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 1,865 Getty and other branded retail outlets (also referred to as service stations) of which 652 have convenience food stores located in 13 Northeastern and Middle Atlantic states. The Company stores and distributes petroleum products from 26 distribution terminals and bulk plants. The Company purchases gasoline, fuel oil and related petroleum products from Phibro Energy USA, Inc. pursuant to a three-year supply contract expiring on June 30, 1995, and from other 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 145 vehicles and its distribution network, the Company markets and distributes such products throughout its 13 state marketing region. Of the 1,865 retail outlets supplied by the Company at January 31, 1994, over half 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 39 years. Mr. Leo Liebowitz, a director, President and Chief Executive Officer 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 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, 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. In 1992, the Company implemented a comprehensive program of evaluating retail outlets to determine the long-term viability of certain locations as gasoline stations. This process has resulted in the sale or lease of 64 properties in fiscal 1994 and is expected to result in the disposal of additional locations in the future.
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 successfully. Moreover, the leasing and subleasing of retail outlets to independent operators has provided the Company with a stable and increasing source of rental income and has enabled the Company to reduce its direct operating costs.
The Company directly operated 21 retail outlets at January 31, 1994 utilizing salaried employees. While the Company seeks to lease or sublease retail outlets to independent operators, it intends to retain 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 of the properties.
DISTRIBUTION
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, 1994, the Company has 1,865 Getty and other branded retail outlets as follows:
(i) 21 company operated retail outlets which are operated by salaried employees;
(ii) 449 lessee dealer operated retail outlets (dealers who lease or sublease retail outlets and purchase their petroleum products from the Company);
(iii) 469 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) 141 retail outlets operated by management contractors (dealers who operate the Company's retail outlets pursuant to a management contract);
(v) 206 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) 48 distributors who purchase their petroleum products from the Company, which distributors in turn supply the petroleum product requirements of 579 retail outlets.
As of January 31, 1994, the Company also has 36 non-operating properties being held for disposition and 105 locations in various stages of change.
Getty distributes its petroleum products from 26 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.
The Company is a supplier of #2 heating oil (also known as home heating oil) in the Northeast, supplying fuel 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. In addition, the Company sells home heating oil, propane (LPG) and related services directly to approximately 47,500 retail and commercial customers.
PRODUCT SUPPLY
Effective July 1, 1992, the Company entered into a three-year supply contract to purchase gasoline and middle distillates from Phibro Energy USA, Inc. ("Phibro") at competitive spot related prices. During the year ended January 31, 1994, the Company purchased approximately 60% of its petroleum product requirements from Phibro and approximately 40% from other sources, principally domestic. Substantially all of the Company's supply contracts are for a term of one year or less except for the contract with Phibro which expires June 30, 1995. The Company has no crude oil reserves or refining capacity. 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. Further, 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 decline as a result of such price increases. The Company's management believes, however, that the structure of the supply contract with Phibro reduces to a certain extent the impact of product price volatility due to lower inventory requirements, and, due to the large volume of its purchases, it will continue to have the ability to acquire petroleum products on competitive terms for the foreseeable future.
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 accepts Visa, MasterCard, Discover and American Express credit cards at Getty outlets and plans in the near future to accept debit cards. In addition, the Company has a proprietary fleet fueling card and a related tracking program which provides cost control data to its 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. The petroleum products industry 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 integrated oil companies, which may have greater flexibility to withstand price changes than the Company because of such integration. 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 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 requirements 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 most of its licensed dealers and distributors who elect to renew. In addition, if the Company elects to sell any of its service stations, 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 regulating the discharge of materials harmful to the environment. 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, 1994, the Company had 877 employees, of which 105 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
As of January 31, 1994, the Company owned in fee 457 retail outlets and leased 786 retail outlets, substantially all of which are leased on a long-term net lease basis. The Company, in turn, has leased or subleased 1,128 of such properties to others, substantially all of which are operated as Getty branded service stations.
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.
The retail outlets owned in fee or leased by the Company for each of the five fiscal years ended January 31, 1994 are as follows:
January 31, ------------------------------- 1994 1993 1992 1991 1990 ---- ---- ---- ---- ---- Owned 457 465 463 436 453
Leased 772 791 825 796 729 ----- ----- ----- ----- ----- Total 1,229 1,256 1,288 1,232 1,182 ====== ===== ===== ===== =====
The Company has an upgrading program to enhance the physical appearance of the Company's retail outlets which it expects to complete in fiscal 1995.
As of January 31, 1994, the Company also owned in fee 13 distribution terminals and bulk plants and leased 13 distribution terminals and bulk plants (on a long-term net lease basis) located in New York, New Jersey, Maine, Rhode Island, Pennsylvania, Connecticut and Maryland. The terminals and bulk plants owned or leased by the Company have an aggregate storage capacity of approximately 80 million gallons. The terminals located in East Providence (Rhode Island), Rensselaer (New York) and South Portland (Maine) 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.
The Company leases 309 service stations and 6 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, 1994, collectively owned 46% 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 and equipment, 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, 1994, 1993 and 1992, the Company received from the Partnership $600,000, $576,000 and $552,000, respectively, for administrative and other services rendered to the Partnership and paid rent to the Partnership during such fiscal years of $10,981,000, $11,002,000 and $11,051,000, respectively.
The Company leases approximately 41,000 square feet of office space at 125 Jericho Turnpike, Jericho, New York where it currently maintains its corporate headquarters. The Company owns a 23,000 square foot building located at 175 Sunnyside Boulevard, Plainview, New York, where until June 1987 it maintained its corporate headquarters and which it is attempting to sell. Slattery Group Inc., a majority-owned subsidiary of the Company, owns certain properties, which it is attempting to sell, consisting principally of a nine story office building in Easton, Pennsylvania, and vacant land in Alabama and Ohio.
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 26 and 27 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, which were filed in 1983 and 1986, are pending in New York State Supreme Court in Albany County. In each case, the State is seeking reimbursement for clean up costs, interest and penalties for the alleged discharges. Most of any possible compensatory damages relating to clean up activities and any reimbursement to the State arising out of these two cases are covered by liability insurance.
In 1990, the State of New York brought an action in the New York State Supreme Court in Albany County seeking reimbursement for clean up costs against the Company and two other petroleum companies arising from an alleged 1984 spill of gasoline. In addition to clean up costs of $167,000, the State is seeking penalties of $500,000 and interest. The State has agreed to dismiss the Company from the lawsuit but a co-defendant has withheld consent.
In 1991, the State of New York brought an action in the New York State Supreme Court in Albany County against a subsidiary of the Company seeking reimbursement in the amount of $189,000 for clean up 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 clean up costs against the Company and another oil 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; no further communications have been received.
On October 22, 1993, the State of New York asserted a claim against the Company for $453,868 for cleanup costs incurred at a service station and for $68,000 for statutory penalties; no further communications have been received.
A majority-owned subsidiary of the Company has been named as a Potentially Responsible Party at a Superfund site in Connecticut; the subsidiary is considered to be a "de minimus" discharger and the maximum payment required will be approximately $5,000.
In 1992, the U. S. Environmental Protection Agency ("EPA") advised the Company that it would seek administrative penalties for the Company's failure to cease discharging into, and to close, service station bay drains at approximately 270 retail outlets. The EPA is seeking penalties of approximately $625,000. The Company has had no communications with the EPA during the past fiscal year concerning this matter.
In 1990, Getty Terminals Corp. ("Getty Terminals"), a subsidiary of the Company, was convicted of conspiracy and evasion of 1985 federal gasoline taxes. The Company provided for the costs associated with this matter in its financial statements for the year ended January 31, 1991 and all taxes, penalties and interest have been paid. As a result of the conviction, the Company and one of its subsidiaries, which have not heretofore bid on U.S. Government contracts, have been precluded from doing so until November 20, 1994. In February 1994, Getty Terminals 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 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 Department does not have cause to revoke Getty Terminals' New York State licenses; therefore, management believes that this matter will have no material adverse effect on the Company's financial position or future business.
During the past fiscal year, the following three proceedings were settled:
In 1990, the Commissioner of Environmental Protection of Connecticut filed an action against the Company in the Hartford Superior Court alleging violations at several service station facilities. The matter has been settled and a penalty of $219,500 has been paid.
In 1991, the State of New York brought an action in the New York State Supreme Court in Albany County seeking reimbursement for $15,000 for cleanup costs. During the past fiscal year the amount sought was increased to $72,000 for cleanup costs, together with statutory penalties of $500,000 and interest; the case has been settled and $80,000 has been paid to the State.
On April 2, 1993, the U. S. Environmental Protection Agency filed an administrative complaint seeking $122,000 in penalties for improper storage and disposition of PCB's which were deposited at two service stations by unknown persons. The matter has been settled and a penalty of $95,200 has been paid.
The Company is subject to various laws 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. In the opinion of the Company, the aggregate amount of such environmental and legal liabilities, if any, for which provision has not been made will not have a material adverse effect on its financial position.
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, 1994.
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, 1994 and the year in which each was elected an officer.
Name Age Position Officer Since ---- --- -------- ------------- Leo Liebowitz 66 President and Chief Executive Officer 1971 John J. Fitteron 52 Senior Vice President and Chief Financial Officer 1986 Stephen P. Salzman 57 Senior Vice President and Corporate Secretary 1971 Alvin A. Smith 56 Senior Vice President 1985 L. Douglas Bauguss 35 Vice President 1991 James R. Craig 42 Vice President 1987 Michael K. Hantman 42 Vice President and Corporate Controller 1988 Samuel M. Jones 57 Vice President and General Counsel 1986 Lorenzo Cinque 51 Treasurer 1984
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 Chemical Bank.
Mr. Fitteron joined the Company in 1986 as Senior Vice President and Chief Financial Officer. He has also served as Vice President - Finance and Assistant Secretary of CLS General Partnership Corp. since 1986. Prior to joining Getty, he was a Senior Vice President at Beker Industries Corp., a chemical and natural resource company.
Mr. Salzman became a Senior Vice President of the Company in 1986 and was elected Corporate Secretary in 1985. Prior thereto, he served as Vice President-Finance from 1984 to 1986 and Treasurer of the Company from 1971 to 1984. He has also served as Vice President and Secretary of CLS General Partnership Corp. since 1985.
Mr. Smith has been a Senior Vice President of the Company since 1985. Prior thereto, he was employed at Getty Oil Company as Wholesale Manager and Petroleum Manager.
Mr. Bauguss became a Vice President of the Company in 1991. He joined the Company in 1989 as Director of Real Estate. Prior to joining Getty, he was the Mid-Atlantic Real Estate Manager for Mobil Oil Corp.
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. He has also served as Vice President and Assistant Secretary of CLS General Partnership Corp. since 1986. Prior to joining Getty, he was a Senior Attorney with Texaco Inc.
Mr. Cinque has been Treasurer of the Company since 1984. Prior thereto, he served as Controller of the Company from 1976 to 1984.
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 32 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 20 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 17 through 20 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 21 through 32 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 Compensation" and "Report of the Compensation and Stock Option Committee" on pages 4 through 9 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 headings "Compensation Committee Interlocks and Insider Participation" and "Certain Transactions" on pages 8 and 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 16 are filed as part of this annual report.
2. Financial statement schedules
The financial statement schedules listed in the Index to Financial Statements and Financial Statement Schedules on page 16 are filed as part of this annual report.
3. Exhibits
The exhibits listed in the Exhibit Index on pages 24 through 29 are filed as part of this annual report.
4. Reports on Form 8-K
None.
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 1994 Annual (pages) Report (pages) -------------------------- Data incorporated by reference from attached 1994 Annual Report to Stockholders of Getty Petroleum Corp.: Report of Independent Accountants 32
Consolidated Statements of Operations for the years ended January 31, 1994, 1993 and 1992 21
Consolidated Balance Sheets as of January 31, 1994 and 1993 22
Consolidated Statements of Cash Flows for the years ended January 31, 1994, 1993 and 1992 23
Notes to Consolidated Financial Statements 24-31
Report of Independent Accountants - Supplemental Schedules 18
Schedule V - Property, Plant and Equipment for the years ended January 31, 1994, 1993 and 1992 19
Schedule VI - Accumulated Depreciation and Amortization of Property, Plant and Equipment for the years ended January 31, 1994, 1993 and 1992 20
Schedule VIII - Valuation and Qualifying Accounts and Reserves for the years ended January 31, 1994, 1993 and 1992 21
Schedule IX - Short-Term Borrowings for the years ended January 31, 1994, 1993 and 1992 22
Schedule X - Supplementary Income Statement Information for the years ended January 31, 1994, 1993 and 1992 23
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 1994 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 1994 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 32 of the 1994 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 schedules listed in the index on page 16 of this Form 10-K.
In our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein.
New York, New York March 16, 1994, except as to Note 6, the date of which is April 12, 1994.
EXHIBIT INDEX
GETTY PETROLEUM CORP.
Annual Report on Form 10-K for the fiscal year ended January 31, 1994
Exhibit No. Description Begins on Sequential Page No.
3.1 Certificate of Filed as Exhibit 3.1 to registrant's Incorporation. Registration Statement on Form S-1 filed on June 23, 1971 (Registration No. 2-40881) and incorporated herein by reference.
3.2 Certificate of Amendment of Filed as Exhibit B to Certificate of registrant's Annual Report on Incorporation, filed July Form 10-K for the fiscal year 22, 1977. ended January 31, 1978 (File No. 1-8059) and incorporated herein by reference.
3.3 Certificate of Amendment of Filed as Exhibit 6.3 to Certificate ofIncorporation, Registration Statement on filed September 23, 1980. Form 8-A filed by the Company on July 19, 1985 (File No. 1- 8059) and incorporated herein by reference.
3.4 Certificate of Amendment of Filed as Exhibit 6.4 to Certificate of Incorporation, Registration Statement on filed June 24, 1985. Form 8-A filed by the Company on July 19, 1985 (File No. 1- 8059) and incorporated herein by reference.
3.5 Certificate of Amendment of Filed as Exhibit 6.5 to Certificate of Incorporation, Registration Statement on filed, July 11, 1985. Form 8-A filed by the Company on July 19, 1985 (File No. 1- 8059) and incorporated herein by reference.
Exhibit No. Description Begins on Sequential Page No.
3.6 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.
3.7 Certificate of Amendment Filed as Exhibit A to of Certificate of registrant's definitive proxy Incorporation. statement, dated May 8, 1987, with respect to its Annual Meeting of Stockholders held June 18, 1987 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 on registrant and BankAmerica Form 10-K for the fiscal year Trust Company of New York, ended January 31, 1986 (File as Trustee, relating to the No. 1-8059) and incorporated 14% Subordinated Debentures herein by reference. due August 1, 2000, including form of Debenture.
*4.5 Bond Purchase Agreement dated as of October 1, 1981 among Nassau County Industrial Development Agency, Chemical Bank and Leemilt's Petroleum, Inc., relating to a $1,500,000 industrial development bond due November 1, 1996.
Exhibit No. Description Begins on Sequential Page No.
4.7 $35,000,000 reducing Filed as Exhibit 4.7 to revolving Loan Agreement registrant's Quarterly between Leemilt's Report on Form 10-Q for the Petroleum, Inc. and Bank quarter ended October 31, 1987 of New England, N.A. dated (File No. 1-8059) and as of December 7, 1987 and incorporated herein by reference. related Guaranty Agreement, dated as of December 7, 1987, by and between Getty Petroleum Corp. and Bank of New England, N.A.
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 Agreement Filed as Exhibit 2(a) to between Power Test Corp. registrant's Current Report (now known as Getty on Form 8-K, filed Petroleum Corp.) and February 19, 1985 (File No. Texaco Inc., Getty Oil 1-8059) and incorporated Company, and Getty herein by reference. Refining and Marketing Company, dated December 21, 1984.
10.4 Trademark License Agreement Filed as Exhibit 2(b) to between Texaco Inc., Getty registrant's Current Report Oil Company,Texaco on Form 8-K, filed February Refining and Marketing 19, 1985 (File No. 1-8059) Inc., and Power Test Corp. and incorporated herein by (now known as Getty reference. 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 Test registrant's Current Report Realty Company Limited on Form 8-K, filed February 19, Partnership, as Lessor, 1985 (File No. 1-8059) and and Power Test Corp. incorporated herein by reference. (now known as Getty Petroleum Corp.) (either directly or indirectly through a wholly-owned subsidiary), as Lessee, each dated February 1, 1985.
10.8 Rolling Stock Lease Filed as Exhibit 2(f) to between Power Test Realty registrant's Current Report Company Limited Partnership, on Form 8-K, filed February as Lessor, and Power Test 19, 1985 (File No. 1-8059) Petro Corp. (a wholly-owned and incorporated herein by subsidiary of registrant), reference. as Lessee, dated February 1, 1985.
10.9 Equipment Lease between Filed as Exhibit 2(g) to Power Test Realty Company registrant's Current Report Limited Partnership, as on Form 8-K, filed Lessor, and Power Test February 19, 1985 (File Corp. (now known as Getty No. 1-8059) and incorporated Petroleum Corp.) as Lessee, herein by reference. dated February 1, 1985.
10.16 Registrant's 1985 Stock Filed as Exhibit A to 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 on Agreement dated as of Form 10-K for the fiscal year December 10, 1986 among ended January 31, 1987 (File Getty Petroleum Corp., No. 1-8059) and incorporated Power Test Realty Company herein by reference. Limited Partnership and Bank of New England, N.A.
Exhibit No. Description Begins on Sequential Page No.
10.18 Guaranty Agreement dated Filed as Exhibit 10.18 to as of December 1, 1986 of registrant's Annual Report on Getty Petroleum Corp. Form 10-K for the fiscal year regarding distribution ended January 31, 1987 (File terminal leases between No. 1-8059) and incorporated Power Test Realty Company herein by reference. Limited Partnership and Getty Terminals Corp.
10.19 Form of Indemnification Filed as Exhibit C to Agreement between Getty registrant's definitive proxy Petroleum Corp. and statement, dated May 8, 1987, directors. with respect to its Annual Meeting of Stockholders held June 18, 1987 and incorporated herein by reference.
10.20 Registrant's 1988 Stock Filed as Exhibit A to 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 dated registrant's Annual Report on February 1, 1990. Form 10-K for the fiscal year ended January 31, 1990 (File No. 1-8059) and incorporated herein by reference.
10.22 Supplemental Retirement Filed as Exhibit 10.22 to Plan for Executives of registrant's Annual Report on Getty Petroleum Corp. and Form 10-K for the fiscal year Participating Subsidiaries. ended January 31, 1990 (File No. 1-8059) and incorporated herein by reference.
10.23 Form of Agreement dated as 39 of September 9, 1993 between the Company and its non-director officers and one key employee regarding compensation upon change in Company control.
Exhibit No. Description Begins on Sequential Page No.
10.24 Amendment to Employment Filed as Exhibit 10.24 to Agreement dated February 1, registrant's Annual Report on 1990 (see Exhibit 10.21). Form 10-K for the fiscal year ended January 31, 1991 (File No. 1-8059) and incorporated herein by reference.
10.25 Registrant's Amended and Filed as Exhibit 4.10 to Restated 1991 Stock Option registrant's Registration Plan. Statement on Form S-8 filed on June 18, 1993 (Registration No. 33- 64746) and incorporated herein by reference.
10.26 Petroleum Products Supply Filed as Exhibit 10.26 to Agreement dated as of July registrant's Quarterly Report 1, 1992 by and between on Form 10-Q for the quarter Phibro Energy USA, Inc. and ended July 31, 1992 (File No. Getty Petroleum Corp., 1-8059) and incorporated Getty Terminals Corp., and herein by reference. Aero Oil Company.
13 Annual Report to 42 Stockholders for the fiscal year ended January 31, 1994.
22 Subsidiaries of the 37 registrant.
24 Consent of Independent 38 Accountants.
*Registrant will furnish upon request.
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____________________________ By__________________________ John J. Fitteron, Michael K. Hantman, Senior Vice President and Vice President and Chief Financial Officer Corporate Controller (Principal Financial (Chief Accounting Officer) Officer) April 28, 1994 April 28, 1994
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____________________________ By________________________ Leo Liebowitz, President, Milton Cooper, Chief Executive Officer Director and Director April 28, 1994 April 28, 1994
By____________________________ By_________________________ Herbert Lotman, Milton Safenowitz, Director Director April 28, 1994 April 28, 1994
By____________________________ Warren G. Wintrub, Director April 28, 1994
FINANCIAL REVIEW
GETTY PETROLEUM CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net sales for the year ended January 31, 1994 were $772.6 million as compared with $903.7 million in the preceding year. The decrease in net sales was principally due to the Company's decision to effectively eliminate its bulk wholesale activities (which had a minimal effect on earnings) primarily as a result of the July 1992 product supply contract, resulting in $128.0 million lower sales. Also contributing to the decrease in sales was a 1.3% decrease in average selling prices, offset by a 5.3% increase in retail gallonage sold through 6.9% fewer outlets. Gross profit was $45.7 million in fiscal 1994, an increase of $14.2 million over the prior year. The increase in gross profit was principally due to improved gross margins, increased retail gallonage and the inclusion in the prior year period of approximately $1.2 million of non-recurring or unusual pre- tax charges related to settlement of demurrage charges and completion of a product supply contract with a foreign supplier. Fiscal 1993 sales were $903.7 million as compared with $1.12 billion in the preceding year. The decrease in net sales was due principally to the Company's decision during the latter half of fiscal 1993 to substantially reduce bulk wholesale activities primarily as a result of the 1992 product supply contract, and the elimination of direct Company operated convenience store sales as a result of leasing 141 of such stores in December 1991. Gross profit was $31.5 million in fiscal 1993 compared to $26.4 million in the prior fiscal year. Gross profit, although improved over the prior year, remained lower than historical levels principally due to the continuation of unsatisfactory profit margins during the first nine months of fiscal 1993 resulting from highly competitive market conditions.
Although the Company believes that it has only been modestly affected by inflation due to its ability to generally pass on wholesale cost increases at the retail level, there have been wide and rapid fluctuations in product costs and selling prices. Accordingly, the Company's revenues and resultant profit margins from the sale of petroleum products may continue to undergo significant variations.
Rental income of $30.0 million in fiscal 1994 increased 4.4% over fiscal 1993 rental income of $28.8 million. The increase was due to increased lease rental rates resulting from capital improvements in Company owned and leased locations and lease renewals. Rental income in fiscal 1993 amounted to $28.8 million, an increase of 14.9% over the $25.0 million realized in fiscal 1992. The increase in the 1993 period was principally due to additional rental income earned as a result of the convenience store leases.
Other income, net was $3.9 million in fiscal 1994 which represented a decrease of $.7 million from the prior year. The current year includes $.8 million of gains on dispositions of non-performing assets compared to $2.7 million of gains on dispositions in the prior year. The prior year also included $1.7 million of non-recurring or unusual pre-tax charges relating to cancellation of a cargo freight contract and the planned disposition of two terminals, which charges were incurred principally because of the 1992 product supply contract and severance payments resulting from a work force reduction in October 1992. Other income, net was $4.6 million in fiscal 1993 as compared to $11.8 million in the prior year, a decrease of $7.2 million principally due to a combination of gains or losses from non- recurring or unusual items in both years. Fiscal 1993 included $2.7 million of gains on dispositions of non-performing assets partially offset by the aforementioned $1.7 million of non-recurring or unusual pre-tax charges relating to cancellation of a cargo freight contract, the planned disposition of two terminals and severance payments. Fiscal 1992 included $3.2 million of income recognized by the Company for its portion of a claim settlement, $3.7 million of gains on dispositions of non-performing assets and $1.2 million of miscellaneous income related to the convenience food store operations.
Selling, general and administrative expenses in fiscal 1994 amounted to $28.8 million, a decrease of $2.8 million from the prior year. The decrease was principally due to lower expenses as a result of cost reduction measures previously instituted by the Company, which included a work force reduction in October 1992, and reduced advertising expenditures. Selling, general and administrative expenses in fiscal 1993 amounted to $31.6 million, a decrease of $8.7 million from the prior year. The decrease was principally due to the elimination of expenses as a result of leasing the convenience food stores, cost reduction measures instituted by the Company, which included the work force reduction in October 1992, and reduced advertising expenditures.
Interest expense in fiscal 1994 amounted to $14.6 million, a decrease of $2.2 million from the prior year. The decrease was principally due to reduced debt outstanding during the current fiscal year. Interest expense in fiscal 1993 amounted to $16.8 million, a decrease of $2.2 million from fiscal 1992 primarily due to reduced debt outstanding and lower interest rates.
Depreciation and amortization decreased by $.4 million in fiscal 1994 as compared to the prior year. There was a decrease in amortization of deferred charges of $1.1 million, partially offset by an increase in depreciation of $.7 million as a result of additions to property, plant and equipment. Depreciation and amortization decreased by $.9 million in fiscal 1993 as compared to the prior year principally as a result of the sale in December 1991 of certain equipment used in the convenience food stores, partially offset by a write-off of certain deferred charges in connection with a $30 million term loan, which was prepaid in July 1992.
The Company adopted Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes", during the first quarter of fiscal 1994 and has reported the cumulative effect of the change in accounting principle as a credit to earnings of $.9 million in the consolidated statement of operations.
LIQUIDITY AND CAPITAL RESOURCES
As of January 31, 1994, working capital amounted to $6.2 million as compared to $3.0 million as of January 31, 1993. The increase in working capital was primarily due to funds generated during the year from operations, partially offset by capital expenditures and the reduction in long-term indebtedness.
The Company's principal sources of liquidity are cash flows from operations, which amounted to $38.1 million during the year ended January 31, 1994, and its short-term unsecured lines of credit. As of January 31, 1994, lines of credit amounted to $60 million, of which $37.6 million was utilized in connection with outstanding letters of credit. Management believes that cash requirements for operations and debt service can be met by its available cash balances and short-term investments of $50.6 million, cash flows from operations and its credit lines.
On April 12, 1994, the Company announced that it will call all of the outstanding 14% subordinated debentures due August 1, 2000. The call price will be 102.8% and the redemption date will be May 16, 1994. Interest will be paid to the redemption date. The redemption will be made with existing funds, a portion of which may be funded by long-term debt.
Capital expenditures during the fiscal year ended January 31, 1994 amounted to $20.4 million, including $.9 million related to property acquisitions and $9.2 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 relating to protection of the environment, and to 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. In the opinion of the Company, the aggregate amount of such environmental and legal liabilities, if any, for which provision has not been made will not have a material adverse effect on its financial position.
The Company is impacted by numerous environmental laws and regulations, the most important of which are discussed below.
The Clean Air Act Amendments of 1990 requires that the nine worst ozone non-attainment areas in the U.S. must use reformulated fuels gasoline ("RFG") year round. These geographic areas plus other areas that elect to participate in the program include substantially all of the Company's marketing area. At the same time it issued the final RFG rule, the U.S. Environmental Protection Agency issued a proposed rule to ensure that at least 30% of the oxygen required to make RFG come from renewable sources. A final rule is expected in June 1994. The Company's supply contract with Phibro Energy USA, Inc. provides for RFG gasoline and, therefore, the Company should not experience any impact to meet these new regulations. The Company has blended gasoline with ethanol successfully in many markets for the past four years and has supply arrangements for ethanol. Many of the Company's terminals are equipped with blending equipment. Accordingly, the Company believes it is well positioned to meet the RFG regulations.
The federal underground storage tank ("UST") regulations, enacted in 1988, provide that all non-complying UST's must be upgraded or replaced by the end of 1998. The Company estimates that an additional $47 million may be required to meet the 1998 UST deadline.
Various environmental regulations require the remediation of discharges or releases of petroleum products from UST's. The Company estimates that for existing remediation projects and anticipated remediation required in conjunction with UST replacements it may be required to expend $65 million in the next five years, reduced by $8 million for expected recoveries against certain state underground tank funds.
Numerous regulations affect the Company's terminals and, in particular, the imperviousness of the terminals' ground or surface and federal volatile organic compound ("VOC") air emission regulations. The Company's terminals are substantially in compliance with all environmental regulations and the Company estimates that only $2 million may be required in the next five years for its terminals, except the Company is unable to estimate the cost of complying with the VOC emission regulations which have not been finalized.
Federal and local regulations require the permanent closure of service station bay drains and the removal of waste oil and fuel oil tanks. The Company estimates that it may expend $5 million over the next five years to complete this program.
The foregoing environmental expenditures are comparable in the aggregate to the amounts spent for environmental matters during the past five fiscal years. It is anticipated that the aforesaid environmental expenditures will be provided from operating cash flow.
The Company is a Potentially Responsible Party at one Superfund site in Connecticut for which its maximum exposure is approximately $5,000.
As of January 31, 1994, the Company had $6.8 million accrued for environmental matters, principally for service station site remediations and legal matters. During the years ended January 31, 1994, 1993 and 1992, the Company expensed $9.7 million, $12.4 million and $13.0 million, respectively, for environmental matters, which amount in fiscal 1994 was net of $1.1 million for recoveries against certain state underground tank funds.
The Company cannot predict what environmental legislation or regulations will 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 pollution control systems and equipment. Moreover, the Company cannot predict the number or the magnitude of new discharges or releases from its UST's.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation: The consolidated financial statements include the accounts of Getty Petroleum Corp. and all majority-owned subsidiaries (the "Company"). The Company is principally engaged in the marketing and distribution of petroleum products. All significant intercompany accounts and transactions have been eliminated.
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 overall 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 income 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 (Loss) Per Share: Earnings (loss) per share of common stock is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the year. Common stock equivalents are not included in earnings (loss) per share computations since their effect is immaterial.
Accounting Change: The Company adopted Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes", during the first quarter of fiscal 1994 and has reported the cumulative effect of the change in accounting principle as a credit to earnings of $.9 million in the consolidated statement of operations. In addition to the impact of the cumulative effect on prior years, the effect on the current year of adopting SFAS No. 109 was insignificant. Prior years' financial statements have not been restated to apply the provisions of SFAS No. 109.
2 INVENTORIES
As of January 31, 1994, 1993 and 1992, 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 the principal shareholders of the Company. During the years ended January 31, 1994, 1993 and 1992, the Company billed the Partnership and reflected in other income $600,000, $576,000 and $552,000, respectively, for administrative and other services rendered to the Partnership.
Future minimum annual rentals under capital leases as of January 31, 1994, payable to the Partnership, are as follows:
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:
Rent expense, substantially all of which is included in cost of sales, amounted to $16,955,000, $17,226,000 and $17,276,000 for the years ended January 31, 1994, 1993 and 1992, respectively. Such amounts consist 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 $30,033,000, $28,758,000 and $25,029,000 for the years ended January 31, 1994, 1993 and 1992, respectively, which included $20,308,000, $20,421,000 and $17,960,000 of rent received under subleases. The net book value of fee owned properties leased to lessees was $80,041,000 at January 31, 1994.
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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4 PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
Property, plant and equipment includes the following assets recorded under capital leases, principally with the Partnership:
5 COMMITMENTS AND CONTINGENCIES
The Company is subject to various laws 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. In the opinion of the Company, the aggregate amount of such environmental and legal liabilities, if any, for which provision has not been made will not have a material adverse effect on its 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 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 Department does not have cause to revoke Getty Terminals' New York State licenses; therefore, management believes that 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 financial institutions and, by policy, limits the amount invested with any one financial 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
Aggregate principal payments in subsequent fiscal years relating to long- term debt are as follows (in thousands): 1995--$5,896; 1996--$7,749; 1997-- $6,286; 1998--$21,630; 1999--$3,920 and $10,818 thereafter.
Borrowings under the mortgage loan are payable monthly over the term of the agreement with a final payment of $15,346,000 on January 1, 1998. The loan, which bears interest at prime, is collateralized by first mortgages on certain service station properties.
The subordinated debentures, which bear interest at 14%, are redeemable in whole at any time or in part from time to time, at the option of the Company, at a premium initially equal to the coupon rate declining uniformly over the ten year period ending August 1, 1995. Annual sinking fund payments of $2,625,000, which commenced on August 1, 1990, are calculated to retire 75% of the debentures prior to maturity. As of January 31, 1994, $934,000 of debentures are held in treasury and may be used to meet future sinking fund payments. The debentures are subordinate in right of payment to all existing and future Senior Indebtedness (as defined) of the Company. As of January 31, 1994, Senior Indebtedness amounted to $34,633,000. On April 12, 1994, the Company announced that it will call all of the outstanding subordinated debentures at a price of 102.8% with a redemption date of May 16, 1994.
Certain long-term debt is collateralized by property, plant and equipment having an aggregate net book value of approximately $54,200,000 at January 31, 1994.
As of January 31, 1994, the Company had unsecured lines of credit aggregating $60,000,000, of which $37,624,000 was utilized in the form of outstanding letters of credit. Notes to Consolidated Financial Statements (continued)
7 INCOME TAXES
The provision (credit) for income taxes is summarized as follows:
The tax effects of temporary differences which comprise the deferred tax assets and liabilities at January 31, 1994 are as follows:
As of January 31, 1994, the Company has state tax operating loss carryforwards of approximately $2,110,000 expiring through 2008 which are available to offset future state income taxes. The following is a reconciliation of the expected statutory federal income tax provision (credit) and the actual provision (credit) for income taxes:
As of January 31, 1993, recoverable income taxes amounting to $6,708,000 are included in prepaid expenses and other current assets.
8 STOCKHOLDERS' EQUITY
A summary of the changes in stockholders' equity for the three years ended January 31, 1994 is as follows:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 $719,000, $765,000 and $874,000 for the years ended January 31, 1994, 1993 and 1992, respectively.
The Company has Stock Option Plans which authorize the Company to grant options to purchase shares of the Company's common stock and to also grant stock appreciation rights (SARs) under the 1985 Plan. 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 (including SARs), 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, 1994 are as follows:
10 QUARTERLY FINANCIAL DATA
The following summarizes the quarterly results of operations for the years ended January 31, 1994 and 1993 (unaudited as to quarterly information):
11 ACQUISITION
On May 30, 1991, the Company concluded an agreement to lease on a long-term basis 53 service stations, supply an additional 73 service stations and purchase certain inventories and other assets for approximately $5,803,000. The service stations are located in Massachusetts, Rhode Island and New Hampshire. The leases have been accounted for as operating leases and the assets have been accounted for as a purchase with the purchase price being assigned to the net assets acquired based on the fair value of such assets and liabilities at the date of acquisition as follows:
- -------------------------------------------------------------------------- (in thousands) Net current assets $ 2,170 Property, plant and equipment 1,062 Other assets 2,693 Other, principally deposits (122) ------------- Net assets acquired $ 5,803
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, 1994 and 1993, and the related consolidated statements of operations and cash flows for each of the three years in the period ended January 31, 1994. 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, 1994 and 1993, and the consolidated results of their operations and their cash flows for each of the three years in the period ended January 31, 1994, 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 income taxes in fiscal 1994.
New York, New York March 16, 1994, except as to Note 6, the date of which is April 12, 1994
COMMON STOCK
Getty Petroleum's common stock, its only outstanding voting security, is traded on the New York Stock Exchange (symbol: "GTY"). At April 20, 1994, there were approximately 3,300 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:
CORPORATE DATA
BOARD OF DIRECTORS
Milton Cooper Chairman of the Board of Kimco Realty Corporation and former Vice President of the Company.
Leo Liebowitz President and Chief Executive Officer of the Company.
Herbert Lotman Chairman of the Board and Chief Executive Officer of Keystone Foods Corporation.
Milton Safenowitz Former Executive Vice President of the Company.
Warren G. Wintrub Retired Partner, Member of the Executive Committee and Chairman of the Retirement Committee of Coopers & Lybrand.
EXECUTIVE OFFICERS
Leo Liebowitz President and Chief Executive Officer
John J. Fitteron Senior Vice President and Chief Financial Officer
Stephen P. Salzman Senior Vice President and Corporate Secretary
Alvin A. Smith Senior Vice President, Operations
L. Douglas Bauguss Vice President
Lorenzo Cinque Treasurer
James R. Craig Vice President
Michael K. Hantman Vice President and Corporate Controller
Samuel M. Jones Vice President and General Counsel
SHAREHOLDER INFORMATION
ANNUAL MEETING All shareholders are cordially invited to attend the Company's annual meeting on June 16, 1994 at 10:30 a.m. at 1301 Avenue of the Americas, 2nd Floor, New York, New York. Holders of common stock of record at the close of business on April 20, 1994, are entitled to vote at the meeting. A notice of meeting, proxy statement and proxy were mailed to shareholders with this report.
FORM 10-K AND INVESTOR RELATIONS INFORMATION The Company's fiscal 1994 Annual Report on Form 10-K filed with the Securities and Exchange Commission may be obtained by shareholders without charge by writing to:
Corporate Secretary Getty Petroleum Corp. 125 Jericho Turnpike Jericho, New York 11753
In addition, Getty shareholders are informed about Company news through the issuance of press releases and quarterly reports. Investors, brokers, security analysts and others desiring financial information should contact the Corporate Secretary at (516) 338-1212.
TRANSFER AGENT American Stock Transfer and Trust Company 99 Wall Street New York, New York 10005
ABOUT OUR SHAREHOLDERS As of April 20, 1994, the Company had 12,637,436 outstanding shares of Common Stock owned by approximately 3,300 shareholders of record.
CORPORATE HEADQUARTERS Getty Petroleum Corp. 125 Jericho Turnpike Jericho, New York 11753
Getty Petroleum Corp.'s Common Stock is listed on the New York Stock Exchange under the ticker symbol GTY.
SHAREHOLDER INQUIRIES Inquiries, comments or suggestions concerning Getty Petroleum Corp. are welcome and should be directed to:
Investor Relations 125 Jericho Turnpike Jericho, New York 11753 (516) 338-6000
Telex 175061 GETTY
Telecopier (516) 338-6062