1
SELECTED FINANCIAL DATA
-------------------------
GETTY REALTY CORP. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL DATA Years ended January 31,
----------------------------------------------------------------
(in thousands, except per share amounts) 2000 1999 1998 (a) 1997 (a) 1996 (a)
--------- --------- ---------- ---------- ----------
Total revenues $ 63,859 $ 61,341 $ 62,817 $ 892,456 $ 798,967
Earnings (loss) from continuing operations
before income taxes and cumulative effect
of accounting change
26,105 12,838 13,546(b) (14,395)(c) 21,058
Net earnings (loss) 15,014 10,056 7,944 (9,176) 12,634(d)
Diluted earnings (loss) per common share:
Continuing operations .73 .17 .59 (.74) .97(d)
Discontinued operations -- .19 .01 .01 .02
Net earnings (loss) .73 .36 .60 (.72) 1.00(d)
Cash dividends per share:
Preferred 1.775 1.775 -- -- --
Common .40 .40 .12 .12 .06
Total assets 260,752 261,084 265,661 290,664 275,006
Total debt 43,993 39,742 40,526 41,592 51,586
Stockholders' equity 141,811 138,031 138,593 100,472 110,574
(a) Includes financial results of the petroleum marketing business prior to its
spin-off to the Company's stockholders on March 21, 1997.
(b) Includes $7,918 of aggregate pre-tax charges consisting of $8,683 of stock
compensation expense and $2,166 of change of control charges, net of $2,931
of equity in earnings of petroleum marketing business for the period from
February 1, 1997 to March 21, 1997.
(c) Includes pre-tax charges aggregating $28,677 consisting of $21,182 related
to revision of estimate of future environmental remediation costs, $5,802
related to the settlement of a dispute involving the Company's former
construction company subsidiary and $1,693 of expenses related to the
spin-off transaction.
(d) Includes after-tax charge of $794 or $.06 per share from the cumulative
effect of adopting Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of."
PRO FORMA SUPPLEMENTAL FINANCIAL HIGHLIGHTS AND SELECTED DATA (Unaudited)
(in thousands, except number of properties) 2000 1999 1998(e) 1997(e) 1996(e)
-------- -------- -------- -------- --------
FISCAL YEAR ENDED JANUARY 31,
Revenues from rental properties $ 58,889 $ 58,869 $ 59,449 $ 58,653 $ 57,177
Other income 4,970 2,472 3,368 1,570 5,726
-------- -------- -------- -------- --------
Total revenues 63,859 61,341 62,817 60,223 62,903
Adjusted EBITDA (f) 41,519 39,874 41,516 45,259 41,048
Net earnings 15,014 10,056 6,213 6,049 8,970(d)
Capital expenditures 14,979 25,222 11,259 6,913 6,260
AS OF JANUARY 31,
Real estate before accumulated depreciation 316,002 307,793 284,092 190,524 183,621
Total assets 260,752 261,084 265,661 155,164 150,508
Capitalization:
Total debt 43,993 39,742 40,526 41,592 51,586
Stockholders' equity 141,811 138,031 138,593 45,931 60,263
-------- -------- -------- -------- --------
Total capitalization 185,804 177,773 179,119 87,523 111,849
NUMBER OF PROPERTIES:
Owned 757 740 736 441 439
Leased 361 379 404 732 734
-------- -------- -------- -------- --------
Total properties 1,118 1,119 1,140 1,173 1,173
(e) Excludes the petroleum marketing business which was spun-off on March 21,
1997. This data is presented for informational purposes only and is not
necessarily indicative of the financial results that would have occurred
had Realty been operated as separate, stand-alone entity during such
periods nor is the information presented necessarily indicative of future
results.
(f) Adjusted EBITDA is defined as earnings from continuing operations before
interest expense, income taxes, depreciation and amortization, adjusted to
exclude environmental expense, stock option, change of control and
litigation items and other income (except mortgage receivable interest
income). Adjusted EBITDA provides additional information for evaluating
financial results and is presented solely as a supplemental measure.
Adjusted EBITDA is not intended to represent cash flow and should not be
construed as an alternative to either cash flow, net income, or any other
measure of financial performance presented in accordance with generally
accepted accounting principles.
6
2
MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------
GETTY REALTY CORP. AND SUBSIDIARIES
GENERAL
Prior to the spin-off of its petroleum marketing business to
stockholders on March 21, 1997, Getty Realty Corp. was principally engaged in
the ownership and leasing of real estate as well as the marketing and
distribution of petroleum products. In December 1998, we sold the Pennsylvania
and Maryland heating oil business. The results of operations of the heating oil
business have been reclassified as discontinued in the accompanying financial
statements for the years ended January 31, 1999 and 1998. We are now a real
estate company specializing in service stations, convenience stores and
petroleum marketing terminals. We lease most of our properties on a long-term
net basis to the spun-off company, Getty Petroleum Marketing Inc. ("Marketing").
In order to make the following discussion of our results of operations
more meaningful, the financial results of the spun-off petroleum marketing
business and the sold heating oil business, which is shown as a discontinued
operation, have been excluded from the narrative presented below. The net
earnings of Marketing included in the accompanying consolidated statement of
operations for the period prior to its spin-off, February 1, 1997 to March 21,
1997, were $1.7 million. The net earnings of the discontinued heating oil
business were $2.6 million and $0.1 million for the fiscal years ended January
31, 1999 and 1998, respectively. See Notes 2 and 3 to the consolidated financial
statements for separate financial information relating to the spun-off petroleum
marketing business and the discontinued heating oil business.
Our financial results largely depend on rental income from Marketing
and other lessees and sublessees. Our financial results are materially dependent
upon the ability of Marketing to meet its obligations under the master lease
entered into on February 1, 1997 (the "Master Lease"); however, we do not
anticipate that Marketing will have difficulty in making all required rental
payments in the foreseeable future.
RESULTS OF OPERATIONS
FISCAL YEAR ENDED JANUARY 31, 2000 COMPARED TO FISCAL YEAR ENDED JANUARY 31,
1999
Revenues from rental properties for each of the years ended January 31,
2000 ("fiscal 2000") and 1999 ("fiscal 1999") were $58.9 million. Approximately
$56.4 million of these rentals for each fiscal year were from properties leased
to Marketing under the Master Lease.
Other income was $5.0 million for fiscal 2000 as compared with $2.5
million for fiscal 1999. The $2.5 million increase was primarily due to higher
gains on dispositions of real estate of $1.8 million and the settlement of a
lawsuit resulting in the elimination of a $1.2 million reserve, partially offset
by lower investment income.
Rental property expenses, which are principally comprised of rent
expense and real estate taxes, decreased from fiscal 1999 by $0.8 million (6.1%)
to $12.1 million for fiscal 2000 due to a reduction in the number of properties
leased.
Environmental and maintenance expenses for fiscal 2000 were $6.8
million, a decrease of $10.5 million from the prior year. The current year
included an environmental charge of $6.6 million, of which $4.4 million
represented a change in estimated remediation costs associated with
contamination discovered during work performed to meet certain federal
underground storage tank standards and revisions to estimates at other sites
where remediation is ongoing. The prior year included an environmental charge of
$16.9 million, of which $14.8 million represented a change in estimated
remediation costs or revisions to prior estimates.
General and administrative expenses for fiscal 2000 were $5.6 million,
a decrease of $0.5 million from the prior year. The decrease was principally due
to lower legal and professional fees, partially offset by a higher retrospective
insurance charge relating to the spun-off petroleum marketing business. Included
in general and administrative expenses for fiscal 2000 and 1999 are $749
thousand and $960 thousand, respectively, of net fees paid by the Company to
Marketing for certain administrative and technical services performed under a
services agreement.
Depreciation and amortization for fiscal 2000 was $10.4 million, an
increase of $1.0 million over the prior year as a result of capital expenditures
and property acquisitions.
Interest expense for fiscal 2000 was $2.7 million, comparable to fiscal
1999.
7
3
MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
----------------------------------------------
GETTY REALTY CORP. AND SUBSIDIARIES
FISCAL YEAR ENDED JANUARY 31, 1999 COMPARED TO FISCAL YEAR ENDED JANUARY 31,
1998
Revenues from rental properties for fiscal 1999 were $58.9 million, a
1.0% decrease from the $59.4 million realized for the year ended January 31,
1998 ("fiscal 1998"). Approximately $56.4 million and $57.0 million of these
rentals for fiscal 1999 and 1998, respectively, were from properties leased to
Marketing under the Master Lease.
Other income was $2.5 million for fiscal 1999 as compared with $3.4
million for fiscal 1998. The $0.9 million decrease was primarily due to $0.7
million of management fees for administrative and other services provided to
Power Test Investors Limited Partnership ("PTI") in fiscal 1998, which were
eliminated as a result of the merger of PTI into the Company on January 30,
1998.
Rental property expenses, which are principally comprised of rent
expense and real estate taxes, decreased from fiscal 1998 by $0.7 million (5.0%)
to $12.9 million for fiscal 1999 due to a decrease in the number of properties
leased.
Environmental and maintenance expenses for fiscal 1999 were $17.3
million, an increase of $8.7 million from the prior year. Fiscal 1999 included
an environmental charge of $16.9 million, of which $14.8 million represented a
change in estimated remediation costs associated with contamination discovered
during work performed to meet the federal underground storage tank standards and
revisions to estimates on previously identified sites where remediation is
ongoing. The prior year included an environmental charge of $8.3 million, of
which $6.2 million represented a change in estimated remediation costs or
revisions to prior estimates.
General and administrative expenses for fiscal 1999 were $6.1 million,
a decrease of $7.2 million from the prior year. The decrease was principally due
to a charge of $8.7 million recorded during fiscal 1998 for stock compensation
resulting from a change in the Company's stock price, partially offset by higher
insurance costs, legal and other professional fees during fiscal 1999.
Depreciation and amortization for fiscal 1999 was $9.4 million,
comparable to fiscal 1998.
Interest expense for fiscal 1999 was $2.7 million, a decrease of $2.3
million from the prior year. The decrease was principally due to the elimination
of capitalized lease obligations as a result of the merger of PTI into the
Company on January 30, 1998.
During fiscal 1998, the Company recorded a charge of $2.2 million
related to change of control agreements in connection with the spin-off of
Marketing.
LIQUIDITY AND CAPITAL RESOURCES
Our principal sources of liquidity are cash flows from our business and
short-term uncommitted lines of credit with two banks. Management believes that
cash requirements for our business, including capital expenditures and debt
service can be met by cash flows from operations, available cash and equivalents
and credit lines. As of January 31, 2000, we had lines of credit amounting to
$25 million, which may be utilized for working capital borrowings and letters of
credit. As of January 31, 2000, we were utilizing $14.8 million of the lines of
credit for short-term borrowings and $3.1 million in connection with outstanding
letters of credit. Borrowings under the lines of credit are unsecured and bear
interest at the prime rate or, at our option, LIBOR plus 1.0% or 1.1%. The lines
of credit are subject to renewal at the discretion of the banks. Although we
expect that the existing sources of liquidity will be sufficient to meet our
expected business and debt service requirements, we may be required to obtain
additional sources of capital in the future, which we believe are available.
In order to improve cash flow for fiscal 2001, we recently negotiated
an extension of the maturity date of a $23 million mortgage loan from November
1, 2000 to March 1, 2005. The mortgage loan calls for monthly principal payments
of $175,000 with the balance payable on maturity in 2005.
During fiscal 2000 and 1999, we declared quarterly cash common stock
dividends of $.10 per share and quarterly preferred stock dividends of $.44375
per share. These dividends aggregated $10.6 million for each of fiscal 2000 and
1999. During the first quarter of fiscal 2001, the Board increased the quarterly
cash common stock dividend to $.15 per share.
8
4
continued
---------------------------------
GETTY REALTY CORP. AND SUBSIDIARIES
In December 1999, the Board of Directors authorized the purchase, from
time to time, in the open market or in private transactions, of up to an
aggregate of 300,000 shares of Common Stock and Series A Participating
Convertible Redeemable Preferred Stock. As of January 31, 2000, we had
repurchased 60,016 shares of common stock and 700 shares of preferred stock at
an aggregate cost of $0.7 million. In February 2000, we completed this stock
buyback program, which resulted in the repurchase of 295,600 shares of common
stock and 4,400 shares of preferred stock at an aggregate cost of $3.6 million.
In March 2000, the Board approved the purchase of up to an aggregate of 500,000
additional shares of the Company's common and preferred stock. As of April 18,
2000, we had repurchased 460,186 shares of common and preferred stock at an
aggregate cost of $5.8 million.
Capital expenditures, including acquisitions, for fiscal 2000, 1999 and
1998 were $15.0 million, $25.2 million and $11.3 million, respectively,
including $4.7 million, $17.9 million and $8.0 million, respectively, for the
replacement of underground storage tanks and vapor recovery facilities at
gasoline stations. These expenditures and certain environmental liabilities and
obligations continue to be our responsibility after the spin-off.
ENVIRONMENTAL MATTERS
We are subject to numerous federal, state and local laws and
regulations, including matters relating to the protection of the environment.
Environmental expenses have been attributable to remediation, monitoring, soil
disposal and governmental agency reporting (collectively, "Remediation Costs")
incurred in connection with contaminated sites and the replacement or upgrading
of underground storage tanks, related piping, underground pumps, wiring and
monitoring devices (collectively, "USTs") to meet federal, state and local
environmental standards, as well as routine monitoring and tank testing.
Under the Master Lease with Marketing, we committed to a program to
bring the leased properties with known environmental problems to regulatory
closure and, thereafter, transfer all future environmental risks to Marketing.
Upon achieving closure of each individual site, our environmental liability
under the Master Lease for that site will be satisfied, and future remediation
obligations will be the responsibility of Marketing.
We have agreed to pay all costs relating to, and to indemnify Marketing
for, all known pre-spin-off environmental liabilities and obligations as
scheduled in the Master Lease, and all other environmental liabilities and
obligations arising out of discharges with respect to properties containing USTs
that had not been upgraded to meet the 1998 federal standards that were
discovered prior to the date the USTs were upgraded to meet the 1998 federal
standards (collectively, the "Realty Environmental Liabilities"). We collect
recoveries from state UST remediation funds related to the Realty Environmental
Liabilities.
Environmental exposures are difficult to assess and estimate for
numerous reasons, including the extent of contamination, alternative treatment
methods that may be applied, location of the property which subjects it to
differing local laws and regulations and their interpretations, as well as the
time it takes to remediate contamination. In developing the estimates of
environmental remediation costs, we consider, among other things, enacted laws
and regulations, assessments of contamination, currently available technologies
for treatment, alternative methods of remediation and prior experience. These
estimates are subject to change as these contingencies become more clearly
defined and remediation treatment progresses. For fiscal 2000, 1999 and 1998,
net environmental expenses included in our consolidated statements of operations
were $6.6 million, $16.9 million and $8.3 million, respectively, which amounts
were net of probable recoveries from state UST remediation funds.
9
5
MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
GETTY REALTY CORP. AND SUBSIDIARIES
As of January 31, 2000 and 1999, we had accrued $26.4 million and $34.3
million, respectively, as management's best estimate for environmental
remediation costs. As of January 31, 2000 and 1999, we had also recorded $9.9
million and $10.4 million, respectively, as management's best estimate for
recoveries from state UST remediation funds related to environmental obligations
and liabilities. In view of the uncertainties associated with environmental
expenditures, however, we believe it is possible that such expenditures could be
substantially higher. Any additional amounts will be reflected in our financial
statements as they become known. Although environmental costs may have a
significant impact on results of operations for any single fiscal year or
interim period, we believe that these costs will not have a material adverse
effect on our financial position.
We cannot predict what environmental legislation or regulations may be
enacted in the future or how existing laws or regulations will be administered
or interpreted with respect to products or activities to which they have not
previously been applied. Compliance with more stringent laws or regulations, as
well as more vigorous enforcement policies of the regulatory agencies or
stricter interpretation of existing laws which may develop in the future, could
have an adverse effect on our financial position or operations or our lessees
and could require us to make substantial additional expenditures for future
remediation or the installation and operation of required environmental or
pollution control systems and equipment.
YEAR 2000
We implemented a comprehensive program to address the Year 2000 issues
which was completed as of December 31, 1999. As a result of these efforts, we
have not experienced any disruptions to our systems or operations. The cost of
these Year 2000 efforts was not material since most of the work was performed by
Marketing personnel pursuant to the administrative services agreement. Although
unlikely, the possibility still exists that interruptions to our systems could
occur from the Year 2000 issue.
SPECIAL FACTORS REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Annual Report may constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. When we use the words "believes," "expects,"
"plans," "estimates" and similar expressions, we intend to identify
forward-looking statements. These forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause our actual
results, performance and achievements to be materially different from any future
results, performance or achievements expressed or implied by these
forward-looking statements. These factors include, but are not limited to: risks
associated with owning and leasing real estate generally; dependence on
Marketing as a lessee and on rentals from companies engaged in the petroleum
marketing and convenience store businesses; competition for locations and
tenants; risk of tenant non-renewal; the effects of regulation; our expectations
as to the cost of completing environmental remediation; and potential effects of
Year 2000 issues.
As a result of these and other factors, we may experience material
fluctuations in future operating results on a quarterly or annual basis, which
could materially and adversely affect our business, financial condition,
operating results and stock price. An investment in our stock involves various
risks, including those mentioned above and elsewhere in this report and those
which are detailed from time to time in our other filings with the Securities
and Exchange Commission.
You should not place undue reliance on forward-looking statements,
which reflect our view only as of the date hereof. We undertake no obligation to
publicly release revisions to these forward-looking statements that reflect
future events or circumstances or reflect the occurrence of unanticipated
events.
10
6
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------------
GETTY REALTY CORP. AND SUBSIDIARIES
For the years ended January 31,
-------------------------------------
(in thousands, except per share amounts) 2000 1999 1998(*)
---------- ---------- ----------
Revenues:
Revenues from rental properties $ 58,889 $ 58,869 $ 59,449
Other income 4,970 2,472 3,368
---------- ---------- ----------
63,859 61,341 62,817
Equity in earnings of Getty Petroleum Marketing Inc. -- -- 2,931
---------- ---------- ----------
63,859 61,341 65,748
---------- ---------- ----------
Rental property expenses 12,126 12,910 13,583
Environmental and maintenance expenses 6,813 17,320 8,634
General and administrative expenses 5,642 6,129 13,297
Depreciation and amortization 10,425 9,418 9,514
Interest expense 2,748 2,726 5,008
Change of control charge -- -- 2,166
---------- ---------- ----------
37,754 48,503 52,202
---------- ---------- ----------
Earnings from continuing operations before provision for income taxes 26,105 12,838 13,546
Provision for income taxes 11,091 5,337 5,697
---------- ---------- ----------
Net earnings from continuing operations 15,014 7,501 7,849
---------- ---------- ----------
Discontinued operations:
Earnings (loss) from operations, net of income taxes -- (119) 95
Gain on disposal, net of income taxes -- 2,674 --
---------- ---------- ----------
Net earnings from discontinued operations -- 2,555 95
---------- ---------- ----------
Net earnings 15,014 10,056 7,944
Preferred stock dividends 5,128 5,128 --
---------- ---------- ----------
Net earnings applicable to common stockholders $ 9,886 $ 4,928 $ 7,944
========== ========== ==========
Basic earnings per common share:
Continuing operations $ .73 $ .17 $ .60
Discontinued operations -- .19 .01
Net earnings .73 .36 .60
Diluted earnings per common share:
Continuing operations .73 .17 .59
Discontinued operations -- .19 .01
Net earnings .73 .36 .60
Weighted average common shares outstanding:
Basic 13,563 13,566 13,152
Diluted 13,565 13,571 13,348
(*) Includes financial results of the petroleum marketing business prior to its
spin-off to the Company's stockholders on March 21, 1997.
See accompanying notes.
11
7
CONSOLIDATED BALANCE SHEETS
---------------------------------
GETTY REALTY CORP. AND SUBSIDIARIES
January 31,
----------------------
(in thousands, except share data) 2000 1999
--------- ---------
ASSETS:
Real Estate:
Land $ 136,039 $ 131,976
Buildings and improvements 179,963 175,817
--------- ---------
316,002 307,793
Less--accumulated depreciation and amortization 74,502 68,045
--------- ---------
Real estate, net 241,500 239,748
Cash and equivalents 651 657
Mortgages and accounts receivable, net 6,024 6,975
Recoveries from state underground storage tank funds 9,883 10,369
Prepaid expenses and other assets 2,694 3,335
--------- ---------
Total assets $ 260,752 $ 261,084
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Borrowings under credit lines $ 14,800 $ 4,500
Mortgages payable 29,193 35,242
Accounts payable and accrued expenses 12,440 18,042
Environmental remediation costs 26,424 34,251
Deferred income taxes 36,084 30,210
Income taxes payable -- 808
--------- ---------
Total liabilities 118,941 123,053
--------- ---------
Commitments and contingencies (Notes 4 and 5)
Stockholders' equity:
Preferred stock, par value $.01 per share; authorized
20,000,000 shares for issuance in series of which 3,000,000 shares
are classified as Series A Participating Convertible Redeemable
Preferred; issued 2,888,798 at January 31, 2000 and 1999 72,220 72,220
Common stock, par value $.01 per share; authorized
50,000,000 shares; issued 13,567,335 at January 31, 2000
and 13,566,233 at January 31, 1999 136 136
Paid-in capital 67,036 67,021
Retained earnings (deficit) 3,114 (1,346)
Preferred stock held in treasury, at cost (700 shares at January 31, 2000) (14) --
Common stock held in treasury, at cost (59,916 shares at January 31, 2000) (681) --
--------- ---------
Total stockholders' equity 141,811 138,031
--------- ---------
Total liabilities and stockholders' equity $ 260,752 $ 261,084
========= =========
See accompanying notes.
12
8
CONSOLIDATED STATEMENTS OF CASH FLOWS
---------------------------------
GETTY REALTY CORP. AND SUBSIDIARIES
For the years ended January 31,
--------------------------------
(in thousands) 2000 1999 1998
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 15,014 $ 10,056 $ 7,944
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization 10,425 9,418 9,514
Deferred income taxes 5,874 491 (1,061)
Net earnings from discontinued operations -- (2,555) (95)
Gain on dispositions of real estate (3,255) (1,495) (730)
Equity in net earnings of Getty Petroleum Marketing Inc. -- -- (1,731)
Change of control charge -- -- 2,166
Stock option (credit) charge -- (110) 6,432
Changes in assets and liabilities, net of effect of
acquisitions and dispositions:
Mortgages and accounts receivable 951 547 (940)
Recoveries from state underground storage tank funds 486 5,018 830
Prepaid expenses and other assets 478 327 (1,184)
Accounts payable and accrued expenses (5,602) (484) (1,878)
Environmental remediation costs (7,827) (4,046) (7,837)
Income taxes payable (808) 808 (1,426)
-------- -------- --------
Net cash provided by continuing operating activities 15,736 17,975 10,004
Net cash provided by (used in) discontinued operations -- (1,916) 1,636
-------- -------- --------
Net cash provided by operating activities 15,736 16,059 11,640
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (4,817) (18,860) (8,057)
Property acquisitions (10,162) (6,362) (3,202)
Proceeds from disposition of discontinued operations -- 7,661 --
Proceeds from dispositions of real estate 6,220 3,419 2,234
Cash from acquisition of Power Test
Investors Limited Partnership, net -- -- 1,757
-------- -------- --------
Net cash used in investing activities (8,759) (14,142) (7,268)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under credit lines 10,300 4,500 --
Mortgage borrowings -- -- 306
Repayment of mortgages payable (6,049) (5,284) (5,287)
Payments under capital lease obligations -- -- (6,373)
Cash dividends (10,554) (10,554) (1,577)
Stock options, common and treasury stock, net (680) 46 7,208
-------- -------- --------
Net cash used in financing activities (6,983) (11,292) (5,723)
-------- -------- --------
Net decrease in cash and equivalents (6) (9,375) (1,351)
Cash and equivalents at beginning of year 657 10,032 11,383
-------- -------- --------
Cash and equivalents at end of year $ 651 $ 657 $ 10,032
======== ======== ========
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest $ 2,438 $ 2,794 $ 5,009
Income taxes, net 6,628 4,653 3,834
See accompanying notes.
13
9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------
GETTY REALTY CORP. AND SUBSIDIARIES
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation: The consolidated financial statements include the
accounts of Getty Realty Corp. and its wholly-owned subsidiaries (the
"Company"). The Company is a real estate company specializing in the ownership
and leasing of service stations, convenience stores and petroleum marketing
terminals. All significant intercompany accounts and transactions have been
eliminated.
Prior to the spin-off of its petroleum marketing business to its
stockholders on March 21, 1997, the Company was principally engaged in the
ownership and leasing of real estate as well as the marketing and distribution
of petroleum products. In December 1998, the Company sold its heating oil
business, Aero Oil Company. The Company now leases most of its properties on a
long-term net basis to the spun-off company, Getty Petroleum Marketing Inc.
("Marketing"). The consolidated statement of operations of the Company for the
year ended January 31, 1998 includes the financial results of the Marketing
business under the caption "Equity in earnings of Getty Petroleum Marketing
Inc." for the period from February 1, 1997 to March 21, 1997. For additional
information regarding the spin-off, see Note 2. The results of operations of the
heating oil business have been reclassified as discontinued in the accompanying
financial statements for the years ended January 31, 1999 and 1998. For
additional information regarding the sold heating oil business, see Note 3.
Use of Estimates: The financial statements have been prepared in
conformity with generally accepted accounting principles and include amounts
that are based on management's best estimates and judgments. While all available
information has been considered, actual results could differ from those
estimates.
Cash and Equivalents: The Company considers highly liquid investments
purchased with an original maturity of three months or less to be cash
equivalents.
Real Estate: Real estate assets are stated at cost less accumulated
depreciation and amortization. When real estate is sold or retired, the cost
and related accumulated depreciation and amortization is eliminated from the
respective accounts and any gain or loss is credited or charged to income.
Expenditures for maintenance and repairs are charged to income when incurred.
Depreciation and Amortization: Depreciation of real estate is computed
on the straight-line method based upon the estimated useful lives of the assets
which generally range from 16 to 25 years for buildings and improvements.
Insurance: Prior to the spin-off, the Company was self-insured for
workers' compensation, general liability and vehicle liability up to
predetermined amounts above which third-party insurance applies. Since the
spin-off, the Company has maintained insurance coverage subject to modest
deductibles. Accruals are based on claims experience and actuarial assumptions
followed in the insurance industry. Due to uncertainties inherent in the
estimation process, actual losses could differ from accrued amounts.
Environmental Costs: The estimated future costs for known environmental
remediation requirements are accrued when it is probable that a liability has
been incurred and the amount of remediation costs can be reasonably estimated.
Recoveries of environmental costs, principally from state underground storage
tank remediation funds, are accrued as income when such recoveries are
considered probable. Accruals are adjusted as further information develops or
circumstances change.
Income Taxes: Deferred income taxes are provided for the effect of
items which are reported for income tax purposes in years different from that
in which they are recorded for financial statement purposes.
Revenue Recognition: Revenue is recognized from rentals as earned.
Earnings per Common Share: Basic earnings per common share is computed
by dividing net earnings less preferred dividends by the weighted average number
of common shares outstanding during the year. Diluted earnings per common share
also gives effect to the potential dilution from the exercise of stock options
in the amounts of 2,000 shares, 5,000 shares and 196,000 shares for the years
ended January 31, 2000, 1999 and 1998, respectively.
For the years ended January 31, 2000 and 1999, conversion of the Series
A Participating Convertible Redeemable Preferred stock (which was issued on
January 30, 1998) into common stock utilizing the if-converted method would have
been antidilutive and therefore conversion was not assumed for purposes of
computing diluted earnings per common share.
14
10
continued
---------------------------------
GETTY REALTY CORP. AND SUBSIDIARIES
2. SPIN-OFF
On March 21, 1997, the Company spun-off its petroleum marketing
business to its stockholders. The Company retained its real estate business and
leased most of its properties on a long-term net basis to Marketing.
As part of the separation of the petroleum marketing business from the
real estate business, the Company and Marketing entered into various agreements
which addressed the allocation of assets and liabilities between them and govern
future relationships. These agreements include the Reorganization and
Distribution Agreement, Master Lease Agreement, Tax Sharing Agreement and
Trademark License Agreement.
Under the Services Agreement, Marketing provides certain administrative
and technical services to the Company and the Company provides certain services
to Marketing. The net fees paid by the Company to Marketing for services
performed (after deducting the fees paid by Marketing to the Company for
services provided by the Company) were $749,000 for the year ended January 31,
2000 and $960,000 for each of the years ended January 31, 1999 and 1998 and are
included in general and administrative expenses in the consolidated statements
of operations.
The following is a summary of the financial results of the Marketing
business included in the accompanying consolidated statement of operations for
the fiscal 1998 period from February 1, 1997 to March 21, 1997. The financial
information is presented for informational purposes only and is not necessarily
indicative of the financial results that would have occurred had Marketing been
operated as a separate, stand-alone entity during that period.
Year ended January 31,
----------------------
(in thousands) 1998
------
Earnings before income taxes $2,931
Provision for income taxes 1,200
------
Net earnings $1,731
======
3. DISCONTINUED OPERATIONS
In December 1998, the Company sold its heating oil and propane
business, Aero Oil Company. Proceeds from the sale were $7,661,000 and resulted
in a pre-tax gain of $4,576,000 ($2,674,000 after-tax).
Summary operating results of the discontinued heating oil operations is
as follows:
Years ended January 31,
-----------------------
(in thousands) 1999 1998
-------- --------
Revenues $ 18,169 $ 27,022
======== ========
Earnings before income taxes $ 4,373(a) $ 164
Provision for income taxes 1,818 69
-------- --------
Net earnings $ 2,555 $ 95
========= ========
(a) Includes pre-tax gain of $4,576 on disposal of the business.
4. LEASES
Effective February 1, 1997, the Company and Marketing entered into the
Master Lease Agreement (the "Master Lease") under which, as of January 31, 2000,
1,013 retail outlets and 9 terminal facilities (the "Properties") were leased or
subleased by the Company as the lessor to Marketing as the lessee. The
Properties are used for gasoline sales, convenience store uses and other
complementary or related lawful uses in conjunction with the sale of petroleum
products and convenience store items, except when the provisions of any
underlying lease are more restrictive. Marketing may sublet any property,
provided that Marketing remains fully responsible for a sublessee's performance
and, except in cases of economic abandonment (as described below), a sublease
for non-petroleum purposes requires the Company's consent. The Master Lease is a
"triple-net" lease, under which Marketing is responsible for all taxes,
maintenance, repairs and insurance, except for certain retained environmental
obligations, and obligations pertaining to certain underground storage tanks,
related piping, underground pumps, wiring and monitoring devices (collectively,
the "USTs"). For financial statement purposes, the Master Lease has been
accounted for as an operating lease.
15
11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------
GETTY REALTY CORP. AND SUBSIDIARIES
Rent for each of the Properties was set using the fair market value of
each Property, assuming the USTs had been upgraded to meet the 1998 federal
standards and the Properties were free of known environmental contamination,
since the Company is responsible for these items known at the date of the
spin-off. Rent for each Property will increase at the end of each five-year
period, commencing February 1, 2002, by the net increase in the Consumer Price
Index for all items in the Northeast Region during the period, but not more than
15%. Rents for all Properties are payable in advance on the first day of the
month. The initial term of the Master Lease is (i) fifteen years with respect to
Properties owned in fee by the Company and leased to Marketing and (ii) the
length of time remaining (which ranges up to fifteen years under the Master
Lease) with respect to Properties leased by the Company from third parties and
subleased to Marketing. The Master Lease includes four ten-year renewal options
(or, with respect to category (ii) above, a shorter period as provided in the
underlying lease), which may be exercised by Marketing with two years advance
notice on an individual property basis for all Properties then subject to the
Master Lease. For the subleased Properties, the Company has agreed to use
reasonable efforts to extend the underlying lease terms upon conditions
acceptable to Marketing. In the event that Marketing desires not to renew the
sublease upon terms (including any underlying lease term extension negotiated by
the Company) available to it, the Company may extend or renew the lease and
sublease the Property to a third party after the end of Marketing's term.
The Master Lease provides that if during the lease term Marketing
determines that any of the leased premises have become uneconomic or unsuitable
for their use as a service station or convenience store and has discontinued use
of the Property or intends to discontinue use of the Property as a service
station or convenience store within one year of the date of said determination,
Marketing has the right to sublet the Property for any lawful use without the
Company's consent. However, prior to the commencement of any sublease term,
Marketing must remove any USTs on the Property and thereafter perform all
requisite environmental investigations and/or remediations. Marketing has this
right of economic abandonment with respect to no more than ten Properties
during any fiscal year of the lease term. Marketing has no right of economic
abandonment for the terminal facilities and the premises subject to third-party
leases.
Revenues from rental properties for the years ended January 31, 2000,
1999 and 1998, were $58,889,000, $58,869,000 and $59,449,000, respectively, of
which $56,363,000, $56,411,000 and $57,001,000, respectively, was received from
Marketing under the Master Lease.
Future minimum annual rentals receivable from Marketing under the
Master Lease and from other lessees, which have initial terms in excess of one
year as of January 31, 2000, are as follows (in thousands):
Other
Years ending January 31, Marketing Lessees Total
- - - - ------------------------ --------- --------- --------
2001 $ 56,103 $ 2,289 $ 58,392
2002 55,696 1,878 57,574
2003 55,121 1,494 56,615
2004 54,297 1,209 55,506
2005 53,661 930 54,591
Thereafter 359,177 4,563 363,740
--------- --------- --------
$ 634,055 $ 12,363 $646,418
========= ========= ========
The Company has obligations to lessors under noncancelable operating
leases which have terms (excluding options) in excess of one year, principally
for gasoline stations. Substantially all of these leases contain renewal options
and escalation clauses. Future minimum annual rentals payable under such leases
are as follows (in thousands):
Years ending January 31,
- - - - ------------------------
2001 $10,936
2002 9,775
2003 8,228
2004 6,958
2005 5,663
Thereafter 15,313
-------
$56,873
=======
16
12
CONTINUED
-----------------------------
GETTY REALTY CORP. AND SUBSIDIARIES
5. COMMITMENTS AND CONTINGENCIES
The Company is subject to various legal proceedings and claims which
arise in the ordinary course of its business. In addition, the Company has
retained responsibility for all pre-spin-off legal proceedings and claims
relating to Marketing's business. These matters are not expected to have a
material adverse effect on the Company's financial condition or results of
operations.
In order to minimize the Company's exposure to credit risk associated
with financial instruments, the Company places its temporary cash investments
with high credit quality institutions and, by policy, limits the amount invested
with any one institution other than the U.S. Government.
Prior to the spin-off, the Company was self-insured for workers'
compensation, general liability and vehicle liability up to predetermined
amounts above which third-party insurance applies. Since the spin-off, the
Company has maintained insurance coverage subject to modest deductibles. The
Company's consolidated statements of operations for the fiscal years ended
January 31, 2000, 1999 and 1998 included, in general and administrative expense,
charges of $1,362,000, $518,000 and $161,000, respectively, for insurance. As of
January 31, 2000 and 1999, the Company's consolidated balance sheets included,
in accounts payable and accrued expenses, $2,269,000 and $4,361,000,
respectively, relating to insurance obligations arising prior to the spin-off of
the Marketing business.
The Company's financial results largely depend on rental income from
Marketing and to a lesser extent on other lessees and sublessees, and are
therefore materially dependent upon the ability of Marketing to meet its
obligations under the Master Lease. Marketing's financial results depend largely
on retail marketing margins and rental income from its dealers. The petroleum
marketing industry has been and continues to be volatile and highly competitive.
The Company, however, does not anticipate that Marketing will have difficulty in
making all required rental payments for the foreseeable future.
6. DEBT
Mortgages payable consists of (in thousands):
2000 1999
-------- --------
Mortgage loan due through November 1, 2000 $ 4,184 $ 8,344
Mortgage loan due through March 1, 2005 22,970 24,730
Real estate mortgages, bearing interest at a weighted average interest
rate of 8.11%, due in varying amounts through May 1, 2019 2,039 2,168
-------- --------
$ 29,193 $ 35,242
======== ========
Aggregate principal payments in subsequent fiscal years are as follows
(in thousands): 2001--$6,409; 2002--$2,230; 2003--$2,680; 2004--$2,211;
2005--$2,539 and $13,124 thereafter.
As of January 31, 2000, the mortgage loan due through November 1, 2000
provides for interest at LIBOR plus .875% to 1.75% per annum, depending on the
ratio of Funded Debt, as defined. Based on such ratio as of January 31, 2000,
the interest rate is LIBOR plus 1.0% which amounted to 6.86%. Principal payments
are $218,000 per month through October 1, 2000 with the balance of $2,222,000
due on November 1, 2000.
The mortgage loan due March 1, 2005, as amended on March 1, 2000,
provides for interest at LIBOR plus .75% to 1.75% per annum, depending on the
ratio of Funded Debt, as defined. Based on such ratio as of January 31, 2000,
the interest rate would have been LIBOR plus 1.125% which amounts to 6.98%.
Principal payments are $175,000 per month through February 1, 2005, with the
balance of $12,295,000 due on March 1, 2005.
Certain mortgages payable are collateralized by real estate having an
aggregate net book value of approximately $73,890,000 as of January 31, 2000.
As of January 31, 2000, the Company had uncommitted lines of credit
with two banks in the aggregate amount of $25,000,000, of which $14,800,000 was
utilized for short-term borrowings and $3,053,000 was utilized in the form of
outstanding letters of credit relating to insurance obligations. Borrowings
under the lines of credit are unsecured and bear interest at the bank's prime
rate or, at the Company's option, 1.0% to 1.1% above LIBOR. The lines of credit
are subject to renewal at the discretion of each bank.
17
13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------------------
GETTY REALTY CORP. AND SUBSIDIARIES
7. ENVIRONMENTAL REMEDIATION COSTS
The Company is subject to numerous federal, state and local laws and
regulations, including matters relating to the protection of the environment.
Environmental expenses have been attributable to remediation, monitoring, soil
disposal and governmental agency reporting (collectively, "Remediation Costs")
incurred in connection with contaminated sites and the replacement or upgrading
of USTs to meet federal, state and local environmental standards, as well as
routine monitoring and tank testing. For the years ended January 31, 2000, 1999
and 1998, net environmental expenses included in the Company's consolidated
statements of operations were $6,648,000, $16,905,000 and $8,255,000,
respectively, which amounts were net of probable recoveries from state UST
remediation funds.
Under the Master Lease, the Company committed to a program to bring the
leased properties with known environmental problems to regulatory closure and,
thereafter, transfer all future environmental risks to Marketing. The Company
has agreed to pay all costs relating to, and to indemnify Marketing for, all
known pre-spin-off environmental liabilities and obligations as scheduled in the
Master Lease, and all other environmental liabilities and obligations arising
out of discharges with respect to properties containing USTs that had not been
upgraded to meet the 1998 federal standards that were discovered prior to the
date the USTs were upgraded to meet the 1998 federal standards. The Company
collects recoveries from state UST remediation funds related to these
environmental obligations.
As of January 31, 2000 and 1999, the Company had accrued $26,424,000
and $34,251,000, respectively, as management's best estimate for environmental
remediation costs. As of January 31, 2000 and 1999, the Company had also
recorded $9,883,000 and $10,369,000, respectively, as management's best estimate
for recoveries from state UST remediation funds related to environmental
obligations and liabilities. In view of the uncertainties associated with
environmental expenditures, however, the Company believes it is possible that
such expenditures could be substantially higher. Any additional amounts will be
reflected in the Company's financial statements as they become known. Although
future environmental expenditures may have a significant impact on results of
operations for any single fiscal year or interim period, the Company currently
believes that these costs will not have a material adverse effect on the
Company's financial position.
8. INCOME TAXES
The provision for income taxes is summarized as follows (in thousands):
2000 1999 1998
------- ------ ------
Continuing operations $11,091 $5,337 $5,697
Discontinued operations:
Operations -- (84) 69
Disposal -- 1,902 --
------- ------ ------
-- 1,818 69
------- ------ ------
Provision for income taxes $11,091 $7,155 $5,766
======= ====== ======
The provision for income taxes is comprised as follows (in thousands):
2000 1999 1998
------- ------ ------
Federal:
Current $ 2,260 $5,314 $2,697
Deferred 5,817 (120) 1,557
State and local:
Current 735 966 990
Deferred 2,279 995 522
------- ------ ------
Provision for income taxes $11,091 $7,155 $5,766
======= ====== ======
18
14
CONTINUED
-----------------------------
GETTY REALTY CORP. AND SUBSIDIARIES
The tax effects of temporary differences which comprise the deferred
tax assets and liabilities are as follows (in thousands):
2000 1999
-------- --------
Real estate $(46,893) $(44,028)
Environmental remediation costs, net 11,080 13,257
Other accruals 2,723 1,576
Other (2,994) (1,015)
-------- --------
Net deferred tax liabilities $(36,084) $(30,210)
======== ========
The following is a reconciliation of the expected statutory federal
income tax provision and the actual provision for income taxes (in thousands):
2000 1999 1998
------- ------ ------
Expected provision at statutory federal income tax rate $ 9,137 $5,910 $4,661
State and local income taxes, net of federal benefit 1,959 1,288 994
Other (5) (43) 111
------- ------ ------
Provision for income taxes $11,091 $7,155 $5,766
======= ====== ======
9. STOCKHOLDERS' EQUITY
A summary of the changes in stockholders' equity for the three years
ended January 31, 2000 is as follows:
Preferred Stock
Held in Treasury,
Preferred Stock Common Stock Retained at Cost
------------------- ------------------- Paid-In Earnings -----------------
(in thousands, except per share amounts) Shares Amount Shares Amount Capital (Deficit) Shares Amount
-------- -------- -------- -------- -------- --------- -------- --------
Balance, February 1, 1997 -- $ -- 13,583 $ 1,358 $120,293 $ (7,215) -- $ --
Net earnings 7,944
Spin-off of Marketing (56,272)
Cash dividends--
Common--$.12 per share (1,577)
Issuance of treasury stock, net (1)
Stock options 863 87 15,679
Merger transaction 2,889 72,220 (883) (1,309) (12,614)
-------- -------- -------- -------- -------- --------- -------- --------
Balance, January 31, 1998 2,889 72,220 13,563 136 67,085 (848) -- --
Net earnings 10,056
Cash dividends:
Common--$.40 per share (5,426)
Preferred--$1.775 per share (5,128)
Issuance of common stock 2 33
Stock options 1 (97)
-------- -------- -------- -------- -------- --------- -------- --------
Balance, January 31, 1999 2,889 72,220 13,566 136 67,021 (1,346) -- --
Net earnings 15,014
Cash dividends:
Common--$.40 per share (5,426)
Preferred--$1.775 per share (5,128)
Purchase of preferred stock
for treasury (1) (14)
Purchase of common stock
for treasury, net
Stock options 1 15
-------- -------- -------- -------- -------- --------- -------- --------
Balance, January 31, 2000 2,889 $ 72,220 13,567 $ 136 $ 67,036 $ 3,114(a) (1) $ (14)
======== ======== ======== ======== ======== ========= ======== ========
Common Stock
Held in Treasury,
at Cost
------------------
(in thousands, except per share amounts) Shares Amount Total
-------- -------- --------
Balance, February 1, 1997 (886) $(13,964) $100,472
Net earnings 7,944
Spin-off of Marketing (56,272)
Cash dividends--
Common--$.12 per share (1,577)
Issuance of treasury stock, net 3 41 40
Stock options 15,766
Merger transaction 883 13,923 72,220
-------- -------- --------
Balance, January 31, 1998 -- -- 138,593
Net earnings 10,056
Cash dividends:
Common--$.40 per share (5,426)
Preferred--$1.775 per share (5,128)
Issuance of common stock 33
Stock options (97)
-------- -------- --------
Balance, January 31, 1999 -- -- 138,031
Net earnings 15,014
Cash dividends:
Common--$.40 per share (5,426)
Preferred--$1.775 per share (5,128)
Purchase of preferred stock
for treasury (14)
Purchase of common stock
for treasury, net (60) (681) (681)
Stock options 15
-------- -------- --------
Balance, January 31, 2000 (60) $ (681) $141,811
======== ======== ========
(a) Net of $103,803 transferred from retained earnings to common stock and
paid-in capital as a result of accumulated stock dividends.
19
15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------------------
GETTY REALTY CORP. AND SUBSIDIARIES
On January 30, 1998, the Company and Power Test Investors Limited
Partnership (the "Partnership"), a publicly traded real estate limited
partnership, completed a merger transaction to combine their assets and
operations. In connection with the merger, unitholders of the Partnership
received 2,888,798 shares of Series A Participating Convertible Redeemable
Preferred Stock of the Company in exchange for their Partnership units. Each
share of preferred stock has voting rights of and is convertible into 1.1312
shares of common stock of the Company and pays stated cumulative dividends of
$1.775 per annum, or if greater, the per share dividends paid on common stock.
Commencing February 1, 2001, the Company may redeem all or a portion of the
preferred stock at a purchase price of $25.00 per share plus accumulated,
accrued and unpaid dividends, if the closing price of the Company's common stock
exceeds $22.10 per share for a period of ten cumulative trading days within 90
days prior to the date of notice of redemption. In the event of a liquidation,
dissolution or winding up of the Company, holders of the preferred stock will
have the right to liquidation preferences in the amount of $25.00 per share,
plus accumulated, accrued and unpaid dividends, before any payment to holders of
the Company's common stock.
10. EMPLOYEE BENEFIT PLANS
The Company has a retirement and profit sharing plan with deferred
401(k) savings plan provisions (the "Retirement Plan") for employees meeting
certain service requirements and a Supplemental Plan for executives. Under the
terms of these plans, the annual discretionary contributions to the plans are
determined by the Board of Directors. Also, under the Retirement Plan, employees
may make voluntary contributions and the Company has elected to match an amount
equal to 50% of such contributions but in no event more than 3% of the
employee's eligible compensation. Under the Supplemental Plan, a participating
executive may receive an amount equal to 10% of compensation, reduced by the
amount of any contributions allocated to such executive under the Retirement
Plan. Contributions, net of forfeitures, under the plans were approximately
$102,000, $126,000 and $89,000 for the years ended January 31, 2000, 1999 and
1998, respectively. These amounts are included in the accompanying consolidated
statements of operations.
The Company has a Stock Option Plan (the "Plan") which authorizes the
Company to grant options to purchase shares of the Company's common stock. The
aggregate number of shares of the Company's common stock which may be made the
subject of options under the Plan may not exceed 1,100,000 shares, subject to
further adjustment for stock dividends and stock splits. The Plan provides that
options are exercisable starting one year from the date of grant, on a
cumulative basis at the annual rate of 25 percent of the total number of shares
covered by the option.
Immediately prior to the spin-off of its petroleum marketing business,
each holder of an option to acquire shares of the Company's common stock
received, in exchange therefor, two separately exercisable options: one to
purchase shares of the Company's common stock (a "Realty Option") and one to
purchase shares of Marketing common stock (a "Marketing Option"), each
exercisable for the same number of shares and containing substantially
equivalent terms as the pre-distribution option. The exercise price of each
Realty Option and Marketing Option was set so as to preserve the Aggregate
Spread (as defined below) in value attributed to the options held. The
"Aggregate Spread" was an amount representing the difference between the
exercise price of an option and the price of a share of Company common stock
immediately prior to the spin-off multiplied by the number of shares underlying
the option. Unexercisable options covering a total of 223,587 shares became
immediately exercisable at the date of the spin-off for persons covered by
change of control agreements. Accordingly, in the year ended January 31, 1998,
the Company recognized a charge to earnings of $2,166,000 at the date of the
spin-off equal to the product of the number of these options and the difference
between their exercise price and the then market price.
20
16
CONTINUED
-------------------------------
GETTY REALTY CORP. AND SUBSIDIARIES
The following is a schedule of stock option prices and activity
relating to the Company's stock option plan for the three years ended January
31, 2000:
2000 1999 1998
---------------------- ----------------------- -----------------------
Weighted Weighted Weighted
Number Average Number Average Number Average
of Exercise of Exercise of Exercise
Shares Price Shares Price Shares Price (a)
--------- ---------- --------- ---------- ---------- ----------
Outstanding at beginning of year 358,119 $ 22.63 363,553 $ 23.15 1,014,226 $ 10.28
Granted 41,750 11.13 --(b) -- 349,236 23.65
Exercised (1,102) 13.23 (1,215) 10.89 (864,535) 10.15
Cancelled (25,027) 24.06 (4,219) 22.43 (135,374) 11.06
--------- ---------- --------- ---------- ---------- ----------
Outstanding at end of year 373,740 $ 21.27 358,119 $ 22.63 363,553 $ 23.15
========= ========== ========= ========== ========== ==========
Exercisable at end of year 287,336 $ 22.91 277,706 $ 23.14 242,779 $ 23.29
========= ========== ========= ========== ========== ==========
Available for grant at end of year 723,943 740,666 736,447
========= ========== ========= ========== ========== ==========
(a) In connection with the spin-off, each Realty Option was reformed into
separate options for Realty common stock and Marketing common stock. The
exercise price of each reformed Realty Option represents 77.29% of the
original exercise price.
(b) On December 14, 1998, the Company repriced 50,000 options granted in fiscal
1998 with an exercise price of $21.313 per share to $17.188 per share, as
compared to the then market price of $13.063 per share.
The following table summarizes information concerning options
outstanding and exercisable at January 31, 2000:
Options Outstanding Options Exercisable
--------------------------------------------- -----------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life (Years) Price Exercisable Price
- - - - --------------- ----------- ------------ -------- ----------- ---------
$9.56-14.40 53,750 9 $ 11.05 12,000 $ 10.81
17.19 50,000 8 17.19 25,000 17.19
24.06 269,990 5 24.06 250,336 24.06
----------- ------------ -------- ----------- ---------
373,740 287,336
=========== ===========
The Company accounts for its stock-based employee compensation plans
under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees." The Company recorded a stock compensation charge (credit) of
($199,000) and $8,683,000 for the years ended January 31, 1999 and 1998,
respectively, since certain options required variable plan accounting treatment.
Had compensation cost for the Company's Plan been determined based upon
the fair value methodology prescribed under SFAS No. 123, "Accounting for
Stock-Based Compensation," the Company's net earnings and net earnings per
common share on a diluted basis would have been reduced as follows:
2000 1999 1998
------------------------ ------------------------ -----------------------
As Reported Pro Forma As Reported Pro Forma As Reported Pro Forma
----------- --------- ----------- --------- ----------- ---------
Net earnings (in thousands) $ 15,014 $ 14,190 $ 10,056 $ 9,054 $ 7,944 $ 7,513
Net earnings per common share .73(a) .67(a) .36(a) .29(a) .60 .56
(a) After giving effect to preferred stock dividends of $5,128.
21
17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------
GETTY REALTY CORP. AND SUBSIDIARIES
The fair value of the options granted during the years ended January
31, 2000 and 1998 were estimated as $3.57 and $10.32 per share, respectively, on
the date of grant using the Black-Scholes option-pricing model with the
following weighted average assumptions:
2000 1998
------ ------
Expected dividend yield 3.6% 0.5%
Expected volatility 34% 35%
Risk-free interest rate 6.7% 5.5%
Expected life of options (years) 7 7
11. QUARTERLY FINANCIAL DATA
The following is a summary of the quarterly results of operations for
the years ended January 31, 2000 and 1999 (unaudited as to quarterly
information):
Three months ended Year ended
----------------------------------------------------------------
Fiscal 2000: April 30 July 31 October 31 January 31 January 31
-------- --------- ---------- ---------- ----------
(in thousands, except per share amounts)
Revenues from rental properties $ 14,760 $ 14,666 $ 14,628 $ 14,835 $ 58,889
Earnings before income taxes 5,759 6,350 7,710 6,286 26,105
Net earnings 3,343 3,686 4,460 3,525 15,014
Diluted earnings per common share (a) .15 .18 .23 .17 .73
Three months ended Year ended
----------------------------------------------------------------
Fiscal 1999: April 30 July 31 October 31 January 31 January 31
-------- --------- ---------- ---------- ----------
(in thousands, except per share amounts)
Revenues from rental properties $ 14,795 $ 14,733 $ 14,711 $ 14,630 $ 58,869
Earnings from continuing operations
before income taxes 5,769 3,505 1,486 2,078 12,838
Net earnings from continuing operations 3,306 2,048 861 1,286 7,501
Net earnings (loss) from discontinued operations 223 (147) (137) 2,616 2,555
Net earnings 3,529 1,901 724 3,902 10,056
Diluted earnings (loss) per common share:
Continuing operations (a) .15 .06 (.03) -- .17
Discontinued operations .02 (.01) (.01) .19 .19
-------- --------- ---------- ---------- ----------
Net earnings (loss) .17 .05 (.04) .19 .36
======== ========= ========== ========== ==========
(a) After giving effect to preferred stock dividends of $1,282 for each of the
four quarters, aggregating $5,128 for each of the years ended January 31, 2000
and 1999.
22
18
REPORT OF INDEPENDENT ACCOUNTANTS
-----------------------------
To the Board of Directors
and Stockholders of Getty Realty Corp.:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations and cash flows present fairly, in
all material respects, the financial position of Getty Realty Corp. and
Subsidiaries (the "Company") at January 31, 2000 and 1999, and the results of
their operations and their cash flows for each of the three years in the period
ended January 31, 2000, in conformity with accounting principles generally
accepted in the United States. These financial statements are the responsibility
of the Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
New York, New York
March 9, 2000
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CAPITAL STOCK
---------------------------
GETTY REALTY CORP. AND SUBSIDIARIES
Our common stock is traded on the New York Stock Exchange (symbol:
"GTY"). At April 18, 2000, there were approximately 2,700 holders of record of
our common stock. The price range of our common stock and cash dividends paid
with respect to each share of common stock during the past two fiscal years were
as follows:
Price Range
---------------------- Cash Dividends
Quarter Ending High Low Per Share
- - - - -------------- ---------- ---------- --------------
January 31, 2000 $ 13 $ 10 13/16 $.10
October 31, 1999 14 7/16 12 1/16 .10
July 31, 1999 14 7/8 13 5/16 .10
April 30, 1999 15 5/8 12 1/2 .10
January 31, 1999 16 1/2 12 1/8 .10
October 31, 1998 18 11/16 13 1/4 .10
July 31, 1998 22 5/16 18 1/2 .10
April 30, 1998 24 3/4 22 1/4 .10
Our Series A preferred stock commenced trading in February 1998 on the
New York Stock Exchange (symbol: "GTY PrA"). At April 18, 2000, there were
approximately 400 holders of record of our Series A preferred stock. The price
range of our Series A preferred stock and cash dividends paid with respect to
each share of our Series A preferred stock during the past two fiscal years were
as follows:
Price Range
------------------ Cash Dividends
Quarter Ending High Low Per Share
- - - - -------------- -------- -------- --------------
January 31, 2000 $ 20 1/4 $19 1/16 $.44375
October 31, 1999 20 5/8 19 3/4 .44375
July 31, 1999 20 1/8 19 1/8 .44375
April 30, 1999 21 19 3/8 .44375
January 31, 1999 22 20 .44375
October 31, 1998 24 18 1/4 .44375
July 31, 1998 27 23 1/2 .44375
April 30, 1998 29 26 1/2 .44375
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