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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 [FEE REQUIRED]
For the fiscal year ended January 31, 1996
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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
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(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
125 Jericho Turnpike, Jericho, New York 11753
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 516-338-6000
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Securities registered pursuant to Section 12 (b) of the Act:
Name of each exchange on
Title of each class which registered
- - ---------------------------- ------------------------
Common stock, $.10 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
(6,853,066 shares) of the Company was $96,799,557 as of April 22, 1996.
The registrant had outstanding 12,675,709 shares of common stock as of
April 22, 1996.
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, 1996 (the "Annual Report")
(pages 13 through 28) II
Definitive Proxy Statement for the 1996 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, 1996
pursuant to Regulation 14A. III
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<PAGE>
PART I
Item 1. Business
General
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Getty Petroleum Corp. (hereinafter, together with its subsidiaries, called
the "Registrant", "Getty" or the "Company") is one of the nation's largest
independent marketers of petroleum products. The Company serves retail and
wholesale customers through a distribution and marketing network of 1,625
Getty [registered trademark] and other branded retail outlets (also referred
to as service stations) located in 13 Northeastern and Middle Atlantic states,
of which 522 have convenience food stores. The Company stores and distributes
petroleum products from 22 distribution terminals and bulk plants. The
Company purchases gasoline, fuel oil and related petroleum products from a
number of Northeast suppliers. These products are delivered by cargo ship,
barge, pipeline and truck to the Company's distribution terminals and bulk
plants located in the Company's marketing region. Through its truck
transportation fleet of 153 vehicles and its distribution network, the
Company markets and distributes such products throughout its 13 state
marketing region. Of the 1,625 retail outlets supplied by the Company at
January 31, 1996, approximately 70% are owned by the Company in fee or held
under long-term leases. The remaining retail outlets purchase petroleum
products from the Company under contract as licensed Getty dealers or from
licensed Getty distributors who purchase Getty products from the Company.
The Company also sells on a wholesale basis gasoline, fuel oil, diesel fuel
and kerosene from distribution terminals and bulk plants in truckload,
barge and pipeline quantities and sells fuel oil, kerosene and propane to
residential, commercial and governmental customers in Maryland,
Pennsylvania and upstate New York.
The Company and its predecessors have been in the petroleum marketing
business for over 40 years. Mr. Leo Liebowitz, President and Chief
Executive Officer and a director of the Company, and Mr. Milton Safenowitz,
a director and former Executive Vice President of the Company, founded the
business in 1955 with one service station and have pursued a strategy of
expanding the business principally through acquisitions. Prior to 1985,
the Company had expanded into five states under various brand names,
principally Power Test. On February 1, 1985, the Company acquired the
marketing and distribution assets of Getty Oil Company in the Northeastern
and Middle Atlantic states from a subsidiary of Texaco Inc. The Getty
acquisition added service stations, distribution terminals and a wholesale
heating oil and middle distillate marketing network in six additional
states. Since 1985, the Company's operations have continued to expand to
its current marketing region in 13 Northeastern and Middle Atlantic states.
During the period from 1985 to 1991, the Company continued to expand by
acquiring numerous small regional distributors, service stations and
convenience food stores. In addition to adding locations through fee
ownership and leasing, the Company continued to implement its program of
adding non-petroleum products and revenue enhancing services at retail outlets
in its marketing network, particularly convenience food stores, automotive
repairs and car washes. The Company also has a comprehensive program of
evaluating retail outlets to determine the long-term viability of certain
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locations as gasoline stations. Over the years, this process has resulted
in the divestment of non-strategic and uneconomic retail outlets.
In fiscal 1995, the Company internally restructured its organization and
operations. The objective of the reorganization was to separate the Company's
three principal businesses, motor fuel marketing, real estate and heating oil
and to reduce overhead and operating expenses. On March 13, 1996, the Company
announced that, subject to approval from the Internal Revenue Service, it
intends to spin-off its petroleum marketing business to its shareholders on a
tax-free basis. For additional information regarding the proposed spin-off,
see Note 12 to the accompanying consolidated financial statements.
Operating Strategy
- - ------------------
The Company's operating strategy is to market motor fuels through service
stations which are operated by independent Getty licensed dealers who lease
or sublease the Company's service stations. Such dealers either buy their
petroleum products from the Company or from licensed Getty distributors who
purchase Getty products from the Company, or sell the Company's petroleum
products and receive a commission. The Company views each of its retail
outlets as a "profit center" and believes that independent operators, with
greater financial incentive than salaried employees, generally operate
retail outlets more economically. Moreover, the leasing and subleasing of
retail outlets to independent operators has provided the Company with a
steady and increasing source of rental income and has enabled the Company
to reduce its direct operating costs.
The Company directly operated four retail outlets at January 31, 1996
utilizing salaried employees. While the Company seeks to lease or sublease
retail outlets to independent operators, it historically retains a certain
number of such company operated outlets. These outlets permit management
to keep abreast of changes in retail marketing, to assist in providing
practical guidance to independent dealers and to test new products and
concepts.
Certain of the owned and leased outlets have convenience food stores,
automotive repair centers and car washes. Getty receives higher rentals
from such properties as a result of such additional uses.
Distribution and Real Estate
- - ----------------------------
The retail outlets in the Company's marketing network sell gasoline, diesel
fuel and other related petroleum products (such as motor oil and
lubricants) under the Company's proprietary 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, 1996, the Company has 1,625 Getty and other branded
retail outlets as follows:
(i) 4 company operated retail outlets which are operated by salaried
employees;
(ii) 284 lessee dealer operated retail outlets (dealers who lease or
sublease retail outlets and purchase their petroleum products from the
Company);
(iii) 624 commission lessee dealer operated retail outlets (dealers who
lease or sublease retail outlets and receive a commission for sale of
Company owned petroleum products);
(iv) 108 retail outlets operated by management contractors (dealers who
operate the Company's retail outlets pursuant to a management contract);
(v) 135 contract dealer retail outlets (dealers who purchase their
petroleum products from the Company but do not lease or sublease retail
outlets from the Company); and
(vi) 47 distributors who purchase their petroleum products from the
Company, which distributors in turn supply the petroleum product
requirements of 470 retail outlets.
The Company generally extends three-year lease terms to its dealers, except
for new dealers, who generally receive a one year trial lease. Such leases
provide for fixed and variable rentals at competitive rates. In addition,
most leases provide for an additional rental if the dealer fails to sell
certain minimum quantities of gasoline during a month. The lessee of a
retail outlet is generally responsible for payment of utilities and for all
maintenance and repairs, except for structural and marketing equipment
repairs and capital improvements, which are performed by the Company.
In addition, as of January 31, 1996, the Company has 112 properties, most
of which are leased for non-petroleum use. The Company also has 37
properties being held for disposition.
Getty distributes its petroleum products from 22 distribution terminals and
bulk plants which are Company controlled either through fee ownership or
long-term leases and utilizes additional terminals pursuant to thruput and
storage agreements with unrelated parties. A substantial portion of the
petroleum products are transported to retail outlets by the Company's truck
transportation fleet, whose drivers are compensated in part on an
incentive-based system.
Certain of the Company's properties mentioned above have 132 tenants who do
not sell petroleum products.
The Company sells home heating oil, propane (LPG) and related services
directly to approximately 43,000 retail and commercial customers. In
addition, the Company is a wholesale supplier of #2 heating oil (also known
as home heating oil) in the Northeast, supplying heating oil to dealers who
deliver to residences and commercial accounts. Diesel fuel and kerosene are
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marketed both to distributors of such products and directly by the Company
to retail outlets and consumers.
Product Supply
- - --------------
The Company has entered into agreements with a number of Northeast suppliers,
replacing the previous supply agreement with Phibro Energy USA, Inc. which
was phased out through August 31, 1995. The benefits of the new supply
agreements include improved logistics and greater flexibility, which has
became increasingly important with the introduction of reformulated gasolines.
The Company has no crude oil reserves or refining capacity. Substantially
all of the Company's supply contracts are for a term of one year or less.
Historically, petroleum prices have been subject to extreme volatility and
there have been periodic shortages followed by periods of oversupply. No
assurance can be given that petroleum prices will not fluctuate greatly or
that petroleum products will continue to be available from multiple sources
or available at all in times of shortage. Furthermore, a large, rapid
increase in petroleum prices could adversely affect the Company's revenues
and profitability if the Company's sales prices could not be increased or
automobile consumption of gasoline were to significantly decline as a
result of such price increases. Management believes, however, that the
Company will continue to have the ability to acquire petroleum products on
competitive terms for the foreseeable future due in part to the large
volume of its purchases.
Marketing
- - ---------
In order to provide efficient service to retail dealers and other
customers, the Company is divided into various marketing regions. The
Company's regional marketing personnel provide significant guidance,
counseling and assistance to the Company's dealers, including advice on
retail operations. The marketing personnel also supervise the company
operated retail outlets.
The Company provides advertising and promotional support to its retail
outlets. Both radio and newspaper media are utilized, and promotional
programs are implemented on an ongoing basis.
The Company has a cobranded Getty MasterCard, accepts Visa, MasterCard,
Discover, Diners Club and American Express credit cards, and has introduced
"NYCE" and "MAC" debit cards at a majority of Getty outlets. In addition,
the Company has a Getty fleet fueling card and accepts the Wright Express
fleet fueling card, both of which have tracking programs which provide cost
control data to fleet customers.
Competition
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The Company believes that, based on the number of locations served, it is
currently one of the largest independent marketers of petroleum products in
the United States. Petroleum marketing is highly competitive, and the
Company competes with a substantial number of integrated oil
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companies and other companies who may have greater assets, financial
resources and sales. Accordingly, the Company's earnings may be adversely
affected by the marketing policies of such companies, which may have
greater flexibility to withstand price changes than the Company. The
Company competes for new dealers and distributors primarily on the basis of
Getty brand acceptance, supply, price and marketing support. The retail
outlets in the Company's marketing network compete primarily on the basis
of Getty brand acceptance, location, customer service, appearance of the
retail outlet and price.
Regulation
- - ----------
The petroleum products industry is subject to numerous federal, state and
local laws and regulations. Compliance with those laws and regulations has
not had and is not expected to have a material effect on the competitive
position of the Company.
The Company is not a refiner and, therefore, is not subject to the
Petroleum Marketing Practices Act ("PMPA"), a federal law. However,
pursuant to the Company's agreements with certain of its Getty dealers and
distributors, the Company has voluntarily extended to them the protection
of PMPA. Under PMPA, the Company complies with certain notice requirements
and extends nondiscriminatory contracts to its Getty licensed dealers and
distributors, whose franchises can be terminated or not renewed if certain
PMPA-imposed prerequisites are met. Although a licensed dealer or
distributor is not required to renew his or her franchise, because the
Company has agreed to comply with PMPA, the Company is required (unless
there are grounds for non-renewal or termination) to renew the franchises
of many of its licensed dealers and distributors who elect to renew. In
addition, if the Company elects to sell any of those service stations
subject to PMPA, the Company shall, in accordance with PMPA, offer the
franchisee the right to purchase any of such service stations operated by
such franchisee at the price and upon terms at which the Company elects to
sell.
In addition, the Company's operations are governed by numerous federal,
state and local environmental laws and regulations affecting all aspects of
its operations. 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 the Company's terminals and service stations, (iii) OSHA and
other laws regulating terminal employee exposure to benzene and other
hazardous materials, (iv) requirements to report to governmental
authorities discharges of petroleum products into the environment and,
under certain circumstances, to remediate the soil and/or groundwater
contamination pursuant to governmental order and directive, (v)
requirements to remove and replace underground storage tanks which have
exceeded governmental-mandated age limitations and (vi) the requirement to
provide a certificate of financial responsibility with respect to claims
relating to underground storage tank failures.
The Company believes that it is in substantial compliance with federal,
state and local provisions enacted or adopted pertaining to environmental
matters. Although the Company is unable to predict what legislation or
regulations may be adopted in the future with respect to
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environmental protection and waste disposal, existing legislation and
regulations have had no material adverse effect on its competitive
position. See "Item 3. Legal Proceedings".
Personnel
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As of January 31, 1996, the Company had 684 employees, of which 119
employees, consisting of truck drivers and service technicians, are
represented by Amalgamated Local Union 355. The Company considers its
relationships with its employees and the union to be satisfactory.
Item 2. Properties
The properties owned in fee or leased by the Company for each of the five
fiscal years ended January 31, 1996 are as follows:
January 31,
---------------------------------------------
1996 1995 1994 1993 1992
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Owned 439 444 457 465 463
Leased 734 752 772 791 825
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Total 1,173 1,196 1,229 1,256 1,288
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The Company has a continuous upgrading program to enhance the physical
appearance of the Company's retail outlets.
As of January 31, 1996, the Company also owned in fee 11 distribution
terminals and bulk plants and leased 11 distribution terminals and bulk
plants (on a long-term net lease basis) located in New York, New Jersey,
Rhode Island, Pennsylvania, Connecticut and Maryland. The terminals and
bulk plants owned or leased by the Company have an aggregate storage
capacity of approximately 62 million gallons. The terminals located in
East Providence (Rhode Island) and Rensselaer (New York) are deep-water
terminals, capable of handling large vessels. Some of the Company's
terminals have excess capacity and land that could be developed or adapted
to handle products, such as residual fuel, jet fuel and lube blending,
which the Company does not presently market.
As of January 31, 1996, the Company leases 291 service stations and 5
distribution terminals on a long-term basis from Power Test Realty Company
Limited Partnership (the "Partnership"). The sole limited partner of the
Partnership is Power Test Investors Limited Partnership ("PTILP"), which
was created in 1985 pursuant to a rights offering to all of the Company's
then existing stockholders. The general partner of the Partnership and
PTILP is CLS General Partnership Corp. ("CLS"), which manages the
Partnership and PTILP. CLS is wholly owned by Messrs. Leo Liebowitz,
Milton Safenowitz and Milton Cooper, the principal stockholders of
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the Company, who as of January 31, 1996, collectively owned 48% of PTILP.
The Company does not have any ownership interest in the Partnership or CLS,
and does not have any ownership interest or option to purchase the
Partnership's property, except for properties that the Company has
determined have become uneconomical or unsuitable for the Company's use. In
the event the Company makes such a determination, it must either (i)
purchase the property from the Partnership for a sum equal to the greater
of (x) the product of the annual rent then in effect multiplied by eleven
or (y) 110% of the appraised fair market value of the property considered
as encumbered by the lease or (ii) direct the Partnership to sell such
property to a third party at a price negotiated by the Company, in which
case the Company receives from the Partnership the amount, if any, by which
the negotiated price exceeds the price determined by the above formula or
pays any deficiency to the Partnership. Each of the leases of the service
stations and the distribution terminals with the Partnership has an initial
term of 15 years, expiring on January 31, 2000. The Company has the option
to extend these leases for up to five consecutive terms of ten years each.
During the fiscal years ended January 31, 1996, 1995 and 1994, the Company
received from the Partnership $648,000, $624,000 and $600,000,
respectively, for administrative and other services rendered to the
Partnership and paid rent to the Partnership during such fiscal years of
$10,553,000, $10,925,000 and $10,981,000, respectively. In addition, during
the fiscal years ended January 31, 1996, 1995 and 1994, the Company paid
an additional sum of $4,938,000, $1,039,000 and $92,000 respectively, for
properties purchased.
The Company leases approximately 30,500 square feet of office space at 125
Jericho Turnpike, Jericho, New York where it currently maintains its
corporate headquarters.
The Company believes that substantially all of its owned and leased
properties are in good condition.
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Item 3. Legal Proceedings
(a) Information in response to this item is incorporated herein by
reference from Note 5 of the Notes to Consolidated Financial Statements set
forth on pages 22 and 23 of the Annual Report.
The State of New York has brought separate actions against the Company for
alleged underground discharges of petroleum products at certain of its
service stations. The actions were filed in 1983 and 1986 in New York
State Supreme Court in Albany County. In each case, the State was seeking
reimbursement for cleanup costs, interest and penalties for the alleged
discharges. Most of any possible compensatory damages relating to cleanup
activities and any reimbursement to the State arising out of these two
cases are covered by liability insurance. In the last quarter of fiscal
1996, the 1983 case was settled and the insurance carrier paid 100% of the
cost of settlement.
In 1990, the State of New York brought an action in the New York State
Supreme Court in Albany County seeking reimbursement for cleanup costs
against the Company and two other petroleum companies arising from an
alleged 1984 spill of gasoline. In addition to cleanup costs of $240,000,
the State is seeking penalties of $500,000 and interest. The State has
agreed to dismiss the Company from the lawsuit but one of the two other
petroleum companies which is a party to the action has withheld consent.
In 1991, the State of New York brought an action in the New York State
Supreme Court in Albany County against the Company 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.
In 1992, the State of New York asserted a claim for reimbursement of cleanup
costs against the Company and another petroleum company, in the amount
of $121,000, together with statutory penalties of $100,000, pertaining to
an alleged spill at a service station in 1984. In the last quarter of
fiscal 1996, a summons with notice was filed in Albany County against the
Company and the other petroleum company seeking cleanup costs of $209,000
and unspecified statutory penalties.
In 1993, the State of New York asserted a claim against the Company for
cleanup costs incurred at a service station and for statutory penalties.
In 1994, an action was filed in New York Supreme Court in Albany County to
recover $504,000 for cleanup costs and $250,000 in statutory penalties.
The U. S. Environmental Protection Agency ("EPA") advised the Company in
1992 that it would seek administrative penalties for the Company's failure
to cease discharging into, and to close, service station bay drains at
certain retail outlets. The EPA was in 1992 seeking penalties of
approximately $625,000. In 1994, the Company complied with a document
request of the EPA and the Company has received no further communications
from the EPA.
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In 1994, a subsidiary of the Company was served with an Amended Complaint
naming the Company's subsidiary as one of many defendants in the Keystone
Superfund case pending in the U.S. District Court for the Middle District
of Pennsylvania, pertaining to the subsidiary's miscellaneous office refuse
and used furnace air and oil filters which were disposed of at the Site.
In 1995, another subsidiary of the Company was brought into the same action
pertaining to convenience store refuse. The Company believes that its
participation in the cost of cleanup at the Site will be determined to be
insignificant or de minimis in nature and that its ultimate liability will
be less than $25,000.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders during the fourth
quarter of the Company's fiscal year ended January 31, 1996.
Executive Officers of Registrant
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The following table lists the executive officers of the Company, their
respective ages, the offices and positions held with the Company as of
April 15, 1996 and the year in which each was elected an officer.
Name Age Position Officer Since
---- --- -------- -------------
Leo Liebowitz 68 President and Chief Executive
Officer 1971
John J. Fitteron 54 Senior Vice President, Treasurer
and Chief Financial Officer 1986
Alvin A. Smith 58 Senior Vice President and
Chief Operating Officer 1985
James R. Craig 44 Vice President - Marketing 1987
Michael K. Hantman 44 Vice President and
Corporate Controller 1988
Samuel M. Jones 59 Vice President, Corporate Secretary
and General Counsel 1986
Mr. Liebowitz has been President and Chief Executive Officer and a director
of the Company since 1971. He has also served as the President and a
director of CLS General Partnership Corp. since 1985. He is also a
director of the Regional Banking Advisory Board of Chase Manhattan Corp.
Mr. Fitteron joined the Company in 1986 as Senior Vice President and Chief
Financial Officer and assumed the additional position of Treasurer in 1994.
Prior to joining Getty, he was a Senior Vice President at Beker Industries
Corp., a chemical and natural resource company.
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Mr. Smith has been a Senior Vice President of the Company since 1985 and
became Chief Operating Officer in 1994. Prior thereto, he was employed at
Getty Oil Company as Wholesale Manager and Petroleum Manager.
Mr. Craig became a Vice President of the Company in 1987. He joined the
Company in 1982 as a District Manager and became Manager - Retail Sales in
1984. Prior to joining Getty, he was a Regional Manager of Amerada Hess
Corp.
Mr. Hantman became a Vice President of the Company in 1991. He joined the
Company in 1985 as Corporate Controller. Prior to joining Getty, he was a
Principal at Arthur Young & Company, an international accounting firm.
Mr. Jones joined the Company in 1986 as Vice President and General Counsel
and assumed the additional position of Corporate Secretary in 1994. Prior
to joining Getty, he was a Senior Attorney with Texaco Inc.
Management is not aware of any family relationships among any of the
foregoing 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 16 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 16 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 13 through 15 of
the Annual Report.
Item 8. Financial Statements and Supplementary Data
Information in response to this item is incorporated herein by reference
from the financial information set forth on pages 17 through 28 of the
Annual Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
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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 heading "Election
of Directors" on pages 2 and 3 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 4 through 8 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 3 and 4 of the Proxy Statement.
Item 13. Certain Relationships and Related Transactions
Information in response to this item is incorporated herein by reference
from material under the heading "Certain Transactions" on page 10 of the
Proxy Statement.
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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 23 are filed as part of this annual report.
4. Reports on Form 8-K
Registrant filed a Current Report on Form 8-K on March 13,
1996 reporting under Item 5, Other Events, a potential
transaction involving a spin-off of its petroleum marketing
operations to its stockholders.
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GETTY PETROLEUM CORP.
INDEX TO FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
COVERED BY REPORT OF INDEPENDENT ACCOUNTANTS
Items 14(a) 1 & 2
Reference
-------------------------
Form 10-K 1996 Annual
(pages) Report (pages)
--------- --------------
Data incorporated by reference from attached
1996 Annual Report to Stockholders of Getty
Petroleum Corp.:
Report of Independent Accountants 28
Consolidated Statements of Operations for the
years ended January 31, 1996, 1995 and 1994 17
Consolidated Balance Sheets as of January 31,
1996 and 1995 18
Consolidated Statements of Cash Flows for the
years ended January 31, 1996, 1995 and 1994 19
Notes to Consolidated Financial Statements 20 - 28
Report of Independent Accountants -
Supplemental Schedule 16
Schedule II - Valuation and Qualifying Accounts and
Reserves for the years ended January 31, 1996,
1995 and 1994 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
1996 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 and 8, the 1996
Annual Report to Stockholders is not deemed filed as part of this report.
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Getty Petroleum Corp.:
Our report on the consolidated financial statements of Getty Petroleum Corp.
and Subsidiaries has been incorporated by reference in this Form 10-K from
page 28 of the 1996 Annual Report to Stockholders of Getty Petroleum Corp.
and Subsidiaries. In connection with our audits of such financial
statements, we have also audited the related financial statement schedule
listed in the index on page 15 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
Coopers & Lybrand L.L.P.
New York, New York
March 14, 1996.
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GETTY PETROLEUM CORP. and SUBSIDIARIES
SCHEDULE II - VALUATION and QUALIFYING ACCOUNTS and RESERVES
for the years ended January 31, 1996, 1995 and 1994
(in thousands)
Balance at Balance at
beginning end of
of period Additions Deductions period
---------- --------- ---------- ----------
1996:
Allowance for
doubtful accounts* $1,509 $561 $661 $1,409
====== ==== ==== ======
1995:
Allowance for
doubtful accounts* $1,534 $385 $410 $1,509
====== ==== ==== ======
1994:
Allowance for
doubtful accounts* $1,610 $566 $642 $1,534
====== ==== ==== ======
*Relates to accounts receivable.
EXHIBIT INDEX
GETTY PETROLEUM CORP.
Annual Report on Form 10-K
for the fiscal year ended January 31, 1996
Exhibit
No. Description Begins on Sequential Page No.
------- ----------------------- -----------------------------------
3.1 Certificate of Filed as Exhibit 3.1 to
Incorporation. registrant's Registration
Statement on Form S-1 filed
on June 23, 1971
(Registration No. 2-40881)
and incorporated herein by
reference.
3.2 Certificate of Filed as Exhibit B to
Amendment of registrant's Annual Report
Certificate of on Form 10-K for the fiscal
Incorporation, filed year ended January 31, 1978
July 22, 1977. (File No. 1-8059) and
incorporated herein by
reference.
3.3 Certificate of Filed as Exhibit 6.3 to
Amendment of Registration Statement on
Certificate of Form 8-A filed by the
Incorporation, filed Company on July 19, 1985
September 23, 1980. (File No. 1-8059) and
incorporated herein by
reference.
3.4 Certificate of Filed as Exhibit 6.4 to
Amendment of Registration Statement on
Certificate of Form 8-A filed by the
Incorporation, filed Company on July 19, 1985
June 24, 1985. (File No. 1-8059) and
incorporated herein by
reference.
3.5 Certificate of Filed as Exhibit 6.5 to
Amendment of Registration Statement on
Certificate of Form 8-A filed by the
Incorporation, filed Company on July 19, 1985
July 11, 1985. (File No. 1-8059) and
incorporated herein by
reference.
18
<PAGE>
Exhibit
No. Description Begins on Sequential Page No.
------- ----------------------- -----------------------------------
3.6 Certificate of Filed as Exhibit A to
Amendment of registrant's definitive
Certificate of proxy statement, dated May
Incorporation. 8, 1987, with respect to
its Annual Meeting of
Stockholders held June 18,
1987 and incorporated
herein by reference.
3.7 By-Laws.
Filed as Exhibit 3.2 to
registrant's Registration
Statement on Form S-1 filed
on June 23, 1971
(Registration No. 2-40881)
and incorporated herein by
reference.
3.8 Amendment to By-Laws. Filed as Exhibit B to
registrant's definitive
proxy statement, dated May
8, 1987, with respect to
its Annual Meeting of
Stockholders held June 18,
1987 and incorporated
herein by reference.
3.9 Amendment to By-Laws. Filed as Exhibit 3.9 to
registrant's Quarterly
Report on Form 10-Q for the
quarter ended April 30,
1988 (File No. 1-8059) and
incorporated herein by
reference.
4.1 Indenture dated as of Filed as Exhibit 4.1 to
August 1, 1985 between registrant's Annual Report
registrant and on Form 10-K for the fiscal
BankAmerica Trust year ended January 31, 1986
Company of New York, (File No. 1-8059) and
as Trustee, relating incorporated herein by
to the 14% reference.
Subordinated
Debentures due August
1, 2000, including
form of Debenture.
19
<PAGE>
Exhibit
No. Description Begins on Sequential Page No.
------- ----------------------- -----------------------------------
4.7 $35,000,000 reducing Filed as Exhibit 4.7 to
revolving Loan registrant's Quarterly
Agreement between Report on Form 10-Q for the
Leemilt's Petroleum, quarter ended October 31,
Inc. and Bank of New 1987 (File No. 1-8059) and
England, N.A. dated as incorporated herein by
of December 7, 1987 reference.
and related Guaranty
Agreement, dated as of
December 7, 1987, by
and between Getty
Petroleum Corp. and
Bank of New England,
N.A.
4.8 Amended and Restated P
Loan Agreement between
Leemilt's Petroleum,
Inc. and Fleet Bank of
Massachusetts, N.A.,
as successor to Bank
of New England, N.A.,
dated as of October
27, 1995.
10.2(a) Retirement and Profit Filed as Exhibit 10.2(a) to
Sharing Plan (amended registrant's Annual Report
and restated as of on Form 10-K for the fiscal
September 11, 1986). year ended January 31, 1987
(File No. 1-8059) and
incorporated herein by
reference.
10.3 Asset Purchase Filed as Exhibit 2(a) to
Agreement between registrant's Current Report
Power Test Corp. (now on Form 8-K, filed February
known as Getty 19, 1985 (File No. 1-8059)
Petroleum Corp.) and and incorporated herein by
Texaco Inc., Getty Oil reference.
Company, and Getty
Refining and Marketing
Company, dated
December 21, 1984.
10.4 Trademark License Filed as Exhibit 2(b) to
Agreement between registrant's Current Report
Texaco Inc., Getty Oil on Form 8-K, filed February
Company, Texaco 19, 1985 (File No. 1-8059)
Refining and Marketing and incorporated herein by
Inc., and Power Test reference.
Corp. (now known as
Getty Petroleum
Corp.), dated
February 1, 1985.
20
<PAGE>
Exhibit
No. Description Begins on Sequential Page No.
------- ----------------------- -----------------------------------
10.7 Form of Real Property Filed as Exhibit 2(e) to
Leases between Power registrant's Current Report
Test Realty Company on Form 8-K, filed February
Limited Partnership, 19, 1985 (File No. 1-8059)
as Lessor, and Power and incorporated herein by
Test Corp. (now known reference.
as Getty Petroleum
Corp.) (either
directly or indirectly
through a wholly-owned
subsidiary), as
Lessee, each dated
February 1, 1985.
10.16 Registrant's 1985 Filed as Exhibit A to
Stock Option Plan. registrant's definitive
proxy statement, dated May
31, 1985, with respect to
its Annual Meeting of
Stockholders held June 20,
1985 and incorporated
herein by reference.
10.17 Hazardous Waste and Filed as Exhibit 10.17 to
PMPA Indemnification registrant's Annual Report
Agreement dated as of on Form 10-K for the fiscal
December 10, 1986 year ended January 31, 1987
among Getty Petroleum (File No. 1-8059) and
Corp., Power Test incorporated herein by
Realty Company Limited reference.
Partnership and Bank
of New England, N.A.
10.18 Guaranty Agreement Filed as Exhibit 10.18 to
dated as of December registrant's Annual Report
1, 1986 of Getty on Form 10-K for the fiscal
Petroleum Corp. year ended January 31, 1987
regarding distribution (File No. 1-8059) and
terminal leases incorporated herein by
between Power Test reference.
Realty Company Limited
Partnership and Getty
Terminals Corp.
10.19 Form of Filed as Exhibit C to
Indemnification registrant's definitive
Agreement between proxy statement, dated May
Getty Petroleum Corp. 8, 1987, with respect to
and directors. its Annual Meeting of
Stockholders held June 18,
1987 and incorporated
herein by reference.
21
<PAGE>
Exhibit
No. Description Begins on Sequential Page No.
------- ----------------------- -----------------------------------
10.20 Registrant's 1988 Filed as Exhibit A to
Stock Option Plan. registrant's definitive
proxy statement, dated
April 29, 1988, with
respect to its Annual
Meeting of Stockholders
held June 16, 1988 and
incorporated herein by
reference.
10.21 Milton Safenowitz Filed as Exhibit 10.21 to
Employment Agreement registrant's Annual Report
dated February 1, on Form 10-K for the fiscal
1990. year ended January 31, 1990
(File No. 1-8059) and
incorporated herein by
reference.
10.22 Supplemental Filed as Exhibit 10.22 to
Retirement Plan for registrant's Annual Report
Executives of Getty on Form 10-K for the fiscal
Petroleum Corp. and year ended January 31, 1990
Participating (File No. 1-8059) and
Subsidiaries. incorporated herein by
reference.
10.23 Form of Agreement Filed as Exhibit 10.23 to
dated as of December registrant's Annual Report
9, 1994 between the on Form 10-K for the fiscal
Company and its non- year ended January 31, 1995
director officers and (File No. 1-8059) and
certain key employees incorporated herein by
regarding compensation reference.
upon change in Company
control.
10.24 Amendment to Milton Filed as Exhibit 10.24 to
Safenowitz Employment registrant's Annual Report
Agreement dated on Form 10-K for the fiscal
February 1, 1990 (see year ended January 31, 1991
Exhibit 10.21). (File No. 1-8059) and
incorporated herein by
reference.
10.25 Registrant's Amended Filed as Exhibit 4.10 to
and Restated 1991 registrant's Registration
Stock Option Plan. Statement on Form S-8 filed
on June 18, 1993
(Registration No. 33-64746)
and incorporated herein by
reference.
22
<PAGE>
Exhibit
No. Description Begins on Sequential Page No.
------- ----------------------- -----------------------------------
10.26 Petroleum Products Filed as Exhibit 10.26 to
Supply Agreement dated registrant's Quarterly
as of July 1, 1992 by Report on Form 10-Q for the
and between Phibro quarter ended July 31, 1992
Energy USA, Inc. and (File No. 1-8059) and
Getty Petroleum Corp., incorporated herein by
Getty Terminals Corp., reference.
and Aero Oil Company.
10.27 Form of Agreement 31
dated as of March 7,
1996 amending
Agreement dated as of
December 9, 1994
between the Company
and its non-director
officers and certain
key employees
regarding compensation
upon change in Company
control (See Exhibit
10.23).
13 Annual Report to 35
Stockholders for the
fiscal year ended
January 31, 1996.
22 Subsidiaries of the 32
registrant.
24 Consent of Independent 33
Accountants.
27 Financial Data 34
Schedule.
23
<PAGE>
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 Corp.
-----------------------
(Registrant)
By /s/ John J. Fitteron By /s/ Michael K. Hantman
------------------------------- ---------------------------
John J. Fitteron, Michael K. Hantman,
Senior Vice President, Vice President and
Treasurer and Chief Financial Corporate Controller
Officer (Principal Financial (Chief Accounting Officer)
Officer) April 29, 1996
April 29, 1996
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/ Milton Cooper
------------------------------ --------------------------
Leo Liebowitz, President, Milton Cooper,
Chief Executive Officer Director
and Director April 29, 1996
April 29, 1996
By /s/ Herbert Lotman By /s/ Milton Safenowitz
----------------------------- ---------------------------
Herbert Lotman, Milton Safenowitz,
Director Director
April 29, 1996 April 29, 1996
By /s/ Warren G. Winbrub
----------------------------
Warren G. Wintrub,
Director
April 29, 1996
24
<PAGE>
EXHIBIT INDEX
GETTY PETROLEUM CORP.
Annual Report on Form 10-K
for the fiscal year ended January 31, 1996
Exhibit
No. Description Begins on Sequential Page No.
------- ----------------------- -----------------------------------
3.1 Certificate of Filed as Exhibit 3.1 to
Incorporation. registrant's Registration
Statement on Form S-1 filed
on June 23, 1971
(Registration No. 2-40881)
and incorporated herein by
reference.
3.2 Certificate of Filed as Exhibit B to
Amendment of registrant's Annual Report
Certificate of on Form 10-K for the fiscal
Incorporation, filed year ended January 31, 1978
July 22, 1977. (File No. 1-8059) and
incorporated herein by
reference.
3.3 Certificate of Filed as Exhibit 6.3 to
Amendment of Registration Statement on
Certificate of Form 8-A filed by the
Incorporation, filed Company on July 19, 1985
September 23, 1980. (File No. 1-8059) and
incorporated herein by
reference.
3.4 Certificate of Filed as Exhibit 6.4 to
Amendment of Registration Statement on
Certificate of Form 8-A filed by the
Incorporation, filed Company on July 19, 1985
June 24, 1985. (File No. 1-8059) and
incorporated herein by
reference.
3.5 Certificate of Filed as Exhibit 6.5 to
Amendment of Registration Statement on
Certificate of Form 8-A filed by the
Incorporation, filed Company on July 19, 1985
July 11, 1985. (File No. 1-8059) and
incorporated herein by
reference.
<PAGE>
Exhibit
No. Description Begins on Sequential Page No.
------- ----------------------- -----------------------------------
3.6 Certificate of Filed as Exhibit A to
Amendment of registrant's definitive
Certificate of proxy statement, dated May
Incorporation. 8, 1987, with respect to
its Annual Meeting of
Stockholders held June 18,
1987 and incorporated
herein by reference.
3.7 By-Laws. Filed as Exhibit 3.2 to
registrant's Registration
Statement on Form S-1 filed
on June 23, 1971
(Registration No. 2-40881)
and incorporated herein by
reference.
3.8 Amendment to By-Laws. Filed as Exhibit B to
registrant's definitive
proxy statement, dated May
8, 1987, with respect to
its Annual Meeting of
Stockholders held June 18,
1987 and incorporated
herein by reference.
3.9 Amendment to By-Laws. Filed as Exhibit 3.9 to
registrant's Quarterly
Report on Form 10-Q for the
quarter ended April 30,
1988 (File No. 1-8059) and
incorporated herein by
reference.
4.1 Indenture dated as of Filed as Exhibit 4.1 to
August 1, 1985 between registrant's Annual Report
registrant and on Form 10-K for the fiscal
BankAmerica Trust year ended January 31, 1986
Company of New York, (File No. 1-8059) and
as Trustee, relating incorporated herein by
to the 14% reference.
Subordinated
Debentures due August
1, 2000, including
form of Debenture.
<PAGE>
Exhibit
No. Description Begins on Sequential Page No.
------- ----------------------- -----------------------------------
4.7 $35,000,000 reducing Filed as Exhibit 4.7 to
revolving Loan registrant's Quarterly
Agreement between Report on Form 10-Q for the
Leemilt's Petroleum, quarter ended October 31,
Inc. and Bank of New 1987 (File No. 1-8059) and
England, N.A. dated as incorporated herein by
of December 7, 1987 reference.
and related Guaranty
Agreement, dated as of
December 7, 1987, by
and between Getty
Petroleum Corp. and
Bank of New England,
N.A.
4.8 Amended and Restated P
Loan Agreement between
Leemilt's Petroleum,
Inc. and Fleet Bank of
Massachusetts, N.A.,
as successor to Bank
of New England, N.A.,
dated as of October
27, 1995.
10.2(a) Retirement and Profit Filed as Exhibit 10.2(a) to
Sharing Plan (amended registrant's Annual Report
and restated as of on Form 10-K for the fiscal
September 11, 1986). year ended January 31, 1987
(File No. 1-8059) and
incorporated herein by
reference.
10.3 Asset Purchase Filed as Exhibit 2(a) to
Agreement between registrant's Current Report
Power Test Corp. (now on Form 8-K, filed February
known as Getty 19, 1985 (File No. 1-8059)
Petroleum Corp.) and and incorporated herein by
Texaco Inc., Getty Oil reference.
Company, and Getty
Refining and Marketing
Company, dated
December 21, 1984.
10.4 Trademark License Filed as Exhibit 2(b) to
Agreement between registrant's Current Report
Texaco Inc., Getty Oil on Form 8-K, filed February
Company, Texaco 19, 1985 (File No. 1-8059)
Refining and Marketing and incorporated herein by
Inc., and Power Test reference.
Corp. (now known as
Getty Petroleum
Corp.), dated February
1, 1985.
<PAGE>
Exhibit
No. Description Begins on Sequential Page No.
------- ----------------------- -----------------------------------
Form of Real Property Filed as Exhibit 2(e) to
10.7 Leases between Power registrant's Current Report
Test Realty Company on Form 8-K, filed February
Limited Partnership, 19, 1985 (File No. 1-8059)
as Lessor, and Power and incorporated herein by
Test Corp. (now known reference.
as Getty Petroleum
Corp.) (either
directly or indirectly
through a wholly-owned
subsidiary), as
Lessee, each dated
February 1, 1985.
10.16 Registrant's 1985 Filed as Exhibit A to
Stock Option Plan. registrant's definitive
proxy statement, dated May
31, 1985, with respect to
its Annual Meeting of
Stockholders held June 20,
1985 and incorporated
herein by reference.
10.17 Hazardous Waste and Filed as Exhibit 10.17 to
PMPA Indemnification registrant's Annual Report
Agreement dated as of on Form 10-K for the fiscal
December 10, 1986 year ended January 31, 1987
among Getty Petroleum (File No. 1-8059) and
Corp., Power Test incorporated herein by
Realty Company Limited reference.
Partnership and Bank
of New England, N.A.
10.18 Guaranty Agreement Filed as Exhibit 10.18 to
dated as of December registrant's Annual Report
1, 1986 of Getty on Form 10-K for the fiscal
Petroleum Corp. year ended January 31, 1987
regarding distribution (File No. 1-8059) and
terminal leases incorporated herein by
between Power Test reference.
Realty Company Limited
Partnership and Getty
Terminals Corp.
10.19 Form of Filed as Exhibit C to
Indemnification registrant's definitive
Agreement between proxy statement, dated May
Getty Petroleum Corp. 8, 1987, with respect to
and directors. its Annual Meeting of
Stockholders held June 18,
1987 and incorporated
herein by reference.
<PAGE>
Exhibit
No. Description Begins on Sequential Page No.
------- ----------------------- -----------------------------------
10.20 Registrant's 1988 Registrant's 1988 Stock
Stock Option Plan. Option Plan.Filed as
Exhibit A to registrant's
definitive proxy statement,
dated April 29, 1988, with
respect to its Annual
Meeting of Stockholders
held June 16, 1988 and
incorporated herein by
reference.
10.21 Milton Safenowitz Filed as Exhibit 10.21 to
Employment Agreement registrant's Annual Report
dated February 1, on Form 10-K for the fiscal
1990. year ended January 31, 1990
(File No. 1-8059) and
incorporated herein by
reference.
10.22 Supplemental Filed as Exhibit 10.22 to
Retirement Plan for registrant's Annual Report
Executives of Getty on Form 10-K for the fiscal
Petroleum Corp. and year ended January 31, 1990
Participating (File No. 1-8059) and
Subsidiaries. incorporated herein by
reference.
10.23 Form of Agreement Filed as Exhibit 10.23 to
dated as of December registrant's
9, 1994 between the Annual Report on Form 10-K
Company and its non- for the
director officers and fiscal year ended January
certain key employees 31, 1995 (File
regarding compensation No. 1-8059) and
upon change in Company incorporated herein by
control. reference.
10.24 Amendment to Milton Filed as Exhibit 10.24 to
Safenowitz Employment registrant's Annual Report
Agreement dated on Form 10-K for the fiscal
February 1, 1990 (see year ended January 31, 1991
Exhibit 10.21). (File No. 1-8059) and
incorporated herein by
reference.
<PAGE>
Exhibit
No. Description Begins on Sequential Page No.
------- ----------------------- -----------------------------------
10.25 Registrant's Amended Filed as Exhibit 4.10 to
and Restated 1991 registrant's Registration
Stock Option Plan. Statement on Form S-8 filed
on June 18, 1993
(Registration No. 33-64746)
and incorporated herein by
reference.
10.26 Petroleum Products Filed as Exhibit 10.26 to
Supply Agreement dated registrant's Quarterly
as of July 1, 1992 by Report on Form 10-Q for the
and between Phibro quarter ended July 31, 1992
Energy USA, Inc. and (File No. 1-8059) and
Getty Petroleum Corp., incorporated herein by
Getty Terminals Corp., reference.
and Aero Oil Company.
10.27 Form of Agreement 31
dated as of March 7,
1996 amending
Agreement dated as of
December 9, 1994
between the Company
and its non-director
officers and certain
key employees
regarding compensation
upon change in Company
control (See Exhibit
10.23).
13 Annual Report to 35
Stockholders for the
fiscal year ended
January 31, 1996.
22 Subsidiaries of the 32
registrant.
24 Consent of Independent 33
Accountants.
27 Financial Data 34
Schedule.
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Getty Petroleum Corp. and Subsidiaries
Results of Operations
Net sales for the year ended January 31, 1996 were $786.3 million as
compared with $749.4 million in the preceding year. The increase in net
sales was principally due to a 9.5% increase in average selling prices and
a 2% or 15.1 million gallon increase in retail gallonage sold through 6.1%
fewer outlets, partially offset by an 18.6% or 59.5 million gallon decrease
in wholesale gallonage sold, primarily bulk sales. The average gasoline
volume per retail outlet increased by 9%. Gross profit was $38.9 million in
fiscal 1996 compared to $36 million in the prior fiscal year. The increase
in gross profit was principally due to higher product margins, partially
offset by higher environmental expenditures of $2.6 million.
Fiscal 1995 sales amounted to $749.4 million as compared with $772.6
million in fiscal 1994. The decrease in net sales was principally due to a
.5% decrease in average selling prices and a 12.5% or 40.9 million gallon
decrease in wholesale gallonage sold, partially offset by a 2.3% or 16.5
million gallon increase in retail gallonage sold through 7.8% fewer
outlets. Gross profit was $36 million in fiscal 1995, a decrease of $9.7
million from fiscal 1994. The decrease in gross profit was principally due
to lower retail gross margins.
The Company's earnings depend largely on retail marketing margins. The
petroleum marketing industry has been and continues 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 impossible
to predict future margin levels. The Company believes that it has only been
modestly affected by inflation since increased costs are passed along to
its customers to the extent permitted by competition.
Rental income of $34.3 million in fiscal 1996 increased 6.7% over fiscal
1995 rental income of $32.1 million, which increased 7% over the $30
million realized in fiscal 1994. The increase in both periods was due to
escalations provided under existing lease agreements, lease renewals and
for improvements to the facilities.
Other income, net was $6.3 million in fiscal 1996 as compared to $3.6
million in the preceding year which included a pre-tax charge of $2.7
million for severance and other costs associated with restructuring the
Company's organization and its operations in October 1994. The current year
included increased gains on dispositions of assets of $.6 million and
higher investment income of $.6 million, whereas the prior year included $1
million of income from a claim settlement.
Other income, net of $3.6 million in fiscal 1995 decreased $.3 million from
fiscal 1994. Fiscal 1995 included pre-tax charges of $2.7 million as a
result of the October 1994 restructuring which were partially offset by $1
million of income recognized by the Company from a claim settlement, $.6
million of additional investment income and $.5 million of additional gains
on dispositions of assets.
Selling, general and administrative expenses in fiscal 1996 amounted to
$25.6 million, a decrease of $1.7 million from the prior year. The decrease
was principally due to lower expenses as a result of the October 1994
restructuring.
Selling, general and administrative expenses in fiscal 1995 amounted to
$27.3 million, a decrease of $1.5 million from fiscal 1994. The decrease
principally occurred in the fourth quarter of fiscal 1995 as a result of
the October 1994 restructuring.
Interest expense in fiscal 1996 amounted to $9.3 million, a decrease of
$2.1 million from the prior year. The decrease was principally due to
reduced capitalized lease obligations and debt, including the redemption of
the 14% subordinated debentures in fiscal 1995.
Interest expense in fiscal 1995 amounted to $11.4 million, a decrease of
$3.2 million from fiscal 1994. The decrease was principally due to reduced
debt outstanding during fiscal 1995, principally related to the redemption
in May 1994 of the subordinated debentures.
Depreciation and amortization in fiscal 1996 amounted to $23.2 million, an
increase of $1.4 million over the prior year. The current fiscal year
included $.5 million of additional depreciation relating to operating
properties as a result of the adoption of Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of."
13
<PAGE>
Depreciation and amortization was $21.8 million in fiscal 1995, which was
comparable to the amount in fiscal 1994. An increase in depreciation of
$1.2 million in fiscal 1995 from additions to property, plant and equipment
was offset by a decrease of like amount in amortization of deferred
charges.
Extraordinary Item and Accounting Changes
In fiscal 1995, the Company recorded an extraordinary charge of $.8 million
after taxes resulting from the early retirement of the Company's 14%
subordinated debentures. The extraordinary charge consisted of the write-
off of deferred finance costs associated with the debentures and an early
redemption premium paid to holders of the retired debentures.
In fiscal 1996, the Company adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of" and, in addition to the $.5 million charge to depreciation expense for
operating properties, has separately reported the cumulative effect of the
change in accounting principle as a charge to earnings of $.8 million in
the consolidated statement of operations for properties held for disposal.
The Company adopted SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" as of the beginning of fiscal 1995 and has
reported the cumulative effect of this change in accounting principle as a
credit to earnings of $.2 million in the fiscal 1995 consolidated statement
of operations. During the first quarter of fiscal 1994, the Company adopted
SFAS No. 109, "Accounting for Income Taxes" and has reported the cumulative
effect of this change in accounting principle as a credit to earnings of
$.9 million in the fiscal 1994 consolidated statement of operations.
In October 1995, SFAS No. 123, "Accounting for Stock-Based Compensation"
was issued. The Statement, which becomes effective in fiscal 1997, defines
a fair value based method of accounting for employee stock options and
allows companies to continue to measure compensation cost for such options
by using the intrinsic value based method of accounting prescribed in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB No. 25"). The Company plans to continue accounting for its
stock-based employee compensation plans under APB No. 25 and effective with
the January 31, 1997 consolidated financial statements will present, in the
footnotes, pro forma disclosures of net income and earnings per share as if
the fair value method had been applied.
Liquidity and Capital Resources
As of January 31, 1996, working capital amounted to a deficit of $9.6
million as compared to a deficit of $10.7 million as of January 31, 1995.
The improvement in working capital was primarily due to working capital
generated during the year from operations, partially offset by $23.1
million of capital expenditures, including property acquisitions, and the
reduction of $17.8 million in long-term debt and capital lease obligations.
In October 1995, the Company refinanced through November 1, 2000 a mortgage
loan in the amount of $18.3 million which was originally payable through
January 1, 1998. The Company estimates that the refinancing will result in
an interest rate reduction of 13/4% per annum based on current market
rates.
During the third quarter of fiscal 1996, the Company resumed payment of
quarterly cash dividends in the amount $.03 per share. During fiscal 1996,
dividends aggregated $760,000 or $.06 per share.
The Company's principal sources of liquidity are cash flows from
operations, which amounted to $16.7 million during the year ended January
31, 1996, and its short-term unsecured lines of credit. As of January 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 in fiscal
1997 can be met by cash flows from operations, available cash and short-
term investments of $20.9 million as of January 31, 1996 and available
credit lines.
Capital expenditures during the fiscal year ended January 31, 1996 amounted
to $23.1 million, of which $2.7 million related to property acquisitions
and $9.3 million for replacement of underground storage tanks and vapor
recovery facilities at gasoline stations and terminals.
14
<PAGE>
Environmental Matters
The Company is subject to various laws, regulations and contingencies
relating to protection of the environment, including related legal
proceedings and claims which arise in the ordinary course of its business.
With respect to environmental contingencies, the total cost to the Company
cannot be determined with certainty as a result of such factors as the
unknown amount of claims and the timing of clean up efforts at identified
sites, which cost may be partially offset by subsequent recoveries against
certain state underground tank funds. These factors have been assessed
based on management's review of currently known facts and circumstances,
and will continue to be assessed by the Company in estimating the reserves
for environmental matters to be provided in its financial statements.
Although environmental costs may have a significant impact on results of
operations for any single period, the Company believes that such costs will
not have a material adverse effect on the Company's financial position.
Effective January 1, 1995, the Clean Air Act Amendments of 1990 required
that the nine worst ozone non-attainment areas in the U.S. use reformulated
fuels gasoline ("RFG"). These geographic areas include substantially all
of the Company's marketing area. The Company has been able to purchase
sufficient supplies of RFG as well as conventional gasoline under supply
contracts and from other sources.
The federal underground storage tank ("UST") regulations, enacted in 1988,
provide that all non-complying UST's be upgraded or replaced by the end of
1998. Various environmental laws and regulations require the remediation of
discharges or releases of petroleum products from UST's and other sources.
Numerous regulations, including the federal volatile organic compound
("VOC") air emission regulations and the Oil Pollution Act of 1990, affect
the Company's terminals and, in particular, the imperviousness of the
terminals' ground or surface. The Company's terminals are substantially in
compliance with all environmental regulations.
The Company estimates that it may be required to expend approximately $74
million, principally over the next three years, in connection with the UST
regulations. It is anticipated that such environmental expenditures will be
funded from operating cash flow.
As of January 31, 1996 and 1995, the Company had accrued $6.2 million and
$6.9 million, respectively, for environmental matters, principally for
service station site remediations and related legal matters. During the
years ended January 31, 1996, 1995 and 1994, the Company incurred
environmental expense of $14.3 million, $11.8 million and $9.7 million,
respectively, which amounts were net of $1.9 million, $.4 million and $1.1
million, respectively, for recoveries from certain state underground tank
funds.
The Company cannot predict what environmental legislation or regulations
may be enacted in the future or how existing or future laws or regulations
will be administered or interpreted with respect to products or activities
to which they have not previously been applied. Compliance with more
stringent laws or regulations, as well as more vigorous enforcement
policies of the regulatory agencies or stricter interpretation of existing
laws which may develop in the future, could have an adverse effect on the
financial position or operations of the Company and could require
substantial additional expenditures for the installation and operation of
required environmental or pollution control systems and equipment.
Moreover, the Company cannot predict the number or the magnitude of new
discharges or releases from its UST's.
Proposed Spin-off
On March 13, 1996, the Company announced that it intends to spin-off its
petroleum marketing business to its shareholders on a tax-free basis. The
Company would retain its real estate business and lease most of its
properties on a long-term net basis to the new company, which will be
called "Getty Petroleum Marketing Inc." Getty Petroleum Corp. would change
its name to "Getty Realty Corp."
The spin-off is subject to obtaining a favorable tax ruling from the
Internal Revenue Service. The proposed transaction is expected to be
completed later this year. Each shareholder of Getty Petroleum Corp. would
receive a pro rata share of Getty Petroleum Marketing Inc. for each share
of Getty Petroleum Corp. The exchange ratio has not yet been determined.
For additional information regarding the proposed spin-off, see Note 12 to
the consolidated financial statements.
15
<PAGE>
<TABLE>
<CAPTION>
Selected Financial Data
Getty Petroleum Corp. and Subsidiaries
(in thousands except per share amounts)
For the years ended January 31, 1996 1995 1994 1993 1992
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operations:
Revenues $826,901 $785,176 $806,557 $937,086 $1,154,244
======================================================================
Earnings before interest, taxes,
depreciation and amortization 53,969 44,451 50,859 33,200 22,957
======================================================================
Net earnings (loss) 12,634(a) 6,339(b) 10,201(c) (3,703) (12,337)
======================================================================
Net earnings (loss) per share 1.00(a) .50(b) .81(c) (.29) (.98)
======================================================================
Cash dividends per share .06 -- -- .04 .23
======================================================================
Financial Position:
Total assets 261,466 278,957 292,388 293,736 317,539
======================================================================
Working capital (9,623) (10,723) 6,191 2,994 37,044
======================================================================
Long-term debt 19,589 30,849 50,403 58,645 91,941
======================================================================
Capital lease obligations 22,843 29,349 34,177 38,188 41,673
======================================================================
Stockholders' equity $110,574 $ 98,480 $ 92,152 $ 81,759 $ 85,795
======================================================================
(a) Includes charge of $794 or $.06 per share 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."
(b) Includes extraordinary charge of $775 or $.06 per share in connection
with the early retirement of debt and a credit of $183 or $.01 per
share from the cumulative effect of adopting Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities."
(c) Includes credit of $860 or $.07 per share from the cumulative effect of
adopting Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes."
</TABLE>
Common Stock
Getty Petroleum Corp.'s common stock, its only outstanding voting security,
is traded on the New York Stock Exchange (symbol: "GTY"). At April 22,
1996, there were approximately 3,100 holders of record of Getty Petroleum's
common stock. The price range of common stock and cash dividends paid with
respect to each share of common stock during the past two fiscal years were
as follows:
Price Range Cash Dividends
Quarter Ending High Low Per Share
- - ---------------- ---------------------- --------------
January 31, 1996 $15.00 $12.625 $.03
October 31, 1995 14.125 11.375 .03
July 31, 1995 11.875 10.75 --
April 30, 1995 13.125 10.875 --
January 31, 1995 12.00 10.625 --
October 31, 1994 13.25 10.75 --
July 31, 1994 16.125 11.625 --
April 30, 1994 $16.75 $12.375 $ --
16
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
Consolidated Statements of Operations
Getty Petroleum Corp. and Subsidiaries
(in thousands except per share amounts)
Years ended January 31, 1996 1995 1994
- - ----------------------- ------------------------------------
Net sales $786,263 $749,443 $772,610
Rental income 34,315 32,146 30,033
Other income, net 6,323 3,587 3,914
------------------------------------
826,901 785,176 806,557
------------------------------------
Cost of sales 747,328 713,408 726,918
Selling, general and
administrative expenses 25,604 27,317 28,780
------------------------------------
772,932 740,725 755,698
------------------------------------
Earnings before interest, taxes,
depreciation and amortization 53,969 44,451 50,859
Interest expense 9,280 11,372 14,606
Depreciation and amortization 23,167 21,750 21,777
------------------------------------
Earnings before provision for
income taxes, extraordinary
item and cumulative effect of
accounting changes 21,522 11,329 14,476
Provision for income taxes 8,094 4,398 5,135
------------------------------------
Earnings before extraordinary item
and cumulative effect of
accounting changes 13,428 6,931 9,341
Extraordinary item -- (775) --
Cumulative effect of accounting
changes (794) 183 860
------------------------------------
Net earnings $ 12,634 $ 6,339 $ 10,201
=====================================
Per Share Data:
Earnings before extraordinary item
and cumulative effect of
accounting changes $ 1.06 $ .55 $ .74
Extraordinary item -- (.06) --
Cumulative effect of accounting
changes (.06) .01 .07
------------------------------------
Net earnings per share $ 1.00 $ .50 $ .81
=====================================
Weighted average shares outstanding 12,648 12,639 12,622
=====================================
See accompanying notes.
17
<PAGE>
Consolidated Balance Sheets
Getty Petroleum Corp. and Subsidiaries
(in thousands)
January 31, 1996 1995
- - ---------------------------------------------------------------------------
Assets:
Current Assets:
Cash and cash equivalents $ 19,808 $ 41,576
Short-term investments 1,059 415
Accounts receivable, less allowance for
doubtful accounts of $1,409 in 1996
and $1,509 in 1995 15,327 18,338
Inventories 21,214 11,117
Deferred income taxes 5,880 6,004
Prepaid expenses and other current assets 3,388 3,536
----------------------
Total current assets 66,676 80,986
Property, plant and equipment, at cost, less
accumulated depreciation and amortization 184,559 188,527
Other assets 10,231 9,444
----------------------
Total assets $261,466 $278,957
======================
Liabilities and Stockholders' Equity:
Current Liabilities:
Current portion of long-term debt and capital
lease obligations $ 9,154 $ 11,118
Accounts payable 26,856 39,326
Accrued expenses 26,195 32,570
Gasoline taxes payable 13,919 8,318
Income taxes payable 175 377
----------------------
Total current liabilities 76,299 91,709
Long-term debt 19,589 30,849
Obligations under capital leases 22,843 29,349
Deferred income taxes 16,977 14,120
Other, principally deposits 15,184 14,450
Commitments and contingencies (Notes 3 and 5)
Stockholders' equity 110,574 98,480
----------------------
Total liabilities and stockholders' equity $261,466 $278,957
======================
See accompanying notes.
18
<PAGE>
Consolidated Statements of Cash Flows
Getty Petroleum Corp. and Subsidiaries
(in thousands)
For the years ended January 31, 1996 1995 1994
- - -------------------------------------------------------------------------------
Cash Flows from Operating Activities:
Net earnings $ 12,634 $ 6,339 $ 10,201
Adjustments to Reconcile Net Earnings
to Net Cash Provided by
Operating Activities:
Extraordinary item, before tax -- 1,232 --
Cumulative effect of accounting changes 794 (183) (860)
Depreciation and amortization 23,167 21,750 21,777
Deferred income taxes 2,954 (1,553) 418
Gain on dispositions of property, plant
and equipment (1,910) (1,294) (788)
Gain on investments -- -- (465)
Sale (purchase) of trading securities -- 7,860 (7,269)
Changes in Assets and Liabilities:
Accounts receivable 3,011 2,904 3,200
Inventories (10,097) (1,100) (218)
Prepaid expenses and other current assets 33 (107) 7,471
Other assets (1,063) (123) (63)
Accounts payable, accrued expenses and
gasoline taxes payable (13,825) 6,424 (5,795)
Income taxes payable 277 (1,994) 2,371
Other, principally deposits 734 1,191 875
----------------------------------
Net cash provided by operating
activities 16,709 41,346 30,855
----------------------------------
Cash Flows from Investing Activities:
Capital expenditures (20,316) (21,343) (19,495)
Property acquisitions (2,734) (1,466) (920)
Proceeds from dispositions of property,
plant and equipment 3,491 4,296 3,513
----------------------------------
Net cash used in investing activities (19,559) (18,513) (16,902)
----------------------------------
Cash Flows from Financing Activities:
Long-term borrowings -- 10,550 845
Repayment of long-term debt (13,901) (29,406) (7,989)
Payments under capital lease obligations (4,441) (4,285) (3,351)
Premium paid on early retirement of debt -- (607) --
Treasury stock and stock options, net 184 157 192
Cash dividends (760) -- --
----------------------------------
Net cash used in financing activities (18,918) (23,591) (10,303)
----------------------------------
Net increase (decrease) in cash and
cash equivalents (21,768) (758) 3,650
Cash and cash equivalents at beginning
of year 41,576 42,334 38,684
----------------------------------
Cash and cash equivalents at end of year $ 19,808 $ 41,576 $ 42,334
=================================
Supplemental disclosures of cash flow
information
Cash Paid (Received) During the Year for:
Interest $ 9,031 $ 11,955 $ 14,141
Income taxes, net 5,087 8,088 (4,327)
See accompanying notes.
19
<PAGE>
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Consolidation: The consolidated financial statements include the accounts
of Getty Petroleum Corp. and its wholly-owned subsidiaries (the "Company").
The Company is principally engaged in the marketing and distribution of
petroleum products and the management of related real estate 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 amounts could differ from those
estimates.
Cash and Cash Equivalents: The Company considers highly liquid investments
purchased with an original maturity of three months or less to be cash
equivalents.
Inventories: Inventories, primarily finished petroleum products, are
principally accounted for under the lower of last-in, first-out ("LIFO")
cost or market. Net product exchange positions with other companies are
reflected in inventory.
The Company may take positions in the futures market as part of its product
purchasing strategy in order to reduce the risk associated with price
fluctuations. The gains and losses on futures contracts are included as a
part of product costs.
Property, Plant and Equipment: Expenditures for renewals and betterments
are capitalized; maintenance and repairs are charged to operations when
incurred. When fixed assets are sold or retired, the cost and related
accumulated depreciation and amortization are eliminated from the
respective accounts and any gain or loss is credited or charged to income.
Depreciation and Amortization: Depreciation of fixed assets is computed on
the straight-line method based upon the estimated useful lives of the
assets. Assets recorded under capital leases (including land) and leasehold
improvements are amortized on the straight-line method over the shorter of
the term of the lease or the useful life of the related asset.
Environmental Costs: The estimated future costs for known environmental
remediation requirements are accrued when it is probable that a liability
has been incurred and the amount of remediation costs can be reasonably
estimated.
Income Taxes: Deferred incomes 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: Earnings per share is computed by dividing net earnings
by the weighted average number of shares of common stock outstanding during
the year. Common stock equivalents are not included in earnings per share
computations since their effect is immaterial.
Accounting Changes: In fiscal 1996, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of" and has reported the cumulative effect of the change in accounting
principle as an after-tax charge to earnings of $794,000 in the
consolidated statement of operations relating to properties held for
disposal. In addition, the Company recorded a pre-tax charge of $524,000
relating to operating properties which is included in depreciation expense.
As of the beginning of fiscal 1995, the Company adopted SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" and
reported the cumulative effect of the change in accounting principle as a
credit to earnings of $183,000 in the fiscal 1995 consolidated statement of
operations.
20
<PAGE>
During the first quarter of fiscal 1994, the Company adopted SFAS No. 109,
"Accounting for Income Taxes" and reported the cumulative effect of the
change in accounting principle as a credit to earnings of $860,000 in the
fiscal 1994 consolidated statement of operations.
2. Inventories
As of January 31, 1996, 1995 and 1994, the carrying value of the Company's
LIFO inventories approximated the first-in, first-out ("FIFO") method or
replacement cost.
3. Leases
In 1985, Power Test Investors Limited Partnership (the "Partnership"), a
publicly traded real estate limited partnership, purchased from Texaco
certain Getty Oil Company properties and equipment which, in turn, have
been leased on a long-term basis to the Company. For financial statement
purposes, such leases have been recorded as capital leases.
The Partnership is managed by the General Partner, which is CLS General
Partnership Corp. The Directors and shareholders of CLS General Partnership
Corp. are also Directors and principal shareholders of the Company. During
the years ended January 31, 1996, 1995 and 1994, the Company billed the
Partnership and reflected in other income $648,000, $624,000 and $600,000,
respectively, for administrative and other services rendered to the
Partnership.
Future minimum annual rentals under capital leases as of January 31, 1996,
payable to the Partnership, are as follows:
(in thousands)
Years ending January 31,
- - ------------------------------------------------------
1997......................................... $ 9,997
1998......................................... 9,997
1999......................................... 9,997
2000......................................... 9,997
-------
39,988
Less, amount representing interest........... 11,944
-------
Present value of minimum lease payments
(including $5,201 due within one year)..... $28,044
=======
In addition, the Company has obligations to other lessors under
noncancelable operating leases which have terms in excess of one year,
principally for gasoline stations. Substantially all of these leases
contain renewal options and escalation clauses. Future minimum annual
rentals under such leases are as follows:
(in thousands)
Years ending January 31,
- - -------------------------------------------------------
1997........................................ $13,819
1998........................................ 12,557
1999........................................ 10,763
2000........................................ 8,830
2001........................................ 7,110
Thereafter.................................. 26,716
-------
$79,795
=======
Rent expense, substantially all of which is included in cost of sales,
amounted to $15,572,000, $15,838,000 and $16,955,000 for the years ended
January 31, 1996, 1995 and 1994, respectively. Such rent expense
21
<PAGE>
consists of minimum rentals on noncancelable operating leases referred to
above and short-term rentals of terminal facilities and other equipment.
Rental income from fee owned and leased properties aggregated $34,315,000,
$32,146,000 and $30,033,000 for the years ended January 31, 1996, 1995 and
1994, respectively, which included $22,809,000, $21,800,000 and $20,308,000
of rent received under subleases. The net book value of fee owned
properties leased to lessees was $84,107,000 at January 31, 1996.
Leased gasoline stations, which have been subleased to lessees, have
sublease rentals generally not less than the rentals paid by the Company.
No significant difficulty has been experienced in subleasing station
properties.
4. Property, Plant and Equipment
Property, plant and equipment consists of the following:
(in thousands)
Depreciable
1996 1995 Life (Years)
- - ------------------------------------------------------------------------------
Land................................. $ 41,144 $ 42,289
Buildings............................ 59,271 56,198 16
Equipment............................ 157,298 142,439 10 to 16
Motor vehicles....................... 4,501 6,194 3 to 10
Furniture and fixtures............... 1,566 1,537 10
Leasehold improvements............... 33,809 32,263 See Note 1
Assets recorded under capital leases. 52,647 54,752 See Note 1
-------- ---------
350,236 335,672
Less, accumulated depreciation
and amortization 165,677 147,145
-------- ---------
$184,559 $188,527
======== =========
Property, plant and equipment includes the following assets recorded under
capital leases with the Partnership:
(in thousands)
1996 1995
- - ------------------------------------------------------------
Land................................. $26,016 $27,265
Buildings............................ 17,471 18,006
Equipment............................ 8,253 8,574
Motor vehicles....................... 907 907
--------------------
52,647 54,752
Less, accumulated amortization....... 41,324 39,978
--------------------
$11,323 $14,774
====================
As of January 31, 1996, the net book value of properties held for disposal
amounted to $7,322,000.
5. Commitments and Contingencies
The Company is subject to various laws, regulations and contingencies relating
to protection of the environment, and to other contingencies, including legal
proceedings and claims which arise in the ordinary course of its business.
With respect to environmental contingencies, the total cost to the Company
cannot be determined with certainty as a result of such factors as the unknown
amount of claims and the timing of clean up efforts at identified sites, which
cost may be partially offset by subsequent recoveries against certain state
underground tank funds. These factors have been assessed based on management's
review of currently known facts and circumstances, and will continue to be
assessed by the Company in estimating the reserves
22
<PAGE>
for environmental matters to be provided in its financial statements. As of
January 31, 1996 and 1995, the Company had accrued $6,207,000 and
$6,941,000, respectively, for environmental matters, principally for
service station site remediations and related legal matters. During the
years ended January 31, 1996, 1995 and 1994, the Company incurred
environmental expense of $14,346,000, $11,769,000 and $9,673,000,
respectively, which amounts were net of $1,943,000, $398,000 and
$1,090,000, respectively, for recoveries from certain state underground
tanks funds. Although environmental costs may have a significant impact on
results of operations for any single period, the Company believes that such
costs will not have a material adverse effect on the Company's financial
position.
Getty Terminals Corp. ("Getty Terminals"), a wholly-owned subsidiary of the
Company, has received notices of proposed license revocations from the New
York State Department of Taxation and Finance ("Department") for Getty
Terminals' operating permits for its three New York State terminals and its
motor fuels and diesel distributor licenses. The notices of proposed
revocation are based on Getty Terminals' 1990 federal conviction for
conspiracy to evade 1985 federal gasoline excise taxes and for non-payment
of such taxes. The Department contends that Getty Terminals' federal tax
conviction affects its "duties and obligations" under Sections 283 and 283-
b of the New York Tax Law ("Tax Law"). Getty has paid all New York State
taxes which were due and owing and has fully performed all of its duties
and obligations under the Tax Law. Management of the Company believes that
the ultimate resolution of this matter will have no material adverse effect
on the Company's financial position or future business.
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.
6. Debt
Long-term debt consists of:
(in thousands)
1996 1995
- - ---------------------------------------------------------------------------
Mortgage loan due through November 1, 2000.... $17,626 $20,145
Bank term loan due through June 30, 1999...... -- 8,500
Real estate mortgages, bearing interest at a
weighted average interest rate of 7.9%,
due in varying amounts through May 1, 2019.. 5,190 6,117
Other......................................... 726 2,681
---------------------------
23,542 37,443
Less, current portion......................... 3,953 6,594
---------------------------
Noncurrent portion............................ $19,589 $30,849
===========================
Aggregate principal payments in subsequent fiscal years relating to long-
term debt are as follows (in thousands): 1997--$3,953; 1998--$4,138; 1999--
$3,734; 2000--$3,299; 2001--$7,037 and $1,381 thereafter.
In October 1995, the Company refinanced through November 1, 2000 a mortgage
loan which was originally payable through January 1, 1998. The amended and
restated loan agreement provides for interest at LIBOR plus 1.0% to 1.625%
per annum, depending on the Company's Funded Debt Ratio, as defined. As of
January 31, 1996, the interest rate was LIBOR plus 1.25% or 6.94%.
Principal payments are $218,000 per month through October 1, 2000 with the
balance of $4,990,000 due on November 1, 2000.
The bank term loan due through June 30, 1999 was fully repaid in December
1995.
23
<PAGE>
In May 1994, the Company redeemed all of its outstanding 14% subordinated
debentures due August 1, 2000 at a call price of 102.8%. The Company
recorded an extraordinary charge of $1,232,000 ($775,000 after taxes)
resulting from the redemption. The extraordinary charge consists of the
write-off of deferred finance costs associated with the debentures and a
redemption premium paid to holders of the retired debentures.
Certain long-term debt is collateralized by property, plant and equipment
having an aggregate net book value of approximately $49,075,000 at January
31, 1996.
As of January 31, 1996, the Company had unsecured lines of credit
aggregating $60,000,000, of which $8,398,000 was utilized in the form of
outstanding letters of credit.
7. Income Taxes
The provision for income taxes is summarized as follows:
(in thousands)
1996 1995 1994
- - --------------------------------------------------------------------------
Federal:
Current............................ $4,044 $1,698 $3,305
Deferred........................... 3,079 1,903 746
State and local:
Current............................ 732 836 1,025
Deferred........................... 239 (39) 59
----------------------------------
Provision for income taxes........... $8,094 $4,398 $5,135
==================================
The tax effects of temporary differences which comprise the deferred tax
assets and liabilities are as follows:
(in thousands)
1996 1995
- - --------------------------------------------------------------------------
Property, plant and equipment.................... $(13,102) $(10,599)
Accruals......................................... 1,467 1,468
Inventories...................................... 694 588
Tax credits...................................... -- 557
Investments...................................... 95 121
Other............................................ (251) (251)
-----------------------
Net deferred tax liabilities $(11,097) $ (8,116)
=======================
The following is a reconciliation of the expected statutory federal income
tax provision and the actual provision for income taxes:
(in thousands)
1996 1995 1994
- - --------------------------------------------------------------------------
Expected provision at statutory
federal income tax rate.............. $7,533 $3,965 $5,067
State and local income taxes,
net of federal benefit............... 631 518 705
Utilization of capital loss
carryforward......................... -- -- (1,026)
Other................................. (70) (85) 389
----------------------------------
Provision for income taxes............ $8,094 $4,398 $5,135
==================================
24
<PAGE>
8. Stockholders' Equity
A summary of the changes in stockholders' equity for the three years ended
January 31, 1996 is as follows:
<TABLE>
<CAPTION>
Net
Treasury Stock, Unrealized
Capital Stock(a) Retained at cost Gain (Loss)
(in thousands except -------------------- Paid-in Earnings ----------------- on Equity
per share amounts) Shares Amount Capital (Deficit) Shares Amount Securities Total
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance February 1, 1993....... 13,530 $1,353 $119,808 $(24,933) 917 $14,469 $ -- $ 81,759
Net income..................... 10,201 10,201
Purchase of treasury stock..... 2 21 (21)
Issuance of treasury stock..... (38) (7) (105) 67
Stock options exercised........ 13 1 145 146
- - -----------------------------------------------------------------------------------------------------------------------------------
Balance, January 31, 1994...... 13,543 1,354 119,915 (14,732) 912 14,385 -- 92,152
Net income..................... 6,339 6,339
Cumulative effect of
accounting change............ (183) (183)
Net unrealized gain
on equity securities......... 15 15
Purchase of treasury stock..... 2 23 (23)
Issuance of treasury stock..... (44) (13) (205) 161
Stock options exercised........ 2 19 19
- - -----------------------------------------------------------------------------------------------------------------------------------
Balance, January 31, 1995...... 13,545 1,354 119,890 (8,393) 901 14,203 (168) 98,480
Net income..................... 12,634 12,634
Cash dividends--
$.06 per share............... (760) (760)
Net unrealized gain
on equity securities......... 36 36
Purchase of treasury stock..... 7 (7)
Issuance of treasury stock..... (17) (7) (120) 103
Stock options exercised........ 8 1 87 88
- - -----------------------------------------------------------------------------------------------------------------------------------
Balance, January 31, 1996...... 13,553 $1,355 $119,960 $ 3,481(b) 894 $14,090 $(132) $110,574
===================================================================================================================================
(a) Capital stock consists of preferred stock, par value $1.00 per share;
authorized 10,000 shares for issuance in series (none of which is
issued) and common stock, par value $.10 per share; authorized 30,000
shares.
(b) Net of $103,803 transferred from retained earnings to common stock and
paid-in capital as a result of accumulated stock dividends.
</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, a participating executive may receive an amount
equal to 10% of his compensation, reduced by the amount of any
contributions allocated to such executive under the Retirement Plan. Net
Company contributions under the plans approximated $650,000, $694,000 and
$719,000 for the years ended January 31, 1996, 1995 and 1994, respectively.
25
<PAGE>
The Company has Stock Option Plans which authorize 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 1985, 1988 and 1991 Plans shall not exceed
281,420 shares, 303,876 shares and 500,000 shares, respectively, subject to
further adjustment for stock dividends and stock splits. Each plan provides
that options are exercisable starting one year from the date of grant, on a
cumulative basis at the annual rate of 25 percent of the total number of
shares covered by the option.
Changes in stock options for the three years ended January 31, 1996 are as
follows:
<TABLE>
<CAPTION>
1985 Plan 1988 Plan 1991 Plan
---------------------- ------------------------- -------------------------
Number Option Number Option Number Option
of Price per of Price per of Price per
Shares Share Shares Share Shares Share
- - ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at February 1, 1993.... 207,159 $10.49-14.09 256,523 $11.12-18.62 214,275 $10.88-12.38
Granted............................ 80,000 12.25-13.13
Exercised.......................... (9,833) 10.49 (2,500) 11.12 (1,250) 12.38
Cancelled.......................... (8,052) 10.49-14.09 (15,014) 11.12-18.62 (12,325) 10.88-12.38
- - ------------------------------------------------------------------------------------------------------------------------
Outstanding at January 31, 1994.... 189,274 10.49-14.09 239,009 11.12-18.62 280,700 10.88-13.13
Granted............................ 107,250 10.88
Exercised.......................... (1,245) 10.49-14.09 (250) 11.12 (125) 10.88
Cancelled.......................... (1,217) 14.09 (926) 17.12-18.62 (1,250) 10.88
- - ------------------------------------------------------------------------------------------------------------------------
Outstanding at January 31, 1995.... 186,812 10.49-14.09 237,833 11.12-18.62 386,575 10.88-13.13
Granted............................ 64,500 13.88 63,500 13.88
Exercised.......................... (2,500) 11.12 (5,500) 10.88
Cancelled.......................... (991) 10.49-14.09 (1,551) 11.12-18.62 (1,250) 10.88-12.38
- - ------------------------------------------------------------------------------------------------------------------------
Outstanding at January 31, 1996.... 185,821 $10.49-14.09 298,282 $11.12-18.62 443,325 $10.88-13.88
========================================================================================================================
Exercisable at January 31, 1996.... 185,821 $10.49-14.09 233,782 $11.12-18.62 230,903 $10.88-13.13
========================================================================================================================
Available for grant at
January 31, 1996................ -- 207 49,800
========================================================================================================================
</TABLE>
10. Quarterly Financial Data
The following is a summary of the quarterly results of operations for the
years ended January 31, 1996 and 1995 (unaudited as to quarterly
information):
<TABLE>
<CAPTION>
(in thousands except per share amounts)
Three months ended Year ended
------------------------------------------------------ ------------
Fiscal 1996 April 30 July 31 October 31 January 31 January 31
- - ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues.......................... $205,072 $194,788 $222,298 $204,743 $826,901
Gross profit...................... 6,779 8,767 10,843 12,546 38,935
Earnings before income taxes and
cumulative effect of
accounting change............... 2,740 4,127 6,570 8,085 21,522
Net earnings...................... 862(a) 2,511 4,039 5,222 12,634(a)
Net earnings per share............ $ .07(a) $ .20 $ .32 $ .41 $ 1.00(a)
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
(in thousands except per share amounts)
Three months ended Year ended
------------------------------------------------------ ------------
Fiscal 1996 April 30 July 31 October 31 January 31 January 31
- - ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues......................... $179,460 $189,377 $202,915 $213,424 $785,176
Gross profit 8,053 (147) 12,641 15,488 36,035
Earnings (loss) before income
taxes, extraordinary item and
cumulative effect of...........
accounting change.............. 1,693 (5,389) 4,711 10,314 11,329
Net earnings (loss).............. 1,171(b) (4,166)(c) 3,014 6,320 6,339(b)(c)
Net earnings (loss) per share.... $ .09(b) $ (.33)(c) $ .24 $ .50 $ .50(b)(c)
(a) First quarter restated and fiscal year includes charge to earnings of
$794 or $.06 per share to reflect 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."
(b) Includes credit to earnings of $183 or $.01 per share from the
cumulative effect of adopting Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities."
(c)Includes extraordinary charge to earnings of $775 or $.06 per share in
connection with the early retirement of debt.
</TABLE>
11. Restructuring
During fiscal 1995, pre-tax charges of $2,668,000 were recorded to provide
for severance and other costs associated with restructuring the Company's
organization and its operations. The restructuring charges included
$1,924,000 for severance and related benefits resulting from a 6% reduction
in the work force, and $744,000 for other costs. The charges are included
in other income, net in the fiscal 1995 consolidated statement of
operations. The Company's consolidated balance sheets as of January 31,
1996 and 1995 included an accrual of $377,000 and $1,343,000, respectively,
relating to the restructuring.
12. Proposed Spin-off
On March 13, 1996, the Company announced that it intends to spin-off its
petroleum marketing business to its shareholders on a tax-free basis. The
Company would retain its real estate business and lease most of its
properties on a long-term net basis to the new company, which will be
called "Getty Petroleum Marketing Inc." Getty Petroleum Corp. would change
its name to "Getty Realty Corp."
The spin-off is subject to obtaining a favorable tax ruling from the
Internal Revenue Service. The proposed transaction is expected to be
completed later this year. Each shareholder of Getty Petroleum Corp. would
receive a pro rata share of Getty Petroleum Marketing Inc. for each share
of Getty Petroleum Corp. The exchange ratio has not yet been determined.
The assets to be transferred to Getty Petroleum Marketing Inc. include the
Company's petroleum marketing equipment, supply contracts and related
working capital. Getty Realty Corp. would retain the Company's fee and
leased properties, including service stations and supply terminals,
substantially all of which would be leased or subleased to Getty Petroleum
Marketing Inc. Getty Realty Corp. would also retain the Company's heating
oil business located in central Pennsylvania and Maryland.
Most of Getty's officers would become officers of Getty Petroleum Marketing
Inc., which would provide administrative support for Getty Realty Corp. for
an interim period. Getty Petroleum Marketing Inc. intends to create a
leveraged Employee Stock Ownership Plan which would result in approximately
5% of Getty Petroleum Marketing's stock being transferred to its employees
over a period of time.
27
<PAGE>
Fiscal 1996 pro forma unaudited historical financial data of the two
businesses, assuming rent paid by Getty Petroleum Marketing Inc. to Getty
Realty Corp. was $55,521,000 and the transaction had occurred on February
1, 1995, are as follows:
(in thousands)
Getty Petroleum
Marketing Inc. Getty Realty Corp.
- - ---------------------------------------------------------------------------
(Unaudited)
Revenues.......................... $790,621 $91,801
Earnings before interest, taxes,
depreciation and amortization... 18,999 34,970
Net earnings...................... 3,382 9,252
Net assets........................ $ 58,527 $52,047
The pro forma financial information is presented for informational purposes
only and is not necessarily indicative of the financial results that would
have occurred had the spin-off been consummated as of the beginning of
fiscal 1996, nor are they necessarily indicative of future results.
Report of Independent Accountants
To the Board of Directors
and Stockholders of Getty Petroleum Corp.:
We have audited the accompanying consolidated balance sheets of GETTY
PETROLEUM CORP. and SUBSIDIARIES as of January 31, 1996 and 1995, and the
related consolidated statements of operations and cash flows for each of
the three years in the period ended January 31, 1996. 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Getty
Petroleum Corp. and Subsidiaries as of January 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of
the three years in the period ended January 31, 1996, in conformity with
generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the
Company changed its method of accounting for the impairment of long-lived
assets in fiscal 1996, its method of accounting for certain investments in
debt and equity securities in fiscal 1995 and its method of accounting for
income taxes in fiscal 1994.
COOPERS & LYBRAND L.L.P.
New York, New York
March 14, 1996
28
<PAGE>
EXHIBIT 10.27
March 7, 1996
Getty Petroleum Corp.
125 Jericho Turnpike
Jericho, New York 11753
Dear :
With reference to the Letter Agreement dated December 9, 1994 (the
"Agreement") between you and Getty Petroleum Corp. ("Getty"), Getty and you
hereby agree that the Agreement shall be amended as follows:
The term "substantial structural change" shall be amended to also
include a "spin-off", dividend, transfer or lease of assets or other form
of distribution to the shareholders of Getty or to one or more third-
parties or both (a "Transferee"), which Change involved a substantial
portion of Getty's marketing or real estate business or assets;
accordingly, all of the obligations of Getty to you set forth in the
Agreement shall come into effect as of the effective date of said
transaction and continue for the three-year period set forth therein.
In consideration of the foregoing, you agree that Getty may require
that, in lieu of you performing services solely for Getty, you may be
required to perform services for both Getty and Transferee or solely for
the Transferee, in which latter event your compensation and other benefits
would be provided pursuant to the Agreement by Transferee in lieu of Getty.
Getty also agrees that, even though you may no longer be an officer of
Getty, all Getty stock option grants held by you shall immediately vest,
you shall have three years from the effective date of the Change described
above to exercise your options, and Getty will cause the stock option
grants and plans to be amended accordingly to reflect the Change described
above, including adjustments to preserve the economic value of such options
and, if appropriate, allocate such value between options of Getty and/or
options of Transferee in an equitable manner.
In the event that you become an officer or employee of Transferee and
Transferee fails to perform any of the obligations to you set forth in the
Agreement, Getty agrees that it will perform all such obligations which
Transferee did not perform.
The agreement, as amended herein, is hereby approved and ratified and
remains in full force and effect.
Very truly yours,
GETTY PETROLEUM CORP.
LEO LIEBOWITZ
President and Chief Executive Officer
Accepted And Agreed To This
_________ Date Of March, 1996.
__________________________
Exhibit 22. Subsidiaries of the Registrant.
- - --------------------------------------------
STATE OF
SUBSIDIARY INCORPORATION
---------- --------------
AERO OIL COMPANY Pennsylvania
DONNA OIL CORP. New York
GASWAY INC. New York
GETTYMART INC. Delaware
GETTY TERMINALS CORP. New York
KINGSTON OIL SUPPLY CORP. New York
LEEMILT'S FLATBUSH AVENUE, INC. New York
LEEMILT'S PETROLEUM, INC. New York
PT PETRO CORP. New York
RECO PETROLEUM, INC. Pennsylvania
SLATTERY GROUP INC. New Jersey
ENERGY RESOURCE & RECOVERY CORPORATION New York
GT GROUP INC. New York
HSCO GROUP, INC. New York
EXHIBIT 24
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements
of Getty Petroleum Corp. on Form S-8 (Registration Nos. 33-22653 and 33-
64746) of our report dated March 14, 1996 on our audits of the consolidated
financial statements and financial statement schedule of Getty Petroleum
Corp. and Subsidiaries as of January 31, 1996 and 1995 and for each of the
three years in the period ended January 31, 1996 which report has been
incorporated by reference in this Annual Report on Form 10-K from the 1996
Annual Report to Stockholders of Getty Petroleum Corp. and Subsidiaries.
Coopers & Lybrand L.L.P.
New York, New York
March 14, 1996.
<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 JANUARY 31, 1996 AND FOR THE YEAR THEN ENDED AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-END> JAN-31-1996
<CASH> 19,808
<SECURITIES> 1,059
<RECEIVABLES> 16,736
<ALLOWANCES> 1,409
<INVENTORY> 21,214
<CURRENT-ASSETS> 66,676
<PP&E> 350,236
<DEPRECIATION> 165,677
<TOTAL-ASSETS> 261,466
<CURRENT-LIABILITIES> 76,299
<BONDS> 42,432
<COMMON> 1,355
0
0
<OTHER-SE> 109,219
<TOTAL-LIABILITY-AND-EQUITY> 261,466
<SALES> 786,263
<TOTAL-REVENUES> 826,901
<CGS> 747,328
<TOTAL-COSTS> 770,495
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 550
<INTEREST-EXPENSE> 9,280
<INCOME-PRETAX> 21,522
<INCOME-TAX> 8,094
<INCOME-CONTINUING> 13,428
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (794)
<NET-INCOME> 12,634
<EPS-PRIMARY> 1.00
<EPS-DILUTED> 1.00
