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FORT WORTH, Texas -- As a result of accounting errors and weak fuel margins FFP Marketing Co. Inc. said it expects to 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 that would result in the sale of some assets and the closing of underperforming stores.
The convenience store and truckstop operator became aware of certain bookkeeping errors earlier this year in the accounting records of one of its subsidiaries, the company said in a statement, declining 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 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 to correct those misstatements.
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 added there is "no assurance at this time, however, that the waivers will be obtained," the statement said.
The credit line is a crucial part of the company's short-term strategy to return to profitability. "Our results in 2001 were admittedly poor, and we do not take that lightly. But we are already pursuing several strategies in an effort to turn our profitability around," said John Harvison, chairman and CEO of the Ft. Worth, Texas-based chain. "We will aggressively reassess all aspects of our store operations, not only to cut store operating and inventory costs but also to find new sources of store income."
FFP operates 424 convenience stores and truckstops.
The five-step strategy includes:
* Strengthen its core businesses. "We will strengthen our businesses by examining every aspect of our revenue and cost structure and then making every reasonable effort to increase our revenues and decrease our costs," Harvison said. "This analysis could include the sale of assets or components of our businesses, the closing of certain stores or other actions considered necessary to increase net profitability. Like others in our industry, we have experienced decreasing retail motor fuel margins per gallon at our stores. A key aspect in our efforts to improve our profitability will be to increase our fuel margins."
* Manage 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. With 40 units recently sold, 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.
* Obtain additional fee income. To build profit, FFP plans to sell financial and telephone products, collect utility payments for certain utility companies, expand its check-cashing services and expand its ATM network.
* Convert 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 looks to convert another 50 company-operated stores to gas-only.
* Grow the wholesale and terminal businesses. Tapping a $20 million line of credit obtained last November, FFP plans to expand its wholesale terminal operations. "Our wholesale business in the last few years was curtailed by a smaller line of credit, and we expect that the increased availability under our new line of credit will facilitate the profitable expansion of this growing segment."