SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X| Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 1999, 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)
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 ___
Class A Units 2,234,262
(Number of limited partner units outstanding as of Novewmber 5, 1999)
<PAGE>
FFP PARTNERS, L.P.
Form 10-Q
Index
Page
Part I
Item 1. Financial Statements 2
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation 8
Item 3. Quantitive and Qualitative Disclosures About
Market Risks 15
Part II
Item 6. Exhibits and Reports on Form 8-K 15
Signature 15
<PAGE>
FFP Partners, L.P. and Subsidiary
Condensed Consolidated Balance Sheets
September 30, 1999, and December 31, 1998
(In thousands)
(Unaudited)
September 30, December 31,
1999 1998
ASSETS
Current assets -
Prepaid expenses and other current assets $266 $26
Investment in lease from affiliate 853 0
Due from affiliate 63 0
Note receivable from affiliate, current portion 268 0
Total curent assets 1,450 26
Real property -
Land and improvements 8,685 5,929
Buildings 21,413 21,329
Total real property, excluding depreciation 30,098 27,258
Accumulated depreciation (11,460) (10,574)
Total real property, net 18,638 16,684
Investment in lease from affiliate,
net of current portion 11,445 0
Note receivable from affiliate, net of
current portion 2,303 0
Other assets, net 117 94
Total assets $33,953 $16,804
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities -
Current installments of long-term debt $278 $148
Current installments of long-term debt
to affiliate 1,143 1,143
Accrued liabilities 171 39
Unearned income from affiliate, current portion 800 0
Total current liabilities 2,392 1,330
Long-term debt, excluding current installments 9,439 297
Note payable to affiliate, excluding current
installments 12,201 13,058
Unearned income from affiliate, excluding
current portion 7,590 0
Total liabilities 31,622 14,685
Minority interests in subsidiary 942 857
Commitments and contingencies
Partners' capital -
Limited partners' capital 1,367 1,242
General partner's capital 22 20
Total partners' capital 1,389 1,262
Total liabilities and partners' capital $33,953 $16,804
See accompanying notes to Condensed Consolidated Financial Statements.
<PAGE>
FFP Partners, L.P., and Subsidiary
Condensed Consolidated Statements of Operations
For the Three and Nine Months Ended September 30, 1999 and 1998
(In thousands, except per unit data)
(Unaudited)
Three Months Ended Nine Months Ended
Sept 30, Sept 30, Sept 30, Sept 30,
1999 1998 1999 1998
Revenues -
Rental income $757 $661 $2,213 $1,974
Gain on sale of property 0 0 0 52
Interest income 255 0 600 11
Total revenues 1,012 661 2,813 2,037
Expenses -
General and administrative
expenses 49 153 346 321
Depreciation and amortization 303 321 887 923
Interest expense 506 322 1,368 1,081
Total expenses 858 796 2,601 2,325
Net income/(loss) before
minority interest 154 (135) 212 (288)
Minority interest in subsidiary (62) 70 (85) 114
Net income/(loss) $92 $(65) $127 $(174)
Net income/(loss) per unit -
Basic $0.04 $(0.03) $0.06 $(0.08)
Diluted $0.04 $(0.03) $0.06 $(0.08)
Weighted average number of units
outstanding -
Basic 2,272 2,272 2,272 2,272
Diluted 2,280 2,272 2,278 2,272
See accompanying notes to Condensed Consolidated Financial Statements.
<PAGE>
FFP Partners, L.P. and Subsidiary
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1999, and September 30, 1998
(In thousands)
(Unaudited)
Sept 30, Sept 30,
1999 1998
Cash Flows from Operating Activities -
Net (loss) $127 $(174)
Adjustments to reconcile net (loss) to
cash provided by operating activities -
Depreciation and amortization 887 923
Minority interest in subsidiary 85 (114)
Net change in operating assets
and liabilities (194) 230
Net cash provided/(used) by operating
activities 905 865
Cash Flows from Investing Activities -
Investments in leases with affiliate (12,795) 0
Lease payments from affiliate 497 0
Unearned lease income from affiliate 8,390 0
Note receivable from affiliate (2,692) 0
Note payments from affiliate 121 0
Purchases of land and buildings (2,841) 125
Net cash provided/(used)by
investing activities (9,320) 125
Cash Flows from Financing Activities -
Proceeds from long-term debt 9,550 0
Payments on long-term debt (278) (990)
Payments on long-term debt to affiliate (857) 0
Net cash provided/(used) by financing
activities 8,415 (990)
Net Increase/(Decrease) in Cash $0 $0
Cash at beginning of period 0 0
Cash at end of period $0 $0
Supplemental Disclosure of Cash Flow Information
The Company received a promissory note in the amount of $80,000 in connection
with a sale of property during the nine months ended September 30, 1999.
See accompanying notes to Condensed Consolidated Financial Statements.
<PAGE>
FFP Partners, L.P. and Subsidiary
Notes to Condensed Consolidated Financial Statements
September 30, 1999
(Unaudited)
1. Basis of Presentation
These Condensed Consolidated Financial Statements include the assets,
liabilities, and results of operations of FFP Partners, L.P., and its 60%-owned
subsidiary, FFP Properties, L.P., collectively referred to as the "Partnership."
The Condensed Consolidated Balance Sheet as of September 30, 1999, and the
Condensed Consolidated Statements of Operations and Condensed Consolidated
Statements of Cash Flows for the periods presented have been prepared by the
Partnership without audit. In the opinion of management, all adjustments,
consisting only of normal recurring adjustments, necessary to fairly present the
Partnership's financial position as of September 30, 1999, and the results of
its operations and cash flows for each of the periods presented, have been made.
Interim operating results are not necessarily indicative of results for the
entire year.
On December 28, 1997, the Partnership completed a restructuring which
resulted in the transfer of the convenience store, retail motor fuel, and other
businesses previously operated by it to FFP Marketing Company, Inc. ("FFP
Marketing"). In the restructuring, the Partnership retained the real estate used
in the retail businesses and leased those properties to FFP Marketing. As a
result of the restructuring, the Partnership's financial statements after the
restructuring are not comparable in a meaningful way to its financial statements
prior to the restructuring.
The notes to the audited consolidated financial statements which are included
in the Partnership's Annual Report on Form 10-K for the year ended December 31,
1998, include a description of accounting policies and additional information
pertinent to an understanding of these interim financial statements. That
information has not changed other than as a result of normal transactions in the
nine months ended September 30, 1999, except as discussed below.
2. Change in Fiscal Year
Prior to the restructuring of the Partnership completed on December 28, 1997,
the Partnership prepared its financial statements on the basis of a fiscal year
which ended on the last Sunday in December. However, in connection with the
restructuring, the Partnership has changed its fiscal year to coincide with the
calendar year. Accordingly, the accompanying unaudited financial statements for
the nine-month period ended September 30, 1998, include nine calendar months in
1998 plus the three-day period immediately following the restructuring through
the end of 1997 (December 29 through December 31, 1997). The effect of including
these three additional days in financial statements for the period ended
September 30, 1998, is immaterial.
3. Long-Term Debt
In February 1999, the Partnership purchased 14 additional improved real
properties from a third party on which 12 convenience stores and two truck stops
are operational. To fund that purchase, the Partnership incurred long-term
acquisition debt with a third party lender in the original principal amount of
$9,550,000. This note is fully amortizable over 15 years with equal, monthly
payments of principal and interest. The payment of this note is secured by deed
of trust liens against the 14 properties acquired, and FFP Marketing guaranteed
the Partnership's acquisition indebtedness. The amount of FFP Marketing's
monthly lease payments to the Partnership equals the Partnership's monthly debt
payments.
The Partnership immediately leased the 14 purchased properties to FFP
Marketing under real estate leases accounted for as operating leases for the
land portion and direct financing leases for the building portion. These real
estate leases provide for monthly rentals aggregating $99,000 for a 15-year
term. The operating leases for the land portion have been allocated a monthly
rental aggregating $28,000. The direct financing leases for the buildings
portion have been allocated a monthly rental aggregating $71,000. The leases are
"triple net" leases, under which the Partnership pays no taxes, insurance,
operating, or capital costs, and provide for an increase in rent payments after
each five-year period during the term of the leases based upon any increase in
the consumer price index.
The Partnership also purchased inventory and equipment at the 14 locations
for approximately $942,000 and $1,750,000, respectively. The Partnership
immediately sold this inventory and equipment to FFP Marketing in exchange for a
note receivable. The note bears interest at the prime rate and is payable in
monthly installments over 8 years. This note was repaid in October 1999. See
Note 6.
4. Income/(Loss) per Unit
A reconciliation of the denominator of the basic and diluted (loss) per unit
for general partner and limited partner units for the three and nine months
ended September 30, 1999, and September 30, 1998, follows:
Three Months Ended Nine Months Ended
Sept 30, Sept 30, Sept 30, Sept 30,
1998 1998 1999 1998
(In thousands)
Weighted average number of units
outstanding 2,272 2,272 2,272 2,272
Effect of dilutive options 8 0 6 0
Weighted average number of units
outstanding, assuming dilution 2,280 2,272 2,278 2,272
Options to purchase 265,999 units and 241,999 units were not included in the
computation of diluted net income (loss) for both the three and nine month
periods ended September 30, 1999, and September 30, 1998, respectively, because
to do so would have been anti-dilutive. Such options could potentially dilute
basic net income per unit in the future.
5. Prior Period Adjustment
The Company recorded a prior quarter adjustment during the quarter ended
September 30, 1999, to reflect one month's interest expense attributable to
long-term debt payable to a third party. The adjustment should have been
recorded during the quarter ending June 30, 1999, and is reflected in the
statement of operations for the nine months ended September 30, 1999. The
adjustment reduced net income by $45,000 for the three and six month periods
ended June 30, 1999. Earnings per unit was reduced by $.02, basic and diluted,
for both the three and six month periods ended June 30, 1999. Limited partners'
and general partner's capital was reduced by $45,000 as of June 30, 1999.
6. Subsequent Event
On October 15, 1999, the Partnership closed new long-term financing from a
third party lender and repaid in full its long-term indebtedness owed to FFP
Marketing. The Company executed a promissory note in the amount of $12,000,000
plus a credit enhancement amount of up to $1,043,000. This note is fully
amortizable over 20 years with equal, monthly payments of principal, interest
and credit enhancement charges in the amount of $123,000. If none of the loans
with which the Partnership's loan is pooled incurs a default during the term of
the loans, the Partnership's credit enhancement payments will be applied by the
lender to reduce the principal balance of the note and result in a retirement of
such debt in approximately 19 years. The payment of this note is secured by a
deed of trust lien against 63 properties of the Partnership. At the time of such
refinancing, FFP Marketing also repaid the indebtedness it owed to the
Partnership that was incurred in purchasing inventory and equipment from the
Partnership at the 14 properties purchased by the Partnership in February 1999.
In connection with the new financing, FFP Marketing executed a new lease, or
exercised options to renew existing leases, for all of those 63 properties such
that the lease term for those properties is now 20 years. The new leases
continue to provide for "triple net" leases and for increased rent payments
every five years based upon increases in the consumer price index.
<PAGE>
FFP Partners, L.P.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
General
FFP Partners, L.P. (the "Partnership") restructured its operations in
December 1997 by transferring its convenience store, retail motor fuel, and
other businesses to FFP Marketing Company, Inc. ("FFP Marketing"). In the
restructuring, the Partnership retained the real estate formerly used in the
retail businesses and now leases those properties to FFP Marketing. Accordingly,
no comparative income data exists for the Partnership for periods prior to 1998.
Substantially all of the Partnership's rental income is derived from the
various convenience store and other retail outlets that it leases to FFP
Marketing on a "triple net" basis. Under those leases, FFP Marketing as tenant,
instead of the Partnership as landlord, bears all taxes, insurance, operating
costs, and capital costs for the properties. The leases also provide for
increased rent payments after each five-year period during the term of the
leases in accordance with any increase in the consumer price index.
The Partnership may acquire additional real estate properties in the future.
Those properties may be leased to FFP Marketing or to others, although no
assurance exists that additional properties will be acquired. Future leases may
or may not be on a "triple-net" basis.
Results of Operations
The Partnership's rent income and interest income continued to increase in
the third quarter. Rent income increased by $96,000 and $239,000 in the three
and nine months ended September 30, 1999, respectively, or 15% and 12%,
respectively, over rent income in the corresponding periods of the prior year.
Likewise, interest income of $255,000 and $600,000 in the third quarter and the
first nine months of 1999, respectively, reflected improvement of $255,000 and
$589,000, respectively, over interest income in the corresponding periods of
1998. Additional land rent and additional interest income from the direct
financing leases, both of which relate to the 14 properties acquired in February
1999, caused these increases. The increased levels of rent income and interest
income are expected to continue in succeeding quarters.
General and administrative expenses were $49,000 and $346,000 in the third
quarter and the first nine months of 1999, respectively, compared to $153,000
and $321,000 in the corresponding periods of 1998, respectively. The three-month
decrease of 68% resulted from a third quarter correction of repair and
maintenance costs incorrectly recorded in a prior quarter. The nine-month
increase of 8% resulted from additional costs to acquire 14 additional
properties in February 1999 and to prepare the Partnership's income tax returns.
Such preparation costs were higher than in the prior year as a result of
changing tax preparation software companies after the prior tax software company
discontinued that type of business.
Interest expense increased to $506,000 in the third quarter of 1999, compared
to $322,000 in the third quarter of 1998, a 58% increase. Likewise, interest
expense rose to $1,368,000 in the first nine months of 1999, compared to
$1,081,000 for the first nine months of the prior year, an increase of 27%.
Interest expense for both periods increased as a result of long-term debt
associated with the additional properties acquired in February 1999. The
increased level of interest expense is expected to continue in succeeding
quarters but decline gradually over the 15-year term of that indebtedness.
Operating cash flows (defined for this purpose as net income or loss plus
depreciation) increased to $1,014,000 in the first nine months of 1999, compared
to $749,000 for the corresponding period of the prior year, representing a 35%
increase.
Comparison to REIT's
The Partnership is not a real estate investment trust ("REIT"), but its
activities are much like those of a REIT. One performance measure used within
the REIT industry is funds from operations ("FFO"). FFO, as defined by the
National Association of Real Estate Investment Trusts ("NAREIT"), means net
income (loss) (determined in accordance with generally accepted accounting
principles or "GAAP"), excluding gains (or losses) from debt restructurings, and
similar activities, and sales of properties, plus depreciation and amortization
of real estate assets, and after adjustments for unconsolidated partnerships and
joint ventures. FFO was developed by NAREIT as a relative measure of performance
and liquidity of an equity REIT in order to recognize that income-producing real
estate historically has not depreciated on the basis determined under GAAP.
While FFO is one appropriate measure of performance of an equity REIT, it (i)
does not represent cash generated from operating activities determined in
accordance with GAAP (which, unlike FFO, generally reflects all cash effects of
transactions and other events that enter into the determination of net income),
(ii) is not necessarily indicative of cash flow available to fund cash needs,
and (iii) should not be considered as an alternative to net income determined in
accordance with GAAP as an indication of the Partnership's operating
performance, or to cash flow from operating activities determined in accordance
with GAAP as a measure of either liquidity or the Partnership's ability to make
distributions or to fund its other operations. The following table presents the
determination of FFO for the Partnership for the three and nine month periods
ended September 30, 1999:
Three Months Ended Nine Months Ended
Sept 30, Sept 30, Sept 30, Sept 30,
1999 1998 1999 1998
(In thousands, except per unit data)
Net income/(loss) before
minority interests $154 $(135) $212 ($288)
Adjustments -
(Gain) from early debt payoff 0 0 0 (11)
(Gains) from sales of properties 0 0 0 (52)
Depreciation and amortization 303 321 887 923
Funds from operations 457 186 1,099 572
Less - FFO attributable to minority
interests in subsidiary 183 74 440 229
Funds from operations attributable
to the Partnership $274 $112 $659 $343
FFO per unit (based on units outstanding
for diluted net income/(loss)
per unit calculations) $0.12 $0.05 $0.29 $0.15
Although the Partnership has generated positive funds from operations, it has
not made distributions to unitholders because substantially all cash generated
from the Partnership's operations is required for debt payments. The refinancing
of Partnership long-term debt is expected to improve the Partnership's net cash
flow. The terms of such new long-term financing restrict the amount of
Partnership distributions such that, after making any distribution, the Fixed
Charge Coverage Ratio for each of the 63 pledged properties secured by the loan
(summarized below) shall not be less than 1.30 to 1.00, and the Fixed Charge
Coverage Ratio for the Partnership (summarized below) shall be less than 1.35 to
1.00. In general, the Fixed Charge Coverage Ratio during any period for a
pledged store equals the cash flow (pre-tax income before minority interest,
plus depreciation and interest expense) of that store for that period, divided
by the amount of debt payments for that store for that period, and the Fixed
Charge Coverage Ratio during a period for the Partnership equals the cash flow
(pre-tax income before minority interest, plus depreciation and interest
expense) of the Partnership for that period, divided by the amount of debt
payments of the Partnership for that period. Each Fixed Charge Coverage Ratio is
calculated for the 12-month period ending each December 31. Management has not
yet determined if or how much of any Partnership distributions will be made to
the Partnership's unitholders.
Liquidity and Capital Resources
The Partnership has contracted with FFP Marketing to provide administrative
and other services for the Partnership. Under this management agreement, FFP
Marketing makes payments on behalf of the Partnership and charges such payments
to its account while the rental income due to the Partnership from FFP Marketing
is applied to this account. Accordingly, the Partnership does not maintain
separate cash accounts at this time. However, as the Partnership grows and
expands its real estate holdings, it is expected to function more independently
although management anticipates that FFP Marketing will continue to provide
various administrative services to the Partnership for the foreseeable future.
In June 1998, the Partnership, FFP Marketing, and the Partnership's primary
bank lender restructured the debt due to the lender for which the Partnership
and FFP Marketing had retained joint liability after their December 1997
organizational restructuring. Under this agreement, the lender released the
Partnership from all obligations and required FFP Marketing to loan the
Partnership approximately $14,773,000 (the then current balance of those
obligations). The Partnership executed a note payable to FFP Marketing at that
time and pledged all of its real estate as security for that loan. As a result,
the Partnership was indebted to FFP Marketing during the period from June 28,
1998, until October 15, 1999. The terms of that loan mirrored the terms of the
prior debt of FFP Marketing payable to the lender. Under that note, the
Partnership made monthly principal payments of $95,000, plus monthly interest
payments of approximately $91,000, to FFP Marketing.
On October 15, 1999, the Partnership repaid its long-term indebtedness
payable to FFP Marketing and third parties when the Partnership incurred new
long-term debt from a third party lender in the original principal amount of
$12,000,000, plus a credit enhancement amount of $1,043,000. The interest rate
on the new debt is fixed at 9.7% per annum over the 20-year term of the note.
The new financing is secured by deed of trust liens and security interests
covering 63 of the Partnership's 180 properties. This new debt is fully
amortizable over a 20-year period with equal, monthly payments of principal and
interest payments of $123,000, including payments on the credit enhancement
amount. As a result of the new financing, the Partnership's long-term debt
payments have decreased from approximately $186,000 per month to $123,000 per
month.
In February 1999, the Partnership purchased 12 convenience stores and two
truck stops from a third party. To fund that purchase, the Partnership incurred
long-term acquisition debt with a third party lender in the original principal
amount of $9,550,000, which is fully amortizable over 15 years with equal,
monthly payments of principal and interest of $99,000. The lender required FFP
Marketing to guarantee the Partnership's acquisition indebtedness as a condition
of the loan. The amount of FFP Marketing's monthly lease payments to the
Partnership equals the Partnership's monthly debt payments.
Upon acquisition of those 14 properties, the Partnership immediately leased
them to FFP Marketing under real estate leases accounted for as operating leases
for the land portion and direct financing leases for the building portion. These
real estate leases provide for monthly rental rate aggregating $99,000 for a
15-year term. The operating leases for the land portion have been allocated a
monthly rental aggregating $28,000. The direct financing leases for the
buildings portion have been allocated a monthly rental aggregating $71,000. The
Partnership's aggregate rental income from these real estate leases equals the
Partnership's monthly principal and interest obligations under its acquisition
debt. The leases are "triple net" leases, under which FFP Marketing pays all
taxes, insurance, operating, and capital costs, and provide for an increase in
rent payments after each five-year period during the term of the leases based
upon any increase in the consumer price index.
The Partnership also purchased inventory and equipment at the 14 locations
acquired in February 1999 for $942,000 and $1,750,000, respectively. The
Partnership immediately sold this inventory and equipment to FFP Marketing in
exchange for a note receivable. The note bears interest at the prime rate and is
payable in monthly installments over 8 years. FFP Marketing repaid the
Partnership in full for this note in October 1999.
Although the Partnership expects that any future property acquisitions will
be centered on convenience stores and similar properties, it may also look for
opportunities in other types of investment property that yield an above average
return with an acceptable level of risk.
Year 2000 Computer Issues
The Year 2000 issue ("Y2K") is the result of computer software programs being
coded to use two digits rather than four to define the applicable year. Some of
computer programs that have date-sensitive coding may recognize a date using
"00" as the year 1900 rather than the year 2000. This coding could result in
system failures or miscalculations, causing disruptions of operations.
The Partnership relies upon FFP Marketing and its computer software and
hardware to manage the Partnership's rental activities. FFP Marketing also
utilizes computer programs in operating its own businesses. FFP Marketing has
provided the Partnership with the following summary of its Y2K program.
FFP Marketing has approached the Y2K issue in phases. A Y2K project office
manager, together with strong support from management, has designed a Y2K work
plan that is currently being implemented. The Y2K work plan includes: (1)
identifying and inventorying all Year 2000 tasks and items; (2) assigning
priorities to all tasks and items; (3) remediation of information systems ("IS")
application code, testing and reintegration to production, as well as testing
all replaced systems software and non-remediated applications; (4) contacting
third-party vendors to verify their compliance and perform selected interface
tests with major vendors; (5) determining FFP Marketing's Y2K responsibilities
to its subsidiaries and affiliates; and (6) establishing contingency
alternatives assuming worst-case scenarios.
FFP Marketing continues to progress favorably in its completion of the
various tasks and target dates identified in the Y2K work plan. FFP Marketing
believes it has identified and prioritized all major Y2K-related items. In
addition, many non-IS, merchandise, equipment, financial institution, insurance
and public utility vendors have been contacted, inquiring as to their readiness
and the readiness of their respective vendors. FFP Marketing is continuing to
follow-up with the above vendors as required. Testing compliance with major
vendors is planned for the remainder of the year. The following reflects
management's assessment of FFP Marketing's Y2K state of readiness on September
30, 1999:
Estimated Estimated
Percentage Completion
Completed Date
Phase
Internal IS and Non-IS systems and
equipment:
Awareness 96% Dec 1999
Assessment 93% Dec 1999
Remediation 93% Dec 1999
Testing 90% Dec 1999
Contingency planning 85% Dec 1999
Suppliers, customers and third party
providers:
Awareness-identify companies 100% n/a
Assessment questionnaire completed
by major suppliers 70% Nov 1999
Assessment review with third party
providers 70% Dec 1999
Review contractual commitments 10% Dec 1999
Risk assessment 90% Dec 1999
Contingency planning 85% Dec 1999
Testing as applicable 90% Dec 1999
FFP Marketing's estimates are judgmental and subject to error. It believes
that work should be significantly finished at the estimated completion date, but
FFP Marketing will continue to reevaluate awareness, send follow-up
questionnaires and update contingency plans as considered necessary.
FFP Marketing estimates that its cost of the Y2K project will be $650,000 to
$750,000, of which about one-half will be capital costs. Approximately $650,000
of these costs have been incurred to date, and any remaining costs will be
funded through operating cash flow. These costs include the upgrade and/or
replacement of computer software and hardware; costs of remediated code testing
and test result verification; and the reintegration to production of all
remediated applications. In addition, the costs include the testing of
applications and software currently certified as Y2K compliant. FFP Marketing
does not separately track the internal costs incurred for the Y2K project, which
are primarily the related payroll costs for the IS and various user personnel
participating in the project.
Due to the general uncertainty inherent in the Y2K process, primarily due to
issues surrounding the Y2K readiness of third-party suppliers and vendors, a
reasonable worst-case scenario is difficult to determine at this time. FFP
Marketing does not anticipate more than temporary isolated disruptions
attributed to Y2K issues to affect either FFP Marketing or its primary vendors.
FFP Marketing is concentrating on four critical business areas in order to
identify, evaluate and determine the scenarios requiring the development of
contingency plans: (1) merchandise ordering and receipt, (2) petroleum products
ordering and receipt, (3) disruption of power at retail sites, and (4) cash
collection and disbursement systems. To the extent vendors are unable to deliver
products due to their own Year 2000 issues, FFP Marketing believes it will
generally have alternative sources for comparable products and does not expect
to experience any material business disruptions. Although considered unlikely,
the failure of public utility companies to provide telephone and electrical
service could have material consequences. Contingency planning efforts will
escalate as FFP Marketing continues to receive and evaluate responses from all
of its primary merchandise vendors and service providers. These contingency
plans are scheduled to be complete by the end of the year.
The costs of the Y2K project and the date on which FFP Marketing plans to
complete the Y2K modifications are based on its management's best estimates,
which were derived utilizing numerous assumptions of future events including the
continued availability of certain resources, third-party modification plans and
other factors. As a result, there can be no assurance that these forward-looking
estimates will be achieved and the actual costs. Vendor compliance could differ
materially from FFP Marketing's current expectations and result in a material
financial risk. In addition, while FFP Marketing is making significant efforts
in addressing all anticipated Y2K risks within its control, this event is
unprecedented. Consequently, there can be no assurance that the Y2K issue will
not have a material adverse impact on FFP Marketing's or the Partnership's
operating results and financial condition.
Forward-Looking Statements
Certain of the statements made in this report are "forward-looking"
statements that involve inherent risks and uncertainties. As defined by the U.S.
Private Securities Litigation Reform Act of 1995, "forward-looking" statements
include information about the Partnership that is based on the beliefs of
management and the assumptions made by, and information currently available to,
management. In making such forward-looking statements, the Partnership is
relying upon the "statutory safe harbors" contained in the applicable statutes
and the rules, regulations and releases of the Securities and Exchange
Commission. Statements that should generally be considered forward-looking
include, but are not limited to, those that contain the words "estimate,"
"anticipate," "in the opinion of management," "expects," "believes," and similar
phrases. Among the factors that could cause actual results to differ materially
from the statements made are the following: changes in real estate conditions,
including rental rates and the construction or availability of competing
properties; changes in the industry in which the Partnership's sole tenant
competes; changes in general economic conditions; the ability of management to
identify acquisitions and investment opportunities meeting the investment
objectives of the Partnership; the timely leasing of unoccupied properties;
timely releasing of currently occupied properties upon expiration of the current
leases or the default of the current tenant; a risk of leasing all of the
Partnership's properties to only one tenant; the Partnership's ability to
generate funds sufficient to meet its debt service payments and other operating
expenses; the inability of the Partnership to control the management and
operation of its tenant and the businesses conducted on the Partnership's
properties; financing risks, including the availability, or lack of
availability, of funds to service or refinance existing debt and to finance
acquisitions of additional property, changes in interest rates associated with
its variable rate debt; the possibility that the Partnership's existing debt,
which requires a so-called "balloon" payment of principal in November 2000, may
be refinanced at a higher interest rate or on other terms less favorable to the
Partnership than at present; the existence of complex tax regulations relating
to the Partnership's status as a publicly-traded real estate partnership and, if
achieved, to its status as a real estate investment trust and the adverse
consequences of the failure to qualify as such; and other risks detailed from
time to time in the Partnership's filings with the Securities and Exchange
Commission. Given these uncertainties, readers are cautioned not to place undue
reliance on the forward-looking statements. The Partnership undertakes no
obligation to publicly release the results of any revisions to these
forward-looking statements that may be made to reflect any future events or
circumstances.
Should one or more of these risks or uncertainties materialize, or should any
underlying assumptions prove incorrect, actual results or outcomes may vary
materially from those described herein as anticipated, believed, estimated,
expected, or intended.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The Partnership has been, but is no longer, subject to market risks related
to variable interest rates. Interest expense on the Partnership's long-term
indebtedness payable to FFP Marketing during the first nine months of 1999 was
calculated at the prime rate of interest, which was subject to change. Such
indebtedness was repaid in full on October 15, 1999, with the proceeds of new
fixed rate financing.
EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
27 Financial Data Schedule [included in electronic filing only].
Reports on Form 8-K
The Partnership did not file any reports on Form 8-K for the quarter covered
by this Report on Form 10-Q.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FFP PARTNERS, L.P.
Registrant
By: FFP Real Estate Trust
sole general partner
Date: November 5, 1999 By: /s/ Craig T. Scott
-----------------------------------
Craig T. Scott
Vice President - Finance,
Chief Financial Officer and
General Counsel
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