CROWN
(registered trademark)
Crown Central Petroleum Corporation
Interim Report
3
Third Quarter
September 30, 1994
To The Shareholders:
The Company experienced a net loss of $26.6 million or $2.71 per
share in the third quarter compared to a net loss of $3.3 million or
$.33 per share for the same period in 1993. Sales and operating
revenues in the quarter amounted to $468 million compared to $456
million last year. For the nine months, after tax losses amounted to
$25.2 million or $2.57 per share compared to $11.2 million or $1.14 per
share in 1993 on essentially flat revenues.
Net income for the quarter and nine months of 1994 includes a one
time pre-tax non-cash charge of $16.8 million or ($1.05 per share on an
after tax basis) for the write-down of hydrodesulfurization (HDS)
equipment intended for use at the Pasadena refinery. The equipment was
purchased in 1992 for $25 million and had a remaining book value of
$20.8 million prior to the write-down. Completion of the project would
have required an additional $50-$80 million of investment. At the
present time, price premiums for low sulfur diesel do not justify the
project and accordingly, the Company has written the equipment down to
the estimated realizable value.
Gulf Coast 3-2-1 crack spreads, a standard by which petroleum
products are valued, fluctuated widely over the quarter averaging $1.98
in July, recovering briefly to $3.25 in August and dropping again in
September to a $1.46 average. Although crude prices stabilized during
the period after their 42% increase in the second quarter, volatile
margins averaged the lowest in a decade. Gulf Coast prices for
unleaded 87 octane gasoline fell from $27.50 per barrel at the
beginning of August to $18.00 by the end of the quarter.
The drop in product pricing can, in part, be attributed to the
purging of conventional gasoline by refiners in order to prepare for
the introduction of RFG - Reformulated Gasoline - and a record level of
imported finished product. In addition, refineries were operating near
capacity levels (96%) during this period. Several refineries have
announced cut backs in volumes or have shut down for regular
maintenance turnarounds which should bring supplies more in balance
with market demand.
Crown marketing continued to report impressive gains in both
merchandise and gasoline sales during the quarter. Merchandise sales
at comparable stores were 42% higher in the quarter compared to the
same period in 1993 while year to date sales have shown a 29%
improvement. Aggressive pricing on convenience items, tobacco products
and beer instituted in March is credited with these improved figures.
While comparable store margins were down 32%, our strategy has now
succeeded in generating more margin dollars. Comparable gasoline sales
showed a 6% increase in the quarter despite ten fewer stores in the
system.
Two new stations are currently under construction in Prince William,
Virginia and Cary, North Carolina. They are due to be completed in
November.
Stage II vapor recovery installation at affected facilities is on
schedule for completion by November 15, 1994 in the Baltimore,
Washington, Richmond and Atlanta areas. Plans are proceeding for the
introduction of Reformulated Gasoline (RFG) on January 1, 1995 where
required by the Clean Air Act of 1990.
Because of weak refining margins, turnaround work on our Fluid
Catalytic Cracking unit at the Houston refinery has been moved into the
current quarter instead of the first quarter of 1995. During the
estimated five week period of the turnaround, the refinery will be
reduced to approximately 70% of rated crude capacity. It is fortuitous
the Texas flood and subsequent October 19, 1994 fire on the Colonial
Pipeline, six miles east of the refinery, occurred shortly after the
turnaround began. While Crown is not able to ship product via Colonial
or other pipelines crossing the San Jacinto River due to flooding at
the time of this report, the stress on our operations for storage is
lessened. Crown's Supply and Transportation personnel are reviewing
available options for moving product, if necessary, to east coast
markets to assure a constant gasoline and distillate supply until
repairs are completed by Colonial.
This period is an especially difficult time for the domestic refining
industry. However, our efforts continue with a heightened sense of
optimism that the commitments and planning currently being made will be
rewarded. We have the confidence in our strategies, our people, and
our future to maintain Crown's traditional competitiveness in a rapidly
changing marketplace.
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
October 27, 1994
CROWN CENTRAL PETROLEUM CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Operations
(Unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
Dollars in thousands,
except amounts per share 1994 1993 1994 1993
-------- -------- ---------- ----------
Revenues:
Sales and operating revenues - Note 1 $468,275 $455,691 $1,315,284 $1,316,770
-------- -------- ---------- ----------
Operating Costs and Expenses:
Costs and operating expenses - Note 1 456,997 421,714 1,234,556 1,222,371
Selling and administrative expenses 21,379 23,693 62,564 69,723
Depreciation and amortization 12,665 10,537 33,734 31,307
Sales of property, plant and equipment 16,899 169 16,554 (108)
-------- -------- ---------- ----------
507,940 456,113 1,347,408 1,323,293
-------- -------- ---------- ----------
Operating (Loss) (39,665) (422) (32,124) (6,523)
Interest and other income 283 179 1,152 398
Interest expense (1,979) (1,894) (5,836) (5,514)
-------- -------- ---------- ----------
(Loss) Before Income Taxes (41,361) (2,137) (36,808) (11,639)
Income Tax (Benefit) Expense (14,753) 1,119 (11,574) (397)
-------- -------- ---------- ----------
Net (Loss) $(26,608) $ (3,256) $ (25,234)$ (11,242)
======== ======== ========== ==========
Net (Loss) Per Share $ (2.71 ~)$ (.33)$ (2.57)$ (1.14)
======== ======== ========== ==========
CROWN CENTRAL PETROLEUM CORPORATION AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(Unaudited)
Sept. 30 December 31
Dollars in thousands 1994 1993
--------- ----------
Assets
Current Assets:
Cash and cash equivalents $ 21,165 $ 52,021
Accounts receivable (net) 81,670 91,413
Recoverable income taxes 14,996
Inventories - Notes 2 and 3 90,440 86,811
Other current assets 3,412 762
-------- --------
Total Current Assets 211,683 231,007
Property, Plant and Equipment (net) 362,795 382,263
Investments and Deferred Charges 29,766 42,908
-------- --------
$604,244 $656,178
======== ========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $114,483 $124,666
Accrued liabilities 46,787 50,145
Income taxes payable 3,264
Current portion of long-term debt 10,053 1,094
-------- --------
Total Current Liabilities 171,323 179,169
Long-Term Debt 56,955 65,579
Deferred Income Taxes 73,960 81,217
Other Deferred Liabilities 31,621 31,860
Common Stockholders' Equity 270,385 298,353
-------- --------
$604,244 $656,178
======== ========
CROWN CENTRAL PETROLEUM CORPORATION AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
1. Sales and operating revenues and Costs and operating expenses
include all Federal and State Excise Taxes. These taxes totalled
$97,012 and $295,131 for the three and nine months ended September
30, 1994; and $69,003 and $207,289 for the three and nine months
ended September 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 September 30, 1994
current ratio would increase from 1.24 to 1 on a LIFO cost basis
to 1.36 to 1 on a FIFO cost basis. With inventories valued on a
LIFO cost basis, working capital is $40,360 whereas on a FIFO cost
basis, working capital increases to $68,738 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 $46,143 and
$28,215 at September 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
September 30, 1994 will be filed with the Securities and Exchange
Commission by November 14, 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