CROWN
(registered trademark)
Crown Central Petroleum Corporation
Interim Report
Second Quarter
June 30, 1994
1
To the Shareholders:
The Company lost $7.3 million ($.74 per share) in the second quarter of
1994, compared to a net loss of $2.3 million ($.23 per share) in the
second quarter of 1993. Sales and operating revenues for the second
quarter were $453 million compared to revenues of $448 million for the
second quarter of 1993.
For the first six months of 1994, the Company had a net income of $1.4
million ($.14 per share) on revenues of $847 million compared to a net
loss of $8.0 million ($.81 per share) and revenues of $861 million in
the first half of 1993.
Worldwide crude oil prices rose dramatically during the quarter due to
growing concern in the marketplace that possible supply problems, in
part resulting from world trouble spots, could cause serious
disruptions at a time when excess crude capacity utilization is
diminishing. Recent figures show world consumption at 68 million
barrels per day versus a production capacity of 73 million barrels per
day.
Various events led to a domestic crude supply disruption, resulting in
West Texas Intermediate at Cushing (WTI), the U.S. benchmark crude,
rising from $14.00 per barrel in mid-March to over $20.00 during June,
for an increase of 42%. As a result, the differential between WTI and
similar quality foreign crude rose from its normal average of $.40 per
barrel to the $1.00-$1.40 per barrel level. Price increases in
finished products could not be absorbed by the market resulting in
margin erosion, dropping the spread from $3.95 per barrel for March to
slightly above $2.00 per barrel by the end of the period. This led to
Crown's disappointing results for the quarter. Further complicating
the picture were record levels of imported product.
The longer term outlook appears more promising as oil markets adjust to
higher crude prices, world economies continue to expand, and older,
less efficient refineries close.
Refining operations at both the Pasadena and Tyler, Texas plants were
routine, optimizing throughputs to attain margins wherever the
opportunities existed. During the quarter, the Pasadena refinery began
the cut over to the Distributed Control System (DCS) for controlling
operations of the crude, coking and distillate hydrotreater units. The
conversion proceeded without difficulty and this phase of the operation
is now complete.
In marketing, the inability to pass higher product costs through to the
pumps caused retail margins to decline by 29% during the second quarter
of 1994 compared to the same period last year. However, other
marketing results were more favorable. On a comparable unit basis,
second quarter retail gallonage increased
11.3% over the same period in 1993 and 8.7% for the six month period.
Even with 60 fewer units in the system, total retail volume improved a
respectable 6.3% for the quarter, and up 3.5% for the 6 month period.
Comparable store merchandise sales reported a quarterly increase of 30%
and 21.5% so far for the year. The Frequent Fill-Up promotions,
currently featuring garden tools and Little Caesar Pizzas giveaways,
are meeting their objectives. Consumer response to Crown pricing,
quality and convenience has been encouraging, especially in this highly
competitive market sector. These aggressive marketing efforts and
creative strategies for promotions of high volume convenience items
have had a positive effect on corporate results.
Even though the volatility of the past three years may cause concern,
we must keep a sense of perspective about the strong fundamentals of
our industry. One thing is certain, the clean and efficient fuel of
the future will be gasoline. New cars with reformulated fuel produce
96% less hydrocarbon emissions than 1960 models. For the foreseeable
future, petroleum alternatives just aren't able to compete. Ethanol
does not provide a satisfactory answer as it contains only two-thirds
the energy of gasoline, costs twice as much to produce, and causes
increased levels of hydrocarbons and nitrogen oxides. The future is
good for the petroleum industry as the basic fuel of our service and
industrial economy.
The petroleum business is conducted in the world market and reflects
the severe political and economic dislocations of the post cold war
era. The challenge to survive and prosper can be met by our ability
to adapt and move decisively within the marketplace in these uncertain
times.
Respectfully submitted,
Henry A. Rosenberg, Jr.
Henry A. Rosenberg, Jr.
Chairman and Chief Executive Officer
Charles L. Dunlap
Charles L. Dunlap
President and Chief Operating Officer
July 28, 1994
Crown Central Petroleum Corporation and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
Dollars in thousands,
except amounts per share 1994 1993 1994 1993
-------- -------- -------- --------
Revenues:
Sales and operating revenues - Note 1 $453,423 $447,777 $847,009 $861,079
-------- -------- -------- --------
Operating Costs and Expenses:
Costs and operating expenses - Note 1 434,144 413,978 777,559 800,657
Selling and administrative expenses 19,125 23,445 41,185 46,030
Depreciation and amortization 10,438 10,471 21,069 20,770
Sales of property, plant and equipment (22) (248) (345) (277)
-------- -------- -------- --------
463,685 447,646 839,468 867,180
-------- -------- -------- --------
Operating (Loss) Income (10,262) 131 7,541 (6,101)
Interest and other income 476 166 869 219
Interest expense (1,946) (1,936) (3,857) (3,620)
-------- -------- -------- --------
(Loss) Income Before Income Taxes (11,732) (1,639) 4,553 (9,502)
Income Tax (Benefit) Expense (4,446) 627 3,179 (1,516)
-------- -------- -------- --------
Net (Loss) Income $(7,286) $ (2,266) $ 1,374 $ (7,986)
======== ======== ======== ========
Net (Loss) Income Per Share $ (.74 ~)$ (.23)$ .14$ (.81)
======== ======== ======== ========
Crown Central Petroleum Corporation and Subsidiaries
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
June 30 December 31
Dollars in thousands 1994 1993
--------- ----------
Assets
Current Assets:
Cash and cash equivalents $ 43,354 $ 52,021
Accounts receivable (net) 99,474 91,413
Recoverable income taxes 4,102
Inventories - Notes 2 and 3 127,161 86,811
Other current assets 3,702 762
-------- --------
Total Current Assets 277,793 231,007
Property, Plant and Equipment (net) 379,885 382,263
Investments and Deferred Charges 35,299 42,908
-------- --------
$692,977 $656,178
======== ========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $150,841 $124,666
Accrued liabilities 68,536 50,145
Income taxes payable 3,264
Current portion of long-term debt 10,017 1,094
-------- --------
Total Current Liabilities 229,394 179,169
Long-Term Debt 57,272 65,579
Deferred Income Taxes 77,548 81,217
Other Deferred Liabilities 31,715 31,860
Common Stockholders' Equity 297,048 298,353
-------- --------
$692,977 $656,178
======== ========
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Crown Central Petroleum Corporation and Subsidiaries
1. Sales and operating revenues and Costs and operating expenses
include all Federal and State Excise Taxes. These taxes totalled
$104,563 and $198,119 for the three and six months ended June 30,
1994; and $73,397 and $138,286 for the three and six months ended
June 30, 1993, respectively.
2. The Company values the majority of its inventories of crude oil
and refined products at the lower of annual average cost (last-in,
first-out) or market. Convenience store inventories are also
valued under the LIFO method. The use of LIFO in valuing
inventories has a significant impact on the Company's reported
working capital. If inventories were valued using current
acquisition costs (first-in, first-out) the June 30, 1994 current
ratio would increase from 1.21 to 1 on a LIFO cost basis to 1.30
to 1 on a FIFO cost basis. With inventories valued on a LIFO cost
basis, working capital is $48,399 whereas on a FIFO cost basis,
working capital increases to $72,237 assuming the same effective
tax rate as used in computing the value of inventories under the
LIFO method.
3. Inventories are presented net of the LIFO allowance of $38,761 and
$28,215 at June 30, 1994 and December 31, 1993, respectively.
4. The financial information is compiled from the books of the
Company and its subsidiaries without audit, but the Company
believes that all adjustments and reclassifications necessary for
a fair and comparable presentation of the results of operations
for the unaudited periods have been made. Form 10-Q dated June
30, 1994 will be filed with the Securities and Exchange Commission
by August 15, 1994.
CROWN
(registered trademark)
General Offices
The Blaustein Building
One North Charles Street
P.O. Box 1168
Baltimore, Maryland 21203
(410) 539-7400
Crown Central Petroleum Corporation
Refiners/Marketers of Petroleum Products