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, 1998
OR
( ) TRANSITION REPORT PURSUANT 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 Identification 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 May 15, 1998, 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
CONSOLIDATED BALANCE SHEETS
------------ ------------
MARCH 31, JUNE 30,
1998 1997
ASSETS: (Unaudited)
- ------------------------------------------- ------------ ------------
CURRENT ASSETS
CASH $ 2,806,968 $ 3,212,107
ACCOUNTS AND NOTES RECEIVABLE,
LESS ALLOWANCE FOR BAD DEBTS 15,103,864 11,182,949
PETROLEUM PRODUCTS INVENTORY 1,684,881 1,704,747
REPAIR PARTS AND SUNDRY INVENTORY 3,359,545 3,294,711
PREPAID EXPENSES AND OTHER 1,322,182 1,336,380
INCOME TAXES RECEIVABLE 63,076 95,603
OTHER TAXES RECEIVABLE 346,650 906,050
DEFERRED TAX ASSET 1,576,630 1,399,424
------------ ------------
TOTAL CURRENT ASSETS 26,263,796 23,131,971
PROPERTY, PLANT AND EQUIPMENT
- -------------------------------------------
LAND $ 5,591,921 $ 5,622,871
BUILDINGS 3,979,731 3,979,731
MACHINERY AND EQUIPMENT 27,291,490 25,032,748
------------ ------------
36,863,142 34,635,350
LESS: ACCUMULATED DEPRECIATION 16,033,321 11,523,797
------------ ------------
20,829,821 23,111,553
INTANGIBLES
- -------------------------------------------
CUSTOMER AND SERVICE ACCOUNTS 39,867,184 39,867,184
COVENANTS NOT TO COMPETE 3,286,824 3,286,824
GOODWILL 49,249,316 49,249,316
OTHER INTANGIBLES 455,672 423,046
------------ ------------
92,858,996 92,826,370
LESS: ACCUMULATED AMORTIZATION 24,522,379 18,863,920
------------ ------------
68,336,617 73,962,450
LONG-TERM NOTES RECEIVABLE 1,525,607 990,694
DEFERRED DEBT COSTS & OTHER 3,564,421 4,080,416
------------ ------------
TOTAL ASSETS $120,520,262 $125,277,084
============ ============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2
<PAGE>
GRIFFITH CONSUMERS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
------------- -------------
MARCH 31, JUNE 30,
1998 1997
LIABILITIES AND SHAREHOLDER'S EQUITY: (Unaudited)
- ------------------------------------------ ------------- -------------
CURRENT LIABILITIES:
ACCOUNTS PAYABLE $ 6,493,641 $ 8,708,702
ACCRUED EXPENSES 4,038,001 3,400,181
DEFERRED REVENUE 2,629,008 3,189,405
OTHER TAXES PAYABLE 2,534,667 1,536,084
CURRENT PORTION OF LONG-TERM DEBT- 2,009,572 5,448,956
------------- -------------
TOTAL CURRENT LIABILITIES 17,704,889 22,283,328
LONG-TERM DEBT, LESS CURRENT PORTION 87,509,457 85,107,114
DEFERRED REVENUE 2,112,053 1,089,414
DEFERRED INCOME TAXES 4,773,142 5,882,534
POST-RETIREMENT EMPLOYEE BENEFITS
AND OTHER 1,751,242 1,803,830
------------- -------------
TOTAL LIABILITIES 113,850,783 116,166,220
SHAREHOLDER'S EQUITY
- ------------------------------------------
COMMON STOCK, par value $.01 per share,
1,000 shares, authorized, issued and
outstanding 10 10
ADDITIONAL PAID-IN CAPITAL 20,691,314 20,691,314
RETAINED DEFICIT (14,021,845) (11,580,460)
------------- -------------
TOTAL SHAREHOLDER'S EQUITY 6,669,479 9,110,864
TOTAL LIABILITIES AND ------------- -------------
SHAREHOLDER'S EQUITY $ 120,520,262 $ 125,277,084
============= =============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
GRIFFITH CONSUMERS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
----------- -----------
JAN 1, 1998 - JAN 1, 1997 -
MAR 31, 1998 MAR 31, 1997
(Unaudited) (Unaudited)
----------- -----------
SALES FROM PETROLEUM PRODUCTS $52,699,480 $65,881,597
SERVICE, EQUIPMENT, AND OTHER SALES 14,199,735 10,764,416
----------- -----------
TOTAL SALES 66,899,215 76,646,013
COST OF SALES 47,282,609 58,797,775
----------- -----------
GROSS PROFIT 19,616,606 17,848,238
SELLING, GENERAL, AND ADMINISTRATIVE
EXPENSES 11,341,486 11,168,472
DEPRECIATION EXPENSE 1,498,070 1,319,819
AMORTIZATION EXPENSE 1,967,447 2,034,581
----------- -----------
OPERATING INCOME 4,809,603 3,325,366
INTEREST EXPENSE 2,680,033 2,681,950
OTHER INCOME 485,408 541,584
----------- -----------
INCOME BEFORE INCOME TAX 2,614,978 1,185,000
INCOME TAX EXPENSE 895,373 486,841
----------- -----------
NET INCOME $ 1,719,605 $ 698,159
=========== ===========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE>
GRIFFITH CONSUMERS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
------------- -------------
JUL 1, 1997 - JUL 1, 1996 -
MAR 31, 1998 MAR 31, 1997
(Unaudited) (Unaudited)
------------- -------------
SALES FROM PETROLEUM PRODUCTS $ 161,413,925 $ 176,604,550
SERVICE, EQUIPMENT, AND OTHER SALES 42,096,960 35,208,481
------------- -------------
TOTAL SALES 203,510,885 211,813,031
COST OF SALES 156,174,706 168,796,666
------------- -------------
GROSS PROFIT 47,336,179 43,016,365
SELLING, GENERAL, AND ADMINISTRATIVE
EXPENSES 33,620,631 31,815,561
DEPRECIATION EXPENSE 4,636,844 3,896,281
AMORTIZATION EXPENSE 6,087,188 5,924,964
------------- -------------
OPERATING INCOME 2,991,516 1,379,559
INTEREST EXPENSE 8,092,693 7,964,184
OTHER INCOME 1,385,786 1,368,994
------------- -------------
LOSS BEFORE INCOME TAX (3,715,391) (5,215,631)
INCOME TAX BENEFIT (1,274,006) (1,792,427)
------------- -------------
NET LOSS $ (2,441,385) $ (3,423,204)
============= =============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
<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, 1996 1,000 10 20,691,314 (5,132,900) 15,558,424
Net Loss - - - (6,447,560) (6,447,560)
----------- -------- ------------ ------------ -------------
Balance June 30, 1997 1,000 10 20,691,314 (11,580,460) 9,110,864
Net Loss - - - (2,441,385) (2,441,385)
----------- -------- ------------ ------------ -------------
Balance March 31, 1998 1,000 10 20,691,314 (14,021,845) 6,669,479
============================================================================================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6
<PAGE>
GRIFFITH CONSUMERS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
------------ ------------
JUL 1, 1997 - JUL 1, 1996 -
MAR 31,1998 MAR 31,1997
(Unaudited) (Unaudited)
------------ ------------
<S> <C> <C>
Operating activities
Net loss ($ 2,441,385) ($ 3,423,204)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation 4,636,844 3,896,281
Amortization 6,087,188 5,924,964
Provision for bad debts 268,000 242,000
Amortization of bond discount 136,581 114,330
Gain on sale of property, plant, equipment, and intangibles (46,928) (94,564)
Changes in operating assets and liabilities
Accounts and notes receivable (4,723,828) (3,778,905)
Inventory (44,968) (2,451,215)
Prepaid expenses and other 14,198 (423,750)
Refundable taxes, net 414,721 (746,551)
Other assets 54,640 898,758
Accounts payable (2,215,061) 2,278,702
Accrued expenses 637,820 904,322
Deferred revenue 462,242 (453,049)
Other liabilities (163,396) (533,631)
------------ ------------
Net cash provided by operating activities 3,076,668 2,354,488
Investing activities
Purchases of property, plant, and equipment (2,376,816) (3,084,025)
Proceeds from sale of property, plant, and equipment,
and intangible assets 68,632 354,314
Acquisition of business -- (18,353,059)
Acquisition costs -- (2,050,000)
------------ ------------
Net cash used in investing activities (2,308,184) (23,132,770)
Financing activities
Proceeds from line of credit -- 4,100,000
Proceeds from term loans 250,000 21,850,000
Payments on long-term debt (1,423,623) (3,667,097)
------------ ------------
Net cash (used in) provided by financing activities (1,173,623) 22,282,903
------------ ------------
(Decrease) Increase in cash (405,139) 1,504,621
Cash at beginning of period 3,212,107 1,687,443
------------ ------------
Cash at end of period $ 2,806,968 $ 3,192,064
============ ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7
<PAGE>
Griffith Consumers Company And Subsidiaries
March 31, 1998
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.
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 C - 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 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. Certain amounts in the consolidated balance sheet for the year
ended June 30, 1997 have been reclassified to conform to the March 31, 1998
8
<PAGE>
presentations.
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, operating results for the nine months ended March 31, 1998 do not
necessarily indicate the results that may be expected for the fiscal year ended
June 30, 1998. 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, 1997.
During the second quarter of 1998 Griffith entered into a weather insurance
contract that expired in March 1998. The contract was structured such that
Griffith could receive from $0 to $3 million based on the number of heating
degree days. The Company paid approximately $300,000 to enter into the contract.
This premium represented the maximum exposure to the Company for this
transaction and is included in cost of goods sold in the accompanying financial
statements. The Company received approximately $2.3 million under the plan and
has included these amounts as revenue in the accompanying financial statements.
Because the Company is in the business of selling heating oil, for which winter
temperatures largely affect demand, this hedge served to offset decrease in
sales caused by warm temperatures. In the event of cooler weather the premium
would be lost, however it is reasonable to assume that had temperatures been
cooler demand for heating oil would have increased.
Note C -- 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 of the predecessor(the
"Mortgage Notes") on several properties were assumed by the Company. 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 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
9
<PAGE>
the Mortgage Notes and Regent Note on these properties. As of March 31, 1998,
the amount of the revolving credit facility borrowings outstanding was
$6,400,000 and the maximum drawing amount under outstanding letters of credit
was $2,583,000. From July 1, 1997 to March 31, 1998, the Company has paid
$3,479,000 of interest and $1,208,000 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"), debt
service coverage ratio, minimum EBITDA, and an EBITDA to interest ratio.
In addition to borrowings under the Prior Credit Agreement, the Company has
$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 amended the Prior Credit Agreement (including its amendment and
restatement in connection with the Shore Stop Acquisition), the Credit
Agreement, and the Indenture on several occasions during the fiscal years ended
prior to June 30, 1997, which among other things, revised certain financial
covenants contained therein. On August 29, 1997 the Company amended the Credit
Agreement to increase the amount of term loan borrowings then outstanding
thereunder from $49,850,000 to $50,100,00. The amendment also revised certain
financial covenants contained therein and the term loan repayment schedule. On
September 26, 1997, the Company again amended the Credit Agreement to revise the
definition of eligible petroleum, which term is used in calculating borrowing
base. On December 15, 1997, the Company further amended the Credit Agreement to
temporarily increase the amount of revolving credit facility borrowings
available from $13,000,000 to $16,000,000. The increase in borrowings was
available from December 15, 1997 to March 31,1998. The Company received a
waiver, dated as of March 31, 1998, under the Credit Agreement regarding
compliance with a financial covenant contained therein as of such date, and is
currently in compliance with the covenants contained in the Credit Agreement and
the Indenture, as amended and/or waived.
10
<PAGE>
Footnote D--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 results of operations.
Note E--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, 1998 and June 30, 1997, the combined condensed
statements of operations and cash flows for the periods July 1, 1997 through
March 31, 1998 and July 1, 1996 through March 31, 1997 and the statement of
changes in shareholder's equity from June 30, 1996 to March 31, 1998.
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. 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.
11
<PAGE>
CARL KING, INC., FREDERICK TERMINALS, INC., AND SHORE STOP CORPORATION
COMBINED CONDENSED BALANCE SHEETS
----------- -----------
March 31 June 30
1998 1997
ASSETS: (Unaudited)
----------- -----------
Current assets $ 8,791,518 $ 8,420,729
Net property, plant and equipment 17,913,235 19,322,128
Net intangibles 21,957,123 23,416,596
Other 2,168,565 2,372,638
----------- -----------
$50,830,441 $53,532,091
=========== ===========
Liabilities and Shareholder's Equity:
Current liabilities $ 6,741,534 $12,303,935
Due to Parents 5,232,263 4,142,706
Long-term debt, less current portion 35,022,312 34,681,538
Other liabilities 3,201,265 1,117,377
Shareholder's equity 180,031 1,286,535
----------- -----------
$50,377,405 $53,532,091
=========== ===========
CARL KING, INC., FREDERICK TERMINALS, INC., AND SHORE STOP CORPORATION
COMBINED CONDENSED STATEMENTS OF OPERATIONS
------------- -------------
Jul 1, 1997 - Jul 1, 1996 -
Mar 31, 1998 Mar 31, 1997
(Unaudited) (Unaudited)
------------- -------------
Total sales $ 137,908,992 $ 133,892,839
Cost of sales 114,624,069 113,930,372
------------- -------------
Gross profit 23,284,923 19,962,467
Selling, general, and administrative
expenses 17,972,752 16,285,750
Depreciation expense 3,609,723 2,809,725
Amortization expense 1,653,989 1,648,136
------------- -------------
Operating income 48,459 (781,144)
Interest expense 3,085,761 3,103,295
Other income 922,757 1,158,385
------------- -------------
Loss before income tax (2,114,545) (2,726,054)
Income tax benefit (1,008,041) (1,121,033)
------------- -------------
Net loss $ (1,106,504) $ (1,605,021)
============= =============
12
<PAGE>
CARL KING, INC., FREDERICK TERMINALS, INC., AND SHORE STOP CORPORATION
COMBINED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
Unaudited
Investment Retained Total
By Earnings Shareholder's
Parent (Deficit) Equity
---------------------------------------------
Balance June 30, 1996 5,792,610 ($1,989,160) 3,803,450
Net loss -- (2,516,915) (2,516,915)
----------- ----------- -----------
Balance June 30, 1997 $ 5,792,610 ($4,506,075) $ 1,286,535
Net loss -- (1,106,504) (1,106,504)
----------- ----------- -----------
March 31, 1998 $ 5,792,610 ($5,612,579) $ 180,031
================================================================================
CARL KING, INC., FREDERICK TERMINALS, INC., AND SHORE STOP CORPORATION
COMBINED CONDENSED STATEMENTS OF CASH FLOWS
------------ ------------
Jul 1, 1997 - Jul 1, 1996 -
Mar 31, 1998 Mar 31, 1997
(Unaudited) (Unaudited)
------------ ------------
Operating activities $3,038,732 $3,682,569
Investment activities (2,149,800) (22,202,900)
Financing activities (411,654) 20,760,815
---------- ----------
Increase in cash 477,278 2,240,484
Cash at beginning of year 941,748 $953,234
---------- ----------
Cash at end of year $1,419,026 $3,193,718
========== ==========
13
<PAGE>
Griffith Consumers Company and Subsidiaries
March 31, 1998
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
Except for historical information, statements in this Management's Discussion
and Analysis of Financial Condition and Results of Operations are forward
looking. 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 undertakes no obligation and does not intend to update,
revise or otherwise publicly release the result of any revisions to any forward
looking statement contained herein that may be made to reflect future events or
circumstances.
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 ("Shore Stop"), acquired certain assets ("Shore Stop Acquisition")
used in the operations of a chain of 49 convenience stores and retail gasoline
stations within the states
14
<PAGE>
of Maryland, Delaware, and Virginia, under the "Shore Stop" trade name and a
dealer petroleum sales business supplying 31 dealers from two facilities located
in Virginia and Maryland (the "Shore Stop Operations") from Regent Investments,
Inc., Delaware Investments, Inc. and Mid-Atlantic Investments, Inc., each a
Virginia corporation (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.
As a result of the Shore Stop Acquisition, the financial statements for the nine
months ended March 31, 1998 are not directly comparable to the consolidated
financial statements of the Company for the nine month period ended March 31,
1997. 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 1998 Versus 1997
References to particular years, unless otherwise indicated, are references to
the third quarter of the fiscal year for the year indicated.
Net income for 1998 was $1,720,000, compared to net income of $698,000 for the
same period in 1997, an increase of 146%. The increase in net income was due
primarily to the reasons outlined below.
Total sales decreased by $9,747,000 or 13% to $66,899,000 for 1998, from
$76,646,000 during 1997. The decrease was primarily due to a 16% and 12%
decrease in heating oil volume and price per gallon, respectively. The weather
was 18.2% warmer than normal in the third quarter of 1998. In addition, motor
fuels volume and price per gallon decreased 3% and 14%, respectively. These
decreases were partially offset by a 32% increase in service, equipment, and
other sales from $10,764,000 to $14,200,000. This increase is primarily due to
increased sundry sales and income derived from a weather insurance contract
("Weather Contract") that expired on March 31, 1988. The sundry sales increase
was primarily due to the net addition by Shore Stop and Carl King, Inc. ("King")
of four retail gasoline stations and convenience stores in the twelve months
ended March 31, 1998.
Cost of sales for 1998 was $47,283,000, a decrease of $11,515,000, or 20%,from
1997. The decrease in cost of sales was primarily due to a 16% and 23% decrease
in the sales volume and cost per gallon
15
<PAGE>
of heating oil, respectively. Additionally, the volume and cost per gallon of
motor fuels decreased by 3% and 18%, respectively.
Gross profit for 1998 was $19,617,000, an increase of $1,768,000, or 10%, from
1997. The increase was primarily due to the income derived from Weather
Insurance and increased sundry gross profits that were partially offset by a
decrease in gross profit from the sales of heating oil due to lower sales.
Selling, general and administrative expenses ("SG&A") for 1998 were $11,341,000,
an increase of $173,000, or 2%, compared to 1997. The increase was due primarily
to increased operating costs associated with a net increase of four gasoline
stations from fiscal year 1997 to 1998.
Depreciation expense for 1998 was $1,498,000, an increase of $178,000, or 14%,
from 1997. The increase is due primarily to the depreciation on assets acquired
through capital expenditures made in the twelve months ended March 31, 1998.
Results of Operations for Nine Months Ended March 31 of 1998 Versus 1997
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 1998 was $2,441,000, compared to a net loss of $3,423,000 for
the same period in 1997, a decrease of 29%. The decrease in net loss was due
primarily to the reasons outlined below.
Total sales decreased by $8,302,000 or 4% to $203,511,000 for 1998, from
$211,813,000 during 1997. The decrease was primarily due to a 14% and 11%
decrease in heating oil volume and price per gallon, respectively. The weather
was 15% warmer than normal during the winter heating months of December though
March. In addition, the sales price per gallon of motor fuels decreased by 5%.
The decrease was partially offset by a 20% increase in service, equipment, and
other sales from $35,208,000 to $42,097,000. This $6,889,000 increase was
primarily due to an increase in sundry sales and revenue derived from Weather
Insurance. The sundry sales increase was due to two factors, the primary factor
being the net addition of four retail gasoline stations and convenience stores
in 1998 and ten fewer days of Shore Stop Operations in fiscal year 1997 because
the Shore Stop Acquisition occurred on July 11, 1996.
Cost of sales for 1998 was $156,175,000, a decrease of $12,622,000, or 7%,from
1997. The decrease in cost of sales was primarily due to
16
<PAGE>
a 14% and 21% decrease in the sales volume and cost per gallon of heating oil,
respectively, and an 8% decrease in cost per gallon of motor fuels. This
decrease was partially offset by an increase in cost of sundry sales due to
increased sundry sales.
Gross profit for 1998 was $47,336,000, an increase of $4,320,000, or 10%, from
1997. The increase is primarily due to increased sundry gross profit and income
derived from Weather Insurance. Additionally, gross profit increased from higher
motor fuels gross profit due to increased volume and higher margins per gallon
offset by lower gross profit from heating oil due to decreased sales.
Selling, general and administrative expenses ("SG&A") were $33,621,000, an
increase of $1,805,000, or 6%, compared to 1997. The increase was due primarily
to the net increase of four stations from fiscal year 1997 to fiscal year 1998
and an increase in operating costs associated with increased motor fuels volume.
Additionally, there were increased operating costs related to ten additional
days of Shore Stop Operations in fiscal year 1998 in comparison to fiscal year
1997.
Depreciation expense for 1998 was $4,637,000, an increase of $741,000, or 19%,
from 1997. Amortization expense for 1998 increased by $162,000, or 3%, to
$6,087,000. The increases were primarily the result of the depreciation and
amortization on assets acquired through capital expenditures made in the twelve
months ended March 31, 1998. Additionally, there were an additional 10 days of
depreciation and amortization of assets acquired in the Shore Stop Acquisition
during 1998.
Financial Condition
Accounts and notes receivable increased $3,921,000, or 35%, to $15,104,000 from
June 30, 1997. The increase was due primarily to a receivable related to Weather
Insurance received subsequent to March 31, and the seasonal nature of the
business.
Other taxes receivable decreased $559,000 from $906,000 at June 30, 1997 to
$347,000 at March 31, 1998 due to the receipt of motor fuel tax refunds during
1998.
Long-term notes receivable increased $535,000 to $1,526,000 at March 31, 1998
due to the increase in notes relating to certain gasoline dealer customers.
Subsequent to March 31, 1998, approximately $500,000 was collected from gasoline
dealers.
Deferred debt costs and other decreased $516,000 from $4,080,000 to $3,564,000.
The decrease was the result of the amortization of the capitalized finance costs
and other costs related to the Shore Stop
17
<PAGE>
Acquisition and the 1994 Acquisition.
Accounts payable decreased $2,215,000 to $6,494,000. The decrease in payables is
primarily due to a decrease in motor fuels payables related to the seasonal
nature of the business. This decrease was partially offset by an increase in
heating oil payables.
Accrued expenses increased $638,000 from $3,400,000 to $4,038,000. The increase
is due primarily to an increase in accrued interest related to the Notes.
Short term deferred revenue decreased by $560,000, or 18%. Such decrease is
primarily due to the timing of the receipt of payments on the Company's burner
service contracts. This decrease was partially offset by payments received from
major oil companies in connection with branding certain company-operated
gasoline stations.
Other taxes payable increased $999,000, or 65%, to $2,535,000 due primarily to
an increase in excise and sales taxes due to states because of increased oil
sales during the winter heating months from December to March.
In August of 1997, the Company amended the Credit Agreement (as defined) to
increase the amount of term loan borrowings outstanding thereunder from
$49,850,000 to $50,100,000, and to revise the term loan repayment schedule and
certain financial covenants contained therein (the "August 1997 Amendment").
Current portion of long-term debt decreased $3,439,000 to $2,010,000 primarily
due to the revision of the term debt payment schedule pursuant to the August
1997 Amendment. Long term debt, less current portion, increased due to the
revision of the term debt payment schedule and increased term loan borrowings
pursuant to the August 1997 Amendment, partially offset by the payment of
scheduled Credit Agreement principal payments.
Long term deferred revenue increased $1,023,000 from $1,089,000 to $2,112,000
primarily due to payments received from major oil companies in connection with
branding certain company-operated gasoline stations.
Deferred income taxes decreased $1,110,000, or 19%, from $5,883,000 to
$4,773,000 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.
18
<PAGE>
Net cash provided by operating activities was $3,077,000 for the nine months
ended March 31, 1998 compared to $2,354,000 of net cash provided by operating
activities for the nine months ended March 31, 1997, an increase of $723,000 or
31%. Such increase was primarily the result of a decrease in net loss, after
adjusting for non-cash expenses, and a net decrease in operating assets and
liabilities, in 1998 from 1997.
Net cash used in investing activities decreased by $20,825,000 from $23,133,000
for the nine months ended March 31, 1997 to $2,308,000 for the nine months ended
March 31, 1998. The decrease was primarily the result of the Shore Stop
Acquisition which occurred in July 1996.
Net cash used in financing activities was $1,174,000 for the nine months ended
March 31, 1998. Net cash provided by financing activities was $22,283,000 for
the nine months ended March 31, 1997. The decrease in cash provided by financing
activities was primarily the result of the financing of the Shore Stop
Acquisition in fiscal year 1997.
The Company believes that cash flow provided from operations, supplemented by
the Credit Agreement's revolving credit facility, will provide sufficient funds
to meet the Company's liquidity needs for current operations and internal
growth.
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. The Company again amended the Credit Agreement and amended the
Indenture (the "Indenture") governing the Company's 14 1/2% Senior Subordinated
Notes due December 15, 2004 (the "Notes") as of March 15, 1997 to revise certain
financial covenants contained therein. In addition, the August 1997 Amendment
increased the amount of term borrowings then outstanding thereunder from
$49,850,000 to $50,100,000. The August 1997 Amendment also revised certain
financial covenants contained therein and the Credit Agreement's term loan
repayment schedule. On September 26, 1997, the Company further amended the
Credit Agreement to revise the definition of eligible petroleum inventory, which
term is used in calculating borrowing base. On December 15, 1997, the Company
again amended the Credit Agreement to, among other things, increase the amount
of the
19
<PAGE>
revolving credit facility from $13,000,000 to $16,000,000 during the period from
December 15, 1997 through March 31, 1998. The Company received a waiver, dated
as of March 31, 1998, under the Credit Agreement regarding compliance with a
financial covenant contained therein as of such date, and is currently in
compliance with the covenants contained in the Credit Agreement and the
Indenture, as amended and/or waived.
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, 1997 through the date hereof, the Company's peak total usage
of the revolving credit facility was approximately $8.9 million in outstanding
borrowings and $2.6 million in maximum drawing amount under Letters of Credit.
At April 30, 1998, there were $800,000 in borrowings and $2.6 million in letters
of credit outstanding with respect to the revolving credit facility, leaving
subject to meeting certain borrowing base tests, $9,600,000 available for use
thereunder. The revolving portion of the Credit Agreement expires in 1999 and
the Company will likely be required to replace the revolving portion at such
time.
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. Although the
Company believes that the expectations reflected in such forward looking
statements are reasonable, it can give no assurance that such expectations will
prove to have been correct. The Company cautions that these forward looking
statements contained herein 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. The Company does not intend to
update these forward looking statements.
20
<PAGE>
Griffith Consumers Company and Subsidiaries
March 31, 1998
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
27 Financial Data Schedule
(b) Report on Form 8-K
None
21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized on the 15th day of May 1998.
GRIFFITH CONSUMERS COMPANY
Registrant
/S/ Raymond R. McKenzie, Jr.
- ------------------------------------------
Raymond R. McKenzie, Jr., Vice
President Finance (Authorized Officer and
Principal Financial Officer)
CARL KING, INC.
Registrant
/S/ Raymond R. McKenzie, Jr.
- ------------------------------------------
Raymond R. McKenzie, Jr., Vice
President (Authorized Officer and
Principal Financial Officer)
FREDERICK TERMINALS, INC.
Registrant
/S/ Raymond R. McKenzie, Jr.
- ------------------------------------------
Raymond R. McKenzie, Jr., Secretary
(Authorized Officer and Principal
Financial Officer)
22
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MARCH
31, 1998 10Q OF GRIFFITH CONSUMERS COMPANY AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENT.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 2,807
<SECURITIES> 0
<RECEIVABLES> 17,527
<ALLOWANCES> 898
<INVENTORY> 5,044
<CURRENT-ASSETS> 26,264
<PP&E> 36,863
<DEPRECIATION> 16,033
<TOTAL-ASSETS> 120,520
<CURRENT-LIABILITIES> 17,705
<BONDS> 31,770
0
0
<COMMON> 20,691
<OTHER-SE> (14,022)
<TOTAL-LIABILITY-AND-EQUITY> 120,520
<SALES> 200,327
<TOTAL-REVENUES> 203,511
<CGS> 155,636
<TOTAL-COSTS> 156,175
<OTHER-EXPENSES> 44,345
<LOSS-PROVISION> 268
<INTEREST-EXPENSE> 8,093
<INCOME-PRETAX> (3,715)
<INCOME-TAX> (1,274)
<INCOME-CONTINUING> (2,441)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,441)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
