<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 1996 Commission File Number 33-88526
GRIFFITH CONSUMERS COMPANY
CARL KING, INC.
FREDERICK TERMINALS, INC.
(Exact name of registrant as specified in their charter)
DELAWARE 52-1887726
DELAWARE 04-2941998
MARYLAND 52-1863759
(State or other jurisdiction of (I.R.S. Employer No.)
incorporation or organization)
Griffith Consumers Company Carl King, Inc.
Frederick Terminals, Inc. 109 South Main Street
2510 Schuster Drive Camden, Delaware 19934
Cheverly, Maryland 20781 (302) 697-3251
(301) 322-3111
(Address, including zip code, and telephone number, including
area code, of registrants' principal executive offices)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
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 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. X YES NO
--- ---
As of November 15, 1996, the Issuers had the following number of shares of
common stock outstanding:
Griffith Consumers Company: 1,000 shares
Carl King, Inc. : 1,000 shares
Frederick Terminals, Inc. : 500 shares
<PAGE>
Griffith Consumers Company and Subsidiaries
September 30, 1996
Index
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
A. Consolidated Balance Sheets
September 30, 1996 and June 30, 1996 3 - 4
B. Consolidated Statements of Operations
Three months ended
September 30, 1996 and 1995 5
C. Consolidated Statements of Changes in
Shareholders' Equity 6
D. Consolidated Statements of Cash Flows
Three months ended September 30, 1996
and 1995 7
E. Notes to Consolidated Financial
Statements 8 - 15
Item 2. Management's Discussion and Analysis 16 - 20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 2. Changes in Securities 21
Item 3. Defaults upon Senior Securities 21
Item 4. Submission of Matters to a Vote of
Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
Signatures 22
2
<PAGE>
GRIFFITH CONSUMERS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, JUNE 30,
ASSETS: 1996 1996
- ----------------------------------- ------------- ------------
CURRENT ASSETS
CASH $ 4,110,336 $ 1,687,443
ACCOUNTS AND NOTES RECEIVABLE,
LESS ALLOWANCE FOR BAD DEBTS 9,838,088 11,813,211
PETROLEUM PRODUCTS INVENTORY 2,166,367 1,228,347
REPAIR PARTS AND SUPPLIES INVENTORY 3,202,857 1,662,048
PREPAID EXPENSES AND OTHER 1,837,298 1,320,055
REFUNDABLE INCOME TAXES 1,202,602 -----
------------- ------------
TOTAL CURRENT ASSETS 22,357,548 17,711,104
PROPERTY, PLANT AND EQUIPMENT
- -----------------------------------
LAND 5,612,870 5,533,870
BUILDINGS 3,343,624 1,844,358
MACHINERY AND EQUIPMENT 20,416,335 16,152,930
------------- ------------
29,372,829 23,531,158
LESS: ALLOWANCE FOR DEPRECIATION 7,223,954 6,019,263
------------- ------------
22,148,875 17,511,895
INTANGIBLES - NOTE C
- ----------------------------------
CUSTOMER AND SERVICE ACCOUNTS 39,443,186 37,063,186
COVENANTS NOT TO COMPETE 3,036,824 2,936,824
GOODWILL 48,132,867 39,000,867
OTHER INTANGIBLES 836,344 836,344
-------------- ------------
91,449,221 79,837,221
LESS: ALLOWANCE FOR AMORTIZATION 13,155,490 11,304,362
-------------- ------------
78,293,731 68,532,859
LONG-TERM NOTES RECEIVABLE 977,171 1,054,816
DEFERRED DEBT COSTS & OTHER 4,662,882 3,759,756
-------------- ------------
TOTAL ASSETS $ 128,440,207 $ 108,570,430
-------------- ------------
-------------- ------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
GRIFFITH CONSUMERS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, JUNE 30,
LIABILITIES AND SHAREHOLDER'S EQUITY: 1996 1996
- ----------------------------------- --------------- ---------------
CURRENT LIABILITIES:
ACCOUNTS PAYABLE $ 9,234,080 $ 7,581,065
ACCRUED EXPENSES 4,519,551 3,560,374
DEFERRED REVENUE 3,879,451 2,471,880
INCOME TAXES PAYABLE ----- 73,103
OTHER TAXES PAYABLE 1,143,835 198,517
CURRENT PORTION OF LONG-TERM DEBT-
NOTE F 4,735,893 4,240,893
--------------- ---------------
TOTAL CURRENT LIABILITIES 23,512,810 18,125,832
LONG-TERM DEBT, LESS CURRENT PORTION-
NOTE F 82,925,662 65,350,995
DEFERRED INCOME TAXES 7,591,519 7,993,849
POST-RETIREMENT EMPLOYEE BENEFITS
AND OTHER 1,541,330 1,541,330
--------------- ---------------
TOTAL LIABILITIES 115,571,321 93,012,006
SHAREHOLDER'S EQUITY
- -----------------------------------
COMMON STOCK, par value $.01 per
share, 100 shares, authorized,
issued and outstanding 1 1
ADDITIONAL PAID-IN CAPITAL 20,691,323 20,691,323
RETAINED DEFICIT (7,822,438) (5,132,900)
--------------- ---------------
TOTAL SHAREHOLDER'S EQUITY 12,868,886 15,558,424
TOTAL LIABILITIES AND --------------- ---------------
SHAREHOLDER'S EQUITY $ 128,440,207 $ 108,570,430
--------------- ---------------
--------------- ---------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE>
GRIFFITH CONSUMERS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
--------------- ---------------
JUL 1, 1996 - JUL 1, 1995 -
SEP 30, 1996 SEP 30, 1995
--------------- ---------------
SALES FROM PETROLEUM PRODUCTS $ 48,003,377 $ 32,870,615
SERVICE, EQUIPMENT, ANDOTHER SALES 12,538,157 5,288,917
--------------- ---------------
TOTAL SALES 60,541,534 38,159,532
COST OF SALES 49,997,807 31,332,884
--------------- ---------------
GROSS PROFIT 10,543,727 6,826,648
SELLING, GENERAL, AND ADMINISTRATIVE
EXPENSES 9,368,457 6,326,081
DEPRECIATION EXPENSE 1,292,282 1,009,883
AMORTIZATION EXPENSE 1,942,484 1,757,335
--------------- ---------------
OPERATING LOSS (2,059,496) (2,266,651)
INTEREST EXPENSE 2,588,448 2,340,488
OTHER INCOME 444,915 191,341
--------------- ---------------
LOSS BEFORE INCOME TAX (4,203,029) (4,415,798)
INCOME TAX BENEFIT (1,513,491) (1,692,005)
--------------- ---------------
NET LOSS $ (2,689,538) $ (2,723,793)
--------------- ---------------
--------------- ---------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE>
GRIFFITH CONSUMERS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
Additional Retained Total
Common Paid-In Earnings Shareholder's
PREDECESSOR Shares Stock Capital (Deficit) Equity
----------- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
BALANCE JUNE 30, 1994 2,355,000 23,550 2,849,407 4,962,499 7,835,456
Issuance Of Stock 5,000 50 24,950 - 25,000
Net Loss - - - (1,583,247) (1,583,247)
----------- -------- ----------- ------------ -------------
BALANCE DECEMBER 15, 1994 2,360,000 23,600 2,874,357 3,379,252 6,277,209
Stock Redemption (2,360,000) (23,600) (2,874,357) (3,379,252) (6,277,209)
----------- -------- ----------- ------------ -------------
----------- -------- ----------- ------------ -------------
BALANCE DECEMBER 16, 1994 - - - - -
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
SUCCESSOR
Capital Contributions from Parent 100 1 20,691,323 - 20,691,324
Net Loss - - - (1,467,768) (1,467,768)
----------- -------- ----------- ------------ -------------
BALANCE JUNE 30, 1995 100 1 20,691,323 (1,467,768) 19,223,556
Net Loss - - - (3,665,132) (3,665,132)
----------- -------- ----------- ------------ -------------
BALANCE JUNE 30, 1996 100 1 20,691,323 (5,132,900) 15,558,424
Net Loss - - - (2,689,538) (2,689,538)
BALANCE SEPTEMBER 30, 1996 100 1 20,691,323 (7,822,438) 12,868,886
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6
<PAGE>
GRIFFITH CONSUMERS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
------------------ -------------------
JULY 1, 1996 JULY 1, 1995
THROUGH THROUGH
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
------------------- -------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (2,689,538) $ (2,723,793)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation 1,292,282 1,009,883
Amortization 1,942,484 1,757,335
Provision for bad debts 63,514 63,000
Amortization of bond discount 45,527 45,526
Gain on sale of property, plant, equipment, and
intangibles (77,577) (12,183)
Changes in operating assets and liabilities
Net of effects of change in working capital:
Accounts and notes receivable 1,989,253 (92,016)
Inventory (2,478,829) (69,661)
Prepaid expenses and other (303,243) 39,057
Refundable Income taxes, net (1,275,705) (588,333)
Other assets 839,519 (466,769)
Accounts payable 1,653,015 1,635,279
Accrued expenses 959,177 1,216,686
Deferred revenue 1,407,571 1,175,047
Other liabilities 542,988 (389,459)
------------------ ------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,910,438 2,599,599
INVESTING ACTIVITIES
Purchases of property, plant, and equipment (318,844) (376,078)
Purchases of intangible assets ---- (6,236)
Proceeds from sale of property, plant, and equipment,
and intangible assets 275,659 105,832
Acquisition of business:
Property, Plant, and equipment (5,808,500) ----
Intangibles (11,610,000) ----
Acquisition costs (2,050,000) ----
------------------ ------------------
Net cash used in investing activities (19,511,685) (276,482)
FINANCING ACTIVITIES
Payment of from line of credit (2,600,000) ----
Proceeds from term loans 21,850,000 ----
Payments on long-term debt (1,225,860) (2,081,809)
------------------ ------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 18,024,140 (2,081,809)
------------------ ------------------
INCREASE IN CASH 2,422,893 241,308
Cash at beginning of period 1,687,443 803,085
------------------ ------------------
Cash at end of period $ 4,110,336 $ 1,044,393
------------------ ------------------
------------------ ------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7
<PAGE>
Griffith Consumers Company And Subsidiaries
September 30, 1996
Notes to Consolidated Financial Statements
Note A--Introduction
On December 15, 1994, the transaction contemplated by the merger agreement
("Merger Agreement") dated August 26, 1994 between Griffith Consumers Company
("Griffith", and together with its consolidated subsidiaries, the "Company")
and Griffith Holdings, Inc. ("GHI"), a corporation previously unrelated to the
Company, closed, whereby GHI acquired all of Griffith's 2,360,000 outstanding
shares of common stock (the "Common Stock") for $23.00 cash per share.
Pursuant to the Merger Agreement, ABC Acquisition Corp. ("ABC"), a wholly
owned subsidiary of GHI, merged with and into Griffith, and each share of
Griffith's common stock was converted into the right to receive $23.00 in cash
(the "1994 Acquisition"). As a result of the 1994 Acquisition, Griffith
became a wholly owned subsidiary of GHI.
The 1994 Acquisition has been accounted for under the purchase method of
accounting as of December 16, 1994. Accordingly, GHI has allocated its total
purchase cost of approximately $54,280,000 to the assets and liabilities of
the Company based upon the fair value of these assets and liabilities. The
fair values assigned on the December 16, 1994 balance sheet were adjusted
when valuation studies were completed.
On July 11, 1996, the Company acquired certain assets used in the operations
of a chain of convenience stores and retail gasoline stations within the
states of Maryland, Delaware, and Virginia under the "Shore Stop" trade name
and a dealer petroleum sales business at two facilities located in Virginia
and Maryland (the "Shore Stop Acquisition") from Regent Investments, Inc.,
Delaware Investments, Inc., and Mid-Atlantic Investments, Inc., each a
Virginia corporation (collectively, the "Sellers"). The Company intends to
continue using the acquired assets as convenience stores and a dealer
petroleum sales business, respectively. The Company paid the Sellers
$17,000,000 (plus the purchase price of certain inventory), subject to
certain adjustments, of which $1,500,000 was in the form of a promissory note
(the "Regent Note") secured by first priority mortgages or deeds of trust on
certain stores and assumed $350,000 of debt. The acquisition was financed
through an amendment and restatement of the Company's then existing credit
agreement. See Note F - Debt.
Note B--Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting
8
<PAGE>
principles ("GAAP") for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by GAAP for
complete financial statements. In the opinion of management, all adjustments
considered necessary for the fair presentation of the consolidated financial
statements have been included and are of a normal and recurring nature.
Operating results for the three months ended September 30, 1996 do not
necessarily indicate the results that may be expected for the fiscal year
ending June 30, 1997. For further information with respect to the effect of
seasonality on the Company's financial results, please refer to the financial
statements and footnotes included in the Company's Form 10-K for the year
ended June 30, 1996.
Note C--Significant Accounting Policies
INTANGIBLE ASSETS: Customer and service accounts obtained through acquisitions
are amortized over their estimated useful lives of eight years. Other
intangibles are amortized over periods not exceeding ten years. Covenants
not to compete are amortized over the period stated in the agreements.
Goodwill was amortized over a period of fifteen years for the Company before
the Acquisition (the "Predecessor") and is amortized over a thirty year period
for the Company after the Acquisition (the "Successor"). All intangible
assets are amortized using the straight-line method. The Company evaluates
the potential impairment of intangibles and other longlived assets by
comparing the related discounted cash flow from operations to the net book
value of such assets. Any impairment would be the excess of net book value
over discounted future cash flow from operations. For these purposes, the
related cash flow is the earnings before taxes, depreciation, amortization,
and interest attributable to the intangibles and other long-lived assets whose
impairment is being assessed.
DEBT ISSUANCE COSTS: The costs associated with the issuance of debt are
amortized utilizing the effective interest method over the term of the
underlying debt instrument. The terms of the Company's existing debt,
incurred in 1994 and 1996, range from six to ten years.
INCOME TAXES: Deferred income taxes are provided for the temporary
differences between the financial statements and the tax basis of assets and
liabilities, except for goodwill which is not deductible for tax purposes.
Deferred income taxes relate primarily to depreciation associated with
property, plant, and equipment, allowances for bad debts and various accruals
of salaries and related benefits.
9
<PAGE>
Note D-- 1996 Acquisitions -- Allocation of Purchase Price
In addition to the Shore Stop Acquisition, the Company acquired certain
assets of a retail heating oil company . This acquisition and the Shore Stop
Acquisition were both accounted for as purchase transactions and, therefore,
the financial statements include the results of operations of the acquired
assets from their acquisition dates. The cost of the acquisitions consummated
during the three months ended September 30, 1996 were allocated as follows:
Three Months Ended
September 30,
----------------------------------
1996 1995
----------------------------------
Land $ 170,000 ----
Fixed assets 5,638,500
Customer and service accounts 2,430,000 ----
Covenants not to compete 200,000 ----
Goodwill 8,980,000 ----
----------- -----------
$17,418,500 $ ----
----------- -----------
----------- -----------
Number of Acquisitions 2 0
Note E -- Shore Stop Acquisition -- Unaudited Pro Forma
The following condensed presentation of unaudited pro forma information
was prepared to illustrate the estimated effects ofthe Shore Stop Acquisition
on the Company with the assumption that the the Shore Stop Acquisition
occurred at July 1, 1995:
Unaudited
Three Months Ended
September 30,
------------------------
1996 1995
------------------------
Total Sales $ 63,411 $ 63,022
Net Loss (2,686) (1,032)
10
<PAGE>
Note F -- Debt
In connection with the 1994 Acquisition, the Company retired the
Predecessor's existing operating line of credit and primary bank term loan
and negotiated a new term loan and operating line of credit with the
Company's primary bank lender (the "Prior Credit Agreement"). Mortgage notes
(the "Mortgage Notes") on several properties located in Delaware, Maryland
and West Virginia were assumed by the Successor. As of July 8, 1996, in
connection with funding of the Shore Stop Acquisition, The Company amended
and restated the Prior Credit Agreement (as amended and restated, the "Credit
Agreement" )to increase the amount of term loan borrowings outstanding
thereunder from $34,450,000 to $54,450,000 and the amount of revolving credit
facility borrowings available from $12,000,000 to $13,000,000. Borrowings
under the Credit Agreement are secured by a first lien on substantially all
the assets of the Company, except those properties located in Delaware,
Maryland and West Virginia securing the Mortgage Notes and those properties
located in Delaware, Maryland, and Virginia securing the Regent Note.
Borrowings under the Credit Agreement are subordinated to the Mortgage Notes
or Regent Note on these properties. During fiscal year 1996, the Company has
paid $1,150,000 of interest and $1,184,000 of principal on the term loan
under the Credit Agreement.
The Credit Agreement contains various provisions regarding events of default
and restrictive covenants, including, among others, restrictions on new liens
and indebtedness, restrictions on the sale of assets, restrictions on mergers
and consolidations, and a prohibition on the payment of dividends. In
addition, at the end of each quarter and/or fiscal year-end, the Company is
required to maintain a certain cumulative cash flow coverage ratio, minimum
tangible net worth, minimum working capital, specified maximum ratio of
funded debt to earnings before interest, taxes, depreciation and amortization
("EBITDA") and debt service coverage ratio.
In addition to the Credit Agreement, the Company financed the 1994
Acquisition with $34 million of 14 1/2% Senior Subordinated Notes due
December 15, 2004 (the "Notes"). Interest on the Notes is payable
semiannually on June 15 and December 15 of each year. The Notes are
subordinated to all existing and future senior indebtedness of the Company.
The Indenture governing the Notes (the "Indenture") contains certain
restrictive covenants and financial covenants similar to the Credit Agreement.
The Company entered into three amendments to the Prior Credit Agreement
during 1995 and 1996 and two amendments to the Indenture, including an
amendment in connection with the Shore Stop Acquisition , during 1995 and
1996, which, among other things, revised certain financial covenants
contained therein. The Company is in compliance with such agreements as
amended.
11
<PAGE>
Note G--Related Party Transactions
A quarterly management and consulting fee and expense reimbursements are paid
to entities owned by certain of the current directors and controlling
shareholders. The Company paid $50,000 of management and consulting fees
from July 1, 1996 through September 30, 1996.
Note H--Seasonality of Revenue and Cost of Goods Sold
The Company's heating oil sales volume is highly seasonal. Sales volume of
motor fuels is also seasonal, although it varies less than heating oil on a
month to month basis. The seasonality affects both revenue and cost of goods
sold; therefore, interim results are not indicative of the estimated results
for a full year.
Note I--Environmental Regulations
Management believes that the environmental reserve is sufficient to cover all
known liabilities under which it is probable that the Company will be
obligated to undertake remediation. Management's assessment of the
environmental liability is based, in part, on two comprehensive environmental
studies by independent environmental consultants that were completed during
fiscal year 1995 and fiscal year 1996. Management is not aware of any additional
significant environmental exposures since the completion of the fiscal year 1996
study.
The Company maintains a program to routinely detect releases of gasoline or
other regulated substances from underground storage tanks it owns or
operates. The Company employs groundwater monitoring wells and/or
sophisticated in-tank monitoring devices at a majority of its Company
operated stations and this information is available on-line through the
computer at the Company's headquarters. Management believes that contingent
liabilities other than those recorded in the financial statements will not
have a material adverse effect on the Company's financial position or results
of operations.
Note J--Subsidiaries, Condensed Financial Statement Data
Griffith's wholly owned subsidiaries, Carl King, Inc. ("King"), Frederick
Terminals, Inc. ("Frederick"), and Shore Stop Corporation ("Shore Stop" and,
collectively with King and Frederick, the "Subsidiaries") are
full, unconditional joint and several guarantors on the Notes. The only
subsidiaries of Griffith are King, Frederick, Shore Stop, and Regent
Transport, Inc. This footnote sets forth the combined condensed
balance sheet of King, Frederick, and Shore Stop as of September 30, 1996
and June 30, 1996, the combined condensed statements of operations and cash
flows for the periods July 1, 1996 through September 30, 1996 and the
statement of changes in shareholders equity from June 30, 1994 to September
30, 1996.
12
<PAGE>
In accordance with Staff Accounting Bulletin No. 55, the separate financial
statement data reflects all of the expenses that the Company incurred on each
Subsidiary's behalf. In the opinion of the management of the Company,
presentation of separate financial statements of the guarantors is not
material to investors. Except for certain general and administrative
expenses and income taxes, expenses are separately identifiable and,
therefore, charged directly to the respective Subsidiary. Common general and
administrative expenses are allocated based on management's assessment of the
actual costs associated with the operations; and income tax expense is
provided in the financial data on a separate return basis. Management
believes that the methods used to allocate expenses to each Subsidiary are
reasonable.
13
<PAGE>
CARL KING, INC., FREDERICK TERMINALS, INC., AND SHORE STOP CORPORATION
COMBINED CONDENSED BALANCE SHEETS
-------------- --------------
SEPTEMBER 30 JUNE 30
ASSETS: 1996 1996
-------------- --------------
Current assets $ 8,305,318 $ 5,215,700
Due from Parents 1,674,352 ----
Net property, plant and equipment 18,284,796 13,500,023
Net intangibles 23,614,954 12,496,263
Other 2,395,071 566,783
-------------- --------------
$ 54,274,491 $ 31,778,769
-------------- --------------
-------------- --------------
LIABILITIES AND SHAREHOLDER'S EQUITY:
Current liabilities $ 12,636,303 $ 5,940,506
Due to Parents ---- 5,335,763
Long-term debt, less current portion 36,146,817 15,143,539
Other liabilities 1,445,978 1,555,511
Shareholder's equity 4,045,393 3,803,450
-------------- --------------
$ 54,274,491 $ 31,778,769
-------------- --------------
-------------- --------------
CARL KING, INC., FREDERICK TERMINALS, INC., And SHORE STOP CORPORATION
COMBINED CONDENSED STATEMENTS OF OPERATIONS
-------------- --------------
JUL 1, 1996 - JUL 1, 1995 -
SEP 30, 1996 SEP 30, 1995
-------------- --------------
Total sales $ 46,945,085 $ 25,354,067
Cost of sales 39,367,135 21,793,019
-------------- --------------
GROSS PROFIT 7,577,950 3,561,048
Selling, general, and administrative
expenses 4,980,487 2,038,326
Depreciation expense 940,174 690,987
Amortization expense 513,959 185,754
-------------- --------------
OPERATING INCOME 1,143,330 645,981
Interest expense 978,655 571,291
Other income 280,154 85,310
-------------- --------------
INCOME BEFORE INCOME TAX 444,829 160,000
Income tax expense 202,886 62,843
-------------- --------------
NET INCOME $ 241,943 $ 97,157
-------------- --------------
-------------- --------------
14
<PAGE>
CARL KING, INC., FREDERICK TERMINALS, INC., AND SHORE STOP CORPORATION
COMBINED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
Investment Retained Total
By Earnings Shareholder's
Parent (Deficit) Equity
---------- --------- -------------
BALANCE JUNE 30, 1994 5,792,610 2,031,209 7,823,819
Net income - 375,524 375,524
---------- --------- -------------
BALANCE DECEMBER 15, 1994 5,792,610 2,406,733 8,199,343
Stock Redemption - (2,406,733) (2,406,733)
---------- --------- -------------
BALANCE DECEMBER 16, 1994 5,792,610 - 5,792,610
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
SUCCESSOR
(1,051,191) (1,051,191)
---------- --------- -------------
Net loss - - -
BALANCE JUNE 30, 1995 5,792,610 (1,051,191) 4,741,419
Net income - (937,969) (937,969)
---------- --------- -------------
BALANCE JUNE 30, 1996 $5,792,610 ($1,989,160) $3,803,450
Net income - 241,943 241,943
SEPTEMBER 30, 1996 $5,792,610 ($1,747,217) $4,045,393
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
CARL KING, INC., FREDERICK TERMINALS, INC., AND SHORE STOP CORPORATION
COMBINED CONDENSED STATEMENTS OF CASH FLOWS
----------------- -----------------
JUL 1, 1996 - JUL 1, 1995 -
SEP 30, 1996 SEP 30, 1996
----------------- -----------------
Operating activities ($2,317,550) $363,466
Investment activities (19,302,422) (130,246)
Financing activities 21,485,432 (233,220)
----------------- -----------------
Increase (decrease) in cash (134,540) -
Cash at beginning of year 953,234 -
----------------- -----------------
Cash at end of year $818,694 -
----------------- -----------------
----------------- -----------------
15
<PAGE>
Griffith Consumers Company and Subsidiaries
September 30, 1996
Management's Discussion and Analysis of
Financial Conditions and Results of Operations
The fiscal year of Griffith Consumers Company ("Griffith", and together with
its subsidiaries, the "Company" or "Successor") ends June 30.
OVERVIEW
In analyzing the results of the Company's operations, consideration should
be given to the seasonal nature of the heating oil business and prevailing
weather conditions, growth by acquisition, world oil market conditions and
the ability to pass on variations in wholesale petroleum costs to customers.
Financial results may vary from year-to-year as a result of these factors.
The Company's heating oil operations are highly seasonal with approximately
75% of heating oil revenues generated in the quarters ending December and
March. Sales from the Company's motor fuel operations are more evenly spread
throughout the year with some seasonal increases in the summer months. The
Company's heating oil sales volume fluctuates depending upon weather
conditions. Colder winter temperatures increase consumer demand.
In December 1994, Griffith Holdings, Inc. ("GHI"), a corporation previously
unrelated to the Company, acquired all of the 2,360,000 outstanding shares of
common stock of Griffith Consumers Company, a Maryland corporation ("Griffith
Maryland" and together with its consolidated subsidiaries, "Predecessor"),
the predecessor to Griffith. Pursuant to a merger agreement, ABC Acquisition
Corp., a Maryland corporation ("ABC") and a wholly-owned subsidiary of GHI,
merged with and into Griffith Maryland. As a result of the merger, Griffith
Maryland became a wholly-owned subsidiary of GHI (the "1994 Acquisition").
Immediately thereafter, Griffith Maryland merged with and into Griffith with
Griffith as the surviving corporation.
On July 11, 1996, the Company, through its wholly-owned subsidiary Shore
Stop Corporation, acquired certain assets used in the operations of a chain
of 49 convenience stores and retail gasoline stations within the states of
Maryland , Delaware, and Virginia, under the "Shore Stop" trade name and a
dealer petroleum sales business supplying 31 dealers from two facilities
located in Virginia and Maryland (the "Shore Stop Operations") from Regent
Investments, Inc., Delaware Investments, Inc. And Mid-Atlantic Investments,
Inc., each a Virginia corporation (the "Shore Stop Acquisition"). The Company
intends to continue using the acquired
16
<PAGE>
assets as convenience stores and dealer petroleum sales business,
respectively. The Company paid the sellers $17,000,000 (plus the purchase
price of certain inventory), subject to certain adjustments, of which
$1,500,000 was in the form of a promissory note secured by first priority
mortgages or deeds of trust on certain stores and assumed $350,000 of debt. As
a result of the Shore Stop Acquisition, the financial statements for the
three months ended September 30, 1996 are not directly comparable to the
consolidated financial statements of the Company for the three month period
ended September 30, 1995. The following discussion should be read in
connection with the historical financial information included in the
consolidated financial statements of the Company.
RESULTS OF OPERATIONS FOR THREE MONTHS ENDED SEPTEMBER 30 OF 1996 VERSUS 1995
References to particular years unless otherwise indicated are references to
the first quarter of the fiscal year for the year end indicated.
The net loss for 1997 was $2,690,000, compared to net loss of $2,724,000 for
the same period in 1996 for the reasons outlined below.
Total sales increased by $22,382,000 or 59% to $60,542,000 for 1997, from
$38,160,000 during 1996. Sales increased primarily as a result of the
acquisition of Shore Stop Operations as well as increased revenue from the
sale of off road motor fuels.
Cost of sales for 1997 was $49,998,000, an increase of $18,665,000, or 60%,
from 1996. The increase in cost of sales was primarily due to the Shore Stop
Operations as well as increased costs of sales attributable to the increase
in off road motor fuels.
Gross profit for 1997 was $10,544,000, an increase of $3,717,000, or 54%,
from 1996. The increase was primarily due to the Shore Stop Operations and
increased profits from the sale of off road motor fuels.
Selling, general and administrative expenses ("SG&A") were $9,368,000, an
increase of $3,042,000, or 48%, compared to 1996. The increase was due
primarily to operating costs related to the Shore Stop Operations.
Depreciation expense for 1997 was $1,292,000, an increase of $282,000, or
28%, from 1996. Amortization expense for 1997 increased by $185,000, or 11%,
to $1,942,000 in 1997. The increases were primarily related to the
additional depreciation and amortization on the fixed assets and intangible
assets respectively, resulting from the Shore Stop Acquisition.
17
<PAGE>
Depreciation increased, additionally, from capital expenditures made in the
previous twelve months.
Other income for 1997 was $445,000, an increase of $254,000 or 133%, from
$191,000 in 1996. This increase is primarily related to other income from
Shore Stop operations.
FINANCIAL CONDITION
Substantially all of the line items of the financial statements have
increased from June 30, 1996 because of the Shore Stop Acquisition. The
following discussion will focus on increases or decreases unrelated to the
Shore Stop Acquisition and items which require further explanation.
Accounts receivables decreased $1,975,000, or 17%, to $9,838,000 from
$11,813,000 at June 30. The decrease is attributable to the seasonal nature
of the business and the large balance at June 30, 1996 due to the cold
weather of 1996, partially offset by the addition of receivables from the
Shore Stop acquisition.
Refundable income taxes increased $1,276,000 from a payable of $73,000 to a
refund due of $1,203,000 due to the income tax benefit related to the the
first quarter loss.
Deferred income taxes decreased $402,000, or 5%, from $7,994,000 to
$7,592,000 because of the amortization of intangible assets relating to the
1994 Acquisition.
Deferred revenue increased by $1,408,000, or 57%, due to an increase in the
prepaid balances of the Company's residential customers on the budget plan.
As a result of the budget plan, most budget plan customers have a prepaid
balance for the first quarter of the fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash requirements consist principally of working capital,
payments of principal and interest on its outstanding indebtedness, capital
expenditures and expenditures for acquisitions.
Net cash provided by operating activities was $3,910,000 for the three months
ended September 30, 1996 compared to $2,600,000 of net cash provided by
operating activities for the three months ended September 30, 1995, an
increase of $1,310,000. The increase is due primarily to increased cash flow
from the Shore Stop operations and collection of accounts receivables.
Net cash used in investing activities increased by $19,236,000 from
18
<PAGE>
$276,000 for the three months ended September 30, 1995 to $19,512,000 for the
three months September 30, 1996. The increase was primarily the result of the
Shore Stop Acquisition which occurred in 1996.
Net cash provided by financing activities increased $20,106,000 to
$18,024,000 for the three months ended September 30, 1996. The increase was
primarily the result of the financing of the Shore Stop Acquisition in 1996.
The Company believes that cash flow from operating activities, cash on hand
and periodic borrowings, if necessary, will be adequate to meet its operating
cash requirements for the foreseeable future. In addition to its existing
working capital facilities, the Company may enter into additional financing
facilities to fund future acquisitions and for other purposes, to the extent
such facilities are permitted under the terms of the Indenture (the
"Indenture") governing the Company's 14 1/2% senior Subordinated Notes due
December 15,2004 (the "Notes") and the Company's then existing credit
agreement.
As of July 8, 1996, in connection with the Shore Stop Acquisition, the
Company amended and restated its then existing credit agreement (the "Prior
Credit Agreement"; and as amended and restated , the "Credit Agreement") to,
among other things, increase the revolving credit facility thereunder from
$12,000,000 to $13,000,000 and the term loan thereunder from $34,450,000 to
$54,450,000. The Credit Agreement had previously been most recently amended
on January 5, 1996, to, among other things, increase the amount of the
revolving credit facility provided thereunder from $12,000,000 to
$16,000,000 during the period from January 5, 1996 through March 31, 1996 .
Such increase was necessitated by significant increased demand for heating
oil caused by colder than normal temperatures , which increased the Company's
accounts receivable.
In 1996, the Company's peak usage of the revolving credit facility was
approximately $10,800,000. At October 31, 1996, there was $0 outstanding with
respect to the revolving credit facility . The revolving portion of the
Credit Agreement expires in 1998 and the Company may be required to replace
the the revolving portion at such time.
Prior to the January 1996 amendment to the Prior Credit Agreement, the Company
entered into two amendments to the Credit Agreement and one amendment to the
Indenture that revised certain of the definitions and/or certain financial
covenants contained therein. The Company is in compliance with the financial
covenants contained in such agreements as amended, as of the date hereof.
19
<PAGE>
The Company purchases petroleum products as necessary to meet the delivery
demands of its customers on a short-term basis. Thus, the Company carries
relatively small amounts of petroleum in inventory.
20
<PAGE>
Griffith Consumers Company and Subsidiaries
September 30, 1996
PART II. OTHER INFORMATION
1. Legal Proceedings
None
2. Changes in Securities
None
3. Defaults upon Senior Securities
None
4. Submission of Matters to a Vote of Security Holders
None
5. Other Information
None
6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
Current Report on Form 8-K filed by Griffith Consumers Company,
Carl King, Inc., and Frederick Terminals, Inc. On September 26,
1996, is incorporated by reference.
21
<PAGE>
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 on the 14th day of November 1996.
GRIFFITH CONSUMERS COMPANY
Registrant
/S/ Raymond R. McKenzie, Jr.
- ---------------------------
Raymond R. McKenzie, Jr., Vice President Finance (Authorized Officer and
Principal Financial Officer)
CARL KING, INC.
Registrant
/S/ Raymond R. McKenzie, Jr.
- ---------------------------
Raymond R. McKenzie, Jr., Vice President (Authorized Officer and Principal
Financial Officer)
FREDERICK TERMINALS, INC.
Registrant
/S/ Raymond R. McKenzie, Jr.
- ---------------------------
Raymond R. McKenzie, Jr., Secretary (Authorized Officer and Principal
Financial Officer)
22
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
September 30, 1996 10-Q of Griffith Consumers Co. and is qualified in
its entirety by reference to such financial statement.
</LEGEND>
<CIK> 0000935814
<NAME> GRIFFITH CONSUMERS COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-1-1996
<PERIOD-END> SEP-30-1996
<CASH> 4,110
<SECURITIES> 110
<RECEIVABLES> 11,537
<ALLOWANCES> 722
<INVENTORY> 5,369
<CURRENT-ASSETS> 22,358
<PP&E> 29,573
<DEPRECIATION> 7,224
<TOTAL-ASSETS> 128,440
<CURRENT-LIABILITIES> 23,513
<BONDS> 31,497
0
0
<COMMON> 20,691
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<TOTAL-LIABILITY-AND-EQUITY> 128,440
<SALES> 59,598
<TOTAL-REVENUES> 60,542
<CGS> 49,839
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<INTEREST-EXPENSE> 2,588
<INCOME-PRETAX> (4,203)
<INCOME-TAX> (1,513)
<INCOME-CONTINUING> (2,690)
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<NET-INCOME> (2,690)
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