<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ending March 31, 1997
OR
( ) TRANSITION REPORT PUSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to ______
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. 2336 Goddard Parkway
2510 Schuster Drive Salisbury, Maryland 21801
Cheverly, Maryland 20781 (410) 860-0400
(301) 322-3111
(Address, including zip code, and telephone number, including
area code, of registrants' principal executive offices)
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 August 8, 1997, 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, 1997
Index
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
A. Consolidated Balance Sheets
March 31, 1997 and June 30, 1996 3 - 4
B. Consolidated Statements of Operations
Three months and nine months ended
March 31, 1997 and 1996 5 - 6
C. Consolidated Statements of Changes in
Shareholder's Equity 7
D. Consolidated Statements of Cash Flows
Nine months ended March 31, 1997
and 1996 8
E. Notes to Consolidated Financial
Statements 9 - 16
Item 2. Management's Discussion and Analysis 17 - 23
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 24
Item 2. Changes in Securities 24
Item 3. Defaults upon Senior Securities 24
Item 4. Submission of Matters to a Vote of
Security Holders 24
Item 5. Other Information 24
Item 6. Exhibits and Reports on Form 8-K 24
Signatures 25
2
<PAGE>
GRIFFITH CONSUMERS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1997 1996
ASSETS: (UNAUDITED)
- ------------------------------------------------------ ------------ --------------
<S> <C> <C>
CURRENT ASSETS
CASH................................................ $ 3,192,064 $ 1,687,443
ACCOUNTS AND NOTES RECEIVABLE,
LESS ALLOWANCE FOR BAD DEBTS...................... 15,527,740 11,813,211
PETROLEUM PRODUCTS INVENTORY........................ 2,195,166 1,228,347
REPAIR PARTS AND SUPPLIES INVENTORY................. 3,146,444 1,662,048
PREPAID EXPENSES AND OTHER.......................... 1,957,805 1,320,055
REFUNDABLE INCOME TAXES............................. 673,448 --
------------ ------------
TOTAL CURRENT ASSETS.................................. 26,692,667 17,711,104
PROPERTY,PLANT AND EQUIPMENT
LAND................................................ $ 5,622,870 $ 5,533,870
BUILDINGS........................................... 3,424,526 1,844,358
MACHINERY AND EQUIPMENT............................. 23,240,027 16,152,930
------------ ------------
32,287,423 23,531,158
LESS: ALLOWANCE FOR DEPRECIATION.................... 9,799,377 6,019,263
------------ ------------
22,488,046 17,511,895
INTANGIBLES--NOTE C
CUSTOMER AND SERVICE ACCOUNTS....................... 39,842,186 37,063,186
COVENANTS NOT TO COMPETE............................ 3,286,824 2,936,824
GOODWILL............................................ 48,147,346 39,000,867
OTHER INTANGIBLES................................... 849,287 836,344
------------ ------------
92,125,643 79,837,221
LESS: ALLOWANCE FOR AMORTIZATION.................... 16,956,189 11,304,362
------------ ------------
75,169,454 68,532,859
LONG-TERM NOTES RECEIVABLE............................ 877,192 1,054,816
DEFERRED DEBT COSTS & OTHER........................... 4,440,342 3,759,756
------------ ------------
TOTAL ASSETS.......................................... $129,667,701 $108,570,430
------------ ------------
------------ ------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
GRIFFITH CONSUMERS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1997 1996
LIABILITIES AND SHAREHOLDER'S EQUITY: (UNAUDITED)
- ------------------------------------------------------ ------------ --------------
<S> <C> <C>
CURRENT LIABILITIES:
ACCOUNTS PAYABLE.................................... $ 9,859,767 $ 7,581,065
ACCRUED EXPENSES.................................... 4,464,696 3,560,374
DEFERRED REVENUE.................................... 2,018,831 2,471,880
INCOME TAXES PAYABLE................................ -- 73,103
OTHER TAXES PAYABLE................................. 871,876 198,517
CURRENT PORTION OF LONG-TERM DEBT-NOTE F............ 4,725,894 4,240,893
------------ ------------
TOTAL CURRENT LIABILITIES............................. 21,941,064 18,125,832
LONG-TERM DEBT, LESS CURRENT PORTION-NOTE F........... 87,263,227 65,350,995
DEFERRED INCOME TAXES................................. 6,786,860 7,993,849
POST-RETIREMENT EMPLOYEE BENEFITS AND OTHER........... 1,541,330 1,541,330
------------ ------------
TOTAL LIABILITIES..................................... 117,532,481 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.................................... (8,556,104) (5,132,900)
------------ ------------
TOTAL SHAREHOLDER'S EQUITY............................ 12,135,220 15,558,424
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY............ $129,667,701 $108,570,430
------------ ------------
------------ ------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE>
GRIFFITH CONSUMERS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
JAN 1, 1997- JAN 1, 1996
MAR 31, 1997 MAR 31, 1996
(UNAUDITED) (UNAUDITED)
------------ ------------
<S> <C> <C>
SALES FROM PETROLEUM PRODUCTS......................... $ 65,881,597 $ 60,883,900
SERVICE, EQUIPMENT, AND OTHER SALES................... 10,764,416 4,340,839
------------ ------------
TOTAL SALES......................................... 76,646,013 65,224,739
COST OF SALES......................................... 58,797,775 47,966,198
------------ ------------
GROSS PROFIT........................................ 17,848,238 17,258,541
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES......... 11,168,472 8,201,842
DEPRECIATION EXPENSE.................................. 1,319,819 1,064,625
AMORTIZATION EXPENSE.................................. 2,034,581 1,660,519
------------ ------------
OPERATING PROFIT.................................... 3,325,366 6,331,555
INTEREST EXPENSE.................................. 2,681,950 2,382,744
OTHER INCOME...................................... 541,584 176,718
------------ ------------
INCOME BEFORE INCOME TAX............................ 1,185,000 4,125,529
INCOME TAX EXPENSE................................ 486,841 1,743,834
------------ ------------
NET INCOME.......................................... $ 698,159 $ 2,381,695
------------ ------------
------------ ------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE>
GRIFFITH CONSUMERS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
JUL 1, 1996- JUL 1, 1995-
MAR 31, 1997 MAR 31, 1996
(UNAUDITED) (UNAUDITED)
------------ ------------
<S> <C> <C>
SALES FROM PETROLEUM PRODUCTS....................... $176,604,550 $139,064,662
SERVICE, EQUIPMENT, AND OTHER SALES................. 35,208,481 14,687,465
------------ -------------
TOTAL SALES....................................... 211,813,031 153,752,127
COST OF SALES....................................... 168,796,666 117,837,581
------------ -------------
GROSS PROFIT...................................... 43,016,365 35,914,546
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES....... 31,815,561 21,917,468
DEPRECIATION EXPENSE................................ 3,896,281 3,074,619
AMORTIZATION EXPENSE................................ 5,924,964 5,121,688
------------ -------------
OPERATING INCOME.................................. 1,379,559 5,800,771
INTEREST EXPENSE................................ 7,964,184 7,049,527
OTHER INCOME.................................... 1,368,994 480,029
------------ -------------
LOSS BEFORE INCOME TAX............................ (5,215,631) (768,727)
INCOME TAX BENEFIT.............................. (1,792,427) (142,942)
------------ -------------
NET LOSS.......................................... $ (3,423,204) $ (625,785)
------------ -------------
------------ -------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6
<PAGE>
GRIFFITH CONSUMERS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY (Unaudited)
<TABLE>
<CAPTION>
ADDITIONAL RETAINED TOTAL
COMMON PAID-IN EARNINGS SHAREHOLDER'S
SHARES STOCK CAPITAL (DEFICIT) EQUITY
----------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
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......................................... -- -- -- (3,423,204) (3,423,204)
----------- ------------- ------------- ------------- -------------
Balance March 31, 1997........................... 100 1 20,691,323 (8,556,104) 12,135,220
----------- ------------- ------------- ------------- -------------
----------- ------------- ------------- ------------- -------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7
<PAGE>
GRIFFITH CONSUMERS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
JULY 1, 1996 JULY 1, 1995
THROUGH THROUGH
MARCH 31, 1997 MARCH 31, 1996
(UNAUDITED) (UNAUDITED)
-------------- --------------
<S> <C> <C>
Cash flows from operating activities
Net loss....................................................................... $ (3,423,204) $ (625,785)
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
Depreciation............................................................... 3,896,281 3,074,619
Amortization............................................................... 5,924,964 5,121,688
Provision for bad debts.................................................... 242,000 267,000
Amortization of bond discount.............................................. 114,330 136,581
Gain on sale of property, plant, equipment, and intangibles................ (94,564) (117,792)
Changes in operating assets and liabilities
Net of effects of change in working capital:
Accounts and notes receivable.......................................... (3,778,905) (8,542,367)
Inventory.............................................................. (2,451,215) (124,119)
Prepaid expenses and other............................................. (423,750) (58,367)
Refundable Income taxes, net........................................... (746,551) 1,184,380
Other assets........................................................... 898,758 (224,425)
Accounts payable....................................................... 2,278,702 2,608,881
Accrued expenses....................................................... 904,322 1,262,581
Deferred revenue....................................................... (453,049) (1,339,009)
Other liabilities...................................................... (533,631) (328,270)
-------------- --------------
Net cash provided by operating activities........................................ 2,354,488 2,295,596
Cash flows used in investing activities
Purchases of property, plant, and equipment.................................... (3,084,025) (1,363,339)
Proceeds from sale of property, plant, and equipment, and intangible assets.... 354,314 702,619
Acquisition of business:
Property, plant, and equipment............................................... (6,048,157) --
Intangibles.................................................................. (12,304,902) --
Acquisition costs.............................................................. (2,050,000) --
-------------- --------------
Net cash used in investing activities............................................ (23,132,770) (660,720)
Cash flows from financing activities
Proceeds from line of credit................................................... 4,100,000 3,200,000
Proceeds from term loans....................................................... 21,850,000 --
Payments on long-term debt..................................................... (3,667,097) (2,953,795)
-------------- --------------
Net cash provided by financing activities........................................ 22,282,903 246,205
-------------- --------------
Increase in cash............................................................... 1,504,621 1,881,081
Cash at beginning of period...................................................... 1,687,443 803,085
-------------- --------------
Cash at end of period............................................................ $ 3,192,064 $ 2,684,166
-------------- --------------
-------------- --------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8
<PAGE>
Griffith Consumers Company And Subsidiaries
March 31, 1997
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 Company's 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 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. In
addition, the Company also assumed $350,000 of debt. The acquisition was
financed through an amendment and restatement of the Company's prior credit
agreement ("Prior Credit Agreement", and as amended and restated, "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 principles
("GAAP") for interim financial information and with the
9
<PAGE>
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 nine months ended March 31, 1997 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 is amortized over a thirty year period. 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.
Debt Issuance Costs: The costs associated with the issuance of term 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 December 1994 and July 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.
Note D--1997 Acquisitions--Allocation of Purchase Price
10
<PAGE>
In addition to the Shore Stop Acquisition, the Company consummated another
8 acquisitions which involved the purchase of certain assets of various
retail heating oil companies and gasoline stations in the nine months ended
March 31, 1997. The cost of the other 8 acquisitions consummated during the
nine months ended March 31, 1997 was $1.0 million. These acquisitions and
the Shore Stop Acquisition were accounted for as purchase transactions
and, therefore, the financial statements include the results of operations
of the acquired assets from their acquisition dates. The costs of the
Shore Stop Acquisition, which was consummated during July 1996, were as
follows:
Shore Stop
----------
Land $ 170,000
Fixed assets 5,600,000
Customer and service
accounts 2,400,000
Covenants not to compete 200,000
Other Intangibles,
primarily goodwill 8,980,902
----------
$ 17,350,000
----------
----------
Note E--Shore Stop Acquisition--Unaudited Pro Forma
The following condensed presentation of unaudited pro forma information was
prepared to illustrate the estimated effects of the Shore Stop Acquisition
on the Company with the assumption that the Shore Stop Acquisition occurred
at July 1, 1995:
(000's)
Unaudited
Nine Months Ended
March 31,
-----------------------
1997 1996
-----------------------
Total Sales $214,643 $ 214,816
Net Loss (3,419) (795)
11
<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 (including the maximum drawing amount
under outstanding letters of credit) 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 and Regent Note on these properties.
As of March 31, 1997, the amount of the revolving credit facility
borrowings outstanding was $6,700,000 and the maximum drawing amount under
outstanding letters of credit was $5,029,000. During fiscal year 1997, the
Company has paid $3,592,000 of interest and $3,450,000 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 borrowings under the Prior 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 four amendments to the Prior Credit
12
<PAGE>
Agreement (including its amendment and restatement in connection with the
Shore Stop Acquisition)and two amendments to the Indenture (including an
amendment in connection with the Shore Stop Acquisition) during the
calendar years 1995 and 1996, which among other things revised certain
financial covenants contained therein. The Company has also entered into
amendments to the Credit Agreement dated as of December 31, 1996 and March
15, 1997, respectively, and an amendment dated as of March 15, 1997 to the
Indenture which, among other things, revised certain financial covenants
contained therein. The Company is currently in compliance with the Credit
Agreement and the Indenture, as amended.
Note G--Related Party Transactions
A management and consulting fee and expense reimbursements are paid to
entities owned by certain of the current directors and controlling
shareholders. The Company paid $75,000 of management and consulting fees
quarterly for a total of $325,000 for the first nine months of fiscal years
1996 and 1997.
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 conducted on different segments of the Company's
business 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
these studies.
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
13
<PAGE>
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 March 31, 1997 and June 30,
1996, the combined condensed statements of operations and cash flows for
the periods July 1, 1996 through March 31, 1997 and the statement of
changes in shareholder's equity from June 30, 1995 to March 31, 1997.
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.
14
<PAGE>
CARL KING, INC., FREDERICK TERMINALS, INC., AND SHORE STOP CORPORATION
COMBINED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31
1997 JUNE 30
ASSETS: (UNAUDITED) 1996
------------- -------------
<S> <C> <C>
Current assets................................................................... $ 11,592,549 $ 5,215,700
Net property, plant and equipment................................................ 18,551,140 13,500,023
Net intangibles.................................................................. 23,252,233 12,496,263
Other............................................................................ 2,377,867 566,783
------------- -------------
$ 55,773,789 $ 31,778,769
------------- -------------
------------- -------------
Liabilities and Shareholder's Equity:
Current liabilities.............................................................. $ 9,834,632 $ 5,940,506
Due to Parents................................................................... 7,078,478 5,335,763
Long-term debt, less current portion............................................. 35,435,437 15,143,539
Other liabilities................................................................ 1,226,913 1,555,511
Shareholder's equity............................................................. 2,198,429 3,803,450
------------- -------------
$ 55,773,889 $ 31,778,769
------------- -------------
------------- -------------
</TABLE>
CARL KING, INC., FREDERICK TERMINALS, INC., AND SHORE STOP CORPORATION
COMBINED CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
JUL 1, 1996 - JUL 1, 1995 -
MAR 31, 1997 MAR 31, 1996
(UNAUDITED) (UNAUDITED)
-------------- -------------
<S> <C> <C>
Total sales....................................................................... $ 133,892,839 $ 70,299,947
Cost of sales..................................................................... 113,930,372 60,639,341
-------------- -------------
Gross profit.................................................................... 19,962,467 9,660,606
Selling, general, and administrative expenses..................................... 16,285,750 6,146,053
Depreciation expense.............................................................. 2,809,725 2,099,593
Amortization expense.............................................................. 1,648,136 649,862
-------------- -------------
Operating (loss) income......................................................... (781,144) 765,098
Interest expense................................................................ 3,103,295 1,723,294
Other income.................................................................... 1,158,385 152,668
-------------- -------------
Loss before income tax benefit.................................................. (2,726,054) (805,528)
Income tax benefit.............................................................. (1,121,033) (308,351)
-------------- -------------
Net loss........................................................................ $ (1,605,021) $ (497,177)
-------------- -------------
-------------- -------------
</TABLE>
15
<PAGE>
CARL KING, INC., FREDERICK TERMINALS, INC., AND SHORE STOP CORPORATION
COMBINED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
Unaudited
<TABLE>
<CAPTION>
INVESTMENT RETAINED TOTAL
BY EARNINGS SHAREHOLDER'S
PARENT (DEFICIT) EQUITY
------------ ------------- ------------
<S> <C> <C> <C>
Balance June 30, 1995............................................... $ 5,792,610 ($ 1,051,191) $4,741,419
Net loss.............................................................. -- (937,969) (937,969)
------------ ------------- ------------
Balance June 30, 1996............................................... $ 5,792,610 ($ 1,989,160) $3,803,450
Net loss.............................................................. -- (1,605,021) (1,605,021)
------------ ------------- ------------
March 31, 1997...................................................... $ 5,792,610 ($ 3,594,181) $2,198,429
------------ ------------- ------------
------------ ------------- ------------
</TABLE>
CARL KING, INC., FREDERICK TERMINALS, INC., AND SHORE STOP CORPORATION
COMBINED CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
JUL 1, 1996- JUL 1, 1995-
MAR 31, 1997 MAR 31, 1996
(UNAUDITED) (UNAUDITED)
------------- ------------
<S> <C> <C>
Operating activities................................................................. $ 3,682,569 $ 1,774,214
Investment activities................................................................ (22,202,900) 32,418
Financing activities................................................................. 20,760,815 (700,155)
------------- ------------
Increase in cash................................................................... 2,240,484 1,106,477
Cash at beginning of year............................................................ 953,234 --
------------- ------------
Cash at end of year.................................................................. $ 3,193,718 $ 1,106,477
------------- ------------
------------- ------------
</TABLE>
16
<PAGE>
Griffith Consumers Company and Subsidiaries
March 31, 1997
Management's Discussion and Analysis of
Financial Condition 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 ( "Shore Stop Acquisition") 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 Acquisition") from Regent Investments, Inc., Delaware Investments,
Inc. and Mid-Atlantic Investments, Inc., each a Virginia corporation
(collectively, the "Sellers"). The Company paid the Sellers $17,000,000
(plus the purchase price of certain inventory),
17
<PAGE>
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. In addition, the Company also assumed
$350,000 of debt. As a result of the Shore Stop Acquisition, the financial
statements for the nine months ended March 31, 1997 are not directly
comparable to the consolidated financial statements of the Company for the
nine month period ended March 31, 1996. 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 March 31 of 1997 Versus 1996
References to particular years, unless otherwise indicated, are references
to the third quarter of the fiscal year for the year indicated.
The net income for 1997 was $698,000, compared to a net income of
$2,382,000 for the same period in 1996. Net income from the existing
operations of Griffith and Carl King, Inc. ("Carl King") was $1,169,000, a
decrease of $1,213,000 from the same period in 1996. The decrease was due
primarily to the reasons outlined below. The 1997 net loss from Shore Stop
was $471,000.
Total sales increased by $11,421,000 or 18% to $76,646,000 for 1997, from
$65,225,000 during 1996. Sales from the existing operations of Griffith and
Carl King decreased $7,188,000 to $58,037,000. The decrease was primarily
due to a 40% decrease in heating oil volume related to the warm weather.
Temperatures were 22% warmer in 1997 than 1996 based on the number of
degree days. The decrease was partially offset by 17% and 14% increases in
the sales price per gallon of heating oil and motor fuels, respectively.
Sales from Shore Stop Operations were $18,609,000.
A component of total sales is sundry sales. Sundry sales increased from
$2,313,000 to $9,145,000, an increase of 295%. The sundry sales increase of
$6,832,000 was due to sundry sales from Shore Stop Operations of
$6,862,000. The increase was partially offset by a small decrease in sundry
sales from the existing operations of Griffith and King.
Cost of sales for 1997 was $58,798,000, an increase of $10,832,000, or 23%,
from 1996. Cost of sales from the existing operations of Griffith and Carl
King decreased 9%, or $4,342,000, to $43,624,000 due to decreased heating
oil volume, partially offset by 14% and 13% increases in heating oil and
motor fuel costs per gallon, respectively. The cost of sales from Shore
Stop Operations was $15,174,000.
Gross profit for 1997 was $17,848,000, an increase of $590,000, or
18
<PAGE>
3%, from 1996. Gross profit from the existing operations of Griffith and
Carl King was $14,413,000, a decrease of 16%. Gross profit from Shore Stop
Operations was $3,435,000.
Selling, general and administrative expenses ("SG&A") were $11,168,000, an
increase of $2,967,000, or 36%, compared to 1996. The increase was due
primarily to operating costs of $3,512,000 related to the Shore Stop
Operations. SG&A from the existing operations of Griffith and King
decreased $545,000, or 7%. The decrease is attributable to lower operating
costs associated with the decrease in heating oil volume in 1997 from 1996.
Depreciation expense for 1997 was $1,320,000, an increase of $255,000, or
24%, from 1996. Amortization expense for 1997 increased by $374,000, or
23%, to $2,035,000 in 1997. The increases were primarily related to the
additional depreciation of $206,000 and amortization on the fixed assets
and intangible assets of $323,000, respectively, resulting from the Shore
Stop Acquisition. Additionally, depreciation increased as a result of the
depreciation on other assets acquired through capital expenditures in the
twelve months ended March 31, 1997.
Interest expense increased $299,000, or 13%, to $2,682,000. Interest
expense from the existing operations of Griffith and King decreased
$215,000. The decrease in interest expense was primarily due to the
decrease in outstanding debt because of principal payments made. Interest
expense related to additional debt incurred in connection with the Shore
Stop Acquisition was $514,000.
Other income for 1997 was $542,000, an increase of $365,000 or 206%, from
$177,000 in 1996. This increase is primarily related to other income of
$310,000 from Shore Stop Operations.
Results of Operations for Nine Months Ended March 31 of 1997 Versus 1996
References to particular years, unless otherwise indicated, are references
to the first nine months of the fiscal year for the year indicated.
The net loss for 1997 was $3,423,000, compared to a net loss of $626,000
for the same period in 1996. Net loss from the existing operations of
Griffith and Carl King was $2,692,000, an increased loss of $2,066,000 from
the same period in 1996. The increased loss was due primarily to the
reasons outlined below. The 1997 net loss from Shore Stop was $731,000.
Total sales increased by $58,061,000 or 38% to $211,813,000 for 1997, from
$153,752,000 during 1996. Sales from the existing operations of Griffith
and King decreased $1,166,000. The decrease was primarily due a 32%
decrease in heating oil volume related to the warm weather. The weather
was 18% warmer in the second and
19
<PAGE>
third quarters of fiscal 1997 than the same period in fiscal 1996 based
upon the number of degree days. The decrease was partially offset by 21%
and 12% increases in the sales price per gallon of heating oil and motor
fuels, respectively. Sales from Shore Stop Operations were $59,227,000 .
A component of total sales is sundry sales. Sundry sales increased from
$7,727,000 to $29,630,000, an increase of 283%. The sundry sales increase
of $21,903,000 was due primarily to sundry sales of 21,855,000 from Shore
Stop Operations.
Cost of sales for 1997 was $168,797,000, an increase of $50,959,000, or
43%, from 1996. Cost of sales from the existing operations of Griffith and
Carl King increased 2%, or $2,624,000, to $120,462,000. The increase was
primarily due to 20% and 14% increases in heating oil and motor fuel costs
per gallon, respectively, offset partially by the decreased heating oil
volume. The cost of sales from Shore Stop Operations was $48,335,000.
Gross profit for 1997 was $43,016,000, an increase of $7,102,000, or 20%,
from 1996. Gross profit from the existing operations of Griffith and King
was $32,123,000 in 1997, a decrease of 11%. Gross profit from Shore Stop
Operations was $10,893,000.
Selling, general and administrative expenses ("SG&A") were $31,816,000, an
increase of $9,898,000, or 45%, compared to 1996. The increase was due
primarily to operating costs of $9,792,000 related to the Shore Stop
Operations.
Depreciation expense for 1997 was $3,896,000, an increase of $822,000, or
27%, from 1996. Amortization expense for 1997 increased by $803,000, or
16%, to $5,925,000 in 1997. The increases were primarily related to the
additional depreciation of $620,000 and amortization of $935,000 on the
fixed assets and intangible assets, respectively, resulting from the Shore
Stop Acquisition. Additionally, depreciation increased as a result of
depreciation on other assets acquired through capital expenditures made in
the twelve months ended March 31, 1997.
Interest expense increased 13%, to $7,964,000. Interest expense from the
existing operations of Griffith and Carl King decreased $602,000. The
decrease in interest expense was primarily due to the decrease in
outstanding debt because of principal payments made. Interest expense
related to additional debt incurred in connection with the Shore Stop
Acquisition was $1,517,000.
Other income for 1997 was $1,369,000, an increase of $889,000 or 185%, from
$480,000 in 1996. This increase is primarily related to other income of
$763,000 from Shore Stop Operations as well as an increase in customer
finance charges and investment income from the existing operations of
Griffith and Carl King.
20
<PAGE>
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 in balance sheet
line items unrelated to the Shore Stop Acquisition and items which require
additional explanation.
Accounts receivables increased $3,715,000, or 31%, to $15,528,000 from
June 30, 1996. The increase was 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, increases during the second quarter of the year and
remains high during the third quarter of the year.
Refundable income taxes increased $747,000 from a payable of $73,000 to a
refund due of $673,000 due to the income tax benefit related to the loss
for the first nine months of fiscal year 1997.
Deferred debt costs and other increased as a result of the capitalization
of the finance costs and other costs incurred in connection with financing
the Shore Stop Acquisition. Such increase was partially offset by the
amortization of such finance costs and other finance costs capitalized in
connection with the 1994 Acquisition.
Deferred income taxes decreased $1,207,000, or 15%, from $7,994,000 to
$6,787,000 related primarily to the amortization of intangible assets
relating to the 1994 Acquisition.
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 $2,354,000 for the nine months
ended March 31, 1997 compared to $2,296,000 of net cash provided by operating
activities for the nine months ended March 31, 1996, an increase of $59,000.
Net cash provided by operating activities from existing operations of
Griffith and Carl King decreased by $1,244,000. Such decrease was primarily
the result of a decrease in net income, after adjusting for non-cash
expenses, from the existing operations of Griffith and Carl King and a more
significant increase in net operating assets, in 1997 from 1996. Net cash
provided by operating activities from Shore Stop Operations was $1,303,000 in
1997.
Net cash used in investing activities increased by $22,472,000 from
$661,000 for the nine months ended March 31, 1996 to $23,133,000
21
<PAGE>
for the nine months ended March 31, 1997. The increase was primarily the
result of the Shore Stop Acquisition which occurred in July 1996 and
increased capital expenditures in the first nine months of fiscal year
1997.
Net cash provided by financing activities increased $22,037,000 to
$22,283,000 for the nine months ended March 31, 1997. The increase was
primarily the result of the financing of the Shore Stop Acquisition.
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 amount of revolving credit facility
borrowings (including the maximum drawing amount under outstanding Letters
of Credit (as defined) available 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 was subsequently amended by an amendment dated as of
December 31, 1996 to, among other things, increase the amount of the
revolving credit facility provided thereunder from $13,000,000 to
$16,000,000 during the period from February 12, 1997 through March 31,
1997 and to revise certain financial covenants contained therein. In
addition, the Credit Agreement and the Indenture were amended as of March
15, 1997 to revise certain financial covenants contained therein. The
Company is currently in compliance with the covenants contained in the
Credit Agreement and Indenture, as amended.
Under the Credit Agreement, at the Company's request, the agent for the
lenders from time to time issues letters of credit (the "Letters of
Credit"). During the period from July 1, 1996 through the date hereof, the
Company's peak total usage of the revolving credit facility was
approximately $8.0 million in outstanding borrowings and $4.9 million in
maximum drawing amount under Letters of Credit. At June 30,1997, there was
$6.4 million in borrowings and $3.6 million in Letters of Credit
outstanding with respect to the revolving credit facility, leaving, subject
to meeting certain borrowing base tests, $3,000,000 available for use
thereunder. The revolving portion of the Credit Agreement expires in 1999
and the Company may be required to replace the revolving portion at such
time.
22
<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.
Certain sections of this Form 10-Q, including "Notes to Consolidated
Financial Statements" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations," contain forward looking
statements within the meaning of Section 21E of the Securities Exchange Act
of 1934, as amended, with respect to the Company's expectations or beliefs
concerning future events. The Company cautions that these statements are
further qualified by important factors that could cause actual results to
differ materially from those in the forward looking statements. The forward
looking statements include, without limitation, the effects of seasonality
on revenue and cost of goods sold, the amount of reserves, the effect of
contingent liabilities and the ability to meet the Company's future
operating cash requirements.
23
<PAGE>
Griffith Consumers Company and Subsidiaries
March 31, 1997
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
(b) Report on Form 8-K
None
24
<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 8th day of August 1997.
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)
25
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
March 31,1997 10Q of Griffith Consumers Company and is qualified in its
entirety by reference to such financial statement.
</LEGEND>
<CIK> 0000935814
<NAME> GRIFFITH CONSUMERS COMPANY
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 3,192
<SECURITIES> 0
<RECEIVABLES> 17,078
<ALLOWANCES> 673
<INVENTORY> 5,342
<CURRENT-ASSETS> 26,693
<PP&E> 32,287
<DEPRECIATION> 9,799
<TOTAL-ASSETS> 129,668
<CURRENT-LIABILITIES> 21,947
<BONDS> 31,634
0
0
<COMMON> 20,691
<OTHER-SE> (8,556)
<TOTAL-LIABILITY-AND-EQUITY> 129,668
<SALES> 208,571
<TOTAL-REVENUES> 211,813
<CGS> 168,126
<TOTAL-COSTS> 168,797
<OTHER-EXPENSES> 41,637
<LOSS-PROVISION> 242
<INTEREST-EXPENSE> 7,964
<INCOME-PRETAX> (5,216)
<INCOME-TAX> (1,792)
<INCOME-CONTINUING> (3,423)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,423)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
