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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
- -- EXCHANGE ACT OF 1934
For the fiscal year ended JANUARY 31, 1997
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
- -- EXCHANGE ACT OF 1934
Commission file number 1-14990
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GETTY PETROLEUM MARKETING INC.
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(Exact name of registrant as specified in its charter)
Maryland 11-3339235
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(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
125 Jericho Turnpike, Jericho, New York 11753
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 516-338-6000
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Securities registered pursuant to Section 12 (b) of the Act:
Name of each exchange on
Title of each class which registered
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Common stock, $.01 par value New York Stock Exchange
Securities registered pursuant to Section 12 (g) of the Act:
None
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(Title of Class)
Indicate by check mark whether registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes No X
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
The aggregate market value of the voting stock held by nonaffiliates (8,052,526
shares) of the Company was $32,210,104 as of April 22, 1997.
The registrant had outstanding 13,439,698 shares of common stock as of April
22, 1997.
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PART 1
ITEM 1. BUSINESS
Getty Petroleum Marketing Inc. ("Marketing" or the "Company") was
incorporated in Maryland on October 1, 1996, to be the successor to the
petroleum marketing and New York Mid-Hudson Valley heating oil businesses of
Getty Petroleum Corp. (now known as Getty Realty Corp.). On January 31, 1997,
Getty Petroleum Corp. transferred such businesses to Marketing, and on March
21, 1997 completed the spin-off of Marketing by distributing the stock of
Marketing to Getty Petroleum Corp. stockholders on a one-for-one basis (the
"spin-off"). Marketing's principal executive offices are located at 125
Jericho Turnpike, Jericho, New York 11753.
GENERAL
Marketing, together with its subsidiaries, is one of the nation's largest
independent marketers of petroleum products. Marketing serves retail and
wholesale customers through a distribution and marketing network of 1,560 Getty
and other branded retail outlets (also referred to as "service stations")
located in 12 Northeastern and Middle-Atlantic states, of which approximately
30% have convenience food stores. Marketing stores and distributes petroleum
products from 10 distribution terminals and bulk plants. Marketing purchases
gasoline, fuel oil and related petroleum products from a number of Northeast
and Middle-Atlantic suppliers. These products are delivered by cargo ship,
barge, pipeline and truck to Marketing's distribution terminals and bulk plants
located in Marketing's marketing region. Through its truck transportation fleet
of 141 vehicles and its distribution network, Marketing sells and distributes
such products throughout its 12 state marketing region. Of the 1,560 retail
outlets supplied by Marketing at January 31, 1997, approximately two thirds are
held by Marketing under long-term leases or subleases with Getty Realty Corp.
("Realty"). The remaining retail outlets purchase petroleum products from
Marketing under contract as licensed Getty dealers or from licensed Getty
distributors who purchase Getty products from Marketing. Marketing also sells
on a wholesale basis gasoline, fuel oil, diesel fuel and kerosene from
distribution terminals and bulk plants in truckload and barge quantities and
sells fuel oil, kerosene, propane and oil burner and related services to
residential, commercial and governmental customers in New York's Mid-Hudson
Valley. The distribution of motor fuels accounted for approximately 96% of net
sales in each of the three fiscal years ended January 31, 1997.
Marketing and its predecessors have been in the petroleum marketing
business for over 40 years. Mr. Leo Liebowitz, Chairman, Chief Executive
Officer, President and a director of Marketing, and Mr. Milton Safenowitz, a
director and former executive vice president of Marketing's predecessors,
entered the petroleum marketing business in 1955 with one service station and
have pursued a strategy of expanding the business principally through
acquisitions. Prior to 1985, Marketing's predecessors had expanded into five
states under various brand names, principally Power Test. On February 1, 1985,
Marketing's predecessors acquired the marketing and distribution assets of
Getty Oil Company in the Northeastern and Mid-Atlantic states from a subsidiary
of Texaco Inc. The Getty acquisition included the Getty trademark and trade
name and added service stations, distribution terminals and a wholesale heating
oil and middle distillate marketing network in six states.
During the period from 1985 to 1991, Marketing's predecessors 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, Marketing's predecessors 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. Commencing in 1992, Marketing's predecessors
implemented a comprehensive program of evaluating retail outlets to determine
the long-term viability of certain locations as gasoline stations. Over the
last five years, this process has resulted in the divestment of non-strategic
and uneconomic retail outlets. Pursuant to the terms of a master lease ("Master
Lease") between Realty and Marketing, executed as part of the spin-off, except
for certain locations presently leased to third parties for non-Getty brand
uses, Marketing has leased from Realty those retail outlets which were owned by
Realty and certain of its subsidiaries at the time of the spin-off and
subleased from Realty those retail outlets which were leased by Realty and
certain of its subsidiaries at the time of the spin-off.
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OPERATING STRATEGY
Marketing's operating strategy is to market motor fuels through service
stations operated by independent Getty-licensed dealers, many of whom sublease
such service stations and convenience stores from Marketing. Marketing's
dealers either buy their petroleum products from Marketing or from licensed
Getty distributors who purchase Getty products from Marketing, or sell
Marketing's petroleum products and receive a commission. Marketing 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 Marketing with a steady
and increasing source of rental income and has enabled Marketing to reduce its
direct operating costs.
Marketing directly operated two retail outlets at January 31, 1997
utilizing salaried employees. While Marketing seeks to sublease retail outlets
to independent operators, it historically retains a small 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 outlets have convenience food stores, automotive repair
centers and car washes. Marketing receives higher rentals from such properties
as a result of such additional uses.
Marketing intends to expand its retail operations by purchasing or leasing
new sites and by entering into supply agreements with third parties. Under the
Master Lease and other agreements, Realty has no obligation to procure and
lease new properties to Marketing.
DISTRIBUTION
The retail outlets sell gasoline, diesel fuel and other related petroleum
products (such as motor oil and lubricants) under Marketing's 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, and Virginia.
As of January 31, 1997, Marketing had 1,560 Getty and other branded retail
outlets as follows:
(i) 2 Company operated retail outlets which are operated by salaried
employees;
(ii) 250 sublessee dealer operated retail outlets (dealers who sublease
retail outlets and purchase their petroleum products from Marketing);
(iii) 683 commission sublessee dealer operated retail outlets (dealers who
sublease retail outlets and receive a commission for sale of Marketing's
petroleum products);
(iv) 93 retail outlets operated by management contractors (dealers who
operate Marketing's retail outlets pursuant to a management contract);
(v) 108 contract dealer retail outlets (dealers who purchase their
petroleum products from Marketing or sell Marketing's petroleum products
on a commission basis but do not sublease retail outlets from
Marketing); and
(vi) 34 distributors who purchase their petroleum products from Marketing,
which distributors in turn supply the petroleum product requirements of
424 retail outlets.
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The table below summarizes the aggregate additions and deletions to the
number of retail outlets during each of the three fiscal years ended January
31, 1997:
<TABLE>
<CAPTION>
RETAIL OUTLETS RETAIL OUTLETS
AT BEGINNING AT END
FISCAL YEAR OF PERIOD ADDITIONS DELETIONS OF PERIOD
- ----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
1997 1,625 7 72 1,560(a)
1996 1,751 7 133 1,625
1995 1,865 8 122 1,751
</TABLE>
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(a) Includes 283 retail outlets operated by Uni-Marts, Inc., of which 111 are
subleased from Marketing. See Note 6 to the consolidated financial
statements.
Marketing generally extends three-year lease terms to its dealers, except
for new dealers, who generally receive a one-year trial lease. Such leases
generally provide for fixed 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 Marketing.
Marketing distributes its petroleum products from 10 distribution
terminals and bulk plants, which are leased from Realty pursuant to the terms
of the Master Lease. These distribution terminals and bulk plants are located
in New York, New Jersey, Rhode Island, Pennsylvania, and Connecticut, and have
an aggregate storage capacity of approximately 57 million gallons. The
terminals located in East Providence, Rhode Island and Rensselaer, New York are
deep-water terminals, capable of handling large vessels. In addition, Marketing
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 Marketing's truck transportation fleet
subsidiary, whose drivers are compensated in part on an incentive-based system.
On December 27, 1996, Uni-Marts, Inc ("Uni-Marts") notified Realty that,
effective December 31, 1997, it would not renew its various leases and
subleases of approximately 100 service station properties from Realty or the
existing petroleum supply agreement between Realty and Uni-Marts with respect
to such service stations and certain additional service stations owned or
operated by Uni-Marts. Uni-Marts subsequently advised Realty by letter that it
may be interested in negotiating and entering into revised arrangements. While
Realty has preliminarily discussed such matters with Uni-Marts, no such
agreement has been reached. In connection with the spin-off, Marketing became
the sublessor or sub-sublessor under the leases and subleases with Uni-Marts,
and became a party to the existing supply agreement. Marketing believes that
it will be able to re-lease the approximately 100 affected service station
properties. The loss of motor fuel product sales to Uni-Marts pursuant to the
existing supply agreement, if not replaced, could have a material adverse
effect on Marketing's revenues. Marketing believes such loss of product sales
would not materially impact its operating income because the affected leased
service station properties should be re-leased to retail dealers at higher
retail product margins to be realized by Marketing than the current lower
wholesale product margins under the supply agreement with Uni-Marts. Net sales
and rental income attributable to the Uni-Marts agreement amounted to $90.3
million (or 10.6% of net sales) and $4.6 million (or 13.9% of rental income),
respectively, for the fiscal year ended January 31, 1997.
Marketing also sells, through its KOSCO subsidiary, heating oil, propane
(LPG) and related services directly to approximately 26,900 retail and
commercial customers in the New York Mid-Hudson Valley. In addition, Marketing
is a wholesale supplier of #2 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
Marketing to retail outlets and consumers.
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PRODUCT SUPPLY
Marketing, through its predecessors, has entered into agreements with a
number of Northeast and Mid-Atlantic suppliers for the purchase of refined
petroleum products. These agreements typically have one-year terms, and prices
under the agreements are generally based on formulas which are tied to the New
York Harbor price for the petroleum product being purchased. Marketing 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 in times of shortage. Furthermore, a large, rapid increase in
petroleum prices could adversely affect Marketing's margins and/or
profitability if Marketing'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, based upon its experience during
times of shortage, Marketing will continue to have the ability to acquire
petroleum products on competitive terms due in part to the large volume of its
purchases and the storage capacity at its distribution terminals.
MARKETING
In order to provide efficient service to retail dealers and other
customers, Marketing is divided into four marketing regions. Marketing's
regional marketing personnel provide significant guidance, counseling and
assistance to Marketing's dealers, including advice on retail operations. The
marketing personnel also supervise the Company operated retail outlets.
Marketing 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.
Marketing has a co-branded Getty MasterCard, and its retail outlets
generally accept Visa, MasterCard, Discover, Diners Club and American Express
credit cards and "NYCE" and "MAC" debit cards. In addition, Marketing has a
Getty fleet fueling card and its retail outlets generally accept certain other
fleet fueling cards which have tracking programs that provide cost control data
to fleet customers.
COMPETITION
Marketing 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 Marketing
competes with a substantial number of integrated oil companies and other
companies who may have greater assets, financial resources and sales.
Accordingly, Marketing's earnings may be adversely affected by the marketing
policies of such companies, which may have greater flexibility to withstand
price changes than Marketing. Marketing competes for new dealers and
distributors primarily on the basis of Getty brand acceptance, location,
supply, price and marketing support. The retail outlets in Marketing'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. Although compliance with those laws and regulations
may have a significant impact on results of operations or liquidity for any
single period, Marketing believes that the costs related to such compliance,
except for the environmental matters discussed below, have not had and are not
expected to have a material adverse effect on the competitive or financial
position of Marketing.
Marketing is not a refiner and, therefore, is not subject to the Petroleum
Marketing Practices Act ("PMPA"), a federal law, with respect to its Getty
branded stations. However, pursuant to Marketing's agreements with
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approximately one-half of its Getty dealers and distributors, Marketing has
voluntarily extended to them coverage under PMPA. Under PMPA, Marketing
complies with certain notice requirements (generally 90 days) and extends
nondiscriminatory contracts to certain of its Getty licensed dealers and
distributors, whose franchises cannot be terminated or not renewed unless
certain PMPA imposed prerequisites are met as provided in Marketing's
agreements. Although a licensed dealer or distributor who is covered by PMPA is
not required to renew his or her franchise, because Marketing has agreed to
comply with PMPA with respect to such dealers or distributors, Marketing is
required to renew the franchises of such dealers and distributors who elect to
renew. However, franchisees may be terminated or not renewed for violating
certain provisions of Marketing's agreements as permitted under PMPA. The PMPA
permitted grounds for termination or non-renewal include, among other things,
non-payment of rent, misuse of trademark, bankruptcy, criminal misconduct,
condemnation and expiration of an underlying lease. Also, Marketing may elect
to non-renew with a franchisee upon a determination made in good faith that the
franchise relationship is uneconomical to Marketing. In such latter instance,
Marketing must, in accordance with PMPA, offer to the franchisee the right to
purchase Marketing's leasehold interest in the property at a bona fide price.
Under the terms of the Master Lease with Realty, Marketing would be required to
offer to assign its leasehold interest in the property (including all renewal
options) to the franchisee who is covered by PMPA.
In addition, Marketing's operations are governed by numerous federal,
state and local environmental laws and regulations. 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 Marketing'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.
Environmental expenses have been attributable to remediation, monitoring,
soil disposal and governmental agency reporting incurred in connection with
contaminated sites and the replacement or upgrading of underground storage
tanks (together with related piping, underground pumps, wiring and monitoring
devices, the "USTs") to meet federal, state and local environmental standards,
as well as routine monitoring and tank testing.
Realty has agreed to pay all costs relating to, and to indemnify Marketing
for, all scheduled known pre-distribution environmental liabilities and
obligations, all scheduled future upgrades necessary to cause USTs to conform
to the 1998 federal standards (the "1998 Standards"), and all environmental
liabilities and obligations arising out of discharges with respect to
properties containing USTs that have not been upgraded to meet the 1998
Standards that are discovered prior to the date such USTs are upgraded to meet
the 1998 Standards (collectively, the "Realty Environmental Liabilities").
Marketing has not reflected a liability for the Realty Environmental
Liabilities in its consolidated balance sheet since Realty remains the primary
obligor for such liabilities. In the unlikely event that Realty fails to
remediate a contaminated property and Marketing is held jointly and severally
responsible for the remediation costs, Realty is obligated to indemnify
Marketing, and any remediation costs paid by Marketing will be offset against
Marketing's rental obligations to Realty under the Master Lease. Because of
such rental offset, it is remote that Marketing would incur any incremental
costs in connection with any such remediation.
Marketing will be responsible for and will indemnify Realty with respect
to all environmental obligations and liabilities other than the Realty
Environmental Liabilities. No amounts have been included for Marketing
environmental obligations and liabilities as such amounts are not currently
probable and estimable. However, future environmental expenditures may have a
significant impact on results of operations for any single fiscal year or
interim period, though Marketing believes that such costs will not have a
material adverse effect on Marketing's financial position.
Marketing believes that it is in substantial compliance with federal,
state and local provisions enacted or adopted pertaining to environmental
matters. Although Marketing 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
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have had no material adverse effect on its competitive position.
PERSONNEL
As of January 31, 1997, Marketing had 521 employees, of which 216
employees, consisting of truck drivers and service technicians, are represented
by Amalgamated Local Union 355. Marketing considers its relationships with its
employees and the union to be satisfactory.
SPECIAL FACTORS REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Annual Report on Form 10-K or others made
hereafter (including orally) may constitute "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance and achievements
of the Company to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking statements. Such
factors include, but are not limited to: volatility of petroleum marketing
margins; maturity of the petroleum marketing industry; the impact of energy
efficiency and technology on demand for petroleum products; competition; the
effects of regulation; potential conflicts with Realty; and the lack of prior
operating history of Marketing as an independent company or of a market for its
common stock. See "Risk Factors" in the Company's Registration Statement on
Form 10, No. 001-14990.
ITEM 2. PROPERTIES
Realty and Marketing have entered into a Master Lease under which service
station and convenience store properties and terminal facilities (the
"Properties") are leased or subleased by Realty as the Lessor to Marketing as
the Lessee. The Properties will be used for gasoline sales, convenience stores,
and other complementary lawful uses in conjunction with the sale of petroleum
products or convenience store items, except when the provisions of any
underlying lease are more restrictive. Marketing may sublet any property,
provided that Marketing remains fully responsible for a sublessee's performance
and, except in cases of economic abandonment (as described below), a sublease
for uses other than those described above will require Realty's consent. Except
for certain environmental and UST obligations described below, the Master Lease
is a "triple-net" lease, with Marketing assuming responsibility for the cost of
all taxes, maintenance, repairs, insurance and other operating expenses.
The Properties leased or subleased by Realty to Marketing pursuant to the
Master Lease are as follows:
<TABLE>
<CAPTION>
NUMBER OF
DISTRIBUTION TERMINATION DATE
NUMBER OF TERMINALS AND UNDER THE MASTER LEASE
SERVICE STATIONS BULK PLANTS (NOT INCLUDING RENEWALS)
---------------- ----------- ------------------------
<S> <C> <C> <C>
Owned by Realty and Leased to Marketing 358 2 January 31, 2012
Leased by Realty from Power Test Realty Company
Limited Partnership* and
Subleased to Marketing 265 5 January 31, 2012
Leased by Realty from Third Parties and
Subleased to Marketing 411 3 Various dates coincident
with the termination
dates of the applicable
underlying leases, but
not later than January
------- --- 31, 2012
1,034 10
</TABLE>
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*See Item 13. Certain Relationships and Related Transactions.
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Rent for each of the Properties has been set using the fair market value of
each such Property, assuming the USTs have been upgraded to meet the 1998
Standards and such Properties are free of known environmental contamination,
since Realty is to be responsible for all such costs. Rent for each Property
will increase at the end of each five-year period by the net increase in the
Consumer Price Index for all items in the Northeast Region for such five-year
period, such increase not to exceed fifteen percent (15%). Rents for all
Properties are payable in advance on the first day of the month. The initial
term of the Master Lease is (I) fifteen years with respect to Properties owned
in fee by Realty and leased to Marketing and Properties leased by Realty from
Power Test Realty Company Limited Partnership and subleased to Marketing and
(ii) the length of time remaining under underlying lease terms (which ranges
from one to fifteen years under the Master Lease) with respect to other
Properties leased by Realty from other third parties and subleased to
Marketing. The Master Lease terms for each category of Properties described
above also include four ten-year renewal options (or, with respect to category
(ii), such shorter period as the underlying lease may provide), which may be
exercised by Marketing with two years advance notice on an individual property
basis for all Properties then subject to the Master Lease. For the subleased
Properties, Realty has agreed to use reasonable efforts to extend the
underlying lease terms upon conditions acceptable to Marketing. In the event
that Marketing desires not to renew the sublease upon terms (including any
underlying lease term extensions negotiated by Realty) available to it, Realty
may extend or renew the lease and sublease the property to a third party after
the end of Marketing's term. The Bylaws of Marketing contain a provision
requiring that the renewal of leases under the Master Lease, including the
exercise of any renewal options, must be approved by a majority of Directors,
including, for so long as Outside Directors (as defined in Item 10 below) are
required to constitute a majority of the Board of Directors, a majority of such
Outside Directors. See Item 10. Directors and Executive Officers of the
Registrant.
The Master Lease provides that if during the lease term, Marketing
determines that any of the leased premises have become uneconomic or unsuitable
for their use as a service station or convenience store and has discontinued
use of the Property or intends to discontinue use of the Property as a service
station or convenience store within one year of the date of said determination,
Marketing shall have the right to sublet the Property for any lawful use
without Realty's consent and, prior to the commencement of any such sublease
term, Marketing shall remove any USTs on the Property and thereafter perform
all requisite environmental investigations and/or remediations. Marketing shall
have the right of economic abandonment with respect to no more than ten
Properties during any fiscal year of the lease term. Marketing shall have no
right of economic abandonment for the terminal premises and the premises
subject to third party leases.
Realty may terminate Marketing's right to possession of the Properties
upon the occurrence of an event of default, including a failure of Marketing to
pay rent due under the Master Lease timely or to comply with its covenants
under the Reorganization and Distribution Agreement (the "Distribution
Agreement") between Marketing and Realty pursuant to which the spin-off was
effected.
Realty has agreed to deliver all Properties with active gasoline sales
licenses and permits, and to assist Marketing in the re-registration of all
licenses and permits in the name of Marketing as operator of the locations and
as owner of the underground tanks related thereto. The Master Lease provides
that Marketing may make any alterations consistent with the use of the
Properties as gasoline stations/convenience stores. Any other alterations
require Realty's consent, which will not be unreasonably withheld.
Pursuant to the Master Lease, Realty will be responsible and pay for, and
indemnify Marketing against, all pre-closing liabilities, including
environmental remediation and other matters specifically identified on the
relevant Master Lease schedule. Realty has also agreed to undertake to have all
USTs in compliance with federal underground storage tank regulations not later
than December 22, 1998. Since rental rates under the Master Lease assume that
the Properties comply with the 1998 Standards, in the event that Realty fails
to make the expenditures required for underground storage tank and
environmental compliance, Marketing will have the right to offset the costs of
compliance against its rental obligations under the Master Lease.
Marketing has agreed, pursuant to the Master Lease, to indemnify Realty
against, and be responsible for, all post-closing liabilities, except all
scheduled pre-closing environmental liabilities and obligations, all scheduled
future
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upgrades to nonupgraded USTs, and all environmental liabilities and obligations
arising out of discharges with respect to Properties containing nonupgraded
USTs that are discovered prior to the date such USTs are upgraded to meet the
1998 Standards.
ITEM 3. LEGAL PROCEEDINGS
In 1991, the State of New York brought an action in the New York Supreme
Court in Albany County against KOSCO, Marketing's subsidiary, 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.
There has been no activity in this proceeding in the past several years.
The only other legal proceedings pending against Marketing are certain
personal injury and property damage proceedings pending against Marketing's
trucking subsidiary and against KOSCO. These proceedings are not expected,
individually or in the aggregate, to have a material adverse effect on
Marketing's financial position or results of operations. Moreover, pursuant to
the Distribution Agreement, Realty has agreed to defend all existing
proceedings and indemnify Marketing and its subsidiaries with respect thereto.
Pursuant to the Distribution Agreement, Realty will retain liability for
current proceedings relating to the pre-spin-off operation of the business of
Marketing including the aforementioned trucking subsidiary and KOSCO. In the
event any plaintiff in such a proceeding should seek to add Marketing as a
defendant, Realty will, pursuant to the Distribution Agreement, indemnify and
defend Marketing in such proceeding.
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, 1997, other than certain matters
relating to the spin-off as to which Getty Petroleum Corp., as the sole
stockholder of Marketing, executed a written consent.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Marketing's common stock, its only outstanding voting security, is traded on
the New York Stock Exchange (symbol: "GPM"). At April 22, 1997, there were
approximately 3,000 holders of record of Marketing's common stock. The stock
began trading on the New York Stock Exchange on March 27, 1997. The price
range of the Company's common stock from March 27, 1997 to April 22, 1997 was a
high of $5.375 per share and a low of $4.00 per share. Marketing had paid no
dividends on its common stock.
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ITEM 6. SELECTED FINANCIAL DATA
Years ended January 31,
(in thousands)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Operations:
Revenues $888,543 $791,194 $753,735 $776,285 $906,656
Net earnings (loss) (15,225) 3,664 (2,434) 1,818 (7,303)
Pro forma net (loss)(a) (16,143) - - - -
Pro forma net (loss)
per share (a) (1.21) - - - -
Financial Position:
Total assets 135,500 124,498 117,097 111,515 112,413
Stockholders'
equity 54,541 50,311 37,061 41,991 39,811
</TABLE>
(a) For further information, see Note 12 to the consolidated financial
statements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
INTRODUCTION
The following discussion should be read in conjunction with the
consolidated financial statements of Marketing appearing elsewhere in this
Annual Report on Form 10-K. The results set forth in the consolidated
financial statements of Marketing should not be taken as indicative of future
operations. Marketing's results of operations in future periods will reflect
certain expenses not incurred in prior periods associated with operating and
reporting as a separate, publicly held company.
The consolidated financial statements contained in this Annual Report on
Form 10-K have been prepared on the basis that the assets and liabilities of
the petroleum marketing business were transferred using historical carrying
values as recorded by Realty, and Marketing's results of operations and cash
flows were derived from Realty's historical financial statements. The
consolidated financial statements of Marketing reflect all costs of doing
business. Historical rental expense to Realty was established on the basis of
the fair market value of the leased properties, which assumed that the
properties have been upgraded to meet the 1998 Standards and are free of known
environmental contamination, since Realty is responsible for all such costs as
described under "-- Environmental Matters" below.
Assets, liabilities, revenues and expenses were specifically identified as
being related to either the business of Marketing or Realty, except that
Marketing's results of operations include allocations of certain selling,
general and administrative expenses, namely employee benefits, payroll taxes
and travel and entertainment expenses. These expenses were allocated based on
the number of personnel and salaries specifically identified to Marketing.
Management believes these allocations to be reasonable. Assets, liabilities,
revenues and expenses specifically identified were as follows (in thousands):
9
<PAGE> 11
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FISCAL YEAR ENDED
JANUARY 31, 1997 JANUARY 31, 1996
----------------------------------- ------------------------
MARKETING REALTY MARKETING REALTY
--------- ------ --------- ------
<S> <C> <C> <C> <C>
Total assets $ 135,500 $151,848 $ 124,498 $ 152,846
Total liabilities 80,959 103,054 74,187 92,583
Revenues 888,543 87,810 791,194 90,837(a)
Expenses 913,842(a)(b) 76,625 784,869(a)(b) 75,640(b)
</TABLE>
(a) Includes $56,310 and $55,130 of rental payments paid by Marketing to
Realty for the fiscal years ended January 31, 1997 and 1996, respectively.
(b) Includes $1,879 and $1,546 of selling, general and administrative
expenses allocated from Realty to Marketing for the fiscal years ended
January 31, 1997 and 1996, respectively.
OVERVIEW AND OUTLOOK
Marketing's revenues are derived primarily from its operations in the
motor fuel marketing business. Marketing is one of the nation's largest
independent marketers of petroleum products; it distributes, markets and sells
gasoline and diesel fuel to the general public through a network of 1,560 Getty
and other branded retail outlets (also referred to as service stations) located
in 12 Northeastern and Middle-Atlantic states. Approximately 30% of the service
stations also have convenience food stores. Marketing purchases its gasoline,
fuel oil and related petroleum products from a number of Northeast and
Middle-Atlantic suppliers. These products are delivered by cargo ship, barge,
pipeline and truck to Marketing's 10 storage and distribution terminals and
bulk plants, all of which are located in Marketing's distribution region.
Marketing distributes and markets its product to retail outlets through its
distribution network and truck transportation fleet of 141 vehicles. Marketing
engages in activities such as negotiating the prices and terms of the purchase
of the gasoline and diesel fuel, developing the prices, terms and methods of
selling the products to consumers and operators of motor fuel service stations,
monitoring compliance by the service station operators with its standards and
providing marketing services to the operators.
Marketing derives revenues from its wholesale petroleum marketing and
distribution business, which involves the sale of gasoline, fuel oil, diesel
fuel and kerosene from distribution terminals and bulk plants in truckload and
barge, as well as from its heating oil business, which involves the purchase,
storage, transportation and sale of fuel oil, kerosene and propane, and oil
burner and related services to residential and commercial customers in the New
York Mid-Hudson Valley.
The distribution of motor fuels accounted for approximately 96% of net
sales in each of the three fiscal years ended January 31, 1997. Petroleum
products are commodities whose prices depend on numerous factors beyond
Marketing's control. The prices paid by Marketing for its products are affected
by global, national and regional factors and may vary substantially over time.
From time to time, competitive market conditions may limit Marketing's ability
to pass on to its customers large, rapid changes in the price Marketing pays
for its product and accordingly, its operating margins may vary substantially.
Because Marketing's operating margins may vary significantly from time to time
while its rental expense and certain of its other expenses do not, Marketing's
earnings may fluctuate substantially.
RESULTS OF OPERATIONS
Fiscal year ended January 31, 1997 compared to fiscal year ended January
31, 1996
Net sales for the year ended January 31, 1997 ("fiscal 1997") were $855.1
million as compared with $758.9 million for the year ended January 31, 1996
("fiscal 1996"), an increase of 12.7%. Of the 12.7% increase in net sales, two
thirds was attributable to an increase in sales prices and the balance was due
to an increase in sales volume. Average selling prices increased by 8.3% and
retail gallonage sold increased by 49.9 million gallons or 6.9% to 768.3
million gallons, partially offset by a 10.0 million gallon or 4.0% decrease in
wholesale gallonage sold to 237.9 million gallons. The average gasoline volume
per retail outlet increased by 7.7%. Gross profit before depreciation and
amortization
10
<PAGE> 12
(excluding rental and other income) was a loss of $24.1 million for fiscal 1997
compared to a profit of $8.2 million in the comparable period last year. This
$32.3 million decrease was principally due to a $21.2 million pre-tax charge
recorded in the fourth quarter of fiscal 1997 related to a revision of the
Company's estimated future environmental costs (see "Environmental Matters").
In addition, Marketing experienced lower retail product margins of
approximately 1.4 cents per gallon or $10.1 million, a LIFO inventory charge of
$2.5 million, increased rent expense of $1.2 million and lower gross profit
from heating oil operations of $.6 million. This decrease was partially offset
by increased retail sales volumes of 49.9 million gallons or $4.6 million and
an increase in wholesale product margins of approximately 0.4 cents per gallon
or $1.0 million. The LIFO inventory charge was the result of product cost
increases of approximately 18 cents per gallon from January 31, 1996 to January
31, 1997.
Marketing's financial results have depended largely on retail marketing
margins and rental income from its dealers. The petroleum marketing industry
has been and continues to be volatile and highly competitive. The cost of
petroleum products purchased as well as the price of petroleum products sold
have fluctuated widely. 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. Marketing 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 $33.3 million in fiscal 1997 increased 4.0% over fiscal
1996 rental income of $32.0 million. The increase was about equally due to
rent escalations provided under existing lease agreements, lease renewals and
higher rentals as a result of improvements to the facilities.
Selling, general and administrative expenses amounted to $20.3 million for
fiscal 1997 which was comparable to the $20.7 million for fiscal 1996.
Depreciation and amortization was $13.9 million for fiscal 1997 compared
to $13.1 million for fiscal 1996. The increase was due to higher depreciation
as a result of additions to equipment and improvements to facilities. Fiscal
1996 also included $0.3 million of additional depreciation relating to
operating assets 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."
Fiscal year ended January 31, 1996 compared to fiscal year ended January
31, 1995
Marketing's net sales for fiscal 1996 were $758.9 million as compared with
$723.9 million for the year ended January 31, 1995 ("fiscal 1995"). The
increase in net sales of 4.8% was primarily a result of an increase in average
selling prices of 9.6%, partially offset by lower sales volume. Wholesale
gallonage sold decreased by 19.0% or 58.2 million gallons (primarily bulk
sales) to 247.9 million gallons, partially offset by a 2.8% or 19.6 million
gallon increase in retail gallonage sold to 718.4 million gallons through 6.1%
fewer outlets. The average gasoline volume per retail outlet increased by 9%.
Gross profit before depreciation and amortization (excluding rental and other
income) was $8.2 million in fiscal 1996 compared to $2.5 million in the prior
fiscal year. This $5.7 million increase in gross profit was principally due to
higher wholesale product margins of approximately $2.5 million and gross profit
of approximately $2.1 million from increased retail sales volumes.
Rental income of $32.0 million in fiscal 1996 increased 7.3% over fiscal
1995 rental income of $29.9 million. The increase was about equally due to rent
escalations provided under existing lease agreements, lease renewals and higher
rentals as a result of improvements to the facilities.
Selling, general and administrative expenses in fiscal 1996 amounted to
$20.7 million, a decrease of $1.9 million from the prior year. The decrease was
principally due to lower expenses as a result of the October 1994
restructuring.
Depreciation and amortization in fiscal 1996 amounted to $13.1 million, an
increase of $1.5 million over the prior year. The increase was due to higher
depreciation as a result of additions to equipment and improvements to
facilities. Fiscal 1996 also included $0.3 million of additional depreciation
relating to operating assets as a result of the adoption
11
<PAGE> 13
of SFAS No. 121.
In addition to the above-mentioned $0.3 million charge to depreciation
expense for operating assets, Marketing also separately reported, for assets
held for disposal, the cumulative effect of the change in accounting principle
related to SFAS No. 121 as a charge to earnings of $0.3 million in the fiscal
1996 consolidated statement of operations.
LIQUIDITY AND CAPITAL RESOURCES
As of January 31, 1997, Marketing's working capital amounted to $1.1
million as compared to a deficit of $8.7 million at January 31, 1996.
Marketing's working capital deficit at January 31, 1996 resulted from its
historical practice of transferring substantially all of its cash balances to
Realty for centralized cash management purposes. Under the Distribution
Agreement, Marketing received cash from Realty in an amount sufficient to
provide Marketing with net working capital of approximately $1.1 million as of
January 31, 1997.
Marketing has historically been able to operate its business with negative
working capital, principally because most sales are for cash and payment terms
have been received from vendors and for gasoline taxes. Marketing's principal
sources of liquidity are cash flows from operations, which amounted to $5.1
million during the fiscal year ended January 31, 1997. Management believes that
cash requirements for operations, including payments under the Master Lease and
capital expenditures, can be met by cash flows from operations, cash and
equivalents and credit lines. Marketing has obtained uncommitted lines of
credit from two banks in the aggregate amount of $50 million through January
1998, which may be utilized for working capital borrowings and letters of
credit. Borrowings under such lines of credit are unsecured and will bear
interest at the applicable bank's prime rate or, at Marketing's option, 1.1%
above LIBOR. Such lines of credit are subject to renewal at the discretion of
the banks.
During fiscal 1997, the Company experienced product cost increases of
approximately 18 cents per gallon which resulted in higher sales prices to
customers. The Company's accounts receivable balance increased as of January
31, 1997, in comparison to January 31, 1996, principally due to the higher
average selling prices. The product cost increases resulted in a LIFO
inventory charge of $2.6 million during fiscal 1997. The LIFO inventory
charge, coupled with lower inventory levels from the preceeding year, resulted
in a lower inventory balance as of January 31, 1997.
Marketing and Realty have entered into a Master Lease Agreement under
which 1,034 retail outlets and 10 terminal facilities will be leased or
subleased by Realty as the Lessor to Marketing as the Lessee. During the first
year following the Distribution, the annual rental under the Master Lease will
be approximately $57.0 million, compared to approximately $56.3 million for the
fiscal year ended January 31, 1997.
Marketing's capital expenditures for the fiscal years ended January 31,
1997, 1996 and 1995 amounted to $17.8 million, $15.9 million and $16.8 million,
respectively, which included $10.0 million, $8.6 million and $6.5 million,
respectively, for the replacement of USTs. Marketing's capital expenditures
also include discretionary expenditures to improve the image of the service
stations, to improve the terminal facilities and for routine replacement of
service station equipment at existing and newly acquired locations. Pursuant to
the Distribution Agreement, commencing February 1, 1997, expenditures with
respect to tank replacements required to meet the 1998 Standards are the
responsibility of and will be paid by Realty.
ENVIRONMENTAL MATTERS
The petroleum products industry is subject to numerous existing federal,
state and local laws and regulations, including matters relating to the
protection of the environment. Environmental expenses have been attributable to
remediation, monitoring, soil disposal and governmental agency reporting
(collectively, "Remediation Costs") incurred in connection with contaminated
sites and the replacement or upgrading of USTs to meet federal, state and local
environmental standards, as well as routine monitoring and tank testing.
Environmental exposures are difficult to assess and estimate for numerous
reasons, including the extent of contamination, alternative treatment methods
that may be applied, location of the property which subjects it to differing
local laws and regulations and their interpretations, as
12
<PAGE> 14
well as the time it takes to remediate contamination. In developing the
estimates of environmental remediation costs, consideration is given to, among
other things, enacted laws and regulations, assessments of contamination,
currently available technologies for treatment, alternative methods of
remediation and prior experience. Estimates of such costs are subject to change
as contingencies become more clearly defined and remediation treatment
progresses. For the fiscal years ended January 31, 1997, 1996 and 1995, net
environmental expenses included in Marketing's cost of sales amounted to
$34,162,000, $14,346,000 and $11,769,000, respectively, which amounts were net
of probable recoveries from state UST remediation funds.
During the fourth quarter of fiscal 1997, the Board of Directors of Realty
formally approved the spin-off. Under the Master Lease, Realty committed to a
program to bring the leased properties to regulatory closure and, thereafter,
transfer all future environmental risks from Realty to Marketing. Upon
achieving closure of each individual site, Realty's environmental liability
under the Master Lease for that site will be satisfied, and future remediation
obligations will be the responsibility of Marketing. In order to establish the
Remediation Costs obligation and estimate the incremental cost of accelerated
remediation, Marketing and Realty commissioned a detailed property-by-property
environmental study of all retail outlets, with the objective of achieving
closure in approximately five years. This acceleration program, utilizing new,
more effective remediation techniques, resulted in a substantial increase in
environmental costs over those that had been previously identified and accrued,
as the acceleration program contemplates the use of additional active
remediation systems at many sites in lieu of relying on periodic monitoring and
natural attenuation permitted by applicable environmental regulations. As a
result, Marketing revised its estimate of future Remediation Costs in the
fourth quarter of fiscal 1997 and recorded a pre-tax charge in such quarter for
Remediation Costs of $21.2 million. The pre-tax charge resulted from the
acceleration of remediation activities to be paid by Realty through more
aggressive means of treating contaminated sites to bring them to closure in
approximately five years, which resulted in significant incremental Remediation
Costs, changes in estimated Remediation Costs at previously identified
properties, including costs to be incurred in connection with UST upgrades, and
additional charges to comply with AICPA Statement of Position 96-1,
"Environmental Remediation Liabilities."
Realty has agreed to pay all costs relating to, and to indemnify Marketing
for, all scheduled known pre-spin-off environmental liabilities and
obligations, all scheduled future upgrades necessary to cause USTs to conform
to the 1998 Standards, and all environmental liabilities and obligations
arising out of discharges with respect to properties containing USTs that have
not been upgraded to meet the 1998 Standards that are discovered prior to the
date such USTs are upgraded to meet the 1998 Standards (collectively, the
"Realty Environmental Liabilities"). Realty will also collect recoveries from
state UST remediation funds related to Realty Environmental Liabilities.
Marketing has not reflected a liability for the Realty Environmental
Liabilities in its consolidated balance sheet since Realty remains the primary
obligor for such liabilities. The liabilities, which were initially recorded in
Marketing's balance sheet, were subsequently capitalized into stockholders'
equity as a contribution to capital by Realty to Marketing. In the unlikely
event that Realty fails to remediate a contaminated property and Marketing is
held jointly and severally responsible for the Remediation Costs, Realty is
obligated to indemnify Marketing, and any Remediation Costs paid by Marketing
will be offset against Marketing's rental obligations under the Master Lease.
Because of such rental offset, it is remote that Marketing would incur any
incremental costs in connection with any such remediation.
Marketing will be responsible for, and will indemnify Realty with respect
to, all environmental obligations and liabilities other than the Realty
Environmental Liabilities. No amounts have been included for Marketing
environmental obligations and liabilities as such amounts are not currently
probable and estimable. However, future environmental expenditures may have a
significant impact on results of operations for any single fiscal year or
interim period, though Marketing believes that such costs will not have a
material adverse effect on Marketing's financial position.
Marketing cannot predict what environmental legislation or regulation may
be enacted in the future or how existing 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
Marketing and could require substantial additional
13
<PAGE> 15
expenditures for future remediation or the installation and operation of
required environmental or pollution control systems and equipment.
TERMINATION OF UNI-MARTS AGREEMENTS
On December 27, 1996, Uni-Marts notified Realty that, effective December
31, 1997, it would not renew its various leases and subleases of approximately
100 service station properties from Realty or the existing petroleum supply
agreement between Realty and Uni-Marts with respect to such service stations
and certain additional service stations owned or operated by Uni-Marts.
Uni-Marts subsequently advised Realty by letter that it may be interested in
negotiating and entering into revised arrangements. While Realty has
preliminarily discussed such matters with Uni-Marts, no such agreement has been
reached. In connection with the spin-off, Marketing became the sublessor or
sub-sublessor under the leases and subleases with Uni-Marts, and became a party
to the existing supply agreement. Marketing believes that it will be able to
re-lease the approximately 100 affected service station properties. The loss of
motor fuel product sales to Uni-Marts pursuant to the existing supply
agreement, if not replaced, could have a material adverse effect on Marketing's
revenues. Marketing believes such loss of product sales would not materially
impact its operating income because the affected leased service station
properties should be re-leased to retail dealers at higher retail product
margins to be realized by Marketing than the current lower wholesale product
margins under the supply agreement with Uni-Marts. Net sales and rental income
attributable to the Uni-Marts agreement amounted to $90.3 million (or 10.6% of
net sales) and $4.6 million (or 13.9% of rental income), respectively, for the
fiscal year ended January 31, 1997.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
Index to Financial Statements and Financial Statement Schedules Page
----
<S> <C>
Report of Independent Accountants 15
Consolidated Financial Statements:
Consolidated Statements of Operations for the
fiscal years ended January 31, 1997, 1996 and 1995 16
Consolidated Balance Sheets as of January 31, 1997 and 1996 17
Consolidated Statements of Cash Flows for the fiscal years
ended January 31, 1997, 1996 and 1995 18
Notes to Consolidated Financial Statements 19 - 29
Financial Statement Schedule -
Schedule II - Valuation and Qualifying Accounts and
Reserves for the fiscal years ended
January 31, 1997, 1996 and 1995 39
</TABLE>
14
<PAGE> 16
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Getty Petroleum Marketing Inc.:
We have audited the accompanying consolidated financial statements and the
consolidated financial statement schedule of GETTY PETROLEUM MARKETING INC. and
SUBSIDIARIES, as listed in Item 14(a) of this Form 10-K. These financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule 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 Marketing Inc. and Subsidiaries as of January 31, 1997 and 1996, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended January 31, 1997, in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule referred to above, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly,
in all material respects, the information required to be included therein .
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 1996.
Coopers & Lybrand L.L.P.
New York, New York
March 13, 1997, except for Notes 1, 8 and 9,
as to which the date is March 21, 1997.
15
<PAGE> 17
GETTY PETROLEUM MARKETING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
-------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Nt sales $855,076 $758,887 $723,875
Rental income 33,312 32,025 29,860
Other income 155 282 -
-------- -------- --------
888,543 791,194 753,735
-------- -------- --------
Cost of sales (excluding depreciation and amortization) 879,187 750,680 721,354
Selling, general and administrative expenses 20,307 20,702 22,588
Depreciation and amortization 13,922 13,099 11,640
Restructuring charges - - 1,846
Interest expense 426 388 285
-------- -------- --------
913,842 784,869 757,713
-------- -------- --------
Earnings (loss) before provision (credit) for income taxes
and cumulative effect of accounting change (25,299) 6,325 (3,978)
Provision (credit) for income taxes (10,074) 2,379 (1,544)
-------- -------- --------
Earnings (loss) before cumulative effect of accounting
change (15,225) 3,946 (2,434)
Cumulative effect of accounting change - (282) -
-------- -------- --------
Net earnings (loss) $(15,225) $ 3,664 $ (2,434)
======== ======== ========
</TABLE>
See accompanying notes.
16
<PAGE> 18
GETTY PETROLEUM MARKETING INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
JANUARY 31,
-------------------
1997 1996
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 7,517 $ 676
Accounts receivable, less allowance
for doubtful accounts of $1,185
in 1997 and $1,225 in 1996 15,195 12,194
Inventories 15,944 19,917
Deferred income taxes 967 2,220
Prepaid expenses and other
current assets 5,592 2,827
----------- ----------
Total current assets 45,215 37,834
Property and equipment, at cost, less
accumulated depreciation and amortization 88,049 84,116
Other assets 2,236 2,548
----------- ----------
TOTAL ASSETS $ 135,500 $ 124,498
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 24,659 $ 23,378
Accrued expenses 6,765 9,265
Gasoline taxes payable 12,691 13,914
----------- ----------
Total current liabilities 44,115 46,557
Deferred income taxes 19,632 13,789
Other, principally deposits 17,212 13,841
Commitments and contingencies (Notes 4 and 6)
Stockholders' equity 54,541 50,311
----------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 135,500 $ 124,498
=========== ==========
</TABLE>
See accompanying notes.
17
<PAGE> 19
GETTY PETROLEUM MARKETING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
--------------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (15,225) $ 3,664 $ (2,434)
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
Cumulative effect of accounting change - 282 -
Depreciation and amortization 13,922 13,099 11,640
Deferred income taxes 7,096 2,257 659
(Gain) loss on dispositions of property and
equipment (72) (12) 235
Changes in assets and liabilities:
Accounts receivable (3,001) 2,494 1,437
Inventories 3,973 (9,932) (1,156)
Prepaid expenses and other current assets (2,827) 25 (40)
Other assets 257 (46) 278
Accounts payable, accrued expenses and
gasoline taxes payable (2,442) (8,917) 8,089
Other, principally deposits 3,371 779 1,027
----------- ---------- -----------
Net cash provided by operating activities 5,052 3,693 19,735
----------- ---------- -----------
Cash flows from investing activities:
Capital expenditures (17,839) (15,858) (16,787)
Proceeds from dispositions of equipment 173 806 500
----------- ---------- -----------
Net cash used in investing activities (17,666) (15,052) (16,287)
----------- ---------- -----------
Cash flows from financing activities:
Net cash transferred from (to) Getty Realty Corp. 19,455 9,586 (2,496)
----------- ---------- -----------
Net cash provided by (used in) financing
activities 19,455 9,586 (2,496)
----------- ---------- -----------
Net increase (decrease) in cash and equivalents 6,841 (1,773) 952
Cash and equivalents at beginning of year 676 2,449 1,497
----------- ---------- -----------
Cash and equivalents at end of year $ 7,517 $ 676 $ 2,449
=========== ========== ===========
Supplemental disclosure of cash flow information
Cash paid during the year for interest $ 426 $ 388 $ 285
</TABLE>
See accompanying notes.
18
<PAGE> 20
GETTY PETROLEUM MARKETING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Getty Petroleum Marketing Inc., a Maryland corporation ("Marketing"), was
formed on October 1, 1996 as a wholly-owned subsidiary of Getty Petroleum
Corp., now known as Getty Realty Corp. ("Realty"). Realty separated its
petroleum marketing business from its real estate business with each business
to be conducted by a separate, publicly held corporation. In order to effect
the separation of these businesses, Realty transferred to Marketing the assets
and liabilities of the petroleum marketing business and the New York Mid-Hudson
Valley heating oil business previously conducted by a subsidiary of Realty, and
on March 21, 1997 distributed all of the common shares of Marketing to the
stockholders of Realty (the "Distribution"). The Distribution was at the rate
of one share of common stock of Marketing (the "Marketing Common Stock") for
each share of Realty common stock.
The consolidated financial statements of Marketing contained herein have
been prepared on the basis that the assets and liabilities of the petroleum
marketing business were transferred using historical carrying values as
recorded by Realty, and Marketing's results of operations and cash flows were
derived from Realty's historical financial statements. The consolidated
financial statements of Marketing reflect all costs of doing business.
Historical rental expense to Realty (see Notes 4 and 6) was established on the
basis of the fair market value of the leased properties, which assumed that the
properties have been upgraded to meet the 1998 Standards (as defined below) and
are free of known environmental contamination, since Realty is responsible for
all such costs as described below.
Assets, liabilities, revenues and expenses were specifically identified as
being related to either the business of Marketing or Realty, except that
Marketing's results of operations include allocations of certain selling,
general and administrative expenses, namely employee benefits, payroll taxes
and travel and entertainment expenses. Employee benefits, payroll taxes and
travel and entertainment expenses were allocated to Marketing based on number
of personnel and salaries specifically identified to Marketing. Selling,
general and administrative expenses allocated to Marketing from Realty were
$1,879,000, $1,546,000 and $1,348,000 for the fiscal years ended 1997, 1996 and
1995, respectively. Management believes these allocations to be reasonable.
The financial information presented herein is not necessarily indicative
of the financial results that would have occurred had Marketing been operated
as a separate, stand-alone entity during the reporting periods nor is it
necessarily indicative of future results. However, Management believes that
these allocated amounts approximate what the expense would have been on a
stand-alone basis and that any additional costs, excluding additional rent
associated with the Master Lease (see Note 4), would have been immaterial.
Realty uses a centralized approach to cash management. As a result, cash
and equivalents (other than actual cash on hand) were not allocated to
Marketing in the consolidated financial statements. However, under the
Distribution Agreement (as defined below), Marketing will receive $2,863,000
from Realty in order to provide Marketing with net working capital of $1.1
million as of January 31, 1997.
As part of the separation of the petroleum marketing business from the
real estate business, Marketing and Realty have entered into various agreements
which address the allocation of assets and liabilities between them and govern
future relationships, including a Reorganization and Distribution Agreement
(the "Distribution Agreement"), a Master Lease Agreement, a Tax Sharing
Agreement, a Services Agreement and a Trademark License Agreement.
Marketing and Realty have entered into a Services Agreement (the "Services
Agreement"), under the terms of which Marketing will provide certain
administrative and technical services to Realty and Realty will provide certain
limited services to Marketing. Marketing estimates that the net fees to be paid
by Realty to Marketing for services performed (after deducting the fees paid by
Marketing to Realty for services provided by Realty) will initially be
19
<PAGE> 21
approximately $80,000 per month, which amount takes into account Marketing's
additional costs related to providing such services, and will decline as the
services performed decrease. Realty has advised Marketing that it presently
expects that most of such services will be provided by Marketing for
approximately one year.
The following schedule summarizes intercompany transactions between
Marketing and Realty for the three years ended January 31, 1997, 1996 and 1995
(in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Rent expense (including environmental
expenses) paid to Realty $56,310 $55,130 $55,352
Selling, general and administrative expenses
allocated to Marketing 1,879 1,546 1,348
Income taxes paid to (received from) Realty (17,170) 122 (2,203)
Net cash transferred from (to) Realty 19,455 9,586 (2,496)
</TABLE>
Intercompany transactions are settled immediately and, accordingly, average
intercompany balances were insignificant during the periods presented.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation: The consolidated financial statements include the accounts
of Marketing and its wholly-owned subsidiaries. Marketing is principally
engaged in the marketing and distribution of petroleum products in 12
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 results could differ from
those estimates.
Cash and Equivalents: Marketing 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. Marketing enters into product exchange agreements with various
parties to improve its supply logistics and reduce its delivery costs. Net
product exchange positions with other companies are reflected in inventory and
are generally immaterial. Marketing may take positions in the futures market as
part of its overall purchasing strategy in order to reduce the risk associated
with price fluctuations. Gains and losses on futures contracts are included as
a part of product costs and have been immaterial for each of the three years in
the period ended January 31, 1997. As of January 31, 1997 and 1996, outstanding
futures contracts were immaterial.
Property and Equipment: Expenditures for renewals and betterments are
capitalized; maintenance and repairs are charged to income 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.
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.
Recoveries of environmental costs, principally from state underground storage
tank remediation funds, are accrued as income when such recoveries are
considered probable. Such accruals are adjusted as further information develops
or
20
<PAGE> 22
circumstances change.
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.
Accounting Change: In fiscal 1996, Marketing 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." The
Statement requires that assets used in operations be written down to fair value
when events and circumstances indicate that the assets might be impaired and
the undiscounted cash flows estimated to be generated by those assets are less
than the carrying amount of those assets. SFAS No. 121 also requires that
assets held for disposal be written down to fair value less costs to sell.
Marketing continually evaluates retail outlets to determine the profitability
and long-term viability of certain locations as gasoline stations or
convenience stores, which results in the divestment of non-strategic and
uneconomic retail outlets through sale, lease assignment or lease termination.
Marketing estimates fair value and costs to sell based on the best information
available, including discounted cash flows and comparable market values, in
making whatever estimates, judgments and projections are considered necessary.
Marketing recorded a pre-tax charge of $267,000 in fiscal 1996 relating to
operating assets, which is included in depreciation and amortization expense,
due to continuing operating losses resulting from changes in local market or
operating conditions at certain retail outlets. In addition, Marketing reported
the cumulative effect of the change in accounting principle relating to assets
held for disposal as an after-tax charge to earnings of $282,000 in the
consolidated statement of operations. As of January 31, 1997, the net book
value of marketing equipment and leasehold improvements at locations held for
disposal amounted to $242,000. The impact of these retail outlets on the
results of operations of Marketing was not material for each of the three years
in the period ended January 31, 1997. While these retail outlets are being
actively marketed, the disposal period may exceed one year for some locations.
3. INVENTORIES
Had the Company utilized the first-in, first-out ("FIFO") inventory
method, inventories would have been higher by $2,481,000 as of January 31,
1997. As of January 31, 1996 and 1995, the carrying value of the Company's
LIFO inventories approximated the FIFO method or replacement cost.
4. LEASES
Marketing and Realty have entered into a Master Lease Agreement (the
"Master Lease") under which 1,034 retail outlets and 10 terminal facilities
(the "Properties") are leased or subleased by Realty as the lessor to Marketing
as the lessee. The Properties will be used for gasoline sales, convenience
store uses and other complementary or related lawful uses in conjunction with
the sale of petroleum products and convenience store items, except when the
provisions of any underlying lease are more restrictive. Marketing may sublet
any property, provided that Marketing remains fully responsible for a
sublessee's performance and, except in cases of economic abandonment (as
described below), a sublease for non-petroleum purposes will require Realty's
consent. Except for certain environmental obligations, and obligations
pertaining to USTs (as defined below), the Master Lease will be a "triple-net"
lease, with Marketing retaining responsibility for all taxes, maintenance,
repairs and insurance. For financial statement purposes, such Master Lease has
been recorded as an operating lease.
Rent for each of the Properties has been set using the fair market value
of each such Property, assuming the USTs have been upgraded to meet the 1998
Standards and such Properties are free of known environmental contamination,
since Realty is to be responsible for all such costs. Rent for each Property
will increase at the end of each five-year period by the net increase in the
Consumer Price Index for all items in the Northeast Region for such five-year
period, such increase not to exceed fifteen percent (15%). Rents for all
Properties are payable in advance on the first day of
21
<PAGE> 23
the month. The initial term of the Master Lease is (I) fifteen years with
respect to Properties owned in fee by Realty and leased to Marketing, and
Properties leased by Realty from Power Test Realty Company Limited Partnership
and subleased to Marketing and (ii) the length of time remaining under
underlying lease terms (which ranges from one to fifteen years under the Master
Lease) with respect to Properties leased by Realty from other third parties and
subleased to Marketing. The Master Lease terms for each category of Properties
described above also include four ten-year renewal options (or, with respect to
category (ii), such shorter period as the underlying lease may provide), which
may be exercised by Marketing with two years advance notice on an individual
property basis for all Properties then subject to the Master Lease. For the
subleased Properties, Realty has agreed to use reasonable efforts to extend the
underlying lease terms upon conditions acceptable to Marketing. In the event
that Marketing desires not to renew the sublease upon terms (including any
underlying lease term extension negotiated by Realty) available to it, Realty
may extend or renew the lease and sublease the property to a third party after
the end of Marketing's term.
The Master Lease provides that if during the lease term, Marketing
determines that any of the leased premises have become uneconomic or unsuitable
for their use as a service station or convenience store and has discontinued
use of the property or intends to discontinue use of the property as a service
station or convenience store within one year of the date of said determination,
Marketing shall have the right to sublet the property for any lawful use
without Realty's consent and, prior to the commencement of any such sublease
term, Marketing shall remove any USTs on the Property and thereafter perform
all requisite environmental investigations and/or remediations. Marketing shall
have the right of economic abandonment with respect to no more than ten
properties during any fiscal year of the lease term. Marketing shall have no
right of economic abandonment for the terminal premises and the premises
subject to third party leases.
Rent expense paid to Realty, which is included in cost of sales, amounted
to $56,310,000, $55,130,000 and $55,352,000 for the years ended January 31,
1997, 1996 and 1995, respectively. Future minimum annual rentals under
noncancelable operating leases which have terms in excess of one year as of
January 31, 1997, payable to Realty, are as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
- -----------------------
<S> <C>
1998 $ 56,797
1999 56,236
2000 55,590
2001 55,289
2002 54,929
Thereafter 506,369
--------
$785,210
========
</TABLE>
Rent income received under subleases amounted to $33,312,000, $32,025,000
and $29,860,000 for the years ended January 31, 1997, 1996 and 1995,
respectively. Substantially all of these subleases have remaining terms which
range from one to three years. Although there is no assurance that these
subleases will be renewed, no significant difficulty has been experienced in
subleasing retail outlets.
22
<PAGE> 24
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DEPRECIABLE
1997 1996 LIFE (YEARS)
---- ---- ------------
<S> <C> <C> <C>
Equipment $163,944 $153,005 10 to 15
Motor vehicles 3,910 3,014 3 to 10
Furniture and fixtures 1,308 1,566 10
Leasehold improvements 1,723 1,197 See Note 2
-------- --------
170,885 158,782
Less, accumulated depreciation and amortization 82,836 74,666
-------- --------
$ 88,049 $ 84,116
======== ========
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
The petroleum products industry is subject to numerous existing federal,
state and local laws and regulations, including matters relating to the
protection of the environment. Environmental expenses have been attributable to
remediation, monitoring, soil disposal and governmental agency reporting
(collectively, "Remediation Costs") incurred in connection with contaminated
sites and the replacement or upgrading of underground storage tanks, related
piping, underground pumps, wiring and monitoring devices (collectively, the
"USTs") to meet federal, state and local environmental standards, as well as
routine monitoring and tank testing. For the years ended January 31, 1997, 1996
and 1995, net environmental expenses included in Marketing's cost of sales
amounted to $34,162,000 , $14,346,000 and $11,769,000, respectively, which
amounts were net of probable recoveries from state UST remediation funds.
During the fourth quarter of fiscal 1997, the Board of Directors of Realty
formally approved the Distribution. Under the Master Lease, Realty committed to
a program to bring the leased properties to regulatory closure and, thereafter,
transfer all future environmental risks from Realty to Marketing. In order to
establish the Remediation Costs obligation and estimate the incremental cost of
accelerated remediation, Marketing and Realty commissioned a detailed
property-by-property environmental study of all retail outlets, with the
objective of achieving closure in approximately five years. As a result,
Marketing revised its estimate of future Remediation Costs in the fourth
quarter of fiscal 1997 and recorded a pre-tax charge in such quarter for
Remediation Costs of $21.2 million. The pre-tax charge resulted from the
acceleration of remediation activities to be paid by Realty through more
aggressive means of treating contaminated sites to bring them to closure in
approximately five years, which resulted in significant incremental Remediation
Costs, changes in estimated Remediation Costs at previously identified
properties, including costs to be incurred in connection with UST upgrades, and
additional charges to comply with AICPA Statement of Position 96-1,
"Environmental Remediation Liabilities."
Realty has agreed to pay all costs relating to, and to indemnify Marketing
for, all scheduled known pre-Distribution environmental liabilities and
obligations, all scheduled future upgrades necessary to cause USTs to conform
to the 1998 federal standards (the "1998 Standards"), and all environmental
liabilities and obligations arising out of discharges with respect to
properties containing USTs that have not been upgraded to meet the 1998
Standards that are discovered prior to the date such USTs are upgraded to meet
the 1998 Standards (collectively, the "Realty Environmental Liabilities").
Realty will also collect recoveries from state UST remediation funds related to
Realty Environmental Liabilities.
Marketing has not reflected a liability for the Realty Environmental
Liabilities in its consolidated balance sheet since Realty remains the primary
obligor for such liabilities. The liabilities, which were initially recorded in
Marketing's balance sheet, were subsequently capitalized into stockholders'
equity as a contribution to capital by Realty to Marketing. In the unlikely
event that Realty fails to remediate a contaminated property and Marketing is
held jointly and severally responsible for the Remediation Costs, Realty is
obligated to indemnify Marketing, and any Remediation
23
<PAGE> 25
Costs paid by Marketing will be offset against Marketing's rental obligations
under the Master Lease. Because of such rental offset, it is remote that
Marketing would incur any incremental costs in connection with any such
remediation.
Marketing will be responsible for, and will indemnify Realty with respect
to, all environmental obligations and liabilities other than the Realty
Environmental Liabilities. No amounts have been included for Marketing
environmental obligations and liabilities as such amounts are not currently
probable and estimable. However, future environmental expenditures may have a
significant impact on results of operations for any single fiscal year or
interim period, though Marketing believes that such costs will not have a
material adverse effect on Marketing's financial position.
On September 16, 1996, Realty entered into an Agreement with the New York
State Department of Taxation and Finance (the "Department"), settling the
license revocation proceedings brought by the Department whereby Marketing's
wholly-owned subsidiary Getty Terminals Corp.'s ("Getty Terminals") licenses
and permits for its three New York State terminals and its New York motor fuels
and diesel distributor licenses would be terminated. The revocation proceedings
were the result of the 1990 conviction of Getty Terminals for federal gasoline
excise tax evasion and conspiracy in 1985. Under the terms of the Agreement,
Marketing's wholly-owned subsidiary, Kingston Oil Supply Corp. ("KOSCO") would
be permitted to assume all of the storage and distribution activities and
operations now performed by Getty Terminals in New York. KOSCO will have to
obtain new or amended licenses and permits and, upon the issuance thereof,
Getty Terminals will surrender its licenses and permits. KOSCO's Board of
Directors will consist of three persons, one of whom shall be an independent
director, and KOSCO shall provide periodic reports to the Department relating
to New York tax laws. The Agreement shall terminate on September 15, 1999.
Under the terms of the settlement, Realty, Marketing or any of their
subsidiaries are not required to pay any penalties or fines. Prior to the
Distribution, Marketing became a party to the Agreement, and in connection with
the Distribution, KOSCO became a subsidiary of Marketing. The implementation
of the settlement will have no adverse impact on the results of operations,
financial condition or liquidity of Marketing, including the ability to sell
motor fuels in New York or operate its New York State terminals.
Marketing is subject to various legal proceedings in the ordinary course
of business. Such proceedings are not expected to have a material adverse
effect on Marketing's financial condition or results of operations. Pursuant to
the Distribution Agreement, Realty has agreed to defend all existing
proceedings and indemnify Marketing with respect thereto.
In order to minimize Marketing's exposure to credit risk associated with
financial instruments, Marketing 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. Except for one
customer, Uni-Marts, Inc. ("Uni-Marts"), which represents approximately 10% to
11% of Marketing's net sales for each of the three years in the period ended
January 31, 1997, concentration of credit risk with respect to trade
receivables generally is limited due to the large number of customers
comprising Marketing's customer base.
On December 27, 1996, Uni-Marts notified Realty that, effective December
31, 1997, it would not renew its various leases and subleases of approximately
100 service station properties from Realty or the existing petroleum supply
agreement between Realty and Uni-Marts with respect to such service stations
and certain additional service stations owned or operated by Uni-Marts.
Uni-Marts subsequently advised Realty by letter that it may be interested in
negotiating and entering into revised arrangements. While Realty has
preliminarily discussed such matters with Uni-Marts, no such agreement has been
reached. In connection with the spin-off, Marketing became the sublessor or
sub-sublessor under the leases and subleases with Uni-Marts, and became a party
to the existing supply agreement. Marketing believes that it will be able to
re-lease the approximately 100 affected service station properties. The loss of
motor fuel product sales to Uni-Marts pursuant to the existing supply
agreement, if not replaced, could have a material adverse effect on Marketing's
revenues. Marketing believes such loss of product sales would not materially
impact its operating income because the affected leased service station
properties should be re-leased to retail dealers at higher retail product
margins to be realized by Marketing than the current lower wholesale product
margins under the supply agreement with Uni-Marts. Net sales and rental income
attributable to the Uni-Marts agreement amounted to $90.3 million (or 10.6% of
net sales) and $4.6 million (or 13.9% of rental income), respectively, for the
year ended
24
<PAGE> 26
January 31, 1997.
In January 1997, Marketing obtained uncommitted lines of credit with two
banks in the aggregate amount of $50,000,000 through January 1998, which may be
utilized for working capital borrowings and letters of credit. Borrowings
under such lines of credit are unsecured and will bear interest at the
applicable bank's prime rate or, at Marketing's option, 1.1% above LIBOR.
Marketing's financial results depend largely on retail marketing margins
and rental income from its dealers. The petroleum marketing industry has been
and continues to be volatile and highly competitive. The cost of petroleum
products purchased by Marketing 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.
7. INCOME TAXES
Marketing and Realty have entered into a Tax Sharing Agreement that
defines the parties' rights and obligations with respect to filing of returns,
payments, deficiencies and refunds of federal, state and other income,
franchise or motor fuel taxes relating to Realty's business for tax years prior
to and including the Distribution and with respect to certain tax attributes of
Realty after the Distribution. In general, the Tax Sharing Agreement provides
that Realty will be responsible for all federal, state and local tax
liabilities that relate to periods (or portions thereof) ending on or prior to
the Distribution. For periods subsequent to the Distribution, Marketing will
file its own tax returns. The provision for income taxes is reflected in the
consolidated financial statements as if Marketing had been operating on a
stand-alone basis.
Marketing's provision (credit) for income taxes is summarized as follows
(in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------------- ------- ----------------
<S> <C> <C> <C>
Current $ (17,170) $ 122 $ (2,203)
Deferred 7,096 2,257 659
-------------- ------- ----------------
Provision (credit) for income taxes $ (10,074) $ 2,379 $ (1,544)
============== ======= ================
</TABLE>
The tax effects of temporary differences which comprise the deferred tax
assets and liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Property and equipment $(19,634) $(13,889)
Accruals 892 1,626
Inventories 77 694
-------- --------
Net deferred tax liabilities $(18,665) $(11,569)
========= ========
</TABLE>
The following is a reconciliation of the expected statutory federal income
tax provision (credit) and the actual provision (credit) for income taxes (in
thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------- -----------
<S> <C> <C> <C>
Expected provision (credit) at statutory federal income tax
rate $ (8,856) $ 2,214 $ (1,392)
State and local income taxes, net of federal benefit (1,716) 183 (182)
Other 498 (18) 30
----------- ------- ----------
Provision (credit) for income taxes $ (10,074) $ 2,379 $ (1,544)
============ ======= ==========
</TABLE>
8. STOCKHOLDERS' EQUITY
As of January 31, 1997, the total number of shares of all classes of stock
that Marketing has authority to issue is
25
<PAGE> 27
40,000,000, 30,000,000 of which are shares of Marketing Common Stock, $.01 par
value per share, and 10,000,000 of which are shares of preferred stock, $.01
par value per share. As of January 31, 1997, 1,000 shares of Marketing Common
Stock were issued and outstanding, all of which were owned by Realty. In
connection with the Distribution, 12,754,675 shares of Marketing Common Stock
were issued to stockholders of Realty. In addition, 671,298 shares of
Marketing Common Stock were issued to the Marketing ESOP shortly after the
Distribution (See Note 9).
A summary of the changes in stockholders' equity for the three years ended
January 31, 1997 is as follows (in thousands):
<TABLE>
<S> <C>
Balance, February 1, 1994 $ 41,991
Net loss (2,434)
Net cash transferred to Realty (2,496)
--------
Balance, January 31, 1995 37,061
Net income 3,664
Net cash transferred from Realty 9,586
--------
Balance, January 31, 1996 50,311
Net loss (15,225)
Net cash transferred from Realty 19,455
--------
Balance, January 31, 1997 $ 54,541
========
</TABLE>
9. EMPLOYEE BENEFIT PLANS
Effective after the Distribution, Marketing will have 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 Marketing 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.
Contributions, net of forfeitures, made by Realty under the comparable Realty
retirement plan and supplemental plan in respect of persons who are Marketing
employees approximated $557,000, $569,000 and $606,000 for the years ended
January 31, 1997, 1996 and 1995, respectively. In addition, Marketing has
contributed $328,000, $346,000 and $334,000 to a union welfare plan for the
years ended January 31, 1997, 1996 and 1995, respectively. Such amounts are
included in the accompanying consolidated statements of operations.
In connection with the Distribution, Marketing established a leveraged
Employee Stock Ownership Plan (the "Marketing ESOP") that purchased newly
issued shares of Marketing Common Stock from Marketing equal to five percent of
the outstanding shares of Marketing. The Marketing ESOP purchased such
newly-issued shares from Marketing using the proceeds of a loan made by
Marketing to the Marketing ESOP. The Marketing ESOP loan will be repaid over a
five-year period, and Marketing will contribute annually to the Marketing ESOP
the funds required to repay such loan. The principal amount of the Marketing
ESOP loan is equal to the number of shares purchased by the Marketing ESOP
(671,298) multiplied by the purchase price per share of $4.80. It is expected
that the repayment of the Marketing ESOP loan will result in projected
allocations to participants' accounts of an aggregate of 134,260 shares of
Marketing Common Stock per year, allocated in proportion to compensation.
Marketing expects that the five percent of the outstanding stock of Marketing
purchased by the Marketing ESOP will be allocated to covered employees over a
five-year period. Commencing March 21, 1997, the date of the Distribution,
Marketing will recognize a charge to operating results of $4,088,000 over a
five-year period relating to the Marketing ESOP based on the value of the
Marketing Common Stock.
Immediately prior to the Distribution, each holder of an option to acquire
shares of Realty Common Stock pursuant
26
<PAGE> 28
to Realty's 1985, 1988 and 1991 Stock Option Plans received, in exchange
therefor, two separately exercisable options: one to purchase shares of Realty
Common Stock (a "Realty Option") and one to purchase Marketing Common Stock (a
"Marketing Option"), each exercisable for the same number of shares and
containing substantially equivalent terms as the pre-Distribution option. The
exercise price of each Getty Option and Marketing Option (each, a "Replacement
Option") was set so as to preserve the Aggregate Spread (as defined below) in
value attributed to the options currently held by such directors, officers and
key employees. The "Aggregate Spread" is an amount representing the difference
between the exercise price of an option and the price of a share of Realty
Common Stock immediately prior to the Distribution multiplied by the number of
shares underlying such option. Certain presently unexercisable options covering
a total of 223,587 shares became immediately exercisable at the date of the
Distribution for persons covered by certain "change of control" agreements.
Accordingly, Marketing will recognize a charge to operating results of $637,000
at the date of the Distribution equal to the product of the number of such
options and the difference between their exercise price and the market price.
The Marketing Stock Option Plan authorizes Marketing to grant options to
purchase shares of Marketing Common Stock. The aggregate number of shares of
Marketing Common Stock which may be made the subject of options under the
Marketing Stock Option Plan will not exceed 1,300,000 shares, subject to
further adjustment for stock dividends and stock splits. The Marketing Stock
Option 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.
The following is a schedule of stock option prices and activity relating
to the Realty Stock Option Plans for the three fiscal years ended January 31,
1997. Subsequent to the Distribution, the exercise price of each Realty option
and Marketing option was set so as to preserve the Aggregate Spread (as defined
above) in value attributed to the options held by the holders:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------- ---------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE
OF EXERCISE OF EXERCISE OF EXERCISE
SHARES PRICE(a) SHARES PRICE(a) SHARES PRICE(a)
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 927,428 $13.02 811,220 $12.87 708,983 $13.17
Granted 166,400 14.75 128,000 13.88 107,250 10.88
Exercised (29,519) 11.60 (8,000) 10.95 (1,620) 11.97
Cancelled (50,083) 13.95 (3,792) 13.51 (3,393) 13.90
--------- ------ ------- ------ ------- ------
Outstanding at
end of year 1,014,226 $13.30 927,428 $13.02 811,220 $12.87
========= ====== ======= ====== ======= ======
Exercisable at
end of year 687,761(b) $13.38 650,506 $13.12 564,094 $13.31
========= ====== ======= ====== ======= ======
Available for grant at
end of year 176,881 50,007 254,557
========= ====== =======
</TABLE>
- ----------------
(a) In connection with the Distribution, each Realty option was reformed into
separate options for Realty common stock and Marketing Common Stock. The
exercise price of each reformed Marketing option is 22.71% of the original
exercise price.
(b)Excludes 223,587 shares which become exercisable at the date of the
Distribution.
27
<PAGE> 29
The following table summarizes information concerning options outstanding
and exercisable at January 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------- -------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life (Years) Price Exercisable Price
- --------------- ----------- ------------- -------- ------------ --------
<S> <C> <C> <C> <C> <C>
$10.49 - 14.75 871,876 6 $12.56 545,411 $12.21
17.12 - 18.62 142,350 3 17.84 142,350 17.84
--------- -------
1,014,226 687,761
========= =======
</TABLE>
Marketing accounts for its stock-based employee compensation plans under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and, accordingly, no compensation cost has been recognized for
stock options granted. Pro forma net income and earnings per share effects of
applying the provisions of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" were immaterial for the years ended
January 31, 1997 and 1996.
10. QUARTERLY FINANCIAL DATA
The following is a summary of the quarterly results of operations for the
years ended January 31, 1997 and 1996 (unaudited as to quarterly information):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
YEAR ENDED
FISCAL 1997: APRIL 30 JULY 31 OCTOBER 31 JANUARY 31 JANUARY 31
- ------------ -------- ------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues $ 203,729 $ 221,473 $ 217,023 $ 246,318 $ 888,543
Gross profit (loss)(a) (5,746) 8,514 (5,530) (21,349) (24,111)
Depreciation and amortization 3,331 3,371 3,457 3,763 13,922
Earnings (loss) before income taxes (5,678) 7,900 (5,841) (21,680)(b) (25,299)(b)
Net earnings (loss) (3,289) 4,576 (3,379) (13,133) (15,225)
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
YEAR ENDED
FISCAL 1996: APRIL 30 JULY 31 OCTOBER 31 JANUARY 31 JANUARY 31
- ------------ -------- ------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues $ 194,967 $ 187,796 $ 215,486 $ 192,945 $ 791,194
Gross profit (loss)(a) (1,789) 2,425 4,031 3,540 8,207
Depreciation and amortization 3,095 3,146 3,339 3,519 13,099
Earnings (loss) before income
taxes and cumulative effect of
accounting change (2,113) 1,756 3,535 3,147 6,325
Net earnings (loss) (1,600)(c) 1,101 2,200 1,963 3,664(c)
</TABLE>
- -----------
(a) Gross profit (loss) is calculated as net sales (excluding rental and
other income) less cost of sales (excluding depreciation and
amortization).
28
<PAGE> 30
(b) Includes pre-tax charge of $21,182 related to revision of estimate of
future environmental remediation costs.
(c) Includes charge to earnings of $282 from the cumulative effect of
adopting Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of."
11. RESTRUCTURING
During fiscal 1995, pre-tax charges of $1,846,000 were recorded to provide
for severance and other costs associated with restructuring Marketing's
organization and its operations. The restructuring charges included $1,171,000
for severance and related benefits resulting from a 6% reduction in the work
force, and $675,000 for other costs. Other costs include $203,000 related to
cancellation of computer equipment leases, $168,000 related to computer system
modifications, $141,000 related to the reduction of office space, $100,000
related to legal fees and $63,000 for other miscellaneous costs. Marketing's
consolidated balance sheet as of January 31, 1996 included an accrual of
$326,000 relating to the restructuring. There was no remaining accrual as of
January 31, 1997.
12. PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial information reflects
adjustments to the historical financial statements of Marketing for the year
ended January 31, 1997 as if the Distribution had been effected as of February
1, 1996. Such information includes additional rent paid to Realty by Marketing
as provided in the Master Lease, reflects the net impact of the Services
Agreement, the charge relating to the Marketing ESOP and additional selling,
general and administrative expenses as a result of Marketing operating as a
separate publicly-held company. The impact of these adjustments on the pro
forma consolidated balance sheet would not have been material.
(in thousands, except
per share amount)
<TABLE>
<CAPTION>
<S> <C>
Revenues $889,503
Cost of sales 879,897
Selling, general and administrative expenses 22,111
Loss before income taxes (26,853)
Net loss (16,143)
Per share data:
Net loss per share $ (1.21)
Weighted average shares outstanding 13,345(a)
</TABLE>
(a) The pro forma weighted average number of shares of common stock
outstanding includes weighted average shares outstanding (based on Realty's
weighted average shares outstanding) plus 671,298 shares to reflect the
issuance of the Marketing ESOP shares.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
29
<PAGE> 31
Part III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
Pursuant to the Marketing Bylaws, the Board of Directors has initially
fixed the number of directors at five persons. The current term of each
director named below began with his election in 1996 and will expire at the
next annual meeting of the stockholders of Marketing.
The Bylaws of Marketing (the "Marketing Bylaws") provide that a majority
of the entire Board of Directors may increase or decrease the number of
directors, provided that the number thereof shall never be less than the
minimum number required by Maryland General Corporation Law , nor more than
fifteen. The tenure of office of any director shall not be affected by any
increase or decrease in the number of directors. The Marketing Bylaws also
require that until the earlier of (i) such time as Mr. Leo Liebowitz, Mr.
Milton Safenowitz and Mr. Milton Cooper and their related parties collectively
own less than 15% of the voting stock of Realty or Marketing or (ii) the Master
Lease terminates or expires, a majority of the Marketing Board shall be
comprised of persons (the "Outside Directors") who are neither (x) owners of
voting stock in excess of 5% of outstanding voting stock of Realty nor (y)
directors or officers of Realty. See Item 12. Security Ownership of Certain
Beneficial Owners and Management. Three members of the Marketing Board are
Outside Directors. Messrs. Liebowitz and Safenowitz are also directors of
Realty.
Set forth below is a list of the names and ages of, and certain
biographical information concerning, the directors of Marketing as of April 15,
1997, including information concerning their principal occupations for the past
five years.
<TABLE>
<CAPTION>
NAME AND AGE YEAR ELECTED PRINCIPAL OCCUPATIONS FOR PAST FIVE YEARS
- ------------ ------------ -----------------------------------------
<S> <C> <C>
Leo Liebowitz -- 69 1996 President, Chief Executive Officer and Director of
Realty since 1971. Director, President and Treasurer of
CLS General Partnership Corp., the general partner of
Power Test Investors Limited Partnership.
Milton Safenowitz -- 69 1996 Director of Realty since 1971 and Executive Vice
President of Realty until February 1990. Director,
Executive Vice President and Assistant Secretary of CLS
General Partnership Corp.
Ronald E. Hall -- 65 1996 Chairman of the Board of Howell Corporation, a company
engaged primarily in the exploration, production,
acquisition and development of oil and gas properties,
since 1995. Formerly President and Chief Executive
Officer of CITGO Petroleum Corporation ("CITGO"), from
1985 to 1995. Director of CITGO from 1990 to 1995.
Richard E. Montag -- 65 1996 Vice President -- Development of the Richard E.
Jacobs Group, a regional shopping mall developer, since
1982.
Matthew J. Chanin --42 1996 Senior Managing Director of Prudential Capital Group,
an investment unit of the Prudential Insurance Company
of America ("Prudential") since 1995. Has served in
other executive and management positions with
Prudential for more than the past five years.
</TABLE>
EXECUTIVE OFFICERS
Set forth below is a list of the names and ages, as of April 15, 1997, of
all executive officers of Marketing indicating
30
<PAGE> 32
their positions with Marketing and their principal occupations during the past
five years.
<TABLE>
<CAPTION>
NAME AND AGE OFFICER SINCE PRINCIPAL OCCUPATIONS FOR PAST FIVE YEARS
- ------------ ------------- -----------------------------------------
<S> <C> <C>
Leo Liebowitz - 69 1997 Chairman, Chief Executive Officer, President and Director of
Marketing. President, Chief Executive Officer and Director
of Realty since 1971.
Alvin A. Smith - 59 1997 Senior Vice President and Chief Operating Officer of Marketing.
Senior Vice President and Chief Operating Officer of Realty from
1994 until March 21, 1997, the date of the spin-off. Mr. Smith had
been a Senior Vice President of Realty since 1985 and became Chief
Operating Officer in 1994. Prior thereto, he was employed at Getty
Oil Company as Wholesale Manager and Petroleum Manager.
James R. Craig - 45 1997 Vice President-Marketing of Marketing. Vice President - Marketing of Realty
from 1987 until March 21, 1997, the date of the spin-off. He joined Realty in
1982 as a District Manager and became Manager - Retail Sales in 1984. Prior
to joining Realty, he was a Regional Manager of Amerada Hess Corp.
Michael K. Hantman -45 1997 Vice President and Corporate Controller of Marketing. Vice
President and Corporate Controller of Realty from 1991 until March 21,
1997, the date of the spin-off. He joined Realty in 1985 as Corporate Controller.
Prior to joining Realty, he was a Principal at Arthur Young & Company,
an international accounting firm.
Samuel M. Jones - 60 1997 Vice President, Corporate Secretary and General Counsel of
Marketing. Vice President, Corporate Secretary and General
Counsel of Realty from 1994 until March 21, 1997, the date of the spin-off.
Mr. Jones joined Realty in 1986 as Vice President and General Counsel
and assumed the additional position of Corporate Secretary in 1994. Prior to
joining Realty, he was a Senior Attorney with Texaco Inc.
</TABLE>
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Pursuant to Section 16(a) of the Securities Exchange Act and the rules
issued thereunder, Marketing's executive officers and directors are required to
file with the Securities and Exchange Commission and the New York Stock
Exchange reports of ownership and changes in ownership of the Marketing Common
Stock. Copies of such reports are required to be furnished to Marketing.
Based on its review of Forms 3 and 4 received by it during fiscal 1997 and of
Forms 5 received by it with respect to fiscal 1997, Marketing believes that
during fiscal 1997 all of its executive officers and directors complied with
the Section 16(a) requirements.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth, as to the Chief Executive Officer and the
other four most highly compensated executive officers of Marketing, information
concerning the compensation paid by Realty for services in all capacities to
Realty and its subsidiaries to or for the benefit of such persons during the
periods indicated. All such persons were executive officers of Realty during
the periods indicated, and became executive officers of Marketing after January
31, 1997.
31
<PAGE> 33
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM
FISCAL YEAR ENDED JANUARY 31, COMPENSATION AWARDS
------------------------------------------------------------------- -------------------------
OTHER ANNUAL RESTRICTED ALL OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION STOCK AWARDS OPTIONS COMPENSATION
POSITION YEAR $ $ ($)(1) ($) (#) ($)(2)
- ------------------------- ---- ------ ----- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
LEO LIEBOWITZ 1997 404,103 123,400 69,843
DIRECTOR, PRESIDENT AND 1996 404,103 263,000 59,886
CHIEF EXECUTIVE OFFICER 1995 387,228 164,500 60,713
ALVIN A. SMITH 1997 311,192 205,000 10,000 55,515
SENIOR VICE PRESIDENT AND 1996 301,192 205,000 15,000 45,373
CHIEF OPERATING OFFICER 1995 268,606 99,000 15,000 40,353
SAMUEL M. JONES 1997 178,156 116,261 10,000 32,949
VICE PRESIDENT, GENERAL 1996 163,307 115,000 15,000 26,629
COUNSEL AND CORPORATE
SECRETARY 1995 154,646 79,000 10,000 26,616
JAMES R. CRAIG 1997 158,565 125,000 10,000 31,422
VICE PRESIDENT 1996 145,537 125,000 15,000 24,419
1995 137,843 79,000 10,000 24,260
MICHAEL K. HANTMAN 1997 120,429 116,261 10,000 26,170
VICE PRESIDENT AND 1996 115,667 110,000 15,000 21,787
CORPORATE CONTROLLER 1995 110,274 79,000 10,000 22,458
</TABLE>
- ------------------
(1) None of the Executive Officers listed received perquisites or other
personal benefits that exceeded the lesser of $50,000 or 10% of the salary
and bonus for such officer.
(2) All other compensation includes Realty's contributions to the defined
contribution retirement profit sharing plan, matching contributions under
the company's 401(k) savings plan, Realty's contributions to the
Supplemental Retirement Plan for executives and term life insurance
premiums as follows:
<TABLE>
<CAPTION>
FISCAL YEAR DEFINED COMPANY SUPPLEMENTAL
ENDED CONTRIBUTION MATCH RETIREMENT TERM LIFE
JANUARY 31 RETIREMENT PLAN 401(K) PLAN PLAN INSURANCE
---------- --------------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Leo Liebowitz 1997 $ 2,373 $ -- $ 65,246 $ 2,224
1996 2,388 -- 55,319 2,179
1995 2,394 -- 56,140 2,179
Alvin A. Smith 1997 2,373 4,750 43,552 4,440
1996 2,388 4,620 34,410 3,955
1995 2,394 4,620 29,859 3,480
Samuel M. Jones 1997 2,373 4,750 22,599 3,227
1996 2,388 4,629 17,499 2,113
1995 2,394 4,611 17,507 2,104
James R. Craig 1997 2,373 3,595 22,489 2,965
1996 2,388 3,486 16,668 1,877
1995 2,394 3,478 16,546 1,842
Michael K. Hantman 1997 2,373 3,596 17,573 2,628
1996 2,388 3,458 14,179 1,762
1995 2,394 3,422 14,915 1,727
</TABLE>
32
<PAGE> 34
In December 1994, Realty entered into agreements (collectively, the "Change
of Control Agreements") with its non-director officers and certain key
employees, wherein Realty agreed to make certain payments under certain
circumstances upon a "change of control" of Realty. Under such
circumstances, Realty also agreed that all Realty stock options granted to such
officer or key employee would immediately vest, and made provision to allow
such individual to exercise his or her options within three years of the
"change of control" for the officers, and a shorter period for key employees,
and to preserve the economic value of his or her options. In December 1995,
Realty amended the Change of Control Agreements to treat a spin-off or similar
transaction involving a substantial portion of Realty's marketing or real
estate business or assets as a "change of control." Accordingly, a "change of
control", for purposes of the Change of Control Agreements, occurred on the
date of the spin-off. Marketing intends to pay those officers and key
employees who become employees of Marketing compensation at least comparable to
the compensation which Realty paid them prior to the spin-off. In the event
that Marketing does not pay comparable compensation to any such individual or
any such individual did not become an employee of either Realty or Marketing
(or ceases to be an employee of Realty or Marketing for any reason other than
for cause) after the date of the spin-off, then for the 36-month period after
the date of the spin-off for officers, and a shorter period of time for those
certain key employees, Realty will pay to each such individual over the
applicable period an amount not less than the average annual sum of such
individual's (i) base salary, (ii) benefits under any incentive or bonus plan
and (iii) the total amount of employer contributions (other than elective
salary deferrals) made to the individual's account under 401(k) and other
deferred compensation plans, based upon the requisite period prior to the
"change of control." The compensation to be paid to an officer or key employee
pursuant to a Change of Control Agreement will be reduced by the amount of
compensation, if any, such officer or key employee receives from Marketing or
from any other employer during the covered period. Marketing intends to fully
perform Realty's obligations under the Change of Control Agreements with
respect to those individuals who became either an officer or employee of
Marketing.
STOCK OPTION PLANS
The following table sets forth as to the persons named in the Summary
Compensation Table additional information with respect to Realty stock options
granted during the fiscal year ended January 31, 1997:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION FOR
% OF TOTAL OPTIONS OPTION TERM
GRANTED TO EMPLOYEES EXERCISE OR -----------
OPTIONS IN FISCAL YEAR ENDED BASE PRICE EXPIRATION
NAME GRANTED 1/31/97 ($/SHARE)(a) DATE(b) 5% ($) 10% ($)
---- ------- -------------------- ------------ ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Leo Liebowitz -- -- -- -- -- --
Alvin A. Smith 10,000 15.29% $14.75 12/13/06 92,762 235,077
Samuel M. Jones 10,000 15.29 14.75 12/13/06 92,762 235,077
James R. Craig 10,000 15.29 14.75 12/13/06 92,762 235,077
Michael K. Hantman 10,000 15.29 14.75 12/13/06 92,762 235,077
</TABLE>
(a) In connection with the spin-off, each Realty option was reformed into
separate options for Realty Common Stock and Marketing Common Stock. The
exercise price of each reformed Marketing option is 22.71% of the original
option exercise price (i.e., $3.35).
(b) Pursuant to the Change of Control Agreements, all option grants in fact
expire three years after the date of the spin-off (i.e., March 21, 2000).
33
<PAGE> 35
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table provides information as to Realty stock options
exercised by each of the named executive officers of Realty during the fiscal
year ended January 31, 1997 and the value of Realty stock options held by such
officers at year-end measured in terms of the closing price of Realty Common
Stock on January 31, 1997. No Realty stock options were exercised by the named
executive officers in the fiscal year ended January 31, 1997.
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY
AT FISCAL OPTIONS/SARS AT
YEAR END(#) FISCAL YEAR END($)
EXERCISABLE/ EXERCISABLE/
NAME UNEXERCISABLE(1) UNEXERCISABLE(1)
---- ---------------- ----------------
<S> <C> <C>
Leo Liebowitz -- --
-- --
Alvin A. Smith 158,173 $ 792,236
30,000 130,937
Samuel M. Jones 60,651 282,241
27,500 113,750
James R. Craig 60,134 283,808
27,500 113,750
Michael K. Hantman 50,310 238,569
27,500 113,750
</TABLE>
(1) Pursuant to the Change in Control Agreements, all unexercisable options
held by the named executive officers became exercisable on the date of the
spin-off.
Immediately prior to the spin-off, each director, officer and key employee
who was a holder of an option to acquire shares of Realty pursuant to Realty's
1985, 1988 and 1991 Stock Option Plans received, in exchange therefor, two
separately exercisable options: one to purchase shares of Realty Common Stock
(a "Realty Option") and one to purchase Marketing Common Stock (a "Marketing
Option"), each exercisable for the same number of shares and containing terms
substantially equivalent in the aggregate to those of such holder's
pre-spin-off option. The exercise price for each Realty Option and Marketing
Option was set so as to preserve the Aggregate Spread in value attributed to
the options held by such directors, officers and key employees.
EMPLOYEE STOCK OWNERSHIP PLAN
In connection with the spin-off, Marketing established a leveraged
Employee Stock Ownership Plan (the "Marketing ESOP") that purchased newly
issued shares of Marketing Common Stock from Marketing equal to five percent of
the outstanding shares of Marketing. The Marketing ESOP purchased such
newly-issued shares from Marketing using the proceeds of a loan made by
Marketing to the Marketing ESOP. The Marketing ESOP loan will be repaid over a
five-year period, and Marketing will contribute annually to the Marketing ESOP
the funds required to repay such loan. The principal amount of the Marketing
ESOP loan is equal to the number of shares purchased by the Marketing ESOP
(671,298) multiplied by the purchase price per share of $4.80. The repayment of
the Marketing ESOP loan will result in projected allocations to participants'
accounts of an aggregate of approximately 134,260 shares of Marketing Common
Stock per year, allocated in proportion to compensation. Marketing expects that
the five percent of the outstanding stock of Marketing purchased by the
Marketing ESOP will be allocated to covered employees over a five-year period.
Commencing March 21, 1997, the date of the spin-off, Marketing will recognize a
charge to operating results of $4,088,000 over a five-year period relating to
the Marketing ESOP.
34
<PAGE> 36
MISCELLANEOUS BENEFIT PLANS
Marketing has established the Getty Petroleum Marketing Inc. Retirement
(401(k)) and Profit Sharing Plan (the "401(k) Plan"), a medical and dental
plan, a flexible spending plan, group life and disability insurance, and, for
the officers of Marketing, a non-qualified Supplemental Retirement Plan for
Executives (the "Supplemental Plan").
Under the 401(k) Plan, Marketing will contribute to each participating
employee an amount equal to 50% of such employee's contribution but in no event
more than 3% of such employee's compensation. Any annual discretionary
contribution to the 401(k) Plan will be determined by Marketing's Board of
Directors. Under the Supplemental Plan (which is not qualified for purposes of
Section 401(a) of the Internal Revenue Code of 1986, as amended), a
participating executive may receive in his trust account an amount equal to 10%
of his compensation, reduced by the amount of any contributions allocated to
such executive under the 401(k) Plan. The amounts paid to the trustee under the
Supplemental Plan may be used to satisfy claims of general creditors in the
event of Marketing's or any of its subsidiaries' bankruptcy. The trustee shall
not cause the Supplemental Plan to be other than "unfunded" for purposes of the
Employee Retirement Income Security Act of 1974, as amended. An executive's
account shall vest in the same manner as under the 401(k) Plan and shall be
paid upon termination of employment. Under the Supplemental Plan, the Board of
Directors may, during any fiscal year, elect not to make any payment to the
account of any or all executives.
Pursuant to a long-standing arrangement, in the event of the death of Mr.
Liebowitz, benefits in an amount equal to twelve months' salary will be paid to
his estate. In the event of termination of Mr. Liebowitz's employment due to
illness or incapacity for a period of one year or longer, benefits equal to
twenty four months' salary will be payable to Mr. Liebowitz.
DIRECTOR COMPENSATION
Directors will be compensated for their services according to a standard
arrangement authorized by resolution of the Marketing Board. An annual retainer
fee of $12,000 will be paid to each director, and a committee and board meeting
fee of $1,000 will also be paid to each director for each meeting attended.
Directors who are employees of Marketing will not receive retainers or board
meeting fees.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors of Marketing is
comprised of Messrs. Liebowitz, Safenowtiz and Hall. Mr. Liebowitz, who serves
as Chief Executive Officer of Marketing, also serves as President and Chief
Executive Officer and a director of Realty. Marketing has certain lease,
service, licensing and tax sharing arrangements with Realty. In addition,
Messrs. Liebowitz and Safenowitz are also directors and the principal
shareholders of CLS General Partnership Corp., the general partner of Power
Test Realty Company Limited Partnership, with which Realty has certain lease
arrangements. See "Certain Transactions." Prior to the spin-off, Marketing
paid no compensation to its officers.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF DIRECTORS, EXECUTIVE OFFICERS AND 5% OWNERS
Included in the following table is the number of shares of Marketing
Common Stock as of March 21, 1997 (the date for the spin-off) beneficially
owned (or deemed to be beneficially owned) by each of the directors of
Marketing, by each of the executive officers of Marketing and by all of the
directors or executive officers of Marketing as a group, and each other person
who beneficially owns more than 5% of the outstanding Marketing Common Stock.
Such number of shares includes exercisable options or options to become
exercisable within 60 days with respect to Marketing Common Stock.
35
<PAGE> 37
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME OF BENEFICIAL OWNERS, BENEFICIAL PERCENT
DIRECTORS AND OFFICERS OWNERSHIP(1) OF CLASS(2)
---------------------- -------------------- -----------
<S> <C> <C>
Leo Liebowitz 2,470,920(3) 18.40%
Milton Safenowitz 2,210,719(4) 16.47%
James R. Craig 87,968(5) *
Michael K. Hantman 77,965(5) *
Samuel M. Jones 91,664(5) *
Alvin A. Smith 191,305(5) 1.41%
Ronald E. Hall 0 *
Richard E. Montag 26,762(6) *
Matthew J. Chanin 339 *
Directors and executive officers as a group (9 persons) 5,157,642 37.19%
Getty Petroleum Marketing Inc. Employee Stock Ownership
Plan 671,298 5.00%
Milton Cooper 1,055,394(7) 7.86%
</TABLE>
- ------------------
* Total shares beneficially owned constitute less than one percent of
the outstanding shares.
(1) Unless otherwise indicated, each person has sole voting and dispositive
power with respect to the shares shown.
(2) The percentage is determined by dividing the number of shares shown by
the aggregate number of shares of Marketing Common Stock outstanding and
the shares of Marketing Common Stock which may be acquired within 60 days.
(3) Includes 166,410 shares held in trust for children, 230,977 shares held
by his wife for which beneficial ownership is disclaimed and 30,724 shares
held by a charitable foundation.
(4) Includes 2,034,601 shares held by Irrevocable Trust for the benefit of
Milton Safenowitz and 176,118 shares held by Irrevocable Trust for the
benefit of his wife.
(5) Gives effect to the vesting of outstanding stock options held by such
individual pursuant to certain "change of control" agreements. See
"EXECUTIVE COMPENSATION."
(6) Includes 10,190 shares held by his wife for which beneficial ownership is
disclaimed.
(7) Includes 10,311 shares held in a partnership of which he is a partner,
2,013 shares held by his wife for which beneficial ownership is disclaimed
and 160,000 shares held by a charitable foundation.
With the exception of Leo Liebowitz, whose address is care of Getty
Petroleum Marketing Inc., 125 Jericho Tpke., Jericho, New York 11753, Milton
Safenowitz, whose address is 7124 Queenferry Cr., Boca Raton, Florida 33496,
Milton Cooper, whose address is care of Kimco Realty Corporation, 3333 New Hyde
Park Road, Suite 100, New Hyde Park, New York 11042-0020, and the Getty
Petroleum Marketing Inc. Employee Stock Ownership Plan, whose address is 125
Jericho Tpke., Jericho, New York 11753, management knows of no other person
owning of record or beneficially more than 5% of the outstanding Marketing
Common Stock.
36
<PAGE> 38
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
THE PARTNERSHIP
In 1985, Power Test Investors Limited Partnership (the "Partnership") was
formed as a public master limited partnership and capitalized by a rights
offering to all Realty stockholders. The Partnership is the limited partner in
Power Test Realty Company Limited Partnership (the "Operating Partnership"),
which was also formed in 1985 and which purchased the Northeast and
Mid-Atlantic petroleum marketing assets of Getty Oil Company from Texaco Inc.
The Operating Partnership leased these assets to Realty on a long-term net
basis.
CLS General Partnership Corp., a Delaware corporation ("CLS"), is the sole
general partner of both the Partnership and the Operating Partnership. The
three stockholders of CLS are Messrs. Liebowitz, Safenowitz and Milton Cooper
(the "Principal Holders"), who are also directors and stockholders of Realty
and stockholders of Marketing. Messrs. Liebowitz and Safenowitz are also
directors of Marketing and Mr. Liebowitz serves as Chief Executive Officer of
Realty and Marketing. As of January 31, 1997, the Principal Holders
beneficially owned an aggregate of 3,104,431 (48%) of the general and limited
partnership interests in the Partnership.
Marketing does not have (nor does Realty have) any ownership interest in
the Partnership, the Operating Partnership or any of its assets. Neither the
Partnership nor the Operating Partnership conducts any substantial activities
other than those related to the ownership and leasing to Realty of the former
Getty Oil Company assets, substantially all of which Marketing subleases from
Realty.
THE MASTER LEASE AND RELATED AGREEMENTS
In connection with the spin-off, Marketing and Realty entered into the
Master Lease with respect to approximately 1,000 service station and
convenience store properties and ten distribution terminals and bulk plants
(including those properties leased by the Company from the Operating
Partnership). See Item 2. Properties. Marketing anticipates that it will
make, on an annual basis, net lease payments to Realty aggregating
approximately $57 million during the fiscal year ending January 31, 1998.
Marketing also entered into a Services Agreement (the "Services
Agreement"), under which Realty will receive certain administrative and
technical services from Marketing and will provide certain limited services to
Marketing. The term of the Services Agreement is two years, except that it may
be earlier terminated in whole or in part by either party upon 120 days'
notice. The net fees estimated to be paid by Realty to Marketing under the
Services Agreement will initially be approximately $80,000 per month and will
decline as the services performed decrease.
In addition, Marketing and Realty entered into a Trademark License
Agreement providing for an exclusive, royalty-free license to Marketing of
certain Realty trademarks, servicemarks and trade names (including the name
"Getty") used in connection with Marketing's business, within the territory
specified in the Agreement. The term of the Agreement is 55 years, but in the
event that the Master Lease terminates prior thereto, the license will become
non-exclusive and Marketing will pay to Realty certain customary signage rental
and royalty fees.
In connection with the spin-off, Marketing and Realty also entered into a
Tax Sharing Agreement that defined the parties' rights and obligations with
respect to filing of returns, payments, deficiencies and refunds of federal,
state and other income, franchise or motor fuel taxes relating to Realty's
business for tax years prior to and including the spin-off and with respect to
certain tax attributes of Realty after the spin-off.
37
<PAGE> 39
PART IV
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 14 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 14 is filed as part of this annual
report.
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.
3. Exhibits
The exhibits listed in the Exhibit Index on pages
40 through 41 are filed as part of this annual report.
(b) Reports on Form 8-K
None.
38
<PAGE> 40
GETTY PETROLEUM MARKETING INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED JANUARY 31, 1997, 1996 AND 1995
(in thousands)
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING END OF
OF PERIOD ADDITIONS DEDUCTIONS PERIOD
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
1997:
Allowance for doubtful accounts* $ 1,225 $ 417 $457 $ 1,185
======= ===== ==== =======
1996:
Allowance for doubtful accounts* $ 1,336 $ 493 $604 $ 1,225
======= ===== ==== =======
1995:
Allowance for doubtful accounts* $ 1,379 $ 313 $356 $ 1,336
======= ===== ==== =======
</TABLE>
* Relates to accounts receivable.
39
<PAGE> 41
EXHIBIT INDEX
GETTY PETROLEUM MARKETING INC.
Annual Report on Form 10-K
for the fiscal year ended January 31, 1997
<TABLE>
<CAPTION>
Exhibit
No Description
- ------- -----------
<S> <C> <C>
3.2 Articles of Amendment and Filed as Exhibit 3.2 to Registrant's Registration Statement
Restatement of the Registrant. on Form 10, File No. 001-14990, and incorporated herein
by reference.
3.4 By-Laws of the Registrant. Filed as Exhibit 3.4 to Registrant's Registration Statement
on Form 10, File No. 001-14990, and incorporated herein
by reference.
10.1 Form of Reorganization and Filed as Exhibit 2.1 to Registrant's Registration Statement
Distribution Agreement between on Form 10, File No. 001-14990, and incorporated herein
the Registrant and Getty by reference.
Realty Corp.
10.2 Form of Master Lease Agreement Filed as Exhibit 10.2 to Registrant's Registration Statement
between the Registrant and Getty on Form 10, File No. 001-14990, and incorporated herein
Realty Corp. by reference.
10.3 Form of Tax Sharing Agreement Filed as Exhibit 10.3 to Registrant's Registration Statement
between the Registrant and Getty on Form 10, File No. 001-14990, and incorporated herein
Realty Corp. by reference.
10.4 Form of Services Agreement between Filed as Exhibit 10.4 to Registrant's Registration Statement
between the Registrant and Getty on Form 10, File No. 001-14990, and incorporated herein
Realty Corp. by reference.
10.5 Form of Trademark License Agreement Filed as Exhibit 10.5 to Registrant's Registration Statement
between the Registrant and Getty Realty on Form 10, File No. 001-14990, and incorporated herein
Corp. by reference.
10.6 Form of Registrant's 1997 Stock Option Filed as Exhibit 10.6 to Registrant's Registration Statement
and Award Plan. on Form 10, File No. 001-14990, and incorporated herein
by reference.
10.7 Form of Registrant's Employee Stock Filed as Exhibit 10.7 to Registrant's Registration Statement
Ownership Plan. on Form 10, File No. 001-14990, and incorporated herein
by reference.
10.8 Form of Stock Option Reformation Filed as Exhibit 10.8 to Registrant's Registration Statement
Agreement between the Registrant and on Form 10, File No. 001-14990, and incorporated herein
Getty Realty Corp. by reference.
</TABLE>
40
<PAGE> 42
<TABLE>
<CAPTION>
Exhibit
No Description
- ------- -----------
<S> <C> <C>
10.9 Form of Registrant's Retirement and Filed as Exhibit 10.9 to Registrant's Registration Statement
Profit Sharing Plan. on Form 10, File No. 001-14990, and incorporated herein by
by reference.
10.10 Form of Supplemental Retirement Plan Filed as Exhibit 10.10 to Registrant's Registration Statement
for Executives of the Registrant and on Form 10, File No. 001-14990, and incorporated herein by
Participating Subsidiaries. by reference.
10.11 Form of Indemnification Agreement *
between Registrant and directors.
22 List of Subsidiaries of the Registrant. *
24 Consent of Independent Accountants. *
27 Financial Data Schedule. *
</TABLE>
- -------------
*Filed herewith.
41
<PAGE> 43
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 Marketing Inc.
(Registrant)
By /s/ Michael K. Hantman
-------------------------
Michael K. Hantman,
Vice President and
Corporate Controller
(Principal Financial and
Accounting Officer)
April 30, 1997
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/ Matthew J. Chanin
-------------------------- -------------------------
Leo Liebowitz, President, Matthew J. Chanin,
Chief Executive Officer Director
and Director April 30, 1997
April 30, 1997
By /s/ Ronald E. Hall By /s/ Richard E. Montag
-------------------------- -------------------------
Ronald E. Hall, Richard E. Montag,
Director Director
April 30, 1997 April 30, 1997
By /s/ Milton Safenowitz
-------------------------
Milton Safenowitz,
Director
April 30, 1997
42
<PAGE> 1
EXHIBIT 10.11
INDEMNIFICATION AGREEMENT
AGREEMENT, effective as of December 12, 1996 between GETTY PETROLEUM
MARKETING INC., a Maryland corporation (the "Company"), and (the "Director"), a
director of the Company;
WHEREAS, in recognition of Director's need for substantial protection
against personal liability in order to enhance Director's continued service to
the Company in an effective manner and Director's reliance on the provisions of
the By-Laws requiring indemnification of the Director under certain
circumstances, and in part to provide Director with specific contractual
assurance that the protection promised by such By-Laws will be available to
Director (regardless of, among other things, any amendment to or revocation of
such By-Laws or any change in the composition of the Company's Board of
Directors or acquisition transaction relating to the Company), the Company
wishes to provide in this Agreement for the indemnification of and the
advancing of expenses to Director to the full extent (whether partial or
complete) permitted by law and as set forth in this Agreement, and, to the
extent insurance is maintained, for the continued coverage of Director under
the Company's directors' and officers' liability insurance policies.
NOW, THEREFORE, in consideration of the premises and of Director
agreeing to serve or continuing to serve the Company directly or, at its
request, with another enterprise, and intending to be legally bound hereby, the
parties hereto agree as follows:
1. Basic Indemnification Agreement.
(a) In the event Director was, is or becomes a party to or
witness or other participant in, or is threatened to be made a party to or
witness or other participant in, a Claim (as hereinafter defined) by reason of
(or arising in part out of) an Indemnifiable Event (as hereinafter defined),
the Company shall indemnify Director to the fullest extent permitted by law as
soon as practicable but in any event no later than 30 days after written demand
is presented to the Company, against any and all Expenses (as hereinafter
defined), judgments, fines, penalties and amounts paid in settlement of such
Claim. If so requested by Director, the Company shall advance (within ten
business days of such written request) any and all Expenses to Director (an
"Expense Advance"). Notwithstanding anything in this Agreement to the contrary,
and except as provided in Section 3, prior to a Change in Control (as
hereinafter defined) Director shall not be entitled to indemnification pursuant
to this Agreement in connection with any Claim initiated by Director against
the Company or any director or officer of the Company unless the Company has
joined in or consented to the initiation of such Claim.
(b) Notwithstanding the foregoing, (i) the obligations of
the Company under Section 1(a) shall be subject to the condition that the
Reviewing Party (as hereinafter defined) shall not have determined (in a
written opinion, in any case in which the special independent counsel referred
to in Section 2 is involved) that Director would not be permitted to be
indemnified under applicable law, and (ii) the obligation of the Company to
make an Expense Advance pursuant to Section 1(a) shall be subject to the
condition that, if, when and to the extent that the Reviewing Party determines
that
1
<PAGE> 2
Director would not be permitted to be so indemnified under applicable
law, the Company shall be entitled to be reimbursed by Director (who hereby
agrees to reimburse the Company) for all such amounts theretofore paid;
provided, however, that if Director has commenced legal proceedings in a court
of competent jurisdiction to secure a determination that Director should be
indemnified under applicable law, any determination made by the Reviewing Party
that Director would not be permitted to be indemnified under applicable law
shall not be binding and Director shall not be required to reimburse the
Company for any Expense Advance until a final judicial determination that
Director shall reimburse the Company for any Expense Advance is made with
respect thereto (as to which all rights of appeal therefrom have been exhausted
or lapsed). If there has not been a Change in Control, the Reviewing Party
shall be selected by the Board of Directors, and if there has been such a
Change in Control, the Reviewing Party shall be the special independent counsel
referred to in Section 2. The Board of Directors will appoint the Reviewing
Party no later than 10 days after receipt of a demand for indemnification
(including, without limitation, a demand for Expense Advance). The Reviewing
Party shall make his determination no later than 20 days after his appointment.
If after 30 days there has been no determination by the Reviewing Party or if
the Reviewing Party determines that Director substantively would not be
permitted to be indemnified in whole or in part under applicable law, Director
shall have the right to commence litigation in any court in the states of New
York or Maryland having subject matter jurisdiction thereof and in which venue
is proper seeking an initial determination by the court or challenging any such
determination by the Reviewing Party of any aspect thereof, and the Company
hereby consents to service of process and to appear in any such proceeding. Any
determination by the Reviewing Party otherwise shall be conclusive and binding
on the Company and Director.
2. Change in Control. The Company agrees that, if there is a Change in
Control of the Company (other than a Change in Control which has been approved
by a majority of the Company's Board of Directors who were directors
immediately prior to such Change in Control) then with respect to all matters
thereafter arising concerning the rights of Director to indemnity payments and
Expense Advances under this Agreement or any other agreement or Company By-Law
now or hereafter in effect relating to Claims for Indemnifiable Events, the
Company shall seek legal advice only from special independent counsel selected
by Director and approved by the Company (which approval shall not be
unreasonably withheld), and who has not otherwise performed services for the
Company within the last five years (other than in connection with such matters)
or for Director. Such counsel, among other things, shall render a written
opinion to the Company and Director as to whether and to what extent Director
would be permitted to be indemnified under applicable law. The Company agrees
to pay the reasonable fees of the special, independent counsel referred to
above and to fully indemnify such counsel against any and all expenses
(including attorneys' fees), claims, liabilities and damages arising out of or
relating to this Agreement or its engagement pursuant hereto.
3. Indemnification for Additional Expenses. The Company shall indemnify
Director against any and all expenses (including attorneys' fees) and, if
requested by Director, shall (within ten business days of such written request)
advance such expenses to Director, which are incurred by Director in connection
with any claim asserted against or action brought by Director for (i)
indemnification or advance payment of Expenses by the Company under this
Agreement or any other agreement or Company By-Law now or hereafter in effect
relating to Claims for Indemnifiable Events and/or (ii) recovery under any
directors' and officers liability insurance policies maintained by the
2
<PAGE> 3
Company, regardless of whether Director ultimately is determined to be entitled
to such indemnification, advance expense payment or insurance recovery, as the
case may be.
4. Partial Indemnity, Etc. If Director is entitled under any provision of
this Agreement to indemnification by the Company of some or a portion of the
Expenses, judgments, fines, penalties and amounts paid in settlement of a Claim
but not, however, for all of the total amount thereof, the Company shall
nevertheless indemnify Director for the portion thereof to which Director is
entitled. Moreover, notwithstanding any other provision of this Agreement, to
the extent that Director has been successful on the merits or otherwise in
defense of any or all Claims relating in whole or in part to an Indemnifiable
Event or in defense of any issue or matter therein, including dismissal without
prejudice, Director shall be indemnified against all Expenses incurred in
connection therewith. In connection with any determination by the Reviewing
Party or otherwise as to whether Director is entitled to be indemnified
hereunder the burden of proof shall be on the Company to establish that
Director is not so entitled.
5. No Presumption. For purposes of this Agreement, the termination of any
action, suit or proceeding by judgment, order, settlement (whether with or
without court approval) or conviction, shall not create a presumption that
Director did not meet any particular standard of conduct or have any particular
belief or that a court has determined that indemnification is not permitted by
applicable law.
6. Non-exclusivity, Etc. The rights of Director hereunder shall be in
addition to any other rights Director may have under the Company's By-Laws or
the Maryland General Corporation Law or otherwise. To the extent that a change
in the Maryland General Corporation Law (whether by statute or judicial
decision), or the Company's By-Laws, permits greater indemnification by
agreement than would be afforded currently under the Company's By-Laws and this
Agreement, it is the intent of the parties hereto that Director shall enjoy by
this Agreement the greater benefits so afforded by such change.
7. Liability Insurance. To the extent the Company maintains an insurance
policy or policies providing directors' and officers' liability insurance,
Director shall be covered by such policy or policies, in accordance with its or
their terms, to the maximum extent of the coverage reasonably and economically
available (as solely determined by the Board of Directors) for any Company
director.
8. Certain Definitions:
(a) "Change in Control" shall be deemed to have occurred if (i)
any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended), other than a trustee or other fiduciary
holding securities under an employee benefit plan of the Company or a
corporation owned directly or indirectly by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company,
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act),
directly or indirectly, of securities of the Company representing 20% or more of
the total voting power represented by the Company's then outstanding Voting
Securities, or (ii) during any period of two consecutive years, individuals who
at the beginning of such two-year period constitute the Board of Directors of
the Company and any new director whose election by the Board of Directors or
nomination for election by the Company's stockholders was approved by a vote of
at least two-thirds (2/3) of the directors then still in office who
3
<PAGE> 4
either were directors at the beginning of such two-year period or whose election
or nomination for election was previously so approved, cease for any reason to
constitute a majority of the Board of Directors, or (iii) the stockholders of
the Company approve a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in the
Voting Securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into Voting Securities of the surviving entity) at least 80% of the total
voting power represented by the Voting Securities of the Company or such
surviving entity outstanding immediately after such merger or consolidation, or
(iv) the stockholders of the Company approve a plan of complete liquidation of
the Company or an agreement for the sale or disposition by the Company of all
or substantially all the Company's assets.
(b) "Claim" shall mean any threatened, pending or completed
action, suit or proceeding, or any inquiry or investigation whether conducted by
the Company or any other party, whether civil, criminal, administrative or
investigative.
(c) "Expenses" include attorneys' fees and all other costs,
expenses and obligations paid or incurred in connection with investigating,
defending, being a witness in or participating in (including on appeal), or
preparing to defend, be a witness in or participate in any Claim relating to any
Indemnifiable Event.
(d) "Indemnifiable Event" is any event or occurrence related to the
fact that Director is or was a director, officer, employee, agent or
fiduciary of the Company, or is or was serving at the request of the Company as
a director, officer, employee, trustee, agent or fiduciary of another
corporation, partnership, joint venture, employee benefit plan, trust or other
enterprise, or arising by reason of anything done or not done by Director in
any such capacity.
(e) "Reviewing Party" is any appropriate person or body consisting
of a member or members of the Company's Board of Directors or any other person
or body appointed by the Board (including the special independent counsel
referred to in Section 2) who is not a party to the particular Claim for which
Director is seeking indemnification.
(f) "Voting Securities" are any securities of the Company which
vote generally in the election of directors.
9. Amendments and Waiver. No supplement, modification or amendment of this
Agreement shall be binding unless executed in writing by both of the parties
hereto. No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provisions hereof (whether or not
similar) nor shall such waiver constitute a continuing waiver.
10. Subrogation. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Director, who shall execute all papers required and shall do
everything that may be necessary to secure such rights, including the execution
of such documents necessary to enable the Company effectively to bring suit to
enforce such rights.
4
<PAGE> 5
11. No Duplication of Payments. The Company shall not be liable under
this Agreement to make any payment in connection with any claim made against
Director to the extent Director has otherwise actually received payment (under
any insurance policy, By-Law or otherwise) of the amounts otherwise
indemnifiable hereunder.
12. Binding Effect, Etc. This Agreement shall be binding upon and inure
to the benefit of and be enforceable by the parties hereto and their respective
successors and assigns, including any (i) direct or indirect successor by
purchase, merger, consolidation or otherwise to all or substantially all of the
business and/or assets of the Company, and (ii) spouses, heirs, and personal and
legal representatives. This Agreement shall continue in effect regardless of
whether Director continues to serve as a director (or in one of the capacities
enumerated in Section 8(d) hereof) of the Company or of any other enterprise at
the Company's request.
13. Severability. The provisions of this Agreement shall be severable in
the event that any of the provisions hereof (including any provisions within a
single section, paragraph or sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted by law.
14. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Maryland applicable to
contracts made and to be performed in such state without giving effect to the
principles of conflicts of laws.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.
ATTEST: GETTY PETROLEUM MARKETING INC.
By:
- --------------------------- --------------------------------- (SEAL)
Secretary Leo Liebowitz, President
WITNESS DIRECTOR
- --------------------------- ---------------------------------
5
<PAGE> 1
Exhibit 22. Subsidiaries of the Registrant
STATE OF
SUBSIDIARY INCORPORATION
GASWAY INC. New York
GETTY TERMINALS CORP. New York
KINGSTON OIL SUPPLY CORP. New York
PT PETRO CORP. New York
<PAGE> 1
EXHIBIT 24
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Getty Petroleum Marketing Inc. on Form S-8 (Registration Nos. 333-23375 and
333-23379) of our report dated March 13, 1997, except for Notes 1, 8 and 9, as
to which the date is March 21, 1997, on our audits of the consolidated
financial statements and financial statement schedule of Getty Petroleum
Marketing Inc. and Subsidiaries as of January 31, 1997 and 1996 and for each of
the three years in the period ended January 31, 1997 which report has been
incorporated by reference in this Annual Report on Form 10-K.
Coopers & Lybrand L.L.P.
New York, New York
March 13, 1997, except for Notes 1, 8 and 9,
as to which the date is March 21, 1997.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF GETTY PETROLEUM MARKETING INC. AND
SUBSIDIARIES AS OF JANUARY 31, 1997 AND FOR THE YEAR THEN ENDED AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> JAN-31-1997
<CASH> 7,517
<SECURITIES> 0
<RECEIVABLES> 16,380
<ALLOWANCES> 1,185
<INVENTORY> 15,944
<CURRENT-ASSETS> 45,215
<PP&E> 170,885
<DEPRECIATION> 82,836
<TOTAL-ASSETS> 135,500
<CURRENT-LIABILITIES> 44,115
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 54,541
<TOTAL-LIABILITY-AND-EQUITY> 135,500
<SALES> 855,076
<TOTAL-REVENUES> 888,543
<CGS> 879,187
<TOTAL-COSTS> 893,109
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 417
<INTEREST-EXPENSE> 426
<INCOME-PRETAX> (25,299)
<INCOME-TAX> (10,074)
<INCOME-CONTINUING> (15,225)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,225)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
