby the affiliated company sells alcoholic beverages at
the Company's stores in Texas. Under Texas law, the Company is not permitted to
hold licenses to sell alcoholic beverages in Texas. The agreement provides that
the Company will receive rent and a management fee based on the gross receipts
from sales of alcoholic beverages at its stores. In July 1992, the agreement was
amended to be for a term of five years commencing on the date of amendment. The
sales recorded by the affiliated company under this agreement were $9,116,000,
$9,180,000, and $8,608,000 in 1995, 1994, and 1993, respectively. The Company
received $1,217,000, $1,226,000, and $1,281,000 in 1995, 1994, and 1993,
respectively, in rent, management fees, and interest, which are included in
miscellaneous revenues in the consolidated income statements. After deducting
cost of sales and other expenses related to these sales, including the amounts
paid to the Company, the affiliated company had earnings of $91,000, $119,000,
and $64,000 in 1995, 1994, and 1993, respectively, as a result of holding these
alcoholic beverage permits. Under a revolving note executed in connection with
this agreement, the Company advances funds to the affiliated company to pay for
the purchases of alcoholic beverages. Receipts from the sales of such beverages
are credited against the note balance. The revolving note provides for interest
at 1/2% above the prime rate charged by a major financial institution.
From time to time, the General Partner advances funds to the
Company. Under the Partnership Agreement, the General Partner is permitted to
charge interest on such advances provided the interest rate does not exceed
rates which would be charged by unrelated third parties. Interest expense of
$19,000 is included in the results of operations for 1993. There were no
advances owing to the General Partner during or at the year ends of 1995 and
1994.
The General Partner is entitled to noncumulative, incentive
compensation each year in an amount equal to 10% of the net income of the
Company for such year (prior to the calculation of the incentive compensation),
but only if net income (prior to the calculation of the incentive compensation)
equals or exceeds $1.08 per unit and only if the total of the quarterly cash
distributions for such year are at least $1.50 per unit. The incentive
compensation requirements were not met in 1995, 1994, or 1993.
The Company purchases certain goods and services (including
office supplies, computer software and consulting services, and fuel supply
consulting and procurement services) from related entities. Amounts incurred for
these products and services were $421,000, $147,000, and $169,000 for 1995,
1994, and 1993, respectively.
As a part of its merchandise sales activities, the Company
supplies its private label cigarettes on a wholesale basis to other retailers
who do not operate outlets in its trade areas and pays them rebates based on the
volume of cigarettes purchased. In 1995, the Company paid $51,000 of such
rebates to a company on whose Board one of the Company's executive officers
serves. The amount of rebates paid to this company was calculated in the same
manner as the rebates paid to non-related companies.
In 1980 and 1982, certain companies from which the Company
acquired its initial base of retail outlets granted to a third party the right
to sell motor fuel at retail for a period of 10 years at self-serve gasoline
stations owned or leased by the affiliated companies or their affiliates. All
rights to commissions under these agreements and the right to sell motor fuel at
wholesale to the third party at such locations were assigned to the Company in
May 1987 in connection with the acquisition of its initial base of retail
operations. In December 1990, in connection with the expiration or termination
of the agreements with the third party, the Company entered into agreements with
a company owned and controlled by the Chairman of the General Partner and
members of his immediate family, which grant to the Company the exclusive right
to sell motor fuel at retail at these locations. The terms of these agreements
are comparable to agreements that the Company has with other unrelated parties.
The Company paid this affiliated company commissions related to the sale of
motor fuel at these locations of $261,000, $222,000, and $186,000 in 1995, 1994,
and 1993, respectively.
During 1995, the Company purchased four parcels of land,
including building and petroleum storage tanks and related dispensing equipment,
from a company controlled by the Chairman of the General Partner and members of
his immediate family. The Company paid a total of $116,000 for the real estate
and related improvements. The Company is operating one of these locations as a
convenience store and one as a self-service motor fuel outlet and intends to
operate the other two as either convenience stores or self-service motor fuel
outlets. The purchase price was determined by reference to similar properties
acquired by the Company from unrelated parties.
13. Commitments and Contingencies
(a) Uninsured Liabilities
The Company maintains general liability insurance with limits
and deductibles management believes prudent in light of the exposure of the
Company to loss and the cost of the insurance.
The Company self-insures claims up to $45,000 per year for
each individual covered by its employee medical benefit plan for supervisory and
administrative employees; claims above $45,000 are covered by a stop-loss
insurance policy. The Company also self-insures medical claims for its eligible
store employees. However, claims under the plan for store employees are subject
to a $1,000,000 lifetime limit per employee and the Company does not maintain
stop-loss coverage for these claims. The Company and its covered employees
contribute to pay the self-insured claims and stop-loss insurance premiums.
Accrued liabilities include amounts management believes adequate to cover the
estimated claims arising prior to a year-end, including claims incurred but not
yet reported. The Company recorded expense related to these plans of $353,000,
$288,000, and $303,000, in 1995, 1994, and 1993, respectively.
The Company has elected to discontinue carrying workers'
compensation insurance in the State of Texas. However, it has insurance
policies, including an annual limit stop-loss policy, which limits the Company's
exposure to losses related to claims to provide a safe work environment. Claims
under these policies are limited to $250,000 per occurrence and $750,000 annual
aggregate payments under the stop-loss policy. In other states, the Company is
covered for worker's compensation through incurred loss retrospective policies.
Accruals for estimated claims (including claims incurred but not reported) have
been recorded at year end 1995 and 1994, including the effects of any
retroactive premium adjustments.
(b) Environmental Matters
The operations of the Company are subject to a number of
federal, state, and local environmental laws and regulations, which govern the
storage and sale of motor fuels, including those regulating underground storage
tanks. In September 1988, the Environmental Protection Agency ("EPA") issued
regulations that require all newly installed underground storage tanks be
protected from corrosion, be equipped with devices to prevent spills and
overfills, and have a leak detection method that meets certain minimum
requirements. The effective commencement date for newly installed tanks was
December 22, 1988. Underground storage tanks in place prior to December 22,
1988, must conform to the new standards by December 1998. The Company has
implemented a plan to bring all of its existing underground storage tanks and
related equipment into compliance with these laws and regulations and currently
estimates the costs to do so will range from $2,800,000 to $3,425,000 over the
next three years. The Company anticipates that substantially all these
expenditures will be capitalized as additions to property and equipment. Such
estimates are based upon current regulations, prior experience, assumptions as
to the number of underground storage tanks to be upgraded, and certain other
matters. At year end 1995 and 1994, the Company recorded liabilities for future
estimated environmental remediation costs related to known leaking underground
storage tanks of $643,000 and $503,000, respectively. Of such amounts, $322,000
and $260,000, respectively, were recorded in accrued expenses and the remainder
was recorded in other liabilities. Corresponding claims for reimbursement of
environmental remediation costs of $643,000 and $503,000 were recorded in 1995
and 1994, respectively, as the Company expects that such costs will be
reimbursed by various environmental agencies. In 1995, the Company contracted
with a third party to perform site assessments and remediation activities on 35
sites located in Texas that are known or thought to have leaking underground
storage tanks. Under the contract, the third party will coordinate with the
state regulatory authority the work to be performed and bill the state directly
for such work. The Company is liable for the $5,000 per occurrence deductible
and for any costs in excess of the $1,000,000 limit provided for by the state
environmental trust fund. The Company does not expect that the costs of
remediation of any of these 35 sites will exceed the $1,000,000 limit. The
assumptions on which the foregoing estimates are based may change and
unanticipated events and circumstances may occur which may cause the actual cost
of complying with the above requirements to vary significantly from these
estimates.
During 1995, 1994, and 1993, environmental expenditures were
$1,003,000, $934,000, and $340,000, respectively (including capital expenditures
of $644,000, $820,000, and $118,000), in complying with environmental laws and
regulations.
The Company does not maintain insurance covering losses
associated with environmental contamination. However, all the states in which
the Company owns or operates underground storage tanks have state operated funds
which reimburse the Company for certain cleanup costs and liabilities incurred
as a result of leaks in underground storage tanks. These funds, which
essentially provide insurance coverage for certain environmental liabilities,
are funded by taxes on underground storage tanks or on motor fuels purchased
within each respective state. The coverages afforded by each state vary but
generally provide up to $1,000,000 for the cleanup of environmental
contamination and most provide coverage for third-party liability as well. The
funds require the Company to pay deductibles ranging from $5,000 to $25,000 per
occurrence. The majority of the Company's environmental contamination cleanup
activities relate to underground storage tanks located in Texas. Due to an
increase in claims throughout the state, the Texas state environmental trust
fund has significantly delayed reimbursement payments for certain cleanup costs
after September 30, 1992. In 1993, the Texas state fund issued guidelines that,
among other things, prioritize the timing of future reimbursements based upon
the total number of tanks operated by and the financial net worth of each
applicant. The Company has been classified in the category with the lowest
priority. Because the state and federal governments have the right, by law, to
levy additional fees on fuel purchases, the Company believes these clean up
costs will ultimately be reimbursed. However, due to the uncertainty of the
timing of the receipt of the reimbursements, the claims for reimbursement of
environmental remediation costs, totaling $1,255,000 and $1,490,000 at year end
1995 and 1994, respectively, have been classified as long-term receivables in
the accompanying consolidated balance sheets,
(c) Other
The Company is subject to various claims and litigation
arising in the ordinary course of business, particularly personal injury and
employment related claims. In the opinion of management, the outcome of such
matters will not have a material effect on the consolidated financial position
or results of operations of the Company.
<PAGE>
14. Quarterly Operating Results (Unaudited)
Quarterly results of operations for 1995, 1994, and 1993, were
as follows:
First Second Third Fourth Full
Quarter Quarter Quarter Quarter Year
(In thousands, except per unit data)
1995
Total revenues $84,413 $97,623 $93,716 $94,293 $370,045
Total margin 10,970 12,521 13,963 12,192 49,646
Net income 154 1,172 2,071 513 3,910
Net income per unit $0.04 $0.32 $0.56 $0.15 $1.07
1994
Total revenues $83,825 $87,760 $96,771 $87,157 $355,513
Total margin 10,998 11,987 13,899 13,025 49,909
Income/(loss) -
Before extraordinary
item (486) 517 2,473 1,027 3,531
Gain on extinguishment
of debt 200 0 0 0 200
Net income/(loss) (286) 517 2,473 1,027 3,731
Income/(loss) per unit -
Before extraordinary
item $(0.13) $0.14 $0.68 $0.28 $0.97
Net income/(loss) (0.08) 0.14 0.68 0.28 1.03
1993
Total revenues $71,900 $80,217 $85,497 $89,036 $326,650
Total margin 10,554 11,959 13,471 11,692 47,676
Income/(loss) -
Before change in
accounting
principle 22 407 937 (351) 1,015
From change in
accounting for
income taxes (297) 0 0 0 (297)
Net income/(loss) (275) 407 937 (351) 718
Income/(loss) per unit -
Before change in
accounting
principle $0.01 $0.11 $0.26 $(0.10) $0.28
Net income/(loss) (0.07) 0.11 0.26 (0.10) 0.20
<PAGE>
Schedule II
FFP PARTNERS, L.P., AND SUBSIDIARIES
Valuation and Qualifying Accounts
(In thousands)
Year Ended December 31, 1995
-----------------------------------------------------
Balance Additions Balance
at Charged to at
Beginning Costs and Deductions End
Description of Period Expenses (describe) of Period
Allowances for
doubtful accounts
Trade receivables $917 $459 $331 (a) $1,045
Year Ended December 25, 1994
------------------------------------------------------------
Balance Additions Balance
at Charged to at
Beginning Costs and Deductions End
Description of Period Expenses (describe) of Period
Allowances for
doubtful accounts
Trade receivables $531 $804 $418 (a) $917
Noncurrent receivable
from affiliated
companies 447 0 447 (a) 0
Year Ended December 26, 1993
--------------------------------------------------------------
Balance Additions Balance
at Charged to at
Beginning Costs and Deductions End
Description of Period Expenses (describe) of Period
Allowances for
doubtful accounts
Trade receivables $600 $460 $529 (a) $531
Noncurrent receivable
from affiliated
companies 447 0 0 447
(a) Accounts charged-off, net of recoveries.
Exhibit 10.11
Fourth Amendment, dated December 20, 1995,
to Credit Agreement
between Bank of America Texas, N.A., and
FFP Operating Partners, L.P.
dated February 25, 1994
<PAGE>
FOURTH AMENDMENT
TO
CREDIT AGREEMENT
THIS FOURTH AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is
made effective for all purposes as of the 20th day of December, 1995, by and
between Bank of America Texas, N.A. (the "Bank") and FFP Operating Partners,
L.P., a Delaware limited partnership (the "Borrower").
REFERENCES:
Reference is made to the Credit Agreement (as amended, the "Credit
Agreement") dated as of February 25, 1994 by and between Bank and Borrower, as
amended by the following:
(a) First Amendment to Credit Agreement, entered into effective as of March
30, 1994,
(b) Second Amendment to Credit Agreement, entered into effective as of
August 31, 1994, and
(c) Third Amendment to Credit Agreement, entered into effective as of May
1, 1995.
RECITALS:
Borrower desires to lend $1,200,000 to Fidelity Venture Investments,
L.L.C. ("Fidelity") under a loan (the "Fidelity Loan") to be evidenced by a Loan
Purchase and Profit Participation Agreement. Fidelity will use the Fidelity Loan
proceeds to purchase a package of loans from the FDIC, which are secured by
liens on various properties.
In conjunction with the Fidelity Loan, Borrower has requested that the
Bank amend certain of the covenants of the Credit Agreement; specifically,
(1) to increase the permitted loans and advances to third parties outside
the Borrower's normal course of business from $250,000 to $1,250,000; and
(2) to amend the covenant pertaining to Borrower's "out-of-debt" period
under the Revolving Commitment by providing for a "clean down" provision of
$750,000 for the calendar quarters ending December 31, 1995, March 31, 1996 and
June 30, 1996.
Subject to the terms and conditions set forth below, Bank has agreed to
amend the Credit Agreement.
AGREEMENTS:
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I
Definitions
1.1 Capitalized terms used in this Amendment are defined in the Credit
Agreement, as amended hereby, unless otherwise stated.
ARTICLE II
Amendments
2.1 Loans and Advances. Section 10.8, Loans and Advances, of the Credit
Agreement is hereby amended and restated to read as follows:
10.8 Loans and Advances. Not to make any loans, advances or other
extensions of credit outside the ordinary course of Borrower's business to any
third party or affiliate except to the extent such loans, advances or other
extensions of credit do not exceed in the aggregate One Million Two Hundred
Fifty Thousand Dollars ($1,250,000) at any one time. This does not apply to the
existing, non-current receivable owing to Borrower by certain companies
affiliated with Borrower.
2.2 Out of Debt Period. Section 10.12, Out of Debt Period, of the Credit
Agreement is hereby amended and restated to read as follows:
10.12 Out of Debt Period.
(a) Calendar Quarters Ending December 31, 1995, March 31, 1996
and June 30, 1996. To repay in full any outstanding advances that are in excess
of the aggregate amount of $750,000, and not to draw any additional advances on
its revolving line of credit, for a period of at least seven (7) consecutive
days in each calendar quarter ending December 31, 1995, March 31, 1996 and June
30, 1996.
(b) Calendar Quarters Ending September 30, 1996 and
Thereafter. To repay any advances in full, and not to draw any additional
advances on its revolving line of credit, for a period of at least seven (7)
consecutive days in each calendar quarter ending September 30, 1996 and
thereafter.
For the purposes of this Section 10.12, "advances" does not include
undrawn amounts of outstanding letters of credit.
2.3 Fidelity Note Receivable. Borrower agrees that the note receivable
evidencing the Fidelity Loan will be classified as an intangible asset for
purposes of calculating Borrower's debt to tangible net worth ratio under
Section 11.1 of the Credit Agreement and Borrower's tangible net worth under
Section 11.2 of the Credit Agreement.
ARTICLE III
Conditions
3.1 Conditions to Amendment. The effectiveness of this Amendment is
conditioned upon and subject to the satisfaction of the following requirements:
(a) The Guarantors shall have consented to this Amendment and ratified
their Guaranties;
(b) The Borrower shall have paid, not later than January 5, 1996, an
amendment fee in the amount
of Two Thousand Dollars ($2,000.00); and
(c) The Borrower shall have paid, not later than January 5, 1996, an
additional loan covenant waiver fee in the amount of Eighteen Thousand Seven
Hundred Fifty Dollars ($18,750.00).
ARTICLE IV
No Waiver
4.1 Except as otherwise specifically provided for in this Amendment,
nothing contained herein shall be construed as a waiver by the Bank of any
covenant or provision of this Amendment, or of any other contract or instrument
between Borrower and the Bank; and the Bank's failure at any time or times
hereafter to require strict performance by Borrower of any provision thereof
shall not waive, affect or diminish any right of the Bank to thereafter demand
strict compliance therewith. The Bank hereby reserves all rights granted under
the Credit Agreement, as amended, and any other contract or instrument between
Borrower and the Bank.
ARTICLE V
Ratifications, Representations and Warranties
5.1 Ratifications. The terms and provisions set forth in this Amendment
shall modify and supersede all inconsistent terms and provisions set forth in
the Credit Agreement, and, except as expressly modified and superseded by this
Amendment, the terms and provisions of the Credit Agreement are ratified and
confirmed and shall continue in full force and effect. Borrower and the Bank
agree that the Credit Agreement, as amended hereby, shall continue to be legal,
valid, binding and enforceable in accordance with its terms.
5.2 Representations and Warranties of Borrower. Borrower hereby
represents and warrants to the Bank that (a) the execution, delivery and
performance of this Amendment have been authorized by all requisite partnership
action on the part of Borrower and will not violate the partnership agreement or
certificate of limited partnership of Borrower; and (b) Borrower is in full
compliance with all covenants and agreements contained in the Credit Agreement,
as amended hereby.
ARTICLE VI
Miscellaneous Provisions
6.1 Amendment Fee. Subject to the provisions of Section 14.14 of the
Credit Agreement, in consideration of the Bank agreeing to amend the terms of
the Credit Agreement, as set forth above, the Borrower will pay the Bank a Two
Thousand Dollar ($2,000) fee for such amendment, as provided by Section 5.1(d)
of the Credit Agreement and by Section 3.1(b) of this Amendment.
6.2 Loan Covenant Waiver Fee. Subject to the provisions of Section
14.14 of the Credit Agreement, in consideration of the Bank agreeing to waive
certain of the covenants of the Credit Agreement, as set forth above, the
Borrower will pay the Bank an additional Eighteen Thousand Seven Hundred Fifty
Dollar ($18,750.00) fee for such amendment, as provided by Section 3.1(c) of
this Amendment.
6.3 Severability. Any provision of this Amendment held by a court of
competent jurisdiction to be invalid or unenforceable shall not impair or
invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.
6.4 Binding Effect. This Amendment shall be binding upon Borrower
and the Bank and their respective successors and assigns.
6.5 Counterparts. This Amendment may be executed in one or more
counterparts, each of which when so executed shall be deemed to be an original,
but all of which when taken together shall constitute one and the same
instrument.
6.6 Effect of Waiver. No consent or waiver, express or implied, by the
Bank to or for any breach of or deviation from any covenant or condition by
Borrower shall be deemed a consent to or waiver of any other breach of the same
or any other covenant, condition or duty.
6.7 Headings. The headings, captions, and arrangements used
in this Amendment are for convenience only and shall not affect the
interpretation of this Amendment.
6.8 Applicable Law. THIS AMENDMENT AND ALL OTHER AGREEMENTS
EXECUTED PURSUANT HERETO SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE
PERFORMABLE IN AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF TEXAS.
6.9 Final Agreement. THE CREDIT AGREEMENT, AS AMENDED HEREBY,
REPRESENTS THE ENTIRE EXPRESSION OF THE PARTIES WITH RESPECT TO THE SUBJECT
MATTER HEREOF ON THE DATE THIS AMENDMENT IS EXECUTED. THE CREDIT AGREEMENT, AS
AMENDED HEREBY, MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES. NO MODIFICATION, RESCISSION, WAIVER, RELEASE OR
AMENDMENT OF ANY PROVISION OF THIS AMENDMENT SHALL BE MADE, EXCEPT BY A WRITTEN
AGREEMENT SIGNED BY BORROWER AND THE BANK.
This Amendment is executed as of the date stated at the top of the
first page.
Bank of America Texas, N.A. FFP Operating Partners, L.P.
By: FFP Partners Management
Company, Inc.,
General Partner
By: /s/Donald P. Hellman By: /s/Steven B. Hawkins
Donald P. Hellman Steven B. Hawkins
Vice President Vice President-Finance
Exhibit 10.12
Fifth Amendment, dated March 29, 1996,
to Credit Agreement
between Bank of America Texas, N.A., and
FFP Operating Partners, L.P.
dated February 25, 1994
<PAGE>
FIFTH AMENDMENT
TO
CREDIT AGREEMENT
THIS FIFTH AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is made
effective for all purposes as of the 29th day of March, 1996, by and between
Bank of America Texas, N.A. (the "Bank") and FFP Operating Partners, L.P., a
Delaware limited partnership (the "Borrower").
REFERENCES:
Reference is made to the Credit Agreement (as amended, the "Credit
Agreement") dated as of February 25, 1994 by and between Bank and Borrower, as
amended by the following:
(a) First Amendment to Credit Agreement, entered into effective as of March
30, 1994,
(b) Second Amendment to Credit Agreement, entered into effective as of
August 31, 1994,
(c) Third Amendment to Credit Agreement, entered into effective as of May
1, 1995, and
(d) Fourth Amendment to Credit Agreement, entered into effective as of
December 20, 1995.
RECITALS:
Borrower has requested that Bank lend to Borrower a term loan (the
"Fuel Terminal Loan") in the amount of $1,000,000 to finance acquisition and
renovation of a fuel terminal located in Euless, Texas (the "Fuel Terminal
Facility") by Borrower's affiliate, Direct Fuels, L.P., a Texas limited
partnership. The Fuel Terminal Facility consists of the following: (a) 33 acres
of land, (b) 8.8 million gallons of fuel storage tanks, and (c) two processing
units that include a 4,500 barrel a day unit that can refine crude oil into
finished products and a 2,000 barrel per day stabilization tower that can
separate commingled finished products.
In conjunction with the Fuel Terminal Loan, Borrower has requested that
the Bank amend certain of the covenants of the Credit Agreement; specifically,
(1) to provide for the Fuel Terminal Loan;
(2) to amend the covenant pertaining to Borrower's other debts to allow the
funding of a $2,500,000 facility by BA Leasing and Capital Corporation, as
lender;
(3) to amend the pricing structure available to Borrower on the Term
Commitment; and
(4) to amend the covenant pertaining to the debt coverage ratio to exclude
$3,500,000 of capital expenditures financed by Bank during calendar year 1996
from the calculation of Borrower's total capital expenditures.
Borrower also has requested that Bank grant one-time waivers to the
covenants in Section 11.4, pertaining to Borrower's debt coverage ratio, and in
Section 11.6 pertaining to Borrower's senior debt to cash flow ratio, with
respect to Borrower's fiscal quarter ended December 31, 1995.
Subject to the terms and conditions set forth below, Bank has agreed to
amend the Credit Agreement and grant the waivers as requested.
AGREEMENTS:
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I
Definitions
1.1 Capitalized terms used in this Amendment are defined in the Credit
Agreement, as amended hereby, unless otherwise stated.
ARTICLE II
Amendments
2.1 LIBOR Rate. Article 1, Definitions, of the Credit Agreement is hereby
amended by adding the following Sections 1.9 and 1.10:
1.9 "Fixed Rate" means the fixed interest rate that the Bank and the
Borrower agree will apply to the portion during the applicable interest period.
1.10 "LIBOR Rate" means the interest rate determined by the following
formula, rounded upward to the nearest 1/100 of one percent. (All amounts in the
calculation will be determined by the Bank as of the first day of the interest
period.)
LIBOR Rate = London Interbank Offered Rate
(1.00 - Reserve Percentage)
Where,
(i) "London Interbank Offered Rate" means the interest
rate (rounded upward to the nearest 1/16th of one percent)
determined by the Bank (in accordance with its customary
general practices), as the rate at which Eurodollar
deposits are offered by major banks in the London
Interbank Eurodollar Market in immediately available funds
in an amount equal or comparable to the principal amount
of the corresponding portion of the Term Loan or the Fuel
Terminal Loan, as the case may be, as of the time of
determination, and for a period of time equal or
comparable to the length of the applicable interest
period.
(ii) "Reserve Percentage" means the total of the maximum
reserve percentages for determining the reserves to be
maintained by member banks of the Federal Reserve System
for Eurocurrency Liabilities, as defined in Federal
Reserve Board Regulation D, rounded upward to the nearest
1/100 of one percent. The percentage will be expressed as
a decimal, and will include, but not be limited to,
marginal, emergency, supplemental, special, and other
reserve percentages.
2.2 Amendment to Term Loan Pricing Structure. Section 3.6, Offshore Rate,
of the Credit Agreement is hereby amended and restated to read in its entirety
as follows:
3.6 Optional Rates. The Borrower may elect to have all or portions of the
principal balance of the Term Commitment bear interest at the rate
equal to lesser of (a) the Maximum Rate, or (b) either (i) the Fixed
Rate plus one and three-quarters (1.75) percentage points, (ii) the
LIBOR Rate plus one and three-quarters (1.75) percentage points, or
(iii) the Offshore Rate plus one and three-quarters (1.75) percentage
points.
2.3 Fuel Terminal Loan. The Credit Agreement is hereby amended by adding
the following Article 3A:
3A. FUEL TERMINAL LOAN FACILITY AMOUNT AND TERMS
3A.1 Loan Amount. The Bank agrees to provide a term loan (the "Fuel
Terminal Loan") to the Borrower in the amount of One Million Dollars
($1,000,000.00) (the "Fuel Terminal Commitment"), to be funded in one or more
advances, as requested by Borrower, from the date hereof through and including
September 30, 1996. Each advance shall be in the amount of at least One Hundred
Thousand Dollars or, if greater, in integral multiples thereof.
3A.2 Purpose. The Fuel Terminal Loan shall be used to allow Borrower to
finance the acquisition and renovation of a fuel terminal located in Euless,
Texas by Direct Fuels, L.P., a Texas limited partnership and an affiliate of
Borrower.
3A.3 Interest Rate.
(a) Unless the Borrower elects an optional interest rate as described
below, the interest rate is the lesser of (1) the Maximum Rate, or (2) the rate
(the "Fuel Terminal Loan Basic Rate") that is equal to the Reference Rate.
Notwithstanding the foregoing, if at any time the Fuel Terminal Loan Basic
Rate shall exceed the Maximum Rate and thereafter the Fuel Terminal Loan Basic
Rate shall become less than the Maximum Rate, the rate of interest payable shall
be the Maximum Rate until the Bank shall have received the amount of interest it
otherwise would have received if the interest payable had not been limited by
the Maximum Rate during the period of time the Fuel Terminal Loan Basic Rate
exceeded the Maximum Rate.
(b) The Borrower may prepay the Fuel Terminal Loan in full or in part at
any time in an amount not less than One Hundred Thousand Dollars ($100,000). The
prepayment will be applied to installments of principal due under this Agreement
in inverse order of maturities.
3A.4 Repayment Terms
(a) The Borrower will pay all accrued but unpaid interest on June 30, 1996
and then quarterly thereafter (i.e., March 31, June 30, September 30 and
December 31) and upon payment in full of the principal of the Fuel Terminal
Loan.
(b) The Borrower will repay principal in successive quarterly installments
of Fifty Thousand Dollars ($50,000.00), each, starting June 30, 1996. On
March 31, 2001, the Borrower will repay the remaining principal balance plus
any interest then due.
3A.5 Optional Interest Rates. Instead of the interest rate based on the
Reference Rate, the Borrower may elect to have all or portions of the Fuel
Terminal Loan bear interest at the rate(s) described in Section 3A.6 below
during an interest period agreed to by the Bank and the Borrower; provided,
however, that the Borrower shall not have the option or right to elect to have
all or any portion of the Fuel Terminal Loan bear interest at the rate(s)
described below when such rate(s) exceeds the Maximum Rate. Each interest rate
is a rate per year. Interest will be paid on the last day of each interest
period, and on the last day of each calendar quarter (i.e., March 31, June 30,
September 30 and December 31) during the interest period. At the end of any
interest period, the interest rate will revert to the rate based on the
Reference Rate, unless the Borrower has designated another optional interest
rate for the portion.
3A.6 Fixed and LIBOR Rates. The Borrower may elect to have all or portions
of the principal balance of the Fuel Terminal Loan bear interest at the rate
equal to lesser of (a) the Maximum Rate, or (b) either the Fixed Rate plus one
and three-quarters (1.75) percentage points or the LIBOR Rate plus one and
three-quarters (1.75) percentage points.
2.4 Agreements Pertaining to Fixed Rate Portions and LIBOR Rate Portions.
The Credit Agreement is hereby amended by adding the following Article 4A:
4A. AGREEMENTS PERTAINING TO FIXED RATE PORTIONS AND LIBOR RATE PORTIONS
Designations of either a Fixed Rate portion or a LIBOR Rate portion for
principal outstanding under either the Term Commitment or the Fuel Terminal
Commitment are subject to the following requirements:
4A.1 Interest Periods. The interest period during which the Fixed Rate will
be in effect under either the Term Commitment or the Fuel Terminal Commitment
will, in each case, be no shorter than 14 days and no longer than one year. The
interest period during which the LIBOR Rate will be in effect under either the
Term Commitment or the Fuel Terminal Commitment will, in each case, be 30, 60,
90, 120, 150 or 180 days long (or, at the Bank's option, for other maturities
requested by the Borrower). At the end of any interest period, the interest rate
will revert to the rate based on the Reference Rate, unless the Borrower has
designated another optional interest rate for the portion.
4A.2 Minimum Amount. Each Fixed Rate portion for principal outstanding
under either the Term Commitment or the Fuel Terminal Commitment and each LIBOR
Rate portion for principal outstanding under the Term Commitment or the Fuel
Terminal Commitment, as the case may be, will be for an amount not less than
Five Hundred Thousand Dollars ($500,000).
4A.3 Limitation on Election. The Borrower may not elect a Fixed Rate with
respect to any portion of the principal balance of the Term Commitment or the
Fuel Terminal Commitment which is scheduled to be repaid before the last day of
the applicable interest period. Likewise, the Borrower may not elect a LIBOR
Rate with respect to any portion of the principal balance of the Term Commitment
or the Fuel Terminal Commitment which is scheduled to be repaid before the last
day of the applicable interest period.
4A.4 Existing Election. Any portion of the principal balance of the Term
Commitment or the Fuel Terminal Commitment already bearing interest at a rate
based on the Fixed Rate will not be converted to a different rate during its
interest period. Likewise, any portion of the principal balance of the Term
Commitment or the Fuel Terminal Commitment already bearing interest at a rate
based on the LIBOR Rate will not be converted to a different rate during its
interest period.
4A.5 Prepayment of Fixed Rate and LIBOR Rate Portions. Each prepayment of a
Fixed Rate portion or a LIBOR Rate portion will be accompanied by the amount of
accrued interest on the amount prepaid, and a prepayment fee equal to the amount
(if any) by which:
(i) the additional interest which would have been payable on the amount
prepaid had it not been paid until the last day of the interest period, exceeds
(ii) the interest which would have been recoverable by the Bank by placing
the amount prepaid on deposit in the LIBOR dollar market, with respect to LIBOR
Rate portions, and in the appropriate dollar market selected by the Bank with
respect to Fixed Rate portions, in each case for a period starting on the date
on which it was prepaid and ending on the last day of the interest period for
such portion.
4A.6 No Obligation. The Bank will have no obligation to accept an election
for an Fixed Rate portion if any of the following described events has occurred
and is continuing:
(i) Dollar deposits in the principal amount, and for periods equal to the
interest period, of a Fixed Rate portion are not available to the Bank; or
(ii) the Fixed Rate does not accurately reflect the cost of a Fixed Rate
portion.
Likewise, the Bank will have no obligation to accept an election for a
LIBOR Rate portion if any of the following described events has occurred and is
continuing:
(iii) Dollar deposits in the principal amount, and for periods equal to the
interest period, of an LIBOR Rate portion are not available in the London
Interbank Eurodollar Market; or
(ii) the LIBOR Rate does not accurately reflect the cost of a LIBOR Rate
portion.
4A.7 Savings Clause. If at any time during any applicable interest period
either the Fixed Rate or the LIBOR Rate, plus the applicable margin, shall
exceed the Maximum Rate and thereafter the Fixed Rate or the LIBOR Rate, as the
case may be, plus the applicable margin, shall become less than the Maximum
Rate, then the rate of interest payable shall be the Maximum Rate until the Bank
shall have received the amount of interest it otherwise would have received if
the interest payable had not been limited by the Maximum Rate during the period
of time the Fixed Rate or the LIBOR Rate, as the case may be, plus the
applicable margin, exceeded the Maximum Rate.
2.5 Additional Debts. Section 10.3(e), Other Debts, of the Credit Agreement
is hereby amended and restated to read in full as follows:
(e) Additional debts owing to BA Leasing and Capital Corporation
for purchase money equipment financings (including capitalized
leases) which do not exceed a total principal amount of Two Million
Five Hundred Thousand Dollars ($2,500,000) outstanding at any one
time;
2.6 Amendment to Debt Coverage Ratio. The definition of the "debt coverage
ratio" in Section 11.4, Debt Coverage Ratio, of the Credit Agreement
is hereby amended and restated to read in its entirety as follows:
"Debt coverage ratio" means the ratio of (1) cash flow to (2) the
sum of (A) the current portion of long term debt owing to all
creditors of the Borrower, its parents, subsidiaries and
affiliates, plus (B) capital expenditures of the Borrower, its
parents, subsidiaries and affiliates, excluding, however, the
following:
(i) $3,500,000 of capital expenditures to the extent actually funded and
financed by either the Bank or BA Leasing and Capital Corporation during
calendar year 1996; and
(ii) capital expenditures which were financed by Heller Financial, Inc.
prior to the execution and delivery of the Fifth Amendment to Credit Agreement.
This ratio will be calculated at the end of each fiscal quarter, using the
results of that quarter and each of the 3 immediately preceding quarters.
2.7 Amendment to Covenant Regarding Capital Expenditures. The covenant
pertaining to capital expenditures in Section 11.5, Capital Expenditures, of the
Credit Agreement is hereby deleted in its entirety .
ARTICLE III
Conditions
3.1 Conditions to Amendment. The effectiveness of this Amendment is
conditioned upon and subject to the satisfaction of the following requirements:
(a) The Guarantors shall have consented to this Amendment and ratified
their Guaranties;
(b) The Borrower shall have paid, not later than March 31, 1996, an
amendment fee in the amount of Two Thousand Dollars ($2,000.00);
(c) Direct Fuels, L.P. shall have delivered to the Bank a Negative Pledge
Agreement covering the Fuel Terminal Facility, together with any other
documentation the Bank reasonably deems necessary in connection with the
Negative Pledge Agreement; and
(d) The Borrower shall have delivered to the Bank evidence reasonably
satisfactory to the Bank that Direct Fuels, L.P. has acquired or will be
acquiring fee simple title to the Fuel Terminal Facility.
ARTICLE IV
Waivers
4.1 Waivers Regarding Debt Coverage Ratio and Senior Debt to Cash Flow
Ratio. Section 11.4 of the Credit Agreement requires that the Borrower maintain
on a consolidated basis a debt coverage ratio of at least 1.10 : 1.0. Further,
Section 11.6 of the Credit Agreement requires that the Borrower maintain on a
consolidated basis a Senior Debt to Cash Flow Ratio of no greater than 2.5 :
1.0. As of December 31, 1995, the Borrower's debt coverage ratio had fallen
below the covenant requirement to 0.74 : 1.0; and the Borrower's Senior Debt to
Cash Flow Ratio had increased in excess of the covenant requirement to 2.94 :
1.0. Borrower anticipates that similar conditions may exist with respect to the
debt coverage ratio and the Senior Debt to Cash Flow Ratio as of the quarter to
end on March 31, 1996. At the Borrower's request, and subject to the following,
the Bank hereby waives the covenant defaults and anticipated covenant defaults
described above. This waiver shall be applicable solely to the debt coverage
ratio and the Senior Debt to Cash Flow Ratio of the Borrower as of December 31,
1995 and as of March 31, 1996, and then only to the extent that, as of December
31, 1995 and as of March 31, 1996 (a) the debt coverage ratio of the Borrower
was and will be, as applicable, not less than 0.74 : 1.0, and (b) the Senior
Debt to Cash Flow Ratio of the Borrower was and will be, as applicable, not
greater than 2.94 : 1.0.
4.2 Consent to Certain Distribution. Section 10.6 of the Credit Agreement
prohibits distributions in respect of Borrower's partnership interests if the
distribution does not allow the Borrower to satisfy, after giving effect to such
distribution, the debt coverage ratio as set forth in Section 11.4 of the Credit
Agreement, unless the Bank gives its written consent. The Borrower made certain
distributions in calendar year 1995 for the payment of Federal income taxes of
the Borrower's partners, which have been reported to the Bank, notwithstanding
the fact that, after giving effect to such distributions, the debt coverage
ratio set forth in Section 11.4 of the Credit Agreement was not satisfied. The
Bank hereby consents to such distributions and waives the covenant default that
occurred with respect to Section 10.6 as a result of such distributions, but
only as a result of such distributions. This waiver shall be applicable solely
to the distribution made in calendar year 1995 which the Borrower previously
reported to the Bank.
4.3 No Other Waiver. Except as otherwise specifically provided for in
Sections 4.1 and 4.2 of this Amendment, nothing contained herein shall be
construed as a waiver by the Bank of any covenant or provision of this
Amendment, or of any other contract or instrument between Borrower and the Bank;
and the Bank's failure at any time or times hereafter to require strict
performance by Borrower of any provision thereof shall not waive, affect or
diminish any right of the Bank to thereafter demand strict compliance therewith.
The Bank hereby reserves all rights granted under the Credit Agreement, as
amended, and any other contract or instrument between Borrower and the Bank.
ARTICLE V
Ratifications, Representations and Warranties
5.1 Ratification of Credit Agreement. The terms and provisions set forth in
this Amendment shall modify and supersede all inconsistent terms and provisions
set forth in the Credit Agreement, and, except as expressly modified and
superseded by this Amendment, the terms and provisions of the Credit Agreement
are ratified and confirmed and shall continue in full force and effect. Borrower
and the Bank agree that the Credit Agreement, as amended hereby, shall continue
to be legal, valid, binding and enforceable in accordance with its terms.
5.2 Ratification of Security Agreements. All rights, titles, liens and
security interests securing the obligations of the Borrower under the Credit
Agreement prior to this Amendment are preserved, maintained and carried forward
additionally to secure the obligations of the Borrower under the Credit
Agreement, as amended by this Amendment, including, without limitation the
obligations of the Borrower constituting the Fuel Terminal Loan. The terms and
provisions of all documents (the "Security Documents") executed in connection
with or as security for the obligations of the Borrower under the Credit
Agreement are ratified and confirmed and shall continue in full force and
effect. Borrower and the Bank agree that the Security Documents shall continue
to be legal, valid, binding and enforceable in accordance with their terms,
after giving full force and effect to this Amendment.
5.3 Representations and Warranties of Borrower. Borrower hereby represents
and warrants to the Bank that (a) the execution, delivery and performance of
this Amendment have been authorized by all requisite partnership action on the
part of Borrower and will not violate the partnership agreement or certificate
of limited partnership of Borrower; and (b) Borrower is in full compliance with
all covenants and agreements contained in the Credit Agreement, as amended
hereby.
ARTICLE VI
Miscellaneous Provisions
6.1 Amendment Fee. Subject to the provisions of Section 14.14 of the Credit
Agreement, in consideration of the Bank agreeing to amend the terms of the
Credit Agreement, as set forth above, the Borrower will pay the Bank a Two
Thousand Dollar ($2,000) fee for such amendment, as provided by Section 5.1(d)
of the Credit Agreement and by Section 3.1(b) of this Amendment.
6.2 Severability. Any provision of this Amendment held by a court of
competent jurisdiction to be invalid or unenforceable shall not impair or
invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.
6.3 Binding Effect. This Amendment shall be binding upon Borrower and the
Bank and their respective successors and assigns.
6.4 Counterparts. This Amendment may be executed in one or more
counterparts, each of which when so executed shall be deemed to be an original,
but all of which when taken together shall constitute one and the same
instrument.
6.5 Effect of Waiver. No consent or waiver, express or implied, by the Bank
to or for any breach of or deviation from any covenant or condition by Borrower
shall be deemed a consent to or waiver of any other breach of the same or any
other covenant, condition or duty.
6.6 Headings. The headings, captions, and arrangements used in this
Amendment are for convenience only and shall not affect the interpretation of
this Amendment.
6.7 Applicable Law. THIS AMENDMENT AND ALL OTHER AGREEMENTS EXECUTED
PURSUANT HERETO SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE PERFORMABLE IN AND
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
TEXAS.
6.8 Final Agreement. THE CREDIT AGREEMENT, AS AMENDED HEREBY, REPRESENTS
THE ENTIRE EXPRESSION OF THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF
ON THE DATE THIS AMENDMENT IS EXECUTED. THE CREDIT AGREEMENT, AS AMENDED HEREBY,
MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES. NO MODIFICATION, RESCISSION, WAIVER, RELEASE OR AMENDMENT OF ANY
PROVISION OF THIS AMENDMENT SHALL BE MADE, EXCEPT BY A WRITTEN AGREEMENT SIGNED
BY BORROWER AND THE BANK.
This Amendment is executed as of the date stated at the top of the first
page.
Bank of America Texas, N.A. FFP Operating Partners, L.P.
By: FFP Partners Management
Company, Inc.,
General Partner
By: /s/Donald P. Hellan By: /s/Steven B. Hawkins
Donald P. Hellman Steven B. Hawkins
Vice President Vice President-Finance
Exhibit 21.1
Subsidiaries of the Registrant
<PAGE>
Exhibit 21.1
FFP PARTNERS, L.P.
SUBSIDIARIES OF THE REGISTRANT
State of Organization
Legal Name of Subsidiary Type of Entity
Principal Trade Name(s) Used Percentage Owned
FFP Operating Partners, L.P. Delaware
Kwik Pantry, Drivers, Limited partnership
Drivers Diner, Nu-Way, Economy Drive Ins, 99%
Dynamic Minute Mart, Financial Express
Money Order Company, Direct Fuels
FFP Financial Services, L.P. Delaware
FFP Financial Services, Limited partnership
Lazer Wizard 99%
Direct Fuels, L.P. Texas
Direct Fuels Limited partnership
99%
FFP Illinois Money Orders, Inc. Illinois
FFP Illinois Money Orders Corporation
100%
Practical Tank Management, Inc. Texas
Practical Tank Management Corporation
100%
FFP Transportation, L.L.C. Texas
FFP Transportation Limited liability company
100%
Exhibit 23.1
Consent of KPMG Peat Marwick LLP
<PAGE>
Exhibit 23.1
Independent Auditors' Consent
The Partners
FFP Partners, L.P.:
We consent to incorporation by reference in the Registration
Statement (No. 33-73170) on Form S-8 of FFP Partners, L.P. of the following: our
report dated March 5, 1996, except for the third and fourth paragraphs of Note
5, which are as of March 29, 1996, relating to the consolidated balance sheets
of FFP Partners, L.P. and subsidiaries as of December 31, 1995 and December 25,
1994, and the related consolidated income statements, statements of partners'
capital, and statements of cash flows and related schedule for each of the years
in the three-year period ended December 31, 1995; and our report dated March 5,
1996, except for the third and fourth paragraphs of Note 5, which are as of
March 29, 1996, relating to the balance sheets of FFP Operating Partners, L.P.
as of December 31, 1995 and December 25, 1994, and the related income
statements, statements of partners' capital, and statements of cash flows for
each of the years in the three year period ended December 31, 1995, which
reports appear in the December 31, 1995 annual report on Form 10-K of FFP
Partners, L.P.
As discussed in notes 2(l) and 10 to its consolidated
financial statements, FFP Partners, L.P., changed its method of accounting for
income taxes in 1993 to adopt the provisions of the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes."
KPMG Peat Marwick LLP
Fort Worth, Texas
April 12, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 8106
<SECURITIES> 0
<RECEIVABLES> 10485
<ALLOWANCES> 1045
<INVENTORY> 11260
<CURRENT-ASSETS> 30310
<PP&E> 62763
<DEPRECIATION> 30891
<TOTAL-ASSETS> 69332
<CURRENT-LIABILITIES> 34757
<BONDS> 0
0
0
<COMMON> 25970
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 69332
<SALES> 362399
<TOTAL-REVENUES> 370045
<CGS> 320399
<TOTAL-COSTS> 320399
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 459
<INTEREST-EXPENSE> 1176
<INCOME-PRETAX> 4410
<INCOME-TAX> 500
<INCOME-CONTINUING> 3910
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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</TABLE>
Exhibit 99.1
Financial Statements of
FFP Operating Partners, L.P.
a 99%-owned subsidiary of the Registrant
<PAGE>
INDEPENDENT AUDITORS' REPORT
THE PARTNERS
FFP OPERATING PARTNERS, L.P.:
We have audited the accompanying balance sheets of FFP
Operating Partners, L.P. (a Delaware limited partnership) as of December 31,
1995 and December 25, 1994, and the related income statements, statements of
partners' capital and statements of cash flows for each of the years in the
three-year period ended December 31, 1995. These financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of FFP
Operating Partners, L.P. as of December 31, 1995 and December 25, 1994, and the
results of its operations and its cash flows for each of the years in the
three-year period ended December 31, 1995, in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
Fort Worth, Texas
March 5, 1996, except for
the third and fourth paragraphs of
Note 5, which are as of March 29, 1996
<PAGE>
FFP OPERATING PARTNERS, L.P.
BALANCE SHEETS
DECEMBER 31, 1995, AND DECEMBER 25, 1994
(In thousands)
1995 1994
ASSETS
Current Assets
Cash and cash equivalents $7,147 $10,413
Trade receivables, less allowance
for doubtful accounts
of $996 and $868 in 1995 and 1994,
respectively 7,828 6,650
Notes receivable 453 452
Receivables from affiliated companies 7,275 3,812
Inventories 10,827 11,010
Prepaid expenses and other current assets 615 667
Total current assets 34,145 33,004
Property and equipment, net 31,806 29,859
Noncurrent notes receivable,
excluding current portion 1,156 1,099
Claims for reimbursement of
environmental remediation costs 1,255 1,490
Other assets, net 4,421 2,910
Total Assets $72,783 $68,362
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities
Amount due under revolving credit line $4,003 $0
Current installments of long-term debt 1,028 2,131
Current installments of obligations
under capital leases 884 552
Accounts payable 12,484 12,528
Money orders payable 5,912 4,254
Accrued expenses 9,502 11,804
Payable to affiliate 516 177
Total current liabilities 34,329 31,446
Long-term debt, excluding current installments 6,157 8,634
Obligations under capital leases, excluding
current installments 943 893
Other liabilities 322 243
Total Liabilities 41,751 41,216
Commitments and contingencies
Partners' Capital
Limited partners' equity 30,987 27,140
General partner's equity 314 275
Treasury units (269) (269)
Total Partners' Capital 31,032 27,146
Total Liabilities and Partners' Capital $72,783 $68,362
See accompanying notes to financial statements.
<PAGE>
FFP OPERATING PARTNERS, L.P.
INCOME STATEMENTS
YEARS ENDED DECEMBER 31, 1995, DECEMBER 25, 1994, AND DECEMBER 26, 1993
(In thousands, except unit information)
1995 1994 1993
Revenues
Motor fuel $282,785 $268,310 $246,013
Merchandise 64,561 72,827 74,921
Miscellaneous 6,470 6,192 4,620
Total Revenues 353,816 347,329 325,554
Costs and Expenses
Cost of motor fuel 260,800 246,370 224,366
Cost of merchandise 45,542 52,658 54,601
Direct store expenses 27,703 28,844 27,937
General and administrative
expenses 11,029 10,266 10,331
Depreciation and amortization 3,680 4,235 5,592
Total Costs and Expenses 348,754 342,373 322,827
Operating Income 5,062 4,956 2,727
Interest Expense 1,176 1,173 1,556
Income before extraordinary item 3,886 3,783 1,171
Extraordinary item - gain on
extinguishment of debt 0 200 0
Net Income $3,886 $3,983 $1,171
Net income allocated to
Limited partners $3,847 $3,943 $1,159
General partner 39 40 12
See accompanying notes to financial statements.
<PAGE>
FFP OPERATING PARTNERS, L.P.
STATEMENTS OF PARTNERS' CAPITAL
YEARS ENDED DECEMBER 31, 1995, DECEMBER 25, 1994, AND DECEMBER 26, 1993
(In thousands, except unit information)
Limited General Treasury
Partner Partner Units Total
Balance, December 27, 1992 22,038 $223 $(269) $21,992
Net income 1,159 12 0 1,171
Balance, December 26, 1993 23,197 235 (269) 23,163
Net income 3,943 40 0 3,983
Balance, December 25, 1994 27,140 275 (269) 27,146
Net income 3,847 39 0 3,886
Balance, December 31, 1995 $30,987 $314 $(269) $31,032
See accompanying notes to financial statements.
<PAGE>
FFP OPERATING PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, AND DECEMBER 25, 1994, DECEMBER 26, 1993
(In thousands, except supplemental information)
1995 1994 1993
Cash Flows from Operating Activities
Net income $3,886 $3,983 $1,171
Adjustments to reconcile net
income to net cash provided
by operating activities
Depreciation and amortization 3,680 4,235 5,592
Provision for doubtful accounts 451 731 460
(Gain)/loss on sales of property
and equipment (110) (62) 281
(Gain) on extinguishment of debt 0 (200) 0
(Gain) on sales of convenience
store operations (791) (829) 0
Changes in operating assets
and liabilities
(Increase) in trade receivables (1,629) (1,081) (1,826)
(Increase)/decrease in
notes receivable 733 80 (195)
(Increase) in receivables from
affiliated companies (259) (264) (472)
(Increase)/decrease in
inventories 183 2,521 (882)
Decrease in prepaid expenses and
other current assets 52 96 135
(Increase)/decrease in claims
for reimbursement of environmental
remediation costs 314 192 (52)
Increase/(decrease) in
accounts payable (44) 618 666
Increase in money orders payable 1,658 859 486
Increase/(decrease) in accrued
expenses (2,302) (86) 2,234
Net cash provided by operating
activities 5,822 10,793 7,598
Cash Flows from Investing Activities
Purchases of property
and equipment (4,759) (3,752) (3,310)
Proceeds from sales of property
and equipment 169 44 280
(Increase) in receivables from
affiliated companies (3,204) (1,337) 0
Investments in joint ventures
and other entities (1,350) 0 0
(Increase) in other assets (490) (713) (155)
Net cash (used in) investing
activities (9,634) (5,758) (3,185)
Cash Flows from Financing Activities
Borrowings/(payments) on revolving
credit line, net 4,003 (7,116) 0
Proceeds from long-term debt 0 12,161 826
Payments on long-term debt (4,178) (13,576) (3,425)
Borrowings under capital
lease obligations 1,076 1,560 0
Payments on capital lease
obligations (694) (115) 0
Advances from/(repayments to)
affiliates, net 339 74 (583)
Net cash provided by/(used in)
financing activities 546 (7,012) (3,182)
Net increase/(decrease) in cash
and cash equivalents (3,266) (1,977) 1,231
Cash and cash equivalents at
beginning of year 10,413 12,390 11,159
Cash and cash equivalents at
end of year $7,147 $10,413 $12,390
Supplemental Disclosure of Cash Flow Information
Cash paid for interest during 1995, 1994, and 1993 was
$1,394,000, $1,283,000, and $1,603,000, respectively.
Supplemental Schedule of Noncash Investing and Financing Activities
During 1995, the Company acquired fixed assets of $598,000 in
exchange for notes payable.
During 1994, the Company acquired property valued at $215,000
and a note receivable of $120,000 through settlement of a lawsuit.
See accompanying notes to financial statements.
<PAGE>
FFP OPERATING PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, DECEMBER 25, 1994, AND DECEMBER 26, 1993
1. Basis of Presentation
(a) Organization of Company
FFP Operating Partners, L.P. ("FFPOP" or the "Company"), is a
99%-owned subsidiary of FFP Partners, L.P. ("FFPLP"), a publicly-traded limited
partnership. FFPOP was formed in December 1986 in connection with the
acquisition of the convenience store, truck stop, and other retail motor fuel
businesses of certain companies affiliated with FFP Partners Management Company,
Inc. ("FFPMC" or the "General Partner"), the general partner of both FFPOP and
FFPLP.
(b) Reclassifications
Certain amounts previously reported in the 1994 and 1993
financial statements have been reclassified to conform to the 1995 presentation.
2. Significant Accounting Policies
(a) Fiscal Years
The Company prepares its financial statements and reports its
results of operations on the basis of a fiscal year which ends on the last
Sunday of December. Accordingly, the fiscal year ended December 31, 1995,
consisted of 53 weeks and the fiscal years ended December 25, 1994, and December
26, 1993, consisted of 52 weeks; certain other previous fiscal years consisted
of 53 weeks. Year end data in these notes is as of the respective dates above.
(b) Cash Equivalents
The Company considers all highly liquid investments with
maturities at date of purchase of three months or less to be cash equivalents.
(c) Notes Receivable
Notes receivable are recorded at the amount owed, less a
related allowance for impairment. The provisions of the Financial Accounting
Standard Board's ("FASB") Statement of Financial Accounting Standard ("SFAS")
No. 114, "Accounting by Creditors for Impairment of a Loan," have been applied
in the evaluation of the collectibility of notes receivable. At year end 1995
and 1994, no notes receivable were determined to be impaired.
(d) Inventories
Inventories consist of retail convenience store merchandise
and motor fuel products. Merchandise inventories are stated at the lower of cost
or market as determined by the retail method. Motor fuel inventories are stated
at the lower of cost or market using the first-in, first-out (FIFO) inventory
method.
The Company has selected a single company as the primary
grocery and merchandise supplier to its convenience stores and truck stops
although certain items, such as bakery goods, dairy products, soft drinks, beer,
and other perishable products, are generally purchased from local vendors and/or
wholesale route salespeople. The Company believes it could replace any of its
merchandise suppliers, including its primary grocery and merchandise supplier,
with no significant adverse effect on its operations.
The Company does not have long-term contracts with any
suppliers of petroleum products covering more than 10% of its motor fuel supply.
Unanticipated national or international events could result in a curtailment of
motor fuel supplies to the Company, thereby adversely affecting motor fuel
sales. In addition, management believes a significant portion of its merchandise
sales are to customers who also purchase motor fuel. Accordingly, reduced
availability of motor fuel could negatively impact other facets of the Company's
operations.
(e) Property and Equipment
Property and equipment are stated at cost. Equipment acquired
under capital leases is stated at the present value of the initial minimum lease
payments, which is not in excess of the fair value of the equipment.
Depreciation and amortization of property and equipment are provided on the
straight-line method over the estimated useful lives of the respective assets.
Leasehold improvements are amortized on the straight-line method over the
shorter of the lease term or the estimated useful lives of the respective
assets.
(f) Investments
Investments in joint ventures and other entities that are 50%
or less owned are accounted for by the equity method and are included in other
assets, net, in the accompanying balance sheets.
(g) Intangible Assets
In connection with the allocation of the purchase price of the
assets acquired in 1987 upon the commencement of the Company's operations,
$6,192,000 was allocated to contracts under which the Company supplies motor
fuel to various retail outlets and $1,093,000 was allocated as the future
benefit of real estate leased from affiliates of the General Partner. The fuel
contracts were amortized using the straight-line method over 6.3 years, the
average life of such contracts at the time they were acquired. The value
assigned to these contracts became fully amortized during 1993. The future
benefit of the leases is being amortized using the straight-line method over 20
years, the initial term and option periods, of such leases.
Goodwill of $2,020,000 is being amortized using the
straight-line method over 20 years. The Company assesses the recoverability of
goodwill by determining whether the amortization of the balance over the
remaining amortization period can be recovered through undiscounted future
operating cash flows of the acquired operations. The amount of goodwill
impairment, if any, is measured based on projected discounted future operating
cash flows using a discount rate reflecting the Company's average cost of funds.
The assessment of the recoverability of goodwill would be impacted if
anticipated future operating cash flows are not achieved.
(h) Sales of Convenience Store Operations
The Company sold the merchandise operations and related
inventories of 10 and 15 convenience store locations to various third parties
for approximately $900,000 and $1,834,000 in 1995 and 1994, respectively. Under
these sales, the Company retained the real estate or leasehold interests, and
leases or subleases the store facilities (including the store equipment) to the
purchaser under five-year renewable operating lease agreements. The Company
retains ownership of the motor fuel operations and pays the purchaser of the
store commissions based on motor fuel sales. In addition, the new store
operators may purchase merchandise under the Company's established buying
arrangements for which the Company receives a commission.
The proceeds from the sales in 1995 consisted of cash of
$357,000 and notes receivable of $543,000 and in 1994 consisted of cash of
$778,000 and notes receivable of $1,056,000. The notes receivable generally are
for terms of five years, require monthly payments of principal and interest, and
bear interest at rates ranging from 8% to 10%. Gains on sales which meet
specified criteria, including receipt of a significant cash down payment and
projected cash flow from store operations sufficient to adequately service the
debt, are recognized upon closing of the sale. Gains on sales which do not meet
the specified criteria are recognized under the installment method as cash
payments are received. Gains being recognized under the installment method are
evaluated periodically to determine if full recognition of the gain is
appropriate. During 1995 and 1994, the Company recognized gains of $791,000 and
$829,000, respectively (included in miscellaneous revenues in the accompanying
income statements), and deferred gains of $200,000 and $400,000, respectively
(included in accrued expenses in the accompanying balance sheets).
(i) Environmental Costs
Environmental remediation costs are expensed; related
environmental expenditures that extend the life, increase the capacity, or
improve the safety or efficiency of existing assets are capitalized. Liabilities
for environmental remediation costs are recorded when environmental assessment
and/or remediation is probable and the amounts can be reasonably estimated.
Environmental liabilities are evaluated independently from potential claims for
recovery. Accordingly, the gross estimated liabilities and estimated claims for
reimbursement have been presented separately in the accompanying balance sheets
(see Note 11b).
(j) Motor Fuel Taxes
Motor fuel revenues and related cost of motor fuel include
federal and state excise taxes of $98,519,000, $100,554,000, and $82,890,000,
for 1995, 1994, and 1993, respectively.
(k) Exchanges
The exchange method of accounting is utilized for motor fuel
exchange transactions. Under this method, such transactions are considered as
exchanges of assets with deliveries being offset against receipts, or vice
versa. Exchange balances due from others are valued at current replacement
costs. Exchange balances due to others are valued at the cost of forward
contracts (Note 9) to the extent they have been entered into, with any remaining
balance valued at current replacement cost. Exchange balances due to others at
year end 1995 and 1994 totaled $-0- and $123,000, respectively.
(l) Income Taxes
Taxable income or loss of the Company is includable in the
income tax returns of the individual partners; therefore, no provision for
income taxes has been made in the accompanying financial statements.
The Company's parent is a publicly-traded partnership that
under the Revenue Act of 1987 ("Revenue Act") will be treated as a corporation
for tax purposes. Due to a transitional rule, this provision of the Revenue Act
will not be applied to the Company's parent until the earlier of (i) its tax
years beginning after 1997 or (ii) its addition of a "substantial new line of
business" as defined by the Revenue Act. Legislation has been introduced into
Congress which would extend for a two year period the partnership tax status of
the Company's parent. However, no action has yet been taken on this legislation.
The General Partner continues to evaluate the Company's alternatives with
respect to its tax status.
The Company's parent accounts for income taxes under the asset
and liability method. Deferred tax assets and liabilities are recognized for the
estimated future tax consequences attributable to existing differences between
financial statement carrying amounts of assets and liabilities and their
respective tax bases that are expected to reverse after 1997. Deferred tax
liabilities and assets are measured using enacted tax rates expected to be in
effect when such amounts are realized or settled. The effect of a change in tax
rates is recognized in income in the period that includes the enactment date.
The Company's parent has not currently allocated the effect of applying the
asset and liability method among its subsidiaries; however, it could elect to do
so in the future.
(m) Fair Value of Financial Instruments
The carrying amounts of cash, receivables, amounts due under
revolving credit line, and money orders payable approximate fair value because
of the short maturity of those instruments. The carrying amount of notes
receivable approximates fair value which is determined by discounting expected
future cash flows at current rates.
The carrying amount of long-term debt approximates fair value
due to the variable interest rate on substantially all such obligations.
(n) Allocation of Net Income and Loss and Cash Distributions to Partners
The Partnership Agreement provides that net income or loss and
cash distributions are to be allocated 99% to the limited partner and 1% to the
General Partner. Cash distributions represent a return of capital to the
partners.
(o) Employee Benefit Plan
Effective January 1, 1994, the Company adopted a 401(k) profit
sharing plan covering all employees who meet age and tenure requirements.
Participants may contribute to the plan a portion, within specified limits, of
their compensation under a salary reduction arrangement. The Company may make
discretionary matching or additional contributions to the plan. The Company did
not make any contributions to the plan in 1995 or 1994.
(p) Use of Estimates
The use of estimates is required to prepare the Company's
financial statements in conformity with generally accepted accounting
principles. Although management believes that such estimates are reasonable,
actual results could differ from the estimates.
(q) New Accounting Standards
In March 1995, the FASB issued SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." SFAS 121 requires that long-lived assets and certain intangibles be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Management is
currently unable to reasonably estimate whether the adoption of SFAS 121 in 1996
will have a material effect on the Company's financial position or results of
operations.
3. Property and Equipment
Property and equipment consists of the following:
1995 1994
(In thousands)
Land $4,319 $3,853
Land improvements 2,627 2,582
Buildings and improvements 24,263 22,488
Machinery and equipment 31,195 28,415
62,404 57,338
Accumulated depreciation and amortization (30,598) (27,479)
$31,806 $29,859
4. Other Assets
Other assets consist of the following:
1995 1994
(In thousands)
Intangible Assets (Note 2g)
Ground leases $1,093 $1,093
Goodwill 2,020 1,932
Other 1,409 1,031
4,522 4,056
Accumulated amortization (1,795) (1,467)
2,727 2,589
Investments in joint ventures and other entities 1,350 0
Other 344 321
$4,421 $2,910
In December 1995, the Company invested $1,200,000 for a 50%
interest in a joint venture formed to acquire certain loans that are secured by
convenience stores located in areas where the Company currently has operations.
These loans will be liquidated through collection or through acquisition of the
stores by the Company through foreclosure.
5. Notes Payable and Long-Term Debt
The Company has a Credit Agreement with a bank that provides a
$10,000,000 revolving credit line for working capital purposes with sublimits of
$8,000,000 for cash advances and $3,000,000 for letters of credit. The revolving
credit line bears interest at the bank's prime rate (8.5% at year end 1995) and
matures on April 30, 1997. The Credit Agreement requires that the cash balance
outstanding under the revolving credit line be repaid for seven consecutive
calendar days in each quarter beginning July 1, 1996. At year end 1995, there
was $4,003,000 due on the revolving credit line and there were outstanding
letters of credit totaling $625,000.
The Credit Agreement also provides a term loan, which had a
balance at year end 1995 of $6,563,000. This loan bears interest at the bank's
prime rate, requires quarterly payments of $312,500, plus interest, and matures
on March 31, 2001.
On March 29, 1996, the bank and Company amended the Credit
Agreement principally to provide an additional term loan of $1,000,000 to be
used by the Company to finance the acquisition and renovation of a fuel terminal
and processing plant that was purchased by an affiliate of the Company. This
loan bears interest at the bank's prime rate, is due in quarterly installments
of $50,000 beginning June 30, 1996, and matures on March 31, 2001.
All loans are secured by the Company's accounts receivable and
inventory. In addition the Company has provided a negative pledge of all its
fixed assets and real property and the bank has the right to require a positive
pledge of such assets at any time. The loans are guaranteed by the General
Partner and its subsidiary. The Credit Agreement also contains various
restrictive covenants including restrictions on borrowing from persons other
than the bank, making investments in, advances to, or guaranteeing the
obligations of other persons, maintaining specified levels of equity, and the
maintenance of certain financial ratios which have the effect of limiting
capital expenditures and cash distributions by the Company's parent. At year end
1995, the Company was not in compliance with certain financial ratios. In
connection with the March 29, 1996, amendment of the Credit Agreement, discussed
above, the bank has waived compliance, to a limited extent, with these ratios
until the Company's second 1996 fiscal quarter at which time the Company
believes it will be in compliance.
The Company has other notes payable which bear interest at 6%
to 10% and are due in monthly or annual installments through 2012. Such notes
are unsecured or secured by receivables or land and had aggregate balances of
$622,000 and $265,000 at year end 1995 and 1994, respectively.
The aggregate fixed maturities of long-term debt for each of
the five years subsequent to 1995 are as follows:
(In thousands)
1996 $1,028
1997 1,346
1998 1,296
1999 1,410
2000 1,289
Thereafter 816
$7,185
In February 1994, the Company refinanced its then existing
bank debt. In connection with this refinancing, the Company received a discount
of $200,000 for the early retirement of the existing debt. This discount is
reflected as an extraordinary item in the accompanying 1994 income statement.
6. Capital Leases
The Company is obligated under noncancelable capital leases
beginning to expire in 1997. The gross amount of the assets covered by these
capital leases that are included in property and equipment in the accompanying
balance sheets is as follows:
1995 1994
(In thousands)
Machinery and equipment $2,636 $1,560
Accumulated amortization (425) (19)
$2,211 $1,541
The amortization of assets held under capital leases is
included in depreciation and amortization expense in the accompanying income
statements. Future minimum lease payments under the noncancelable capital leases
for years subsequent to 1995 are:
(In thousands)
1996 $1,079
1997 891
1998 121
Total minimum lease payments 2,091
Amount representing interest (264)
Present value of future minimum lease payment 1,827
Current installments (884)
Obligations under capital leases, excluding current installments $943
7. Operating Leases
The Company has noncancelable, long-term operating leases on
certain locations, a significant portion of which are with related parties.
Certain of the leases have contingent rentals based on sales levels of the
locations and/or have escalation clauses tied to the consumer price index.
Minimum future rental payments (including bargain renewal periods) and sublease
receipts for years after 1995 are as follows:
Future Rental Payments
---------------------------------------------- Future
Related Sublease
Parties Others Total Receipts
(In thousands)
1996 $831 $647 $1,478 $623
1997 762 521 1,283 533
1998 712 467 1,179 495
1999 712 426 1,138 396
2000 677 383 1,060 113
Thereafter 2,700 1,624 4,324 0
$6,394 $4,068 $10,462 $2,160
Rent Expense
-----------------------------------------
Related Sublease
Parties Others Total Income
(In thousands)
1995 $849 $658 $1,507 $843
1994 842 832 1,674 592
1993 840 1,086 1,926 467
8. Accrued Expenses
Accrued expenses consist of the following:
1995 1994
(In thousands)
Motor fuel taxes payable $6,376 $7,852
Accrued payroll and related expenses 1,283 1,182
Accrued environmental remediation costs (Note 11b) 322 260
Other 1,521 2,510
$9,502 $11,804
9. Futures and Forward Contracts
The Company is party to commodity futures contracts with
off-balance sheet risk. Changes in the market value of open futures contracts
are recognized as gains or losses in the period of change. These investments
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. Contract amounts are often used to express the volume of these
transactions, but the amounts potentially subject to risk are much smaller.
From time-to-time the Company enters into forward contracts to
buy and sell fuel, principally to satisfy balances owed on exchange agreements
(Note 2k). These transactions, which together with futures contracts are
classified as operating activities for purposes of the statements of cash flows,
are included in motor fuel sales and related cost of sales and resulted in net
gains as follows:
(In thousands)
1995 $87
1994 1,069
1993 730
Open positions under futures and forward contracts were not
significant at year end 1995 and 1994.
10. Related Party Transactions
The Company reimburses the General Partner and its affiliates
for salaries and related costs of executive officers and others and for expenses
incurred by them in connection with the management of the Company. These
expenses were $727,000, $733,000, and $737,000 for 1995, 1994, and 1993,
respectively.
In July 1991, the Company entered into an agreement with an
affiliated company whereby the affiliated company sells alcoholic beverages at
the Company's stores in Texas. Under Texas law, the Company is not permitted to
hold licenses to sell alcoholic beverages in Texas. The agreement provides that
the Company will receive rent and a management fee based on the gross receipts
from sales of alcoholic beverages at its stores. In July 1992, the agreement was
amended to be for a term of five years commencing on the date of amendment. The
sales recorded by the affiliated company under this agreement were $9,116,000,
$9,180,000, and $8,608,000 in 1995, 1994, and 1993, respectively. The Company
received $1,217,000, $1,226,000, and $1,281,000 in 1995, 1994, and 1993,
respectively, in rent, management fees, and interest, which are included in
miscellaneous revenues in the income statements. After deducting cost of sales
and other expenses related to these sales, including the amounts paid to the
Company, the affiliated company had earnings of $91,000, $119,000, and $64,000
in 1995, 1994, and 1993, respectively, as a result of holding these alcoholic
beverage permits. Under a revolving note executed in connection with this
agreement, the Company advances funds to the affiliated company to pay for the
purchases of alcoholic beverages. Receipts from the sales of such beverages are
credited against the note balance. The revolving note provides for interest at
1/2% above the prime rate charged by a major financial institution.
From time to time, the General Partner advances funds to the
Company. Under the Partnership Agreement, the General Partner is permitted to
charge interest on such advances provided the interest rate does not exceed
rates which would be charged by unrelated third parties. Interest expense of
$19,000 is included in the results of operations for 1993. There were no
advances owing to the General Partner during or at the year ends of 1995 and
1994.
From time to time, the Company makes advances to and receives
advances from its parent and other subsidiaries of its parent. Such advances do
not bear interest and are reflected in receivables from affiliated companies in
the accompanying balance sheets.
The General Partner is entitled to noncumulative, incentive
compensation each year in an amount equal to 10% of the consolidated net income
of the Company's parent for such year (prior to the calculation of the incentive
compensation), but only if consolidated net income (prior to the calculation of
the incentive compensation) equals or exceeds $1.08 per unit of limited
partnership interest of the Company's parent and only if the total of the
quarterly cash distributions for such year are at least $1.50 per such unit of
limited partnership interest. The incentive compensation requirements were not
met in 1995, 1994, or 1993.
The Company purchases certain goods and services (including
office supplies, computer software and consulting services, and fuel supply
consulting and procurement services) from related entities. Amounts incurred for
these products and services were $421,000, $147,000, and $169,000 for 1995,
1994, and 1993, respectively.
As a part of its merchandise sales activities, the Company
supplies its private label cigarettes on a wholesale basis to other retailers
who do not operate outlets in its trade areas and pays them rebates based on the
volume of cigarettes purchased. In 1995, the Company paid $51,000 of such
rebates to a company on whose Board one of the Company's executive officers
serves. The amount of rebates paid to this company was calculated in the same
manner as the rebates paid to non-related companies.
In 1980 and 1982, certain companies from which the Company
acquired its initial base of retail outlets granted to a third party the right
to sell motor fuel at retail for a period of 10 years at self-serve gasoline
stations owned or leased by the affiliated companies or their affiliates. All
rights to commissions under these agreements and the right to sell motor fuel at
wholesale to the third party at such locations were assigned to the Company in
May 1987 in connection with the acquisition of its initial base of retail
operations. In December 1990, in connection with the expiration or termination
of the agreements with the third party, the Company entered into agreements with
a company owned and controlled by the Chairman of the General Partner and
members of his immediate family, which grant to the Company the exclusive right
to sell motor fuel at retail at these locations. The terms of these agreements
are comparable to agreements that the Company has with other unrelated parties.
The Company paid this affiliated company commissions related to the sale of
motor fuel at these locations of $261,000, $222,000, and $186,000 in 1995, 1994,
and 1993, respectively.
During 1995, the Company purchased four parcels of land,
including building and petroleum storage tanks and related dispensing equipment,
from a company controlled by the Chairman of the General Partner and members of
his immediate family. The Company paid a total of $116,000 for the real estate
and related improvements. The Company is operating one of these locations as a
convenience store and one as a self-service motor fuel outlet and intends to
operate the other two as either convenience stores or self-service motor fuel
outlets. The purchase price was determined by reference to similar properties
acquired by the Company from unrelated parties.
11. Commitments and Contingencies
(a) Uninsured Liabilities
The Company maintains general liability insurance with limits
and deductibles management believes prudent in light of the exposure of the
Company to loss and the cost of the insurance.
The Company self-insures claims up to $45,000 per year for
each individual covered by its employee medical benefit plan for supervisory and
administrative employees; claims above $45,000 are covered by a stop-loss
insurance policy. The Company also self-insures medical claims for its eligible
store employees. However, claims under the plan for store employees are subject
to a $1,000,000 lifetime limit per employee and the Company does not maintain
stop-loss coverage for these claims. The Company and its covered employees
contribute to pay the self-insured claims and stop-loss insurance premiums.
Accrued liabilities include amounts management believes adequate to cover the
estimated claims arising prior to a year-end, including claims incurred but not
yet reported. The Company recorded expense related to these plans of $353,000,
$288,000, and $303,000, in 1995, 1994, and 1993, respectively.
The Company has elected to discontinue carrying workers'
compensation insurance in the State of Texas. However, it has insurance
policies, including an annual limit stop-loss policy, which limits the Company's
exposure to losses related to claims to provide a safe work environment. Claims
under these policies are limited to $250,000 per occurrence and $750,000 annual
aggregate payments under the stop-loss policy. In other states, the Company is
covered for worker's compensation through incurred loss retrospective policies.
Accruals for estimated claims (including claims incurred but not reported) have
been recorded at year end 1995 and 1994, including the effects of any
retroactive premium adjustments.
(b) Environmental Matters
The operations of the Company are subject to a number of
federal, state, and local environmental laws and regulations, which govern the
storage and sale of motor fuels, including those regulating underground storage
tanks. In September 1988, the Environmental Protection Agency ("EPA") issued
regulations that require all newly installed underground storage tanks be
protected from corrosion, be equipped with devices to prevent spills and
overfills, and have a leak detection method that meets certain minimum
requirements. The effective commencement date for newly installed tanks was
December 22, 1988. Underground storage tanks in place prior to December 22,
1988, must conform to the new standards by December 1998. The Company has
implemented a plan to bring all of its existing underground storage tanks and
related equipment into compliance with these laws and regulations and currently
estimates the costs to do so will range from $2,800,000 to $3,425,000 over the
next three years. The Company anticipates that substantially all these
expenditures will be capitalized as additions to property and equipment. Such
estimates are based upon current regulations, prior experience, assumptions as
to the number of underground storage tanks to be upgraded, and certain other
matters. At year end 1995 and 1994, the Company recorded liabilities for future
estimated environmental remediation costs related to known leaking underground
storage tanks of $643,000 and $503,000, respectively. Of such amounts, $322,000
and $260,000, respectively, were recorded in accrued expenses and the remainder
was recorded in other liabilities. Corresponding claims for reimbursement of
environmental remediation costs of $643,000 and $503,000 were recorded in 1995
and 1994, respectively, as the Company expects that such costs will be
reimbursed by various environmental agencies. In 1995, the Company contracted
with a third party to perform site assessments and remediation activities on 35
sites located in Texas that are known or thought to have leaking underground
storage tanks. Under the contract, the third party will coordinate with the
state regulatory authority the work to be performed and bill the state directly
for such work. The Company is liable for the $5,000 per occurrence deductible
and for any costs in excess of the $1,000,000 limit provided for by the state
environmental trust fund. The Company does not expect that the costs of
remediation of any of these 35 sites will exceed the $1,000,000 limit. The
assumptions on which the foregoing estimates are based may change and
unanticipated events and circumstances may occur which may cause the actual cost
of complying with the above requirements to vary significantly from these
estimates.
During 1995, 1994, and 1993, environmental expenditures were
$1,003,000, $934,000, and $340,000, respectively (including capital expenditures
of $644,000, $820,000, and $118,000), in complying with environmental laws and
regulations.
The Company does not maintain insurance covering losses
associated with environmental contamination. However, all the states in which
the Company owns or operates underground storage tanks have state operated funds
which reimburse the Company for certain cleanup costs and liabilities incurred
as a result of leaks in underground storage tanks. These funds, which
essentially provide insurance coverage for certain environmental liabilities,
are funded by taxes on underground storage tanks or on motor fuels purchased
within each respective state. The coverages afforded by each state vary but
generally provide up to $1,000,000 for the cleanup of environmental
contamination and most provide coverage for third-party liability as well. The
funds require the Company to pay deductibles ranging from $5,000 to $25,000 per
occurrence. The majority of the Company's environmental contamination cleanup
activities relate to underground storage tanks located in Texas. Due to an
increase in claims throughout the state, the Texas state environmental trust
fund has significantly delayed reimbursement payments for certain cleanup costs
after September 30, 1992. In 1993, the Texas state fund issued guidelines that,
among other things, prioritize the timing of future reimbursements based upon
the total number of tanks operated by and the financial net worth of each
applicant. The Company has been classified in the category with the lowest
priority. Because the state and federal governments have the right, by law, to
levy additional fees on fuel purchases, the Company believes these clean up
costs will ultimately be reimbursed. However, due to the uncertainty of the
timing of the receipt of the reimbursements, the claims for reimbursement of
environmental remediation costs, totaling $1,255,000 and $1,490,000 at year end
1995 and 1994, respectively, have been classified as long-term receivables in
the accompanying balance sheets,
(c) Other
The Company is subject to various claims and litigation
arising in the ordinary course of business, particularly personal injury and
employment related claims. In the opinion of management, the outcome of such
matters will not have a material effect on the financial position or results of
operations of the Company.
12. Treasury Units of Parent
During 1990, the Company purchased 13,300 Class A Units and
51,478 Class B Units of limited partnership interest of its parent at a cost of
$69,000 and $200,000, respectively. These units are classified as Treasury Units
in partners' capital in the accompanying balance sheets.
