UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A-1
|X|Annual report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 29, 1996, 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
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
2801 Glenda Avenue; Fort Worth, Texas 76117-4391
(Address of principal executive office, including zip code)
817/838-4700
(Registrant's telephone number, including area code)
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 28, 1997, was $9,457,000. 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 3,529,205
Class B Units 175,000
(Number of units outstanding as of March 28, 1997)
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
Agreement of Limited Partnership 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 Amended and Restated Credit Agreement between Bank of
America Texas, N.A., and FFP Operating Partners,
L.P., dated November 27, 1996. {6}
21.1 Subsidiaries of the Registrant. {6}
23.1 Consent of KPMG Peat Marwick LLP. {6}
23.2 Consent of KPMG Peat Marwick LLP. {7}
27 Financial data schedule. {6}
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
environmental regulatory requirements.} {7}
- -----------------------
{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 29, 1996, and incorporated herein by reference.
{7} 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: May 19, 1997 FFP PARTNERS, L.P.
(Registrant)
By: FFP Partners Management Company, Inc.,
General Partner
By: /s/ Steven B. Hawkins
Steven B. Hawkins
Vice President-Finance & Administration
Exhibit 23.2
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 our report dated March 14, 1997,
relating to the balance sheets of FFP Operating Partners, L.P. as of December
29, 1996 and December 31, 1995, and the related statements of operations,
partners' capital, and cash flows for each of the years in the three-year period
ended December 29, 1996, which report appears in the first amendment to the
December 29, 1996 annual report on Form 10-K of FFP Partners, L.P.
KPMG Peat Marwick LLP
Fort Worth, Texas
May 16, 1997
Exhibit 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
environmental regulatory requirements.}
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 29, 1996, and December 31,
1995, and the related statements of operations, partners' capital, and cash
flows for each of the years in the three-year period ended December 31, 1996.
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 29, 1996 and December 31, 1995, and the results of its operations
and its cash flows for each of the years in the three-year period ended December
29, 1996, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Fort Worth, Texas
March 14, 1997
FFP OPERATING PARTNERS, L.P.
BALANCE SHEETS
DECEMBER 29, 1996, AND DECEMBER 31, 1995
(In thousands)
1996 1995
ASSETS
Current Assets
Cash and cash equivalents $7,257 $7,147
Trade receivables, less allowance for doubtful accounts
of $834 and $996 in 1996 and 1995, respectively 8,623 7,828
Notes receivable 778 453
Receivables from affiliated company 420 436
Inventories 11,752 10,827
Prepaid expenses and other current assets 618 615
Total current assets 29,448 27,306
Property and equipment, net 34,713 31,806
Noncurrent notes receivable, excluding current portion 2,069 1,156
Receivables from affiliated companies 12,660 6,839
Claims for reimbursement of environmental remediation cost 1,038 1,255
Other assets, net 4,142 4,421
Total Assets $84,070 $72,783
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities
Amount due under revolving credit line $6,823 $4,003
Current installments of long-term debt 1,587 1,028
Current installments of obligations under capital lease 1,122 884
Accounts payable 13,424 12,484
Money orders payable 7,809 5,912
Accrued expenses 8,391 9,502
Payable to affiliates 834 516
Total current liabilities 39,990 34,329
Long-term debt, excluding current installments 7,765 6,157
Obligations under capital leases, excluding current
installments 1,653 943
Other liabilities 643 322
Total Liabilities 50,051 41,751
Commitments and contingencies
Partners' Capital
Limited partners' equity 33,944 30,987
General partner's equity 344 314
Treasury units (269) (269)
Total Partners' Capital 34,019 31,032
Total Liabilities and Partners' Capital $84,070 $72,783
See accompanying notes to financial statements.
FFP OPERATING PARTNERS, L.P.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 29, 1996, DECEMBER 31, 1995, AND DECEMBER 25, 1994
(In thousands)
1996 1995 1994
Revenues
Motor fuel $308,205 $282,785 $268,310
Merchandise 60,089 64,561 72,827
Miscellaneous 7,790 6,470 6,192
Total Revenues 376,084 353,816 347,329
Costs and Expenses
Cost of motor fuel 288,065 260,800 246,370
Cost of merchandise 42,503 45,542 52,658
Direct store expenses 26,710 27,703 28,844
General and administrative expenses 10,712 11,029 10,266
Depreciation and amortization 3,781 3,680 4,235
Total Costs and Expenses 371,771 348,754 342,373
Operating Income 4,313 5,062 4,956
Interest Expense 1,326 1,176 1,173
Income before extraordinary item 2,987 3,886 3,783
Extraordinary item - gain on
extinguishment of debt 0 0 200
Net Income $2,987 $3,886 $3,983
Net income allocated to
Limited partners $2,957 $3,847 $3,943
General partner 30 39 40
See accompanying notes to financial statements.
FFP OPERATING PARTNERS, L.P.
STATEMENTS OF PARTNERS' CAPITAL
YEARS ENDED DECEMBER 29, 1996, DECEMBER 31, 1995, AND DECEMBER 25, 1994
(In thousands, except unit information)
Limited General Treasury
Partner Partner Units
Total
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
Net income 2,957 30 0 2,987
Balance, December 29, 1996 $33,944 $344 $(269) $34,019
See accompanying notes to financial statements.
FFP OPERATING PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 29, 1996, DECEMBER 31, 1995, AND DECEMBER 25, 1994
(In thousands, except supplemental information)
1996 1995 1994
Cash Flows from Operating Activities
Net income 2,987 $3,886 $3,983
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization 3,781 3,680 4,235
Provision for doubtful accounts 326 451 731
(Gain)/loss on sales of property and equipment 19 (110) (62)
(Gain) on extinguishment of debt 0 0 (200)
(Gain) on sales of convenience store
operations (1,778) (791) (829)
Changes in operating assets and liabilities
(Increase) in trade receivables (1,121) (1,629) (1,081)
Decrease in notes receivable 540 733 80
Decrease in receivables from affiliated
companies 16 15 92
(Increase)/decrease in inventories (925) 183 2,521
(Increase)/decrease in prepaid expenses and
other current assets (3) 52 96
Decrease in claims for reimbursement
of environmental remediation costs 217 314 192
Increase/(decrease) in accounts payable 940 (44) 618
Increase in money orders payable 1,897 1,658 859
(Decrease) in accrued expenses and
other liabilities (790) (2,302) (86)
Net cash provided by operating activities 6,106 6,096 11,149
Cash Flows from Investing Activities
Purchases of property and equipment (6,205) (4,759) (3,752)
Proceeds from sales of property and equipment 50 169 44
(Increase)in receivables from affiliated
companies (5,821) (3,478) (1,693)
Investments in joint ventures and other entities 0 (1,350) 0
(Increase) in other assets (73) (490) (713)
Net cash (used in) investing activities (12,049) (9,908) (6,114)
Cash Flows from Financing Activities
Borrowings/(payments) on revolving
credit line, net 2,820 4,003 (7,116)
Proceeds from long-term debt 4,000 0 12,161
Payments on long-term debt (2,033) (4,178) (13,576)
Borrowings under capital lease obligations 1,923 1,076 1,560
Payments on capital lease obligations (975) (694) (115)
Advances from affiliates, net 318 339 74
Net cash provided by/(used in) financing activities 6,053 546 (7,012)
Net increase/(decrease) in cash and cash equivalents 110 (3,266) (1,977)
Cash and cash equivalents at beginning of year 7,147 10,413 12,390
Cash and cash equivalents at end of year $7,257 $7,147 $10,413
Supplemental Disclosure of Cash Flow Information
Cash paid for interest during 1996, 1995, and 1994 was $1,097,000,
$1,394,000, and $1,283,000, respectively.
Supplemental Schedule of Noncash Investing and Financing Activities
During 1996 and 1995, the Company acquired fixed assets of $200,000 and
$598,000, respectively, 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.
FFP OPERATING PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS DECEMBER 29, 1996,
DECEMBER 31, 1995, AND DECEMBER 25, 1994
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 1995 and 1994 financial
statements have been reclassified to conform to the 1996 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 years ended December 29, 1996, and December
25, 1994, consisted of 52 weeks, while the year ended December 31, 1995,
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 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
1996 and 1995, 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
certain convenience store locations to various third parties in exchange for
cash and notes receivable. 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%. Summary information about these sales is as
follows:
Number Notes Total Gains Deferred
Sold Cash Receivable Proceeds Recognized (at year-end)
(In thousands, except number sold)
1996 18 $816 $1,561 $2,377 $1,778 $250
1995 10 357 543 900 791 200
1994 15 778 1,056 1,834 829 400
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.
Under these sales, the Company retains 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.
(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).
In October 1996, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 96-1, Environmental Remediation
Liabilities. SOP 96-1, which will be adopted by the Company at the beginning of
its 1997 fiscal year, requires, among other things, environmental remediation
liabilities to be accrued when the criteria of SFAS No. 5, "Accounting for
Contingencies," have been met. The SOP also provides guidance with respect to
the measurement of remediation liabilities. Such accounting is consistent with
the Company's current method of accounting for environmental remediation costs,
and therefore, adoption of SOP 96-1 in 1997 is not expected to have a material
impact on the Company's financial position, results of operations, or liquidity.
(j) Motor Fuel Taxes
Motor fuel revenues and related cost of motor fuel include federal and
state excise taxes of $100,771,000, $98,519,000, and $100,554,000, for 1996,
1995, and 1994, 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 1996 and
1995 were $4,000 and $-0-, respectively.
(l) Income Taxes
Taxable income or loss of the Company is includable in the income
tax returns of its partners; therefore, no provision for income taxes has been
made in the accompanying financial statements.
The Company's parent is a publicly-traded limited partnership that under
the Revenue Act of 1987 ("Revenue Act"), will be treated as a corporation for
tax purposes at 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 the parent
company's partnership tax status; however, no action has yet been taken on this
legislation. The General Partner continues to evaluate the parent company's
alternatives with respect to its tax status. The effect on the Company of these
alternatives has not been determined.
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 or Loss
The Partnership Agreement of the Company 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
The Company has 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 1996, 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) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company adopted the provisions of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of," on
January 1, 1996. This statement requires that long-lived assets and certain
identifiable intangibles to be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of such assets to future net cash flows
expected to be generated by the assets. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less
costs to sell. The initial adoption of this statement did not have a material
impact on the Company's financial position, results of operations, or liquidity.
3. Property and Equipment
Property and equipment consists of the following:
1996 1995
(In thousands)
Land $4,175 $4,319
Land improvements 2,698 2,627
Buildings and improvements 26,151 24,263
Machinery and equipment 35,527 31,195
68,551 62,404
Accumulated depreciation and amortization (33,838) (30,598)
$34,713 $31,806
4. Other Assets
Other assets consist of the following:
1996 1995
(In thousands)
Intangible Assets (Note 2g)
Ground leases $1,093 $1,093
Goodwill 2,040 2,020
Other 1,604 1,409
4,737 4,522
Accumulated amortization (2,151) (1,795)
2,586 2,727
Investments in joint ventures and other
entities 1,293 1,350
Other 263 344
$4,142 $4,421
In December 1995, the Company advanced $1,200,000 to a company which
granted the Company a security interest in 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 the acquisition of
the stores by the Company through foreclosure proceedings.
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. The revolving credit line
bears interest at the bank's prime rate (8.25% at year end 1996) and matures on
April 30, 1998. The Credit Agreement requires that the balance outstanding
(excluding letters of credit) under the revolving credit line not exceed
$1,500,000 for three consecutive calendar days in each quarter. At year end 1996
and 1995, there was $6,823,000 and $4,003,000, respectively, due on the
revolving credit line and there were outstanding letters of credit totaling
$625,000 at each year end.
The Credit Agreement also provides two term loans. One such loan had a
balance at year end 1996 of $5,625,000, bears interest at the London Interbank
Offered Rate ("LIBOR") plus 1.75 percent, requires quarterly payments of
interest plus principal of $312,500, and matures on March 31, 2001. The other
term loan had a balance of $3,000,000 at year end 1996, bears interest at LIBOR
plus 1.75 percent, requires quarterly payments of interest plus principal of
$75,000 in June, September, and December 1997, and March 1998, principal of
$125,000 in each of the next 16 quarters, and principal of $175,000 in the
subsequent four quarters, and matures on March 31, 2003. (Through December 31,
1996, both of these loans bore interest at the bank's prime rate.)
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 also guaranteed by the Company's parent,
other subsidiaries of the parent (including a negative pledge of the assets of
the other subsidiaries), the General Partner, and the General Partner's
subsidiary. The Credit Agreement 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, restrictions on distributions to
unitholders and on the amount of capital expenditures, and the maintenance of
certain financial ratios. At year end 1996, the Company was not in compliance
with certain financial ratios and covenants in the Credit Agreement. The bank
has waived compliance with these ratios or amended the Credit Agreement with
respect to these items.
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 $603,000 and
$622,000 at year end 1996 and 1995, respectively.
The aggregate fixed maturities of long-term debt for each of the five years
subsequent to 1996 are as follows:
(In thousands)
1997 $1,587
1998 1,764
1999 1,929
2000 1,810
2001 1,180
Thereafter 1,082
$9,352
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 statement of operations.
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:
1996 1995
(In thousands)
Machinery and equipment $2,412 $2,636
Accumulated amortization (798) (425)
$1,614 $2,211
The amortization of assets held under capital leases is included in
depreciation and amortization expense in the accompanying statements of
operations. Future minimum lease payments under the noncancelable capital leases
for years subsequent to 1996 are:
(In thousands)
1997 $1,332
1998 561
1999 440
2000 395
2001 527
Thereafter 80
Total minimum lease payments 3,335
Amount representing interest (560)
Present value of future minimum lease payment 2,775
Current installments (1,122)
Obligations under capital leases,excluding current
installments $1,653
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 1996 are as follows:
Future Rental Payments Future
Related Sublease
Parties Others Total Receipts
(In thousands)
1997 $712 $597 $1,309 $1,031
1998 657 541 1,198 952
1999 657 499 1,156 841
2000 657 453 1,110 549
2001 657 369 1,026 200
Thereafter 1,977 1,116 3,093 41
$5,317 $3,575 $8,892 $3,614
Total rental expense and sublease income were as follows:
Rent Expense
Related Sublease
Parties Others Total Income
(In thousands)
1996 $727 $742 $1,469 $1,154
1995 849 658 1,507 843
1994 842 832 1,674 592
8. Accrued Expenses
Accrued expenses consist of the following:
1996 1995
(In thousands)
Motor fuel taxes payable $5,453 $6,376
Accrued payroll and related expenses 806 1,283
Accrued environmental remediation costs (Note 11b) 0 322
Other 2,132 1,521
$8,391 $9,502
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)
1996 $243
1995 87
1994 1,069
Open positions under futures and forward contracts were not significant at
year end 1996 and 1995.
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
$745,000, $727,000, and $733,000 for 1996, 1995, and 1994, 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 $8,240,000,
$9,116,000, and $9,180,000 in 1996, 1995, and 1994, respectively. The Company
received $1,265,000, $1,217,000, and $1,226,000 in 1996, 1995, and 1994,
respectively, in rent, management fees, and interest, which are included in
miscellaneous revenues in the statements of operations. 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 $82,000, $91,000, and
$119,000 in 1996, 1995, and 1994, 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 may advance 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. There were no advances owing to the
General Partner during or at the year ends of 1996, 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 are reflected in
receivables from affiliated companies or payable to affiliates in the
accompanying balance sheets. Prior to 1996, the Company did not charge or pay
interest on these advances. However, in 1996, interest, at a rate equal to the
interest rate on the Company's bank debt, was charged or paid on such amounts.
Included in 1996 miscellaneous income was $655,000 of interest income from
affiliates.
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 such 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 if the total of the
quarterly cash distributions by the parent to its limited partners for such year
are at least $1.50 per unit. The incentive compensation requirements were not
met in 1996, 1995, or 1994.
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. Purchases of these products and
services from other subsidiaries of the parent were $614,000, $197,000, and
$161,000, and from other related entities were $359,000, $421,000, and $147,000,
in 1996, 1995, and 1994, 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 1996 and 1995, the Company paid $14,000 and $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 $277,000, $261,000, and $222,000 in 1996, 1995, and
1994, 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.
During 1996, the Company charged to expense $611,000 to reimburse various
related companies for legal fees that benefited the Company. Of this amount, the
Company paid $225,000 during 1996; the remaining $386,000 owed at year end is
included in accrued liabilities in the accompanying balance sheets.
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 $271,000, $353,000, and
$288,000 in 1996, 1995, and 1994, respectively.
The Company is covered for worker's compensation in all states through
incurred loss retrospective policies. Accruals for estimated claims (including
claims incurred but not reported) have been recorded at year end 1996 and 1995,
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 $1,837,000 to $2,245,000 over the next two 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 1996 and
1995, the Company recorded liabilities for future estimated environmental
remediation costs related to known leaking underground storage tanks of
$643,000. Of such amounts, $-0- and $322,000, 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 were recorded in 1996 and 1995, 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 $10,000 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 1996, 1995, and 1994, environmental expenditures were $2,019,000,
$1,003,000, and $934,000, respectively (including capital expenditures of
$1,456,000, $644,000, and $820,000), 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 $1,038,000 and $1,255,000 at year end 1996 and 1995, 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 total cost of $69,000
and $200,000, respectively. These units are classified as Treasury Units in
partners' capital in the accompanying balance sheets.
