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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 July 31, 1996 Commission file number 1-8059
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GETTY PETROLEUM CORP.
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(Exact name of registrant as specified in its charter)
DELAWARE 11-2232705
- - --------------------------------- --------------------
(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 - 6000
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
--- ---
Registrant has 12,675,337 shares of Common Stock, par value $.10 per share,
outstanding as of July 31, 1996.
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<PAGE>
GETTY PETROLEUM CORP.
INDEX
Part I. FINANCIAL INFORMATION Page Number
- - ------------------------------ -----------
Item 1. Financial Statements
Consolidated Balance Sheets as of July 31, 1996 and
January 31, 1996 1
Consolidated Statements of Operations for the three and
six months ended July 31, 1996 and 1995 2
Consolidated Statements of Cash Flows for the six months
ended July 31, 1996 and 1995 3
Notes to Consolidated Financial Statements 4 - 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7 - 9
Part II. OTHER INFORMATION
- - ---------------------------
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 10
<PAGE>
GETTY PETROLEUM CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
- - -----------------------------------------------------------------------------
July 31, January 31,
- - -----------------------------------------------------------------------------
Assets: 1996 1996
- - -----------------------------------------------------------------------------
(unaudited)
Current assets:
Cash and cash equivalents $26,838 $19,808
Short-term investments 1,147 1,059
Accounts receivable, net 12,944 15,327
Inventories 24,206 21,214
Deferred income taxes 7,538 5,880
Prepaid expenses and other current assets 1,938 3,388
-------- --------
Total current assets 74,611 66,676
Property, plant and equipment, at cost, less
accumulated depreciation and amortization 184,140 184,559
Other assets 10,637 10,231
-------- --------
Total assets $269,388 $261,466
======== ========
- - -----------------------------------------------------------------------------
Liabilities and Stockholders' Equity:
- - -----------------------------------------------------------------------------
Current liabilities:
Current portion of long-term debt
and capital lease obligations $9,698 $9,154
Accounts payable 25,416 26,856
Accrued expenses 35,112 26,195
Gasoline taxes payable 15,889 13,919
Income taxes payable 199 175
-------- --------
Total current liabilities 86,314 76,299
Long-term debt 17,107 19,589
Obligations under capital leases 19,742 22,843
Deferred income taxes 18,641 16,977
Other, principally deposits 15,547 15,184
Stockholders' equity:
Preferred stock - -
Common stock, par value $.10 per share 1,357 1,355
Other stockholders' equity 110,680 109,219
-------- --------
112,037 110,574
-------- --------
Total liabilities and stockholders' equity $269,388 $261,466
======== ========
See accompanying notes.
1
<PAGE>
GETTY PETROLEUM CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share amounts)
(unaudited)
- - --------------------------------------------------------------------------------
Three months Six months
ended July 31, ended July 31,
- - --------------------------------------------------------------------------------
1996 1995 1996 1995
- - --------------------------------------------------------------------------------
Net sales $219,515 $184,555 $423,799 $379,562
Rental income 8,796 8,453 17,777 16,984
Other income (expense) 1,754 1,780 (5,001) 3,314
-------- -------- -------- --------
230,065 194,788 436,575 399,860
-------- -------- -------- --------
Cost of sales 203,987 175,788 404,948 364,016
Selling, general and administrative
expenses 6,804 6,846 13,141 12,946
-------- -------- -------- --------
210,791 182,634 418,089 376,962
-------- -------- -------- --------
Earnings before interest, taxes,
depreciation and amortization 19,274 12,154 18,486 22,898
Interest expense 1,758 2,438 3,613 4,951
Depreciation and amortization 5,743 5,589 11,412 11,080
-------- -------- -------- --------
Earnings before provision for
income taxes and cumulative effect
of accounting change 11,773 4,127 3,461 6,867
Provision for income taxes 4,604 1,616 1,457 2,700
-------- -------- -------- --------
Earnings before cumulative effect of
accounting change 7,169 2,511 2,004 4,167
Cumulative effect of accounting change - - - (794)
-------- -------- -------- --------
Net earnings $7,169 $2,511 $2,004 $3,373
======== ======== ======== ========
Per Share Data:
Earnings before cumulative effect of
accounting change $0.57 $0.20 $0.16 $0.33
Cumulative effect of accounting change - - - (0.06)
-------- -------- -------- --------
Net earnings per share $0.57 $0.20 $0.16 $0.27
======== ======== ======== ========
Weighted average shares outstanding 12,676 12,645 12,672 12,645
======== ======== ======== ========
See accompanying notes.
2
<PAGE>
GETTY PETROLEUM CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
- - --------------------------------------------------------------------------------
Six months ended
July 31,
- - --------------------------------------------------------------------------------
1996 1995
- - --------------------------------------------------------------------------------
Cash flows from operating activities:
Net earnings $2,004 $3,373
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Cumulative effect of accounting change - 794
Depreciation and amortization 11,412 11,080
Deferred income taxes (3) 467
Gain on dispositions of property, plant
and equipment (1,260) (1,253)
Gain on short-term investments (66) -
Changes in assets and liabilities:
Accounts receivable 2,383 3,933
Inventories (2,992) (2,207)
Prepaid expenses and other current assets 1,396 1,343
Other assets (469) (912)
Accounts payable, accrued expenses and
gasoline taxes payable 9,447 (5,678)
Income taxes payable 24 183
Other, principally deposits 363 370
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Net cash provided by operating activities 22,239 11,493
------- -------
Cash flows from investing activities:
Capital expenditures (10,734) (9,361)
Property acquisitions (753) (463)
Proceeds from dispositions of property,
plant and equipment 1,871 1,755
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Net cash used in investing activities (9,616) (8,069)
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Cash flows from financing activities:
Repayment of long-term debt (2,409) (4,096)
Payments under capital lease obligations (2,630) (2,511)
Cash dividends (760) -
Treasury stock and stock options, net 206 12
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Net cash used in financing activities (5,593) (6,595)
------- -------
Net increase (decrease) in cash and cash equivalents 7,030 (3,171)
Cash and cash equivalents at beginning of period 19,808 41,576
------- -------
Cash and cash equivalents at end of period $26,838 $38,405
======= =======
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $3,616 $4,894
Income taxes, net 1,435 2,199
See accompanying notes.
3
<PAGE>
GETTY PETROLEUM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. General:
The accompanying consolidated financial statements include the accounts
of Getty Petroleum 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.
2. Accounting change:
The consolidated statement of operations for the six months ended July 31,
1995 has been restated to retroactively reflect an after-tax charge to
earnings of $794,000 for the cumulative effect of adopting at the end of that
fiscal year, Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of".
3. Earnings per share:
Earnings per share is computed by dividing net earnings by the weighted
average number of shares of common stock outstanding during the period.
Common stock equivalents are not included in earnings per share computations
since their effect is immaterial.
4. Inventories:
Inventories, primarily finished petroleum products, are principally
accounted for under the lower of last-in, first-out ("LIFO") cost or market.
Due to changes in product costs during the quarter ended July 31, 1996, the
Company decreased the LIFO inventory reserve of $3,480,000 that was recorded
in the first quarter ended April 30, 1996 by $1,222,000, which decreased cost
of sales and increased pre-tax income by such amount during the current
quarter. The net LIFO charge of $2,258,000 for the six months ended July 31,
1996 increased cost of sales and decreased pre-tax income by such amount.
During the prior year's comparable periods, there were no LIFO inventory
charges. As of January 31, 1996, the carrying value of the Company's LIFO
inventories approximated the first-in, first-out ("FIFO") method or
replacement cost.
4
<PAGE>
5. Stockholders' equity:
A summary of the changes in stockholders' equity for the six months ended
July 31, 1996 is as follows (in thousands):
Net
Unrealized
Treasury Gain (Loss)
Common Paid-in Retained Stock, on Equity
Stock Capital Earnings at cost Securities Total
- - --------------------------------------------------------------------------------
Balance,
January 31, 1996 $1,355 $119,960 $3,481 $14,090 ($132) $110,574
Net income 2,004 2,004
Cash dividends-
$.06 per share (760) (760)
Net unrealized gain
on equity securities 13 13
Purchase of
treasury stock 15 (15)
Issuance of
treasury stock (2) (26) 24
Stock options
exercised 2 195 197
------ -------- ------ ------- ------ --------
Balance,
July 31, 1996 $1,357 $120,153 $4,725 $14,079 ($119) $112,037
====== ======== ====== ======= ====== ========
6. Legal proceeding:
In May 1996, a federal judge in the U.S. District Court for the Eastern
District of New York entered a judgment in the amount of $8.4 million, plus
interest, in favor of Morrison-Knudsen Company, Inc. against the Company's
former construction company subsidiary, Slattery Associates, Inc., which was
sold in 1989.
The case arose out of a joint venture between Slattery Associates and
Morrison-Knudsen which was established to reconstruct in 1986 a portion of an
expressway in Philadelphia. The judgment represents Slattery's share of
joint venture construction costs which the Court held Slattery owed.
Slattery had contended that Morrison-Knudsen had mismanaged the project and
had failed to disclose material facts. Slattery also had contended that
certain costs were improperly charged to the joint venture.
5
<PAGE>
During the quarter ended April 30, 1996, the Company recorded a pre-tax
charge of $7.5 million ($4.7 million after-tax or $.37 per share) in addition
to a previously established reserve of $3.6 million for the Morrison-Knudsen
litigation. The pre-tax charge is included in other income (expense) in the
consolidated statement of operations for the six months ended July 31, 1996.
The Company's consolidated balance sheet as of July 31, 1996 includes an
accrual of $11.2 million relating to this matter.
The Company has filed a post-judgment motion with the trial court
contending that the court applied incorrect rates of interest. After
disposition of the motion, the Company intends to vigorously appeal.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations - Quarter ended July 31, 1996 compared
with quarter ended July 31, 1995
--------------------------------
Net sales for the second fiscal quarter ended July 31, 1996 were $219.5
million as compared with $184.6 million for the same quarter last year. The
increase in net sales was principally due to a 16.4% increase in average
selling prices and a 6.9 million gallon or 3.7% increase in retail gallonage
sold, partially offset by a 1.9 million gallon or 3.2% decrease in wholesale
gallonage sold. Gross profit (excluding rental and other income) was $15.5
million for the quarter ended July 31, 1996 compared to $8.8 million in the
comparable period last year. The increase in gross profit of $6.7 million was
principally due to higher product margins including a LIFO inventory credit
of $1.2 million, and increased retail sales volumes.
Rental income for the three months ended July 31, 1996 amounted to $8.8
million as compared with $8.5 million for the quarter ended July 31, 1995.
The increase was due to rent escalations provided under existing lease
agreements and lease renewals, and higher rentals as a result of improvements
to the facilities.
Other income was $1.8 million for the three months ended July 31, 1996
and 1995. The current quarter included $.4 million of higher gains on
dispositions of assets, which was offset by $.3 million of reduced investment
income and $.1 million of expenses related to the proposed spin-off of the
Company's petroleum marketing business.
Selling, general and administrative expenses were comparable for the
quarters ended July 31, 1996 and 1995.
Interest expense for the three months ended July 31, 1996 amounted to
$1.8 million as compared with $2.4 million for the quarter ended July 31,
1995. The decrease was principally due to reduced debt and capitalized lease
obligations outstanding during the quarter ended July 31, 1996.
Depreciation and amortization was $5.7 million for the quarter ended
July 31, 1996 compared with $5.6 million for the quarter ended July 31, 1995.
The increase was due to higher depreciation as a result of additions to
property, plant and equipment.
7
<PAGE>
Results of Operations - Six months ended July 31, 1996 compared
with six months ended July 31, 1995
-----------------------------------
Net sales for the six months ended July 31, 1996 were $423.8 million as
compared with $379.6 million for the same period last year. The increase in
net sales was principally due to a 9.9% increase in average selling prices
and a 16.0 million gallon or 4.5% increase in retail gallonage sold,
partially offset by an 8.5 million gallon or 6.8% decrease in wholesale
gallonage sold. Gross profit (excluding rental and other income (expense))
was $18.8 million for the six months ended July 31, 1996 compared to $15.5
million in the comparable period last year. The increase in gross profit of
$3.3 million was principally due to higher product margins including a LIFO
inventory charge of $2.3 million during the six months ended July 31, 1996,
and increased retail sales volumes.
Rental income for the six months ended July 31, 1996 amounted to $17.8
million as compared with $17.0 million for the six months ended July 31,
1995. The increase was due to rent escalations provided under existing
lease agreements and lease renewals, and higher rentals as a result of
improvements to the facilities.
Other income (expense) was ($5.0) million for the six months ended July
31, 1996 as compared with $3.3 million for the six months ended July 31,
1995. The current six month period included a pre-tax charge of $7.5 million
related to a judgment against Slattery Associates, Inc., a former
construction company subsidiary, which was sold in 1989. Also contributing
to the decrease in other income was $.5 million of reduced investment income
and $.3 million of expenses related to the proposed spin-off.
Selling, general and administrative expenses for the six months ended
July 31, 1996 amounted to $13.1 million which was comparable to the $12.9
million for the six months ended July 31, 1995.
Interest expense for the six months ended July 31, 1996 amounted to $3.6
million, a decrease of $1.3 million from the comparable period last year.
The decrease was principally due to reduced debt and capitalized lease
obligations outstanding during the current period.
Depreciation and amortization increased by $.3 million in the current
six month period as compared with the six months ended July 31, 1995. The
increase was due to higher depreciation as a result of additions to property,
plant and equipment.
The six months ended July 31, 1995 was restated to retroactively reflect
a charge to earnings of $.8 million for the cumulative effect of adopting at
the end of that fiscal year, Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of".
8
<PAGE>
Liquidity and Capital Resources
- - -------------------------------
As of July 31, 1996, working capital amounted to a deficit of $11.7
million as compared to a deficit of $9.6 million as of January 31, 1996. The
decrease in working capital was primarily due to $11.5 million of capital
expenditures and the reduction of $5.6 million in long-term indebtedness,
partially offset by $15.1 million of working capital generated during the six
month period from operations which included an after-tax charge of $4.7
million relating to the Morrison-Knudsen judgment.
The Company's principal sources of liquidity are cash flows from
operations, which amounted to $22.2 million during the six months ended July
31, 1996, and its short-term unsecured lines of credit. As of July 31, 1996,
such lines of credit amounted to $60 million, of which $8.4 million was
utilized in connection with outstanding letters of credit. Management
believes that cash requirements for operations and debt service can be met by
cash flows from operations, available cash and short-term investments of
$28.0 million as of July 31, 1996 and available credit lines.
Spin-off
- - -----------------
During the fiscal quarter ended April 30, 1996, the Company announced
that it intends to spin-off its petroleum marketing business and on March 13,
1996, a request for a tax-free ruling was filed with the Internal Revenue
Service. On September 13, 1996, the Company received a favorable ruling.
It is anticipated that the spin-off will be completed at the end of the
Company's fiscal year ending January 31, 1997. Although the exact exchange
ratio has not yet been established, it is expected that each stockholder of
record will receive a dividend of approximately one share of stock in the new
company, Getty Petroleum Marketing Inc., for each share of Getty Petroleum
Corp. At that time, Getty Petroleum Corp. will change its name to
Getty Realty Corp.
9
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Designation of Exhibit
in this Quarterly Report
on Form 10-Q Description of Exhibit
------------------------- ----------------------
27 Financial Data Schedule
(b) Reports on Form 8-K:
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 PETROLEUM CORP.
----------------------
(Registrant)
Dated: September 13, 1996 BY: /s/ Michael K. Hantman
-------------------------
(Signature)
MICHAEL K. HANTMAN
Vice President and
Corporate Controller
(Chief Accounting Officer)
Dated: September 13, 1996 BY: /s/ John J. Fitteron
-------------------------
(Signature)
JOHN J. FITTERON
Senior Vice President, Treasurer
and Chief Financial Officer
(Principal Financial Officer)
Dated: September 13, 1996 BY: /s/ Leo Liebowitz
-------------------------
(Signature)
LEO LIEBOWITZ
President (Chief Executive
Officer)
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF GETTY PETROLEUM CORP. AND SUBSIDIARIES AS
OF JULY 31, 1996 AND FOR THE SIX MONTHS THEN ENDED AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
<MULTIPLIER> 1,000
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> JUL-31-1996
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<SECURITIES> 1,147
<RECEIVABLES> 14,599
<ALLOWANCES> 1,655
<INVENTORY> 24,206
<CURRENT-ASSETS> 74,611
<PP&E> 359,740
<DEPRECIATION> 175,600
<TOTAL-ASSETS> 269,388
<CURRENT-LIABILITIES> 86,314
<BONDS> 36,849
<COMMON> 1,357
0
0
<OTHER-SE> 110,680
<TOTAL-LIABILITY-AND-EQUITY> 269,388
<SALES> 423,799
<TOTAL-REVENUES> 436,575
<CGS> 404,948
<TOTAL-COSTS> 416,360
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 244
<INTEREST-EXPENSE> 3,613
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<INCOME-TAX> 1,457
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