UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1994
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ___________ to ____________
Commission File Number 1-1059
CROWN CENTRAL PETROLEUM CORPORATION
(Exact name of registrant as specified in its charter)
MARYLAND 52-0550682
(State or other jurisdiction of(I.R.S. Employer Identification Number)
incorporation or organization)
ONE NORTH CHARLES STREET
BALTIMORE, MARYLAND 21201
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (410) 539-7400
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on which Registered
Class A Common Stock - $5 Par Value American Stock Exchange
Class B Common Stock - $5 Par Value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
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, and (2) has been subject to
such filing requirements for the past 90 days. YES X NO
--- ---
The aggregate market value of the voting stock held by nonaffiliates as
of January 31, 1995 was $86,280,000.
The number of shares outstanding at February 15, 1995 of the
registrant's $5 par value Class A and Class B Common Stock was
4,817,392 shares and 4,985,706 shares, respectively.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Annual Meeting of Stockholders
on April 27, 1995 are incorporated by reference into Items 10 through
13, Part III.
Crown Central Petroleum Corporation
and subsidiaries
Table of Contents
Page
------
PART I
Item 1 Business l
Item 2 Properties 3
Item 3 Legal Proceedings 8
Item 4 Submission of Matters to a Vote of
Security Holders 8
PART II
Item 5 Market for the Registrant's Common
Equity and Related Stockholder Matters 9
Item 6 Selected Financial Data 10
Item 7 Management's Discussion and Analysis
of Financial Condition and Results of Operations 11
Item 8 Financial Statements and Supplementary Data 18
Item 9 Changes in and Disagreements with Auditors on
Accounting and Financial Disclosure 35
PART III
Item 10 Directors and Executive Officers of the Registrant 36
Item 11 Executive Compensation 37
Item 12 Security Ownership of Certain
Beneficial Owners and Management 37
Item 13 Certain Relationships and Related Transactions 37
PART IV
Item 14 Exhibits, Financial Statement Schedules
and Reports on Form 8-K 37
PART I
Item 1. BUSINESS
General
Crown Central Petroleum Corporation and subsidiaries (the Company),
which traces its origins to 1917, is one of the largest independent
refiners and marketers of petroleum products in the United States. The
Company owns and operates two high-conversion refineries with a
combined capacity of 152,000 barrels per day of crude oil - a 100,000
barrel per day facility located in Pasadena, Texas, near Houston (the
Pasadena refinery) and a 52,000 barrel per day facility located in
Tyler, Texas (the Tyler refinery, and together with the Pasadena
refinery, the refineries). The Company is also a leading independent
marketer of refined petroleum products and merchandise through a
network of over 350 gasoline stations and convenience stores located in
the Mid-Atlantic and Southeastern United States. In support of these
businesses, the Company operates 16 product terminals located on three
major product pipelines along the Gulf Coast and the Eastern Seaboard
and in the Central United States.
The refineries are strategically located and have direct access to
crude oil supplies from major and independent producers and trading
companies, thus enabling the Company to select a crude oil mix to
optimize refining margins and minimize transportation costs. The
Pasadena refinery's Gulf Coast location provides access to tankers,
barges and pipelines for the delivery of foreign and domestic crude oil
and other feedstocks. The Tyler refinery benefits from its location in
East Texas due to its ability to purchase high quality crude oil
directly from nearby suppliers at a favorable cost and its status as
the only supplier of a full range of refined petroleum products in its
local market area. The refineries are operated to generate a product
mix of over 85% higher margin fuels, primarily transportation fuels
such as gasoline, highway diesel and jet fuel. During the past five
years, the Company has invested over $77 million for environmental
compliance, upgrading, expansion and process improvements at its two
refineries. As a result of these expenditures, the Pasadena refinery
has one of the highest rates of conversion to higher margin fuels,
according to a recent industry study. The Tyler refinery enjoys
essentially the same product yield characteristics as the Pasadena
refinery.
The Company is the largest independent retail marketer in its core
retail market areas within Maryland, Virginia and North Carolina. In
the Company's primary retail marketing region of Baltimore, Maryland,
the Company is the leading independent gasoline retailer, with a 1994
market share of approximately 12%. In addition to its leading market
position in Baltimore, the Company has a geographic concentration of
retail locations in high growth areas such as Charlotte and Raleigh,
North Carolina and Atlanta, Georgia. Over the past several years, the
Company has rationalized and refocused its retail operations, resulting
in significant improvements in average unit performance and positioning
these operations for growth from a profitable base. For the year ended
December 31, 1994, average merchandise sales per unit increased 33.5%
on a same store basis when compared with 1993. The Company has made
substantial investments of approximately $23 million at its retail
locations pursuant to environmental requirements from 1989 to 1994 and
believes that over 50% of its retail units are currently in full or
substantial compliance with the 1998 underground storage tank
environmental standards.
Sales values of the principal classes of products sold by the Company
during the last three years are included in Management's Discussion and
Analysis of Financial Condition and Results of Operations on page 12 of
this report.
At December 31, 1994, the Company employed 2,971 employees. The total
number of employees decreased approximately 2% from year-end 1993, due
primarily to reductions in marketing operations as a result of the
closing or divestment of retail units which were not strategic to the
Company's future and reductions due to the consolidation of certain
Marketing field operations.
-1-
Regulation
Like other companies in the petroleum refining and marketing
industries, the Company's operations are subject to extensive
regulation and the Company has responsibility for the investigation and
cleanup of contamination resulting from past operations. Current
compliance activities relate to air emissions limitations, waste water
and storm water discharges and solid and hazardous waste management
activities. In connection with certain of these compliance activities
and for other reasons, the Company is engaged in various investigations
and, where necessary, remediation of soils and ground water relating to
past spills, discharges and other releases of petroleum, petroleum
products and wastes. The Company's environmental activities are
different with respect to each of its principal business activities:
refining, terminal operations and retail marketing. The Company is not
currently aware of any information that would suggest that the costs
related to the air, water or solid waste compliance and clean-up
matters discussed herein will have a material adverse effect on the
Company. The Company anticipates that substantial capital investments
will be required in order to comply with federal, state and local
provisions. A more detailed discussion of environmental matters is
included in Note A and Note I of Notes to Consolidated Financial
Statements on pages 24 and 31 of this report, and in Management's
Discussion and Analysis of Financial Condition and Results of
Operations on pages 11 through 17 of this report.
Competitive Conditions
Oil industry refining and marketing is highly competitive. Many of the
Company's principle competitors are integrated multinational oil
companies that are substantially larger and better known than the
Company. Because of their diversity, integration of operations, larger
capitalization and greater resources, these major oil companies may be
better able to withstand volatile market conditions, compete on the
basis of price and more readily obtain crude oil in times of shortages.
The principle competitive factors affecting the Company's refining
division are crude oil and other feedstock costs, refinery efficiency,
refinery product mix and product distribution and transportation costs.
Certain of the Company's larger competitors have refineries which are
larger and more complex and, as a result, could have lower per barrel
costs or higher margins per barrel of throughput. The Company has no
crude oil reserves and is not engaged in exploration. The majority of
the Company's total crude oil purchases are transacted on the spot
market. The Company selectively enters into forward hedging and option
contracts to minimize price fluctuations for a portion of its crude oil
and refined products. As such, the Company believes that it will be
able to obtain adequate crude oil and other feedstocks at generally
competitive prices for the foreseeable future.
The principle competitive factors affecting the Company's retail
marketing division are locations of stores, product price and quality,
appearance and cleanliness of stores and brand identification.
Competition from large integrated oil companies, as well as from
convenience stores which sell motor fuel, is expected to continue. The
principle competitive factors affecting the Company's wholesale
marketing business are product price and quality, reliability and
availability of supply and location of distribution points.
The Company maintains business interruption insurance to protect itself
against losses resulting from shutdowns to refinery operations for
periods in excess of 25 days or $5 million resulting from fire,
explosions and certain other insured casualties.
-2-
Item 2. PROPERTIES
Refining Operation
Overview
The Company owns and operates two strategically located, high
conversion refineries with a combined capacity of 152,000 barrels of
crude oil per day--a 100,000 barrel per day facility located in
Pasadena, Texas, near Houston, and a 52,000 barrel per day facility
located in Tyler, Texas. Both refineries are operated to generate a
product mix of over 85% higher margin fuels, primarily transportation
fuels such as gasoline, highway diesel and jet fuel. When operating to
maximize the production of light products, the product mix at both of
the Refineries is approximately 55% gasoline, 33% distillates (such as
diesel, home heating oil, jet fuel, and kerosene), 6% petrochemical
feedstocks and 6% slurry oil and petroleum coke.
The Pasadena refinery and Tyler refinery averaged production of 98,793
barrels per day and 48,932 barrels per day, respectively, during 1994.
While both refineries primarily run sweet (low sulphur content) crude
oil, they can process up to 20% of sour (high sulphur content) crude
oil in their mix.
The Company's access to extensive pipeline networks provides it with
the ability to acquire crude oil directly from major integrated and
independent domestic producers, foreign producers, or trading
companies, and to transport this crude to the refineries at a
competitive cost. The Pasadena refinery, has docking facilities which
provide direct access to tankers and barges for the delivery of crude
oil and other feedstocks. The Company also has agreements with terminal
operators for the storage and handling of the crude oil it receives
from large ocean-going vessels and which the Company transports to the
refineries by pipeline. The Tyler refinery benefits from its location
in East Texas since the Company can purchase high quality crude oil at
favorable prices directly from nearby producers. In addition, the Tyler
Refinery is the only supplier of a full range of petroleum products in
its local market area. See "-- Supply, Transportation and Wholesale
Marketing."
Over the past several years, the Company has made significant capital
investments to upgrade its refining facilities and improve operational
efficiency. The Company has also recently completed several programs
which have resulted in increased profitability at the refinery level.
The Company began a maintenance expense reduction program at the
Pasadena Refinery in 1992. This program is designed to reduce routine
maintenance expenditures by increasing project reliability, reducing
the use of outside contractors, decreasing the overall amount of
overtime expenditures and realigning maintenance personnel
responsibilities. The result of this program has been to reduce average
maintenance expenditures from $1.6 million per month in 1991 to
approximately $1.1 million per month in 1994. The Company has also
initiated a gain sharing program with its employees at the Tyler
Refinery under which savings realized are shared with the employees on
a quarterly basis.
Pasadena Refinery
The Pasadena refinery is located on approximately 174 acres in
Pasadena, Texas and was the first refinery built on the Houston Ship
Channel. The refinery has been substantially modernized since 1969 and
today has a rated crude capacity of 100,000 barrels per day. During the
past five years, the Company has invested approximately $120 million in
major upgrading and maintenance projects.
The Company's refining strategy includes several initiatives to enhance
productivity. For example, the Company has completed the first phase of
an extensive plant-wide distributed control system at the Pasadena
refinery which is designed to improve product yields, make more
efficient use of personnel and optimize process operations. The crude
and vacuum distillation, coking, and distillate hydrotreating units are
currently benefitting from the system which began operating in June
1994. The fluid catalytic cracking unit is scheduled to be added to the
system in the second quarter of 1995 and the remainder of the Pasadena
refinery is scheduled to be added by the first quarter of 1996. The
distributed control system uses technology that is fast, accurate and
provides increased information to both operators and supervisors.
-3-
The Pasadena refinery has a crude unit with a 100,000 barrels per day
atmospheric column and a 38,000 barrels per day vacuum tower. Major
downstream units consist of a 52,000 barrels per day fluid catalytic
cracking unit, a 12,000 barrels per day delayed coking unit, two
alkylation units with a combined capacity of 10,000 barrels per day of
alkylate production, and two reformers with a combined capacity of
36,000 barrels per day. Other units include two depropanizer units that
can produce 5,500 barrels per day of refinery grade propylene, a
liquefied petroleum gas unit that removes approximately 1,000 barrels
per day of liquids from the refinery fuel system and a methyl tertiary
butyl ether ("MTBE") unit which can produce approximately 1,500 barrels
per day of MTBE for gasoline blending. The Company recently abandoned
its plans to construct a hydrodesulphurization unit at its Pasadena
Refinery. See "Management's Discussion and Analysis of Financial
Condition - Results of Operations".
The Clean Air Act mandates that after January 1, 1995 only reformulated
gasoline ("RFG") may be sold in certain ozone non-attainment areas,
including some metropolitan areas where the Company sells gasoline.
Using production from its MTBE unit, the Pasadena refinery can
currently produce 12,000 barrels per day of winter grade RFG. With
additional purchases of MTBE, ethanol or other oxygenates, all of the
Pasadena refinery's current gasoline production could meet winter grade
RFG standards. The Company is in the process of constructing a
reformate splitter at its Pasadena refinery at a cost of $3.5 million
which will enable it to make 12,000 barrels per day of summer grade RFG
using its own MTBE, and up to 100% of its Pasadena refinery gasoline
production as summer grade RFG with the purchase of additional
oxygenates. This project is expected to be completed by August 1995 and
will satisfy all of the Company's retail RFG requirements.
In 1994, the Pasadena refinery was impacted by the fluid catalytic
cracking unit turnaround and operated at approximately 85% of rated
crude unit capacity with production yielding approximately 53% gasoline
and 32% distillates. Of the total gasoline production, approximately
20% was premium octane grades. In addition, the Pasadena refinery
produced and sold by-products including propylene, propane, slurry oil,
petroleum coke and sulphur.
The Company owns and operates storage facilities located on
approximately 130 acres near its Pasadena refinery which, together with
tanks on the refinery site, provide the Company with a storage capacity
of approximately 6.2 million barrels (2.8 million barrels for crude oil
and 3.4 million barrels for refined petroleum products and intermediate
stocks).
The Pasadena refinery's refined petroleum products are delivered to
both wholesale and retail customers. Approximately one-half of the
gasoline and distillate production is sold wholesale into the Gulf
Coast spot market and one-half is shipped by the Company on the
Colonial and Plantation pipelines for sale in East Coast wholesale and
retail markets. The Company's retail gasoline requirements represent
approximately 47% of the Pasadena refinery's total gasoline production
capability.
Tyler Refinery
The Tyler refinery is located on approximately 100 of the 529 acres
owned by the Company in Tyler, Texas and has a rated crude capacity of
52,000 barrels per day. This refinery, which was acquired from Texas
Eastern Corporation in the fourth quarter of 1989, had been
substantially modernized between 1977 and 1980. The Tyler refinery's
location allows it to access nearby high quality East Texas crude oil
which accounts for approximately 95% of its crude supply. This crude
oil is transported to the refinery on the McMurrey and Scurlock
pipeline systems. The Company owns the McMurrey system and has a long-
term contract for use of the Scurlock system with Scurlock Permian Pipe
Line Corporation. The Company also has the ability to ship crude oil to
the Tyler refinery by pipeline from the Gulf Coast and does so when
market conditions are favorable. Storage capacity at the Tyler refinery
exceeds 2.7 millions barrels (1.2 million barrels for crude and 1.5
million barrels for refined petroleum products and intermediate
stocks), including tankage along the Company's pipeline system.
The Tyler refinery has a crude unit with a 52,000 barrels per day
atmospheric column and a 16,000 barrels per day vacuum tower. The other
major process units at the Tyler refinery include an 18,000 barrels per
day fluid catalytic cracking unit, a 6,000 barrels per day delayed
coking unit, a 20,000 barrels per day naphtha hydrotreating unit, a
12,000 barrels per day distillate hydrotreating unit, two reforming
units with a combined capacity of 16,000 barrels per day, a 5,000
barrels per day isomerization unit, and an alkylation unit with a
capacity of 4,700 barrels per day. The hydrotreating units were
significantly modified in 1993 enabling this plant to produce 12,000
barrels per day of distillate which meets the Clean Air Act's .05%
sulphur requirements for highway diesel.
-4-
In 1994, the Tyler refinery operated at approximately 92% of rated
crude unit capacity, with production yielding approximately 56%
gasoline and approximately 35% distillates. Of the total gasoline
production, approximately 33% was premium octane grades. In addition,
the refinery produced and sold by-products including propylene,
propane, slurry oil, petroleum coke and sulphur. The Tyler refinery is
the principal supplier of refined petroleum products in the East Texas
market with approximately 60% of production sold at the refinery's
truck terminal. The remaining production is shipped via the Texas
Eastern Products Pipeline for sale either from the Company's terminals
or from other terminals along the pipeline. Deliveries under term
exchange agreements account for the majority of the truck terminal
sales.
Retail Operations
Overview
The Company traces its retail marketing history to the early 1930's
when it operated a retail network of 30 service stations in the
Houston, Texas area. It began retail operations on the East Coast in
1943. The Company has been recognized as an innovative industry leader
and, in the early 1960's, pioneered the multi-pump retailing concept
which has since become an industry standard in the marketing of
gasoline. In 1983 the Company significantly expanded its retail
presence with the acquisition of 642 Fast Fare and Zippy Mart
convenience stores located in the Southeastern United States. In 1986
the Company purchased an additional 50 gasoline stations, expanding the
Company's presence in the Baltimore/Washington, D.C. region, and in
1991, the Company acquired 48 additional units in Virginia which
doubled its presence in that state.
Beginning in 1989, the Company conducted a facility by facility review
of its retail units. As a result, the Company disposed of non-
strategic, marginal or unprofitable units as well as certain units
which would have required significant capital improvements to comply
with environmental regulations. During this period, the Company rebuilt
and added individual units to increase its market share in strategic
core markets. Since 1990, the Company has eliminated 414 retail units
and added 45 retail units. During the same period, the Company closed
a number of district offices and divisional headquarters. The Company
believes it has substantially completed its retail unit rationalization
program.
As of December 31, 1994, the Company had 357 retail locations. Of these
357 units (247 owned and 110 leased), the Company directly operated 255
and the remainder were operated by independent dealers. The Company
conducts its operations in Maryland through an independent dealer
network as a result of legislation which prohibits refiners from
operating gasoline stations in Maryland. The Company believes that the
high proportion of Company-operated units enables it to respond quickly
and uniformly to changing market conditions.
While most of the Company's units are located in or around major
metropolitan areas, its sites are generally not situated on major
interstate highways or inter-city thoroughfares. These off-highway
locations primarily serve local customers and, as a result, the
Company's retail marketing unit volumes are not as highly seasonal or
dependent on seasonal vacation traffic as locations operating on major
traffic arteries. The Company is the largest independent retail
marketer of gasoline in its core retail market areas within Maryland,
Virginia and North Carolina. In the Company's primary retail marketing
area of Baltimore, Maryland, the Company is the leading independent
gasoline retailer, with a 1994 market share of approximately 12%. In
addition to its leading market position in Baltimore, the Company has
a geographic concentration of retail locations in high growth areas
such as Raleigh and Charlotte, North Carolina and Atlanta, Georgia. The
Company's three highest volume core markets are Baltimore, the suburban
areas of Maryland and Virginia surrounding Washington, D.C., and the
greater Norfolk, Virginia area.
Retail Unit Operations
The Company conducts its retail marketing operations through three
basic store formats: convenience stores, mini-marts and gasoline
stations. At December 31, 1994, the Company had 99 convenience stores,
125 mini-marts and 133 gasoline stations.
The Company's convenience stores operate primarily under the names Fast
Fare and Zippy Mart. These units generally contain 1,500 to 2,800
square feet of retail space and typically provide gasoline and a
variety of convenience store merchandise such as tobacco products,
beer, wine, soft drinks, snacks, dairy products and baked goods.
-5-
The Company's mini-marts generally contain up to 800 square feet of
retail space and typically sell gasoline and much of the same
merchandise as at the Company's convenience stores. The Company has
installed lighted canopies at most of its locations which extend
over the multi-pump fuel islands and the store itself, providing added
security and protection from the elements for customers and employees.
The Company's gasoline stations generally contain up to 100 square feet
of retail space in an island kiosk and typically offer gasoline and a
limited amount of merchandise such as tobacco products, candies, snacks
and soft drinks.
The Company's units are brightly decorated with its trademark signage
to create a consistent appearance and encourage customer recognition
and patronage. The Company believes that consistency of brand image is
important to the successful operation and expansion of its retail
marketing system. In all aspects of its retail marketing operations the
Company emphasizes quality, value, cleanliness and friendly and
efficient customer service. The Company has conducted customer surveys
which indicate strong consumer preference for units which are well-
lighted and safe. In response to such customer preferences, the
Company has initiated a system-wide lighting upgrade and safety
enhancement program which includes the installation of improved
lighting as well as the installation of its proprietary Coronet
Security System, an interactive audio and video monitoring system, at
over 70 of its units.
While the Company derives approximately 75% of its retail revenue from
the sale of gasoline, it also provides a variety of merchandise and
other services designed to meet the non-fuel needs of its customers.
Sales of these additional products are an important source of revenue,
contribute to increased profitability and serve to increase customer
traffic. The Company believes that its existing retail sites present
significant additional profit opportunities based upon their strategic
locations in high traffic areas. The Company also offers ancillary
services such as compressed air service, car washes, vacuums, and
automated teller machines, and management continues to evaluate the
addition of new ancillary services such as the marketing of fast food
from major branded chains.
Dealer Operations
The Company maintains 102 dealer-operated units, 101 of which are
located in Maryland. Under the Maryland Divorcement Law, refiners are
prohibited from operating gasoline stations. The Maryland units are
operated under a Branded Service Station Lease and Dealer Agreement
(the "Dealer Agreement"), generally with a term of three years.
Pursuant to the Dealer Agreement, a dealer leases the facility from the
Company and purchases and resells Crown-branded motor fuel and related
products. Dealers also purchase and resell merchandise from independent
third parties. The Dealer Agreement sets forth certain operating
standards; however, the Company does not control the independent
dealer's personnel, pricing policies or other aspects of the
independent dealer's business. The Company believes that its
relationship with its dealers has been very favorable as evidenced by
a low rate of dealer turnover.
The Company realizes little direct benefit from the sale of merchandise
or ancillary services at the dealer operated units, and the revenue
from these sales is not reflected in the Company's Consolidated
Financial Statements. However, to the extent that the availability of
merchandise and ancillary services increases customer traffic and
gasoline sales at its units, the Company benefits from higher gasoline
sales volumes.
Supply, Transportation and Wholesale Marketing
Supply
The Company's refineries, terminals and retail outlets are
strategically located in close proximity to a variety of supply and
distribution channels. As a result, the Company has the flexibility to
acquire available domestic and foreign crude oil economically, and also
the ability to distribute its products cost effectively to its own
system and to other domestic wholesale markets. Purchases of crude oil
and feedstocks are determined by quality, price and general market
conditions.
-6-
Transportation
Most of the domestic crude oil processed by the Company at its Pasadena
refinery is transported by pipeline. The Company's purchases of Alaskan
and foreign crude oil are transported primarily by tankers under spot
charters which are arranged by either the seller or by the Company. The
Company is not currently obligated under any time-charter contracts.
The Company has an approximate 5% interest in the Rancho Pipeline and
generally receives between 20,000 and 25,000 barrels per day of crude
through this system. Foreign crudes (principally from the North Sea,
West Africa and South America) account for approximately 35% of total
crude supply and are delivered by tanker. Most of the crude for the
Tyler refinery is gathered from local East Texas fields and delivered
by two pipeline systems, one of which is owned by the Company. Foreign
crude also can be delivered to the Tyler refinery by pipeline from the
Gulf Coast.
Terminals
The Company operates 11 product terminals located along the Colonial
and Plantation pipelines from the Pasadena refinery to Elizabeth, New
Jersey and, in addition to the terminal at the Tyler refinery, operates
four product terminals located along the Texas Eastern Products
Pipeline system. These terminals have a combined storage capacity of
2.7 million barrels. The Company's distribution network is augmented by
agreements with other terminal operators also located along these
pipelines. In addition to serving the Company's retail requirements,
these terminals supply products to other refiner/marketers, jobbers and
independent distributors.
Wholesale Marketing
Approximately 16% of the gasoline produced by the Company's Pasadena
refinery is transported by pipeline for sale at wholesale through
Company and other terminals in the Mid-Atlantic and Southeastern United
States. Heating oil is also regularly sold at wholesale through these
same terminals. Gasoline, heating oil, diesel fuel and other refined
products are also sold at wholesale in the Gulf Coast market.
The Company has entered into long-term product exchange agreements for
approximately one-third of its Tyler refinery production with two major
oil companies headquartered in the United States. These agreements
provide for the delivery of refined products at the Company's terminals
in exchange for delivery by these companies of a similar amount of
refined products to the Company. The terms of these agreements extend
through March 1998 and December 1999, respectively, and require the
exchange of 8,400 barrels per day and 9,800 barrels per day,
respectively. These exchange agreements provide the Company with the
ability to broaden its geographic distribution, supply markets not
connected to the refined products pipeline systems and reduce
transportation costs.
-7-
Item 3. LEGAL PROCEEDINGS
The Company is involved in various matters of litigation, the ultimate
determination of which, in the opinion of management, will not have a
material adverse effect on the Company. The Company's legal
proceedings are further discussed in Note I of Notes to Consolidated
Financial Statements on page 31 of this report.
The Company has recently reached agreement in principle with the Texas
Natural Resource Conservation Commission ("TNRCC") to settle
outstanding proceedings relating to air emissions at the Pasadena
refinery. TNRCC originally alleged a variety of violations in
connection with sulphur dioxide emissions from the sulphur recovery
unit, the hydrogen sulfide content limit in fuel gas from the fluid
catalytic cracking unit and the release of catalyst from that unit.
Under the proposed settlement, which is subject to TNRCC approval, the
Company will implement various corrective measures and improved record
keeping procedures and will pay administrative penalties of $110,000.
These funds have been tendered to the TNRCC. Settlement of the TNRCC
matter is also expected to satisfy related charges filed by the EPA and
by the Harris County Pollution Control Board. Recently, TNRCC has
issued a Notice of Violation (the "NOV") with respect to certain
alleged violations at the reformer unit at the Pasadena refinery, which
the Company had self-reported in early 1994. The Company and the TNRCC
staff are currently working to resolve the issues raised by the NOV.
The Pasadena refinery and many of the Company's other facilities are
involved in a number of other environmental enforcement actions or are
subject to agreements, orders or permits that require remedial
activities. Environmental expenditures, including these matters, are
discussed in the Liquidity and Capital Resources section of
Management's Discussion and Analysis of Financial Conditions and
Results of Operations on pages 14 through 17 of this report, and in
Note I of Notes to Consolidated Financial Statements on page 31 of this
report. These enforcement actions and remedial activities, in the
opinion of management, are not expected to have a material adverse
effect on the Company.
In addition, the Company has been named by the EPA and by several state
environmental agencies as a potentially responsible party at various
federal and state Superfund sites. The Company's exposure in these
matters has either been resolved or is de minimis and is not expected
to have a material adverse effect on the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the last
three months of the fiscal year covered by this report.
-8-
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Company's common stock is listed on the American Stock Exchange
under the ticker symbols CNP A and CNP B.
Common Stock Market Prices and Cash Dividends
1994 1993
----------------- -----------------
Sales Price Sales Price
High Low High Low
------- ------- ------- -------
CLASS A COMMON STOCK
First Quarter $21 7/8 $14 3/8 $18 $13 3/4
Second Quarter 24 1/4 17 16 7/8 14 1/2
Third Quarter 19 1/2 17 1/8 16 3/4 14 1/2
Fourth Quarter 18 3/8 12 3/8 16 1/4 14 5/8
Yearly 24 1/4 12 3/8 18 13 3/4
CLASS B COMMON STOCK
First Quarter $20 1/8 $13 5/8 $16 1/8 $12
Second Quarter 23 1/8 15 3/8 14 3/4 12 5/8
Third Quarter 18 16 1/8 14 1/4 12 1/4
Fourth Quarter 16 5/8 11 5/8 14 5/8 13
Yearly 23 1/8 11 5/8 16 1/8 12
<FN>
The payment of cash dividends is dependent upon future earnings, capital requirements,
overall financial condition and restrictions as described in Note C of Notes to Consolidated
Financial Statements on pages 20 and 21 of this report. There were no cash dividends
declared on common stock in 1994 or 1993.
The approximate number of shareholders of the Company's common stock, based on the number
of record holders on December 31, 1994 was:
Class A Common Stock 730
Class B Common Stock 897
Transfer Agent & Registrar
The First National Bank of Boston
Boston, Massachusetts
-9-
Item 6. SELECTED FINANCIAL DATA
The selected consolidated financial data for the Company set forth
below for the five years ended December 31, 1994 should be read in
conjunction with the Consolidated Financial Statements.
1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ----------
(Thousands of dollars except per share amounts)
Sales and operating revenues $1,699,168 $1,747,411 $1,795,259 $1,857,711 $2,019,960
(Loss) income before cumulative
effect of changes in accounting
principles (35,406) (4,300) (13,278) (6,026) 26,011
Cumulative effect of changes in
accounting principles 7,772
Net (loss) income (35,406) (4,300) (5,506) (6,026) 26,011
Total assets 704,076 656,178 675,337 687,816 687,698
Long-term debt 96,632 65,579 61,220 88,646 2,230
Per Share Data:
(Loss) income before cumulative
effect of changes in accounting
principles (3.63) (.44) (1.35) (.61) 2.65
Net (loss) income (3.63) (.44) (.56) (.61) 2.65
Cash Dividends Declared:
Class A Common .20 .80 .80
Class B Common .20 .80 .80
<FN>
The net loss in 1994 was unfavorably impacted by a pre-tax write-down of $16.8 million in
the third quarter relating to the abandonment of plans to construct a hydrodesuphurization
unit at the Pasadena refinery.
-10-
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
Purchases of crude oil supply are typically made pursuant to relatively
short-term, renewable contracts with numerous foreign and domestic
major and independent oil producers, generally containing market-
responsive pricing provisions. The Company has instituted programs
designed to manage profit margins by minimizing the Company's exposure
to the risks of price volatility related to the acquisition, conversion
and sale of crude oil and refined petroleum products. These programs
include hedging activities such as the purchase and sale of futures and
options contracts to mitigate the effect of fluctuations in the prices
of crude oil and refined products. While the Company's net sales and
operating revenues fluctuate significantly with movements in industry
crude oil prices, such prices do not have a direct relationship to net
earnings, which are subject to the impact of the Company's LIFO method
of accounting discussed below. The effect of changes in crude oil
prices on the Company's operating results is determined more by the
rate at which the prices of refined products adjust to reflect such
changes.
The following table estimates the sensitivity of the Company's income
before taxes to price changes which impact its refining and retail
margins based on a representative production rate for the Refineries
and a representative amount of total gasoline sold at the Company's
retail units:
Earnings Sensitivity Change Annual Impact
-------------------- -------- -------------
Refining margin $0.10/bbl $5.8 million
Retail margin $0.01/gal $4.8 million
The Company conducts environmental assessments and remediation efforts
at multiple locations, including operating facilities and previously
owned or operated facilities. The Company accrues environmental and
clean-up related costs of a non-capital nature when it is both probable
that a liability has been incurred and the amount can be reasonably
estimated. Accruals for losses from environmental remediation
obligations generally are recognized no later than completion of the
remedial feasibility study. Estimated costs, which are based upon
experience and assessments, are recorded at undiscounted amounts
without considering the impact of inflation, and are adjusted
periodically as additional or new information is available.
Expenditures for equipment necessary for environmental issues relating
to ongoing operations are capitalized.
The Company's crude oil, refined products and convenience store
merchandise and gasoline inventories are valued at the lower of cost
(based on the last-in, first-out or LIFO method of accounting) or
market, with the exception of crude oil inventory held for resale which
is valued at the lower of cost (based on the first-in first-out or FIFO
method of accounting) or market. Under the LIFO method, the effects of
price increases and decreases in crude oil and other feedstocks are
charged directly to the cost of refined products sold in the period
that such price changes occur. In periods of rising prices, the LIFO
method may cause reported operating income to be lower than would
otherwise result from the use of the FIFO method. Conversely, in
periods of falling prices the LIFO method may cause reported operating
income to be higher than would otherwise result from the use of the
FIFO method. In addition, the Company's use of the LIFO method may
understate the value of inventories on the Company's consolidated
balance sheet as compared to the value of inventories under the FIFO
method.
-11-
Results of Operations
The Company's Sales and operating revenues decreased 2.8% in 1994
compared to a 2.7% decrease in 1993. The Company's Sales and operating
revenues and Costs and operating expenses include all Federal and State
excise and other similar taxes which totalled $380.6 million, $296.2
million, and $218.9 million in 1994, 1993 and 1992, respectively. The
1994 increase in excise taxes was due primarily to the inclusion of
more products in the taxable base that were excluded in prior years.
The 1994 decrease in sales and operating revenues was due to a 5.7%
decrease in petroleum product sales volumes resulting from planned
reductions in operating runs due to deteriorating refinery gross
margins in the third quarter of 1994 and a maintenance turnaround at
the Pasadena refinery in the fourth quarter of 1994. Additionally,
there was a 4.8% decrease in the average unit selling price of
petroleum products. These decreases were partially offset by an
increase in excise taxes as previously mentioned and a $5.8 million or
6.5% increase in merchandise sales. The 1993 decrease was primarily
attributable to an 8.8% decrease in the average unit selling price of
petroleum products and to decreases in merchandise sales of 19.9%,
which were partially offset by a 2.1% increase in petroleum product
sales volumes and the increase in excise taxes indicated above. The
1993 merchandise sales decrease resulted principally from the sale or
closing throughout 1992 and 1993 of retail marketing outlets which were
either not profitable or not compatible with the Company's strategic
direction. The closing of these units resulted in increases in the
average sales level per store. There were 357, 376 and 435 retail
units operating at the end of 1994, 1993 and 1992, respectively.
As previously mentioned, merchandise sales increased $5.8 million or
6.5% for the year ended December 31, 1994 compared to the same period
in 1993, while merchandise gross profit decreased $5.8 million or 22.2%
for the year ended December 31, 1994 compared to the same period in
1993. Merchandise gross margin (merchandise gross profit as a percent
of merchandise sales) decreased from 31.6% to 23.3% for the year ended
December 31, 1993 and 1994, respectively. In addition to a reduction
in the number of operating units during the period, the $5.8 million
decrease in merchandise gross profit and the related decrease in gross
margin was also due to the introduction in early 1994 of a new
merchandise pricing program designed to increase per unit customer
traffic and overall merchandise sales and gasoline volumes. A key
element of the program includes the reduction of prices on certain
items such as tobacco products and beverages. As a result of the new
strategy, aggregate merchandise gross profit, on a same store basis,
decreased 1.6% in 1994 as compared to 1993. Same store average monthly
gasoline volumes and merchandise sales increased approximately 2% and
33%, respectively, in 1994 as compared to 1993.
Gasoline sales accounted for 55.2% of total 1994 revenues (excluding
excise taxes), while distillates and merchandise sales represented
28.6% and 7.2%, respectively. This compares to a dollar mix from sales
of 56.4% gasoline, 30.4% distillates and 6.0% merchandise in 1993; and
56.8% gasoline, 28.7% distillates and 6.9% merchandise in 1992.
The following table depicts the sales values of the principal classes
of products sold by the Company, which individually contributed more
than ten percent of consolidated sales and operating revenues
(excluding excise taxes) during the last three years:
Sales of Principal Products
millions of dollars 1994 1993 1992
------ ------ --------
Gasoline $728.6 $817.6 $900.1
No. 2 Fuel & Diesel 296.6 369.7 379.9
Costs and operating expenses decreased .2% in 1994, after decreasing
3.3% in 1993. The 1994 decrease was attributable to a decrease in
volumes sold as previously discussed and to a decrease in the average
cost per barrel consumed of crude oil and feedstocks of $1.21 or 6.65%.
These decreases were partially offset by increases in excise taxes as
previously mentioned. The 1993 decrease was due primarily to a
decrease in the average cost per barrel consumed of $2.29 or 11.2%
which was partially offset by increases in sales volumes and excise
taxes.
-12-
The results of operations were affected by the Company's use of the
last-in, first-out (LIFO) method to value inventory which results in a
better matching of current revenues and costs. The impact of LIFO was
to decrease the Company's gross margins in 1994 by $.35 per barrel
($19.0 million), and to increase the Company's gross margins in 1993
and 1992 by $.48 per barrel ($27.7 million) and $.10 per barrel ($5.8
million), respectively. The 1992 LIFO impact is net of a $2.3 million
gross margin decrease resulting from a liquidation of LIFO inventory
base year dollars.
The Company has recently instituted programs designed to manage
refining profit margins by minimizing the Company's exposure to the
risks of price volatility related to the acquisition, conversion and
sale of crude oil and refined petroleum products. These programs
include hedging activities such as the purchase and sale of futures and
option contracts to offset the effects of fluctuations in the prices of
crude oil and refined products. Such hedging activities are subject to
specific policies and guidelines established by the Company and are
reviewed by the Margin Management Committee composed of senior
management and chaired by the Company's Chief Executive Officer. The
Company's policy is to manage its crude oil acquisition, refining, and
product sales on a daily basis to achieve, at a minimum, prevailing
margins available to comparable Gulf Coast refiners and, where
appropriate, to pursue forward hedging opportunities which lock in
attractive returns. The number of barrels of crude oil and refined
products covered by such hedging activities varies from time to time,
within certain limits established by the Margin Management Committee.
While the Company's hedging activities are intended to reduce
volatility while providing an acceptable profit margin on a portion of
production, the use of such a program can limit the Company's ability
to participate in an improvement in related product profit margins.
Total refinery production was: 147,700 barrels per day (bpd) in 1994,
yielding 79,800 bpd of gasoline (54.0%) and 48,200 bpd of distillates
(32.6%); 158,400 barrels per day (bpd) in 1993, yielding 86,300 bpd of
gasoline (54.5%) and 51,700 bpd of distillates (32.6%); and 153,500 bpd
in 1992, yielding 86,200 bpd of gasoline (56.2%) and 49,000 bpd of
distillates (31.9%). Due to deteriorating refinery gross margins which
occurred during the third quarter of 1994, the Company reduced
operating runs at its Pasadena refinery. Additionally, in 1994,
overall refinery production was reduced by the fourth quarter's
maintenance turnaround of the Pasadena refinery's Fluid Catalytic
Cracking Unit (FCCU) and related units. The FCCU is the primary
gasoline facility. The turnaround was initially scheduled to be
performed in the first quarter of 1995 but was performed in 1994 due to
depressed refinery gross margins. Refinery production was slightly
impacted in 1993 by a scheduled maintenance turnaround in the second
quarter at the Tyler refinery, while refinery production was more
dramatically reduced in 1992 by scheduled first quarter maintenance
turnarounds at both the Pasadena and Tyler refineries. Due to poor
refining margins late in the fourth quarter of 1993, the Company
announced that it had reduced runs at its Pasadena refinery by 20%.
The Company's finished product requirements in excess of its refinery
yields and existing inventory levels are acquired through its exchange
agreements or outright purchases.
Selling and administrative expenses decreased 7.6% in 1994 after
decreasing 10.8% in 1993. The 1994 decrease resulted primarily from
decreased store level and marketing administrative costs associated
with the sale or closing throughout 1993 and in early 1994 of retail
marketing units which were either not profitable or did not fit with
the Company's strategic direction, and cost reductions related to the
company's administrative functions. The 1993 decrease is also
attributable to reduced costs associated with the closing of retail
units, and the consolidation of certain marketing field operations. At
December 31, 1994, the Company operated 258 retail gasoline facilities
and 99 convenience stores compared to 249 retail gasoline facilities
and 127 convenience stores at December 31, 1993 and 262 retail gasoline
facilities and 173 convenience stores at December 31, 1992. Selling
and administrative expenses in 1994 include $.5 million in
reorganization costs, while reorganization and office closure costs of
$.7 million and reorganization costs of $.4 million are included in
selling and administrative expenses for 1993 and 1992, respectively.
Operating costs and expenses in 1994, 1993 and 1992 include $1.9
million, $6.3 million and $5.2 million, respectively, related to
environmental matters and $3.0 million, $2.4 million and $2.4 million,
respectively, related to retail units that have been closed. Operating
costs and expenses in 1994 and 1993 also include $1.6 million and $1.8
million, respectively, of accrued non-environmental casualty related
costs. Operating costs and expenses in 1992 include a $1 million
reserve for the write-off of excess refinery equipment and a $1.3
million write-off of refinery feasibility studies.
Depreciation and amortization in 1994 was comparable to 1993 and 1992,
and is expected to remain consistent in 1995.
-13-
Since 1991, the Company had incurred expenditures of approximately $21
million in connection with engineering and an equipment acquisition
which would enable the Pasadena refinery to manufacture low sulphur
distillate. As of December 31, 1993, this project had been temporarily
halted while the Company further studied the market economics of high
sulphur versus low sulphur distillate during a complete business cycle.
Management estimates that additional expenditures in the range of
approximately $50 million to approximately $80 million would be
required to complete this project. Following an evaluation of current
and projected margins based on available supply and forecasted demand
for low sulphur distillate after one full business cycle, management
abandoned its plans to construct a hydrodesulphurization unit at its
Pasadena refinery. Accordingly, in the third quarter of 1994, Sales
and abandonments of property, plant and equipment in 1994 reflect a
write-down of the capitalized expenditures of $16.8 million to an
estimated net realizable salvage value of $4 million. The Pasadena
refinery will continue to manufacture high sulphur distillates which
are readily saleable in the Company's market areas. The loss of $2.3
million from Sales and abandonments in 1993 relates primarily to the
write-down of the Sulphur Unit at the Pasadena refinery. The loss of
$1.3 million from Sales and abandonments of property plant and
equipment in 1992 includes a $.9 million write-off of abandoned
equipment related to the capital modification of the Pasadena
refinery's FCCU.
Interest and other income in 1994 was comparable to 1993 and increased
$1.4 million in 1993 compared to 1992. Interest and other income in
1993 includes income of $.7 million from the Company's wholly-owned
insurance subsidiaries compared to a loss of $1 million in 1992.
Interest expense increased $.6 million in 1994 and 1993. The 1994
increase includes $.4 million related to the purchase money lien.
There was no interest expense related to the purchase money lien in
1993. The 1993 increase is related to a decrease in capitalized
interest as disclosed in Note C of Notes to Consolidated Financial
Statements on page 27 of this report.
As discussed in Note E of Notes to Consolidated Financial Statements on
page 28 of this report, the passage of the Tax Act of 1993 increased
the Company's federal statutory income tax rate from 34% to 35%
effective January 1, 1993. The effect of the change in statutory rate
was to increase the Company's 1993 income tax expense and increase the
net loss by $2.3 million or $.23 per share.
As discussed in Notes E and H of Notes to Consolidated Financial
Statements on pages 28 and 31 of this report, Crown Central Petroleum
Corporation and subsidiaries (the Company) adopted the provisions of
the Financial Accounting Standards Board's Statements of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109),
and No. 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions" (SFAS 106), effective January 1, 1992. The 1992 results
include the $13.4 million cumulative effect benefit of the adoption of
SFAS 109 on prior years, and the $5.6 million net of tax cumulative
effect charge of applying SFAS 106. In 1994, the Company had a net
loss of $35.5 million, including the write-down of the
hydrodesulphurization equipment at the Pasadena refinery, compared to
a net loss of $4.3 million in 1993, and a net loss before cumulative
effect of changes in accounting principles of $13.3 million in 1992.
Liquidity and Capital Resources
The Company's cash and cash equivalents were $2.8 million higher at
year-end 1994 than at year-end 1993. The increase was attributable to
$37.2 million of net cash inflows from financing activities and cash
provided by operating activities of $8.6 million. These cash inflows
were partially offset by $43 million of net cash outflows from
investment activities.
Net cash provided by financing activities in 1994 relates to $40
million in net borrowings from loan agreements (which includes $35
million borrowed from the Company's Unsecured Credit Agreement as
discussed in Note C of Notes to Consolidated Financial Statements on
page 27 of this report). Partially offsetting these cash inflows was
$2.7 million used to purchase shares of the Company's Class B Common
Stock for use in connection with awards of stock and options under the
Long-Term Incentive Plan as discussed in Note G of Notes to
Consolidated Financial Statements on page 29 of this report.
-14-
The positive $8.6 million cash generated from operating activities in
1994 is net of an $8 million cash outflow relating to working capital,
resulting primarily from net increases in accounts receivable and in
the value of crude oil and finished products inventories, which were
partially offset by net increases in crude oil and refined products
payables. The timing of collection of the Company's receivables is
impacted by the specific type of sale and associated terms. Bulk sales
of finished products are typically sold in 25,000 barrel increments
with three day payment terms. Rack sales at the Company's product
terminals are sold by truckload (approximately 8,000 gallons) with
seven to ten day payment terms. While the Company's overall sales are
aligned to its refining capability, receivables can vary between
periods depending upon the specific type of sale and associated payment
terms for sales near the end of a reporting period.
Net cash outflows from investment activities in 1994 consisted
principally of capital expenditures of $34.4 million (which includes
$21.9 million for refinery operations and $11.3 million related to the
marketing area) and $12.4 million of refinery deferred turnaround
costs. The total outflows from investment activities were partially
offset by proceeds from the sale of property, plant and equipment of
$4.9 million.
The ratio of current assets to current liabilities at December 31, 1994
was 1.22:1 compared to 1.29:1 at December 31, 1993. If FIFO values had
been used for all inventories, assuming an incremental effective income
tax rate of 38.5%, the ratio of current assets to current liabilities
would have been 1.32:1 at December 31, 1994 and 1.36:1 at December 31,
1993.
Like other petroleum refiners and marketers, the Company's operations
are subject to extensive and rapidly changing federal and state
environmental regulations governing air emissions, waste water
discharges, and solid and hazardous waste management activities. The
Company's policy is to accrue environmental and clean-up related costs
of a non-capital nature when it is both probable that a liability has
been incurred and that the amount can be reasonably estimated. While
it is often extremely difficult to reasonably quantify future
environmental related expenditures, the Company anticipates that a
substantial capital investment will be required over the next several
years to comply with existing regulations. The Company believes that
cash provided from its operating activities, together with other
available sources of liquidity, including the remaining proceeds of the
$125 million of Unsecured 10 7/8% Senior Notes and borrowings under the
Credit Facility, will be sufficient to fund these costs. The Company
had recorded a liability of approximately $15.7 million as of December
31, 1994 to cover the estimated costs of compliance with environmental
regulations which are not anticipated to be of a capital nature. The
liability of $15.7 million includes accruals for issues extending past
1996.
Environmental liabilities are subject to considerable uncertainties
which affect the Company's ability to estimate its ultimate cost of
remediation efforts. These uncertainties include the exact nature and
extent of the contamination at each site, the extent of required
cleanup efforts, varying costs of alternative remediation strategies,
changes in environmental remediation requirements, the number and
financial strength of other potentially responsible parties at multi-
party sites, and the identification of new environmental sites. As a
result, charges to income for environmental liabilities could have a
material effect on results of operations in a particular quarter or
year as assessments and remediation efforts proceed or as new claims
arise. However, management is not aware of any matters which would be
expected to have a material adverse effect on the Company.
During the years 1995-1997, the Company estimates environmental
expenditures at the Pasadena and Tyler refineries, of at least $4.3
million and $18.2 million, respectively. Of these expenditures, it is
anticipated that $3.2 million for Pasadena and $16.7 million for Tyler
will be of a capital nature, while $1.1 million and $1.5 million,
respectively, will be related to previously accrued non-capital
remediation efforts. At the Company's marketing facilities, capital
expenditures relating to environmental improvements are planned
totalling approximately $23 million through 1998.
The Purchase Money Lien (Money Lien) discussed in Note C of Notes to
Consolidated Financial Statements on page 26 of this report, allows for
a maximum drawdown of $6.5 million which was fully utilized as of
January 31, 1994. The Money Lien is secured by certain service station
and terminal equipment and office furnishings having a cost basis of
$6.5 million. The effective rate for the Money Lien is 6.65%. Ninety
percent of the principal is payable in 60 equal monthly installments
which commenced in February 1994 with a balloon payment of 10% of the
principal payable in January 1999.
-15-
As a result of a strong balance sheet and overall favorable credit
relationships, the Company has been able to maintain open lines of
credit with its major suppliers. Under the Revolving Credit Agreement
(Credit Agreement), effective as of May 10, 1993, as amended, the
Company had outstanding as of December 31, 1994, irrevocable standby
letters of credit in the principal amount of $18.9 million and cash
borrowings of $35 million for purposes in the ordinary course of
business. The cash borrowings outstanding at December 31, 1994 were
repaid in January 1995. Subsequent to this repayment, unused
commitments totaling $106 million under the Revolving Credit Agreement
were available for future borrowings and issuance of letters of credit
at January 31, 1995. During the second quarter of 1994, the Company
obtained an additional uncommitted line of credit with a major
financial institution, for up to $20 million in standby letters of
credit, primarily for the purchase of crude oil. Under this agreement,
the Company had no outstanding letters of credit as of December 31,
1994 and January 31, 1995.
Effective as of September 30, 1994, the Company executed an amendment
to the Credit Agreement dated as of May 10, 1993. This amendment,
established new financial covenants which became necessary due to
decreased refining margins and the write-down of the refinery equipment
in 1994. At December 31, 1994, the Company was in compliance with all
amended covenants and provisions of the Credit Agreement. Meeting the
covenants imposed by the Credit Agreement is dependent, among other
things, upon the level of future earnings and the rate of capital
spending. The Company reasonably expects to continue to be in
compliance with the covenants imposed by the Credit Agreement, or a
successor agreement, over the next twelve months.
As discussed in Note M of Notes to Consolidated Financial Statements on
page 33 of this report, in January 1995, the Company retired the
remaining outstanding principal balance of the 10.42% Senior Notes
(including a prepayment premium of $3.4 million) with the proceeds from
the sale of $125 million of Unsecured 10 7/8% Senior Notes due February
1, 2005 which will result in a net extraordinary loss in the first
quarter of 1995.
As discussed in Note C of Notes to Consolidated Financial Statements on
page 26 of this report, the Company has entered into interest rate swap
agreements to effectively convert $47.5 million of its fixed rate debt
to variable interest rate debt with maturities ranging from 1996 to
1998. According to the terms of these swap agreements, the variable
interest rates to be paid by the Company are reset on various
predetermined dates which range from January 1995 to March 1998. As of
December 31, 1994, the Company had recorded a deferred gain of $1.3
million associated with having terminated an interest rate swap. As
discussed in Note M of Notes to Consolidated Financial Statements on
page 33 of this report, the underlying debt related to the Company's
interest rate swap agreements was extinguished in January 1995 which
will result in a net loss of approximately $1.4 million being included
in the extraordinary loss in the first quarter of 1995. The Company
may utilize interest rate swaps in the future to manage the cost of
funds.
In 1994, due to increases in interest rates, the Company increased the
discount rate used to measure obligations for pension and post-
retirement benefits other than pensions. This change will decrease the
Company's 1995 net periodic pension cost, however, adjustments to other
assumptions used in accounting for the Company's defined benefit plans
will likely result in a minimal impact on the overall cost.
The Company's management is involved in a continual process of
evaluating growth opportunities in its core business as well as its
capital resource alternatives. Total capital expenditures and deferred
turnaround costs in 1995 are projected to approximate $56.6 million.
The capital expenditures relate primarily to planned enhancements at
the Company's refineries, retail unit improvements and to company-wide
environmental requirements. The Company believes that cash provided
from its operating activities, together with other available sources of
liquidity, including the remaining proceeds of the $125 million of
Unsecured 10 7/8% Senior Notes (Notes) and borrowings under the Credit
Facility, will be sufficient over the next several years to make
required payments of principal and interest on its debt, including
interest payments due on the Notes, permit anticipated capital
expenditures and fund the Company's working capital requirements.
The Company places its temporary cash investments in high credit
quality financial instruments which are in accordance with the
covenants of the Company's financing agreements. These securities
mature within ninety days, and, therefore, bear minimal risk. The
Company has not experienced any losses on its investments.
The Company faces intense competition in all of the business areas in
which it operates. Many of the Company's competitors are substantially
larger and therefore, the Company's earnings can be affected by the
marketing and pricing policies of its competitors, as well as changes
in raw material costs.
-16-
Merchandise sales and operating revenues from the Company's convenience
stores are seasonal in nature, generally producing higher sales and net
income in the summer months than at other times of the year. Gasoline
sales, both at the Crown multi-pumps and convenience stores, are also
somewhat seasonal in nature and, therefore, related revenues may vary
during the year. The seasonality does not, however, negatively impact
the Company's overall ability to sell its refined products.
The Company maintains business interruption insurance to protect itself
against losses resulting from shutdowns to refinery operations from
fire, explosions and certain other insured casualties. Business
interruption coverage begins for such losses at the greater of $5
million or shutdowns for periods in excess of 25 days.
The Company has disclosed in Note I of Notes to Consolidated Financial
Statements on page 31 of this report, various contingencies which
involve litigation, environmental liabilities and examinations by the
Internal Revenue Service. Depending on the occurrence, amount and
timing of an unfavorable resolution of these contingencies, the outcome
of which cannot be determined at this time, it is possible that the
Company's future results of operations and cash flows could be
materially affected in a particular quarter or year. However, the
Company has concluded, after consultation with counsel, that there is
no reasonable basis to believe that the ultimate resolution of any of
these contingencies will have a material adverse effect on the Company.
Effects of Inflation and Changing Prices
The Company's Consolidated Financial Statements are prepared on the
historical cost method of accounting and, as a result, do not reflect
changes in the dollar's purchasing power. In the capital intensive
industry in which the Company operates, the replacement costs for its
properties would generally far exceed their historical costs. As a
result, depreciation would be greater if it were based on current
replacement costs. However, since the replacement facilities would
reflect technological improvements and changes in business strategies,
such facilities would be expected to be more productive and versatile
than existing facilities, thereby increasing profits and mitigating
increased depreciation and operating costs.
In recent years, crude oil and refined petroleum product prices have
generally been falling which has resulted in a net reduction in working
capital requirements. If the prices increase in the future, the
Company will expect a related increase in working capital needs.
-17-
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED BALANCE SHEETS
Crown Central Petroleum Corporation and Subsidiaries
(Thousands of dollars)
December 31
Assets 1994 1993
-------- --------
Current Assets
Cash and cash equivalents $ 54,868 $ 52,021
Accounts receivable, less allowance for
doubtful accounts (1994--$1,908; 1993--$1,760) 128,984 91,413
Recoverable and current deferred income taxes 16,075
Inventories 94,933 86,811
Other current assets 1,264 762
-------- --------
Total Current Assets 296,124 231,007
Investments and Deferred Charges 40,125 42,908
Property, Plant and Equipment
Land 43,862 44,433
Petroleum refineries 449,197 428,567
Marketing facilities 183,638 182,473
Pipelines and other equipment 22,507 20,932
-------- --------
699,204 676,405
Less allowance for depreciation 331,377 294,142
-------- --------
Net Property, Plant and Equipment 367,827 382,263
-------- --------
$704,076 $656,178
======== ========
<FN>
See notes to consolidated financial statements
-18-
CONSOLIDATED BALANCE SHEETS
Crown Central Petroleum Corporation and Subsidiaries
(Thousands of dollars)
December 31
Liabilities and Stockholders' Equity 1994 1993
-------- --------
Current Liabilities
Accounts payable:
Crude oil and refined products $150,877 $104,166
Other 29,988 20,500
Accrued liabilities 51,500 50,145
Income taxes payable 3,264
Current portion of long-term debt 10,062 1,094
-------- --------
Total Current Liabilities 242,427 179,169
Long-Term Debt 96,632 65,579
Deferred Income Taxes 73,402 81,217
Other Deferred Liabilities 31,154 31,860
Common Stockholders' Equity
Class A Common Stock--par value $5 per share:
Authorized--7,500,000 shares;
issued and outstanding shares--
4,817,392 in 1994 and 1993 24,087 24,087
Class B Common Stock--par value $5 per share:
Authorized--7,500,000 shares;
issued and outstanding shares--
4,985,706 in 1994 and 5,015,206 in 1993 24,929 25,076
Additional paid-in capital 90,549 91,870
Unearned restricted stock (1,266)
Retained earnings 122,162 157,320
-------- --------
Total Common Stockholders' Equity 260,461 298,353
-------- --------
$704,076 $656,178
======== ========
<FN>
See notes to consolidated financial statements
-19-
CONSOLIDATED STATEMENTS OF OPERATIONS
Crown Central Petroleum Corporation and Subsidiaries
(thousands of dollars, except per share amounts)
Year Ended December 31
1994 1993 1992
---------- ---------- ----------
Revenues
Sales and operating revenues (including
excise taxes of 1994--$380,610;
1993--$296,228; 1992--$218,944) $1,699,168 $1,747,411 $1,795,259
Operating Costs and Expenses
Costs and operating expenses 1,602,104 1,604,696 1,659,796
Selling and administrative expenses 84,754 91,714 102,805
Depreciation and amortization 42,644 41,873 41,526
Sales and abandonments of property,
plant and equipment 16,001 2,331 1,264
---------- ---------- ----------
1,745,503 1,740,614 1,805,391
---------- ---------- ----------
Operating (Loss) Income (46,335) 6,797 (10,132)
Interest and other income 1,502 1,461 3
Interest expense (8,003) (7,451) (6,826)
---------- ---------- ----------
(Loss) Income Before Income Taxes
and Cumulative Effect of Changes
in Accounting Principles (52,836) 807 (16,955)
Income Tax (Benefit) Expense (17,430) 5,107 (3,677)
---------- ---------- ----------
(Loss) Before Cumulative Effect
of Changes in Accounting Principles (35,406) (4,300) (13,278)
Cumulative Effect to January 1, 1992
of Change in Accounting for Postretirement
Benefits Other Than Pensions (Net of Tax
Benefit of $3,308) (5,631)
Cumulative Effect to January 1, 1992
of Change in Accounting for Income Taxes 13,403
---------- ---------- ----------
Net (Loss) $ (35,406) $ (4,300) $ (5,506)
========== ========== ==========
Net (Loss) Per Share:
(Loss) Before Cumulative Effect
of Changes in Accounting Principles $ (3.63) $ (.44) $ (1.35)
Cumulative Effect to January 1, 1992
of Change in Accounting for Postretirement
Benefits Other Than Pensions (.57)
Cumulative Effect to January 1, 1992
of Change in Accounting for Income Taxes 1.36
---------- ---------- ----------
Net (Loss) Income Per Share $ (3.63) $ (.44) $ (.56)
========== ========== ==========
<FN>
See notes to consolidated financial statements
-20-
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDERS' EQUITY
Crown Central Petroleum Corporation and Subsidiaries
(thousands of dollars, except per share amounts)
Addi-
Class A Class B tionalUnearned
Common Stock Common Stock Paid-InRestrictedRetained
Shares Amount Shares Amount CapitalStock Earnings Total
--------- ------- --------- ------- -------------- ----------------
Balance at
January 1, 1992 4,817,392 $24,087 5,015,206 $25,076 $91,870 $169,714$310,747
Net (loss) for 1992 (5,506) (5,506)
Cash dividends:
Class A Common Stock
--$.20 per share (964) (964)
Class B Common Stock
--$.20 per share (1,003) (1,003)
--------- ------- --------- ------- ------- ----------------
Balance at
December 31, 1992 4,817,392 24,087 5,015,206 25,076 91,870 162,241 303,274
Net (Loss) for 1993 (4,300) (4,300)
Adjustment to record
minimum pension
liability, net of
deferred income tax
benefit of $335 (621) (621)
--------- ------- --------- ------- ------- ----------------
Balance at
December 31, 1993 4,817,392 24,087 5,015,206 25,076 91,870 157,320 298,353
Net (loss) for 1994 (35,406)(35,406)
Adjustment to minimum
pension liability
recorded in 1993,
net of deferred
income tax benefit
of $133 248 248
Purchases of
Common Stock (135,000) (675) (2,059) (2,734)
Stock registered to
participants of
stock incentive plans 105,500 528 1,282$(1,810)
Market value adjustments
to Unearned Restricted
Stock (544) 544
--------- ------- --------- ------- -------------- ---------------
Balance at
December 31, 1994 4,817,392 $24,087 4,985,706 $24,929 $90,549$(1,266)$122,162$260,461
========= ======= ========= ======= ====================== ========
<FN>
See notes to consolidated financial statements
-21-
CONSOLIDATED STATEMENTS OF CASH FLOWS
Crown Central Petroleum Corporation and Subsidiaries
(thousands of dollars)
Year Ended December 31
1994 1993 1992
-------- -------- --------
Cash Flows From Operating Activities
Net (loss) $(35,406) $ (4,300) $ (5,506)
Reconciling items from net (loss) income to net
cash provided by operating activities:
Depreciation and amortization 42,644 41,873 41,526
(Gain) loss on sales of property, plant
and equipment (840) 2,331 1,264
Write-down of Pasadena Refinery
HDS equipment 16,841
Equity (earnings) loss in
unconsolidated subsidiaries 880 (651) 1,028
Deferred income taxes (7,949) (36) (841)
Other deferred items 412 830 715
Cumulative effect of changes in
accounting principles (7,772)
Changes in assets and liabilities
Accounts receivable (37,571) 21,507 (1,506)
Recoverable income taxes (16,075) 2,690 6,742
Inventories (8,122) (13,357) 31,953
Other current assets (502) 641 330
Crude oil and refined products payable 46,711 (30,250) (13,303)
Other accounts payable 9,488 2,713 (2,555)
Accrued liabilities 1,355 1,623 876
Income taxes payable (3,264) 3,264
-------- -------- --------
Net Cash Provided by Operating Activities 8,602 28,878 52,951
-------- -------- --------
Cash Flows From Investment Activities
Capital expenditures (34,359) (40,860) (38,003)
Contract settlement regarding acquisition
of La Gloria Oil and Gas Company 8,000
Proceeds from sales of property,
plant and equipment 4,868 5,515 4,072
Investment in subsidiaries (101) (4) (177)
Deferred turnaround maintenance and other (13,390) (4,678) (19,675)
-------- -------- --------
Net Cash (Used in) Investment Activities (42,982) (40,027) (45,783)
-------- -------- --------
Cash Flows From Financing Activities
Proceeds from debt and credit
borrowings 64,220 5,472 30,147
Repayments of debt and credit
agreement borrowings (24,199) (376) (57,486)
Proceeds from interest rate
swap terminations 2,403
Net (issuances) repayments of long-term
notes receivable (60) 167 (499)
Purchases of common stock (2,734)
Cash dividends (1,967)
-------- -------- --------
Net Cash Provided by (Used in)
Financing Activities 37,277 7,666 (29,805)
-------- -------- --------
Net Increase (Decrease) in
Cash and Cash Equivalents 2,847 (3,483) (22,637)
Cash and Cash Equivalents at
Beginning of Year 52,021 55,504 78,141
-------- -------- --------
Cash and Cash Equivalents at End of Year $ 54,868 $ 52,021 $ 55,504
======== ======== ========
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for:
Interest (net of amount capitalized) $ 6,608 $ 4,249 $ 5,610
Income taxes 6,124 4,329 1,023
<FN>
See notes to consolidated financial statements
-22-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Crown Central Petroleum Corporation and Subsidiaries
Note A--Description of Business and Summary of Accounting Policies
Description of Business: Crown Central Petroleum Corporation and
subsidiaries (the Company) operates primarily in one business segment
as an independent refiner and marketer of petroleum products, including
petrochemical feedstocks. The Company operates two refineries, one
located near Houston, Texas with a rated capacity of 100,000 barrels
per day and another in Tyler, Texas with a rated capacity of 52,000
barrels per day. Its principal business is the wholesale and retail
sale of its products in the Mid-Atlantic, Southeastern and Midwestern
United States.
Locot Corporation, a wholly-owned subsidiary of the Company, is the
parent company of La Gloria Oil and Gas Company (La Gloria) which
operates the Tyler refinery, a pipeline gathering system in Texas and
product terminals located along the Texas Eastern Pipeline system.
F Z Corporation, a wholly-owned subsidiary of the Company, is the
parent company of two convenience store chains operating in six states,
retailing both merchandise and gasoline.
The following summarizes the significant accounting policies and
practices followed by the Company:
Principles of Consolidation: The consolidated financial statements
include the accounts of Crown Central Petroleum Corporation and all
significant majority-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated. Due to immateriality,
the Company's investment in Tongue, Brooks & Company, Inc. and Tiara
Insurance Company, two wholly-owned insurance subsidiaries, are
accounted for using the equity method.
Cash and Cash Equivalents: Cash in excess of daily requirements is
invested in marketable securities with maturities of three months or
less. Such investments are deemed to be cash equivalents for purposes
of the statements of cash flows.
Accounts Receivable: The majority of the Company's accounts receivable
relate to sales of petroleum products to third parties operating in the
petroleum industry.
Inventories: The Company's crude oil, refined products, and
convenience store merchandise and gasoline inventories are valued at
the lower of cost (last-in, first-out) or market with the exception of
crude oil inventory held for resale which is valued at the lower of
cost (first-in, first-out) or market. Materials and supplies
inventories are valued at cost. Incomplete exchanges of crude oil and
refined products due the Company or owing to other companies are
reflected in the inventory accounts.
-23-
Property, Plant and Equipment: Property, plant and equipment is
carried at cost. Costs assigned to property, plant and equipment of
acquired businesses are based on estimated fair value at the date of
acquisition. Depreciation and amortization of plant and equipment are
primarily provided using the straight-line method over estimated useful
lives. Construction in progress is recorded in property, plant and
equipment.
Expenditures which materially increase values, change capacities or
extend useful lives are capitalized in property, plant and equipment.
Routine maintenance, repairs and replacement costs are charged against
current operations. At intervals of two or more years, the Company
conducts a complete shutdown and inspection of significant units
(turnaround) at its refineries to perform necessary repairs and
replacements. Costs associated with these turnarounds are deferred and
amortized over the period until the next planned turnaround.
Upon sale or retirement, the costs and related accumulated depreciation
or amortization are eliminated from the respective accounts and any
resulting gain or loss is included in income.
Environmental Costs: The Company conducts environmental assessments
and remediation efforts at multiple locations, including operating
facilities, and previously owned or operated facilities. Estimated
closure and post-closure costs for active, refinery and finished
product terminal facilities are not recognized until a decision for
closure is made. Estimated closure and post-closure costs for active
and operated retail marketing facilities and costs of environmental
matters related to ongoing refinery, terminal and retail marketing
operations are recognized as described below. Expenditures for
equipment necessary for environmental issues relating to ongoing
operations are capitalized. The Company accrues environmental and
clean-up related costs of a non-capital nature when it is both probable
that a liability has been incurred and that the amount can be
reasonably estimated. Accruals for losses from environmental
remediation obligations generally are recognized no later than
completion of the remediation feasibility study. Estimated costs,
which are based upon experience and assessments, are recorded at
undiscounted amounts without considering the impact of inflation, and
are adjusted periodically as additional or new information is
available.
Sales and Operating Revenues: Sales and operating revenues and Costs
and operating expenses include excise and other similar taxes. Resales
of crude oil are recorded net of the related crude oil cost (first-in,
first-out) in sales and operating revenues.
Income Taxes: The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" (SFAS 109). SFAS 109 requires a liability approach for
measuring deferred taxes based on temporary differences between the
financial statement and tax bases of assets and liabilities existing at
each balance sheet date using enacted tax rates for years in which
taxes are expected to be paid or recovered. Deferred tax liabilities
reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
Interest Capitalization: Interest costs incurred during the
construction and preoperating stages of significant construction or
development projects is capitalized and subsequently amortized by
charges to earnings over the useful lives of the related assets.
Amortization of Goodwill: The excess purchase price of acquisitions of
businesses over the estimated fair value of assets acquired is
being amortized on a straight-line basis over 20 years.
Financial Instruments and Hedging Activities - The Company periodically
enters into interest rate swap agreements to effectively manage the
cost of borrowings. All interest rate swaps are only subject to market
risk as interest rates fluctuate. For interest rate swaps designated
to the Company's long-term debt and accounted for as a hedge, the net
amounts payable or receivable from periodic settlements under
outstanding interest rate swaps are included in interest expense.
Realized gains and losses from terminated interest rate swaps are
deferred and amortized into interest expense over the shorter of the
term of the underlying debt or the remaining term of the original swap
agreement. Settlement of interest rate swaps involves the receipt or
payment of cash on a periodic basis during the duration of the
contract, or upon the Company's termination of the contract, for the
differential of the interest rates swapped over the term of the
contract.
Other instruments are used to minimize the exposure of the Company's
refining margins to crude oil and refined product price fluctuations.
Hedging strategies used to minimize this exposure include fixing a
future margin between crude oil and certain finished products and also
hedging fixed price purchase and sales commitments of crude oil and
refined products. Futures, forwards and exchange traded options
entered into with commodities brokers and other integrated oil and gas
companies are utilized to execute the Company's strategies. These
instruments generally allow for settlement at the end of their term in
either cash or product.
-24-
Net realized gains and losses from these hedging strategies are
recognized in costs and operating expenses when the associated refined
products are sold. Unrealized gains and losses represent the
difference between the market price of refined products and the price
of the derivative financial instrument, inclusive of refining costs.
Individual transaction unrealized gains and losses are deferred in
inventory and other current assets and liabilities to the extent that
the associated refined products have not been sold. A hedging strategy
position generating an overall net unrealized loss is recognized in
costs and operating expenses. While the Company's hedging activities
are intended to reduce volatility while providing an acceptable profit
margin on a portion of production, the use of such a program can limit
the Company's ability to participate in an improvement in related
refined product profit margins.
The Company is exposed to credit risk in the event of non-performance
by counterparties on interest rate swaps, and futures, forwards and
exchange traded options for crude and finished products, but the
Company does not anticipate non-performance by any of these
counterparties. The amount of such exposure is generally the
unrealized gains in such contracts.
Note B--Inventories
Inventories consist of the following:
December 31
1994 1993
-------- --------
(thousands of dollars)
Crude oil $ 53,359 $ 38,989
Refined products 74,299 60,519
-------- --------
Total inventories at FIFO
(approximates current costs) 127,658 99,508
LIFO allowance (45,125) (25,828)
-------- --------
Total crude oil and refined products 82,533 73,680
-------- --------
Merchandise inventory at FIFO
(approximates current cost) 7,150 7,200
LIFO allowance (2,110) (2,387)
-------- --------
Total merchandise 5,040 4,813
-------- --------
Materials and supplies inventory at FIFO 7,360 8,318
-------- --------
Total Inventory $ 94,933 $ 86,811
======== ========
Note C--Long-Term Debt and Credit Arrangements
Long-term debt consists of the following:
December 31
1994 1993
------- -------
(thousands of dollars)
Unsecured 10.42% Senior Notes $ 60,000 $60,000
Unsecured Credit Agreement 35,000
Purchase Money Lien 5,579 5,472
Other obligations 6,115 1,201
-------- -------
106,694 66,673
Less current portion 10,062 1,094
-------- -------
Long-Term Debt $ 96,632 $65,579
======= =======
The aggregate maturities of long-term debt (excluding the scheduled
maturities on the Unsecured 10.42% Senior Notes and the Unsecured
Credit Agreement which were repaid in January 1995) through 1999 are as
follows (in thousands):
1995 - $1,260; 1996 - $6,340; 1997 - $1,405; 1998 - $1,479; 1999 -
$771.
-25-
The unsecured 10.42% Senior Notes dated January 3, 1991, as amended
(Notes) limit the payment of cash dividends on common stocks and
require the maintenance of various covenants including minimum working
capital, minimum fixed charge coverage ratio, and minimum consolidated
tangible net worth, all as defined. The principal is scheduled to be
repaid in seven equal annual installments commencing January 3, 1995.
The Notes are repayable, at a premium, in whole or in part at any time
at the option of the Company. As discussed in Note M - Subsequent
Events, on January 25, 1995, the Company repaid the remaining principal
balance on the Notes from the proceeds of a public debt offering.
The Purchase Money Lien is secured by certain service station equipment
and office furnishings having a cost basis of $6.5 million. The
effective rate for the Money Lien is 6.65%. Ninety percent of the
principal is repayable in 60 monthly installments with a balloon
payment of 10% of the principal payable in January 1999.
Under the terms of the Unsecured Credit Agreement dated May 10, 1993,
as amended, (Credit Agreement) eight banks have committed a maximum of
$125,000,000 to the Company for cash borrowings and letters of credit.
There is a limitation of $50,000,000 for cash borrowings under the
agreement. The Credit Agreement, which expires May 10, 1996, but
contains a one year renewal option, allows for interest on outstanding
borrowings to be computed under one of three methods based on the Base
Rate, the London Interbank Offered Rate, or the Certificates of Deposit
Rate (all as defined). The Credit Agreement limits the Company's
borrowings outside the Agreement to a maximum of $125,000,000 of notes
or bonds of the Company. The Credit Agreement limits indebtedness (as
defined), cash dividends on common stocks and capital expenditures and
requires the maintenance of various covenants including, but not
limited to, minimum working capital, minimum consolidated tangible net
worth, and a borrowing base, all as defined. Under the terms of the
Notes and Credit Agreement, at December 31, 1994, the Company was
limited to paying additional cash dividends of $9,803,098.
As of December 31, 1994, the Company had outstanding irrevocable
standby letters of credit in the principal amount of $18.9 million and
cash borrowings of $35 million. Unused commitments under the terms of
the Credit Agreement totaling $71.1 million were available for future
borrowings (subject to the $50,000,000 limitation described above) and
issuance of letters of credit at December 31, 1994. The Company pays an
annual commitment fee on the unused portion of the credit line. During
the second quarter of 1994, the Company obtained an additional
uncommitted line of credit with a major financial institution for up to
$20 million in standby letters of credit, primarily for the purchase of
crude oil. Under this agreement, the Company had no outstanding
letters of credit as of December 31, 1994.
The following interest costs were charged to pre-tax income:
Year Ended December 31
-------------------------
1994 1993 1992
------ ------ ------
(thousands of dollars)
Total interest costs incurred $ 8,288 $ 7,712 $ 7,754
Less: Capitalized interest 285 261 928
------- ------- ------
Interest Expense $ 8,003 $ 7,451 $ 6,826
======= ======= =======
Note D--Crude Oil and Refined Product Hedging Activities and Other
Derivative Financial Instruments
The net deferred gain from crude oil and refined product hedging
strategies at December 31, 1994 was $.2 million. Included in these
hedging strategies are contracts maturing from January 1995 to May
1995. The Company is using these contracts to fix the purchase price
of approximately 28% of its crude requirements, and the selling price
of approximately 8% of its refined products, for the aforementioned
period, at current related market prices. The Company is exposed to
credit risk to the extent of counterparty non-performance on forward
contracts. Management monitors this credit risk by evaluating
counterparties prior to and during their contractual obligation.
Management considers non-performance credit risk to be remote.
-26-
As of December 31, 1994, the Company has entered into interest rate
swap agreements to effectively convert $47.5 million of its fixed rate
debt to variable interest rate debt with maturities ranging from 1996
to 1998.
The following is a summary, by year of maturity, of the Company's
outstanding interest rate swap agreements:
Instruments Expected to Mature in
1996 1997 1998
-------- -------- --------
(thousands of Dollars)
Interest rate swaps $17,500 $15,000 $15,000
Average variable pay rates assuming
current market conditions 7.04% 6.89% 7.00%
Average fixed rate received 5.14% 5.36% 5.67%
The variable interest rates to be paid by the Company are reset on
various predetermined dates which range from January 1995 to March
1998 and are based on the London Interbank Offered Rate (LIBOR).
The termination of existing interest rate swap agreements as of
December 31, 1994 would result in a loss of approximately $ 2.7
million. During 1993, the Company terminated certain other interest
rate swap agreements resulting in deferred gains of $1.3 million at
December 31, 1994 and $1.9 million at December 31, 1993. As a result
of its interest rate swap program, the Company's effective interest
rate on the Notes for 1994 was reduced from approximately 10.5% to
approximately 9.2% per annum. The Company is exposed to credit risk to
the extent of nonperformance by the counterparties to the interest rate
swap agreements; however, management considers the risk of default to
be remote. As discussed in Note M - Subsequent Events, the underlying
debt related to these interest rate swap agreements was extinguished in
January 1995 which will result in the net loss of approximately $1.4
million being included in the extraordinary loss in the first quarter
of 1995.
Note E--Income Taxes
Significant components of the Company's deferred tax liabilities and
assets are as follows:
1994 1993
--------- --------
(thousands of dollars)
Deferred tax liabilities:
Depreciation and amortization $ (56,715) $ (58,095)
Difference between book and tax basis of
property, plant and equipment (28,880) (30,945)
Other (18,748) (16,768)
--------- ---------
Total deferred tax liabilities (104,343) (105,808)
Deferred tax assets:
Postretirement and pension obligations 5,804 5,596
Environmental, litigation and other accruals 11,542 9,734
Construction and inventory cost not
currently deductible 4,006 1,436
Other 9,589 7,825
--------- ---------
Total deferred tax assets 30,941 24,591
--------- ---------
Net deferred tax liabilities $ (73,402) $ (81,217)
========= =========
No valuation allowance is considered necessary for the above deferred
tax assets. The company has tax credit carryforwards of $1,615,000
which expire in the year 2004 through 2009, along with net operating
loss carryforwards of $19,890,000 which expire in the year 2009.
Recoverable and current deferred income taxes includes an income tax
receivable for the anticipated refund from the current use of net
operating losses and the estimated benefit from net operating loss
carryforwards that will be used in 1995.
-27-
Significant components of the income tax (benefit) provision for the
years ended December 31 follows. With the passage of the Tax Act of
1993, the Company's federal statutory income tax rate increased from
34% to 35% effective January 1, 1993. The effect of the change in
statutory rate was to increase the 1993 net (loss) by $2,252,000 or
$.23 per share.
1994 1993 1992
--------- ------- -------
(thousands of dollars)
Current:
Federal $(14,541) $ 5,278 $(3,230)
State (586) 1,779 872
-------- ------- -------
Total Current (15,127) 7,057 (2,358)
Deferred:
Federal (2,188) (3,642) (1,485)
State (115) (560) 166
-------- ------- -------
Total Deferred (2,303) (4,202) (1,319)
Federal tax rate increase 2,252
-------- ------- -------
Income Tax Expense (Benefit) $(17,430) $ 5,107 $(3,677)
======== ======= =======
Current state tax provision includes franchise taxes of $1,000,000,
$1,275,000 and $1,300,000 for the years 1994, 1993 and 1992,
respectively.
The following is a reconciliation of the statutory federal income tax
rate to the actual effective income tax rate for the years ended
December 31:
1994 1993 1992
------- ------- ------
(thousands of dollars)
Income tax (benefit) expense calculated
at the statutory federal income tax rate $(18,492) $ 282 $(5,765)
Amortization of goodwill and purchase adjustments 330 330 321
State taxes (net of federal benefit) (700) 798 685
Federal tax rate increase 2,252
Other 1,432 1,445 1,082
-------- ------ -------
Income Tax Expense (Benefit) $(17,430) $5,107 $(3,677)
======== ====== =======
Effective January 1, 1992, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109).
The $13,403,000 cumulative effect benefit of applying SFAS 109 reduced
the net loss for 1992. One of the requirements of SFAS 109 is that
deferred taxes be recorded for the tax effects of differences between
assigned values and the tax bases of assets acquired in purchase
business acquisitions. Previously, under the provisions of Accounting
Principles Board Opinion No. 11 "Accounting for Income Taxes", acquired
assets were recorded net of such tax effects. The adoption of SFAS 109
resulted in total increases in inventory and net property, plant and
equipment of $38 million relating to the acquisitions of the Fast Fare
and Zippy Mart convenience store chains and La Gloria Oil and Gas
Company, with related increases in the liability for deferred income
taxes. The write-up of net property, plant and equipment will be
depreciated over the remaining life of the related assets and such
depreciation is offset by a credit to the deferred tax provision.
Note F--Capital Stock and Net Income Per Common Share
Class A Common stockholders are entitled to one vote per share and have
the right to elect all directors other than those to be elected by
other classes of stock. Class B Common stockholders are entitled to
one-tenth vote per share and have the right to elect two directors.
Net (loss) per share for 1994 is based upon the weighted average of
common shares outstanding of 9,742,598. Net (loss) per share for 1993
and 1992 is based upon the 9,832,598 common shares outstanding for both
years.
-28-
Note G--Long-Term Incentive Plan
At the Annual Meeting held on April 28, 1994, the stockholders approved
the 1994 Long-Term Incentive Plan (Plan). Under the Plan, the Company
may distribute to selected employees restricted shares of the Company's
Class B Common Stock and options to purchase Class B Common Stock. Up
to 1.1 million shares of Class B Common Stock may be distributed under
the Plan over a five year period. During the second quarter of 1994,
the Company acquired 135,000 shares of Class B Common Stock at a cost
of $2,734,000 which could be required for use in connection with the
awards of stock and options under the Plan during the first year. The
balance sheet caption "Unearned restricted stock" is charged for the
market value of restricted shares at their grant date and changes in
the market value of shares outstanding until the vesting date, and is
shown as a reduction of stockholders' equity.
Performance Vested Restricted Stock (PVRS) awards are subject to the
attainment of performance goals and certain restrictions including the
receipt of dividends and transfers of ownership. As of December 31,
1994, 105,500 shares of PVRS have been registered in participants names
and are being held by the Company subject to the attainment of the
related performance goals.
Non-qualified stock options are granted to participants at a price not
less than 100% of the fair market value of the stock on the date of
grant. The exercise period is ten years with the options becoming
exercisable at 33 1/3% per year after a one-year waiting period.
Shares of Class B Common Stock available for issuance under options or
awards amounted to 885,650 at December 31, 1994.
Year Ended December 31, 1994
Common Price Range
Shares per share
-------- -----------------
Options granted 109,800 $16 1/4 - $16 7/8
Options canceled (950) 16 7/8
-------
Options outstanding - December 31, 1994 108,850
=======
Note H--Employee Benefit Obligations
The Company has a defined benefit pension plan covering the majority of
full-time employees. The Company also has several defined benefit
plans covering only certain senior executives. Plan benefits are
generally based on years of service and employees' average
compensation. The Company's policy is to fund the pension plans in
amounts which comply with contribution limits imposed by law. Plan
assets consist principally of fixed income securities and stocks.
Net periodic pension costs consisted of the following components:
Year Ended December 31
1994 1993 1992
-------- -------- -------
(thousands of dollars)
Service cost - benefit earned during the year $ 4,666 $ 4,002 $ 3,672
Interest cost on projected benefit obligations 6,566 6,326 5,895
Actual loss (return) on plan assets 1,455 (11,738)(10,217)
Total amortization and deferral (8,733) 5,324 4,875
-------- -------- -------
Net periodic pension costs $ 3,954 $ 3,914 $ 4,225
======== ======== =======
Assumptions used in the accounting for the defined benefit plans as of
December 31 were:
1994 1993 1992
------- ------- -------
Weighted average discount rates 8.75% 7.25% 8.25%
Rates of increase in compensation levels 4.00% 4.00% 5.00%
Expected long-term rate of return on assets 9.50% 9.50% 9.50%
-29-
The following table sets forth the funded status of the plans in which
assets exceed accumulated benefits:
December 31
1994 1993
------- -------
(thousands of dollars)
Actuarial present value of benefit obligations:
Vested benefit obligation $65,073 $68,817
------- -------
Accumulated benefit obligation $67,350 $71,552
------- -------
Projected benefit obligation $80,164 $86,728
Plan assets at fair value 76,090 78,573
------- -------
Projected benefit obligation (in excess of) plan assets (4,074) (8,155)
Unrecognized net loss 5,644 9,532
Prior service (benefit) not yet recognized in net
periodic pension cost (1,141) (1,081)
Unrecognized net (asset) at
beginning of year, net of amortization (2,228) (2,495)
------- -------
Net pension liability $(1,799) $(2,199)
======= =======
The following table sets forth the funded status of the plans in which
accumulated benefits exceed assets:
December 31
1994 1993
------- -------
(thousands of dollars)
Actuarial present value of benefit obligations:
Vested benefit obligation $ 5,163 $ 5,339
------- -------
Accumulated benefit obligation $ 5,163 $ 5,339
------- -------
Projected benefit obligation $ 5,189 $ 5,376
Plan assets at fair value 0 0
------- -------
Projected benefit obligation (in excess of) plan assets (5,189) (5,376)
Unrecognized net loss 812 1224
Prior service (benefit) not yet recognized
in net periodic pension cost (212) (231)
Unrecognized net obligation at
beginning of year, net of amortization 1,605 1,834
Adjustment required to recognize minimum liability (2,179) (2,790)
------- -------
Net pension liability $(5,163) $(5,339)
======= =======
In addition to the defined benefit pension plan, the Company provides
certain health care and life insurance benefits for eligible employees
who retire from active service. The postretirement health care plan is
contributory, with retiree contributions consisting of copayment of
premiums and other cost sharing features such as deductibles and
coinsurance. Beginning in 1998, the Company will "cap" the amount of
premiums that it will contribute to the medical plans. Should costs
exceed this cap, retiree premiums would increase to cover the
additional cost. Effective January 1, 1992, the Company adopted
Statement of Financial Accounting Standards No. 106 "Accounting for
Postretirement Benefits Other Than Pensions" (SFAS 106). SFAS 106
requires the accrual of the expected costs of providing these
postretirement benefits during the years that the employee renders the
necessary service.
The $5,631,000 cumulative effect charge of adoption of SFAS 106 on
prior years (after reduction for the income tax benefit of $3,308,000)
is included in the net loss for 1992.
-30-
The following table sets forth the accrued postretirement benefit cost
of these plans recognized in the Company's Balance Sheet:
December 31
1994 1993
----------- ---------
(thousands of dollars)
Accumulated postretirement benefit obligation (APBO):
Retirees $5,496 $5,491
Fully eligible active plan participants 1,280 1,460
Other active plan participants 1,752 2,186
Unrecognized net gain 363 4
Unrecognized prior service cost 668 353
------ ------
Accrued postretirement benefit cost $9,559 $9,494
====== ======
The weighted average discount rate used in determining the APBO was
8.75% and 7.25% in 1994 and 1993, respectively.
Net periodic postretirement benefit cost include the following
components:
December 31
1994 1993 1992
----- ----- -----
Service cost $193 $161 $161
Interest cost on accumulated
postretirement benefit obligation 680 765 756
Total amortization and deferral (29)
---- ---- ----
Net periodic postretirement benefit cost $844 $926 $917
==== ==== ====
The Company's policy is to fund postretirement costs other than
pensions on a pay-as-you-go basis as in prior years.
A 12% increase in the cost of medical care was assumed for 1994. This
medical trend rate is assumed to decrease 1% annually to 9% in 1997,
and decrease to 0% thereafter as a result of the expense cap in 1998.
The medical trend rate assumption affects the amounts reported. For
example, a 1% increase in the medical trend rate would increase the
APBO by $453,000, and the net periodic cost by $49,000 for 1994.
In 1993, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 112 "Employers' Accounting for Postemployment
Benefits" (SFAS 112). SFAS 112 requires the accrual of the expected
costs of providing certain benefits after employment, but before
retirement, such as health care continuation coverage. The adoption of
SFAS 112 did not materially affect the 1994 or 1993 net loss.
Note I--Litigation and Contingencies
The Company has been named as a defendant in various matters of
litigation, some of which are for substantial amounts, and involve
alleged personal injury and property damage from prolonged exposure to
petroleum, petroleum related products and substances used at its
refinery or in the petroleum refining process. The Company is a co-
defendant with numerous other defendants in a number of these suits.
The Company is vigorously defending these actions, however, the process
of resolving these matters could take several years. The liability, if
any, associated with these cases was either accrued in accordance with
generally accepted accounting principles or was not determinable at
December 31, 1994. The Company has consulted with counsel with respect
to each such preceding or large claim which is pending or threatened.
While litigation can contain a high degree of uncertainty and the risk
of an unfavorable outcome, in the opinion of management, there is no
reasonable basis to believe that the eventual outcome of any such
matter or group of related matters will have a material adverse effect
on the Company.
The Company's federal income tax returns for the 1988 and 1989 fiscal
years are currently under examination by the Internal Revenue Service.
In conjunction with this examination, certain Notices of Proposed
Adjustments have been received recently. The Company is currently
evaluating these matters, but while an estimate cannot be determined at
this time, the Company does not believe that the ultimate resolution of
these matters will have a material adverse effect on the Company.
-31-
Like other petroleum refiners and marketers, the Company's operations
are subject to extensive and rapidly changing federal and state
environmental regulations governing air emissions, waste water
discharges, and solid and hazardous waste management activities. The
Company's policy is to accrue environmental and clean-up related costs
of a non-capital nature when it is both probable that a liability has
been incurred and that the amount can be reasonably estimated. While
it is often extremely difficult to reasonably quantify future
environmental related expenditures, the Company anticipates that a
substantial capital investment will be required over the next several
years to comply with existing regulations. The Company had recorded a
liability of approximately $15.7 million as of December 31, 1994
relative to the estimated costs of a non-capital nature related to
compliance with environmental regulations. This liability is
anticipated to be expended over the next five years and is included in
the balance sheet as a noncurrent liability. No amounts have been
accrued as receivables for potential reimbursement or recoveries to
offset this liability. Included in costs and operating expenses in the
statement of operations for the years ended December 31, 1994, 1993
and 1992 were costs related to environmental remediation in the amount
of $1.9 million, $6.3 million and $5.2 million, respectively.
Environmental liabilities are subject to considerable uncertainties
which affect the Company's ability to estimate its ultimate cost of
remediation efforts. These uncertainties include the exact nature and
extent of the contamination at each site, the extent of required
cleanup efforts, varying costs of alternative remediation strategies,
changes in environmental remediation requirements, the number and
strength of other potentially responsible parties at multi-party sites,
and the identification of new environmental sites. It is possible that
the ultimate cost, which cannot be determined at this time, could
exceed the Company's recorded liability. As a result, charges to
income for environmental liabilities could have a material effect on
the results of operations in a particular quarter or year as
assessments and remediation efforts proceed or as new claims arise.
However, management is not aware of any matters which would be expected
to have a material adverse effect on the Company.
Note J--Noncancellable Lease Commitments
The Company has noncancellable operating lease commitments for
refinery, computer, office and other equipment, transportation
equipment, an airplane, service station and convenience store
properties, and office space. Lease terms range from three to ten
years for refinery, computer, office and other equipment and four to
eight years for transportation equipment. The airplane lease commenced
in 1992 and has a term of seven years. The majority of service station
properties have lease terms of 20 years. The average lease term for
convenience stores is approximately 12 years. The Corporate
Headquarters office lease has a ten year term beginning in 1993.
Certain of these leases have renewal provisions.
Future minimum rental payments under noncancellable operating lease
agreements as of December 31, 1994 are as follows (in thousands):
1995 $10,030
1996 9,819
1997 8,831
1998 8,023
1999 8,292
After 1999 43,630
-------
Total Minimum Lease Payments $88,625
=======
Rental expense for the years ended December 31, 1994, 1993 and 1992 was
$13,658,000, $14,620,000 and $16,487,000, respectively.
Note K--Investments and Deferred Charges
Investments and deferred charges consist of the following:
December 31
1994 1993
------- -------
(thousands of dollars)
Deferred turnarounds $15,874 $15,844
Goodwill 9,970 10,883
Investments in subsidiaries 5,745 6,601
Long-term notes receivable 3,029 2,969
Intangible pension asset 1,605 1,834
Deferred financing costs 918 1,121
Deferred proceeds - tax exchanges 14 1,067
Other 2,970 2,589
------- -------
Investments and Deferred Charges $40,125 $42,908
======= =======
Accumulated amortization of goodwill was $6,888,000 and $5,974,000 at
December 31, 1994 and 1993, respectively.
-32-
Note L--Fair Value of Financial Instruments
The Company considers cash and cash equivalents, accounts receivable,
investments in subsidiaries, long-term notes receivable, accounts
payable, long-term debt and interest rate swap agreements to be its
financial instruments. The carrying amount reported in the balance
sheet for cash and cash equivalents, accounts receivable and accounts
payable, represent their fair values. The fair value of the Company's
long-term notes receivable at December 31, 1994 was estimated using a
discounted cash flow analysis, based on the assumed interest rates for
similar types of arrangements. The approximate fair value of the
Company's Long-term Debt at December 31, 1994 was estimated using a
discounted cash flow analysis, based on the Company's assumed
incremental borrowing rates for similar types of borrowing arrangements
except for the Senior Notes retired in January 1995 which were included
in the approximate fair value at the actual cost of retirement. The
fair value of the Company's interest rate swap agreements is estimated
based on termination values or quoted market prices of comparable
contracts at December 31, 1994. The fair value of its investments in
subsidiaries is considered to be their carrying amount since these
investments do not have quoted market prices.
The following summarizes the carrying amounts and related approximate
fair values as of December 31, 1994 of the Company's financial
instruments whose carrying amounts do not equal its fair value:
Carrying Approximate
Amount Fair Value
-------- -----------
(thousands of dollars)
Assets
Long-Term Notes Receivable $ 3,029 $ 3,020
Liabilities
Long-Term Debt 96,632 98,846
Interest Rate Swap Agreements 99 2,700
Note M--Subsequent Events
On January 24, 1995, the Company completed the sale of $125 million of
Unsecured 10 7/8% Senior Notes due February 1, 2005 priced at 99.75%
(Notes). Approximately $55 million of the net proceeds from the sale
was used to retire the Company's outstanding 10.42% Senior Notes,
including a prepayment premium of $3.4 million and $8 million was used
to reduce amounts outstanding under the Company's unsecured bank lines.
The remaining portion of the outstanding 10.42% Senior Notes had been
paid on January 3, 1995 as part of the regularly scheduled debt
service. There are no sinking fund requirements on the Notes and, at
the Company's option, up to $37.5 million may be redeemed at 110.875%
of the principal amount at any time prior to February 1, 1998. After
such date, they may not be redeemed until February 1, 2000 when they
are redeemable at 105.438% of the principal amount, and thereafter at
an annually declining premium over par until February 1, 2003 when they
are redeemable at par. The Notes were issued under an Indenture which
includes certain restrictions and limitations customary with senior
indebtedness of this type including, but not limited to, the payment of
dividends and the repurchase of capital stock. The retirement of the
Company's outstanding 10.42% Senior Notes will result in a net
extraordinary loss in the first quarter of 1995 of approximately $3.1
million.
-33-
REPORT OF INDEPENDENT AUDITORS
To the Stockholders
Crown Central Petroleum Corporation
We have audited the accompanying consolidated balance sheets of Crown
Central Petroleum Corporation and subsidiaries as of December 31, 1994
and 1993, and the related consolidated statements of operations, changes
in common stockholders' equity, and cash flows for each of the three
years in the period ended December 31, 1994. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Crown Central Petroleum Corporation and subsidiaries at
December 31, 1994 and 1993, and the consolidated results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1994, in conformity with generally accepted accounting
principles.
As discussed in Notes E and H of the consolidated financial statements,
effective January 1, 1992, the Company changed its method of accounting
for income taxes and postretirement benefits other than pensions.
Ernst & Young LLP
Ernst & Young LLP
Baltimore, Maryland
February 23, 1995
-34-
UNAUDITED
QUARTERLY RESULTS OF OPERATIONS
Crown Central Petroleum Corporation and Subsidiaries
(thousands of dollars, except per share amounts)
First Second Third Fourth
Quarter Quarter Quarter Quarter Yearly
-------- -------- -------- -------- ----------
1994
Sales and operating revenues $393,586 $453,423 $468,275 $383,884 $1,699,168
Gross profit 50,171 19,279 11,278 16,336 97,064
Net income (loss) 8,660 (7,286) (26,608) (10,172) (35,406)
Net income (loss) per share .88 (.74) (2.71) (1.06) (3.63)
1993
Sales and operating revenues $413,302 $447,777 $455,691 $430,641 $1,747,411
Gross profit 26,623 33,799 33,977 48,316 142,715
Net (loss) income (5,720) (2,266) (3,256) 6,942 (4,300)
Net (loss) income per share (.58) (.23) (.33) .70 (.44)
<FN>
Gross profit is defined as sales and operating revenues less costs and operating expenses
(including applicable property and other operating taxes).
Per share amounts are based upon the actual number of common shares outstanding each quarter.
The net loss in the third quarter of 1994 was unfavorably impacted by a pre-tax write-down
of $16.8 million relating to the abandonment of plans to construct a hydrodesuphurization
unit at the Pasadena refinery.
Item 9. CHANGES IN AND DISAGREEMENTS WITH AUDITORS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company has not filed a Form 8-K within the last twenty-four (24)
months reporting a change of independent auditors or any disagreement
with the independent auditors.
-35-
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Following is a list of Crown Central Petroleum Corporation's executive
officers, their ages and their positions and offices as of March 1, 1995:
Henry A. Rosenberg, Jr. (65)
Director since 1955 and Chairman of the Board and Chief Executive Officer
since May 1975. Also a director of Signet Banking Corporation and USF&G
Corporation.
Charles L. Dunlap (51)
Director and President and Chief Operating Officer since December 1991.
Served as a Director and Executive Vice President of Pacific Resources,
Inc. from 1985 until employment by the Company.
Phillip W. Taff (53)
Senior Vice President - Finance and Chief Financial Officer since June
1994. Director of the Company from 1992 until his employment by the
Company. Executive Vice President, Chief Financial Officer and Chief
Administrative Officer of Greyhound Lines, Inc. from April 1993 to May
1994. Senior Vice President and Chief Financial Officer of American
Trading and Production Company from May 1991 to April 1993. Executive
Vice President of PHH Corporation and President of PHH Fleet America from
April 1987 to April 1991.
Edward L. Rosenberg (39)
Senior Vice President - Administration - Corporate Development and Long
Range Planning since June 1994; Senior Vice President - Finance and
Administration from December 1991 to June 1994; Vice President - Supply
& Transportation from October 1990 to December 1991; Vice President -
Corporate Development from August 1989 to October 1990.Edward L.
Rosenberg is the son of Henry A. Rosenberg, Jr., and the brother of Frank
B. Rosenberg.
John E. Wheeler, Jr. (42)
Senior Vice President - Treasurer and Controller since June 1994; Vice
President - Treasurer and Controller from December 1991 to June 1994;
Vice President - Controller from March 1984 to December 1991.
Thomas L. Owsley (54)
Vice President - Legal since April 1983.
Randall M. Trembly (48)
Vice President - Refining since December 1991; Vice President-Treasurer
from October 1987 to December 1991.
Paul J. Ebner (37)
Vice President - Marketing Support Services since December 1991; General
Manager - Marketing Support Services from November 1988 to December 1991.
J. Michael Mims (45)
Vice President - Human Resources since June 1992. Vice President -
Internal Auditing and Consulting Services from December 1991 to June
1992; Director of Internal Auditing from September 1983 to December
1991.
George R. Sutherland, Jr. (50)
Vice President - Supply and Transportation since July 1992. Senior Vice
President - Trading of Pacific Resources, Inc. from 1989 until employment
by the Company.
Frank B. Rosenberg (36)
Vice President - Marketing since January 1993; Southern Marketing
Division Manager from January 1992 to January 1993; Vice President -
Wholesale Marketing - La Gloria Oil and Gas Company from October 1990
to January 1992; Manager - Economics, Planning and Scheduling from
October 1989 to October 1990. Frank B. Rosenberg is the son of Henry
A. Rosenberg, Jr. and the brother of Edward L. Rosenberg.
-36-
Dolores B. Rawlings (57)
Secretary since November 1990; Assistant to the Chairman and Assistant
Secretary from April 1988 to November 1990.
There have been no events under any bankruptcy act, no criminal
proceedings and no judgments or injunctions material to the evaluation
of the ability and integrity of any Director or Executive Officer during
the past five years. The information required in this Item 10 regarding
Directors of the Company and all persons nominated or chosen to become
directors is hereby incorporated by reference to the definitive Proxy
Statement which will be filed with the Commission pursuant to Regulation
14A on or about March 22, 1995.
Item 11. EXECUTIVE COMPENSATION
The information required in this Item 11 regarding executive compensation
is hereby incorporated by reference to the definitive Proxy Statement
which will be filed with the Commission pursuant to Regulation 14A on
or about March 22, 1995.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The information required in this Item 12 regarding security ownership
of certain beneficial owners and management is hereby incorporated by
reference to the definitive Proxy Statement which will be filed with the
Commission pursuant to Regulation 14A on or about March 22, 1995.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required in this Item 13 regarding certain relationships
and related transactions is hereby incorporated by reference to the
definitive Proxy Statement which will be filed with the Commission
pursuant to Regulation 14A on or about March 23, 1995.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
(a) (1) LIST OF FINANCIAL STATEMENTS
The following Consolidated Financial Statements of Crown Central
Petroleum Corporation and subsidiaries, are included in Item 8 on pages
18 through 33 of this report:
Consolidated Statements of Operations -- Years ended December 31,
1994, 1993 and 1992
Consolidated Balance Sheets -- December 31, 1994 and 1993
Consolidated Statements of Changes in Common Stockholders' Equity
-- Years ended December 31, 1994, 1993 and 1992
Consolidated Statements of Cash Flows -- Years ended December 31,
1994, 1993 and 1992
Notes to Consolidated Financial Statements -- December 31, 1994
-37-
(a) (2) LIST OF FINANCIAL STATEMENT SCHEDULES
All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable, and therefore have
been omitted.
(a) (3) and (c) LIST OF EXHIBITS
EXHIBIT
NUMBER
3 Articles of Incorporation and By-Laws
(a) Agreement of Consolidation as amended through August 28, 1988
(Articles of Incorporation) was previously filed with the
Registrant's Form 10-K for the year ended December 31, 1992,
herein incorporated by reference.
(b) By-Laws of Crown Central Petroleum Corporation as currently in
effect to reflect amendment dated February 25, 1988 were
previously filed with the Registrant's Form 10-K for the year
ended December 31, 1987, herein incorporated by reference.
4 Instruments Defining the Rights of Security Holders, Including
Indentures
(a) Credit Agreement dated as of May 10, 1993 between the Registrant
and various banks was previously filed with the Registrant's Form
8-K dated May 19, 1993, herein incorporated by reference. Certain
portions of the Agreement have been omitted because of their
confidential nature, and have been filed separately with the
Securities and Exchange Commission marked "Confidential
Treatment".
(b) Amendment dated December 20, 1993 to the Credit Agreement dated
as of May 10, 1993 was previously filed with the Registrant's Form
10-K for the year ended December 31, 1993, herein incorporated by
reference.
(c) Amendment dated as of September 30, 1994 to the Credit Agreement
dated as of May 10, 1993 was previously filed with the
Registrant's Form 10-Q for the quarter ended September 30, 1994
as Exhibit 4(a), herein incorporated by reference.
(d) Note Purchase Agreement dated January 3, 1991 between the
Registrant and a group of institutional lenders was previously
filed with the Registrants Form 8-K dated January 3, 1991, herein
incorporated by reference.
(e) Amendment dated as of February 14, 1992 to the Note Purchase
Agreement dated January 3, 1991 was previously filed with the
Registrants Form 10-K for the year ended December 31, 1991 as
Exhibit 19 (c), herein incorporated by reference.
(f) Amendment dated as of November 10, 1992 to the Note Purchase
Agreement dated January 3, 1991 was previously filed with the
Registrants Form 10-Q for the quarter ended September 30, 1992 as
Exhibit 19 (d), herein incorporated by reference.
(g) Amendment dated as of September 30, 1994 to the Note Purchase
Agreement dated January 3, 1991 was previously filed with the
Registrant's Form 10-Q for the quarter ended September 30, 1994
as Exhibit 4(b), herein incorporated by reference.
(h) Form of Indenture for the Registrant's 10 7/8% Senior Notes due
2005 filed on January 17, 1995 as Exhibit 4.1 of Amendment No. 3
to Registration Statement on Form S-3, Registration No. 33-56429,
herein incorporated by reference.
-38-
10 Material Contracts
(a) Crown Central Petroleum Retirement Plan effective as of July 1,
1993, was previously filed with the Registrant's Form 10-K for the
year ended December 31, 1993 as Exhibit 10(a), herein incorporate
by reference.
(b) Supplemental Retirement Income Plan for Senior Executives - As
amended through October 27, 1983 and all subsequent amendments
through May 30, 1991 were previously filed with the Registrant's
Form 10-K for the year ended December 31, 1992 as Exhibit 10 (a)
(3), herein incorporated by reference.
(c) Employee Savings Plan (as in effect on April 1, 1984), and all
subsequent amendments through December 19, 1991 were previously
filed with the Registrant's Form 10-K for the year ended December
31, 1992 as Exhibit 10 (a) (4), herein incorporated by reference.
(d) Directors' Deferred Compensation Plan adopted on August 25, 1983
was previously filed with the Registrant's Form 10-Q for the
quarter ended September 30, 1983 as Exhibit 19(b), herein
incorporated by reference.
(e) The Long-Term Performance Reward Plan as in effect for the ninth
performance cycle (1993/1994/1995) was previously filed with the
Registrant's Form 10-Q for the quarter ended March 31, 1993, as
Exhibit 19(a), herein incorporated by reference.
(f) The 1994 Long-Term Incentive Plan was previously filed as an
Exhibit to the Registrant's Proxy Statement dated March 24, 1994,
herein incorporated by reference.
(g) Advisory and Consultancy Agreement dated October 28, 1993 between
Jack Africk, Director and Crown Central Petroleum Corporation was
previously filed with the Registrant's Form 10-Q for the quarter
ended September 30, 1994 as Exhibit 99, herein incorporated by
reference.
(h) The Employment Agreement between Charles L. Dunlap, President and
Crown Central Petroleum Corporation, dated October 29, 1991 was
previously filed with the Registrant's Form 10-Q for the quarter
ended September 30, 1991 as Exhibit 19(a), herein incorporated by
reference.
(i) Employees Supplementary Savings Plan filed on February 27, 1995
as Exhibit 4 of Registration Statement on Form S-8 Registration
No. 33-57847, herein incorporated by reference.
11 Statement re: Computation of Earnings Per Share
Exhibit 11 is included on page 41 of this report.
13 Annual Report to Security Holders, Form 10-Q or Quarterly Report
to Security Holders
(a) Shareholders' Letter dated February 28, 1995.
(b) Financial Summary, Operating Summary and Key Financial
Statistics.
(c) Directors and Officers of the Company.
(d) Corporate Information.
21 Subsidiaries of the Registrant
Exhibit 21 is included on page 42 of this report.
-39-
23 Consent of Independent Auditors
Exhibit 23 is included on page 43 of this report.
24 Power of Attorney
Exhibit 24 is included on page 44 of this report.
99 Form 11-K will be filed under cover of Form 10-KA by June 29, 1995.
(b) REPORTS ON FORM 8-K
There were no reports filed on Form 8-K for the three months ended
December 31, 1994.
NOTE: Certain exhibits listed on pages 38 through 40 of this report and
filed with the Securities and Exchange Commission, have been
omitted. Copies of such exhibits may be obtained from the Company
upon written request, for a prepaid fee of 25 cents per page.
-40-
EXHIBIT 11
CROWN CENTRAL PETROLEUM CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(thousands of dollars except per share amounts)
Year Ended December 31
1994 1993 1992
-------- ------- -------
Primary and Fully Diluted Earnings Per Share
Net (loss) applicable to common shares $ (35,406) $ (4,300) $ (5,506)
========== ========== ==========
Shares outstanding as reported at December 31,
1993, 1992 and 1991, respectively 9,832,598 9,832,598 9,832,598
Weighted average effect of 135,000 shares
of common stock purchased in May 1994 (90,000)
---------
Weighted average number of common shares
outstanding, as adjusted at December 31 9,742,598 9,832,598 9,832,598
========== ========== ==========
Net (loss) per common share $ (3.63) $ (.44) $ (.56)
========== ========== ==========
-41-
EXHIBIT 21
SUBSIDIARIES
1. Subsidiaries as of December 31, 1994, which are consolidated in the
financial statements of the Registrant; each subsidiary is 100%
owned and doing business under its own name.
Nation or State
Subsidiary of Incorporation
---------- ----------------
Continental American Corporation Delaware
Coronet Security Systems, Inc. Delaware
Coronet Software, Inc. Delaware
Crown Central Holding Corporation Maryland
Crown Central International (U.K.), Limited United Kingdom
Crown Central Pipe Line Company Texas
Crown Gold, Inc. Maryland
Crown Nigeria, Inc. Maryland
Crown-Rancho Pipe Line Corporation Texas
Crown Stations, Inc. Maryland
Crowncen International N.V. Netherlands
Antilles
Fast Fare, Inc. Delaware
F Z Corporation Maryland
La Gloria Oil and Gas Company Delaware
Locot, Inc. Maryland
McMurrey Pipe Line Company Texas
The Crown Oil and Gas Company Maryland
2. Subsidiaries as of December 31, 1994, which are included in the
Consolidated Financial Statements of the Registrant on an equity
basis; each subsidiary is 100% owned and doing business under its
own name.
Nation or State
Subsidiary of Incorporation
---------- ----------------
Tiara Insurance Company Vermont
Tongue, Brooks & Company, Inc. Maryland
Health Plan Administrators, Inc. Maryland
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EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statement (Form S-8 No. 33-53457) pertaining to the 1994 Long Term
Incentive Plan and Employees Savings Plan and the Registration Statement
(Form S-8 No. 33-57847) pertaining to the Employees Supplemental Savings
Plan of Crown Central Petroleum Corporation and Subsidiaries of our
report dated February 23, 1995, with respect to the consolidated
financial statements of Crown Central Petroleum Corporation and
Subsidiaries included in the Annual Report (Form 10-K) for the year ended
December 31, 1994.
ERNST & YOUNG LLP
Baltimore, Maryland
March 15, 1995
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EXHIBIT 24
POWER OF ATTORNEY
We, the undersigned officers and directors of Crown Central Petroleum
Corporation hereby severally constitute Henry A. Rosenberg, Jr., Charles
L. Dunlap, Edward L. Rosenberg, Phillip W. Taff, John E. Wheeler, Jr.
and Thomas L. Owsley, and each of them singly, our true and lawful
attorneys with full power to them and each of them to sign for us in our
names and in the capacities indicated below this Report on Form 10-K for
the fiscal year ended December 31, 1994 pursuant to the requirements of
Section 13 or 15(d) of the Securities and Exchange Act of 1934 and all
amendments thereto.
Signature Title Date
- --------- ----- -----
Henry A. Rosenberg, Jr. Chairman of the Board and 2/23/95
Henry A. Rosenberg, Jr. Chief Executive Officer
(Principal Executive Officer)
C. L. Dunlap Director, President and Chief 2/23/95
Charles L. Dunlap Operating Officer
Jack Africk Director 2/23/95
Jack Africk
George L. Bunting, Jr. Director 2/23/95
George L. Bunting, Jr.
Michael F. Dacey Director 2/23/95
Michael F. Dacey
Robert M. Freeman Director 2/23/95
Robert M. Freeman
Thomas M. Gibbons Director 2/23/95
Thomas M. Gibbons
Patricia A. Goldman Director 2/23/95
Patricia A. Goldman
Peter J. Holzer Director 2/23/95
Peter J. Holzer
William L. Jews Director 2/21/95
William L. Jews
Malcolm McNair Director 2/23/95
Malcolm McNair
Phillip W. Taff Senior Vice President - Finance and2/23/95
Phillip W. Taff Chief Financial Officer
(Principle Financial Officer)
John E. Wheeler, Jr. Senior Vice President - Treasurer and2/23/95
John E. Wheeler, Jr. Controller
(Principal Accounting Officer)
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
CROWN CENTRAL PETROLEUM CORPORATION
By *
--------------------------------
Henry A. Rosenberg, Jr.
Chairman of the Board and Chief
Executive Officer
By *
--------------------------------
Phillip W. Taff
Senior Vice President - Finance
and Chief Financial Officer
By John E. Wheeler, Jr.
-------------------------------
John E. Wheeler, Jr.
Senior Vice President -
Treasurer and Controller
Date: March 16, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on March 16, 1995 by the following persons
on behalf of the registrant and in the capacities indicated:
* *
- -------------------------------- -------------------------------
Jack Africk, Director Patricia A. Goldman,
Director
* *
- -------------------------------- -------------------------------
George L. Bunting, Jr., Director Peter J. Holzer, Director
* *
- -------------------------------- -------------------------------
Michael F. Dacey, Director William L. Jews, Director
* *
- -------------------------------- -------------------------------
Charles L. Dunlap, Director Malcolm McNair, Director
President and Chief Operating Officer
* *
- --------------------------------- -------------------------------
Robert M. Freeman, Director Henry A. Rosenberg, Jr.,
Director
Chairman of the Board and Chief
Executive Officer
*
- ---------------------------------
Thomas M. Gibbons, Director
*By Power of Attorney
(John E. Wheeler, Jr.)
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