<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
For quarter ended APRIL 30, 1997 Commission file number 1-8059
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GETTY REALTY CORP.
------------------
(Exact name of registrant as specified in its charter)
DELAWARE 11-2232705
- - ------------------------------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
125 JERICHO TURNPIKE, JERICHO, NEW YORK 11753
- - ---------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(516) 338 - 2600
----------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Registrant has 12,923,070 shares of Common Stock, par value $.10 per share,
outstanding as of April 30, 1997.
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<PAGE> 2
GETTY REALTY CORP.
INDEX
Part I. FINANCIAL INFORMATION Page Number
- - ------------------------------ -----------
Item 1. Financial Statements
Consolidated Balance Sheets as of April 30, 1997 and
January 31, 1997 1
Consolidated Statements of Operations for the three months ended
April 30, 1997 and 1996 2
Consolidated Statements of Cash Flows for the three months ended
April 30, 1997 and 1996 3
Notes to Consolidated Financial Statements 4 - 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8 - 10
Part II. OTHER INFORMATION
- - ---------------------------
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 11
<PAGE> 3
GETTY REALTY CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------
April 30, January 31,
- - ------------------------------------------------------------------------------------------------------------
Assets: 1997 1997
- - ------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
Real Estate:
Land $40,646 $40,647
Buildings 59,125 59,229
Equipment 17,933 16,180
Leasehold improvements 31,674 31,703
Assets recorded under
capital leases 51,233 51,233
-------- --------
200,611 198,992
Less, accumulated depreciation
and amortization 103,180 101,058
-------- --------
Real estate, net 97,431 97,934
Cash and equivalents 8,486 11,385
Accounts receivable, net 2,645 2,731
Mortgages receivable 6,562 6,602
Recoveries from state
underground storage tank funds 15,421 16,217
Deferred income taxes 22,929 18,485
Prepaid expenses and other assets 3,969 4,010
Assets of Getty Petroleum
Marketing Inc. - 135,500
-------- --------
Total assets $157,443 $292,864
======== ========
- - ------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity:
- - ------------------------------------------------------------------------------------------------------------
Mortgages payable $17,928 $18,882
Obligations under capital leases 21,261 22,710
Accounts payable and accrued expenses 24,306 22,281
Environmental remediation costs 43,265 46,134
Income taxes payable - 1,426
Liabilities of Getty Petroleum Marketing Inc. - 80,959
Stockholders' equity:
Preferred stock, par value $1.00 per share; authorized
10,000,000 shares for issuance in series (none of which is issued) - -
Common stock, par value $.10 per share; authorized
30,000,000 shares; issued 13,806,486 at April 30, 1997
and 13,582,394 at January 31, 1997 1,381 1,358
Paid-in capital 67,615 120,293
Retained deficit (4,391) (7,215)
Treasury stock, at cost (883,416 shares at April 30, 1997
and 885,893 shares at January 31, 1997) (13,922) (13,964)
-------- --------
Total stockholders' equity 50,683 100,472
-------- --------
Total liabilities and stockholders' equity $157,443 $292,864
======== ========
</TABLE>
See accompanying notes.
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<PAGE> 4
GETTY REALTY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------
Three months ended April 30,
- - ----------------------------------------------------------------------------------------------
1997 1996
- - ----------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues:
Revenues from rental property $14,946 $8,981
Net sales of petroleum products 8,381 204,284
Other income 454 703
--------------------------
23,781 213,968
Equity in earnings of Getty Petroleum Marketing Inc. 2,931 -
--------------------------
26,712 213,968
--------------------------
Cost of sales (excluding depreciation and amortization) 7,399 191,171
Rental property expenses 3,310 5,337
Environmental and maintenance expenses 1,240 4,453
Selling, general and administrative expenses 3,344 6,337
Change of control charge 2,166 -
Litigation charge - 7,458
Depreciation and amortization 2,387 5,669
Interest expense 1,380 1,855
--------------------------
21,226 222,280
--------------------------
Earnings (loss) before provision (credit) for
income taxes 5,486 (8,312)
Provision (credit) for income taxes 2,279 (3,147)
--------------------------
Net earnings (loss) $3,207 ($5,165)
==========================
Per Share Data:
Net earnings (loss) per share $0.25 ($0.41)
==========================
Weighted average shares outstanding 12,765 12,668
==========================
</TABLE>
See accompanying notes.
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<PAGE> 5
GETTY REALTY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three months ended
April 30,
------------------------------------
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $3,207 ($5,165)
Adjustments to reconcile net earnings (loss) to
net cash provided by (used in) operating activities:
Depreciation and amortization 2,387 5,669
Deferred income taxes (4,444) (635)
Gain on dispositions of real estate (1) (204)
Equity in net earnings of Getty Petroleum Marketing Inc. (1,731) -
Changes in assets and liabilities:
Accounts receivable 86 372
Mortgages receivable 40 -
Recoveries from state underground storage tank funds 796 -
Prepaid expenses and other assets 24 (1,098)
Accounts payable and accrued expenses 2,025 13,080
Environmental remediation costs (2,869) -
Income taxes payable (1,426) (175)
------------------------------------
Net cash provided by (used in) operating activities (1,906) 11,844
------------------------------------
Cash flows from investing activities:
Capital expenditures (2,138) (4,290)
Proceeds from dispositions of real estate 272 522
------------------------------------
Net cash used in investing activities (1,866) (3,768)
------------------------------------
Cash flows from financing activities:
Mortgage borrowings 165 -
Repayment of mortgages payable (1,119) (1,121)
Payments under capital lease obligations (1,449) (1,307)
Cash dividends (383) (380)
Treasury stock and stock options, net 3,659 210
------------------------------------
Net cash provided by (used in) financing activities 873 (2,598)
------------------------------------
Net increase (decrease) in cash and equivalents (2,899) 5,478
Cash and equivalents at beginning of period 11,385 19,808
------------------------------------
Cash and equivalents at end of period $8,486 $25,286
====================================
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $1,379 $1,860
Income taxes, net 2,425 1,099
</TABLE>
See accompanying notes.
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<PAGE> 6
GETTY REALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. General:
The accompanying consolidated financial statements include the accounts of
Getty Realty Corp., known prior to March 31, 1997 as Getty Petroleum Corp., and
its wholly-owned subsidiaries (the "Company") (See Note 2). The consolidated
financial statements have been prepared in conformity with generally accepted
accounting principles and include amounts that are based on management's best
estimates and judgments. While all available information has been considered,
actual amounts could differ from those estimates. The consolidated financial
statements are unaudited but, in the opinion of management, reflect all
adjustments (consisting of normal recurring accruals) necessary for a fair
presentation. These statements should be read in conjunction with the
consolidated financial statements and related notes which appear in the
Company's Annual Report on Form 10-K for the fiscal year ended January 31,
1997.
Certain reclassifications have been made in the financial statements as of
January 31, 1997 and for the quarter ended April 30, 1996, to conform to the
April 30, 1997 presentation.
2. Spin-off:
On March 21, 1997, the Company effected the spin-off of Getty Petroleum
Marketing Inc. ("Marketing") to its stockholders. Stockholders of record of
the Company on March 21, 1997 received a tax-free dividend of one share of
Marketing common stock for each share of common stock of the Company.
Prior to the spin-off, the Company transferred to Marketing the assets and
liabilities of the petroleum marketing business and the New York Mid-Hudson
Valley home heating oil business previously conducted by a subsidiary of the
Company. The Company has retained its fee and leased properties, including
service stations and supply terminals, substantially all of which are leased or
subleased to Marketing on a long-term net basis. The Company also has retained
the Pennsylvania and Maryland home heating oil business.
The consolidated statement of operations of the Company for the three
months ended April 30, 1997 include the financial results of the Marketing
business for the period from February 1, 1997 to March 21, 1997. The Marketing
business contributed $2.9 million of the Company's pre-tax income for the
quarter ended April 30, 1997 ($1.7 million after-tax) which amount is included
in the consolidated statement of operations under the caption "Equity in
earnings of Getty Petroleum Marketing Inc." The financial results of the
Marketing business for the quarter ended April 30, 1996 amounted to a pre-tax
loss of $5.7 million ($3.3 million after-tax) and such results are included in
the consolidated statement of operations for that period.
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The financial results of the real estate and retained heating oil
businesses for the quarters ended April 30, 1997 and 1996 are set forth below.
The following financial information does not include the financial results of
Marketing and is presented for informational purposes only and is not
necessarily indicative of the financial results that would have occurred had
the real estate and heating oil businesses been operated as separate,
stand-alone entities during such periods, nor are they necessarily indicative
of future results.
<TABLE>
<CAPTION>
Quarter ended April 30, 1997 Quarter ended April 30, 1996
---------------------------- ----------------------------
Real Heating Real Heating
Estate Oil Total Estate Oil Total
------ ------- ----- ------ ------- -----
<S> <C> <C> <C> <C> <C> <C>
Revenues from rental property $14,819 $127 $14,946 $14,538 $64 $14,602
Net sales of petroleum products - 8,381 8,381 - 9,011 9,011
Other income 427 27 454 619 19 638
--------------------------------------------------------------
15,246 8,535 23,781 15,157 9,094 24,251
--------------------------------------------------------------
Cost of sales (excluding
depreciation and amortization) - 7,399 7,399 - 8,038 8,038
Rental property expenses 3,263 47 3,310 3,174 9 3,183
Environmental and maintenance
expenses 1,240 - 1,240 2,733 - 2,733
Selling, general and
administrative expenses 2,828 516 3,344 886 528 1,414
Change of control charge 2,166 - 2,166 - - -
Litigation charge - - - 7,458 - 7,458
Depreciation and amortization 2,260 127 2,387 2,220 118 2,338
Interest expense 1,380 - 1,380 1,721 - 1,721
--------------------------------------------------------------
13,137 8,089 21,266 18,192 8,693 26,885
--------------------------------------------------------------
Earnings (loss) before provision
(credit) for income taxes 2,109 446 2,555 (3,035) 401 (2,634)
Provision (credit) for
income taxes 891 188 1,079 (932) 174 (758)
--------------------------------------------------------------
Net earnings (loss) $1,218 $258 $1,476 $(2,103) $227 $(1,876)
==============================================================
</TABLE>
3. Earnings (loss) per share:
Earnings (loss) per share is computed by dividing net earnings (loss) by
the weighted average number of shares of common stock outstanding during the
period. Common stock equivalents are not included in earnings (loss) per share
computations since their effect is immaterial.
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<PAGE> 8
4. Stockholders' equity:
A summary of the changes in stockholders' equity for the three months
ended April 30, 1997 is as follows (in thousands):
<TABLE>
<CAPTION>
Retained Treasury
Common Paid-in Earnings Stock,
Stock Capital (Deficit) at cost Total
- - ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance,
January 31, 1997 $1,358 $120,293 ($7,215) ($13,964) $100,472
Distribution to
Marketing (56,272) (56,272)
Net earnings 3,207 3,207
Cash dividends (383) (383)
Purchase of
treasury stock (3) (3)
Issuance of
treasury stock (1) 45 44
Stock options 23 3,595 3,618
------------------------------------------------
Balance,
April 30, 1997 $1,381 $67,615 ($4,391) ($13,922) $50,683
================================================
</TABLE>
5. Litigation charge:
In May 1996, a federal judge in the U.S. District Court for the Eastern
District of New York entered a judgment in the amount of $8.4 million, plus
interest, in favor of Morrison-Knudsen Company, Inc. against the Company's
former construction company subsidiary, Slattery Associates, Inc., which was
sold in 1989.
The case arose out of a joint venture between Slattery Associates and
Morrison-Knudsen which was established to reconstruct a portion of an
expressway in Philadelphia in 1986. The judgment represents Slattery's share
of joint venture construction costs which the Court held Slattery owed.
Slattery had contended that Morrison-Knudsen had mismanaged the project and had
failed to disclose material facts. Slattery also had contended that certain
costs were improperly charged to the joint venture.
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<PAGE> 9
During the quarter ended April 30, 1996, the Company recorded a pre-tax
charge of $7.5 million ($4.7 million after-tax or $.37 per share) in addition
to a previously established reserve of $3.6 million for this matter. The
pre-tax charge is included under the caption "Litigation charge" in the April
30, 1996 consolidated statement of operations. During the quarter ended
October 31, 1996, the Company reversed into income $1.8 million of this charge
as a result of the settlement of this matter.
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<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
General
The accompanying consolidated financial statements include the accounts of
Getty Realty Corp., known prior to March 31, 1997 as Getty Petroleum Corp., and
its wholly-owned subsidiaries (the "Company").
Spin-off
On March 21, 1997, the Company effected the spin-off of its petroleum
marketing business to its stockholders. The Company retained its real estate
business and leases most of its properties on a long-term net basis to the
distributed company, which is named Getty Petroleum Marketing Inc.
("Marketing"). The Company also retained the Pennsylvania and Maryland home
heating oil business. Stockholders of record of the Company on March 21, 1997
received a tax-free dividend of one share of Marketing common stock for each
share of common stock of the Company.
The consolidated statement of operations of the Company for the three
months ended April 30, 1997 include the financial results of the Marketing
business for the period from February 1, 1997 to March 21, 1997. The Marketing
business contributed $2.9 million of the Company's pre-tax income for the
quarter ended April 30, 1997 ($1.7 million after-tax) which is included in the
consolidated statement of operations under the caption "Equity in earnings of
Getty Petroleum Marketing Inc." The financial results of the Marketing
business for the quarter ended April 30, 1996 amounted to a pre-tax loss of
$5.7 million ($3.3 million after-tax). For additional information regarding
the spin-off, see Note 2 to the consolidated financial statements.
Results of Operations
Revenues from rental property for the quarter ended April 30, 1997
principally represent rental income from Marketing ($14.3 million) with the
remainder from other lessees and sublessees. Revenues from rental property for
the quarter ended April 30, 1996 principally represented rental income from
Marketing's dealers prior to the spin-off.
Net sales for the first fiscal quarter ended April 30, 1997 were $8.4
million, all of which were attributable to the Company's retained heating oil
business (most of which revenues occur in the first and fourth fiscal
quarters), as compared with $204.3 million during the same quarter last year,
which were attributable to the heating oil business and Marketing's business.
After excluding $195.3 million of net sales of the Marketing business for the
quarter ended April 30, 1996, the prior year's quarterly net sales for the
retained heating oil business amounted to $9.0 million. The decrease in net
sales of $.6 million was principally due to a decrease in heating oil gallonage
sold during the quarter ended April 30, 1997, due to warmer weather, in
comparison to the quarter ended April 30, 1996. Gross profit for the retained
heating oil business was $1.0 million for each of the quarters ended April 30,
1997 and 1996. Lower gallonage sales were offset by higher margins during the
current period.
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<PAGE> 11
Other income was $.5 million for the three months ended April 30, 1997 as
compared with $.7 million for the quarter ended April 30, 1996. After
excluding $.1 million of other income of Marketing for the quarter ended April
30, 1996, other income amounted to $.6 million. The decrease in other income
of $.1 million was principally due to $.2 million of lower investment income
and $.1 million of lower gains on dispositions of assets offset by $.2 million
of expenses incurred in the quarter ended April 30, 1996 related to the
spin-off.
Rental property expenses, which are comprised of rent expense and real
estate taxes, were $3.3 millon for the quarter ended April 30, 1997 as compared
with $5.3 million for the quarter ended April 30, 1996. After excluding $2.1
million of real estate taxes payable by Marketing during the quarter ended
April 30, 1996, rental property expenses increased $.1 million or approximately
4.0% over the prior year's comparable quarter.
Environmental and maintenance expenses for the quarter ended April 30,
1997 were $1.2 million as compared with $4.5 million for the quarter ended
April 30, 1996. After excluding $1.8 million of Marketing expenses for the
quarter ended April 30, 1996 (principally maintenance), the decrease in
environmental and maintenance expense during the current quarterly period
amounted to $1.5 million, which is principally due to a revision to the
Company's estimate of future remediation costs. As of April 30, 1997, the
Company had an accrual of $43.3 million representing management's best estimate
for future environmental remediation costs and had recorded $15.4 million as
management's best estimate for recoveries from state underground storage tank
remediation funds. Such accruals are reviewed on a regular basis and any
revisions thereto will be reflected in the Company's financial statements as
they become known.
Selling, general and administrative expenses for the quarter ended April
30, 1997 amounted to $3.3 million as compared with $6.3 million for the quarter
ended April 30, 1996. After excluding $4.9 million of selling, general and
administrative expenses of Marketing for the quarter ended April 30, 1996,
selling, general and administrative expenses increased by $1.9 million
primarily due to $1.8 million of expense relating to stock options resulting
from appreciation of the Company's stock price.
The Company recorded a change of control charge for the quarter ended
April 30, 1997 of $2.2 million relating to certain "change of control"
agreements.
The Company recorded a litigation charge of $7.5 million during the
quarter ended April 30, 1996 related to a judgment against Slattery Associates,
Inc., a former construction company subsidiary, which the Company sold in 1989.
During the quarter ended October 31, 1996, the Company reversed into income
$1.8 million of this charge as a result of the settlement of this matter.
Depreciation and amortization was $2.4 million for the quarter ended April
30, 1997 as compared with $5.7 million for the quarter ended April 30, 1996.
After excluding $3.4 million of depreciation and amortization of Marketing for
the quarter ended April 30, 1996, depreciation and amortization increased by
$.1 million over the prior quarterly period as a result of additions to
property and equipment.
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<PAGE> 12
Interest expense for the three months ended April 30, 1997 amounted to
$1.4 million as compared with $1.9 million for the quarter ended April 30,
1996. After excluding $.2 million of interest expense of Marketing for the
quarter ended April 30, 1996, the decrease in interest expense of $.3 million
was principally due to reduced capitalized lease obligations and debt
outstanding during the quarter ended April 30, 1997.
Liquidity and Capital Resources
The Company's principal sources of liquidity are cash flows from
operations and its short-term unsecured lines of credit. Management believes
that cash requirements for operations, capital expenditures and debt service
can be met by cash flows from operations, available cash and equivalents and
its credit lines. As of April 30, 1997, such lines of credit amounted to $15
million, of which $7.6 million was utilized in connection with outstanding
letters of credit. Borrowings under such lines of credit are unsecured and
bear interest at the prime rate or, at the Company's option, 1.1% above LIBOR.
Such uncommitted lines of credit are subject to renewal at the discretion of
the banks. Although it is expected that the existing sources of liquidity
will be sufficient to meet its expected operating and debt service
requirements, the Company may be required to obtain additional sources of
capital in the future to fund certain of its capital expenditures and property
acquisitions, which capital sources it believes are available.
During the quarters ended April 30, 1997 and 1996, respectively, the
Company paid a quarterly cash dividend in the amount of $.03 per share.
The Company's capital expenditures for the quarter ended April 30, 1997
amounted to $2.1 million, which included $1.6 million for the replacement of
underground storage tanks and vapor recovery facilities at gasoline stations
and terminals. Expenditures with respect to tank replacements required to meet
1998 federal environmental standards and certain environmental liabilities and
obligations continue to be the responsibility of the Company after the
spin-off.
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<PAGE> 13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Designation of Exhibit
in this Quarterly Report
on Form 10-Q Description of Exhibit
------------ ----------------------
27 Financial Data Schedule
(b) Reports filed on Form 8-K:
Registrant filed a Current Report on Form 8-K dated March 13, 1997
reporting under Item 5, Other Events, that the Company had set a
record date of March 21, 1997 for the spin-off of its petroleum
marketing assets and business to its stockholders. The Company also
announced in the Form 8-K filing that it had revised its estimate
of future environmental remediation costs and that in connection
therewith it had recorded a $21.2 million pre-tax charge in the
fiscal fourth quarter ended January 31, 1997.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GETTY REALTY CORP.
------------------
(Registrant)
Dated: June 12, 1997 BY: /s/ John J. Fitteron
-----------------------
(Signature)
JOHN J. FITTERON
Senior Vice President, Treasurer
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
Dated: June 12, 1997 BY: /s/ Leo Liebowitz
-----------------------
(Signature)
LEO LIEBOWITZ
President (Chief Executive
Officer)
-11-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF GETTY REALTY CORP. AND SUBSIDIARIES AS OF
APRIL 30, 1997 AND FOR THE THREE MONTHS THEN ENDED AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> APR-30-1997
<CASH> 8,846
<SECURITIES> 0
<RECEIVABLES> 2,843
<ALLOWANCES> 198
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 200,611
<DEPRECIATION> 103,180
<TOTAL-ASSETS> 157,443
<CURRENT-LIABILITIES> 0
<BONDS> 39,189
0
0
<COMMON> 1,381
<OTHER-SE> 49,302
<TOTAL-LIABILITY-AND-EQUITY> 157,443
<SALES> 8,381
<TOTAL-REVENUES> 23,781
<CGS> 7,399
<TOTAL-COSTS> 14,336
<OTHER-EXPENSES> 2,166
<LOSS-PROVISION> 7
<INTEREST-EXPENSE> 1,380
<INCOME-PRETAX> 5,486
<INCOME-TAX> 2,279
<INCOME-CONTINUING> 3,207
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,207
<EPS-PRIMARY> .25
<EPS-DILUTED> .25
</TABLE>
