<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 1996
Commission File Number 33-88526
GRIFFITH CONSUMERS COMPANY
CARL KING, INC.
FREDERICK TERMINALS, INC.
(Exact name of registrants as specified in their charters)
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 MAY 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
March 31, 1996
Index
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
A. Consolidated Balance Sheets
March 31, 1996 and June 30, 1995 3 - 4
B. Consolidated Statements of Operations
Three and nine months ended
March 31, 1996 and 1995 5 - 6
C. Consolidated Statements of Changes in
Shareholders' Equity 7
D. Consolidated Statements of Cash Flows
Nine months ended March 31, 1996
and 1995 8
E. Notes to Consolidated Financial
Statements 9 - 16
Item 2. Management's Discussion and Analysis 17 - 22
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 2. Changes in Securities 23
Item 3. Defaults upon Senior Securities 23
Item 4. Submission of Matters to a Vote of
Security Holders 23
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 23
Signatures 24
2
<PAGE>
GRIFFITH CONSUMERS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31 JUNE 30
ASSETS: 1996 1995
- - ----------------------------------------- ------------ -----------
<S> <C> <C>
CURRENT ASSETS
CASH $ 2,684,166 $ 803,085
ACCOUNTS AND NOTES RECEIVABLE,
LESS ALLOWANCE FOR BAD DEBTS 17,600,681 8,854,865
PETROLEUM PRODUCTS INVENTORY 1,197,289 1,104,087
REPAIR PARTS AND SUPPLIES INVENTORY 1,685,585 1,654,668
PREPAID EXPENSES AND OTHER 1,744,693 1,686,326
REFUNDABLE INCOME TAXES --- 1,184,380
------------- ------------
TOTAL CURRENT ASSETS 24,912,414 15,287,411
PROPERTY, PLANT AND EQUIPMENT
- - ----------------------------------------
LAND 5,570,189 5,691,704
BUILDINGS 1,837,578 1,849,746
MACHINERY AND EQUIPMENT 15,178,141 14,427,147
------------- ------------
22,585,908 21,968,597
LESS: ALLOWANCES FOR DEPRECIATION 4,993,145 2,079,727
------------- ------------
17,592,763 19,888,870
INTANGIBLES - NOTE C
- - ----------------------------------------
CUSTOMER AND SERVICE ACCOUNTS 37,244,315 37,243,999
COVENANTS NOT TO COMPETE 2,936,564 2,936,823
GOODWILL 38,848,703 39,375,955
OTHER INTANGIBLES 836,344 836,344
------------- ------------
79,865,926 80,393,121
LESS: ALLOWANCES FOR AMORTIZATION 9,530,538 4,951,986
------------- ------------
70,335,388 75,441,135
LONG-TERM NOTES RECEIVABLE 1,128,267 793,595
DEFERRED MERGER & DEBT COSTS & OTHER 3,168,294 3,764,930
------------- ------------
TOTAL ASSETS $ 117,137,126 $ 115,175,941
============= =============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
GRIFFITH CONSUMERS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31 JUNE 30
LIABILITIES AND SHAREHOLDER'S EQUITY: 1996 1995
- - --------------------------------------- ------------ ------------
<S> <C> <C>
CURRENT LIABILITIES:
ACCOUNTS PAYABLE $ 8,659,727 $ 6,050,846
ACCRUED EXPENSES 3,407,200 2,144,619
DEFERRED REVENUE 1,912,029 3,251,038
INCOME TAXES PAYABLE 464,212 ----
OTHER TAXES PAYABLE 700,326 523,701
CURRENT PORTION OF LONG-TERM DEBT-
NOTE G 5,124,660 3,924,660
------------- -------------
TOTAL CURRENT LIABILITIES 20,268,154 15,894,864
LONG-TERM DEBT, LESS CURRENT PORTION-
NOTE G 67,797,222 68,614,436
DEFERRED INCOME TAXES 8,871,063 9,840,169
POST-RETIREMENT EMPLOYEE BENEFITS
AND OTHER 1,602,916 1,602,916
------------- -------------
TOTAL LIABILITIES 98,539,355 95,952,385
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) EARNINGS (2,093,553) (1,467,768)
------------- -------------
TOTAL SHAREHOLDER'S EQUITY 18,597,771 19,223,556
------------- -------------
TOTAL LIABILITIES AND
SHAREHOLDER'S EQUITY $ 117,137,126 $ 115,175,941
============= =============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE>
GRIFFITH CONSUMERS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
---------------------------------
JAN 1, 1996 - JAN 1, 1995 -
MAR 31, 1996 MAR 31, 1995
---------------------------------
<S> <C> <C>
SALES FROM PETROLEUM PRODUCTS $ 60,883,900 $ 49,831,768
SERVICE, EQUIPMENT, AND OTHER SALES 4,340,839 4,201,158
------------ ------------
TOTAL SALES 65,224,739 54,032,926
COST OF SALES 47,966,198 39,244,286
------------ ------------
GROSS PROFIT 17,258,541 14,788,640
SELLING, GENERAL, AND ADMINISTRATIVE
EXPENSES 8,201,842 7,608,155
DEPRECIATION EXPENSE 1,064,625 709,596
AMORTIZATION EXPENSE 1,660,519 1,775,897
------------ ------------
OPERATING INCOME 6,331,555 4,694,992
INTEREST EXPENSE 2,382,744 2,362,888
OTHER INCOME 176,718 272,108
------------ ------------
(LOSS) INCOME BEFORE INCOME TAX 4,125,529 2,604,212
INCOME TAX EXPENSE 1,743,834 1,259,516
------------ ------------
NET INCOME $ 2,381,695 $ 1,344,696
============ ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE>
GRIFFITH CONSUMERS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Successor Successor Predecessor
------------- -------------- -------------
JUL 1, 1995 - DEC 16, 1994 - JUL 1, 1994 -
MAR 31, 1996 MAR 31, 1995 DEC 15, 1994
------------- -------------- -------------
<S> <C> <C> <C>
SALES FROM PETROLEUM PRODUCTS $ 139,064,662 $ 58,632,577 $ 65,437,258
SERVICE, EQUIPMENT, AND OTHER SALES 14,687,465 4,949,164 8,939,201
------------- ------------ ------------
TOTAL SALES 153,752,127 63,581,741 74,376,459
COST OF SALES 117,837,581 46,313,472 59,739,106
------------- ------------ ------------
GROSS PROFIT 35,914,546 17,268,269 14,637,353
SELLING, GENERAL, AND ADMINISTRATIVE
EXPENSES 21,917,468 8,896,296 12,866,611
DEPRECIATION EXPENSE 3,074,619 825,370 1,304,698
AMORTIZATION EXPENSE 5,121,688 2,050,919 2,013,836
------------- ------------ ------------
OPERATING (LOSS) INCOME 5,800,771 5,495,684 (1,547,792)
INTEREST EXPENSE 7,049,527 2,811,463 1,239,657
OTHER INCOME 480,029 291,744 199,747
------------- ------------ ------------
(LOSS) INCOME BEFORE INCOME TAX (768,727) 2,975,965 (2,587,702)
INCOME TAX (BENEFIT) EXPENSE (142,942) 1,404,053 (1,004,455)
------------- ------------ ------------
NET (LOSS) INCOME $ (625,785) $ 1,571,912 $ (1,583,247)
============= ============ ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6
<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, 1993 2,355,000 23,550 2,849,407 1,879,436 4,752,393
Net Income 3,083,063 3,083,063
---------- ------- ---------- ---------- ----------
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 0 0 0 0 0
=====================================================================================================
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 (625,785) (625,785)
---------- ------- ---------- ---------- ----------
BALANCE MARCH 31, 1996 100 1 20,691,323 (2,093,553) 18,597,771
========== ======= ========== ========== ==========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7
<PAGE>
GRIFFITH CONSUMERS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SUCCESSOR SUCCESSOR PREDECESSOR
-------------- ----------------- -----------------
JULY 1, 1995 DECEMBER 16, 1994 JULY 1, 1994
THROUGH THROUGH THROUGH
MARCH 31, 1996 MARCH 31, 1995 DECEMBER 15, 1994
-------------- ----------------- -----------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net (loss) income $ (625,785) $ 1,571,912 $ (1,583,247)
Adjustments to reconcile net (loss) income to net cash
used in operating activities:
Depreciation 3,074,619 825,370 1,304,698
Amortization 5,121,688 2,050,919 2,013,836
Provision for bad debts 267,000 48,000 92,000
Amortization of bond discount 136,581 78,167 ----
Gain on sale of property, plant, equipment, and intangibles (117,792) (1,200) (24,087)
Changes in operating assets and liabilities,
Net of effects of change in working capital:
Accounts and notes receivable (8,542,367) (2,284,047) (1,571,994)
Inventory (124,119) 85,177 (175,887)
Prepaid expenses and other (58,367) 347,167 (1,841,787)
Refundable Income taxes, net 1,184,380 539,791 (1,234,890)
Other assets (224,425) (4,933,861) (771,997)
Accounts payable 2,608,881 (367,065) 1,319,125
Accrued expenses 1,262,581 1,856,686 (283,208)
Deferred revenue (1,339,009) (2,632,564) 1,822,452
Other liabilities (328,270) 813,979 392,473
----------- ----------- ------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 2,295,596 (2,001,569) (542,513)
INVESTING ACTIVITIES
Purchases of property, plant, and equipment (1,363,339) (1,060,055) (1,497,243)
Purchases of intangible assets ---- ---- (892,000)
Proceeds from sale of property, plant, and equipment,
and intangible assets 702,619 1,200 125,545
Purchase of predecessor's stock per Merger ---- (54,280,000)
----------- ----------- ------------
NET CASH USED IN INVESTING ACTIVITIES (660,720) (55,338,855) (2,263,698)
FINANCING ACTIVITIES
Proceeds from line of credit 3,200,000 (1,850,000) 1,850,000
Proceeds from bond debentures issuance ---- 31,196,612 ----
Bond issue costs ---- (1,473,000) ----
Proceeds from term loans ---- 40,275,853 ----
Prepaid interest ---- (1,170,000) ----
Payments on long-term debt (2,953,795) (28,609,348) (1,760,875)
Capital Contributions from Parents ---- 20,691,323 ----
Issuance of capital stock ---- 1 25,000
----------- ----------- ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 246,205 59,061,441 114,125
----------- ----------- ------------
INCREASE (DECREASE) IN CASH 1,881,081 1,721,017 (2,692,086)
Cash at beginning of period 803,085 ---- 2,692,086
----------- ----------- ------------
CASH AT END OF PERIOD $ 2,684,166 $ 1,721,017 $ 0
=========== =========== ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8
<PAGE>
Griffith Consumers Company And Subsidiaries
March 31, 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 "Acquisition"). As a result of the Acquisition, Griffith became a
wholly owned subsidiary of GHI.
The 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. Because of this purchase price
allocation, the accompanying consolidated financial statements of the Company
for the period July 1, 1995 through March 31, 1996 (the "Successor") are not
directly comparable to the consolidated financial statements of the Company
for the period prior to December 16, 1994 (the "Predecessor").
Note B--Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting 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 and nine months ended March 31, 1996 do not
necessarily indicate the results that may be expected for the fiscal year
ending June 30, 1996. 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 Successor's Form 10-K.
9
<PAGE>
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 being 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
Predecessor and is amortized over a thirty year period for the Successor.
All intangible assets are amortized using the straight-line method. The
Company evaluates the potential impairment of intangibles and other
long-lived 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.
On March 31, 1995, the Financial Accounting Standards Board issued Statement
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed of" (the "Statement"). This Statement requires that
long-lived assets and certain identifiable intangibles to be held and used by
an entity to be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Measurement of an impairment loss for long-lived assets and
identifiable intangibles that an entity expects to hold and use should be
based on the excess of net book value over the fair value of the asset. This
Statement is effective for financial statements for fiscal years beginning
after December 15, 1995. Management does not expect that adoption of this
statement will have a material impact on the financial statements of the
Company.
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, 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.
Note D -- The Acquisition
The following condensed presentation of unaudited pro forma results was
prepared to illustrate the estimated effects of the Acquisition
10
<PAGE>
on the Company with the assumption that the Acquisition occurred at July 1,
1994:
Nine Months Ended
March 31, 1995
Unaudited
(in thousands)
-----------------
Total sales $ 137,958
Net loss (4,924)
Note E--Acquisitions of Retail Oil Companies and Gasoline Stations
The Company acquired certain assets of a retail oil company in 1995. The
acquisition was accounted for as a purchase transaction and, therefore, the
financial statements include the results of operations of the acquired
company from its acquisition date. The cost of the acquisition in 1995 was
allocated as follows:
Nine Months Ended
March 31,
----------------------
1996 1995
---- ----
Customer and service
accounts $ ---- $ 50,000
Covenants not to compete ---- 24,000
Goodwill ---- 68,000
$ ---- $ 142,000
========= =========
Number of Acquisitions 0 1
Note F--Stock Option Plan
The Predecessor adopted a stock option plan in September 1986, whereby
options to purchase up to 200,000 shares of its common stock could be granted
to employees at any time prior to 1996. Options granted under the plan were
exercisable at either $5.50 or $5.00 per share, depending on the grant date.
On July 18, 1994, options to purchase 5,000 shares were exercised at an
exercise price per share of $5.00.
Options outstanding and exercisable at June 30, 1994 5,000
Options exercised (5,000)
------
Options ending balance as of December 15, 1994 0
======
Note G--Debt
In connection with the Acquisition, the Company retired the Predecessor's
operating line of credit and primary bank term loan. Mortgage notes (the
"Mortgage Notes") on several properties located in Delaware, Maryland and
West Virginia were assumed by the Successor.
11
<PAGE>
The Company subsequently negotiated a new term loan and operating line of
credit with the Company's primary bank lender under the Third Amended and
Restated Revolving Credit and Term Loan Agreement dated as of December 15,
1994 (the "Credit Agreement"). 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. The primary lender is subordinated to the
Mortgage Notes on these properties. During fiscal year 1996, the Company has
paid $2,534,000 of interest and $2,775,000 of principal on the term loan.
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 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 has entered into three amendments to the Credit Agreement during
1995 and 1996 and one amendment to the Indenture during 1995, which, among
other things, revised certain financial covenants contained therein. The
Company is in compliance with such agreements as amended.
Note H--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 $150,000 of management and consulting fees
from July 1, 1995 through March 31, 1996.
Note I--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
12
<PAGE>
results are not indicative of the estimated results for a full year.
Note J--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 a comprehensive environmental
study that was completed during fiscal year 1995.
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 K--Subsidiaries' Condensed Financial Statement Data
Griffith's wholly owned subsidiaries, Carl King, Inc. ("King") and Frederick
Terminals, Inc. ("Frederick") are full, unconditional joint and several
guarantors on the Notes. The only two subsidiaries of Griffith are King and
Frederick. This footnote sets forth the combined condensed balance sheet of
King and Frederick as of March 31, 1996 and June 30, 1995, the combined
condensed statements of operations and cash flows for the periods July 1,
1995 through March 31, 1996 and July 1, 1994 through March 31, 1995, and the
statement of changes in shareholders equity from June 30, 1993 to March 31,
1996.
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. AND FREDERICK TERMINALS, INC.
COMBINED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31 June 30
ASSETS: 1996 1995
----------- -----------
<S> <C> <C>
Current assets $ 5,457,208 $ 3,125,955
Net property, plant and equipment 13,890,071 15,910,702
Net intangibles 12,891,342 13,502,376
Other 604,361 752,911
----------- -----------
$32,842,982 $33,291,944
=========== ===========
LIABILITIES AND SHAREHOLDER'S EQUITY:
Current liabilities $ 5,962,213 $ 5,112,715
Due to Parents 5,281,469 5,417,801
Long-term debt, less current portion 15,361,415 16,022,445
Other liabilities 1,993,643 1,997,564
Shareholder's equity 4,244,242 4,741,419
----------- -----------
$32,842,982 $33,291,944
=========== ===========
</TABLE>
CARL KING, INC. AND FREDERICK TERMINALS, INC.
COMBINED CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Successor Successor Predecessor
------------- -------------- -------------
Jul 1, 1995 - Dec 16, 1994 - Jul 1, 1994 -
Mar 31, 1996 Mar 31, 1995 Dec 15, 1994
------------- -------------- -------------
<S> <C> <C> <C>
Total sales $70,299,947 $26,542,324 $44,704,897
Cost of sales 60,639,341 22,904,055 38,700,054
----------- ----------- -----------
Gross profit 9,660,606 3,638,269 6,004,843
Selling, general, and administrative
expenses 6,146,053 2,372,985 3,811,513
Depreciation expense 2,099,593 580,209 932,048
Amortization expense 649,862 370,134 287,130
----------- ----------- -----------
OPERATING INCOME 765,098 314,941 974,152
Interest expense 1,723,294 885,387 393,502
Other income (expense) 152,668 5,735 40,505
----------- ----------- -----------
(LOSS) INCOME BEFORE INCOME TAX (805,528) (564,711) 621,155
Income tax expense (benefit) (308,351) (150,284) 245,631
----------- ----------- -----------
NET (LOSS) INCOME $(497,177) $(414,427) $375,524
=========== =========== ===========
</TABLE>
14
<PAGE>
CARL KING, INC. AND FREDERICK TERMINALS, INC.
COMBINED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
Investment Retained Total
By Earnings Shareholder's
Parent (Deficit) Equity
------------- -------------- -------------
<S> <C> <C> <C>
PREDECESSOR
BALANCE JUNE 30, 1993 $5,074,657 $1,185,051 $6,259,708
Additional investment by parent 717,953 717,953
Net income 846,158 846,158
------------- -------------- -------------
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 0 (2,406,733) (2,406,733)
------------- -------------- -------------
BALANCE DECEMBER 16, 1994 5,792,610 0 5,792,610
============= ============== ============
SUCCESSOR
Net loss (1,051,191) (1,051,191)
------------- -------------- -------------
BALANCE JUNE 30, 1995 5,792,610 (1,051,191) 4,741,419
Net loss (497,177) (497,177)
------------- -------------- -------------
BALANCE MARCH 31, 1996 $5,792,610 ($1,548,368) $4,244,242
============= ============== =============
</TABLE>
CARL KING, INC. AND FREDERICK TERMINALS, INC.
COMBINED CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Successor Successor Predecessor
------------- -------------- -------------
Jul 1, 1995 - Dec 16, 1994 - Jul 1, 1994 -
Mar 31, 1996 Mar 31, 1995 Dec 15, 1994
------------- -------------- -------------
<S> <C> <C> <C>
Operating activities $1,774,214 $ (1,626,051) $1,248,408
Investment activities 32,418 (10,190,559) (995,129)
Financing activities (700,155) 12,131,258 (759,118)
------------- -------------- -------------
Increase (decrease) in cash 1,106,477 314,648 (505,839)
Cash at beginning of year 0 0 505,839
------------- -------------- -------------
Cash at end of year $1,106,477 $314,648 $0
============= ============== =============
</TABLE>
15
<PAGE>
Note L - Subsequent Events
On April 23, 1996, the Company entered into a definitive agreement (the
"Purchase Agreement") with Regent Investments, Inc., Delaware Investments,
Inc. and Mid-Atlantic Investments, Inc., each a Virginia corporation
(collectively, the "Sellers"), to acquire the Shore Stop convenience store
chain operated in Delaware, Maryland, and Virginia and to acquire a dealer
petroleum sales business (the "Shore Stop Acquisition"). The consummation of
the transactions described in the Purchase Agreement is contingent on, among
other things, approval by the Federal Trade Commission and the Department of
Justice under the Hart-Scott-Rodino Anti-Trust Improvements Act of 1976 and
satisfaction of certain other conditions.
The Company anticipates financing the Shore Stop Acquisition with borrowings
under the Company's Credit Agreement. It is contemplated that the Shore Stop
Acquisition will close in June 1996.
16
<PAGE>
Griffith Consumers Company and Subsidiaries
March 31, 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
also 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 "Acquisition").
Immediately thereafter, Griffith Maryland merged with and into Griffith with
Griffith as the surviving corporation.
The consolidated financial statements of the Predecessor of the Company for
the five and one-half month period ending December 15, 1994, combined with
the consolidated financial statement of the Successor for the three and
one-half month period ending March 31, 1995 are not directly comparable to
the consolidated financial statements of the Company for the nine month
period ending March 31, 1996. The allocation of the purchase price in
connection with the Acquisition and related financings result in consolidated
financial statements that are not comparable. The following discussion and
analysis should be read in connection with the
17
<PAGE>
historical financial information and the pro forma financial data included in
the consolidated financial statements of the Company.
RESULTS OF OPERATIONS FOR THREE MONTHS ENDED MARCH 31 OF 1996 VERSUS 1995
References to particular years unless otherwise indicated are references to
the third quarter of the fiscal year for the year end indicated.
The net income for 1996 was $2,382,000, compared to net income of $1,345,000
for the same period in 1995 for the reasons outlined below.
Total sales increased by $11,192,000 or 21% to $65,225,000 for 1996, from
$54,033,000 during 1995. Heating oil volume increased by 49%. Sales
benefitted from colder than normal weather. The increase in heating oil
sales, however, was partially offset by a 3% decrease in motor fuel volume.
Cost of sales for 1996 was $47,966,000, an increase of $8,722,000, or 22%,
from 1995. The increase in cost of sales was primarily attributable to the
higher sales volume of heating oil and a 17.5% increase in heating oil costs
per gallon.
Gross profit for 1996 was $17,259,000, an increase of $2,470,000, or 16.7%,
from 1995. The increase was primarily due to the higher volume of heating
oil sales offset in part by the increase in heating oil costs per gallon.
Selling, general and administrative expenses ("SG&A") were $8,202,000, an
increase of $594,000, or 7.8%, compared to 1995. The increase was due to
higher operating costs associated with the increase heating oil volume in
1996. SG&A decreased to 12.6% of total sales compared to 14.1% in the same
period in 1995.
Depreciation expense for 1996 was $1,065,000, an increase of $355,000, or
50%, from 1995. The increase in depreciation is the result of the purchase
accounting adjustments in connection with the Acquisition and additional
depreciation on new capital expenditures. Amortization expense for 1996
decreased by $115,000, or 6.5%, to $1,776,000 in 1996. The decrease in
amortization is due to the fact that some intangible assets are now fully
amortized.
Other income for 1996 was $177,000, a decrease of $95,000 or 35.1%, from
$272,000 in 1995. This decrease is primarily related to the drop in interest
income.
18
<PAGE>
RESULTS OF OPERATIONS FOR NINE MONTHS ENDED MARCH 31 OF 1996 VERSUS 1995
References to particular years unless otherwise indicated are references to
the first nine months of the fiscal year for the year end indicated.
The net loss for 1996 was $626,000, compared to a net loss of $11,000 for the
same period in 1995 for the reasons outlined below.
Total sales increased by $15,794,000 or 11.4% to $153,752,000 for 1996, from
$137,958,000 during 1995. The increase was primarily due to increased heating
oil volume resulting from weather that was colder than normal.
Cost of sales for 1996 was $117,838,000, an increase of $11,785,000, or
11.1%, from 1995. The increase in cost of sales was primarily attributable
to the higher sales volume of heating oil and an 13.8% increase in heating
oil costs per gallon.
Gross profit for 1996 was $35,915,000, an increase of $4,009,000, or 12.6%,
from 1995. The increase was primarily due to the higher volume of heating
oil sales offset, in part, by the increase in heating oil costs per gallon.
Selling, general and administrative expenses for 1996 were $21,917,000, an
increase of $155,000, or .7% from 1995. This increase was attributable to
higher operating expenses associated with higher heating oil volumes offset,
in part, by reductions of administrative expenses attributable to continued
consolidations of operations and general cost savings.
Depreciation expense for 1996 was $3,075,000, an increase of $945,000, or
44%, from 1995. Amortization expense for 1996 increased by $1,057,000, or
26%, to $5,122,000 in 1996. The increases were primarily related to the
additional depreciation and amortization on the fixed assets and intangible
assets, respectively, resulting from purchase accounting adjustments in
connection with the Acquisition.
Interest expense increased by $2,998,000, or 74%, to $7,050,000 during 1996
from $4,051,000 in 1995. This increase resulted from additional indebtedness
incurred in connection with the Acquisition and higher interest rates.
Other income for 1996 was $480,000 a decrease of $11,000, or 2.3%, from
$491,000 in 1995. Other income was lower in the current fiscal year due
primarily to a decrease in interest income partially offset by gains on the
sale of fixed assets.
19
<PAGE>
FINANCIAL CONDITION
Accounts receivable increased by $8,746,000, or by 99%, from June 30, 1995 to
March 31, 1996, due to the seasonal nature of the business. Generally, at
fiscal year end the accounts receivable balance is at a low point for the
year and increases during the second quarter of the year and remains high
during the third quarter of the year.
Refundable income taxes decreased $1,648,000 from a refund due of $1,184,000
to a payable of $464,000 due to the income before income taxes of
$4,126,000 in the third quarter of fiscal year 1996 and income tax refunds
received in 1996 of $863,000.
Accounts payable increased $2,609,000 from June 30, 1995 to March 31, 1996
due to the seasonal nature of the Company's business. Generally, at fiscal
year end the accounts payable balance is at a low point for the year. It
increases during the first and second quarters of the fiscal year.
Accrued expenses increased $1,262,000 from $2,145,000 at June 30, 1995 to
$3,407,000 at March 31, 1996. The increase is related primarily to accrued
interest expense.
Deferred revenue decreased by $1,339,000 from $3,251,000 at June 30, 1995 to
$1,912,000 at March 31, 1996. Such decrease is primarily due to the timing of
the receipt of payments on the Company's burner service contracts. As of
March 31, 1996, 85% of the deferred revenue from burner service contracts has
been recognized as income.
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 $2,296,000 for the nine months
ended March 31, 1996 compared to $2,544,000 of net cash used in operations
for the nine months ended March 31, 1995, an increase of $4,840,000. The
increase is due primarily to increased cash flow from operations and a less
significant increase in operating assets offset, in part, by higher interest
expense.
Net cash used in investing activities decreased by $56,942,000 from
$57,603,000 for the nine months ended March 31, 1995 to $661,000 for the nine
months March 31, 1996. The decrease was the result of less capital
expenditures in 1996 and the Acquisition which occurred in 1995.
20
<PAGE>
Net cash provided by financing activities decreased $58,930,000 to $246,000
for the nine months ended March 31, 1996 from $59,176,000 for the nine months
ended March 31, 1995. The decrease was primarily the result of the financing
of the Acquisition in 1995.
On April 23, 1996, the Company entered into a definitive agreement (the
"Purchase Agreement") with Regent Investments, Inc., Delaware Investments,
Inc. and Mid-Atlantic Investments, Inc., each a Virginia corporation
(collectively, the "Sellers"), to acquire the Shore Stop convenience store
chain operated in Delaware, Maryland, and Virginia and to acquire a dealer
petroleum sales business (the "Shore Stop Acquisition"). The consummation of
the transactions described in the Purchase Agreement is contingent on, among
other things, approval by the Federal Trade Commission and the Department of
Justice under the Hart-Scott-Rodino Anti-Trust Improvements Act of 1976 and
satisfaction of certain other conditions.
The Company anticipates financing the Shore Stop Acquisition with borrowings
under the Company's credit agreement, as amended (the "Credit Agreement"). It
is contemplated the Shore Stop Acquisition will close in June 1996.
The Company believes that cash flow from operating activities, cash on hand
and periodic borrowing, if necessary, will be adequate to meet its operating
cash requirements for the foreseeable future. In addition to its existing
working capital facilities under its Credit Agreement, 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 governing the Notes (the "Indenture") and the Credit
Agreement.
On January 5, 1996, The Company amended the Credit Agreement to , among other
things, increase the amount of the revolving credit facility provided
thereunder from $12 million to $16 million 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 increases the Company's accounts receivable. As of May 10, 1996, the
Company had $2,000,000 of borrowings outstanding under the revolving credit
facility . The revolving portion of the Credit Agreement expires in 1998 and
the Company may be required to replace the revolving portion at such time.
Prior to the January 1996 amendment to the Credit Agreement, the Company
entered into two amendments to the Credit Agreement and one to the Indenture.
The Company is in compliance with the financial covenants contained in such
agreements, as amended, as of the date hereof.
The Company purchases petroleum products as necessary to meet the
21
<PAGE>
delivery demands of its customers on a short-term basis. Thus, the Company
carries relatively small amounts of petroleum in inventory.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
On March 31, 1995, the Financial Accounting Standards Board issued Statement
121, "Accounting for Long-Lived Assets and for the Impairment of Long-Lived
Assets to Be Disposed of" (the Statement). The Statement requires that
long-lived assets and certain identifiable intangibles to be held and used by
an entity to be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of any asset may not be
recoverable. Measurement of an impairment loss for long-lived assets and
identifiable intangibles that an entity expects to hold and use should be
based on the excess of net book value over the fair value of the asset. This
Statement is effective for fiscal years beginning after December 15, 1995.
Management does not expect that adoption of this Statement will have a
material impact on the financial statements of the Company.
22
<PAGE>
Griffith Consumers Company and Subsidiaries
March 31, 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) Exibits
None
(b) Reports on Form 8-K
None
23
<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 15th day of May 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
and Director (Authorized Officer and
Principal Financial Officer)
24
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONATAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
MARCH 31, 1996 10-Q OF GRIFFITH CONSUMERS COMPANY AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL INFORMATION.
</LEGEND>
<CIK> 0000935814
<NAME> GRIFFITH CONSUMERS COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 2,684
<SECURITIES> 0
<RECEIVABLES> 19,396
<ALLOWANCES> 667
<INVENTORY> 2,883
<CURRENT-ASSETS> 24,912
<PP&E> 22,586
<DEPRECIATION> 4,993
<TOTAL-ASSETS> 117,137
<CURRENT-LIABILITIES> 20,268
<BONDS> 31,406
0
0
<COMMON> 20,691
<OTHER-SE> (2,094)
<TOTAL-LIABILITY-AND-EQUITY> 117,137
<SALES> 150,292
<TOTAL-REVENUES> 153,752
<CGS> 117,139
<TOTAL-COSTS> 117,838
<OTHER-EXPENSES> 30,114
<LOSS-PROVISION> 267
<INTEREST-EXPENSE> 7,050
<INCOME-PRETAX> (769)
<INCOME-TAX> (143)
<INCOME-CONTINUING> (626)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (626)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
