UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30,
1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or
15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from_____________
to____________
COMMISSION FILE
NUMBER 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
Not Applicable
(Former name, former address and former
fiscal year, if changed since last report)
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 number of shares outstanding at October 31, 1995 of the
Registrant's $5 par value Class A and Class B Common Stock
was 4,817,392 shares and 5,135,558 shares, respectively.
-1-
CROWN CENTRAL PETROLEUM CORPORATION AND SUBSIDIARIES
Table of Contents
PAGE
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements (Unaudited)
Consolidated Condensed Balance Sheets
September 30, 1995 and December 31,
1994.........................................................3-4
Consolidated Condensed Statements of Operations
Three and nine months ended September 30, 1995 and
1994.....................................5
Consolidated Condensed Statements of Cash Flows
Nine months ended September 30, 1995 and
1994.....................................................6
Notes to Unaudited Consolidated Condensed
Financial
Statements............................................................
..................................7-11
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of
Operations............................................................
.......11-15
PART II - OTHER INFORMATION
Item 1 - Legal
Proceedings...........................................................
.........................................16
Item 6 - Exhibits and Reports on Form 8-
K.....................................................................
......16
Exhibit 4(a) - Credit Agreement dated as of
September 25, 1995
Exhibit 20 - Interim Report to Stockholders for the
three and nine months ended
September 30, 1995
Exhibit 27 - Financial Data Schedule
SIGNATURE.............................................................
.................................................................16
-2-
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
CONSOLIDATED CONDENSED BALANCE
SHEETS
Crown Central Petroleum Corporation and Subsidiaries
(Thousands of dollars)
September 30 December 31
Assets
1995 1994
--------------- ----------------
(Unaudited)
Current Assets
Cash and cash equivalents
$ 47,646 $ 54,868
Accounts receivable - net
83,832 128,984
Recoverable and current deferred income taxes
14,850 16,075
Inventories
85,374 94,933
Other current assets
1,799 1,264
------------ ------------
Total Current Assets
233,501 296,124
Investments and Deferred Charges
41,414 40,125
Property, Plant and Equipment
717,875 699,204
Less allowance for depreciation
347,296 331,377
------------ -------------
Net Property, Plant and Equipment
370,579 367,827
------------ -------------
$ 645,494 $ 704,076
======= =======
<FN>
See notes to unaudited consolidated condensed financial statements.
-3-
CONSOLIDATED CONDENSED BALANCE
SHEETS
Crown Central Petroleum Corporation and Subsidiaries
(Thousands
of dollars)
September 30 December 31
Liabilities and Stockholders' Equity
1995 1994
------------------ ------------------
(Unaudited)
Current Liabilities
Accounts payable:
Crude oil and refined products
$ 78,514 $ 150,877
Other
19,606 29,988
Accrued liabilities
57,980 51,500
Current portion of long-term debt
2,174 10,062
------------- -------------
Total Current Liabilities
158,274 242,427
Long-Term Debt
128,919 96,632
Deferred Income Taxes
70,302 73,402
Other Deferred Liabilities
30,395 31,154
Common Stockholders' Equity
Common stock, Class A - par value $5 per share:
Authorized shares--7,500,000; issued and
outstanding shares--4,817,392 in 1995 and 1994
24,087... 24,087
Common stock, Class B - par value $5 per share:
Authorized shares--7,500,000; issued and
outstanding shares--5,135,506 in 1995 and
4,985,706 in 1994
25,678 24,929
Additional paid-in capital
92,507 90,549
Unearned restricted stock
(3,989) (1,266)
Retained earnings
119,321 122,162
------------- ------------
Total Common Stockholders' Equity
257,604 260,461
------------- ------------
$ 645,494 $ 704,076
======== =======
<FN>
See notes to unaudited consolidated condensed financial statements.
-4-
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
Crown Central Petroleum Corporation
and Subsidiaries
(Thousands of dollars, except
per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
Revenues
1995 1994 1995 1994
------------- -------------- ---------- ---------
-----
Sales and operating revenues (including excise taxes
of $107,617, $97,012, $311,395 and $295,131) $ 474,737 $
468,275 $1,403,473 $1,315,284
------------ ------------- ------------- ---------
----
Operating Costs and Expenses
Costs and operating expenses
441,505 456,997 1,304,343 1,234,556
Selling and administrative expenses
20,567 21,379 59,691 62,564
Depreciation and amortization
9,716 12,665 28,700 33,734
Sales of property, plant and equipment
173 16,899 16,554
------------- ------------ ------------- ---------
----
471,961 507,940 1,392,734 1,347,408
------------- ------------ ------------- ---------
----
Operating Income (Loss)
2,776 (39,665) 10,739 (32,124)
Interest and other income
705 283 2,297 1,152
Interest expense
(3,771) (1,979) (11,107) (5,836)
------------ ------------ ------------ --------
----
(Loss) Income Before Income Taxes
(290) (41,361) 1,929 (36,808)
Income Tax (Benefit) Expense
(594) (14,753) 1,513 (11,574)
------------ ------------ ------------ --------
----
Income (Loss) Before Extraordinary Item 304
(26,608) 416 (25,234)
Extraordinary (Loss) from Early
Extingiushment of Debt (net of income
tax benefit of $2,039)
(3,257)
------------ ------------- ------------ ---------
---
Net Income (Loss)
$ 304 $ (26,608) $ (2,841) $ (25,234)
======== ======== ======== ========
Net Income (Loss) Per Share:
Income (Loss) Before Extraordinary Item $
.03 $ (2.71) $ .04 $ (2.57)
Extraordinary (Loss) from Early
Extingiushment of Debt
(.33)
------------- ------------ ------------- ---------
---
Net Income (Loss) Per Share $
.03 $ (2.71) $ (.29) $ (2.57)
======== ======== ======== =======
<FN>
See notes to unaudited consolidated condensed financial statements.
-5-
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Crown Central Petroleum Corporation and
Subsidiaries
(Thousands of
dollars)
(Unaudited)
Nine Months Ended September 30
1995 1994
------------ ----------
--
Net Cash Flows From Operating Activities
Net cash from operations before
changes in working capital
$ 22,350 $ 17,888
Net changes in working capital items
(20,864) (28,337)
------------- -----------
-
Net Cash Provided by (Used in)
Operating Activities
1,486 (10,449)
------------- ------------
Cash Flows From Investment Activities
Capital expenditures
(27,137) (21,121)
Proceeds from sales of property, plant
and equipment
2,133 3,369
Deferred turnaround maintenance
(1,133) (612)
Other charges to deferred assets
(7,397) 509
------------ -------------
Net Cash (Used in) Investment Activities
(33,534) (17,855)
------------ ------------
-
Cash Flows From Financing Activities
Proceeds from debt and credit agreement borrowings
143,338 20,220
(Repayments) of debt and credit agreement borrowings
(118,939) (19,884)
Net cash flows from long-term
notes receivable
427 (154)
Purchases of common stock
(2,734)
------------- -------------
Net Cash Provided by (Used in) Financing Activities
24,826 (2,552)
------------- -------------
Net (Decrease) in Cash and Cash Equivalents $
======== ========
<FN>
See notes to unaudited consolidated condensed financial statements.
-6-
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS
Crown Central Petroleum Corporation and Subsidiaries
September 30, 1995
Note A - Basis of Presentation
The accompanying unaudited consolidated condensed financial
statements have been prepared in accordance with generally
accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of Management, all adjustments considered necessary for a
fair and comparable presentation have been included. Operating
results for the three and nine months ended September 30, 1995
are not necessarily indicative of the results that may be
expected for the year ending December 31, 1995. The enclosed
financial statements should be read in conjunction with the
consolidated financial statements and footnotes thereto included
in the Company's annual report on Form 10-K for the year ended
December 31, 1994.
_________________________
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.
___________
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.
At September 30, 1995, crude oil and refined product inventories
were approximately 906,000 barrels, or approximately $18.4
million below anticipated year-end quantities, excluding crude
oil held for resale. An actual valuation of inventory under the
LIFO method can be made only at the end of each year based on the
inventory levels and costs at that time. Accordingly, interim
LIFO projections must be based on Management's estimates of
expected year-end inventory levels and values.
___________________
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.
____________
Income Taxes - The Company accounts for income taxes in
accordance with Statement of Financial Accounting Standards No.
109 "Accounting for Income Taxes." The income tax provision for
the three and nine months ended September 30, 1995 has been
computed based upon the Company's estimated effective tax rate
for the year, after recognizing permanent tax differences.
____________________________________________
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 subject to market risk as interest rates fluctuate.
Interest rate swaps are designated to the Company's long-term
debt and are 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.
-7-
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.
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.
________________________
Statements of Cash Flows - Net changes in working capital items
presented in the Unaudited Consolidated Condensed Statements of
Cash Flows reflects changes in all current assets and current
liabilities with the exception of cash and cash equivalents and
the current portion of long-term debt.
Note B - Inventories
Inventories consist of the following:
September 30 December 31
1995 1994
------------ --------------
(thousands of dollars)
Crude oil
$ 31,469 $ 53,359
Refined products
86,108 74,299
------------ -----------
Total inventories at FIFO (approximates current cost) 117,577
127,658
LIFO allowance
(44,861) (45,125)
------------ ------------
Total crude oil and refined products
72,716 82,533
------------ ------------
Merchandise inventory at FIFO (approximates current cost) 6,665
7,150
LIFO allowance
(2,110) (2,110)
------------ ------------
Total merchandise
4,555 5,040
------------ ------------
Materials and supplies inventory at FIFO
8,103 7,360
------------ ------------
Total Inventory
$ 85,374 $ 94,933
======= =======
Note C - Long-term Debt and Credit Arrangements
Effective as of September 25, 1995, the Company entered into
a two year Unsecured Revolving Credit Facility (Agreement)
with NationsBank of Texas, N.A., as administrative agent
and letter of credit agent, and The First National Bank of
Boston and Texas Commerce Bank National Association, as
agents. Additionally, there were six other participant
banks. Under the Agreement, the banks have committed a
maximum of $130 million to the Company for cash borrowings
and letters of credit. The Agreement 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 Agreement limits indebtedness (as defined) and cash
dividends and requires the maintenance of various covenants
including, but not limited to, minimum consolidated tangible
net worth, minimum working capital and minimum FIFO net
income or (loss) (all as defined). The Company intends to
use the Agreement for general corporate and working capital
purposes. This Agreement replaces the Revolving Credit
Facility dated as of May 10, 1993, as amended.
-8-
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. 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
resulted in a net extraordinary loss in the first quarter of 1995
of $3.3 million.
Long-term debt consists of the following:
September 30 December 31
1995 1994
----------------- ----------------
(thousands of dollars)
Unsecured 10 7/8% Senior Notes
$124,687
Unsecured 10.42% Senior Notes
$ 60,000
Unsecured Credit Agreement
35,000
Purchase Money Lien
4,771 5,579
Other obligations
1,635 6,115
------------ -----------
131,093 103,694
Less current portion
2,174 10,062
------------ -----------
Long-Term Debt
$128,919 $ 96,632
======= =======
At September 30, 1995, the Company was in compliance with all
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. The Company
reasonably expects to continue to be in compliance with the
covenants imposed by the Credit Agreement over the next twelve
months.
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 September 30, 1995 was $2.6 million. Included in
these hedging strategies are contracts maturing from November
1995 to October 1996. The Company is using these contracts to
fix the purchase price of approximately 6% of its crude
requirements, and the purchase price of approximately 1% 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.
As of September 30, 1995, 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 6.01%
5.96% 5.97%
Average fixed rate
7.00% 6.81% 6.81%
-9-
The variable interest rates to be paid by the Company are reset
on various predetermined dates which range from November 1995 to
March 1998 and are based on the London Interbank Offered Rate
(LIBOR).
The termination of existing interest rate swap agreements as of
September 30, 1995 would result in a loss of approximately $2.7
million. 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.
Note E - Calculation of Net Income (Loss) Per Common Share
Net income (loss) per common share for the three and nine months
ended September 30, 1995 is based upon the weighted average of
common shares outstanding of 9,697,598. Net (loss) per common
share for the three and nine months ended September 30, 1994 is
based upon the weighted average of common shares outstanding of
9,802,198. The average outstanding and equivalent shares
excludes 255,300 and 104,600 shares of Performance Vested
Restricted Stock (PVRS) shares registered to participants in the
1994 Long-Term Incentive Plan (Plan) at September 30, 1995 and
1994, respectively. The PVRS shares registered in participants
names are being held by the Company subject to the attainment of
certain performance related goals and are not considered
outstanding for net income (loss) per share calculations until
the shares are released to the Plan participants.
Note F--Long-Term Incentive Plan and Stock Option Plan
Under the terms of the 1994 Long-term Incentive Plan (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. 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. The impact is further
reflected within Class B Common Stock and Additional paid-in-
capital.
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 October 31, 1995, 255,300 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.
Under the 1994 Long-term Incentive Plan, 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 vesting one-third
per year over three years after a one-year waiting period. As of
October 31, 1995, grants of non-qualified stock options have been
awarded to participants to purchase 505,000 shares of the
Company's Class B Common Stock.
Under the terms of the 1995 Management Stock Option Plan, the
Company may award to participants non-qualified stock options to
purchase shares of the Company's Class B Common Stock at a price
equal to 100% of the fair market value of the stock at the date
of grant. Up to 500,000 shares of Class B Common Stock may be
distributed under the Plan. The exercise period is ten years
with the options vesting one-third per year over three years
after a one-year waiting period. As of October 31, 1995, grants
of non-qualified stock options have been awarded to participants
to purchase 460,420 shares of the Company's Class B Common Stock.
Note G - Litigation and Contingencies
There have been no material changes in the status of litigation
as discussed in Note I of Notes to Consolidated Financial
Statements in the Annual Report on Form 10-K for the fiscal year
ended December 31, 1994.
The Company has received a Revenue Agent's Report relative to an
examination by the Internal Revenue Service of tax returns for
fiscal years 1988 and 1989. A written protest has been filed
requesting an appellate conference. The Company does not expect
the resolution of this matter to have a material adverse effect
on the Company.
-10-
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 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 $16.4 million as of June 30, 1995 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 statements of operations for the three and nine
months ended September 30, 1995 and 1994 were costs related to
environmental remediation in the amount of $1.2 million, $.7
million, $2.3 million and $1.8 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.
Item 2 -Management's Discussion and Analysis of Financial
Condition
and Results of Operations
Results of Operations
The Company's Sales and operating revenues increased $6.5 million
or 1.4% in the third quarter of 1995 and $88.2 million or 6.7%
for the nine months ended September 30, 1995 from the comparable
periods in 1994. The Company's Sales and operating revenues and
Costs and operating expenses include all Federal and State excise
and other similar taxes which totalled $107.6 million and $97
million for the three months ended September 30, 1995 and 1994,
respectively; and $311.4 million and $295.1 million for the nine
months ended September 30, 1995 and 1994, respectively. The
third quarter increase in Sales and operating revenues was
primarily attributable to increases in excise taxes of $10.6
million, which were partially offset by a .6% decrease in
petroleum products sales volumes and a .1% decrease in the
average sales price per gallon of petroleum products.
Additionally, there was a 2% or $.5 million decrease in
merchandise sales. The year to date increase was a result
primarily of an 8.6% increase in the average sales price per
gallon of petroleum products and a 7.7% or $5 million increase in
merchandise sales. Additionally, excise and similar taxes
increased $16.3 million as previously discussed. These increases
were partially offset by a 1.4% decrease in petroleum products
sales volumes.
As previously mentioned, merchandise sales decreased 2% or
$.5 million while merchandise gross profit increased $.5
million or 9.4% for the three months ended September 30,
1995 compared to the same period in 1994. Additionally, the
7.7% or $5 million increase in merchandise sales contributed
to a $1.7 million or 11.6% increase in merchandise gross
profit for the nine months ended September 30, 1995 compared
to the same period in 1994. These increases in merchandise
gross profit occurred despite a slight reduction in the
number of operating units during the period. Merchandise
gross margin (merchandise gross profit as a percent of
merchandise sales) increased from 22.4% to 25.1% for the
three months ended September 30, 1994 and 1995,
respectively. There was no significant change in
merchandise gross profit for the nine months ended September
30, 1995 as compared to the same period in 1994. The
increase in gross margin in the third quarter of 1995 was
due primarily to the increase in merchandise sales
previously mentioned. Late in the first quarter of 1994, a
new merchandise pricing program was introduced which is
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. This
marketing strategy has resulted in average monthly gasoline
sales volume and merchandise sales increases on a same store
basis of approximately 10.9% and 4.9%, respectively, for the
third quarter of 1995 compared to the third quarter of
1994. Additionally, average monthly gasoline sales volume
and merchandise sales increases on a same store basis were
approximately 6.8% and 15.5%, respectively, for the nine
months ended September 30, 1995 compared to the same 1994
period. These increases contributed to the overall $.5
million and $1.7 million increases in merchandise gross
profit mentioned above by increasing aggregate merchandise
gross profit on a same
-11-
store basis by 17.6% and 21.1%, respectively for the three and
nine months ended September 30, 1995 as compared to the same
periods in 1994.
Costs and operating expenses decreased $15.5 million or 3.4% in
the third quarter of 1995 compared to the same period in 1994.
The decrease was due to a $10 million decrease in the LIFO
inventory provision and to a 2.8% decrease in the average cost
per barrel consumed of crude oil and feedstocks. Costs and
operating expenses increased $69.8 million or 5.7% for the nine
months ended September 30, 1995 compared to the same period in
1994. This increase was due to an increase in the average cost
per barrel consumed of crude oil and feedstocks and to an
increase in the provision for the replacement cost of the
Company's inventories. Additionally, ther were increases in
excise taxes of $16.3 million as previously mentioned. The
results of operations were affected by the Company's use of the
LIFO method to value inventory which increased the Company's
gross margin $.18 per barrel ($2.6 million) for the three months
ended September 30, 1995 while decreasing the gross margin $.54
per barrel ($7.4 million) for the three months ended September
30, 1994. The use of the LIFO method increased the Company's
gross margin $.01 per barrel ($.3 million) for the nine months
ended September 30, 1995 while decreasing the gross margin $.43
per barrel ($17.9 million) for the nine months ended September
30, 1994.
Yields of gasoline improved to 90,606 barrels per day (bpd)
(57.0%) for the third quarter of 1995 compared to 87,100 bpd
(59.1%) in the third quarter of 1994. Similarly, distillate
production increased from 48,900 bpd (33.2%) in the third quarter
of 1994 to 51,700 bpd (32.5%) for the same period in 1995.
Additionally, yields of gasoline improved to 93,300 bpd (60.3%)
for the nine months ended September 30, 1995 compared to 88,100
bpd (57.9%) for the same period in 1994 while distillate
production decreased from 50,600 bpd (33.3%) for the nine months
ended September 30, 1994 to 45,900 bpd (29.7%) for the nine
months ended September 30, 1995.
A majority of the Company's total crude oil and related raw
material purchases are transacted on the spot market. The
Company continues to selectively enter into forward hedging
contracts to minimize price fluctuations for a portion of its
crude oil and refined products.
A majority of the Company's total crude oil and related raw
material purchases are transacted on the spot market. The
Company continues to selectively enter into forward hedging
contracts to minimize price fluctuations for a portion of its
crude oil and refined products.
Selling and administrative expenses decreased $2.9 million or
4.6% for the nine months ended September 30, 1995 as compared to
the same period in 1994 as the Company continues to reduce
expenses in these areas.
Operating costs and expenses in the three and nine months ended
September 30, 1995 included $1.2 million and $2.3 million,
respectively, related to environmental matters, and $.6 million
and $1.6 million, respectively related to retail units that have
been closed. This compares to $.7 million and $1.8 million,
respectively, related to environmental matters, and $1.3 million
and $2.1 million, respectively, related to retail units that have
been closed, for the three and nine months ended September 30,
1994.
Depreciation and amortization decreased $2.9 million or 23.3% in
the third quarter of 1995 and $5 million or 14.9% for the nine
months ended September 30, 1995 compared to the same 1994
periods. These decreases were primarily the result of decreases
in refinery turnaround amortization for the three and nine months
ended September 30, 1995 as compared to the same 1994 periods.
These decreases in turnaround amortization are primarily the
result of a $10.4 million decrease in the total underlying value
of the Pasadena Refinery Fluid Catalytic Cracking Unit (FCC)
turnaround being amortized in 1995 compared to the total
underlying value of the FCC turnaround that was amortized in
1994.
As was discussed in the Company's 1994 Form 10-K, since 1991, the
Company had incurred expenditures of approximately $21 million in
connection with engineering and an equipment acquisition which
would have enabled 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. As a result of this evaluation
, in September 1994, management abandoned its plans to construct
a hydrodesulphurization unit at its Pasadena refinery.
Accordingly, for the three and nine months ended September 30,
1994, Sales and abandonments of property, plant and equipment
reflect a write-down of the capitalized expenditures of $16.8
million to an estimated salvage value of $4 million.
Interest and other income increased $.4 million, in excess of
100%, and $1.1 million or 99.4% for the three and nine months
ended September 30, 1995 as compared to the same 1994 periods.
The 1995 increases were primarily due to increases in the average
daily rate on cash invested of 149 and 118 basis points for the
three and nine months ended September 30, 1995, respectively as
compared to the same 1994 periods as well as increases in the
average daily cash invested as a result of the Senior Note
proceeds.
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Interest expense increased $1.8 million or 90.6% and $5.3 million
or 90.3% for the three and nine months ended September 30, 1995
compared to the same 1994 periods. The increases were due to a
$63.9 million increase in the average daily cash borrowed for the
third quarter of 1995 and a $58.7 million increase in the average
daily cash borrowed for the nine months ended September 30, 1995
as compared to the same 1994 periods. At September 30, 1995,
there were additional outstanding borrowings of $64.1 million as
compared to September 30, 1994. The additional outstanding
borrowings are due to the sale of $125 million of unsecured 10
7/8% Senior Notes in January 1995 net of the repayment of the
outstanding balance of the 10.42% Senior Notes as previously
discussed.
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. 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. In the first quarter of 1995,
the Company recorded an extraordinary loss of $3.3 million (net
of income tax benefits of $2 million) consisting of redemption
related premiums and the write-off of deferred financing costs
associated with the 10.42% Senior Notes.
Liquidity and Capital Resources
Net cash provided by operating activities (including changes in
working capital) totalled $1.5 million for the nine months ended
September 30, 1995 compared to cash used in operating activities
of $10.4 million for the nine months ended September 30, 1994.
The 1995 inflows consist of cash provided by operations before
changes in working capital of $22.4 million which was partially
offset by cash outflows of $20.9 million related to working
capital requirements resulting from decreases in crude oil,
refined products and other payables and increases in prepaid
operating expenses. These working capital outflows were
partially offset by decreases in receivables and in the value and
volume of crude oil and finished product inventories and
increases in accrued liabilities. The 1994 outflows consist of
$28.3 million related to working capital requirements resulting
from increases in the value and volume of crude oil and finished
product inventories , receivables and prepaid operating expenses
and to decreases in inventory payables and in accrued excise tax
liabilities. These outflows were partially offset by $17.9
million of cash provided by operations before changes in working
capital.
Net cash outflows from investment activities were $33.5 million
for the nine months ended September 30, 1995 compared to a net
outflow of $17.9 million for the same 1994 period. The 1995
amount consists principally of capital expenditures of $27.1
million (which includes $11.9 million from refinery operations
and $15.2 million relating to the marketing area). Additionally,
there were increases in other deferred assets of $7.4 million,
which consists primarily of $2.9 million in loan placement fees
related to the sale of $125 million of unsecured 10 7/8% Senior
Notes in January 1995, and $2.3 million of deferred charges
associated with long-term corporate wide projects. Additionally,
there were refinery turnaround expenditures of $1.1 million.
These cash outflows were partially offset by proceeds from the
sale of property, plant and equipment of $2.1 million. The 1994
activity relates primarily to $21.1 million of capital
expenditures (which includes $11.8 million relating to refinery
operations and $6.9 million relating to the marketing area) and
refinery turnaround expenditures of $.6 million. The 1994 cash
outflows were partially offset by proceeds from the sale of
property, plant and equipment of $3.4 million.
Net cash provided by financing activities was $24.8 million for
the nine months ended September 30, 1995 compared to cash used in
financing activities of $2.6 million for the nine months ended
September 30, 1994. The 1995 cash inflows relate to $24.4
million in net proceeds received from debt and credit agreement
borrowings due primarily to the sale in January 1995 of $125
million of unsecured 10 7/8% Senior Notes net of amounts used to
repay outstanding balances relating to the 10.42% Senior Notes
(including a prepayment premium) and credit agreement borrowings.
The 1994 cash outflows relate primarily to the acquisition of
135,000 shares of Class B Common Stock for use in connection with
the awards of stock and options under the Incentive Plans.
Cash and cash equivalents at September 30, 1995 were $26.5
million higher than at September 30, 1994. This increase
resulted primarily from cash provided by financing activities of
$64.6 million for the period October 1, 1994 to September 30,
1995 which consists of $64.1 million relating primarily to the
sale in January 1995 of $125 million of unsecured 10 7/8% Senior
Notes as previously discussed. Additionally, cash inflows from
operating activities for the twelve month period ended September
30, 1995 totaled $20.5 million. These cash inflows were
partially offset by cash used in investment activities of $58.6
million which includes capital expenditures of $40.4 million,
deferred turnaround costs of $12.9 million, increases in deferred
loan costs of $2.5 million and $2.9 million of deferred charges
associated with the Company's long-term strategic projects.
Additionally, there were charges to other deferred assets of
$3.6 million . Partially offsetting these cash outflows was $3.6
million of proceeds received from the sale of property, plant and
equipment.
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The ratio of current assets to current liabilities at September
30, 1995 was 1.48:1 compared to 1.24:1 at September 30, 1994 and
1.22:1 at December 31, 1994. 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 1.59:1 at September 30, 1995, 1.36:1 at September
30, 1994 and 1.32:1 at December 31, 1994.
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 $16.5 million as of September 30, 1995 to cover the
estimated costs of compliance with environmental regulations
which are not anticipated to be of a capital nature. The
liability of $16.5 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 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.
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 totaling approximately $23
million through 1998.
As discussed in Note C of Notes to Unaudited Condensed Financial
Statements, effective as September 25, 1995, the Company entered
into a new two year Revolving Credit Facility, which is included
as Exhibit 4 (a) of this filing. Management believes the new
agreement will adequately provide anticipated working capital
requirements as well as support future growth opportunities. 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), the Company had outstanding as of
October 31, 1995, irrevocable standby letters of credit in the
principal amount of $19.4 million for purposes in the ordinary
course of business.
At the Company's option, up to $37.5 million of the unsecured 10
7/8% Senior Notes (Notes) 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. There are no sinking fund
requirements on the Notes.
Also as discussed in Note C of Notes to Unaudited Consolidated
Condensed Financial Statements, 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 November 1995 to March 1998. The Company may
utilize interest rate swaps in the future to manage the cost of
funds.
At September 30, 1995, the Company was in compliance with all
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. The Company
reasonably expects to continue to be in compliance with the
covenants imposed by the Credit Agreement over the next twelve
months.
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As a result of Crown's strategy of obtaining a greater balance
between gasoline production and retail marketing, 15 Conoco units
were purchased in North Carolina (13) and Georgia (2) in August
1995. The high growth area of Greensboro, N.C. represents the
largest concentration of these with nine new locations bringing
our presence in the state of North Carolina to 74 units.
In March 1995, the Financial Accounting Standards Board adopted
Statement of Financial Accounting Standards No. 121, ``
Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of''
(SFAS No. 121). SFAS No. 121 requires an
entity to review long-lived assets for impairment whenever events
or circumstances indicate that the carrying amount of an asset
may not be recoverable. Implementation of SFAS No. 121 is
required for financial statements for fiscal years beginning
after December 15, 1995. The Company does not plan to adopt the
provisions of SFAS No. 121 prior to the effective date and does
not believe at this time that there will be any material impact
from the future implementation of SFAS No. 121.
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. The Company is prudently
proceeding with the most attractive projects and is likely to
have total capital expenditures of approximately $40 million in
1995. 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.
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.
-15-
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
There has been no material change in the status of legal
proceedings as reported in Item 1 of Part II of the Company's
Quarterly Report on Form 10-Q for the quarterly period ended June
30, 1995.
The Company is involved in various matters of litigation, the
ultimate determination of which, in the opinion of management, is
not expected to have a material adverse effect on the Company.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibit:
4 - (a) Credit Agreement dated as of September 25,
1995.
20 - Interim Report to Stockholders for the three
and six months ended
September 30, 1995
27 - Financial Data Schedule
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed with
the Securities and Exchange
Commission during the three months ended
September 30, 1995.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report on Form 10-Q
for the quarter ended September 30, 1995 to be signed on its
behalf by the undersigned thereunto duly authorized.
CROWN CENTRAL PETROLEUM CORPORATION
/s/---John E. Wheeler, Jr.
John E. Wheeler, Jr.,
Senior Vice President - Treasurer and Controller,
Chief Accounting Officer
and Duly Authorized Officer
Date: November 14, 1995
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