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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
For quarter ended OCTOBER 31, 2000 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
(State or other jurisdiction of (I.R.S. Employer
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incorporation or organization) Identification No.)
125 JERICHO TURNPIKE, JERICHO, NEW YORK 11753
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(Address of principal executive offices) (Zip Code)
(516) 338 - 6000
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(Registrant's telephone number, including area code)
Indicate by check mark whether the 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 the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Registrant has 14,033,685 shares of Common Stock, par value $.01 per share,
outstanding as of December 8, 2000.
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GETTY PETROLEUM MARKETING INC.
INDEX
Part I. FINANCIAL INFORMATION Page Number
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Item 1. Financial Statements
Consolidated Balance Sheets as of October 31, 2000 and
January 31, 2000 1
Consolidated Statements of Operations for the three and
nine months ended October 31, 2000 and 1999 2
Consolidated Statements of Cash Flows for the
nine months ended October 31, 2000 and 1999 3
Notes to Consolidated Financial Statements 4 - 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9 - 12
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 13
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GETTY PETROLEUM MARKETING INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
October 31, January 31,
----------- -----------
Assets: 2000 2000
----------- -----------
(unaudited)
<S> <C> <C>
Current assets:
Cash and equivalents $9,384 $10,266
Investments 858 548
Accounts receivable, net 11,445 12,200
Inventories 28,268 20,760
Deferred income taxes 6,278 4,860
Prepaid expenses and other current assets 8,351 5,065
-------- --------
Total current assets 64,584 53,699
Property and equipment, at cost, less
accumulated depreciation and amortization 111,582 112,458
Other assets 4,474 4,758
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Total assets $180,640 $170,915
======== ========
Liabilities and Stockholders' Equity:
Current liabilities:
Accounts payable $43,436 $34,541
Accrued expenses 17,798 15,591
Gasoline taxes payable 17,261 14,181
-------- --------
Total current liabilities 78,495 64,313
Deferred income taxes 21,993 22,010
Other, principally deposits 22,771 22,346
-------- --------
Total liabilities 123,259 108,669
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Stockholders' equity:
Preferred stock, par value $.01 per share; authorized
10,000,000 shares for issuance in series (none of which is issued) - -
Common stock, par value $.01 per share; authorized
30,000,000 shares; issued 14,002,866 at October 31, 2000
and 13,960,898 at January 31, 2000 140 140
Paid-in capital 60,325 60,231
Retained earnings (deficit) (1,898) 3,802
Unearned ESOP stock (190,201 shares at October 31, 2000 and
290,896 shares at January 31, 2000) (913) (1,396)
Accumulated other comprehensive loss (273) (531)
-------- --------
Total stockholders' equity 57,381 62,246
-------- --------
Total liabilities and stockholders' equity $180,640 $170,915
======== ========
</TABLE>
See accompanying notes.
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GETTY PETROLEUM MARKETING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three months ended October 31, Nine months ended October 31,
------------------------------- -----------------------------
2000 1999 2000 1999
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Sales and operating revenues $306,799 $227,715 $902,939 $581,695
Other income (expense) (152) 130 464 652
-------- -------- -------- --------
306,647 227,845 903,403 582,347
-------- -------- -------- --------
Cost of sales and operating expenses
(excluding depreciation and amortization) 297,268 217,957 881,077 551,774
Selling, general and administrative expenses 5,683 5,428 17,717 16,698
Depreciation and amortization 4,228 3,972 13,071 12,294
Interest expense 280 247 823 742
-------- -------- -------- --------
307,459 227,604 912,688 581,508
-------- -------- -------- --------
Earnings (loss) before provision (credit)
for income taxes (812) 241 (9,285) 839
Provision (credit) for income taxes (297) 109 (3,585) 373
-------- -------- -------- --------
Net earnings (loss) ($515) $132 ($5,700) $466
======== ======== ======== ========
Net earnings (loss) per share:
Basic ($.04) $.01 ($.41) $.03
Diluted ($.04) $.01 ($.41) $.03
Weighted average shares outstanding:
Basic 13,790 13,602 13,737 13,567
Diluted 13,790 13,625 13,737 13,585
</TABLE>
See accompanying notes.
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GETTY PETROLEUM MARKETING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine months ended
October 31,
------------------------------
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) ($5,700) $466
Adjustments to reconcile net earnings (loss) to
net cash provided by operating activities:
Depreciation and amortization 13,071 12,294
Deferred income taxes (1,620) 2,755
Stock option charge 132 0
ESOP charge 334 298
(Gain) loss on dispositions of property and equipment (76) 280
Loss on sale of investments 39 0
Changes in assets and liabilities, net of acquisitions:
Accounts receivable 755 (1,653)
Inventories (7,508) (7,980)
Prepaid expenses and other current assets (3,286) (2,743)
Other assets (84) (901)
Accounts payable, accrued expenses and
gasoline taxes payable 14,182 27,149
Income taxes payable 0 (1,086)
Other, principally deposits 425 404
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Net cash provided by operating activities 10,664 29,283
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Cash flows from investing activities:
Capital expenditures (11,184) (16,460)
Acquisitions (782) (5,342)
Proceeds (payments) related to dispositions
of property and equipment 215 (91)
Proceeds from sale of investments 94 0
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Net cash used in investing activities (11,657) (21,893)
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Cash flows from financing activities:
Repayment of short-term borrowings 0 (1,900)
Stock options and common stock 111 11
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Net cash provided by (used in) financing activities 111 (1,889)
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Net increase (decrease) in cash and equivalents (882) 5,501
Cash and equivalents at beginning of period 10,266 6,169
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Cash and equivalents at end of period $9,384 $11,670
======= =======
Supplemental disclosures of cash flow information Cash paid
during the period for:
Interest $659 $572
Income taxes, net 7 1,999
</TABLE>
See accompanying notes.
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GETTY PETROLEUM MARKETING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. General:
The accompanying consolidated financial statements include the accounts of
Getty Petroleum Marketing Inc. and its wholly-owned subsidiaries (the
"Company"). The consolidated financial statements have been prepared in
conformity with generally accepted accounting principles and include amounts
that are based on management's best estimates and judgments. While all available
information has been considered, actual amounts could differ from those
estimates. The consolidated financial statements are unaudited but, in the
opinion of management, reflect all adjustments (consisting of normal recurring
accruals) necessary for a fair presentation. These statements should be read in
conjunction with the consolidated financial statements and related notes which
appear in the Company's Annual Report on Form 10-K for the fiscal year ended
January 31, 2000.
2. Earnings (loss) per share:
Basic earnings (loss) per share is computed by dividing net earnings (loss)
by the weighted average number of shares of common stock outstanding during the
periods presented. For the quarter and nine months ended October 31, 2000,
diluted loss per share amounts do not reflect the potential dilution from the
exercise of stock options since such inclusion would be antidilutive. For the
quarter and nine months ended October 31, 1999, diluted earnings per share
reflects the potential dilution from the exercise of stock options in the
amounts of 23,000 shares and 18,000 shares, respectively.
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3. Stockholders' equity:
A summary of the changes in stockholders' equity for the nine months ended
October 31, 2000 is as follows (in thousands):
<TABLE>
<CAPTION>
Accumulated
Retained Other
Common Paid-in Earnings Comprehensive
Stock Capital (Deficit) Loss(*) ESOP Total
--------- -------- --------- -------------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance,
January 31, 2000 $140 $ 60,231 $ 3,802 $ (531) $(1,396) $62,246
Comprehensive loss:
Net loss (5,700) (5,700)
Net unrealized gain
on equity securities 258 258
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Total (5,442)
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ESOP stock committed
to be released (149) 483 334
Issuance of
common stock 16 16
Stock options 227 227
---- -------- ------- --------- ------- -------
Balance,
October 31, 2000 $140 $ 60,325 $(1,898) $ (273) $ (913) $57,381
---- -------- ------- --------- ------- -------
</TABLE>
(*) Represents net unrealized loss on equity securities. For the three months
ended October 31, 2000, the Company had a net unrealized loss on equity
securities of $11. For the three and nine months ended October 31, 1999, the
Company had a net unrealized loss on equity securities of $70 and $389,
respectively.
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4. Segment information:
The Company has two reportable segments: Petroleum Marketing and Heating
Oil. The Petroleum Marketing segment distributes, markets and sells gasoline and
diesel fuel to consumers through a network of 1,277 Getty and other branded
retail outlets. The Heating Oil segment sells fuel oil, kerosene and propane,
and provides oil burner and related services to residential and commercial
customers in the New York Mid-Hudson Valley region.
The financial results of the Petroleum Marketing and Heating Oil segments
for the quarters and nine month periods ended October 31, 2000 and 1999 are set
forth below (in thousands):
<TABLE>
<CAPTION>
Quarter ended October 31, 2000 Quarter ended October 31, 1999
------------------------------ -------------------------------
Petroleum Heating Petroleum Heating
Marketing Oil Total Marketing Oil Total
--------- ------- ------- --------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Sales and operating revenues $300,580 $6,219 $306,799 $223,648 $4,067 $227,715
Other income (expense) (169) 17 (152) 124 6 130
-------- ------ -------- -------- ------ --------
300,411 6,236 306,647 223,772 4,073 227,845
-------- ------ -------- -------- ------ --------
Cost of sales and operating
expenses (excluding depreciation
and amortization) 291,259 6,009 297,268 214,117 3,840 217,957
Selling, general and
administrative expenses 5,037 646 5,683 4,833 595 5,428
Depreciation and amortization 4,031 197 4,228 3,777 195 3,972
Interest expense 280 - 280 247 - 247
-------- ------ -------- -------- ------ --------
300,607 6,852 307,459 222,974 4,630 227,604
-------- ------ -------- -------- ------ --------
Earnings (loss) before provision
(credit) for income taxes (196) (616) (812) 798 (557) 241
Provision (credit) for
income taxes (59) (238) (297) 354 (245) 109
-------- ------ -------- -------- ------ --------
Net earnings (loss) $ (137) $ (378) $(515) $ 444 $ (312) $ 132
-------- ------ -------- -------- ------ --------
Identifiable assets $172,669 $7,971 $180,640 $166,886 $7,587 $174,473
Capital expenditures 4,856 5 4,861 4,677 37 4,714
</TABLE>
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<TABLE>
<CAPTION>
Nine months ended October 31, 2000 Nine months ended October 31, 1999
---------------------------------- ----------------------------------
Petroleum Heating Petroleum Heating
Marketing Oil Total Marketing Oil Total
--------- ------- --------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Sales and operating revenues $ 881,179 $21,760 $902,939 $566,635 $15,060 $581,695
Other income 406 58 464 620 32 652
--------- ------- -------- -------- ------- --------
881,585 21,818 903,403 567,255 15,092 582,347
--------- ------- -------- -------- ------- --------
Cost of sales and operating
expenses (excluding depreciation
and amortization) 861,427 19,650 881,077 539,437 12,337 551,774
Selling, general and
administrative expenses 15,770 1,947 17,717 14,837 1,861 16,698
Depreciation and amortization 12,490 581 13,071 11,713 581 12,294
Interest expense 823 - 823 742 - 742
--------- ------- -------- -------- ------- --------
890,510 22,178 912,688 566,729 14,779 581,508
--------- ------- -------- -------- ------- --------
Earnings (loss) before provision
(credit) for income taxes (8,925) (360) (9,285) 526 313 839
Provision (credit) for
income taxes (3,446) (139) (3,585) 234 139 373
--------- ------- -------- -------- ------- --------
Net earnings (loss) $ (5,479) $ (221) $ (5,700) $ 292 $ 174 $ 466
========= ======= ======== ======== ======= ========
Identifiable assets $ 172,669 $ 7,971 $180,640 $166,886 $ 7,587 $174,473
Capital expenditures 11,159 25 11,184 16,322 138 16,460
</TABLE>
5. Subsequent event:
On November 2, 2000, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") with OAO Lukoil, a Russian open joint stock
company ("Lukoil"), Lukoil International GmbH, an Austrian corporation, Lukoil
Americas Corporation, a Delaware corporation, and Mikecon Corp., a Delaware
corporation, which provided for the acquisition of the Company by Mikecon Corp.
at a price of $5.00 per common share in cash. The closing of the tender offer
occurred on December 8, 2000 and approximately 72% of the outstanding shares of
common stock were tendered. As provided in the Merger Agreement, the Company
intends to call a shareholders' meeting to be held in late January 2001, for
the purpose of approving the merger of Mikecon Corp. with and into the Company,
after which the Company will become a wholly owned subsidiary of Lukoil Americas
Corporation. Those persons holding of record shares of common stock on December
27, 2000 will be entitled to vote at the meeting.
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Also on November 2, 2000, the Company entered into a consolidated, amended
and restated master lease and related agreements (collectively, the "restated
master lease") with Getty Realty Corp., which became effective on December 9,
2000.
-8-
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations - Quarter ended October 31, 2000 compared
with quarter ended October 31, 1999
Sales and operating revenues for the third fiscal quarter ended October
31, 2000 were $306.8 million as compared with $227.7 million for the same
quarter last year. The 34.7% increase in sales and operating revenues was
primarily due to a 36.7% increase in average selling prices (net of taxes) to
$1.18 per gallon from $.87 per gallon, partially offset by a .6% decrease in
sales volume to 250.0 million gallons from 251.6 million gallons.
Gross profit before depreciation and amortization was $9.5 million for
the three months ended October 31, 2000 as compared to $9.8 million for the
three months ended October 31, 1999. The decrease was principally due to higher
operating expenses of $2.3 million (primarily maintenance, credit card, trucking
and rent expenses) and a higher LIFO inventory charge of $.8 million in the
current quarter related to higher product costs, partially offset by an increase
in retail product margins of approximately .9 cents per gallon which resulted in
$2.0 million of higher gross profit, and $.9 million of higher rental income.
Other income (expense) was $(.2) million for the three months ended
October 31, 2000 as compared with $.1 million for the three months ended October
31, 1999. Included in other income (expense) for each of the three month periods
ended October 31, 2000 and 1999 were $.2 million of net fees received from Getty
Realty Corp. ("Realty") for administrative and technical services the Company
has provided to Realty pursuant to the services agreement since the March 1997
spin-off. The quarter ended October 31, 2000 also included $.4 million of
expenses related to the sale of the Company.
Selling, general and administrative expenses were $5.7 million for the
three months ended October 31, 2000, an increase of $.3 million or 4.7% as
compared with the three months ended October 31, 1999. The increase was
primarily due to higher salary and benefit costs.
Depreciation and amortization was $4.2 million for the three month
period ended October 31, 2000 as compared with $4.0 million for the three months
ended October 31, 1999. The increase was due to higher depreciation as a result
of capital expenditures and acquisitions.
Our financial results are largely dependent on retail marketing margins
and rental income from dealers. The petroleum marketing industry has been and
continues to be volatile and highly competitive. Petroleum products are
commodities whose prices depend on numerous factors beyond our control, and,
accordingly, their prices may vary substantially over time. From time to time,
competitive market conditions may limit our ability to pass on to our customers
changes in the price we pay for products and, accordingly, our operating margins
may vary. Because our operating margins may vary significantly from time to time
while certain of our expenses do not,
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our earnings may fluctuate substantially. As a result of the historic volatility
of product margins and the fact that they are affected by numerous diverse
factors, we cannot predict with any degree of accuracy future product margin
levels. However, we believe that over time we have only been modestly affected
by inflation since increased costs are passed along to customers to the extent
permitted by competition.
Results of Operations - Nine months ended October 31, 2000 compared with nine
months ended October 31, 1999
Sales and operating revenues for the nine months ended October 31, 2000
were $902.9 million as compared with $581.7 million for the nine months ended
October 31, 1999. The 55.2% increase in sales and operating revenues was
primarily due to a 54.8% increase in average selling prices (net of taxes) to
$1.14 per gallon from $.74 per gallon and a 1.7% increase in sales volume to
762.4 million gallons from 749.3 million gallons.
Gross profit before depreciation and amortization was $21.9 million for
the nine months ended October 31, 2000 as compared to $29.9 million for the nine
months ended October 31, 1999. The decrease was principally due to higher
operating expenses of $11.5 million (primarily maintenance, credit card,
trucking, environmental and rent expenses) and a higher LIFO inventory charge of
$6.7 million in the current period related to higher product costs. The decrease
was partially offset by an increase in retail product margins of approximately
.8 cents per gallon which contributed $5.1 million of additional gross profit,
higher retail volumes which contributed $1.9 million of additional gross profit
and $3.0 million of higher rental income.
Other income was $.5 million for the nine months ended October 31, 2000
as compared with $.7 million for the nine months ended October 31, 1999.
Included in other income for the nine months ended October 31, 2000 and 1999
were $.5 million and $.6 million, respectively, of net fees received from Realty
for administrative and technical services the Company has provided to Realty
pursuant to the services agreement since the March 1997 spin-off. The nine
months ended October 31, 2000 also included $.4 million of expenses related to
the sale of the Company. The nine months ended October 31, 1999 also included a
charge of $.3 million related to the early termination of eight leases under a
master lease agreement with Realty.
Selling, general and administrative expenses were $17.7 million for the
nine months ended October 31, 2000 as compared with $16.7 million for the nine
months ended October 31, 1999, an increase of 6.1%. The increase was primarily
due to higher salary and benefit costs, and a stock compensation charge of $.2
million resulting from changes in Getty's stock price during the current nine
month period.
Depreciation and amortization was $13.1 million for the nine month
period ended October 31, 2000 as compared with $12.3 million for the nine months
ended October 31, 1999. The increase was primarily due to higher depreciation as
a result of capital expenditures and acquisitions.
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Liquidity and Capital Resources
As of October 31, 2000, we had a working capital deficit of $13.9
million as compared with a deficit of $10.6 million as of January 31, 2000. The
decrease in working capital was primarily due to $11.2 million of capital
expenditures at existing locations and $.8 million of capital expended at newly
leased locations, partially offset by working capital generated during the
period from operations. We are able to operate our business with negative
working capital, principally because most of our product sales are for cash,
payment terms are received from vendors and there is a time interval in the
payment of motor fuel taxes.
Management believes that cash requirements for operations, including
rental payments required under the master leases with Realty and capital
expenditures, can be met by cash flows from operations, cash and equivalents and
credit lines. We have uncommitted lines of credit with two banks in the
aggregate amount of $35.0 million, which may be utilized for working capital
borrowings and letters of credit. As of October 31, 2000, we utilized $3.1
million of the lines of credit in connection with outstanding letters of credit
to support insurance programs. Borrowings under the lines of credit are
unsecured and principally bear interest at the applicable bank's prime rate or,
at our option, 1.1% above LIBOR. The lines of credit are subject to renewal at
the discretion of the banks.
As of October 31, 2000, we leased 1,079 retail outlets (1,000 from
Realty) and 9 terminal facilities from Realty. Rent expense aggregated $44.7
million for the nine months ended October 31, 2000, including $42.1 million
under the master leases with Realty.
Our capital expenditures for the nine months ended October 31, 2000
were $11.2 million. Our capital expenditures include discretionary expenditures
to improve the image of the retail outlets, to replace service station equipment
and to improve the terminal facilities. In addition, during the nine months
ended October 31, 2000, we spent $.8 million for improvements to properties
which we commenced leasing during the past year.
Special Factors Regarding Forward-Looking Statements
Certain statements in this Quarterly Report on Form 10-Q may constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. When we use the words "believes", "expects",
"plans", "estimates" and similar expressions, we intend to identify
forward-looking statements. These forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause our actual
results, performance and achievements to be materially different from any future
results, performance or achievements expressed or implied by these
forward-looking statements. These factors include, but are not limited to:
volatility of petroleum marketing margins; maturity of the petroleum marketing
industry; the impact of economic growth, energy efficiency and technology;
natural and political events that may affect the supply of petroleum products;
competition; and the effects of regulation.
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As a result of these and other factors, we may experience material
fluctuations in future operating results on a quarterly or annual basis, which
could materially and adversely affect our business, financial condition,
operating results and stock price. An investment in our common stock involves
various risks, including those mentioned above and elsewhere in this report and
those which are detailed from time to time in our other filings with the
Securities and Exchange Commission.
You should not place undue reliance on forward-looking statements,
which reflect our view only as of the date hereof. We undertake no obligation to
publicly release revisions to these forward-looking statements that reflect
future events or circumstances or reflect the occurrence of unanticipated
events.
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Designation of Exhibit
in this Quarterly Report
on Form 10-Q Description of Exhibit
------------------------ --------------------------
27 Financial Data Schedule
(b) Reports on Form 8-K:
Registrant filed a Current Report on Form 8-K dated November
2, 2000 reporting under Item 2, Acquisitions or Dispositions
of Assets, that the Company had entered into an Agreement and
Plan of Merger with OAO LUKOIL and certain of its subsidiaries
(collectively, "Lukoil"), pursuant to which Lukoil agreed to
acquire all of the outstanding common stock of the Company at
a price of $5.00 per share. On November 2, 2000, the Company
also entered into a consolidated, amended and restated master
lease and related agreements with Getty Realty Corp., which
became effective upon completion of the tender offer on
December 9, 2000.
SIGNATURES
Pursuant to the requirements 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)
Dated: December 15, 2000 BY: /s/ Michael K. Hantman
--------------------------------------
(Signature)
MICHAEL K. HANTMAN
Vice President and
Corporate Controller
(Principal Financial and
Accounting Officer)
Dated: December 15, 2000 BY: /s/ Vincent J. DeLaurentis
--------------------------------------
(Signature)
VINCENT J. DELAURENTIS
President and Chief Operating Officer
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