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As a result of accounting errors and weak fuel margins, FFP Marketing Co. Inc. said it would report a net loss of more than $4.7 million for 2001 and a net loss of $1.5 million for the first quarter of 2002.
To stem mounting losses, the company unveiled a five-step plan to sell underperforming stores. FFP operates 424 convenience stores and truckstops.
The Fort Worth, Texas-based chain became aware of bookkeeping errors earlier this year in the accounting records of one of its subsidiaries, the company said in a statement. (The company declined to identify the subsidiary.) The bookkeeping errors relate to FFP's 2000 and 1999 accounting for credit-card sales and fuel payables, and their resulting effect on the cost of motor fuel sold.
A subsequent analysis determined that the errors require a charge of more than $1.5 million to cover tax costs and penalties. As a result, FFP also said it would restate its financial statements for 2000 and 1999.
FFP's woes didn't end there. At year-end 2001 and the end of the first quarter of 2002, it was not in compliance with the loan agreements for its long-term notes payable. The company has made all payments required under its loan documents and is seeking to obtain a waiver of non-compliance in the next two weeks.
The company said it expects that its revolving line of credit will be continued until the waiver is obtained, but there is "no assurance at this time, however, that the waivers will be obtained," the statement said. FFP President and COO Robert J. Byrnes declined to comment on the current financial situation.
What effect the botched accounting will have on FFP in the future is unclear, but the company's line of credit is a crucial part of the company's short-term strategy, especially since chairman and CEO John Harvison unveiled the five-step plan to return to profitability.
The strategy includes:
Converting company-operated stores to gas-only locations. "By converting a store to a gas-only store, we can often improve our profitability at that store in cases where our sublease income, motor fuel margin and reduction in direct store expenses exceeds the margin on merchandise sales and the commission paid on motor fuel sales," Harvison said. In the past two years, FFP has converted 60 locations to gas-only and is looking to convert another 50.
Strengthening its core businesses. "We will examine every aspect of our revenue and cost structure," Harvison said. "This analysis could include the sale of assets or the closing of certain stores or other actions considered necessary to increase profitability."
Managing convenience stores for third parties. In the first quarter of 2002, FFP entered into management contracts, money-order agency agreements and fuel supply contracts for 114 convenience stores. FFP will operate 74 stores on behalf of two different lenders that acquired the units through foreclosures from other convenience store operators. In addition to receiving monthly management fees, FFP sells both money orders and motor fuel on a wholesale basis under fuel supply agreements.
Obtaining additional fee income. The company plans to sell financial and telephone products, collect utility payments for certain utility companies, expand its check-cashing services and expand its ATM network.
Growing the wholesale and terminal businesses. Tapping a $20-million line of credit obtained last November, FFP plans to expand its wholesale terminal operations.