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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
For quarter ended APRIL 30, 1999 Commission file number 001-13777
-------------- ---------
GETTY REALTY CORP.
(Exact name of registrant as specified in its charter)
MARYLAND 11-3412575
- - - - ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
125 JERICHO TURNPIKE, JERICHO, NEW YORK 11753
- - - - --------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(516) 338 - 2600
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
---
Registrant had outstanding 13,566,233 shares of Common Stock, par value $.01 per
share, and 2,888,798 shares of Series A Participating Convertible Redeemable
Preferred Stock, par value $.01 per share, as of April 30, 1999.
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GETTY REALTY CORP.
INDEX
Part I. FINANCIAL INFORMATION Page Number
- - - - ------------------------------ -----------
Item 1. Financial Statements
Consolidated Balance Sheets as of April 30, 1999 and
January 31, 1999 1
Consolidated Statements of Operations for the three months ended
April 30, 1999 and 1998 2
Consolidated Statements of Cash Flows for the three months ended
April 30, 1999 and 1998 3
Notes to Consolidated Financial Statements 4 - 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 6 - 9
Part II. OTHER INFORMATION
- - - - ---------------------------
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 10
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GETTY REALTY CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
- - - - -----------------------------------------------------------------------------------------
April 30, January 31,
Assets: 1999 1999
- - - - -----------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
Real Estate:
Land $133,774 $131,976
Buildings and improvements 179,403 175,817
-------- --------
313,177 307,793
Less - accumulated depreciation and amortization 69,929 68,045
-------- --------
Real estate, net 243,248 239,748
Cash and equivalents 354 657
Mortgages and accounts receivable, net 7,032 6,975
Recoveries from state underground storage tank funds 10,148 10,369
Prepaid expenses and other assets 2,385 3,335
-------- --------
Total assets $263,167 $261,084
======== ========
- - - - -----------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity:
- - - - -----------------------------------------------------------------------------------------
Borrowings under credit lines $ 9,800 $ 4,500
Mortgages payable 34,134 35,242
Accounts payable and accrued expenses 16,166 18,042
Environmental remediation costs 31,503 34,251
Deferred income taxes 31,582 30,210
Income taxes payable 1,247 808
-------- --------
Total liabilities 124,432 123,053
-------- --------
Stockholders' equity:
Preferred stock, par value $.01 per share; authorized
20,000,000 shares for issuance in series of which
3,000,000 shares are classified as Series A Participating
Convertible Redeemable Preferred; 2,888,798 shares issued
and outstanding at April 30, 1999 and January 31, 1999 72,220 72,220
Common stock, par value $.01 per share; authorized
50,000,000 shares; 13,566,233 shares issued and
outstanding at April 30, 1999 and January 31, 1999 136 136
Paid-in capital 67,021 67,021
Accumulated deficit (642) (1,346)
-------- --------
Total stockholders' equity 138,735 138,031
-------- --------
Total liabilities and stockholders' equity $263,167 $261,084
======== ========
</TABLE>
See accompanying notes.
1
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GETTY REALTY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
- - - - ------------------------------------------------------------------------------
Three months ended April 30,
1999 1998
- - - - ------------------------------------------------------------------------------
<S> <C> <C>
Revenues:
Revenues from rental properties $14,760 $14,795
Other income 660 257
-----------------
15,420 15,052
-----------------
Rental property expenses 3,068 3,266
Environmental expenses 2,209 1,640
General and administrative expenses 1,255 1,448
Depreciation and amortization 2,505 2,196
Interest expense 624 733
-----------------
9,661 9,283
-----------------
Earnings from continuing operations before
provision for income taxes 5,759 5,769
Provision for income taxes 2,416 2,463
-----------------
Net earnings from continuing operations 3,343 3,306
Net earnings from discontinued operations - 223
-----------------
Net earnings 3,343 3,529
Preferred stock dividends 1,282 1,282
-----------------
Net earnings applicable to common stockholders $ 2,061 $ 2,247
=================
Basic earnings per common share:
Continuing operations $ .15 $ .15
Discontinued operations - .02
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Net earnings $ .15 $ .17
======= =======
Diluted earnings per common share:
Continuing operations $ .15 $ .15
Discontinued operations - .02
------- -------
Net earnings $ .15 $ .17
======= =======
Weighted average common shares outstanding:
Basic 13,566 13,565
Diluted 13,569 13,575
</TABLE>
See accompanying notes.
2
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GETTY REALTY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three months ended
April 30,
-------------------
1999 1998
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<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 3,343 $ 3,529
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 2,505 2,196
Deferred income taxes 1,372 934
Net earnings from discontinued operations - (223)
(Gain) loss on dispositions of real estate (480) 40
Changes in assets and liabilities, net of effect of
acquisitions and dispositions:
Mortgages and accounts receivable (57) 424
Recoveries from state underground storage tank funds 221 947
Prepaid expenses and other assets 909 843
Accounts payable and accrued expenses (1,876) (2,081)
Environmental remediation costs (2,748) (3,013)
Income taxes payable 439 201
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Net cash provided by continuing operating activities 3,628 3,797
Net cash used in discontinued operations - (73)
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Net cash provided by operating activities 3,628 3,724
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Cash flows from investing activities:
Capital expenditures (2,853) (3,403)
Property acquisitions (3,894) (527)
Proceeds from dispositions of real estate 1,263 681
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Net cash used in investing activities (5,484) (3,249)
------------------
Cash flows from financing activities:
Borrowings under credit lines 5,300 -
Repayment of mortgages payable (1,108) (1,545)
Cash dividends (2,639) (2,638)
Issuance of common stock - 30
------------------
Net cash provided by (used in)
financing activities 1,553 (4,153)
------------------
Net decrease in cash and equivalents (303) (3,678)
Cash and equivalents at beginning of period 657 10,032
------------------
Cash and equivalents at end of period $ 354 $ 6,354
==================
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 621 $ 745
Income taxes 605 293
</TABLE>
See accompanying notes.
3
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GETTY REALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. General:
The accompanying consolidated financial statements include the accounts of
Getty Realty Corp. and its wholly-owned subsidiaries (the "Company"). The
consolidated financial statements have been prepared in conformity with
generally accepted accounting principles and include amounts that are based on
management's best estimates and judgments. While all available information has
been considered, actual amounts could differ from those estimates. The
consolidated financial statements are unaudited but, in the opinion of
management, reflect all adjustments (consisting of normal recurring accruals)
necessary for a fair presentation. These statements should be read in
conjunction with the consolidated financial statements and related notes which
appear in the Company's Annual Report on Form 10-K for the fiscal year ended
January 31, 1999.
Certain reclassifications have been made in the financial statements for
1998 to conform to the presentation for 1999.
2. Discontinued operations:
In December 1998, the Company sold its heating oil and propane business.
Summary operating results of the discontinued heating oil operations for the
quarter ended April 30, 1998 is as follows (in thousands):
Revenues $ 6,560
=======
Earnings before income taxes $ 390
Provision for income taxes 167
-------
Net earnings $ 223
=======
3. Earnings per common share:
Basic earnings per common share is computed by dividing net earnings less
preferred dividends by the weighted average number of common shares outstanding
during the period. Diluted earnings per common share also gives effect to the
potential dilution from the exercise of stock options in the amounts of 3,000
shares and 10,000 shares for the quarters ended April 30, 1999 and 1998,
respectively. For the quarters ended April 30, 1999 and 1998, conversion of the
Series A Participating Convertible Redeemable Preferred stock into common stock
utilizing the if-converted method would have been antidilutive and therefore
conversion was not assumed for purposes of computing diluted earnings per common
share.
4
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4. Stockholders' equity:
A summary of the changes in stockholders' equity for the three months ended
April 30, 1999 is as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Preferred Common Paid-in Accumulated
Stock Stock Capital Deficit Total
- - - - ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance,
January 31, 1999 $72,220 $136 $67,021 ($1,346) $138,031
Net earnings 3,343 3,343
Cash dividends:
Common - $.10
per share (1,357) (1,357)
Preferred - $.44375
per share (1,282) (1,282)
- - - - ----------------------------------------------------------------------------------------------------
Balance,
April 30, 1999 $72,220 $136 $67,021 ($642) $138,735
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</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The company is a real estate company specializing in the ownership and leasing
of service stations, convenience stores and petroleum marketing terminals. The
Company leases most of its properties on a long-term net basis to Getty
Petroleum Marketing Inc. ("Marketing"), which was spun-off to the Company's
stockholders on March 21, 1997.
Results of Operations
The Company's financial results largely depend on rental income from
Marketing and other lessees and sublessees. The Company's financial results are
materially dependent upon the ability of Marketing to meet its obligations under
master leases; however, the Company does not anticipate that Marketing will have
difficulty in making all required rental payments in the foreseeable future.
Revenues from rental properties for the quarters ended April 30, 1999
and 1998 principally represent rental income received from Marketing ($14.1
million and $14.2 million, respectively) with the remainder from other lessees
and sublessees.
Other income was $.7 million for the three months ended April 30, 1999
as compared with $.3 million for the quarter ended April 30, 1998. The increase
in other income of $.4 million was principally due to higher gains on
dispositions of real estate, which included a $.2 million payment from Marketing
for the early termination of two leases under the Master Lease, partially offset
by lower investment income.
Rental property expenses, which are principally comprised of rent
expense and real estate taxes, were $3.1 million and $3.3 millon, respectively,
for the quarters ended April 30, 1999 and 1998. The decrease was due to a
reduction in the number of properties leased.
Environmental expenses for the quarter ended April 30, 1999 were $2.2
million as compared with $1.6 million for the quarter ended April 30, 1998. The
current quarter included a change in estimated remediation costs of $2.0 million
as compared to $1.1 million during the prior year quarter. These charges are the
result of contamination discovered during work performed to meet certain federal
underground storage tank standards and revisions to estimates on previously
identified sites where remediation is ongoing. As of April 30, 1999, the Company
had an accrual of $31.5 million representing management's best estimate for
future environmental remediation costs and had recorded $10.1 million as
management's best estimate for recoveries from state underground storage tank
remediation funds. Such accruals are reviewed on a regular basis and any
revisions thereto are reflected in the Company's financial statements as they
become known.
General and administrative expenses for the quarter ended April 30,
1999 amounted to $1.3 million, a decrease of $.2 million as compared with the
quarter ended April 30, 1998.
6
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The decrease was primarily due to a reduction in employee related expenses.
Included in general and administrative expenses for each of the respective
periods are $.2 million of net fees paid by the Company to Marketing for certain
administrative and technical services performed under a services agreement
(after deducting the fees paid by Marketing to the Company for services provided
by the Company).
Depreciation and amortization was $2.5 million for the quarter ended
April 30, 1999, an increase of $.3 million over the quarter ended April 30, 1998
as a result of capital expenditures and property acquisitions.
Interest expense for the three months ended April 30, 1999 amounted to
$.6 million as compared with $.7 million for the quarter ended April 30, 1998.
The decrease in interest expense was principally due to a reduction in interest
rates.
Liquidity and Capital Resources
The Company's principal sources of liquidity are cash flows from
operating activities and its short-term uncommitted lines of credit with two
banks. Management believes that cash requirements for operations, capital
expenditures and debt service can be met by cash flows from operating
activities, available cash and equivalents and credit lines. As of April 30,
1999, such lines of credit amounted to $25 million, of which $9.8 million was
utilized for short-term borrowings and $5.9 million was utilized in connection
with outstanding letters of credit. Borrowings under such lines of credit are
unsecured and bear interest at the prime rate or, at the Company's option, LIBOR
plus 1.0% or 1.1%. Such lines of credit are subject to renewal at the discretion
of the banks. Although it is expected that the existing sources of liquidity
will be sufficient to meet its expected operating and debt service requirements,
the Company may be required to obtain additional sources of capital in the
future to fund property acquisitions, which capital sources it believes are
available.
During the quarters ended April 30, 1999 and 1998, the Company declared
quarterly preferred stock dividends of $.44375 per share and quarterly cash
common stock dividends of $.10 per share. Such dividends aggregated $2.6 million
for each of the quarters ended April 30, 1999 and 1998.
The Company's capital expenditures, excluding acquisitions, for the
quarter ended April 30, 1999 amounted to $2.9 million, primarily related to the
replacement of underground storage tanks and vapor recovery facilities at
gasoline stations. Expenditures with respect to tank replacements required to
meet certain federal environmental standards and certain environmental
liabilities and obligations have continued to be the responsibility of the
Company after the spin-off. As of April 30, 1999, the Company estimates that in
connection therewith, it will expend $2.3 million in capital expenditures and
$21.4 million, net of estimated recoveries, for environmental remediation
liabilities and obligations.
During the quarter ended April 30, 1999, the Company acquired 17 retail
service station and convenience store properties in the greater Buffalo, New
York area. The properties are being leased to Marketing pursuant to a long-term
triple net master lease.
7
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Year 2000
The Year 2000 issue has arisen because for many years some computer
software programs and systems have utilized only two digits to specify the year.
As a result, these programs and systems may not be able to recognize and process
dates beyond 1999, which may cause these programs to malfunction or not be able
to accurately process information.
Marketing provides the Company with data processing services pursuant
to the administrative services agreement. In connection therewith, a Year 2000
program has been implemented for internal systems and equipment relating to
information technology systems and non-information technology systems which has
four phases: (1) identification; (2) assessment; (3) remediation (including
modification, upgrading and replacement); and (4) testing. The identification,
assessment and remediation phases for all significant internal business systems
and equipment are complete. Testing of systems and programs following
remediation is expected to be completed by July 31, 1999.
The Company is also reviewing the Year 2000 readiness of third parties
who provide services which are essential to the Company's operations. The
Company has initiated formal communications with material third parties in order
to determine the extent to which the Company is vulnerable to any failure by
such third parties to remediate their respective Year 2000 problems and resolve
such problems to the extent practicable.
The Company is developing a contingency plan to address issues specific
to the Year 2000 problem. The Plan is expected to include performing certain
processes manually, obtaining replacement systems as well as other appropriate
measures.
The Company's senior management and the Board of Directors receive
regular updates on the status of the Company's Year 2000 program. The Company
does not expect the cost of these Year 2000 efforts to be material since most of
the work is being performed by Marketing personnel under the administrative
services agreement.
The Year 2000 issue presents a number of risks and uncertainties that
could affect the Company or Marketing, which include, but are not limited to,
the availability of qualified personnel and other information technology
resources; the ability to identify and remediate all date sensitive lines of
computer code or to replace embedded computer chips in affected systems or
equipment; and the ability of third parties to remediate their respective
systems. The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could adversely affect the Company's results of
operations, liquidity and financial condition. Due to the general uncertainty
inherent in the Year 2000 problem, resulting in part from the uncertainty of the
Year 2000 readiness of third-party suppliers and customers, the Company is
unable to determine at this time whether the consequences of Year 2000 failures
will have a material impact on the Company's results of operations, liquidity or
financial condition.
8
<PAGE> 11
Special Factors Regarding Forward-Looking Statements
Certain statements in this Quarterly Report on Form 10-Q may constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. When we use the words "believes", "expects",
"plans", "estimates" and similar expressions, we intend to identify
forward-looking statements. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance and achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
these forward-looking statements. These factors include, but are not limited to:
risks associated with owning and leasing real estate generally; dependence on
Marketing as a lessee and on rentals from companies engaged in the petroleum
marketing and convenience store businesses; competition for locations and
tenants; risk of tenant non-renewal; the effects of regulation; the Company's
expectations as to the cost of completing environmental remediation; the testing
phases of the Year 2000 program as well as its Year 2000 contingency plan; and
the Company's belief that the internal systems and equipment will be Year 2000
compliant in a timely manner.
As a result of these and other factors, the Company may experience
material fluctuations in future operating results on a quarterly or annual
basis, which could materially and adversely effect its business, financial
condition, operating results and stock prices. An investment in the Company
involves various risks, including those mentioned above and elsewhere in this
report and those which are detailed from time to time in the Company's other
filings with the Securities and Exchange Commission.
Readers should not place undue reliance on forward-looking statements,
which reflect the Company's view only as of the date hereof. The Company
undertakes no obligation to publicly release revisions to these forward-looking
statements that reflect events or circumstances after the date hereof or reflect
the occurrence of unanticipated events.
9
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Designation of Exhibit
in this Quarterly Report
on Form 10-Q Description of Exhibit
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27 Financial Data Schedule
(b) Reports filed on Form 8-K:
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GETTY REALTY CORP.
(Registrant)
Dated: June 11, 1999 BY: /s/ John J. Fitteron
--------------------
(Signature)
JOHN J. FITTERON
Senior Vice President, Treasurer
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
Dated: June 11, 1999 BY: /s/ Leo Liebowitz
-----------------
(Signature)
LEO LIEBOWITZ
President and Chief Executive
Officer
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF GETTY REALTY CORP. AND SUBSIDIARIES AS OF
APRIL 30, 1999 AND FOR THE THREE MONTHS THEN ENDED AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-2000
<PERIOD-END> APR-30-1999
<CASH> 354
<SECURITIES> 0
<RECEIVABLES> 7,159
<ALLOWANCES> 127
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 313,177
<DEPRECIATION> 69,929
<TOTAL-ASSETS> 263,167
<CURRENT-LIABILITIES> 0
<BONDS> 43,934
136
0
<COMMON> 72,220
<OTHER-SE> 66,379
<TOTAL-LIABILITY-AND-EQUITY> 263,167
<SALES> 0
<TOTAL-REVENUES> 15,420
<CGS> 0
<TOTAL-COSTS> 7,782
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 12
<INTEREST-EXPENSE> 624
<INCOME-PRETAX> 5,759
<INCOME-TAX> 2,416
<INCOME-CONTINUING> 3,343
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,343
<EPS-BASIC> .15
<EPS-DILUTED> .15
</TABLE>
