Item 1. Business
General - - -------
Getty Petroleum Corp. (hereinafter, together with its subsidiaries, called the "Registrant", "Getty" or the "Company") is one of the nation's largest independent marketers of petroleum products. The Company serves retail and wholesale customers through a distribution and marketing network of 1,625 Getty [registered trademark] and other branded retail outlets (also referred to as service stations) located in 13 Northeastern and Middle Atlantic states, of which 522 have convenience food stores. The Company stores and distributes petroleum products from 22 distribution terminals and bulk plants. The Company purchases gasoline, fuel oil and related petroleum products from a number of Northeast suppliers. These products are delivered by cargo ship, barge, pipeline and truck to the Company's distribution terminals and bulk plants located in the Company's marketing region. Through its truck transportation fleet of 153 vehicles and its distribution network, the Company markets and distributes such products throughout its 13 state marketing region. Of the 1,625 retail outlets supplied by the Company at January 31, 1996, approximately 70% are owned by the Company in fee or held under long-term leases. The remaining retail outlets purchase petroleum products from the Company under contract as licensed Getty dealers or from licensed Getty distributors who purchase Getty products from the Company. The Company also sells on a wholesale basis gasoline, fuel oil, diesel fuel and kerosene from distribution terminals and bulk plants in truckload, barge and pipeline quantities and sells fuel oil, kerosene and propane to residential, commercial and governmental customers in Maryland, Pennsylvania and upstate New York.
The Company and its predecessors have been in the petroleum marketing business for over 40 years. Mr. Leo Liebowitz, President and Chief Executive Officer and a director of the Company, and Mr. Milton Safenowitz, a director and former Executive Vice President of the Company, founded the business in 1955 with one service station and have pursued a strategy of expanding the business principally through acquisitions. Prior to 1985, the Company had expanded into five states under various brand names, principally Power Test. On February 1, 1985, the Company acquired the marketing and distribution assets of Getty Oil Company in the Northeastern and Middle Atlantic states from a subsidiary of Texaco Inc. The Getty acquisition added service stations, distribution terminals and a wholesale heating oil and middle distillate marketing network in six additional states. Since 1985, the Company's operations have continued to expand to its current marketing region in 13 Northeastern and Middle Atlantic states.
During the period from 1985 to 1991, the Company continued to expand by acquiring numerous small regional distributors, service stations and convenience food stores. In addition to adding locations through fee ownership and leasing, the Company continued to implement its program of adding non-petroleum products and revenue enhancing services at retail outlets in its marketing network, particularly convenience food stores, automotive repairs and car washes. The Company also has a comprehensive program of evaluating retail outlets to determine the long-term viability of certain
locations as gasoline stations. Over the years, this process has resulted in the divestment of non-strategic and uneconomic retail outlets.
In fiscal 1995, the Company internally restructured its organization and operations. The objective of the reorganization was to separate the Company's three principal businesses, motor fuel marketing, real estate and heating oil and to reduce overhead and operating expenses. On March 13, 1996, the Company announced that, subject to approval from the Internal Revenue Service, it intends to spin-off its petroleum marketing business to its shareholders on a tax-free basis. For additional information regarding the proposed spin-off, see Note 12 to the accompanying consolidated financial statements.
Operating Strategy - - ------------------
The Company's operating strategy is to market motor fuels through service stations which are operated by independent Getty licensed dealers who lease or sublease the Company's service stations. Such dealers either buy their petroleum products from the Company or from licensed Getty distributors who purchase Getty products from the Company, or sell the Company's petroleum products and receive a commission. The Company views each of its retail outlets as a "profit center" and believes that independent operators, with greater financial incentive than salaried employees, generally operate retail outlets more economically. Moreover, the leasing and subleasing of retail outlets to independent operators has provided the Company with a steady and increasing source of rental income and has enabled the Company to reduce its direct operating costs.
The Company directly operated four retail outlets at January 31, 1996 utilizing salaried employees. While the Company seeks to lease or sublease retail outlets to independent operators, it historically retains a certain number of such company operated outlets. These outlets permit management to keep abreast of changes in retail marketing, to assist in providing practical guidance to independent dealers and to test new products and concepts.
Certain of the owned and leased outlets have convenience food stores, automotive repair centers and car washes. Getty receives higher rentals from such properties as a result of such additional uses.
Distribution and Real Estate - - ----------------------------
The retail outlets in the Company's marketing network sell gasoline, diesel fuel and other related petroleum products (such as motor oil and lubricants) under the Company's proprietary brand name Getty or, to a limited extent, under other brand names, in the states of Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Vermont, Virginia and West Virginia.
As of January 31, 1996, the Company has 1,625 Getty and other branded retail outlets as follows:
(i) 4 company operated retail outlets which are operated by salaried employees;
(ii) 284 lessee dealer operated retail outlets (dealers who lease or sublease retail outlets and purchase their petroleum products from the Company);
(iii) 624 commission lessee dealer operated retail outlets (dealers who lease or sublease retail outlets and receive a commission for sale of Company owned petroleum products);
(iv) 108 retail outlets operated by management contractors (dealers who operate the Company's retail outlets pursuant to a management contract);
(v) 135 contract dealer retail outlets (dealers who purchase their petroleum products from the Company but do not lease or sublease retail outlets from the Company); and
(vi) 47 distributors who purchase their petroleum products from the Company, which distributors in turn supply the petroleum product requirements of 470 retail outlets.
The Company generally extends three-year lease terms to its dealers, except for new dealers, who generally receive a one year trial lease. Such leases provide for fixed and variable rentals at competitive rates. In addition, most leases provide for an additional rental if the dealer fails to sell certain minimum quantities of gasoline during a month. The lessee of a retail outlet is generally responsible for payment of utilities and for all maintenance and repairs, except for structural and marketing equipment repairs and capital improvements, which are performed by the Company.
In addition, as of January 31, 1996, the Company has 112 properties, most of which are leased for non-petroleum use. The Company also has 37 properties being held for disposition.
Getty distributes its petroleum products from 22 distribution terminals and bulk plants which are Company controlled either through fee ownership or long-term leases and utilizes additional terminals pursuant to thruput and storage agreements with unrelated parties. A substantial portion of the petroleum products are transported to retail outlets by the Company's truck transportation fleet, whose drivers are compensated in part on an incentive-based system.
Certain of the Company's properties mentioned above have 132 tenants who do not sell petroleum products.
The Company sells home heating oil, propane (LPG) and related services directly to approximately 43,000 retail and commercial customers. In addition, the Company is a wholesale supplier of #2 heating oil (also known as home heating oil) in the Northeast, supplying heating oil to dealers who deliver to residences and commercial accounts. Diesel fuel and kerosene are
marketed both to distributors of such products and directly by the Company to retail outlets and consumers.
Product Supply - - --------------
The Company has entered into agreements with a number of Northeast suppliers, replacing the previous supply agreement with Phibro Energy USA, Inc. which was phased out through August 31, 1995. The benefits of the new supply agreements include improved logistics and greater flexibility, which has became increasingly important with the introduction of reformulated gasolines. The Company has no crude oil reserves or refining capacity. Substantially all of the Company's supply contracts are for a term of one year or less.
Historically, petroleum prices have been subject to extreme volatility and there have been periodic shortages followed by periods of oversupply. No assurance can be given that petroleum prices will not fluctuate greatly or that petroleum products will continue to be available from multiple sources or available at all in times of shortage. Furthermore, a large, rapid increase in petroleum prices could adversely affect the Company's revenues and profitability if the Company's sales prices could not be increased or automobile consumption of gasoline were to significantly decline as a result of such price increases. Management believes, however, that the Company will continue to have the ability to acquire petroleum products on competitive terms for the foreseeable future due in part to the large volume of its purchases.
Marketing - - ---------
In order to provide efficient service to retail dealers and other customers, the Company is divided into various marketing regions. The Company's regional marketing personnel provide significant guidance, counseling and assistance to the Company's dealers, including advice on retail operations. The marketing personnel also supervise the company operated retail outlets.
The Company provides advertising and promotional support to its retail outlets. Both radio and newspaper media are utilized, and promotional programs are implemented on an ongoing basis.
The Company has a cobranded Getty MasterCard, accepts Visa, MasterCard, Discover, Diners Club and American Express credit cards, and has introduced "NYCE" and "MAC" debit cards at a majority of Getty outlets. In addition, the Company has a Getty fleet fueling card and accepts the Wright Express fleet fueling card, both of which have tracking programs which provide cost control data to fleet customers.
Competition - - -----------
The Company believes that, based on the number of locations served, it is currently one of the largest independent marketers of petroleum products in the United States. Petroleum marketing is highly competitive, and the Company competes with a substantial number of integrated oil
companies and other companies who may have greater assets, financial resources and sales. Accordingly, the Company's earnings may be adversely affected by the marketing policies of such companies, which may have greater flexibility to withstand price changes than the Company. The Company competes for new dealers and distributors primarily on the basis of Getty brand acceptance, supply, price and marketing support. The retail outlets in the Company's marketing network compete primarily on the basis of Getty brand acceptance, location, customer service, appearance of the retail outlet and price.
Regulation - - ----------
The petroleum products industry is subject to numerous federal, state and local laws and regulations. Compliance with those laws and regulations has not had and is not expected to have a material effect on the competitive position of the Company.
The Company is not a refiner and, therefore, is not subject to the Petroleum Marketing Practices Act ("PMPA"), a federal law. However, pursuant to the Company's agreements with certain of its Getty dealers and distributors, the Company has voluntarily extended to them the protection of PMPA. Under PMPA, the Company complies with certain notice requirements and extends nondiscriminatory contracts to its Getty licensed dealers and distributors, whose franchises can be terminated or not renewed if certain PMPA-imposed prerequisites are met. Although a licensed dealer or distributor is not required to renew his or her franchise, because the Company has agreed to comply with PMPA, the Company is required (unless there are grounds for non-renewal or termination) to renew the franchises of many of its licensed dealers and distributors who elect to renew. In addition, if the Company elects to sell any of those service stations subject to PMPA, the Company shall, in accordance with PMPA, offer the franchisee the right to purchase any of such service stations operated by such franchisee at the price and upon terms at which the Company elects to sell.
In addition, the Company's operations are governed by numerous federal, state and local environmental laws and regulations affecting all aspects of its operations. Among these laws are (i) requirements to dispense reformulated gasoline in accordance with the Clean Air Act, (ii) restrictions imposed on the amount of hydrocarbon vapors which may enter the air at the Company's terminals and service stations, (iii) OSHA and other laws regulating terminal employee exposure to benzene and other hazardous materials, (iv) requirements to report to governmental authorities discharges of petroleum products into the environment and, under certain circumstances, to remediate the soil and/or groundwater contamination pursuant to governmental order and directive, (v) requirements to remove and replace underground storage tanks which have exceeded governmental-mandated age limitations and (vi) the requirement to provide a certificate of financial responsibility with respect to claims relating to underground storage tank failures.
The Company believes that it is in substantial compliance with federal, state and local provisions enacted or adopted pertaining to environmental matters. Although the Company is unable to predict what legislation or regulations may be adopted in the future with respect to
environmental protection and waste disposal, existing legislation and regulations have had no material adverse effect on its competitive position. See "Item 3. Legal Proceedings".
Personnel - - ---------
As of January 31, 1996, the Company had 684 employees, of which 119 employees, consisting of truck drivers and service technicians, are represented by Amalgamated Local Union 355. The Company considers its relationships with its employees and the union to be satisfactory.
Item 2.
Item 2. Properties
The properties owned in fee or leased by the Company for each of the five fiscal years ended January 31, 1996 are as follows:
January 31, --------------------------------------------- 1996 1995 1994 1993 1992 ---- ---- ---- ---- ----
Owned 439 444 457 465 463
Leased 734 752 772 791 825 ---- ---- ---- ---- ----
Total 1,173 1,196 1,229 1,256 1,288 ===== ===== ===== ===== =====
The Company has a continuous upgrading program to enhance the physical appearance of the Company's retail outlets.
As of January 31, 1996, the Company also owned in fee 11 distribution terminals and bulk plants and leased 11 distribution terminals and bulk plants (on a long-term net lease basis) located in New York, New Jersey, Rhode Island, Pennsylvania, Connecticut and Maryland. The terminals and bulk plants owned or leased by the Company have an aggregate storage capacity of approximately 62 million gallons. The terminals located in East Providence (Rhode Island) and Rensselaer (New York) are deep-water terminals, capable of handling large vessels. Some of the Company's terminals have excess capacity and land that could be developed or adapted to handle products, such as residual fuel, jet fuel and lube blending, which the Company does not presently market.
As of January 31, 1996, the Company leases 291 service stations and 5 distribution terminals on a long-term basis from Power Test Realty Company Limited Partnership (the "Partnership"). The sole limited partner of the Partnership is Power Test Investors Limited Partnership ("PTILP"), which was created in 1985 pursuant to a rights offering to all of the Company's then existing stockholders. The general partner of the Partnership and PTILP is CLS General Partnership Corp. ("CLS"), which manages the Partnership and PTILP. CLS is wholly owned by Messrs. Leo Liebowitz, Milton Safenowitz and Milton Cooper, the principal stockholders of
the Company, who as of January 31, 1996, collectively owned 48% of PTILP. The Company does not have any ownership interest in the Partnership or CLS, and does not have any ownership interest or option to purchase the Partnership's property, except for properties that the Company has determined have become uneconomical or unsuitable for the Company's use. In the event the Company makes such a determination, it must either (i) purchase the property from the Partnership for a sum equal to the greater of (x) the product of the annual rent then in effect multiplied by eleven or (y) 110% of the appraised fair market value of the property considered as encumbered by the lease or (ii) direct the Partnership to sell such property to a third party at a price negotiated by the Company, in which case the Company receives from the Partnership the amount, if any, by which the negotiated price exceeds the price determined by the above formula or pays any deficiency to the Partnership. Each of the leases of the service stations and the distribution terminals with the Partnership has an initial term of 15 years, expiring on January 31, 2000. The Company has the option to extend these leases for up to five consecutive terms of ten years each. During the fiscal years ended January 31, 1996, 1995 and 1994, the Company received from the Partnership $648,000, $624,000 and $600,000, respectively, for administrative and other services rendered to the Partnership and paid rent to the Partnership during such fiscal years of $10,553,000, $10,925,000 and $10,981,000, respectively. In addition, during the fiscal years ended January 31, 1996, 1995 and 1994, the Company paid an additional sum of $4,938,000, $1,039,000 and $92,000 respectively, for properties purchased.
The Company leases approximately 30,500 square feet of office space at 125 Jericho Turnpike, Jericho, New York where it currently maintains its corporate headquarters.
The Company believes that substantially all of its owned and leased properties are in good condition.
Item 3.
Item 3. Legal Proceedings
(a) Information in response to this item is incorporated herein by reference from Note 5 of the Notes to Consolidated Financial Statements set forth on pages 22 and 23 of the Annual Report.
The State of New York has brought separate actions against the Company for alleged underground discharges of petroleum products at certain of its service stations. The actions were filed in 1983 and 1986 in New York State Supreme Court in Albany County. In each case, the State was seeking reimbursement for cleanup costs, interest and penalties for the alleged discharges. Most of any possible compensatory damages relating to cleanup activities and any reimbursement to the State arising out of these two cases are covered by liability insurance. In the last quarter of fiscal 1996, the 1983 case was settled and the insurance carrier paid 100% of the cost of settlement.
In 1990, the State of New York brought an action in the New York State Supreme Court in Albany County seeking reimbursement for cleanup costs against the Company and two other petroleum companies arising from an alleged 1984 spill of gasoline. In addition to cleanup costs of $240,000, the State is seeking penalties of $500,000 and interest. The State has agreed to dismiss the Company from the lawsuit but one of the two other petroleum companies which is a party to the action has withheld consent.
In 1991, the State of New York brought an action in the New York State Supreme Court in Albany County against the Company seeking reimbursement in the amount of $189,000 for cleanup costs incurred at a service station. The State is also seeking penalties of $200,000 and interest.
In 1992, the State of New York asserted a claim for reimbursement of cleanup costs against the Company and another petroleum company, in the amount of $121,000, together with statutory penalties of $100,000, pertaining to an alleged spill at a service station in 1984. In the last quarter of fiscal 1996, a summons with notice was filed in Albany County against the Company and the other petroleum company seeking cleanup costs of $209,000 and unspecified statutory penalties.
In 1993, the State of New York asserted a claim against the Company for cleanup costs incurred at a service station and for statutory penalties. In 1994, an action was filed in New York Supreme Court in Albany County to recover $504,000 for cleanup costs and $250,000 in statutory penalties.
The U. S. Environmental Protection Agency ("EPA") advised the Company in 1992 that it would seek administrative penalties for the Company's failure to cease discharging into, and to close, service station bay drains at certain retail outlets. The EPA was in 1992 seeking penalties of approximately $625,000. In 1994, the Company complied with a document request of the EPA and the Company has received no further communications from the EPA.
In 1994, a subsidiary of the Company was served with an Amended Complaint naming the Company's subsidiary as one of many defendants in the Keystone Superfund case pending in the U.S. District Court for the Middle District of Pennsylvania, pertaining to the subsidiary's miscellaneous office refuse and used furnace air and oil filters which were disposed of at the Site. In 1995, another subsidiary of the Company was brought into the same action pertaining to convenience store refuse. The Company believes that its participation in the cost of cleanup at the Site will be determined to be insignificant or de minimis in nature and that its ultimate liability will be less than $25,000.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders during the fourth quarter of the Company's fiscal year ended January 31, 1996.
Executive Officers of Registrant - - --------------------------------
The following table lists the executive officers of the Company, their respective ages, the offices and positions held with the Company as of April 15, 1996 and the year in which each was elected an officer.
Name Age Position Officer Since ---- --- -------- ------------- Leo Liebowitz 68 President and Chief Executive Officer 1971 John J. Fitteron 54 Senior Vice President, Treasurer and Chief Financial Officer 1986 Alvin A. Smith 58 Senior Vice President and Chief Operating Officer 1985 James R. Craig 44 Vice President - Marketing 1987 Michael K. Hantman 44 Vice President and Corporate Controller 1988 Samuel M. Jones 59 Vice President, Corporate Secretary and General Counsel 1986
Mr. Liebowitz has been President and Chief Executive Officer and a director of the Company since 1971. He has also served as the President and a director of CLS General Partnership Corp. since 1985. He is also a director of the Regional Banking Advisory Board of Chase Manhattan Corp.
Mr. Fitteron joined the Company in 1986 as Senior Vice President and Chief Financial Officer and assumed the additional position of Treasurer in 1994. Prior to joining Getty, he was a Senior Vice President at Beker Industries Corp., a chemical and natural resource company.
Mr. Smith has been a Senior Vice President of the Company since 1985 and became Chief Operating Officer in 1994. Prior thereto, he was employed at Getty Oil Company as Wholesale Manager and Petroleum Manager.
Mr. Craig became a Vice President of the Company in 1987. He joined the Company in 1982 as a District Manager and became Manager - Retail Sales in 1984. Prior to joining Getty, he was a Regional Manager of Amerada Hess Corp.
Mr. Hantman became a Vice President of the Company in 1991. He joined the Company in 1985 as Corporate Controller. Prior to joining Getty, he was a Principal at Arthur Young & Company, an international accounting firm.
Mr. Jones joined the Company in 1986 as Vice President and General Counsel and assumed the additional position of Corporate Secretary in 1994. Prior to joining Getty, he was a Senior Attorney with Texaco Inc.
Management is not aware of any family relationships among any of the foregoing executive officers.
PART II
Item 5.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Information in response to this item is incorporated herein by reference from material under the heading "Common Stock" on page 16 of the Annual Report.
Item 6.
Item 6. Selected Financial Data
Information in response to this item is incorporated herein by reference from material under the heading "Selected Financial Data" on page 16 of the Annual Report.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Information in response to this item is incorporated herein by reference from material under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 13 through 15 of the Annual Report.
Item 8.
Item 8. Financial Statements and Supplementary Data
Information in response to this item is incorporated herein by reference from the financial information set forth on pages 17 through 28 of the Annual Report.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant
Information with respect to directors in response to this item is incorporated herein by reference from material under the heading "Election of Directors" on pages 2 and 3 of the Proxy Statement.
Information regarding executive officers is included in Part I hereof.
Item 11.
Item 11. Executive Compensation
Information in response to this item is incorporated herein by reference from material under the headings "Directors' Meetings, Committees and Executive Officers" and "Compensation" through, and including the material under the heading, "Compensation Committee Interlocks and Insider Participation" on pages 4 through 8 of the Proxy Statement.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information in response to this item is incorporated herein by reference from material under the heading "Beneficial Ownership of Common Stock" on pages 3 and 4 of the Proxy Statement.
Item 13.
Item 13. Certain Relationships and Related Transactions
Information in response to this item is incorporated herein by reference from material under the heading "Certain Transactions" on page 10 of the Proxy Statement.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial statements
The financial statements listed in the Index to Financial Statements and Financial Statement Schedules on page 15 are filed as part of this annual report.
2. Financial statement schedule
The financial statement schedule listed in the Index to Financial Statements and Financial Statement Schedules on page 15 is filed as part of this annual report.
3. Exhibits
The exhibits listed in the Exhibit Index on pages 18 through 23 are filed as part of this annual report.
4. Reports on Form 8-K
Registrant filed a Current Report on Form 8-K on March 13, 1996 reporting under Item 5, Other Events, a potential transaction involving a spin-off of its petroleum marketing operations to its stockholders.
GETTY PETROLEUM CORP. INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES COVERED BY REPORT OF INDEPENDENT ACCOUNTANTS Items 14(a) 1 & 2
Reference ------------------------- Form 10-K 1996 Annual (pages) Report (pages) --------- --------------
Data incorporated by reference from attached 1996 Annual Report to Stockholders of Getty Petroleum Corp.: Report of Independent Accountants 28
Consolidated Statements of Operations for the years ended January 31, 1996, 1995 and 1994 17
Consolidated Balance Sheets as of January 31, 1996 and 1995 18
Consolidated Statements of Cash Flows for the years ended January 31, 1996, 1995 and 1994 19
Notes to Consolidated Financial Statements 20 - 28
Report of Independent Accountants - Supplemental Schedule 16
Schedule II - Valuation and Qualifying Accounts and Reserves for the years ended January 31, 1996, 1995 and 1994 17
All other schedules are omitted for the reason that they are either not required, not applicable, not material or the information is included in the consolidated financial statements or notes thereto.
The financial statements listed in the above index which are included in the 1996 Annual Report to Stockholders are hereby incorporated by reference. With the exception of the pages listed in the above index and the information incorporated by reference included in Part II, Items 5, 6, 7 and 8, the 1996 Annual Report to Stockholders is not deemed filed as part of this report.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Getty Petroleum Corp.:
Our report on the consolidated financial statements of Getty Petroleum Corp. and Subsidiaries has been incorporated by reference in this Form 10-K from page 28 of the 1996 Annual Report to Stockholders of Getty Petroleum Corp. and Subsidiaries. In connection with our audits of such financial statements, we have also audited the related financial statement schedule listed in the index on page 15 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein.
Coopers & Lybrand L.L.P. New York, New York March 14, 1996.
GETTY PETROLEUM CORP. and SUBSIDIARIES SCHEDULE II - VALUATION and QUALIFYING ACCOUNTS and RESERVES for the years ended January 31, 1996, 1995 and 1994 (in thousands)
Balance at Balance at beginning end of of period Additions Deductions period ---------- --------- ---------- ----------
1996: Allowance for doubtful accounts* $1,509 $561 $661 $1,409 ====== ==== ==== ======
1995: Allowance for doubtful accounts* $1,534 $385 $410 $1,509 ====== ==== ==== ======
1994: Allowance for doubtful accounts* $1,610 $566 $642 $1,534 ====== ==== ==== ======
*Relates to accounts receivable.
EXHIBIT INDEX
GETTY PETROLEUM CORP.
Annual Report on Form 10-K for the fiscal year ended January 31, 1996
Exhibit No. Description Begins on Sequential Page No. ------- ----------------------- -----------------------------------
3.1 Certificate of Filed as Exhibit 3.1 to Incorporation. registrant's Registration Statement on Form S-1 filed on June 23, 1971 (Registration No. 2-40881) and incorporated herein by reference.
3.2 Certificate of Filed as Exhibit B to Amendment of registrant's Annual Report Certificate of on Form 10-K for the fiscal Incorporation, filed year ended January 31, 1978 July 22, 1977. (File No. 1-8059) and incorporated herein by reference.
3.3 Certificate of Filed as Exhibit 6.3 to Amendment of Registration Statement on Certificate of Form 8-A filed by the Incorporation, filed Company on July 19, 1985 September 23, 1980. (File No. 1-8059) and incorporated herein by reference.
3.4 Certificate of Filed as Exhibit 6.4 to Amendment of Registration Statement on Certificate of Form 8-A filed by the Incorporation, filed Company on July 19, 1985 June 24, 1985. (File No. 1-8059) and incorporated herein by reference.
3.5 Certificate of Filed as Exhibit 6.5 to Amendment of Registration Statement on Certificate of Form 8-A filed by the Incorporation, filed Company on July 19, 1985 July 11, 1985. (File No. 1-8059) and incorporated herein by reference.
Exhibit No. Description Begins on Sequential Page No. ------- ----------------------- -----------------------------------
3.6 Certificate of Filed as Exhibit A to Amendment of registrant's definitive Certificate of proxy statement, dated May Incorporation. 8, 1987, with respect to its Annual Meeting of Stockholders held June 18, 1987 and incorporated herein by reference. 3.7 By-Laws. Filed as Exhibit 3.2 to registrant's Registration Statement on Form S-1 filed on June 23, 1971 (Registration No. 2-40881) and incorporated herein by reference.
3.8 Amendment to By-Laws. Filed as Exhibit B to registrant's definitive proxy statement, dated May 8, 1987, with respect to its Annual Meeting of Stockholders held June 18, 1987 and incorporated herein by reference.
3.9 Amendment to By-Laws. Filed as Exhibit 3.9 to registrant's Quarterly Report on Form 10-Q for the quarter ended April 30, 1988 (File No. 1-8059) and incorporated herein by reference.
4.1 Indenture dated as of Filed as Exhibit 4.1 to August 1, 1985 between registrant's Annual Report registrant and on Form 10-K for the fiscal BankAmerica Trust year ended January 31, 1986 Company of New York, (File No. 1-8059) and as Trustee, relating incorporated herein by to the 14% reference. Subordinated Debentures due August 1, 2000, including form of Debenture.
Exhibit No. Description Begins on Sequential Page No. ------- ----------------------- -----------------------------------
4.7 $35,000,000 reducing Filed as Exhibit 4.7 to revolving Loan registrant's Quarterly Agreement between Report on Form 10-Q for the Leemilt's Petroleum, quarter ended October 31, Inc. and Bank of New 1987 (File No. 1-8059) and England, N.A. dated as incorporated herein by of December 7, 1987 reference. and related Guaranty Agreement, dated as of December 7, 1987, by and between Getty Petroleum Corp. and Bank of New England, N.A.
4.8 Amended and Restated P Loan Agreement between Leemilt's Petroleum, Inc. and Fleet Bank of Massachusetts, N.A., as successor to Bank of New England, N.A., dated as of October 27, 1995.
10.2(a) Retirement and Profit Filed as Exhibit 10.2(a) to Sharing Plan (amended registrant's Annual Report and restated as of on Form 10-K for the fiscal September 11, 1986). year ended January 31, 1987 (File No. 1-8059) and incorporated herein by reference.
10.3 Asset Purchase Filed as Exhibit 2(a) to Agreement between registrant's Current Report Power Test Corp. (now on Form 8-K, filed February known as Getty 19, 1985 (File No. 1-8059) Petroleum Corp.) and and incorporated herein by Texaco Inc., Getty Oil reference. Company, and Getty Refining and Marketing Company, dated December 21, 1984.
10.4 Trademark License Filed as Exhibit 2(b) to Agreement between registrant's Current Report Texaco Inc., Getty Oil on Form 8-K, filed February Company, Texaco 19, 1985 (File No. 1-8059) Refining and Marketing and incorporated herein by Inc., and Power Test reference. Corp. (now known as Getty Petroleum Corp.), dated February 1, 1985.
Exhibit No. Description Begins on Sequential Page No. ------- ----------------------- -----------------------------------
10.7 Form of Real Property Filed as Exhibit 2(e) to Leases between Power registrant's Current Report Test Realty Company on Form 8-K, filed February Limited Partnership, 19, 1985 (File No. 1-8059) as Lessor, and Power and incorporated herein by Test Corp. (now known reference. as Getty Petroleum Corp.) (either directly or indirectly through a wholly-owned subsidiary), as Lessee, each dated February 1, 1985.
10.16 Registrant's 1985 Filed as Exhibit A to Stock Option Plan. registrant's definitive proxy statement, dated May 31, 1985, with respect to its Annual Meeting of Stockholders held June 20, 1985 and incorporated herein by reference.
10.17 Hazardous Waste and Filed as Exhibit 10.17 to PMPA Indemnification registrant's Annual Report Agreement dated as of on Form 10-K for the fiscal December 10, 1986 year ended January 31, 1987 among Getty Petroleum (File No. 1-8059) and Corp., Power Test incorporated herein by Realty Company Limited reference. Partnership and Bank of New England, N.A.
10.18 Guaranty Agreement Filed as Exhibit 10.18 to dated as of December registrant's Annual Report 1, 1986 of Getty on Form 10-K for the fiscal Petroleum Corp. year ended January 31, 1987 regarding distribution (File No. 1-8059) and terminal leases incorporated herein by between Power Test reference. Realty Company Limited Partnership and Getty Terminals Corp.
10.19 Form of Filed as Exhibit C to Indemnification registrant's definitive Agreement between proxy statement, dated May Getty Petroleum Corp. 8, 1987, with respect to and directors. its Annual Meeting of Stockholders held June 18, 1987 and incorporated herein by reference.
Exhibit No. Description Begins on Sequential Page No. ------- ----------------------- -----------------------------------
10.20 Registrant's 1988 Filed as Exhibit A to Stock Option Plan. registrant's definitive proxy statement, dated April 29, 1988, with respect to its Annual Meeting of Stockholders held June 16, 1988 and incorporated herein by reference.
10.21 Milton Safenowitz Filed as Exhibit 10.21 to Employment Agreement registrant's Annual Report dated February 1, on Form 10-K for the fiscal 1990. year ended January 31, 1990 (File No. 1-8059) and incorporated herein by reference.
10.22 Supplemental Filed as Exhibit 10.22 to Retirement Plan for registrant's Annual Report Executives of Getty on Form 10-K for the fiscal Petroleum Corp. and year ended January 31, 1990 Participating (File No. 1-8059) and Subsidiaries. incorporated herein by reference.
10.23 Form of Agreement Filed as Exhibit 10.23 to dated as of December registrant's Annual Report 9, 1994 between the on Form 10-K for the fiscal Company and its non- year ended January 31, 1995 director officers and (File No. 1-8059) and certain key employees incorporated herein by regarding compensation reference. upon change in Company control.
10.24 Amendment to Milton Filed as Exhibit 10.24 to Safenowitz Employment registrant's Annual Report Agreement dated on Form 10-K for the fiscal February 1, 1990 (see year ended January 31, 1991 Exhibit 10.21). (File No. 1-8059) and incorporated herein by reference.
10.25 Registrant's Amended Filed as Exhibit 4.10 to and Restated 1991 registrant's Registration Stock Option Plan. Statement on Form S-8 filed on June 18, 1993 (Registration No. 33-64746) and incorporated herein by reference.
Exhibit No. Description Begins on Sequential Page No. ------- ----------------------- -----------------------------------
10.26 Petroleum Products Filed as Exhibit 10.26 to Supply Agreement dated registrant's Quarterly as of July 1, 1992 by Report on Form 10-Q for the and between Phibro quarter ended July 31, 1992 Energy USA, Inc. and (File No. 1-8059) and Getty Petroleum Corp., incorporated herein by Getty Terminals Corp., reference. and Aero Oil Company.
10.27 Form of Agreement 31 dated as of March 7, 1996 amending Agreement dated as of December 9, 1994 between the Company and its non-director officers and certain key employees regarding compensation upon change in Company control (See Exhibit 10.23).
13 Annual Report to 35 Stockholders for the fiscal year ended January 31, 1996.
22 Subsidiaries of the 32 registrant.
24 Consent of Independent 33 Accountants.
27 Financial Data 34 Schedule.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Getty Petroleum Corp. ----------------------- (Registrant)
By /s/ John J. Fitteron By /s/ Michael K. Hantman ------------------------------- --------------------------- John J. Fitteron, Michael K. Hantman, Senior Vice President, Vice President and Treasurer and Chief Financial Corporate Controller Officer (Principal Financial (Chief Accounting Officer) Officer) April 29, 1996 April 29, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
By /s/ Leo Liebowitz By /s/ Milton Cooper ------------------------------ -------------------------- Leo Liebowitz, President, Milton Cooper, Chief Executive Officer Director and Director April 29, 1996 April 29, 1996
By /s/ Herbert Lotman By /s/ Milton Safenowitz ----------------------------- --------------------------- Herbert Lotman, Milton Safenowitz, Director Director April 29, 1996 April 29, 1996
By /s/ Warren G. Winbrub ---------------------------- Warren G. Wintrub, Director April 29, 1996
EXHIBIT INDEX
GETTY PETROLEUM CORP.
Annual Report on Form 10-K for the fiscal year ended January 31, 1996
Exhibit No. Description Begins on Sequential Page No. ------- ----------------------- -----------------------------------
3.1 Certificate of Filed as Exhibit 3.1 to Incorporation. registrant's Registration Statement on Form S-1 filed on June 23, 1971 (Registration No. 2-40881) and incorporated herein by reference.
3.2 Certificate of Filed as Exhibit B to Amendment of registrant's Annual Report Certificate of on Form 10-K for the fiscal Incorporation, filed year ended January 31, 1978 July 22, 1977. (File No. 1-8059) and incorporated herein by reference.
3.3 Certificate of Filed as Exhibit 6.3 to Amendment of Registration Statement on Certificate of Form 8-A filed by the Incorporation, filed Company on July 19, 1985 September 23, 1980. (File No. 1-8059) and incorporated herein by reference.
3.4 Certificate of Filed as Exhibit 6.4 to Amendment of Registration Statement on Certificate of Form 8-A filed by the Incorporation, filed Company on July 19, 1985 June 24, 1985. (File No. 1-8059) and incorporated herein by reference.
3.5 Certificate of Filed as Exhibit 6.5 to Amendment of Registration Statement on Certificate of Form 8-A filed by the Incorporation, filed Company on July 19, 1985 July 11, 1985. (File No. 1-8059) and incorporated herein by reference.
Exhibit No. Description Begins on Sequential Page No. ------- ----------------------- -----------------------------------
3.6 Certificate of Filed as Exhibit A to Amendment of registrant's definitive Certificate of proxy statement, dated May Incorporation. 8, 1987, with respect to its Annual Meeting of Stockholders held June 18, 1987 and incorporated herein by reference.
3.7 By-Laws. Filed as Exhibit 3.2 to registrant's Registration Statement on Form S-1 filed on June 23, 1971 (Registration No. 2-40881) and incorporated herein by reference.
3.8 Amendment to By-Laws. Filed as Exhibit B to registrant's definitive proxy statement, dated May 8, 1987, with respect to its Annual Meeting of Stockholders held June 18, 1987 and incorporated herein by reference.
3.9 Amendment to By-Laws. Filed as Exhibit 3.9 to registrant's Quarterly Report on Form 10-Q for the quarter ended April 30, 1988 (File No. 1-8059) and incorporated herein by reference.
4.1 Indenture dated as of Filed as Exhibit 4.1 to August 1, 1985 between registrant's Annual Report registrant and on Form 10-K for the fiscal BankAmerica Trust year ended January 31, 1986 Company of New York, (File No. 1-8059) and as Trustee, relating incorporated herein by to the 14% reference. Subordinated Debentures due August 1, 2000, including form of Debenture.
Exhibit No. Description Begins on Sequential Page No. ------- ----------------------- -----------------------------------
4.7 $35,000,000 reducing Filed as Exhibit 4.7 to revolving Loan registrant's Quarterly Agreement between Report on Form 10-Q for the Leemilt's Petroleum, quarter ended October 31, Inc. and Bank of New 1987 (File No. 1-8059) and England, N.A. dated as incorporated herein by of December 7, 1987 reference. and related Guaranty Agreement, dated as of December 7, 1987, by and between Getty Petroleum Corp. and Bank of New England, N.A.
4.8 Amended and Restated P Loan Agreement between Leemilt's Petroleum, Inc. and Fleet Bank of Massachusetts, N.A., as successor to Bank of New England, N.A., dated as of October 27, 1995.
10.2(a) Retirement and Profit Filed as Exhibit 10.2(a) to Sharing Plan (amended registrant's Annual Report and restated as of on Form 10-K for the fiscal September 11, 1986). year ended January 31, 1987 (File No. 1-8059) and incorporated herein by reference.
10.3 Asset Purchase Filed as Exhibit 2(a) to Agreement between registrant's Current Report Power Test Corp. (now on Form 8-K, filed February known as Getty 19, 1985 (File No. 1-8059) Petroleum Corp.) and and incorporated herein by Texaco Inc., Getty Oil reference. Company, and Getty Refining and Marketing Company, dated December 21, 1984.
10.4 Trademark License Filed as Exhibit 2(b) to Agreement between registrant's Current Report Texaco Inc., Getty Oil on Form 8-K, filed February Company, Texaco 19, 1985 (File No. 1-8059) Refining and Marketing and incorporated herein by Inc., and Power Test reference. Corp. (now known as Getty Petroleum Corp.), dated February 1, 1985.
Exhibit No. Description Begins on Sequential Page No. ------- ----------------------- -----------------------------------
Form of Real Property Filed as Exhibit 2(e) to 10.7 Leases between Power registrant's Current Report Test Realty Company on Form 8-K, filed February Limited Partnership, 19, 1985 (File No. 1-8059) as Lessor, and Power and incorporated herein by Test Corp. (now known reference. as Getty Petroleum Corp.) (either directly or indirectly through a wholly-owned subsidiary), as Lessee, each dated February 1, 1985.
10.16 Registrant's 1985 Filed as Exhibit A to Stock Option Plan. registrant's definitive proxy statement, dated May 31, 1985, with respect to its Annual Meeting of Stockholders held June 20, 1985 and incorporated herein by reference.
10.17 Hazardous Waste and Filed as Exhibit 10.17 to PMPA Indemnification registrant's Annual Report Agreement dated as of on Form 10-K for the fiscal December 10, 1986 year ended January 31, 1987 among Getty Petroleum (File No. 1-8059) and Corp., Power Test incorporated herein by Realty Company Limited reference. Partnership and Bank of New England, N.A.
10.18 Guaranty Agreement Filed as Exhibit 10.18 to dated as of December registrant's Annual Report 1, 1986 of Getty on Form 10-K for the fiscal Petroleum Corp. year ended January 31, 1987 regarding distribution (File No. 1-8059) and terminal leases incorporated herein by between Power Test reference. Realty Company Limited Partnership and Getty Terminals Corp.
10.19 Form of Filed as Exhibit C to Indemnification registrant's definitive Agreement between proxy statement, dated May Getty Petroleum Corp. 8, 1987, with respect to and directors. its Annual Meeting of Stockholders held June 18, 1987 and incorporated herein by reference.
Exhibit No. Description Begins on Sequential Page No. ------- ----------------------- -----------------------------------
10.20 Registrant's 1988 Registrant's 1988 Stock Stock Option Plan. Option Plan.Filed as Exhibit A to registrant's definitive proxy statement, dated April 29, 1988, with respect to its Annual Meeting of Stockholders held June 16, 1988 and incorporated herein by reference.
10.21 Milton Safenowitz Filed as Exhibit 10.21 to Employment Agreement registrant's Annual Report dated February 1, on Form 10-K for the fiscal 1990. year ended January 31, 1990 (File No. 1-8059) and incorporated herein by reference.
10.22 Supplemental Filed as Exhibit 10.22 to Retirement Plan for registrant's Annual Report Executives of Getty on Form 10-K for the fiscal Petroleum Corp. and year ended January 31, 1990 Participating (File No. 1-8059) and Subsidiaries. incorporated herein by reference.
10.23 Form of Agreement Filed as Exhibit 10.23 to dated as of December registrant's 9, 1994 between the Annual Report on Form 10-K Company and its non- for the director officers and fiscal year ended January certain key employees 31, 1995 (File regarding compensation No. 1-8059) and upon change in Company incorporated herein by control. reference.
10.24 Amendment to Milton Filed as Exhibit 10.24 to Safenowitz Employment registrant's Annual Report Agreement dated on Form 10-K for the fiscal February 1, 1990 (see year ended January 31, 1991 Exhibit 10.21). (File No. 1-8059) and incorporated herein by reference.
Exhibit No. Description Begins on Sequential Page No. ------- ----------------------- -----------------------------------
10.25 Registrant's Amended Filed as Exhibit 4.10 to and Restated 1991 registrant's Registration Stock Option Plan. Statement on Form S-8 filed on June 18, 1993 (Registration No. 33-64746) and incorporated herein by reference.
10.26 Petroleum Products Filed as Exhibit 10.26 to Supply Agreement dated registrant's Quarterly as of July 1, 1992 by Report on Form 10-Q for the and between Phibro quarter ended July 31, 1992 Energy USA, Inc. and (File No. 1-8059) and Getty Petroleum Corp., incorporated herein by Getty Terminals Corp., reference. and Aero Oil Company.
10.27 Form of Agreement 31 dated as of March 7, 1996 amending Agreement dated as of December 9, 1994 between the Company and its non-director officers and certain key employees regarding compensation upon change in Company control (See Exhibit 10.23).
13 Annual Report to 35 Stockholders for the fiscal year ended January 31, 1996.
22 Subsidiaries of the 32 registrant.
24 Consent of Independent 33 Accountants.
27 Financial Data 34 Schedule.
Management's Discussion and Analysis of Financial Condition and Results of Operations
Getty Petroleum Corp. and Subsidiaries
Results of Operations
Net sales for the year ended January 31, 1996 were $786.3 million as compared with $749.4 million in the preceding year. The increase in net sales was principally due to a 9.5% increase in average selling prices and a 2% or 15.1 million gallon increase in retail gallonage sold through 6.1% fewer outlets, partially offset by an 18.6% or 59.5 million gallon decrease in wholesale gallonage sold, primarily bulk sales. The average gasoline volume per retail outlet increased by 9%. Gross profit was $38.9 million in fiscal 1996 compared to $36 million in the prior fiscal year. The increase in gross profit was principally due to higher product margins, partially offset by higher environmental expenditures of $2.6 million.
Fiscal 1995 sales amounted to $749.4 million as compared with $772.6 million in fiscal 1994. The decrease in net sales was principally due to a .5% decrease in average selling prices and a 12.5% or 40.9 million gallon decrease in wholesale gallonage sold, partially offset by a 2.3% or 16.5 million gallon increase in retail gallonage sold through 7.8% fewer outlets. Gross profit was $36 million in fiscal 1995, a decrease of $9.7 million from fiscal 1994. The decrease in gross profit was principally due to lower retail gross margins.
The Company's earnings depend largely on retail marketing margins. The petroleum marketing industry has been and continues to be volatile and highly competitive. The cost of petroleum products purchased by the Company as well as the price of petroleum products sold have fluctuated widely in the past. As a result of the historic volatility of product margins and the fact that they are affected by numerous diverse factors, it is impossible to predict future margin levels. The Company believes that it has only been modestly affected by inflation since increased costs are passed along to its customers to the extent permitted by competition.
Rental income of $34.3 million in fiscal 1996 increased 6.7% over fiscal 1995 rental income of $32.1 million, which increased 7% over the $30 million realized in fiscal 1994. The increase in both periods was due to escalations provided under existing lease agreements, lease renewals and for improvements to the facilities.
Other income, net was $6.3 million in fiscal 1996 as compared to $3.6 million in the preceding year which included a pre-tax charge of $2.7 million for severance and other costs associated with restructuring the Company's organization and its operations in October 1994. The current year included increased gains on dispositions of assets of $.6 million and higher investment income of $.6 million, whereas the prior year included $1 million of income from a claim settlement.
Other income, net of $3.6 million in fiscal 1995 decreased $.3 million from fiscal 1994. Fiscal 1995 included pre-tax charges of $2.7 million as a result of the October 1994 restructuring which were partially offset by $1 million of income recognized by the Company from a claim settlement, $.6 million of additional investment income and $.5 million of additional gains on dispositions of assets.
Selling, general and administrative expenses in fiscal 1996 amounted to $25.6 million, a decrease of $1.7 million from the prior year. The decrease was principally due to lower expenses as a result of the October 1994 restructuring.
Selling, general and administrative expenses in fiscal 1995 amounted to $27.3 million, a decrease of $1.5 million from fiscal 1994. The decrease principally occurred in the fourth quarter of fiscal 1995 as a result of the October 1994 restructuring.
Interest expense in fiscal 1996 amounted to $9.3 million, a decrease of $2.1 million from the prior year. The decrease was principally due to reduced capitalized lease obligations and debt, including the redemption of the 14% subordinated debentures in fiscal 1995.
Interest expense in fiscal 1995 amounted to $11.4 million, a decrease of $3.2 million from fiscal 1994. The decrease was principally due to reduced debt outstanding during fiscal 1995, principally related to the redemption in May 1994 of the subordinated debentures.
Depreciation and amortization in fiscal 1996 amounted to $23.2 million, an increase of $1.4 million over the prior year. The current fiscal year included $.5 million of additional depreciation relating to operating properties as a result of the adoption of Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
Depreciation and amortization was $21.8 million in fiscal 1995, which was comparable to the amount in fiscal 1994. An increase in depreciation of $1.2 million in fiscal 1995 from additions to property, plant and equipment was offset by a decrease of like amount in amortization of deferred charges.
Extraordinary Item and Accounting Changes
In fiscal 1995, the Company recorded an extraordinary charge of $.8 million after taxes resulting from the early retirement of the Company's 14% subordinated debentures. The extraordinary charge consisted of the write- off of deferred finance costs associated with the debentures and an early redemption premium paid to holders of the retired debentures.
In fiscal 1996, the Company adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" and, in addition to the $.5 million charge to depreciation expense for operating properties, has separately reported the cumulative effect of the change in accounting principle as a charge to earnings of $.8 million in the consolidated statement of operations for properties held for disposal. The Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities" as of the beginning of fiscal 1995 and has reported the cumulative effect of this change in accounting principle as a credit to earnings of $.2 million in the fiscal 1995 consolidated statement of operations. During the first quarter of fiscal 1994, the Company adopted SFAS No. 109, "Accounting for Income Taxes" and has reported the cumulative effect of this change in accounting principle as a credit to earnings of $.9 million in the fiscal 1994 consolidated statement of operations.
In October 1995, SFAS No. 123, "Accounting for Stock-Based Compensation" was issued. The Statement, which becomes effective in fiscal 1997, defines a fair value based method of accounting for employee stock options and allows companies to continue to measure compensation cost for such options by using the intrinsic value based method of accounting prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25"). The Company plans to continue accounting for its stock-based employee compensation plans under APB No. 25 and effective with the January 31, 1997 consolidated financial statements will present, in the footnotes, pro forma disclosures of net income and earnings per share as if the fair value method had been applied.
Liquidity and Capital Resources
As of January 31, 1996, working capital amounted to a deficit of $9.6 million as compared to a deficit of $10.7 million as of January 31, 1995. The improvement in working capital was primarily due to working capital generated during the year from operations, partially offset by $23.1 million of capital expenditures, including property acquisitions, and the reduction of $17.8 million in long-term debt and capital lease obligations.
In October 1995, the Company refinanced through November 1, 2000 a mortgage loan in the amount of $18.3 million which was originally payable through January 1, 1998. The Company estimates that the refinancing will result in an interest rate reduction of 13/4% per annum based on current market rates.
During the third quarter of fiscal 1996, the Company resumed payment of quarterly cash dividends in the amount $.03 per share. During fiscal 1996, dividends aggregated $760,000 or $.06 per share.
The Company's principal sources of liquidity are cash flows from operations, which amounted to $16.7 million during the year ended January 31, 1996, and its short-term unsecured lines of credit. As of January 31, 1996, such lines of credit amounted to $60 million, of which $8.4 million was utilized in connection with outstanding letters of credit. Management believes that cash requirements for operations and debt service in fiscal 1997 can be met by cash flows from operations, available cash and short- term investments of $20.9 million as of January 31, 1996 and available credit lines.
Capital expenditures during the fiscal year ended January 31, 1996 amounted to $23.1 million, of which $2.7 million related to property acquisitions and $9.3 million for replacement of underground storage tanks and vapor recovery facilities at gasoline stations and terminals.
Environmental Matters
The Company is subject to various laws, regulations and contingencies relating to protection of the environment, including related legal proceedings and claims which arise in the ordinary course of its business. With respect to environmental contingencies, the total cost to the Company cannot be determined with certainty as a result of such factors as the unknown amount of claims and the timing of clean up efforts at identified sites, which cost may be partially offset by subsequent recoveries against certain state underground tank funds. These factors have been assessed based on management's review of currently known facts and circumstances, and will continue to be assessed by the Company in estimating the reserves for environmental matters to be provided in its financial statements. Although environmental costs may have a significant impact on results of operations for any single period, the Company believes that such costs will not have a material adverse effect on the Company's financial position.
Effective January 1, 1995, the Clean Air Act Amendments of 1990 required that the nine worst ozone non-attainment areas in the U.S. use reformulated fuels gasoline ("RFG"). These geographic areas include substantially all of the Company's marketing area. The Company has been able to purchase sufficient supplies of RFG as well as conventional gasoline under supply contracts and from other sources.
The federal underground storage tank ("UST") regulations, enacted in 1988, provide that all non-complying UST's be upgraded or replaced by the end of 1998. Various environmental laws and regulations require the remediation of discharges or releases of petroleum products from UST's and other sources.
Numerous regulations, including the federal volatile organic compound ("VOC") air emission regulations and the Oil Pollution Act of 1990, affect the Company's terminals and, in particular, the imperviousness of the terminals' ground or surface. The Company's terminals are substantially in compliance with all environmental regulations.
The Company estimates that it may be required to expend approximately $74 million, principally over the next three years, in connection with the UST regulations. It is anticipated that such environmental expenditures will be funded from operating cash flow.
As of January 31, 1996 and 1995, the Company had accrued $6.2 million and $6.9 million, respectively, for environmental matters, principally for service station site remediations and related legal matters. During the years ended January 31, 1996, 1995 and 1994, the Company incurred environmental expense of $14.3 million, $11.8 million and $9.7 million, respectively, which amounts were net of $1.9 million, $.4 million and $1.1 million, respectively, for recoveries from certain state underground tank funds.
The Company cannot predict what environmental legislation or regulations may be enacted in the future or how existing or future laws or regulations will be administered or interpreted with respect to products or activities to which they have not previously been applied. Compliance with more stringent laws or regulations, as well as more vigorous enforcement policies of the regulatory agencies or stricter interpretation of existing laws which may develop in the future, could have an adverse effect on the financial position or operations of the Company and could require substantial additional expenditures for the installation and operation of required environmental or pollution control systems and equipment. Moreover, the Company cannot predict the number or the magnitude of new discharges or releases from its UST's.
Proposed Spin-off
On March 13, 1996, the Company announced that it intends to spin-off its petroleum marketing business to its shareholders on a tax-free basis. The Company would retain its real estate business and lease most of its properties on a long-term net basis to the new company, which will be called "Getty Petroleum Marketing Inc." Getty Petroleum Corp. would change its name to "Getty Realty Corp."
The spin-off is subject to obtaining a favorable tax ruling from the Internal Revenue Service. The proposed transaction is expected to be completed later this year. Each shareholder of Getty Petroleum Corp. would receive a pro rata share of Getty Petroleum Marketing Inc. for each share of Getty Petroleum Corp. The exchange ratio has not yet been determined.
For additional information regarding the proposed spin-off, see Note 12 to the consolidated financial statements.
Common Stock
Getty Petroleum Corp.'s common stock, its only outstanding voting security, is traded on the New York Stock Exchange (symbol: "GTY"). At April 22, 1996, there were approximately 3,100 holders of record of Getty Petroleum's common stock. The price range of common stock and cash dividends paid with respect to each share of common stock during the past two fiscal years were as follows:
Price Range Cash Dividends Quarter Ending High Low Per Share - - ---------------- ---------------------- -------------- January 31, 1996 $15.00 $12.625 $.03 October 31, 1995 14.125 11.375 .03 July 31, 1995 11.875 10.75 -- April 30, 1995 13.125 10.875 --
January 31, 1995 12.00 10.625 -- October 31, 1994 13.25 10.75 -- July 31, 1994 16.125 11.625 -- April 30, 1994 $16.75 $12.375 $ --
Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)
Consolidated Statements of Operations
Getty Petroleum Corp. and Subsidiaries
(in thousands except per share amounts)
Years ended January 31, 1996 1995 1994 - - ----------------------- ------------------------------------ Net sales $786,263 $749,443 $772,610 Rental income 34,315 32,146 30,033 Other income, net 6,323 3,587 3,914 ------------------------------------ 826,901 785,176 806,557 ------------------------------------ Cost of sales 747,328 713,408 726,918 Selling, general and administrative expenses 25,604 27,317 28,780 ------------------------------------ 772,932 740,725 755,698 ------------------------------------ Earnings before interest, taxes, depreciation and amortization 53,969 44,451 50,859 Interest expense 9,280 11,372 14,606 Depreciation and amortization 23,167 21,750 21,777 ------------------------------------
Earnings before provision for income taxes, extraordinary item and cumulative effect of accounting changes 21,522 11,329 14,476 Provision for income taxes 8,094 4,398 5,135 ------------------------------------ Earnings before extraordinary item and cumulative effect of accounting changes 13,428 6,931 9,341 Extraordinary item -- (775) -- Cumulative effect of accounting changes (794) 183 860 ------------------------------------ Net earnings $ 12,634 $ 6,339 $ 10,201 ===================================== Per Share Data: Earnings before extraordinary item and cumulative effect of accounting changes $ 1.06 $ .55 $ .74 Extraordinary item -- (.06) -- Cumulative effect of accounting changes (.06) .01 .07 ------------------------------------ Net earnings per share $ 1.00 $ .50 $ .81 ===================================== Weighted average shares outstanding 12,648 12,639 12,622 ===================================== See accompanying notes.
Consolidated Balance Sheets Getty Petroleum Corp. and Subsidiaries
(in thousands)
January 31, 1996 1995 - - --------------------------------------------------------------------------- Assets: Current Assets: Cash and cash equivalents $ 19,808 $ 41,576 Short-term investments 1,059 415 Accounts receivable, less allowance for doubtful accounts of $1,409 in 1996 and $1,509 in 1995 15,327 18,338 Inventories 21,214 11,117 Deferred income taxes 5,880 6,004 Prepaid expenses and other current assets 3,388 3,536 ---------------------- Total current assets 66,676 80,986 Property, plant and equipment, at cost, less accumulated depreciation and amortization 184,559 188,527
Other assets 10,231 9,444 ---------------------- Total assets $261,466 $278,957 ======================
Liabilities and Stockholders' Equity: Current Liabilities: Current portion of long-term debt and capital lease obligations $ 9,154 $ 11,118 Accounts payable 26,856 39,326 Accrued expenses 26,195 32,570 Gasoline taxes payable 13,919 8,318 Income taxes payable 175 377 ---------------------- Total current liabilities 76,299 91,709 Long-term debt 19,589 30,849 Obligations under capital leases 22,843 29,349 Deferred income taxes 16,977 14,120 Other, principally deposits 15,184 14,450 Commitments and contingencies (Notes 3 and 5) Stockholders' equity 110,574 98,480 ---------------------- Total liabilities and stockholders' equity $261,466 $278,957 ====================== See accompanying notes.
Consolidated Statements of Cash Flows
Getty Petroleum Corp. and Subsidiaries
(in thousands)
For the years ended January 31, 1996 1995 1994 - - ------------------------------------------------------------------------------- Cash Flows from Operating Activities: Net earnings $ 12,634 $ 6,339 $ 10,201 Adjustments to Reconcile Net Earnings to Net Cash Provided by Operating Activities: Extraordinary item, before tax -- 1,232 -- Cumulative effect of accounting changes 794 (183) (860) Depreciation and amortization 23,167 21,750 21,777 Deferred income taxes 2,954 (1,553) 418 Gain on dispositions of property, plant and equipment (1,910) (1,294) (788) Gain on investments -- -- (465) Sale (purchase) of trading securities -- 7,860 (7,269)
Changes in Assets and Liabilities: Accounts receivable 3,011 2,904 3,200 Inventories (10,097) (1,100) (218) Prepaid expenses and other current assets 33 (107) 7,471 Other assets (1,063) (123) (63) Accounts payable, accrued expenses and gasoline taxes payable (13,825) 6,424 (5,795) Income taxes payable 277 (1,994) 2,371 Other, principally deposits 734 1,191 875 ---------------------------------- Net cash provided by operating activities 16,709 41,346 30,855 ----------------------------------
Cash Flows from Investing Activities: Capital expenditures (20,316) (21,343) (19,495) Property acquisitions (2,734) (1,466) (920) Proceeds from dispositions of property, plant and equipment 3,491 4,296 3,513 ---------------------------------- Net cash used in investing activities (19,559) (18,513) (16,902) ----------------------------------
Cash Flows from Financing Activities: Long-term borrowings -- 10,550 845 Repayment of long-term debt (13,901) (29,406) (7,989) Payments under capital lease obligations (4,441) (4,285) (3,351) Premium paid on early retirement of debt -- (607) -- Treasury stock and stock options, net 184 157 192 Cash dividends (760) -- -- ---------------------------------- Net cash used in financing activities (18,918) (23,591) (10,303) ----------------------------------
Net increase (decrease) in cash and cash equivalents (21,768) (758) 3,650 Cash and cash equivalents at beginning of year 41,576 42,334 38,684 ---------------------------------- Cash and cash equivalents at end of year $ 19,808 $ 41,576 $ 42,334 ================================= Supplemental disclosures of cash flow information Cash Paid (Received) During the Year for: Interest $ 9,031 $ 11,955 $ 14,141 Income taxes, net 5,087 8,088 (4,327)
See accompanying notes.
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Consolidation: The consolidated financial statements include the accounts of Getty Petroleum Corp. and its wholly-owned subsidiaries (the "Company"). The Company is principally engaged in the marketing and distribution of petroleum products and the management of related real estate in 13 Northeastern and Middle Atlantic states. All significant intercompany accounts and transactions have been eliminated.
Use of Estimates: The financial statements have been prepared in conformity with generally accepted accounting principles and include amounts that are based on management's best estimates and judgments. While all available information has been considered, actual amounts could differ from those estimates.
Cash and Cash Equivalents: The Company considers highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
Inventories: Inventories, primarily finished petroleum products, are principally accounted for under the lower of last-in, first-out ("LIFO") cost or market. Net product exchange positions with other companies are reflected in inventory.
The Company may take positions in the futures market as part of its product purchasing strategy in order to reduce the risk associated with price fluctuations. The gains and losses on futures contracts are included as a part of product costs.
Property, Plant and Equipment: Expenditures for renewals and betterments are capitalized; maintenance and repairs are charged to operations when incurred. When fixed assets are sold or retired, the cost and related accumulated depreciation and amortization are eliminated from the respective accounts and any gain or loss is credited or charged to income.
Depreciation and Amortization: Depreciation of fixed assets is computed on the straight-line method based upon the estimated useful lives of the assets. Assets recorded under capital leases (including land) and leasehold improvements are amortized on the straight-line method over the shorter of the term of the lease or the useful life of the related asset.
Environmental Costs: The estimated future costs for known environmental remediation requirements are accrued when it is probable that a liability has been incurred and the amount of remediation costs can be reasonably estimated.
Income Taxes: Deferred incomes taxes are provided for the effect of items which are reported for income tax purposes in years different from that in which they are recorded for financial statement purposes.
Revenue Recognition: Revenue is recognized from sales when product ownership is transferred to the customer and from rentals as earned.
Earnings Per Share: Earnings per share is computed by dividing net earnings by the weighted average number of shares of common stock outstanding during the year. Common stock equivalents are not included in earnings per share computations since their effect is immaterial.
Accounting Changes: In fiscal 1996, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" and has reported the cumulative effect of the change in accounting principle as an after-tax charge to earnings of $794,000 in the consolidated statement of operations relating to properties held for disposal. In addition, the Company recorded a pre-tax charge of $524,000 relating to operating properties which is included in depreciation expense.
As of the beginning of fiscal 1995, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities" and reported the cumulative effect of the change in accounting principle as a credit to earnings of $183,000 in the fiscal 1995 consolidated statement of operations.
During the first quarter of fiscal 1994, the Company adopted SFAS No. 109, "Accounting for Income Taxes" and reported the cumulative effect of the change in accounting principle as a credit to earnings of $860,000 in the fiscal 1994 consolidated statement of operations.
2. Inventories
As of January 31, 1996, 1995 and 1994, the carrying value of the Company's LIFO inventories approximated the first-in, first-out ("FIFO") method or replacement cost.
3. Leases
In 1985, Power Test Investors Limited Partnership (the "Partnership"), a publicly traded real estate limited partnership, purchased from Texaco certain Getty Oil Company properties and equipment which, in turn, have been leased on a long-term basis to the Company. For financial statement purposes, such leases have been recorded as capital leases.
The Partnership is managed by the General Partner, which is CLS General Partnership Corp. The Directors and shareholders of CLS General Partnership Corp. are also Directors and principal shareholders of the Company. During the years ended January 31, 1996, 1995 and 1994, the Company billed the Partnership and reflected in other income $648,000, $624,000 and $600,000, respectively, for administrative and other services rendered to the Partnership.
Future minimum annual rentals under capital leases as of January 31, 1996, payable to the Partnership, are as follows:
(in thousands) Years ending January 31, - - ------------------------------------------------------ 1997......................................... $ 9,997 1998......................................... 9,997 1999......................................... 9,997 2000......................................... 9,997 ------- 39,988 Less, amount representing interest........... 11,944 ------- Present value of minimum lease payments (including $5,201 due within one year)..... $28,044 =======
In addition, the Company has obligations to other lessors under noncancelable operating leases which have terms in excess of one year, principally for gasoline stations. Substantially all of these leases contain renewal options and escalation clauses. Future minimum annual rentals under such leases are as follows:
(in thousands) Years ending January 31, - - ------------------------------------------------------- 1997........................................ $13,819 1998........................................ 12,557 1999........................................ 10,763 2000........................................ 8,830 2001........................................ 7,110 Thereafter.................................. 26,716 ------- $79,795 =======
Rent expense, substantially all of which is included in cost of sales, amounted to $15,572,000, $15,838,000 and $16,955,000 for the years ended January 31, 1996, 1995 and 1994, respectively. Such rent expense
consists of minimum rentals on noncancelable operating leases referred to above and short-term rentals of terminal facilities and other equipment.
Rental income from fee owned and leased properties aggregated $34,315,000, $32,146,000 and $30,033,000 for the years ended January 31, 1996, 1995 and 1994, respectively, which included $22,809,000, $21,800,000 and $20,308,000 of rent received under subleases. The net book value of fee owned properties leased to lessees was $84,107,000 at January 31, 1996.
Leased gasoline stations, which have been subleased to lessees, have sublease rentals generally not less than the rentals paid by the Company. No significant difficulty has been experienced in subleasing station properties.
4. Property, Plant and Equipment
Property, plant and equipment consists of the following:
(in thousands) Depreciable 1996 1995 Life (Years) - - ------------------------------------------------------------------------------ Land................................. $ 41,144 $ 42,289 Buildings............................ 59,271 56,198 16 Equipment............................ 157,298 142,439 10 to 16 Motor vehicles....................... 4,501 6,194 3 to 10 Furniture and fixtures............... 1,566 1,537 10 Leasehold improvements............... 33,809 32,263 See Note 1 Assets recorded under capital leases. 52,647 54,752 See Note 1 -------- --------- 350,236 335,672 Less, accumulated depreciation and amortization 165,677 147,145 -------- --------- $184,559 $188,527 ======== =========
Property, plant and equipment includes the following assets recorded under capital leases with the Partnership:
(in thousands)
1996 1995 - - ------------------------------------------------------------ Land................................. $26,016 $27,265 Buildings............................ 17,471 18,006 Equipment............................ 8,253 8,574 Motor vehicles....................... 907 907 -------------------- 52,647 54,752 Less, accumulated amortization....... 41,324 39,978 -------------------- $11,323 $14,774 ====================
As of January 31, 1996, the net book value of properties held for disposal amounted to $7,322,000.
5. Commitments and Contingencies
The Company is subject to various laws, regulations and contingencies relating to protection of the environment, and to other contingencies, including legal proceedings and claims which arise in the ordinary course of its business. With respect to environmental contingencies, the total cost to the Company cannot be determined with certainty as a result of such factors as the unknown amount of claims and the timing of clean up efforts at identified sites, which cost may be partially offset by subsequent recoveries against certain state underground tank funds. These factors have been assessed based on management's review of currently known facts and circumstances, and will continue to be assessed by the Company in estimating the reserves
for environmental matters to be provided in its financial statements. As of January 31, 1996 and 1995, the Company had accrued $6,207,000 and $6,941,000, respectively, for environmental matters, principally for service station site remediations and related legal matters. During the years ended January 31, 1996, 1995 and 1994, the Company incurred environmental expense of $14,346,000, $11,769,000 and $9,673,000, respectively, which amounts were net of $1,943,000, $398,000 and $1,090,000, respectively, for recoveries from certain state underground tanks funds. Although environmental costs may have a significant impact on results of operations for any single period, the Company believes that such costs will not have a material adverse effect on the Company's financial position.
Getty Terminals Corp. ("Getty Terminals"), a wholly-owned subsidiary of the Company, has received notices of proposed license revocations from the New York State Department of Taxation and Finance ("Department") for Getty Terminals' operating permits for its three New York State terminals and its motor fuels and diesel distributor licenses. The notices of proposed revocation are based on Getty Terminals' 1990 federal conviction for conspiracy to evade 1985 federal gasoline excise taxes and for non-payment of such taxes. The Department contends that Getty Terminals' federal tax conviction affects its "duties and obligations" under Sections 283 and 283- b of the New York Tax Law ("Tax Law"). Getty has paid all New York State taxes which were due and owing and has fully performed all of its duties and obligations under the Tax Law. Management of the Company believes that the ultimate resolution of this matter will have no material adverse effect on the Company's financial position or future business.
In order to minimize the Company's exposure to credit risk associated with financial instruments, the Company places its temporary cash investments with high credit quality institutions and, by policy, limits the amount invested with any one institution other than the U.S. Government. Concentration of credit risk with respect to trade receivables generally is limited due to the large number of customers comprising the Company's customer base.
6. Debt
Long-term debt consists of:
(in thousands) 1996 1995 - - --------------------------------------------------------------------------- Mortgage loan due through November 1, 2000.... $17,626 $20,145 Bank term loan due through June 30, 1999...... -- 8,500 Real estate mortgages, bearing interest at a weighted average interest rate of 7.9%, due in varying amounts through May 1, 2019.. 5,190 6,117 Other......................................... 726 2,681 --------------------------- 23,542 37,443 Less, current portion......................... 3,953 6,594 --------------------------- Noncurrent portion............................ $19,589 $30,849 ===========================
Aggregate principal payments in subsequent fiscal years relating to long- term debt are as follows (in thousands): 1997--$3,953; 1998--$4,138; 1999-- $3,734; 2000--$3,299; 2001--$7,037 and $1,381 thereafter.
In October 1995, the Company refinanced through November 1, 2000 a mortgage loan which was originally payable through January 1, 1998. The amended and restated loan agreement provides for interest at LIBOR plus 1.0% to 1.625% per annum, depending on the Company's Funded Debt Ratio, as defined. As of January 31, 1996, the interest rate was LIBOR plus 1.25% or 6.94%. Principal payments are $218,000 per month through October 1, 2000 with the balance of $4,990,000 due on November 1, 2000.
The bank term loan due through June 30, 1999 was fully repaid in December 1995.
In May 1994, the Company redeemed all of its outstanding 14% subordinated debentures due August 1, 2000 at a call price of 102.8%. The Company recorded an extraordinary charge of $1,232,000 ($775,000 after taxes) resulting from the redemption. The extraordinary charge consists of the write-off of deferred finance costs associated with the debentures and a redemption premium paid to holders of the retired debentures.
Certain long-term debt is collateralized by property, plant and equipment having an aggregate net book value of approximately $49,075,000 at January 31, 1996.
As of January 31, 1996, the Company had unsecured lines of credit aggregating $60,000,000, of which $8,398,000 was utilized in the form of outstanding letters of credit.
7. Income Taxes
The provision for income taxes is summarized as follows:
(in thousands) 1996 1995 1994 - - -------------------------------------------------------------------------- Federal: Current............................ $4,044 $1,698 $3,305 Deferred........................... 3,079 1,903 746 State and local: Current............................ 732 836 1,025 Deferred........................... 239 (39) 59 ---------------------------------- Provision for income taxes........... $8,094 $4,398 $5,135 ==================================
The tax effects of temporary differences which comprise the deferred tax assets and liabilities are as follows:
(in thousands)
1996 1995 - - -------------------------------------------------------------------------- Property, plant and equipment.................... $(13,102) $(10,599) Accruals......................................... 1,467 1,468 Inventories...................................... 694 588 Tax credits...................................... -- 557 Investments...................................... 95 121 Other............................................ (251) (251) ----------------------- Net deferred tax liabilities $(11,097) $ (8,116) =======================
The following is a reconciliation of the expected statutory federal income tax provision and the actual provision for income taxes:
(in thousands)
1996 1995 1994 - - -------------------------------------------------------------------------- Expected provision at statutory federal income tax rate.............. $7,533 $3,965 $5,067 State and local income taxes, net of federal benefit............... 631 518 705 Utilization of capital loss carryforward......................... -- -- (1,026) Other................................. (70) (85) 389 ---------------------------------- Provision for income taxes............ $8,094 $4,398 $5,135 ==================================
8. Stockholders' Equity
A summary of the changes in stockholders' equity for the three years ended January 31, 1996 is as follows:
9. Employee Benefit Plans
The Company has a retirement and profit sharing plan with deferred 401(k) savings plan provisions (the "Retirement Plan") for non-union employees meeting certain service requirements and a Supplemental Plan for executives. Under the terms of these plans, the annual discretionary contributions to the plans are determined by the Board of Directors. Under the Retirement Plan, employees may make voluntary contributions and the Company has elected to match an amount equal to 50% of such contributions but in no event more than 3% of the employee's eligible compensation. Under the Supplemental Plan, a participating executive may receive an amount equal to 10% of his compensation, reduced by the amount of any contributions allocated to such executive under the Retirement Plan. Net Company contributions under the plans approximated $650,000, $694,000 and $719,000 for the years ended January 31, 1996, 1995 and 1994, respectively.
The Company has Stock Option Plans which authorize the Company to grant options to purchase shares of the Company's common stock. The aggregate number of shares of the Company's common stock which may be made the subject of options under the 1985, 1988 and 1991 Plans shall not exceed 281,420 shares, 303,876 shares and 500,000 shares, respectively, subject to further adjustment for stock dividends and stock splits. Each plan provides that options are exercisable starting one year from the date of grant, on a cumulative basis at the annual rate of 25 percent of the total number of shares covered by the option.
Changes in stock options for the three years ended January 31, 1996 are as follows:
10. Quarterly Financial Data
The following is a summary of the quarterly results of operations for the years ended January 31, 1996 and 1995 (unaudited as to quarterly information):
11. Restructuring
During fiscal 1995, pre-tax charges of $2,668,000 were recorded to provide for severance and other costs associated with restructuring the Company's organization and its operations. The restructuring charges included $1,924,000 for severance and related benefits resulting from a 6% reduction in the work force, and $744,000 for other costs. The charges are included in other income, net in the fiscal 1995 consolidated statement of operations. The Company's consolidated balance sheets as of January 31, 1996 and 1995 included an accrual of $377,000 and $1,343,000, respectively, relating to the restructuring.
12. Proposed Spin-off
On March 13, 1996, the Company announced that it intends to spin-off its petroleum marketing business to its shareholders on a tax-free basis. The Company would retain its real estate business and lease most of its properties on a long-term net basis to the new company, which will be called "Getty Petroleum Marketing Inc." Getty Petroleum Corp. would change its name to "Getty Realty Corp."
The spin-off is subject to obtaining a favorable tax ruling from the Internal Revenue Service. The proposed transaction is expected to be completed later this year. Each shareholder of Getty Petroleum Corp. would receive a pro rata share of Getty Petroleum Marketing Inc. for each share of Getty Petroleum Corp. The exchange ratio has not yet been determined.
The assets to be transferred to Getty Petroleum Marketing Inc. include the Company's petroleum marketing equipment, supply contracts and related working capital. Getty Realty Corp. would retain the Company's fee and leased properties, including service stations and supply terminals, substantially all of which would be leased or subleased to Getty Petroleum Marketing Inc. Getty Realty Corp. would also retain the Company's heating oil business located in central Pennsylvania and Maryland.
Most of Getty's officers would become officers of Getty Petroleum Marketing Inc., which would provide administrative support for Getty Realty Corp. for an interim period. Getty Petroleum Marketing Inc. intends to create a leveraged Employee Stock Ownership Plan which would result in approximately 5% of Getty Petroleum Marketing's stock being transferred to its employees over a period of time.
Fiscal 1996 pro forma unaudited historical financial data of the two businesses, assuming rent paid by Getty Petroleum Marketing Inc. to Getty Realty Corp. was $55,521,000 and the transaction had occurred on February 1, 1995, are as follows:
(in thousands) Getty Petroleum Marketing Inc. Getty Realty Corp. - - --------------------------------------------------------------------------- (Unaudited) Revenues.......................... $790,621 $91,801 Earnings before interest, taxes, depreciation and amortization... 18,999 34,970 Net earnings...................... 3,382 9,252 Net assets........................ $ 58,527 $52,047
The pro forma financial information is presented for informational purposes only and is not necessarily indicative of the financial results that would have occurred had the spin-off been consummated as of the beginning of fiscal 1996, nor are they necessarily indicative of future results.
Report of Independent Accountants
To the Board of Directors and Stockholders of Getty Petroleum Corp.:
We have audited the accompanying consolidated balance sheets of GETTY PETROLEUM CORP. and SUBSIDIARIES as of January 31, 1996 and 1995, and the related consolidated statements of operations and cash flows for each of the three years in the period ended January 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 consolidated financial position of Getty Petroleum Corp. and Subsidiaries as of January 31, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended January 31, 1996, in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for the impairment of long-lived assets in fiscal 1996, its method of accounting for certain investments in debt and equity securities in fiscal 1995 and its method of accounting for income taxes in fiscal 1994.
COOPERS & LYBRAND L.L.P.
New York, New York March 14, 1996