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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, 2000
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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
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
Securities registered pursuant to Section 12 (b) of the Act:
Name of each exchange on
Title of each class which registered
- - - ----------------------------- ----------------------
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 X No
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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 (8,421,957
shares) of the Company was $29,476,849 as of April 18, 2000.
The registrant had outstanding 13,962,238 shares of common stock as of April 18,
2000.
DOCUMENTS INCORPORATED BY REFERENCE
Document Part of Form 10-K
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Annual Report to Stockholders for the fiscal year
ended January 31, 2000 (the "Annual Report")(pages 9 through 28). II
Definitive Proxy Statement for the 2000 Annual Meeting of
Stockholders (the "Proxy Statement") which will be filed by
the registrant on or prior to 120 days following the end of
the registrant's fiscal year ended January 31, 2000 pursuant
to Regulation 14A. III
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PART 1
ITEM 1. BUSINESS
Getty Petroleum Marketing Inc. ("Getty") 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 Realty Corp. transferred these
businesses to Getty. On March 21, 1997 Getty Realty Corp. distributed the stock
of Getty to its stockholders on a one-for-one basis (the "spinoff"). Getty's
principal executive offices are located at 125 Jericho Turnpike, Jericho, New
York 11753.
GENERAL
We are one of the nation's largest independent marketers of petroleum products.
We serve retail and wholesale customers through a distribution and marketing
network of 1,291 Getty(R) and other branded retail outlets (also referred to as
"service stations") located in 13 Northeastern and Middle-Atlantic states, 801
of which have automobile service facilities and 338 which have convenience food
stores. We store and distribute petroleum products from 9 proprietary
distribution terminals and bulk plants and 30 thruput and exchange terminals. We
purchase 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 our distribution terminals and bulk plants
located in our marketing region. Through our proprietary truck transportation
fleet and distribution network, we sell and distribute products throughout a 13
state marketing region. Of the 1,291 retail outlets we supplied at January 31,
2000, 1,013 or 78% are held under long-term leases or subleases with Getty
Realty Corp. ("Realty"). The remaining retail outlets purchase petroleum
products from us under contract as licensed Getty dealers or from licensed Getty
distributors who purchase Getty products from us. We also sell, on a wholesale
basis, gasoline, fuel oil, diesel fuel and kerosene from distribution terminals
and bulk plants in truckload and barge quantities, and sell fuel oil, kerosene,
propane and oil burner and related services to residential, commercial and
governmental customers in New York's Mid-Hudson Valley.
Getty and its predecessors have been in the petroleum marketing business for
approximately 45 years. Mr. Leo Liebowitz, Chairman, Chief Executive Officer and
a director of Getty, and the late Mr. Milton Safenowitz, a former director of
Getty and a former executive vice president of Getty's predecessors, entered the
petroleum marketing business in 1955 with one service station and pursued a
strategy of expanding the business principally through acquisitions. Prior to
1985, we had expanded into five states under various brand names, principally
Power Test. On February 1, 1985, we 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, service stations, distribution terminals and a wholesale heating oil
and middle distillate marketing network in six states.
During the period from 1985 to 1991, we continued to expand the business by
acquiring numerous
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small regional distributors, service stations and convenience food stores. In
addition to adding locations through fee ownership and leasing, we continued to
implement our program of adding non-petroleum products and revenue enhancing
services at retail outlets, particularly convenience food stores and automotive
repair shops. Beginning in 1992, we implemented a comprehensive program of
evaluating retail outlets to determine their long-term viability as gasoline
stations. Over the following five years, this process resulted in the divestment
of non-strategic and uneconomic retail outlets. Getty and Realty are parties to
a master lease (the "Master Lease") which was executed as part of the spinoff.
Under the Master Lease, we leased from Realty retail outlets which were owned by
Realty at the time of the spinoff and subleased from Realty retail outlets which
were leased by Realty at the time of the spinoff. In addition, we have a royalty
free license from Realty to use the Getty(R) trademark in our marketing
territory.
OPERATING STRATEGY
Our operating strategy is to market motor fuels through service stations
operated by independent Getty-licensed dealers, many of whom sublease service
stations and convenience stores from us. Our dealers either buy their petroleum
products from us or from licensed Getty distributors who purchase Getty products
from us, or sell our petroleum products and receive a commission. We view each
of our retail outlets as a "profit center" and believe 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 us with a steady and
increasing source of rental income and has allowed us to reduce our direct
operating costs.
We directly operated 10 retail outlets as of January 31, 2000 utilizing salaried
employees. While we seek to sublease retail outlets to independent operators, we
historically have retained a small number of company-operated outlets. These
outlets permit management to keep abreast of changes in retail marketing, assist
in providing practical guidance to independent dealers and test new products and
concepts.
Some of our retail outlets have convenience food stores and automotive repair
centers. We receive higher rentals from these properties as a result of these
additional uses.
We intend to expand our retail operations by leasing or purchasing new sites and
by entering into supply agreements with third parties. Under the Master Lease
and other agreements, however, Realty has no obligation to procure and lease new
properties to us.
DISTRIBUTION
Our retail outlets sell gasoline, diesel fuel and other related petroleum
products (such as motor oil and lubricants) under the brand name "Getty" or, to
a limited extent, under other brand names in the states of Connecticut,
Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York,
Pennsylvania, Rhode Island, Vermont, Virginia and West Virginia.
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As of January 31, 2000, we had 1,291 Getty and other branded retail outlets as
follows:
(i) 10 company-operated retail outlets which are operated by salaried
employees;
(ii) 91 sublessee dealer operated retail outlets (dealers who sublease retail
outlets and purchase their petroleum products from us);
(iii) 872 commission sublessee dealer operated retail outlets (dealers who
sublease retail outlets and receive a commission for sale of our petroleum
products);
(iv) 78 retail outlets operated by management contractors (dealers who operate
retail outlets pursuant to a management contract);
(v) 66 contract dealer retail outlets (dealers who purchase their petroleum
products from us or sell our petroleum products on a commission basis, but do
not sublease retail outlets from us);
(vi) 25 distributors who purchase their petroleum products from us, and who in
turn supply the petroleum product requirements of 139 retail outlets; and
(vii) 35 inactive outlets to be disposed of.
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, 2000:
<TABLE>
<CAPTION>
RETAIL OUTLETS RETAIL OUTLETS
AT BEGINNING AT END
FISCAL YEAR OF PERIOD ADDITIONS DELETIONS OF PERIOD
<C> <C> <C> <C> <C>
2000 ....................................... 1,263 75 47 1,291
1999 ........................................ 1,317 28 82 1,263
1998 ........................................ 1,560 -- 243(a) 1,317
</TABLE>
(a) Primarily related to non-renewal of supply contract with Uni-Marts, Inc.
We generally extend three-year lease terms to our dealers, although new dealers
generally receive a one-year trial lease. These 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 we
perform.
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We distribute petroleum products from 9 distribution terminals and bulk plants,
which are leased from Realty under the Master Lease. These distribution
terminals and bulk plants are located in New York, New Jersey, Rhode Island and
Connecticut, and have an aggregate storage capacity of approximately 48 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, we utilize 30 additional terminals under thruput and storage
agreements with unrelated parties. A substantial portion of the petroleum
products are transported to retail outlets by our truck transportation fleet
subsidiary, whose drivers are compensated in part on an incentive-based system.
We also sell, through our Kingston Oil Supply Corp. ("KOSCO") subsidiary,
heating oil, propane (LPG) and related services directly to approximately 30,400
retail and commercial customers in the New York Mid-Hudson Valley. In addition,
we are a wholesale supplier of #2 heating oil in the Northeast, supplying
heating oil to dealers who deliver to residences and commercial accounts. We
market diesel fuel and kerosene both to distributors and directly to retail
outlets and consumers.
PRODUCT SUPPLY
We have agreements with a number of Northeast and Middle-Atlantic suppliers for
the purchase of refined petroleum products. These agreements typically have
one-year terms, with prices generally based on formulas tied to the New York
Harbor price for the petroleum product being purchased. We have 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. There can be no
assurance 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 our margins and/or profitability if we cannot increase
sales prices or automobile consumption of gasoline were to significantly decline
as a result of these price increases. Management believes, however, based upon
our experience during times of shortage, that we will continue to be able to
acquire petroleum products on competitive terms due in part to the large volume
of our purchases and the storage capacity at our distribution terminals.
MARKETING
In order to provide efficient service to retail dealers and other customers, we
have divided our marketing territory into four regions. Our regional marketing
personnel provide significant guidance, counseling and assistance to dealers,
including advice on retail operations. Our marketing personnel also supervise
the company-operated retail outlets.
We provide advertising and promotional support to our retail outlets. We use
both radio and newspaper media, and implement promotional programs on an ongoing
basis.
We have a co-branded Getty MasterCard, and our retail outlets generally accept
Visa, MasterCard, Discover, Diners Club and American Express credit cards and
"NYCE" and "MAC" debit cards.
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In addition, we have a Getty fleet fueling card and our retail outlets generally
accept certain other fleet fueling cards which have tracking programs that
provide cost control data to fleet customers.
COMPETITION
We believe that based on the number of locations served, we are currently one of
the largest independent marketers of petroleum products in the United States.
Petroleum marketing is highly competitive, and we compete with a substantial
number of integrated oil companies and other companies who may have greater
assets, financial resources and sales. Accordingly, our earnings may be
adversely affected by the marketing policies of these companies, which may have
greater flexibility to withstand price changes. We compete for new dealers and
distributors primarily on the basis of Getty brand acceptance, location, supply,
price and marketing support. The retail outlets in our 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, we believe that the costs related to compliance, except for the
environmental matters discussed below, have not had and are not expected to have
a material adverse effect on our competitive or financial position.
We are not a refiner and, therefore, are not subject to the Petroleum Marketing
Practices Act ("PMPA"), a federal law, with respect to its Getty branded
stations. However, under our agreements with certain of our dealers and
distributors, we have voluntarily extended to them coverage under PMPA. Under
PMPA, we comply with certain notice requirements (generally 90 days) and extend
nondiscriminatory contracts to licensed dealers and distributors, and we cannot
terminate or refuse to renew their franchises unless certain PMPA imposed
prerequisites are met as provided in the agreements. Although a licensed dealer
or distributor who is covered by PMPA is not required to renew his or her
franchise, because we have agreed to comply with PMPA with respect to these
dealers and distributors, we are required to renew the franchises of dealers and
distributors who elect to renew. However, we may terminate or refuse to renew a
franchisee for violating certain provisions of the 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, we may
elect not to renew a franchisee upon a determination made in good faith that the
franchise relationship is uneconomical to us, although then we must, in
accordance with PMPA, offer the franchisee the right to purchase our leasehold
interest in the property at a bona fide price. Under the terms of the Master
Lease with Realty, we are required to offer to assign our leasehold interest in
the property (including all renewal options) to the franchisee who is covered by
PMPA.
In addition, our operations are governed by numerous federal, state and local
environmental laws
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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 our 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 some circumstances, to remediate the soil and/or
groundwater contamination pursuant to governmental order and directive, (v)
requirements to remove and replace underground storage tanks that 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 us for, all
scheduled known pre-spinoff environmental liabilities and obligations, and all
other environmental liabilities and obligations arising out of discharges with
respect to properties containing USTs that had not been upgraded to meet the
1998 federal standards that were discovered prior to the date these USTs were
upgraded to meet the 1998 federal standards (collectively, the "Realty
Environmental Liabilities"). We have not reflected a liability for the Realty
Environmental Liabilities in our consolidated balance sheet since Realty remains
the primary obligor for these liabilities. In the unlikely event that Realty
fails to remediate a contaminated property and we are held jointly and severally
responsible for the remediation costs, Realty is obligated to indemnify us, and
any remediation costs we pay will be offset against our rental obligations under
the Master Lease. Because of this rental offset, the likelihood that we will
incur any incremental costs in connection with any such remediation is remote.
We are responsible for, and will indemnify Realty with respect to, all
environmental obligations and liabilities other than the Realty Environmental
Liabilities. As of January 31, 2000 and 1999, we had accrued $2,117,000 and
$1,415,000, respectively, as management's best estimate for environmental
remediation costs to be incurred. In view of the uncertainties associated with
environmental expenditures, however, we believe it is possible that future
expenditures could be substantially higher. Any additional amounts will be
reflected in our financial statements as they become known. Although future
environmental expenditures may have a significant impact on results of
operations for any single fiscal year or interim period, we believe that these
costs will not have a material adverse effect on our financial position.
We believe that we are in substantial compliance with federal, state and local
provisions enacted or adopted pertaining to environmental matters. Although we
cannot predict what legislation or regulations may be adopted in the future with
respect to environmental protection and waste disposal, existing legislation and
regulations have had no material adverse effect on our competitive
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position.
PERSONNEL
As of January 31, 2000, we had 597 employees, of whom 209 were truck drivers and
service technicians represented by Amalgamated Local Union 355. We consider our
relationships with our employees and the union to be satisfactory.
SPECIAL FACTORS REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Annual Report on Form 10-K 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 on
demand for petroleum products; natural and political events that may affect the
supply of petroleum products; competition; the effects of regulation; and
potential effects of Year 2000 computer issues. For a more detailed discussion
of risk factors, see the information set forth under the caption "Risk Factors"
in the Company's Information Statement dated March 13, 1997.
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 events or
circumstances or reflect the occurrence of unanticipated events.
ITEM 2. PROPERTIES
Effective February 1, 1997, we entered into the Master Lease with Realty under
which service station and convenience store properties and terminal facilities
(the "Properties") are leased or subleased by Realty to us. The Properties are
used for gasoline sales, convenience stores, and other complementary lawful uses
in conjunction with the sale of petroleum products or convenience store items,
except where the provisions of any underlying lease are more restrictive. We may
sublet any
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property, provided that we remain 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 requires Realty's consent.
Except for certain environmental and UST obligations described below (and above
under Item 1. Business - Regulation), the Master Lease is a "triple-net" lease,
under which we are responsible for all taxes, maintenance, repairs, insurance
and other operating expenses.
Rent for each of the Properties was set using the then fair market value of each
Property, assuming the USTs were upgraded to meet the 1998 federal standards and
Properties were free of known environmental contamination, since Realty was
responsible for those 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 during that five-year period, but not more than
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 (termination date of January 31, 2012
excluding renewals) and (ii) the length of time remaining under underlying lease
terms (which ranges up to fifteen years under the Master Lease) with respect to
other Properties leased by Realty from other third parties. The Master Lease
terms for each category of Properties described above also include four ten-year
renewal options (or, with respect to category (ii), a shorter period as provided
in the underlying lease), which we may exercise 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 Realty and
us. In the event that we desire not to renew the sublease, Realty may extend or
renew the lease and sublease the property to a third party after the end of our
term. Our Bylaws require that the renewal of leases under the Master Lease,
including the exercise of any renewal options, 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 our Board of Directors, a
majority of the Outside Directors. See Item 10. Directors and Executive Officers
of the Registrant.
The Master Lease provides that if during the lease term we determine that any of
the leased premises have become uneconomic or unsuitable for use as a service
station or convenience store and have discontinued use of the Property or intend
to discontinue use of the Property as a service station or convenience store
within one year, we have the right to sublet the Property for any lawful use
without Realty's consent and, prior to the commencement of any other use, we
must remove any USTs on the Property and thereafter perform all requisite
environmental investigations and/or remediations. We have this right of economic
abandonment with respect to no more than ten Properties during any fiscal year
of the lease term. We have no right of economic abandonment for the terminal
premises or the premises subject to third party leases.
Realty may terminate our right to possession of the Properties upon the
occurrence of an event of default, including our failure to pay rent due under
the Master Lease in a timely manner or to comply with our covenants under the
Reorganization and Distribution Agreement (the "Distribution
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Agreement") between us and Realty pursuant to which the spinoff was effected.
The Master Lease provides that we may make any alterations consistent with the
use of the Properties as gasoline stations/convenience stores. Any other
alterations require Realty's consent, which may not be unreasonably withheld.
Pursuant to the Master Lease, Realty will be responsible and pay for, and
indemnify us against, all pre-closing liabilities, including environmental
remediation and other matters specifically identified on the relevant Master
Lease schedule. Since rental rates under the Master Lease assumed that the
Properties complied with the 1998 federal standards, in the event that Realty
fails to make the expenditures required for underground storage tank and
environmental compliance, we have the right to offset the costs of compliance
against our rent obligations under the Master Lease.
We have 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 upgrades to
nonupgraded USTs, and all environmental liabilities and obligations arising out
of discharges with respect to Properties containing nonupgraded USTs that were
discovered prior to the date such USTs were upgraded to meet the 1998 federal
standards.
We own one service station property in Massachusetts, which we purchased in
1999.
ITEM 3. LEGAL PROCEEDINGS
(a) Information in response to this item is incorporated herein by reference
from Note 7 of the Notes to Consolidated Financial Statements set forth on page
21 of the Annual Report.
In 1991, the State of New York brought an action in the New York Supreme Court
in Albany County against Kingston Oil Supply Corp. ("KOSCO"), our subsidiary,
seeking reimbursement in the amount of $189,000 for cleanup costs incurred at a
service station. The State is also seeking penalties of $200,000 and interest.
There has been no activity in this proceeding in the past several years.
In April 1998, the State of New York asserted against KOSCO a claim for
$185,000, representing environmental cleanup costs allegedly incurred commencing
in 1991. In August 1998, an action was filed in the New York Supreme Court in
Albany County to recover $185,000 for cleanup costs plus interest and penalties.
In January 2000, the Department of Environmental Protection of the Commonwealth
of Massachusetts advised us that it would require that we enter into a Consent
Order with respect to alleged violations pertaining to vapor recovery equipment
at some of our Massachusetts service stations in the mid-1990's. The Department
said that it would assess a penalty of $123,000 for the alleged violations. We
have denied responsibility and no enforcement action has been instituted.
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Under the Distribution Agreement, Realty agreed to defend all claims or
proceedings that existed prior to the spinoff and indemnify us and our
subsidiaries with respect thereto. Pursuant to the Distribution Agreement,
Realty retains liability for proceedings relating to the pre-spinoff operation
of the business, including KOSCO. Realty is defending and incurring the cost of
defense of the three above-described cases and all other matters which occurred
prior to the date of the spinoff.
There have been releases of petroleum products into the environment since the
spinoff for which we are solely responsible. Some of these releases could result
in third party claims against us, to which Realty's indemnification obligation
will not apply.
Several claims have been asserted against us and our subsidiaries for personal
injuries incurred after the spinoff, for which Realty has no indemnification
obligation. These claims, for which there is insurance coverage subject to a
$500,000 per occurrence deductible, are not expected, individually or in the
aggregate, to have a material adverse effect on our financial position or
results of operations.
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 our fiscal year ended January 31, 2000.
EXECUTIVE OFFICERS OF REGISTRANT
The following table lists the executive officers of Getty as of January 31,
2000, their respective ages, the offices and positions held and the year in
which each was elected an officer.
Officer
Name Age Position Since
---- --- -------- -----
Leo Liebowitz 72 Chairman and Chief Executive Officer 1997
Vincent J. DeLaurentis 49 President and Chief Operating Officer 1997
A. R. Charnes 55 Vice President of Marketing 1998
Michael K. Hantman 48 Vice President and Corporate Controller 1997
Samuel M. Jones 63 Vice President, Corporate Secretary
and General Counsel 1997
Mr. Liebowitz has been Chairman and Chief Executive Officer and a director of
Getty since March 21, 1997, the date of the spinoff from Realty. He is also the
President and Chief Executive Officer and a director of Realty, which positions
he has held since 1971. He is also a director of the Regional Banking Advisory
Board of Chase Banking Corp.
Mr. DeLaurentis joined Getty as President in August 1997 and assumed the
additional position of Chief Operating Officer in June 1998. Prior thereto, Mr.
DeLaurentis had been President of Interactive Marketing Ventures, a Safeguard
Scientifics partnership company. Until 1996, he
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was the Vice President and General Manager of Sunoco's Northeast Marketing
Region for Sun Company, Inc. During his eight years there, he served in various
management roles including Vice President of Marketing, A plus Franchise Manager
and Division Manager. His prior experience was with Atlantic Refining and
Marketing and ARCO.
Mr. Charnes has been Vice President of Marketing of Getty since September 1998.
Prior thereto, he was General Manager of Marketing since February 1998. He
joined Realty in 1988 as a Regional Manager and continued in this capacity for
Getty effective with the March 21, 1997 spinoff from Realty. Prior to joining
Realty, he held various management positions with Marathon Oil Company, which he
joined in 1966.
Mr. Hantman has been Vice President and Corporate Controller of Getty since
March 21, 1997, the date of the spinoff from Realty. Prior thereto, he was Vice
President and Corporate Controller of Realty. He joined Realty in 1985 as
Corporate Controller. Prior to joining Realty, he was a Principal of Arthur
Young & Company, an international accounting firm.
Mr. Jones has been Vice President, Corporate Secretary and General Counsel of
Getty since March 21, 1997, the date of the spinoff from Realty. Prior thereto,
he was Vice President, Corporate Secretary and General Counsel of Realty. He
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.
Management is not aware of any family relationships among any of the executive
officers.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Information in response to this item is incorporated herein by reference from
material under the heading "Common Stock" on page 28 of the Annual Report.
ITEM 6. SELECTED FINANCIAL DATA
Information in response to this item is incorporated herein by reference from
material under the heading "Selected Financial Data" on page 9 of the Annual
Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Information in response to this item is incorporated herein by reference from
material under the heading "Management's Discussion and Analysis of Financial
Condition and Results of Operations" on pages 10 through 13 of the Annual
Report.
ITEM 7A. MARKET RISK
Information is response to this item is incorporated herein by reference from
Note 7 of the Notes to Consolidated Financial Statements on page 21 of the
Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information in response to this item is incorporated herein by reference from
the information on pages 14 through 28 of the Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
12
<PAGE> 14
Part III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to directors in response to this item is incorporated
herein by reference from material under the headings "Election of Directors" and
"Compliance with Section 16(a) of the Securities Exchange Act of 1934" on pages
1 and 3 through 4 and page 15, respectively, of the Proxy Statement.
Information regarding executive officers is included in Part I hereof.
ITEM 11. EXECUTIVE COMPENSATION
Information in response to this item is incorporated herein by reference from
material under the headings "Directors' Meetings, Committees and Executive
Officers" and "Compensation" through, and including the material under the
heading "Compensation Committee Interlocks and Insider Participation", on pages
3 through 9 of the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information in response to this item is incorporated herein by reference from
material under the heading "Beneficial Ownership of Common Stock" on pages 2 and
3 of the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information in response to this item is incorporated by reference from material
under the heading "Certain Transactions" on pages 11 and 12 of the Proxy
Statement.
13
<PAGE> 15
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 15 are filed as part of this annual
report.
2. Financial Statement Schedule
The financial statement schedule listed in the Index to Financial Statements and
Financial Statement Schedules on page 15 is filed as part of this annual report.
3. Exhibits
The exhibits listed in the Exhibit Index on pages 18 through 20 are filed as
part of this annual report.
4. Reports on Form 8-K
Registrant filed a Current Report on Form 8-K dated April 6, 2000 reporting
under Item 5, Other Events, that Getty had retained the investment banking firm
ING Barings, LLC in connection with a review of strategic alternatives,
including the possible sale or merger of Getty or some other form of business
transaction.
14
<PAGE> 16
GETTY PETROLEUM MARKETING INC.
INDEX TO FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
COVERED BY REPORT OF INDEPENDENT ACCOUNTANTS
ITEMS 14(A) 1 &2
Reference
---------
Form 10-K 2000 Annual
(pages) Report (pages)
------- --------------
Data incorporated by reference from attached
2000 Annual Report to Stockholders
of Getty Petroleum Marketing Inc.:
Report of Independent Accountants 28
Consolidated Statements of Operations for the
years ended January 31, 2000, 1999 and 1998 14
Consolidated Balance Sheets as of January 31,
2000 and 1999 15
Consolidated Statements of Cash Flows for the
years ended January 31, 2000, 1999 and 1998 16
Notes to Consolidated Financial Statements 17 - 27
Report of Independent Accountants -
Supplemental Schedule 16
Schedule II - Valuation and Qualifying Accounts
and Reserves for the years ended January 31, 2000,
1999 and 1998 17
All other schedules are omitted for the reason that they are either not
required, not applicable, not material or the information is included in the
consolidated financial statements or notes thereto.
The financial statements listed in the above index which are included in the
2000 Annual Report to Stockholders are hereby incorporated by reference. With
the exception of the pages listed in the above index and the information
incorporated by reference included in Part II, Items 5, 6, 7, 7A and 8, the 2000
Annual Report to Stockholders is not deemed filed as part of this report.
15
<PAGE> 17
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Stockholders
of Getty Petroleum Marketing Inc.:
Our audits of the consolidated financial statements referred to in our report
dated March 9, 2000 appearing in the fiscal 2000 Annual Report to Shareholders
of Getty Petroleum Marketing Inc. (which report and consolidated financial
statements are incorporated by reference in this Annual Report on Form 10-K)
also included an audit of the financial statement schedule listed in Item
14(a)(2) of this Form 10-K. In our opinion, this financial statement schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
PricewaterhouseCoopers LLP
New York, New York
March 9, 2000
16
<PAGE> 18
24
GETTY PETROLEUM MARKETING INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED JANUARY 31, 2000, 1999 AND 1998
(in thousands)
BALANCE AT BALANCE AT
BEGINNING END OF
OF PERIOD ADDITIONS DEDUCTIONS PERIOD
2000:
Allowance for doubtful accounts*... $ 901 $ 346 $ 406 $ 841
====== ====== ====== ======
1999:
Allowance for doubtful accounts*... $1,208 $ 461 $ 154 $ 901
====== ====== ====== ======
1998:
Allowance for doubtful accounts*... $1,185 $ 443 $ 466 $1,208
====== ====== ====== ======
- - - -------------
* Relates to accounts receivable.
17
<PAGE> 19
EXHIBIT INDEX
-------------
GETTY PETROLEUM MARKETING INC.
Annual Report on Form 10-K
for the fiscal year ended January 31, 2000
------------------------------------------
Exhibit
No Description
3.2 Articles of Amendment and Filed as Exhibit 3.2 to Company's
Restatement of the Company. Registration Statement on Form 10,
File No. 001-14990, and incorporated
herein by reference.
3.4 By-Laws of the Company. Filed as Exhibit 3.4 to Company's
Registration Statement on Form 10,
File No. 001-14990, and incorporated
herein by reference.
10.1 Form of Reorganization and Filed as Exhibit 10.1 to Company's
Distribution Agreement between Registration Statement on Form 10,
the Company and Getty File No. 001-14990, and incorporated
Realty Corp. herein by reference.
10.2 Form of Master Lease Agreement Filed as Exhibit 10.2 to Company's
between the Company and Getty Registration Statement on Form 10,
Realty Corp. File No. 001-14990, and incorporated
herein by reference.
10.3 Form of Tax Sharing Agreement Filed as Exhibit 10.3 to Company's
between the Company and Getty Registration Statement on Form 10,
Realty Corp. File No. 001-14990, and incorporated
herein by reference.
10.4 Services Agreement dated as of Filed as Exhibit 10.4A to Company's
February 1, 1999 between the Annual Report on Form 10-K for the
Company and Getty Realty Corp. year ended January 31, 1999, File
No. 001-14990, and incorporated
herein be reference.
10.5 Form of Trademark License Filed as Exhibit 10.5 to Company's
Agreement between the Company Registration Statement on Form 10,
and Getty Realty Corp. File No. 001-14990, and incorporated
herein by reference.
10.6 Form of Company's 1997 Stock Filed as Exhibit 10.6 to Company's
Option Plan. Registration Statement on Form 10,
File No. 001-14990, and incorporated
herein by reference.
10.7 Form of Company's Employee Filed as Exhibit 10.7 to Company's
Stock Ownership Plan. Registration Statement on Form 10,
File No. 001-14990, and incorporated
herein by reference.
10.8 Form of Stock Option Filed as Exhibit 10.8 to Company's
Reformation Agreement between Registration Statement on Form 10,
the Company and Getty Realty File No. 001-14990, and incorporated
Corp. herein by reference.
10.9 Form of Company's Retirement Filed as Exhibit 10.9 to Company's
and Profit Sharing Plan. Registration Statement on Form 10,
File No. 001-14990, and incorporated
herein by reference.
18
<PAGE> 20
Exhibit
No Description
10.10 Form of Supplemental Retirement Plan Filed as Exhibit 10.10 to
for Executives of the Company and Company's Registration
Participating Subsidiaries. Statement on Form 10, File
No. 001-14990, and
incorporated herein by
reference.
10.11 Form of Indemnification Agreement Filed as Exhibit 10.11 to
between Company and directors. Company's Annual Report on
Form 10-K for the year
ended January 31, 1997,
File No. 001-14990, and
incorporated herein by
reference.
10.12 Vincent J. DeLaurentis Employment Filed as Exhibit 10.12 to
Agreement dated as of July 10, 1997. Company's Quarterly Report
on Form 10-Q for the
quarter ended July 31,
1997, File No. 001-14990,
and incorporated herein by
reference.
10.12a First Amended and Restated Employment Filed as Exhibit 10.12a to
Agreement between Getty Petroleum Company's Annual Report on
Marketing Inc. and Vincent J. Form 10-K for the year
DeLaurentis dated as of ended January 31, 1999,
April 8, 1999 (See Exhibit 10.12). File No. 001-14990, and
incorporated herein by
reference.
10.13 General Release and Severance Filed as Exhibit 10.13 to
Agreement between Alvin A. Smith Company's Quarterly Report
and Getty Petroleum Marketing Inc. on Form 10-Q for the
quarter ended October 31,
1997, File No. 001-14990,
and incorporated herein by
reference.
10.14 Form of Letter Agreement dated Filed as Exhibit 10.14 to
April 8, 1997, wherein the Company Company's Annual Report on
(I) confirmed that a change of control Form 10-K for the year
event had occurred pursuant to certain ended January 31, 1998,
Agreements dated December 9, 1994, as File No. 001-14990, and
amended on March 7, 1996, between Getty incorporated herein by
Petroleum Corp. and the officers and reference.
certain key employees of Getty Petroleum
Corp., and (ii) agreed to perform Getty
Petroleum Corp.'s obligations under the
Agreements as to those officers and key
employees of Getty Petroleum Corp. who
had become officers and employees of
the Company.
10.15 Form of Letter Agreement dated Filed as Exhibit 10.23 to
December 9, 1994 regarding compensation the Annual Report on Form
upon change of control (See Exhibit 10-K for the fiscal year
10.14) ended January 31, 1995
(File No. 1-8059) of Getty
Petroleum Corp. and
incorporated herein by
reference
10.16 Form of Letter Agreement dated Filed as Exhibit 10.27 to
March 7, 1996 amending Agreement dated the Annual Report on Form
December 9, 1994 regarding compensation 10-K for the fiscal year
upon change of control (See Exhibits ended January 31, 1996
10.14 and 10.15). (File No. 1-8059) of Getty
Petroleum Corp. and
incorporated herein by
reference.
10.17 Form of Letter Agreement dated March 9, Filed as Exhibit 10.17 to
1998 between the Company and the Company's Annual Report on
officers and certain key employees Form 10-K for the year
of the Company amending the change of ended January 31, 1998,
control agreements (See Exhibits 10.14, File No. 001-14990, and
10.15 and 10.16). incorporated herein by
reference.
19
<PAGE> 21
13 Annual Report to Stockholders. *
21 List of Subsidiaries of the Company. *
23 Consent of Independent Accountants. *
27 Financial Data Schedule. *
- - - ---------------
*Filed herewith.
20
<PAGE> 22
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
April 28, 2000
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/ Michael K. Hantman
---------------------------- ----------------------------
Leo Liebowitz, Chairman, Michael K. Hantman,
Chief Executive Officer Vice President and
and Director Corporate Controller
April 28, 2000 (Principal Financial and
Accounting Officer)
April 28, 2000
By /s/ Matthew J. Chanin By /s/ Ronald E. Hall
---------------------------- ----------------------------
Matthew J. Chanin, Ronald E. Hall,
Director Director
April 28, 2000 April 28, 2000
By /s/ Richard E. Montag By /s/ Howard Safenowitz
---------------------------- ----------------------------
Richard E. Montag, Howard Safenowitz,
Director Director
April 28, 2000 April 28, 2000
By /s/ Howard Silverman
----------------------------
Howard Silverman,
Director
April 28, 2000
21
<PAGE> 1
SELECTED FINANCIAL DATA
Getty Petroleum Marketing Inc. and Subsidiaries
<TABLE>
<CAPTION>
For the years ended January 31,
- - - -----------------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share and per gallon data,
and number of outlets) 2000 1999 1998 1997 1996
- - - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Sales and operating revenues $ 832,051 $ 660,754 $ 891,109 $ 888,388 $ 790,912
Cost of sales and operating expenses
(excluding depreciation and amortization) 787,762 624,182 847,234 879,187 750,680
- - - ----------------------------------------------------------------------------------------------------------------------------------
Gross profit (before depreciation and amortization)(a) 44,289 36,572 43,875 9,201 40,232
Selling, general and administrative expenses 23,234 20,006 25,794 20,307 20,702
Depreciation and amortization 16,932 15,927 13,647 13,922 13,099
- - - ----------------------------------------------------------------------------------------------------------------------------------
Operating income (loss) $ 4,123 $ 639 $ 4,434 $ (25,028)(b) $ 6,431
==================================================================================================================================
Net earnings (loss) $ 2,055 $ 568 $ 1,181 $ (15,225)(c) $ 3,664(d)
Basic and diluted net earnings per share(e) $ .15 $ .04 $ .09
FINANCIAL POSITION:
Total assets $ 170,915 $ 149,421 $ 146,329 $ 135,500 $ 124,498
Stockholders' equity $ 62,246 $ 60,220 $ 60,015 $ 54,541 $ 50,311
OTHER DATA:
Gallonage sold:
Retail 879,636 837,162 800,940 768,294 718,400
Wholesale 99,193 98,069 232,824 237,925 247,913
Heating oil 24,917 23,957 26,695 29,428 29,565
- - - ----------------------------------------------------------------------------------------------------------------------------------
Total 1,003,746 959,188 1,060,459 1,035,647 995,878
Average sales gallonage per outlet 806 770 775 749 695
Average sales price per gallon (net of taxes) $ .7909 $ .6527 $ .8075 $ .8256 $ .7692
Retail margin per gallon (a) $ .0975 $ .0897 $ .0942 $ .0923 $ .1049
Number of outlets at year end 1,291 1,263 1,317 1,560 1,625
Capital expenditures and acquisitions $ 27,811 $ 25,332 $ 19,105 $ 17,839 $ 15,858
</TABLE>
(a) Gross profit includes LIFO charge (credit) of $4,328, $(2,481) and $2,555
for the years ended January 31, 2000, 1998 and 1997, respectively. Retail
margin per gallon excludes impact of LIFO charge (credit).
(b) Includes charge of $21,182 related to revision of estimate of future
environmental costs.
(c) Includes after-tax charge of $12,323 related to revision of estimate of
future environmental costs.
(d) Includes after-tax charge 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."
(e) The Company was spun off from Getty Realty Corp. on March 21, 1997.
Accordingly, per share data is not presented for each of the two years
ended January 31, 1997.
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Getty Petroleum Marketing Inc. and Subsidiaries
Overview and Outlook
Getty Petroleum Marketing Inc., a Maryland corporation, 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 by transferring to Getty Marketing the assets and
liabilities of its petroleum marketing business and the New York Mid-Hudson
Valley heating oil business. On March 21, 1997, Realty distributed all of the
common shares of Getty Marketing to its stockholders.
Getty is one of the nation's largest independent marketers of petroleum
products. We distribute, market and sell gasoline and diesel fuel at retail
through a network of 1,291 Getty and other branded retail outlets located in 13
Northeastern and Middle-Atlantic states, some of which also have convenience
food stores. We also sell gasoline, fuel oil, diesel fuel and kerosene in
truckload and barge quantities on a wholesale basis. We purchase 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 our nine storage and distribution terminals and bulk
plants, all of which are located in our distribution region. We distribute and
market products to retail outlets through our distribution network, our truck
transportation fleet and also through common carriers. We engage in activities
such as negotiating the prices and terms in connection with the purchase of
petroleum products, developing the prices, terms and methods of selling products
to our customers, monitoring compliance by the service station and convenience
store operators with our retail standards program and providing marketing
services to operators.
We also derive revenue from our 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 region.
Petroleum products are commodities whose prices depend on numerous factors
beyond our control, including global, national and regional factors 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
large, rapid changes in the price we pay for products and, accordingly, our
operating margins may vary substantially. Because our operating margins may vary
significantly from time to time while certain of our expenses do not, our
earnings may fluctuate substantially.
Our financial results have depended largely on retail marketing margins and
rental income from 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, we cannot predict with any
degree of accuracy future product margin levels. However, we believe that 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
FISCAL YEAR ENDED JANUARY 31, 2000 COMPARED TO FISCAL YEAR ENDED JANUARY 31,
1999
Sales and operating revenues for the year ended January 31, 2000 ("fiscal 2000")
were $832.1 million as compared with $660.8 million for the year ended January
31, 1999 ("fiscal 1999"). The 25.9% increase in sales and operating revenues was
primarily due to a 21.2% increase in sales prices (net of taxes) to 79.1 cents
per gallon from 65.3 cents per gallon and a 4.6% increase in sales volume to
1.004 billion gallons from 959.2 million gallons. Retail gallonage sold
increased by 42.5 million gallons or 5.1% to 879.6 million gallons. The average
gasoline volume per retail outlet increased by 4.5% to 806,000 gallons per
outlet. Wholesale gallonage sold increased by 1.1 million gallons or 1.1% to
99.2 million gallons and heating oil sales increased by 1.0 million gallons or
4.0% to 24.9 million gallons.
Gross profit before depreciation and amortization was $44.3 million for fiscal
2000 as compared to $36.6 million in fiscal 1999. The improvement of $7.7
million was principally due to an increase in retail product margins of
approximately 0.8 cents per gallon which contributed an additional $7.8 million
of gross profit, and higher retail volumes which contributed an additional $4.4
million of gross profit, partially offset by a $4.3 million LIFO charge in
fiscal 2000 which resulted from the higher product costs.
Other income was $0.7 million in fiscal 2000 as compared to $1.5 million for
fiscal 1999. Fiscal 2000 included a charge of $0.3 million related to the early
termination of eight leases under a master lease agreement with Realty whereas
the prior year included a gain of $0.4 million related to the early termination
of four leases under the master lease agreement. The prior year also included a
$0.2 million legal charge related to the Company's Mount Vernon terminal. Also
included in other income for the years ended January 31, 2000 and 1999 were
$749,000 and $960,000, respectively, of net fees received from Realty for
administrative and technical services we have provided pursuant to the services
agreement since the spin-off.
Selling, general and administrative expenses amounted to $23.2 million for
fiscal 2000, an increase of $3.2 million or 16.1% from the $20.0 million for
fiscal 1999. The increase was primarily due to higher incentive compensation of
$1.0 million recorded during fiscal 2000 and a stock compensation credit of $2.1
million recorded during the prior fiscal year.
<PAGE> 3
Depreciation and amortization was $16.9 million for fiscal 2000 as compared with
$15.9 million for fiscal 1999. The increase was due to higher depreciation as a
result of additions to equipment and improvements to facilities.
Interest expense of $1.0 million in fiscal 2000 increased by $0.1 million over
fiscal 1999 interest expense of $0.9 million, primarily due to interest on
higher dealer security deposits.
Severance charges of $0.2 million were recorded during fiscal 1999 in connection
with a work force reduction of six employees.
Pre-tax earnings for fiscal 2000 were $3.8 million, comprised of $2.5 million
from the petroleum marketing business and $1.3 million from the Company's
heating oil business. For fiscal 1999, pre-tax earnings were $1.1 million,
comprised of a pre-tax loss of $0.4 million from the petroleum marketing
business and pre-tax earnings of $1.5 million from the Company's heating oil
business.
For fiscal 2000, the Company had net earnings of $2.1 million or $.15 per
diluted share as compared with $0.6 million or $.04 per diluted share for the
prior fiscal year.
FISCAL YEAR ENDED JANUARY 31, 1999 COMPARED TO FISCAL YEAR ENDED JANUARY 31,
1998
Sales and operating revenues for the year ended January 31, 1999 were $660.8
million as compared with $891.1 million for the year ended January 31, 1998
("fiscal 1998"). The 25.9% decrease in sales and operating revenues was
primarily due to a 19.2% decrease in sales prices and a 9.5% decrease in sales
volume. Total gallonage sold in fiscal 1999 decreased by 101.3 million gallons
to 959.2 million gallons, primarily because of the termination of a wholesale
supply contract as of December 31, 1997. Wholesale gallonage sold decreased by
134.8 million gallons or 57.9% to 98.1 million gallons and heating oil decreased
by 2.7 million gallons or 10.3% to 24.0 million gallons, principally due to
warmer weather. These gallonage declines were partially offset by an increase
in retail gallonage sold of 36.2 million gallons or 4.5% to 837.2 million
gallons. The average gasoline volume per retail outlet decreased by 0.6% to
770,000 gallons per outlet.
Gross profit before depreciation and amortization was $36.6 million for fiscal
1999 as compared to $43.9 million in fiscal 1998. The $7.3 million decrease was
principally due to a decrease in retail product margins of approximately 0.4
cents per gallon which resulted in a reduction of $3.5 million of gross profit.
In addition, gross profit declined due to $2.2 million of higher environmental
and maintenance expenses during the current year and a LIFO benefit of $2.5
million which was recorded during the prior year.
On December 31, 1997, our leases and supply contract with Uni-Marts, Inc. were
terminated. As a result of the termination of the supply contract pursuant to
which we previously supplied an additional 190 Uni-Marts controlled locations,
sales of petroleum products were reduced by approximately 84 million gallons per
annum, or about 8% of total annual volume from fiscal 1998. Product sales to
Uni-Marts had been on a lower margin, wholesale basis, and the loss of sales
volume was substantially offset in fiscal 1999 by higher retail margin sales at
Getty-controlled locations previously leased to Uni-Marts. The termination of
the Uni-Marts leases, however, negatively affected our results of operations for
fiscal 1999 by approximately $4.0 million in comparison to fiscal 1998 due to
higher maintenance charges, lower rental income received as a result of our
decision to divest, temporarily close or company-operate certain locations and
higher depreciation charges related to equipment purchased and capital
improvements made to the locations.
Other income was $1.5 million in fiscal 1999 as compared to $1.7 million for
fiscal 1998. The decrease was primarily due to a $0.2 million legal charge
related to our Mount Vernon terminal.
Selling, general and administrative expenses amounted to $20.0 million for
fiscal 1999, a decrease of $5.8 million or 22.4% from the $25.8 million for
fiscal 1998. The decrease was primarily due to a stock compensation credit of
$2.1 million recorded during fiscal 1999 and a charge of $4.2 million recorded
during fiscal 1998 for stock compensation resulting from changes in Getty's
stock price during the respective periods.
Depreciation and amortization was $15.9 million for fiscal 1999 as compared with
$13.6 million for fiscal 1998. The increase was due to higher depreciation as a
result of additions to equipment and improvements to facilities.
Interest expense of $0.9 million in fiscal 1999 increased by $0.1 million over
fiscal 1998 interest expense of $0.8 million, primarily due to interest on
higher dealer security deposits.
Severance charges of $0.2 million were recorded during fiscal 1999 in connection
with a work force reduction of six employees and $2.2 million were recorded
during fiscal 1998 related to the resignations of two Company officers.
A "change of control" charge of $0.6 million was recorded during fiscal 1998 in
connection with the spin-off.
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued
Getty Petroleum Marketing Inc. and Subsidiaries
Pre-tax earnings for fiscal 1999 were $1.1 million, comprised of a pre-tax loss
of $0.4 million from the petroleum marketing business and pre-tax earnings of
$1.5 million from the Company's heating oil business. For fiscal 1998, pre-tax
earnings were $2.6 million, comprised of $0.8 million of pre-tax earnings from
the petroleum marketing business and $1.8 million from the Company's heating oil
business.
For fiscal 1999, the Company had net earnings of $0.6 million or $.04 per
diluted share as compared with $1.2 million or $.09 per diluted share for the
prior fiscal year.
Liquidity and Capital Resources
As of January 31, 2000, we had a working capital deficit of $10.6 million as
compared to $2.5 million as of January 31, 1999. The decrease in working capital
was primarily due to $19.8 million of capital expenditures and $8.0 million of
acquisitions, partially offset by working capital generated during the year from
operations. We are able to operate our business with negative working capital,
principally because most of our product sales are for cash and payment terms
have been received from vendors and for gasoline taxes.
Our principal source of liquidity is cash flows from operations, which amounted
to $33.6 million during the fiscal year ended January 31, 2000. Management
believes that cash requirements for operations, including rental payments
required under the master lease 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 three banks in the aggregate amount of $50.0
million, which may be utilized for working capital borrowings and letters of
credit. As of January 31, 2000, we were utilizing $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.
On January 30, 1998, we purchased, for investment purposes, 487,000 shares or
approximately 7.3% of Uni-Marts, Inc. common stock for $1,461,000. As of January
31, 2000 and 1999, the fair market value of such shares recorded in our
consolidated balance sheets was $548,000 and $1,339,000, respectively.
During fiscal 2000, we experienced product cost increases of approximately 39
cents per gallon, which resulted in higher sales prices to customers and higher
accounts receivable balances as compared to January 31, 1999. In addition, our
inventory and accounts payable balances increased as of January 31, 2000 in
comparison to the prior fiscal year end, principally due to the product cost
increases.
As of January 31, 2000, we leased 1,013 retail outlets and 9 terminal facilities
from Realty under a master lease agreement. The annual rental expense under the
master lease for fiscal 2000 was $56.4 million.
Our capital expenditures for the fiscal years ended January 31, 2000, 1999 and
1998 were $19.8 million, $21.5 million and $19.1 million, respectively. Our
capital expenditures include discretionary expenditures to improve the image of
the retail outlets, to improve the terminal facilities and for routine
replacement of service station equipment.
In addition, during fiscal 2000, we spent $8.0 million for improvements to
properties which we commenced leasing in fiscal 2000 and for the acquisition of
one property as compared with $3.8 million expended in the prior fiscal year.
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 underground storage tanks ("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, which include identifying 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 well as the time it takes to remediate contamination. In
developing the estimates of environmental remediation costs, we consider, among
other things, enacted laws and regulations, assessments of contamination,
currently available technologies for treatment, alternative methods of
remediation and prior experience. These estimates are subject to change as
contingencies become more clearly defined and remediation treatment progresses.
For the fiscal years ended January 31, 2000, 1999 and 1998, environmental
expenses included in cost of sales and operating expenses were $3,958,000,
$2,774,000 and $1,375,000, respectively.
Under the master lease, Realty committed to a program to bring the leased
properties requiring remediation to regulatory closure and, thereafter, transfer
all future environmental risks from Realty to Getty 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 our responsibility.
<PAGE> 5
Realty has agreed to pay all costs relating to, and to indemnify us for, all
scheduled known pre-spin-off environmental liabilities and obligations, and all
other environmental liabilities and obligations arising out of discharges with
respect to properties containing USTs that had not been upgraded to meet the
1998 federal standards that were discovered prior to the date such USTs were
upgraded to meet the 1998 federal standards (collectively, the "Realty
Environmental Liabilities"). Realty will also collect recoveries from state UST
remediation funds related to the Realty Environmental Liabilities.
We have not reflected a liability for the Realty Environmental Liabilities in
our consolidated balance sheets since Realty remains the primary obligor for
such liabilities. In the unlikely event that Realty fails to remediate a
contaminated property and we are held jointly and severally responsible for the
Remediation Costs, Realty is obligated to indemnify us, and any Remediation
Costs we pay will be offset against our rental obligations under the master
lease. Because of this rental offset, the likelihood that we will incur any
incremental costs in connection with any such remediation is remote.
We are responsible for, and will indemnify Realty with respect to, all
environmental obligations and liabilities other than the Realty Environmental
Liabilities. As of January 31, 2000 and 1999, we had accrued $2,117,000 and
$1,415,000, respectively, as management's best estimate for environmental
remediation costs to be incurred. In view of the uncertainties associated with
environmental expenditures, however, we believe it is possible that such
expenditures could be substantially higher. Any additional amounts will be
reflected in our financial statements as they become known. Although future
environmental expenditures may have a significant impact on results of
operations for any single fiscal year or interim period, we believe that such
costs will not have a material adverse effect on our financial position.
We cannot predict what environmental legislation or regulations 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 our financial position or operations and could require
substantial additional expenditures for future remediation or the installation
and operation of required environmental or pollution control systems and
equipment.
Year 2000
We implemented a comprehensive program to address Year 2000 issues which was
completed as of December 31, 1999. As a result of these efforts, we have not
experienced any disruptions to our systems or operations. The cost of these Year
2000 efforts was not material since the majority of the compliance costs were
funded by reallocating existing internal resources rather than incurring
incremental costs. Although unlikely, the possibility still exists that
interruptions to our systems could occur from the Year 2000 issue.
Strategic Alternatives
On April 5, 2000, we announced that we have retained the investment banking firm
ING Barings, LLC in connection with a review of strategic alternatives,
including a possible sale or merger or some other form of business transaction.
We cannot assure you that any transaction will result from this process.
Special Factors Regarding Forward-Looking Statements
Certain statements in this Annual Report 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 on demand for petroleum products; natural and
political events that may affect the supply of petroleum products; competition;
the effects of regulation; and potential effects of Year 2000 issues.
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.
<PAGE> 6
CONSOLIDATED STATEMENTS OF OPERATIONS
Getty Petroleum Marketing Inc. and Subsidiaries
<TABLE>
<CAPTION>
For the years ended January 31,
- - - -----------------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts) 2000 1999 1998
- - - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales and operating revenues $ 832,051 $ 660,754 $ 891,109
Other income 658 1,538 1,734
- - - -----------------------------------------------------------------------------------------------------------------------------------
832,709 662,292 892,843
- - - -----------------------------------------------------------------------------------------------------------------------------------
Cost of sales and operating expenses
(excluding depreciation and amortization) 787,762 624,182 847,234
Selling, general and administrative expenses 23,234 20,006 25,794
Depreciation and amortization 16,932 15,927 13,647
Interest expense 973 909 786
Severance charges -- 216 2,175
Change of control charge -- -- 637
- - - -----------------------------------------------------------------------------------------------------------------------------------
828,901 661,240 890,273
- - - -----------------------------------------------------------------------------------------------------------------------------------
Earnings before provision for income taxes 3,808 1,052 2,570
Provision for income taxes 1,753 486 1,389
- - - -----------------------------------------------------------------------------------------------------------------------------------
Net earnings $ 2,055 $ 566 $ 1,181
===================================================================================================================================
Net earnings per share:
Basic $ .15 $ .04 $ .09
Diluted $ .15 $ .04 $ .09
Weighted average shares outstanding:
Basic 13,585 13,422 12,970
Diluted 13,599 13,526 13,257
</TABLE>
See accompanying notes.
<PAGE> 7
CONSOLIDATED BALANCE SHEETS
Getty Petroleum Marketing Inc. and Subsidiaries
<TABLE>
<CAPTION>
January 31,
- - - -----------------------------------------------------------------------------------------------------------------------------------
(in thousands, except share data) 2000 1999
- - - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Current assets:
Cash and equivalents $ 10,266 $ 6,169
Investments 548 1,339
Accounts receivable, less allowance for doubtful
accounts of $841 in 2000 and $901 in 1999 12,200 9,458
Inventories 20,760 16,475
Deferred income taxes 4,860 7,315
Prepaid expenses and other current assets 5,065 2,886
- - - -----------------------------------------------------------------------------------------------------------------------------------
Total current assets 53,699 43,642
Property and equipment, at cost, less
accumulated depreciation and amortization 112,458 101,504
Other assets 4,758 4,275
- - - -----------------------------------------------------------------------------------------------------------------------------------
Total assets $170,915 $149,421
===================================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Short-term borrowings $ -- $ 1,900
Accounts payable 34,541 16,781
Accrued expenses 15,591 12,836
Gasoline taxes payable 14,181 13,560
Income taxes payable -- 1,086
- - - -----------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 64,313 46,163
Deferred income taxes 22,010 21,863
Other, principally deposits 22,346 21,175
- - - -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 108,669 89,201
- - - -----------------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (Notes 4 and 7)
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 13,960,898 at January 31, 2000 and 13,945,156 at January 31, 1999 140 139
Paid-in capital 60,231 60,446
Retained earnings 3,802 1,747
Unearned ESOP stock (290,896 shares at January 31, 2000
and 425,155 shares at January 31, 1999) (1,396) (2,041)
Accumulated other comprehensive loss (531) (71)
- - - -----------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 62,246 60,220
- - - -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $170,915 $149,421
===================================================================================================================================
</TABLE>
See accompanying notes.
<PAGE> 8
CONSOLIDATED STATEMENTS OF CASH FLOWS
Getty Petroleum Marketing Inc. and Subsidiaries
<TABLE>
<CAPTION>
For the years ended January 31,
- - - -----------------------------------------------------------------------------------------------------------------------------------
(in thousands) 2000 1999 1998
- - - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 2,055 $ 566 $ 1,181
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization 16,932 15,927 13,647
Deferred income taxes 2,933 (1,967) (2,099)
Stock option charge (credit) -- (1,146) 2,029
ESOP charge 386 645 593
Change of control charge -- -- 637
(Gain) loss on dispositions of property and equipment 271 (317) (26)
Changes in assets and liabilities, net of acquisitions:
Accounts receivable (2,742) 1,643 4,094
Inventories (4,285) 4,373 (4,900)
Prepaid expenses and other current assets (2,184) 207 2,919
Other assets (987) (650) (198)
Accounts payable, accrued expenses and gasoline taxes payable 21,136 (1,578) 165
Income taxes payable (1,086) 779 307
Other, principally deposits 1,171 436 3,527
- - - -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 33,600 18,918 21,876
- - - -----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (19,794) (21,492) (19,105)
Acquisitions (8,017) (3,840) --
Proceeds from dispositions of property and equipment 163 527 84
Investments -- -- (1,461)
- - - -----------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (27,648) (24,805) (20,482)
- - - -----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings (repayments) (1,900) 1,900 --
Stock options and common stock 45 358 887
- - - -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (1,855) 2,258 887
- - - -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and equivalents 4,097 (3,629) 2,281
Cash and equivalents at beginning of year 6,169 9,798 7,517
- - - -----------------------------------------------------------------------------------------------------------------------------------
Cash and equivalents at end of year $ 10,266 $ 6,169 $ 9,798
===================================================================================================================================
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest $ 767 $ 704 $ 390
Income taxes, net 2,086 1,674 2,739
</TABLE>
See accompanying notes.
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Getty Petroleum Marketing Inc. and Subsidiaries
1. Basis of Presentation
Getty Petroleum Marketing Inc., a Maryland corporation (the "Company"), was
formed on October 1, 1996 as a wholly-owned subsidiary of Getty Petroleum Corp.,
now known as Getty Realty Corp. ("Realty"). Realty then separated its petroleum
marketing business from its real estate business and, on March 21, 1997,
distributed all of the common shares of the Company to the stockholders of
Realty (the "Spinoff").
As part of the separation of the petroleum marketing business from the real
estate business, the Company and Realty entered into various agreements which
addressed the allocation of assets and liabilities between them and govern
future relationships, including a Reorganization and Distribution Agreement, a
Master Lease Agreement, a Tax Sharing Agreement, a Services Agreement and a
Trademark License Agreement.
Under the terms of the Services Agreement, the Company provides certain
administrative and technical services to Realty, and Realty provides certain
services to the Company. The Company received net fees from Realty for services
performed (after deducting the fees paid by the Company to Realty for services
provided by Realty) of $749,000, $960,000 and $960,000 for the years ended
January 31, 2000, 1999 and 1998, respectively, which are included in other
income in the Company's consolidated statements of operations.
2. Summary of Significant Accounting Policies
CONSOLIDATION: The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. The Company is principally engaged
in the marketing and distribution of petroleum products in 13 Northeastern and
Middle-Atlantic states. All significant intercompany accounts and transactions
have been eliminated.
USE OF ESTIMATES: The financial statements have been prepared in conformity with
generally accepted accounting principles and include amounts that are based on
management's best estimates and judgments. While all available information has
been considered, actual results could differ from those estimates.
CASH AND EQUIVALENTS: The Company considers highly liquid investments purchased
with an original maturity of three months or less to be cash equivalents.
INVESTMENTS: Investments, which consist of equity securities, are all considered
available-for-sale and are carried at fair value, based on quoted market prices,
with unrealized gains or losses excluded from earnings and reported as a
separate component of stockholders' equity until realized. During the years
ended January 31, 2000, 1999 and 1998, net unrealized gains (losses) of
($460,000), ($218,000) and $147,000, respectively, were reported as a separate
component of stockholders' equity (see Note 10).
INVENTORIES: Inventories, primarily finished petroleum products, are principally
accounted for under the lower of last-in, first-out ("LIFO") cost or market. The
Company 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. The Company may take positions in the futures market as part of its
overall purchasing strategy in order to reduce the risk associated with price
fluctuations. 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, 2000. As of January 31, 2000 and 1999, 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
property and equipment is 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 property and equipment 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 (including renewal options if the
Company intends to exercise such options) or the useful life of the related
asset.
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
Getty Petroleum Marketing Inc. and Subsidiaries
INSURANCE: The Company is self-insured for workers' compensation, general
liability and vehicle liability up to predetermined amounts above which
third-party insurance applies. Accruals are based on the Company's claims
experience and actuarial assumptions followed in the insurance industry. Due to
uncertainties inherent in the estimation process, actual losses could differ
from accrued amounts.
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. Accruals are adjusted as further information develops or
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.
EARNINGS PER SHARE: Basic earnings per share is computed by dividing net
earnings by the weighted average number of shares of common stock outstanding
during the year. Diluted earnings per share reflects the potential dilution from
the exercise of stock options in the amounts of 14,000, 104,000 and 287,000
shares for the years ended January 31, 2000, 1999 and 1998, respectively.
NEW ACCOUNTING STANDARDS: In June 1998, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which in June
1999 was amended by SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133."
The Statement, as amended, is effective for the fiscal year beginning February
1, 2001 and establishes accounting and reporting standards for derivative
instruments and for hedging activities. The Company is currently assessing the
impact of this Statement but does not expect any material effect on its
consolidated financial statements.
3. Inventories
As of January 31, 2000, had the Company utilized the first-in, first out
("FIFO") inventory method, inventories would have been higher by $4,328,000. As
of January 31, 1999 and 1998, the carrying value of the Company's LIFO
inventories approximated the FIFO inventory method or replacement cost.
4. Leases
Effective February 1, 1997, the Company and Realty entered into a Master Lease
Agreement (the "Master Lease") under which, as of January 31, 2000, 1,013 retail
outlets and 9 terminal facilities (the "Properties") were leased or subleased by
Realty as the lessor to the Company as the lessee. The Properties are 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.
The Company may sublet any property, provided that the Company remains fully
responsible for a sublessee's performance and, except in cases of economic
abandonment (as described below), a sublease for non-petroleum purposes
requires Realty's consent. Except for certain environmental obligations, and
obligations pertaining to certain underground storage tanks, related piping,
underground pumps, wiring and monitoring devices (collectively, the "USTs"), the
Master Lease is a "triple-net" lease under which the Company has responsibility
for all taxes, maintenance, repairs and insurance. For financial statement
purposes, the Master Lease has been recorded as an operating lease.
<PAGE> 11
Rent for each of the Properties was set using the then fair market value of each
such Property, assuming the USTs had been upgraded to meet the 1998 federal
standards and such Properties were free of known environmental contamination,
since Realty was responsible for those scheduled items. 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 during that five-year
period, but not more than 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
the Company and (ii) the length of time remaining (which ranges up to fifteen
years under the Master Lease) with respect to Properties leased by Realty from
third parties and subleased to the Company. The Master Lease terms for each
category of Properties described above also include four ten-year renewal
options (or, with respect to category (ii) above, a shorter period as provided
in the underlying lease), which may be exercised by the Company 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 Realty and the Company. In the event that the Company desires not
to renew the sublease keep coming, Realty may extend or renew the lease and
sublease the property to a third party after the end of the Company's term.
The Master Lease provides that if during the lease term the Company 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, the Company
has the right to sublet the property for any lawful use without Realty's consent
and, prior to the commencement of any sublease term, the Company must remove any
USTs on the Property and thereafter perform all requisite environmental
investigations and/or remediations. The Company has this right of economic
abandonment with respect to no more than ten properties during any fiscal year
of the lease term. The Company has no right of economic abandonment for the
terminal premises and the premises subject to third party leases.
Rent expense, which is included in cost of sales and operating expenses, was
$58,470,000, $57,007,000 and $57,213,000 for the years ended January 31, 2000,
1999 and 1998, respectively, substantially all of which is payable to Realty
under the Master Lease. Future minimum annual rentals, which have terms in
excess of one year as of January 31, 2000, are as follows:
Other
Year ended January 31, Realty Lessors Total
- - - -------------------------------------------------------------------------------
(in thousands)
2001 $ 56,103 $ 3,698 $ 59,801
2002 55,696 3,708 59,404
2003 55,121 3,170 58,291
2004 54,297 3,052 57,349
2005 53,661 2,706 56,367
Thereafter 359,177 6,787 365,964
- - - -------------------------------------------------------------------------------
$634,055 $23,121 $657,176
===============================================================================
Rent income received under subleases, which is included in sales and operating
revenues, was $38,131,000, $34,712,000 and $34,828,000 for the years ended
January 31, 2000, 1999 and 1998, 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.
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
Getty Petroleum Marketing Inc. and Subsidiaries
5. Property and Equipment
Property and equipment consists of the following:
<TABLE>
<CAPTION>
Depreciable
2000 1999 Life (Years)
- - - -----------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Land $ 158 $ --
Buildings 137 -- 25
Equipment 208,755 192,160 10 to 15
Motor vehicles 4,139 4,166 3 to 10
Furniture and fixtures 1,433 1,404 10
Leasehold improvements 24,508 14,619 See Note 2
- - - ----------------------------------------------------------------------------------
239,130 212,349
Less, accumulated depreciation and amortization 126,672 110,845
- - - ----------------------------------------------------------------------------------
$112,458 $101,504
==================================================================================
</TABLE>
6. Environmental Remediation Costs
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. For the years ended
January 31, 2000, 1999 and 1998, environmental expenses included in the
Company's cost of sales and operating expenses were $3,958,000, $2,774,000 and
$1,375,000, respectively.
Under the Master Lease, Realty committed to a program to bring the leased
properties requiring remediation to regulatory closure and, thereafter, transfer
all future environmental risks from Realty to the Company. Realty has agreed to
pay all costs relating to, and to indemnify the Company for, all known
pre-Spinoff environmental liabilities and obligations as scheduled in the Master
Lease, and all other environmental liabilities and obligations arising out of
discharges with respect to properties containing USTs that had not been upgraded
to meet the 1998 federal standards that were discovered prior to the date such
USTs were upgraded to meet the 1998 federal standards (collectively, the "Realty
Environmental Liabilities").
The Company has not reflected a liability for the Realty Environmental
Liabilities in its consolidated balance sheets since Realty remains the primary
obligor for such liabilities. In the unlikely event that Realty fails to
remediate a contaminated property and the Company is held jointly and severally
responsible for the Remediation Costs, Realty is obligated to indemnify the
Company, and any Remediation Costs paid by the Company will be offset against
the Company's rental obligations under the Master Lease. Because of such rental
offset, the likelihood that the Company will incur any incremental costs in
connection with any such remediation is remote.
The Company is responsible for, and will indemnify Realty with respect to, all
environmental obligations and liabilities other than the Realty Environmental
Liabilities. As of January 31, 2000 and 1999, the Company had accrued $2,117,000
and $1,415,000, respectively, as management's best estimate for environmental
remediation costs to be incurred. In view of the uncertainties associated with
environmental expenditures, however, the Company believes it is possible that
such expenditures could be substantially higher. Any additional amounts will be
reflected in the Company's financial statements as they become known. Although
future environmental expenditures may have a significant impact on results of
operations for any single fiscal year or interim period, the Company currently
believes that such costs will not have a material adverse effect on the
Company's financial position.
<PAGE> 13
7. Commitments and Contingencies
The Company is subject to various legal proceedings in the ordinary course of
its business. These proceedings are not expected to have a material adverse
effect on the Company's financial condition or results of operations. Pursuant
to the Reorganization and Distribution Agreement, Realty has agreed to defend
all claims or proceedings that existed prior to the Spinoff and indemnify the
Company with respect thereto.
In order to minimize the Company's exposure to credit risk associated with
financial instruments, the Company places its temporary cash investments with
high credit quality institutions and, by policy, limits the amount invested with
any one institution other than the U.S. Government. Concentration of credit risk
with respect to trade receivables generally is limited due to the large number
of customers comprising the Company's customer base.
As of January 31, 2000, the Company had uncommitted lines of credit with three
banks in the aggregate amount of $50,000,000, of which $3,095,000 was utilized
in the form of outstanding letters of credit to support the Company's insurance
programs. Borrowings under the lines ~of credit are unsecured and principally
bear interest at the applicable bank's prime rate or, at the Company's option,
1.1% above LIBOR. The lines of credit are subject to renewal at the discretion
of the banks.
The Company's financial results depend largely on retail marketing margins and
rental income from its dealers. Retail marketing margins in the petroleum
marketing industry have been and continue to be volatile and highly competitive.
The cost of petroleum products purchased by the Company as well as the price of
petroleum products sold have fluctuated widely in the past. As a result of the
historic volatility of product margins and the fact that they are affected by
numerous diverse factors, it is not possible to predict future product margin
levels with any degree of accuracy.
8. Income Taxes
The Company 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 Spinoff and with respect to certain tax attributes of Realty after the
Spinoff. 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 Spinoff. For periods
subsequent to the Spinoff, the Company has filed its own tax returns.
The provision for income taxes is summarized as follows:
<TABLE>
<CAPTION>
2000 1999 1998
- - - -------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Federal:
Current $(1,526) $ 1,806 $ 2,483
Deferred 2,795 (1,475) (1,499)
State and local:
Current 346 647 908
Deferred 138 (492) (503)
- - - -------------------------------------------------------------------------------
Provision for income taxes $ 1,753 $ 486 $ 1,389
===============================================================================
</TABLE>
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
Getty Petroleum Marketing Inc. and Subsidiaries
The tax effects of temporary differences which comprise the deferred tax assets
and liabilities are as follows:
<TABLE>
<CAPTION>
2000 1999
- - - -------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Property and equipment $(22,261) $(21,826)
Accruals 5,008 3,109
Inventories 103 4,169
- - - -------------------------------------------------------------------------------
Net deferred tax liabilities $(17,150) $(14,548)
===============================================================================
</TABLE>
The following is a reconciliation of the expected statutory federal income tax
provision and the actual provision for income taxes:
<TABLE>
<CAPTION>
2000 1999 1998
- - - -----------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Expected provision at statutory federal income tax rate $ 1,295 $ 358 $ 874
State and local income taxes, net of federal benefit 319 102 267
Other 139 26 248
- - - -----------------------------------------------------------------------------------------------
Provision for income taxes $ 1,753 $ 486 $ 1,389
===============================================================================================
</TABLE>
9. Employee Benefit Plans
The Company has a retirement and profit sharing plan with deferred 401(k)
savings plan provisions (the "Retirement Plan") for non-union employees meeting
certain service requirements and a Supplemental Plan for executives. Under the
terms of these plans, the annual discretionary contributions to the plans are
determined by the Board of Directors. Under the Retirement Plan, employees may
make voluntary contributions and the Company has elected to match an amount
equal to 50% of such contributions but in no event more than 3% of the
employee's eligible compensation. Under the Supplemental Plan, participating
executives may receive an amount equal to 10% of their compensation, reduced by
the amount of any contributions allocated to such executive under the Retirement
Plan. Contributions to the Retirement Plan and Supplemental Plan, net of
forfeitures, made by the Company, were approximately $556,000, $569,000 and
$470,000 for the years ended January 31, 2000, 1999 and 1998, respectively. In
addition, the Company contributed $345,000, $342,000 and $345,000 to a union
welfare plan for the years ended January 31, 2000, 1999 and 1998, respectively.
These amounts are included in the accompanying consolidated statements of
operations.
In connection with the Spinoff, the Company established in April 1997 a
leveraged Employee Stock Ownership Plan (the "ESOP") that purchased newly issued
shares of Common Stock from the Company equal to 5% of the then outstanding
shares. The ESOP purchased newly-issued shares from the Company using the
proceeds of a loan made by the Company to the ESOP. The ESOP loan is being
repaid over a five-year period, and the Company contributes annually to the ESOP
the funds required to repay the loan. The original principal amount of the ESOP
loan was equal to the number of shares purchased by the ESOP (671,298)
multiplied by the purchase price per share of $4.80. Allocations to
participants' accounts aggregate approximately 134,260 shares of Company Common
Stock per year and are allocated to covered employees in proportion to
compensation over a five-year period. The Company recognized a charge to
operating results of $386,000, $645,000 and $593,000 for the years ended January
31, 2000, 1999 and 1998, respectively, relating to the ESOP based on the average
market value of the Common Stock during the respective years. The ESOP had
402,779 and 537,038 suspense shares at January 31, 2000 and 1999, respectively;
111,883 shares are committed to be released as of each respective period.
<PAGE> 15
Immediately prior to the Spinoff, each holder of an option to acquire shares of
Realty Common Stock pursuant to Realty's 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-Spinoff option. The
exercise price of each Realty 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 held. The "Aggregate Spread" is the difference
between the exercise price of an option and the price of a share of Realty
Common Stock immediately prior to the Spinoff multiplied by the number of shares
underlying the option. Certain previously unexercisable options covering a total
of 223,587 shares became immediately exercisable at the date of the Spinoff for
persons covered by "change of control" agreements. Accordingly, the Company
recognized a charge to operating results of $637,000 at the date of the Spinoff
equal to the product of the number of these options and the difference between
their exercise price and the market price.
The Company's Stock Option Plan authorizes the Company to grant options to
purchase shares of the Company's Common Stock. The aggregate number of shares
of the Company's Common Stock which may be made the subject of options under
the Stock Option Plan may not exceed 2,000,000 shares, subject to further
adjustment for stock dividends and stock splits. The 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% of the total number of shares
covered by the option.
The following is a schedule of stock option prices and activity relating to the
Marketing Stock Option Plan (and Realty Stock Option Plan prior to the Spinoff)
for the three fiscal years ended January 31, 2000:
<TABLE>
<CAPTION>
2000 1999 1998
- - - ----------------------------------------------------------------------------------------------------------------------
WEIGHTED Weighted Weighted
AVERAGE Average Average
NUMBER EXERCISE Number Exercise Number Exercise
OF SHARES PRICE of Shares Price of Shares Price(a)
- - - ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 826,711 $4.48 851,586 $4.44 1,014,226 $3.02
Granted 146,000 2.77 71,750 3.25 410,389 5.87
Exercised -- -- (86,251) 2.92 (461,542) 2.89
Cancelled (55,488) 4.83 (10,374) 5.97 (111,487) 3.19
- - - ----------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 917,223 $4.18 826,711 $4.48 851,586 $4.44
=====================================================================================================================
Exercisable at end of year 589,680 $4.27 586,245 $4.21 594,026 $3.86
=====================================================================================================================
Available for grant at end of year 590,533 681,045 42,421
=====================================================================================================================
</TABLE>
(a) In connection with the Spinoff, each Realty Option was reformed into
separate options for Realty Common Stock and Marketing Common Stock. The
exercise price of each reformed Marketing Option represents 22.71% of the
original exercise price.
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
Getty Petroleum Marketing Inc. and Subsidiaries
The following table summarizes information concerning options outstanding and
exercisable at January 31, 2000:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- - - ----------------------------------------------------------------------------------------------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life (Years) Price Exercisable Price
- - - ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$2.47-4.23 542,129 6 $3.02 343,154 $3.09
5.69-6.00 375,094 6 5.86 246,526 5.92
- - - ----------------------------------------------------------------------------------------------------------------------
917,223 589,680
======================================================================================================================
</TABLE>
The Company accounts for its stock-based employee compensation plans under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." The Company recorded a stock compensation (credit) charge of
($2,087,000) and $4,203,000 for the years ended January 31, 1999 and 1998,
respectively, since certain options required variable plan accounting treatment.
Had compensation cost for the Company's Plans been determined based upon the
fair value methodology prescribed under SFAS No. 123, "Accounting for
Stock-Based Compensation," the Company's net earnings and net earnings per share
on a diluted basis would have resulted in the following pro forma amounts:
<TABLE>
<CAPTION>
2000 1999 1998
- - - ------------------------------------------------------------------------------------------------------------------------
AS REPORTED PRO FORMA As Reported Pro Forma As Reported Pro Forma
- - - ------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Net earnings (loss) $2,055 $1,779 $566 $(112) $1,181 $1,755
Net earnings (loss) per share .15 .13 .04 (.01) .09 .13
</TABLE>
The fair value of the options granted during fiscal 2000, 1999 and 1998 were
estimated as $1.47, $1.91 and $3.03 per share, respectively, on the date of
grant using the Black-Scholes option pricing model with the following weighted
average assumptions:
<TABLE>
<CAPTION>
2000 1999 1998
- - - -------------------------------------------------------------------------------
<S> <C> <C> <C>
Expected dividend yield 0% 0% 0%
Expected volatility 40% 38% 37%
Risk-free interest rate 6.5% 5.1% 5.6%
Expected life of options (years) 7 7 6
</TABLE>
<PAGE> 17
10. Stockholders' Equity
A summary of the changes in stockholders' equity for the three years ended
January 31, 2000 is as follows:
<TABLE>
<CAPTION>
Accumulated
Capital Stock Other
------------------ Paid-in Retained Comprehensive
Shares Amount Capital Earnings Earnings (Loss)
- - - -----------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance, February 1, 1997 1 $ -- $ 54,541 $ -- $ --
Distribution of stock in Spinoff 12,754 127 (127)
Comprehensive earnings:
Net earnings 1,181
Net unrealized gain on equity securities 147
Total
Issuance of stock to ESOP 671 7 3,215
ESOP stock committed to be released 58
Issuance of common stock 3 -- 18
Stock options 406 4 3,531
- - - -----------------------------------------------------------------------------------------------------------------------
Balance, January 31, 1998 13,835 138 61,234 1,181 147
Comprehensive earnings:
Net earnings 566
Net unrealized loss on equity securities (218)
Total
ESOP stock committed to be released 1
Issuance of common stock 24 -- 107
Stock options 86 1 (896)
- - - -----------------------------------------------------------------------------------------------------------------------
Balance, January 31, 1999 13,945 139 60,446 1,747 (71)
Comprehensive earnings:
Net earnings 2,055
Net unrealized loss on equity securities (460)
Total
ESOP stock committed to be released (259)
Issuance of common stock 16 1 44
- - - -----------------------------------------------------------------------------------------------------------------------
Balance, January 31, 2000 13,961 $ 140 $ 60,231 $ 3,802 $ (531)
=======================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
ESOP
----------------
Shares Amount Total
- - - --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, February 1, 1997 -- $ -- $54,541
Distribution of stock in Spinoff --
Comprehensive earnings:
Net earnings 1,181
Net unrealized gain on equity securities 147
-------
Total 1,328
-------
Issuance of stock to ESOP (671) (3,222) --
ESOP stock committed to be released 112 537 593
Issuance of common stock 18
Stock options 3,535
- - - --------------------------------------------------------------------------------------
Balance, January 31, 1998 (559) (2,685) 60,015
Comprehensive earnings:
Net earnings 566
Net unrealized loss on equity securities (218)
-------
Total 348
-------
ESOP stock committed to be released 134 644 645
Issuance of common stock 107
Stock options (895)
- - - --------------------------------------------------------------------------------------
Balance, January 31, 1999 (425) (2,041) 60,220
Comprehensive earnings:
Net earnings 2,055
Net unrealized loss on equity securities (460)
-------
Total 1,595
-------
ESOP stock committed to be released 134 645 386
Issuance of common stock 45
- - - --------------------------------------------------------------------------------------
Balance, January 31, 2000 (291) $(1,396) $62,246
======================================================================================
</TABLE>
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
Getty Petroleum Marketing Inc. and Subsidiaries
11. Quarterly Financial Data
The following is a summary of the quarterly results of operations for the years
ended January 31, 2000 and 1999 (unaudited as to quarterly information):
<TABLE>
<CAPTION>
Three months ended Year ended
- - - ----------------------------------------------------------------------------------------------------------------------
Fiscal 2000: April 30 July 31 October 31 January 31 January 31
- - - ----------------------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Revenues $159,149 $195,353 $227,845 $250,362 $832,709
Gross profit(a) 10,033 10,130 9,758 14,368 44,289
Depreciation and amortization 4,090 4,232 3,972 4,638 16,932
Earnings before income taxes 437 161 241 2,969 3,808
Net earnings 244 90 132 1,589 2,055
Basic and diluted net earnings per share .02 .01 .01 .12 .15
</TABLE>
<TABLE>
<CAPTION>
Three months ended Year ended
- - - ----------------------------------------------------------------------------------------------------------------------
Fiscal 1999: April 30 July 31 October 31 January 31 January 31
- - - ----------------------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Revenues $170,911 $173,230 $159,148 $159,003 $662,292
Gross profit(a) 3,486 6,190 9,308 17,588 36,572
Depreciation and amortization 3,717 3,784 3,889 4,537 15,927
Earnings (loss) before income taxes (5,470) (2,492) 165 8,849 1,052
Net earnings (loss) (3,312) (1,496) 96 5,278 566
Basic and diluted net earnings (loss) per share (.25) (.11) .01 .39 .04
</TABLE>
(a) Gross profit is calculated as sales and operating revenues less cost of
sales and operating expenses (excluding depreciation and amortization).
12. Severance Charges
During the year ended January 31, 1999, the Company recorded severance charges
aggregating $216,000 related to a reduction in work force of six employees.
These amounts are payable through February 2000 pursuant to the Company's
severance policy.
During the year ended January 31, 1998, the Company recorded severance charges
aggregating $2,175,000 related to the resignations of two of the Company's
officers. These amounts are payable over the terms of the severance agreements
and aggregate approximately $558,000 per year through June 2000 and $287,000 per
year thereafter through October 2002. The agreement with one of the officers
includes a covenant not to compete and provides for consulting services.
<PAGE> 19
13. 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 1,291 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 accounting policies of
each business segment are the same as those described in the summary of
significant accounting policies (see Note 2).
The financial results of the Petroleum Marketing and Heating Oil segments for
the years ended January 31, 2000, 1999 and 1998 are set forth below:
<TABLE>
<CAPTION>
For the years ended January 31,
- - - ---------------------------------------------------------------------------------------------------------------
2000 1999
- - - ---------------------------------------------------------------------------------------------------------------
(in thousands)
Petroleum Heating Petroleum Heating
Marketing Oil Total Marketing Oil Total
- - - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales and operating revenues $801,509 $30,542 $832,051 $635,041 $25,713 $660,754
Other income 617 41 658 1,487 51 1,538
- - - ---------------------------------------------------------------------------------------------------------------
802,126 30,583 832,709 636,528 25,764 662,292
- - - ---------------------------------------------------------------------------------------------------------------
Cost of sales and operating expenses
(excluding depreciation and amortization) 761,735 26,027 787,762 602,725 21,457 624,182
Selling, general and administrative expense 20,727 2,507 23,234 17,622 2,384 20,006
Depreciation and amortization 16,155 777 16,932 15,498 429 15,927
Interest expense 973 -- 973 908 1 909
Severance charges -- -- -- 216 -- 216
Change of control charge -- -- -- -- -- --
- - - ---------------------------------------------------------------------------------------------------------------
799,590 29,311 828,901 636,969 24,271 661,240
- - - ---------------------------------------------------------------------------------------------------------------
Earnings (loss) before provision (credit)
for income taxes 2,536 1,272 3,808 (441) 1,493 1,052
Provision (credit) for income taxes 1,167 586 1,753 (204) 690 486
- - - ---------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ 1,369 $ 686 $ 2,055 $ (237) $ 803 $ 566
===============================================================================================================
Identifiable assets $160,714 $10,201 $170,915 $ 140,299 $ 9,122 $149,421
Capital expenditures 19,579 215 19,794 21,180 312 21,492
</TABLE>
<TABLE>
<CAPTION>
- - - ------------------------------------------------------------------------------
1998
- - - ------------------------------------------------------------------------------
Petroleum Heating
Marketing Oil Total
- - - ------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales and operating revenues $858,656 $32,453 $ 891,109
Other income 1,687 47 1,734
- - - ------------------------------------------------------------------------------
860,343 32,500 892,843
- - - ------------------------------------------------------------------------------
Cost of sales and operating expenses
(excluding depreciation and amortization) 819,169 28,065 847,234
Selling, general and administrative expense 23,466 2,328 25,794
Depreciation and amortization 13,341 306 13,647
Interest expense 786 -- 786
Severance charges 2,175 -- 2,175
Change of control charge 637 -- 637
- - - ------------------------------------------------------------------------------
859,574 30,699 890,273
- - - ------------------------------------------------------------------------------
Earnings (loss) before provision (credit)
for income taxes 769 1,801 2,570
Provision (credit) for income taxes 416 973 1,389
- - - ------------------------------------------------------------------------------
Net earnings (loss) $ 353 $ 828 $ 1,181
==============================================================================
Identifiable assets $139,440 $ 6,889 $ 146,329
Capital expenditures 19,014 91 19,105
</TABLE>
<PAGE> 20
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of Getty Petroleum Marketing Inc.:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and cash flows present fairly, in all
material respects, the financial position of Getty Petroleum Marketing Inc. and
Subsidiaries (the "Company") at January 31, 2000 and 1999, and the results of
their operations and their cash flows for each of the three years in the period
ended January 31, 2000, in conformity with accounting principles generally
accepted in the United States. These financial statements are the responsibility
of the Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States, which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
New York, New York
March 9, 2000
COMMON STOCK
Getty Petroleum Marketing Inc. and Subsidiaries
The common stock of Getty Petroleum Marketing Inc., our only outstanding voting
security, is traded on the New York Stock Exchange (symbol: "GPM"). At April
18, 2000, there were approximately 3,000 holders of record of our common stock.
The price ranges of common stock during the past two fiscal years were as
follows:
<TABLE>
<CAPTION>
Price Range
- - - -----------------------------------------------------------
Quarter Ending High Low
- - - -----------------------------------------------------------
<S> <C> <C>
January 31, 2000 $3 1/16 $2 1/16
October 31, 1999 3 1/2 2 3/4
July 31, 1999 3 1/2 2 3/4
April 30, 1999 3 1/2 2 3/16
- - - -----------------------------------------------------------
January 31, 1999 4 3/8 2 5/8
October 31, 1998 4 11/16 3 1/4
July 31, 1998 6 1/2 4 3/8
April 30, 1998 6 3/4 5 7/8
- - - -----------------------------------------------------------
</TABLE>
We have not paid any dividends on our common stock.
<PAGE> 1
Exhibit 21. Subsidiaries of the Company.
STATE OF
SUBSIDIARY INCORPORATION
---------- -------------
GASWAY INC. New York
GETTY TERMINALS CORP. New York
KINGSTON OIL SUPPLY CORP. New York
PETRO USA INC. New York
PT PETRO CORP. New York
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 333-23375 and 333-23379) of Getty Petroleum
Marketing Inc. of our report dated March 9, 2000 relating to the financial
statements, which appears in the Annual Report to Shareholders, which is
incorporated in this Annual Report on Form 10-K. We also consent to the
incorporation by reference of our report dated March 9, 2000 relating to the
financial statement schedule, which appears in this Form 10-K.
PricewaterhouseCoopers LLP
New York, New York
March 9, 2000
<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, 2000 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-31-2000
<PERIOD-END> JAN-31-2000
<CASH> 10,266
<SECURITIES> 548
<RECEIVABLES> 13,041
<ALLOWANCES> 841
<INVENTORY> 20,760
<CURRENT-ASSETS> 53,699
<PP&E> 239,130
<DEPRECIATION> 126,672
<TOTAL-ASSETS> 170,915
<CURRENT-LIABILITIES> 64,313
<BONDS> 0
0
0
<COMMON> 140
<OTHER-SE> 62,106
<TOTAL-LIABILITY-AND-EQUITY> 170,915
<SALES> 832,051
<TOTAL-REVENUES> 832,709
<CGS> 787,762
<TOTAL-COSTS> 804,694
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 353
<INTEREST-EXPENSE> 973
<INCOME-PRETAX> 3,808
<INCOME-TAX> 1,753
<INCOME-CONTINUING> 2,055
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,055
<EPS-BASIC> .15
<EPS-DILUTED> .15
</TABLE>
