UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
FORM 10-Q
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,
September 30,
September 30,
1996
1996
1996
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
1-1059
1-1059
CROWN CENTRAL PETROLEUM CORPORATION
CROWN CENTRAL PETROLEUM CORPORATION
CROWN CENTRAL PETROLEUM CORPORATION
(Exact name of registrant as specified in its
charter)
Maryland
Maryland
Maryland
52-0550682
52-0550682
52-0550682
(State or other jurisdiction of (I.R.S.
Employer Identification Number)
incorporation or organization)
One North Charles Street, Baltimore, Maryland
One North Charles Street, Baltimore, Maryland
One North Charles Street, Baltimore, Maryland
21201
21201
21201
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code
410-539-7400
410-539-7400
410-539-7400
Not Applicable
Not Applicable
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,
1996 of the Registrant's $5 par value Class A and
Class B Common Stock was 4,817,394 shares and
5,168,686 shares, respectively.
-1-
CROWN CENTRAL PETROLEUM CORPORATION AND
CROWN CENTRAL PETROLEUM CORPORATION AND
CROWN CENTRAL PETROLEUM CORPORATION AND
SUBSIDIARIES
SUBSIDIARIES
SUBSIDIARIES
Table of Contents
Table of Contents
Table of Contents
PAGE
PAGE
PAGE
PART I
PART I
PART I-
-
- FINANCIAL INFORMATION
FINANCIAL INFORMATION
FINANCIAL INFORMATION
Item 1- Financial Statements (Unaudited)
Consolidated Condensed Balance Sheets
September 30, 1996 and December 31, 1995 ...........3-4
Consolidated Condensed Statements of
Operations
Three and nine months ended September 30,
1996
and 1995 5
Consolidated Condensed Statements of Cash
Flows
Nine months ended September 30, 1996 and
1995 6
Notes to Unaudited Consolidated Condensed
Financial Statements 7-11
Item 2- Management's Discussion and Analysis of
Financial
Condition and Results of Operations12-16
PART II
PART II
PART II -
-
- OTHER INFORMATION
OTHER INFORMATION
OTHER INFORMATION
Item 1- Legal Proceedings 17
Item 6- Exhibits and Reports on Form 8-K 17
Exhibit 10(a) - Executive Severance Plan
effective September 26, 1996
Exhibit 10(b) - Supplemental Retirement
Income Plan as Restated effective
September 26, 1996
Exhibit 10(c) - Amendment effective as of
September 26, 1996 to the Crown Central
Employees
Savings Plan
Exhibit 10(d) - Amendment effective as of
September 26, 1996 to the Crown Central
Petroleum
Corporation 1994 Long-Term Incentive Plan
Exhibit 11 - Statement re: Computation of
Earnings Per Share
Exhibit 20 -Interim Report to
Stockholders for the
three and nine months ended September 30,
1996
Exhibit 27 - Financial Data Schedule
SIGNATURE
SIGNATURE
SIGNATURE 18
-2-
PART I - FINANCIAL INFORMATION
PART I - FINANCIAL INFORMATION
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Item 1 - Financial Statements
Item 1 - Financial Statements
CONSOLIDATED CONDENSED BALANCE SHEETS
CONSOLIDATED CONDENSED BALANCE SHEETS
CONSOLIDATED CONDENSED BALANCE SHEETS
Crown Central Petroleum Corporation and Subsidiaries
(Thousands of dollars)
September December
30 31
_______
1996 _______
1995
_
Assets
Assets
Assets (Unaudite
d)
Current Assets
Current Assets
Current Assets
Cash and cash equivalents ........... 23,402
$ 42,045
$
Accounts receivable - net ........... 106,728 105,799
Recoverable income taxes ............ 3,373 4,137
Inventories ......................... 92,539 96,025
Other current assets ................ _____
4,346
__
_____
2,595
__
Total Current Assets
Total Current Assets
Total Current Assets ............. 230,388 250,601
Investments and Deferred Charges
Investments and Deferred Charges
Investments and Deferred Charges ...... 34,614 30,633
Property, Plant and Equipment
Property, Plant and Equipment
Property, Plant and Equipment ......... 636,537 624,338
Less allowance for depreciation ..... _______
336,412 _______
322,358
Net Property, Plant and Equipment
Net Property, Plant and Equipment
Net Property, Plant and Equipment . 300,125 301,980
______
_
______
_
________
$ ________
$
________
________
_______
565,127 _______
583,214
_______
_______
<FN>
See notes to unaudited consolidated condensed financial statements.
-3-
CONSOLIDATED CONDENSED BALANCE SHEETS
CONSOLIDATED CONDENSED BALANCE SHEETS
CONSOLIDATED CONDENSED BALANCE SHEETS
Crown Central Petroleum Corporation and Subsidiaries
(Thousands of dollars)
September December
30 31
_______
1996 _______
1995
_
Liabilities and Stockholders' Equity
Liabilities and Stockholders' Equity
Liabilities and Stockholders' Equity (Unaudite
d)
Current Liabilities
Current Liabilities
Current Liabilities
Accounts Payable:
Crude oil and refined products .... 130,215
$ 112,036
$
Other ............................. 12,962 24,287
Accrued Liabilities ................. 40,084 66,788
Current portion of long-term debt ... ______
20,368
_
_____
1,559
__
Total Current Liabilities
Total Current Liabilities
Total Current Liabilities ....... 203,629 204,670
Long-Term Debt
Long-Term Debt
Long-Term Debt ........................ 127,529 128,506
Deferred Income Taxes
Deferred Income Taxes
Deferred Income Taxes ................. 21,909 27,995
Other Deferred Liabilities
Other Deferred Liabilities
Other Deferred Liabilities ............ 35,723 32,548
Common Stockholders' Equity
Common Stockholders' Equity
Common Stockholders' Equity
Common stock, Class A - par value $5 per
share:
Authorized shares -- 15,000,000;
issued and
outstanding shares -- 4,817,392 in 24,087 24,087
1996 and 1995 .........................
Common stock, Class B - par value $5 per
share:
Authorized shares -- 15,000,000;
issued and
outstanding shares -- 5,166,586 in
1996 and
5,135,558 in 1995 ................. 25,833 25,678
Additional paid-in capital .......... 92,207 92,249
Unearned restricted stock ........... (3,370 (3,733
) )
Retained earnings ................... ______
37,580
_
_
______
51,214
Total Common Stockholders' Equity
Total Common Stockholders' Equity
Total Common Stockholders' Equity 176,337 189,495
________
$ ________
$
________
________
_______
565,127 _______
583,214
_______
_______
<FN>
See notes to unaudited consolidated condensed financial statements.
-4-
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
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
___
___
___
____
1996 _______
1995 _______
1996 _______
1995
_
_
Revenues
Revenues
Revenues
Sales and operating revenues 397,889
$ 367,120
$ $ $
1,200,18 1,092,07
8 8
Operating Costs and Expenses
Operating Costs and Expenses
Operating Costs and Expenses
Costs and operating expenses 368,068 333,888 992,948
1,118,43
5
Selling and administrative 22,815 20,567 69,438 59,691
expenses .....................
Depreciation and amortization 7,970 9,716 23,999 28,700
Sales of property, plant and ___
139
____
___
173
____
___
116
___
_
_____
equipment ....................
_______
398,992 _______
364,344
________
1,211,98
_
____
1,08____
1,33
_
_
8 _
9
Operating (Loss) Income
Operating (Loss) Income
Operating (Loss) Income ...... (1,103) 2,776 (11,800 10,739
Interest and other income .... 344 705 1,608 2,297
Interest expense ............. ______
(3,584)
_
)
______
(3,771
_
_______
(10,778 _______
(11,107
(Loss) Income Before Income Taxes
(Loss) Income Before Income Taxes
(Loss) Income Before Income Taxes )
(4,343 )
(290 (20,970 1,929
Income Tax (Benefit) Expense
Income Tax (Benefit) Expense
Income Tax (Benefit) Expense . )
____
(707
___
_
)
____
(594
___
)
______
(7,336 _____
1,513
_
(Loss) Income Before
(Loss) Income Before
(Loss) Income Before )
(3,636 304 (13,634 416
Extraordinary Item
Extraordinary Item
Extraordinary Item ...........
Extraordinary (Loss) from Early
Extraordinary (Loss) from Early
Extraordinary (Loss) from Early
Extinguishment of Debt (net o
Extinguishment of Debt (net o
Extinguishment of Debt (net of
f
f
income
income
income
tax benefit of $2,039)
tax benefit of $2,039)
tax benefit of $2,039) ..... _______
_______
______
)
______
(3,257
Net (Loss) Income
Net (Loss) Income
Net (Loss) Income ............ ______
(3,636
_
$ ___
304
___
_
$ _______
(13,634
_
$ ______
(2,841
_
$
_______
______
________
_______
Net (Loss) Income Per Share:
Net (Loss) Income Per Share:
Net (Loss) Income Per Share:
(Loss)
(Loss)
(Loss) Income Before
Income Before
Income Before
)
(.37
$ $ .03 )
(1.40
$ .04
$
Extraordinary Item
Extraordinary Item
Extraordinary Item ...........
Extraordinary (Loss) from Early
Extraordinary (Loss) from Early
Extraordinary (Loss) from Early
Extinguishment of Debt
Extinguishment of Debt
Extinguishment of Debt ... _______
_______
______
____
(.33
__
)
Net (Loss) Income Per Share
Net (Loss) Income Per Share
Net (Loss) Income Per Share ____
(.37
_
$ _
)
__
___
___
.03
_
$ _
$_____
(1.40) _
$ ____
(.29
_
)
_______
______
______
_____
<FN>
See notes to unaudited consolidated condensed financial statements.
-5-
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Crown Central Petroleum Corporation and Subsidiaries
(Thousands of dollars)
(Unaudited)
Nine Months Ended
September 30
______
1996 ______
1995
__
___
Net Cash Flows From Operating
Net Cash Flows From Operating
Net Cash Flows From Operating
Activities
Activities
Activities
Net cash from operations before
changes in working capital .. 8,184
$ 22,350
$
Net changes in working capital _______
(18,280 _______
(20,864
items
)
Net Cash (Used in) Provided by
Net Cash (Used in) Provided by
Net Cash (Used in) Provided by
Operating Acti
Operating Acti
Operating Acti
vities
vities
vities ...... _______
(10,096 _____
1,486
__
Cash Flows From Investment
Cash Flows From Investment
Cash Flows From Investment
Activities
Activities
Activities
Capital Expenditures .......... (19,752 (27,137
)
Proceeds from sales of property,
plant
and equipment ............... 2,135 2,133
Deferred turnaround maintenance )
(4,518 (1,133
)
Other charges to deferred assets )
______
(4,413
_
______
(7,397
_
)
Net Cash (Used in) Investment
Net Cash (Used in) Investment
Net Cash (Used in) Investment _______
(26,548 _______
(33,534
Activities
Activities
Activities ......................
)
Cash Flows From Financing Activities
Cash Flows From Financing Activities
Cash Flows From Financing Activities
Proceeds from debt and credit 71,000 143,338
agreement borrowings ............
(Repayments) of debt and credit (53,181
agreement borrowings ............ (118,93
9)
Net cash flows from long-term (308) 427
notes receivable ................
Issuance of common stock ...... ___
490
____
_______
Net Cash Provided by Financing
Net Cash Provided by Financing
Net Cash Provided by Financing _
______
18,001 _
______
24,826
Activities
Activities
Activities ......................
Net (Decrease) in Cash and Cash
Net (Decrease) in Cash and Cash
Net (Decrease) in Cash and Cash _
$ ______
(7,222
_
$
Equivalents
Equivalents
Equivalents .....................
_
_______
)
__
_______
(18,643
________
<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, 1996
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, 1996 are not necessarily indicative
of the results that may be expected for the year
ending December 31, 1996. 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, 1995.
________________
Use of Estimates: The preparation of financial
statements in conformity with generally accepted
accounting principles requires Management to make
estimates and assumptions that affect the amounts
reported in the financial statements and
accompanying notes. Actual results could differ
from those estimates.
_________________________
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, 1996, approximately 792,000
barrels of crude oil and refined products
inventory aggregating approximately $22.2 million
was held in excess of anticipated year-end
quantities and was valued at the lower of cost
(first-in, first-out) or market. 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 operating 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 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.
-7-
____________________________________________
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.
Other instruments are used in an effort 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
(crack spread strategies) and also hedging fixed
price purchase and sales commitments of crude oil
and refined products (fixed price strategies).
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.
Realized gains and losses from crack spread
hedging strategies are recognized in costs and
operating expenses when the associated finished
product is produced. Realized gains and losses
from fixed price inventory hedging strategies
adjust the carrying value of the underlying
inventory and are recognized in costs and
operating expenses when the associated inventory
is consumed in refining operations or sold.
Unrealized gains and losses associated with fixed
price inventory hedging strategies are deferred in
inventory and other current assets and liabilities
to the extent that the associated inventory has
not been consumed in refining operations or sold.
The Company's hedging activities are intended to
reduce volatility while providing an acceptable
profit margin on a portion of production. However,
the use of such a program can limit the Company's
ability to participate in an improvement in
related refined product profit margins.
___________
Credit Risk - The Company is potentially subjected
to concentrations of credit risk with accounts
receivable, interest rate swaps, and futures,
forwards and exchange traded options for crude oil
and finished products. Because the Company has a
large and diverse customer base with no single
customer accounting for a significant percentage
of accounts receivable, there was no material
concentration of credit risk in these accounts at
September 30, 1996. The Company evaluates the
credit worthiness of the counterparties to
interest rate swaps, and futures, forwards and
exchange traded options and considers non-
performance credit risk to be remote. The amount
of exposure with such counterparties is generally
limited to unrealized gains on outstanding
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.
_________________
Reclassifications - To conform to the 1996
presentation, Sales and operating revenues and
Costs and operating expenses for the three and
nine months ended September 30, 1995 have been
adjusted to exclude all federal and state excise
taxes. As a result, Sales and operating revenues
and Costs and operating expenses decreased
$107,617,000 and $311,395,000, respectively, for
the three and nine months ended September 30, 1995
from the numbers originally reported. This
adjustment had no effect on net income or loss for
either period.
-8-
Note B - Inventories
Note B - Inventories
Note B - Inventories
Inventories consist of the following:
September December
30 31
_______
1996 _______
1995
__
__
(thousands of
dollars)
................................
Crude oil 55,452
$ 58,047
$
Refined products......................... ______
91,608 ______
77,342
Total inventories at FIFO (approximates 147,060 135,389
current cost)............................
LIFO allowance........................... _______
(68,043 _______
(52,301
Total crude oil and refined products .. ______
79,017 ______
83,088
Merchandise inventory at FIFO 6,895 6,453
(approximates current cost)..............
LIFO allowance........................... ______
(1,674 ______
(1,674
) )
al merchandise
Tot ..................... _____
5,221
_
_
_____
4,779
Materials and supplies inventory at FIFO _
. _____
8,301 _____
8,158
_
Total Inventory
Total Inventory
Total Inventory ....................... ______
92,539
_
$ ______
96,025
_
$
_______
_______
As a result of decreased crude oil requirements at
the Pasadena refinery, the company achieved a
reduction in LIFO inventories during the third
quarter of 1996 which is not expected to be
replaced by year-end. The impact of this interim
LIFO inventory reduction was to reduce the net
loss for the three and nine months ended September
30, 1996 by approximately $2.1 million ($.22 per
share).
Note C - Long-term Debt and Credit Arrangements
Note C - Long-term Debt and Credit Arrangements
Note C - Long-term Debt and Credit Arrangements
Long-term debt consists of the following:
September December
30 31
______
_______
________
1996 ________
1995
__
_
(thousands of
dollars)
Unsecured 10 7/8% Senior Notes........... 124,739
$ 124,716
$
Credit Agreement......................... 19,000
Purchase Money Lien...................... 3,629 4,492
Other obligations........................ ___
529
____
____
___
857
147,897 130,065
Less current portion ______
20,368
_
_____
1,559
__
Long-Term Debt
Long-Term Debt
Long-Term Debt ........................ _
$_______
127,529 ____
128,
_
$ ___
506
________
_____
___
As of October 31, 1996, under the terms of the
Credit Agreement dated as of September 25, 1995,
as amended (Credit Agreement), which is used
solely for the purpose of financing the working
capital requirements of the Company, the Company
had no outstanding cash borrowings, outstanding
irrevocable standby letters of credit in the
principal amount of $60.5 million for performance
obligations related to crude oil acquisition,
environmental and insurance matters and had unused
commitments available for future cash borrowings
and letters of credit totaling $69.5 million. As
of September 30, 1996, the Company was in
compliance with all covenants and provisions of
the Credit Agreement, as amended, and forecasts
that, but there can be no assurance that, it will
remain in compliance for the remainder of the
year.
-9-
The $125 million unsecured 10.875% Senior Notes
(Notes), which were issued under an Indenture
(Indenture) are used principally to finance the
permanent capital requirements of the Company. As
of September 30, 1996, the Company was in
compliance with the terms of the Indenture. The
Indenture includes certain restrictions and
limitations customary with senior indebtedness of
this type which limit the amount of additional
indebtedness the Company may incur outside of the
Credit Agreement and under certain circumstances,
restrict the Company from declaring dividends. As
of September 30, 1996, the Indenture substantially
restricted the Company from effecting borrowings
outside of the Credit Agreement and precluded the
payment of dividends. The Company has not paid a
dividend on its shares of common stock since the
first quarter, 1992.
Note D - Derivative Financial Instruments
There were no interest rate swap agreements
outstanding during the first nine months of 1996.
At September 30, 1996, the Company has recorded a
deferred gain of $.7 million related to canceled
interest rate swap agreements which will be
amortized into income over the remaining terms of
the original swap agreements ranging from 1996 to
1998. The Company may utilize interest rate swaps
in the future to further manage the cost of funds.
Note E - Calculation of Net (Loss) Income Per
Common Share
Net income (loss) per common share for the three
and nine months ended September 30, 1996 and 1995
is based on the weighted average of common shares
outstanding of 9,718,152 and 9,697,598,
respectively.
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. Beginning
with grants made in 1996, shares not earned by the
attainment of performance goals will be earned
upon the completion of a 5 year service
requirement. As of September 30, 1996, 250,970
shares of PVRS (net of cancellations) have been
registered in participants names and are being
held by the Company subject to the attainment of
the related performance goals or the related
service requirement.
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
September 30, 1996, grants of non-qualified stock
options have been awarded to participants to
purchase 515,955 shares of the Company's Class B
Common Stock (net of cancellations).
Under the terms of the 1995 Management Stock
Option Plan, a maximum of 500,000 shares of Class
B Common Stock was available for distribution. The
Company awarded to participants non-qualified
stock options to purchase 444,896 shares of the
Company's Class B Common Stock (net of
cancellations) at a price equal to 100% of the
fair market value of the stock at 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.
Shares of Class B Common Stock available for
issuance under options or awards amounted to
388,179 at September 30, 1996.
-10-
Detail of the Company's stock options are as
follows:
Common Price
____
Range
________
per
________
Shares
_________
share
_
_____________________________
1994 Long-Term Incentive Plan
Granted - 1994................. 109,800 $16.13 -
$16.88
Canceled - 1994................ ____
(950
___
$16.88
)
Outstanding - December 31, 108,850 $16.13 -
.............................
1994 $16.88
Granted - 1995
................. _______
396,150 $12.81 -
$13.75
Outstanding - December 31, 505,000 $12.81 -
.............................
1995 $16.88
Granted - 1996................. 103,100 $15.38 -
$19.50
Exercised - 1996............... $12.81 -
(26,972 $16.88
)
Canceled - 1996................ _______
(92,145 $12.81 -
)
$17.06
Outstanding - September 30, _______
488,983 $12.81 -
1996............................. $19.50
_______
Shares Exercisable at September _______
162,155 $12.81 -
30, 1996......................... $16.88
_______
_________________________________
1995 Management Stock Option Plan
Granted - 1995................. _______
461,760 $13.75 -
$16.06
Outstanding - December 31, 1995 461,760 $13.75 -
$16.06
Exercised - 1996............... (6,756) $13.75
Canceled - 1996................ _______
(16,864 $13.75
)
Outstanding - September 30, _______
438,140 $13.75 -
.............................
1996 $16.06
_______
Shares exercisable at _______
146,147 $13.75 -
September 30, 1996............... $16.06
_______
Total outstanding - September 30, _______
927,123 $12.81 -
.............................
1996 $19.50
_______
Total exercisable - September 30, ____
,302
___
308 $12.81 -
.............................
1996 $16.88
____
___
Note G - Litigation and Contingencies
Except as disclosed in this note, there have been
no material changes in the status of litigation
and contingencies 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, 1995.
All issues relating to the examination by the
Internal Revenue Service of tax returns for fiscal
years 1988 and 1989 have now been resolved, with
no material adverse impact to the Company.
-11-
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 $30.8 million or 8.4% in the third
quarter of 1996 and $108.1 million or 9.9% for the
nine months ended September 30, 1996 from the
comparable periods in 1995. The third quarter
increase in Sales and operating revenues was
primarily attributable to a 18% increase in the
average sales price per gallon of petroleum
products which was partially offset by a 8.8%
decrease in petroleum product sales volumes. The
year to date increase was a result primarily of an
11.6% increase in the average sales price per
gallon of petroleum products offset by a 1.6%
decrease in petroleum product sales volumes.
Additionally, there were slight increases in
merchandise sales of 5.1% and 3.3% for the three
and nine months ended September 30, 1996,
respectively, compared to the same 1995 periods.
Merchandise gross margin (merchandise gross profit
as a percent of merchandise sales) increased from
27.2% to 29.2% for the third quarter of 1995 and
1996, respectively and from 26.3% to 28.9% for the
nine months ended September 30, 1995 and 1996,
respectively. The increases in gross margin are a
result of the Company's merchandise pricing
program which has selectively increased targeted
merchandise yet still maintains an everyday low
pricing policy which is competitive with major
retail providers in the applicable market area.
This marketing strategy has resulted in average
monthly gasoline sales volume and merchandise
sales increases on a same store basis of
approximately 4.7% and 7.7%, respectively, for the
nine months ended September 30, 1996 compared to
the same 1995 periods and has contributed to the
$2.6 million or 13.4% increase in merchandise
gross profit. Aggregate year to date merchandise
gross profit on a same store basis increased by
19.3% in 1996 compared to the same 1995 period.
Costs and operating expenses increased $34.2
million or 10.2% in the third quarter of 1996 and
$125.5 million or 12.6% for the nine months ended
September 30, 1996 from the comparable periods in
1995. The third quarter increase was due to a
22.6% increase in the average cost per barrel
consumed of crude oil and feedstocks. The year to
date increase in Costs and operating expenses was
due to a 15.3% increase in the average cost per
barrel consumed of crude oil and feedstocks.
These increases were partially offset by decreases
in volumes sold as previously discussed. During
1996, the crude oil futures market has experienced
significant backwardation wherein the future
months prices of crude oil are transacted at
values less than the current month. However, when
the future month has become the current month, the
price has generally increased. In order to price
its crude oil close to the time when products are
being refined and thereby to effectively achieve
the instantaneous 3-2-1 crack spread, the Company
has been utilizing a practice of deferring the
pricing of a majority of its crude oil until the
finished petroleum products are refined. During
1996, this practice has effectively resulted in
approximately $29.7 million of additional costs as
compared with the costs that would have been
recognized if the crude oil were priced at the
time it was contracted. The Company is currently
evaluating this practice. The results of
operations were significantly affected by the
Company's use of the LIFO method to value
inventory, which decreased the Company's gross
margin $.38 per barrel ($15.7 million) in 1996,
and increased gross margin $.01 per barrel ($.3
million) in 1995. As a result of decreased crude
oil requirements at the Pasadena refinery, the
company achieved a reduction in LIFO inventories
during the third quarter of 1996 which is not
expected to be replaced by year-end. The impact
of this interim LIFO inventory reduction was to
reduce the net loss for the three and nine months
ended September 30, 1996 by approximately $2.1
million ($.22 per share).
In early 1996, the Company adjusted its gasoline
and distillate production to take advantage of
better distillate margins compared to gasoline
margins. Correspondingly, yields of distillates
were increased to 49,300 bpd (33.3%) for the nine
months ended September 30, 1996 from 45,900 bpd
(29.7%) in the comparable 1995 period, while
gasoline production was decreased from 93,300 bpd
(60.3%) for the nine months ended September 30,
1995 to 86,900 bpd (58.8%) for nine months ended
September 30, 1996. Yields of distillates
remained consistent at 51,700 bpd (34.6%) for the
third quarter 1996 compared to 51,700 bpd (32.5%)
for the same period in 1995 while gasoline
production decreased slightly from 90,600 bpd
(57%) for the third quarter 1995 to 85,400 bpd
(57%) for the third quarter 1996.
-12-
Selling and administrative expenses increased $2.2
million or 10.9% for the three months ended
September 30, 1996 and $9.7 million or 16.3% for
the nine months ended September 30, 1996 compared
to the same periods in 1995. These increases are
principally due to increases in store level
operating expenses, primarily related to
additional units and increased labor costs.
Additionally, the Company recorded approximately
$1 million in corporate administrative expenses
associated with a management reorganization in
early 1996.
Operating costs and expenses for the three months
ended September 30, 1996 included $.2 million
related to environmental matters and also $.2
million for retail units that have been closed.
This compares to $1.2 million and $.6 million,
respectively, for the three months ended September
30, 1995. For the nine months ended September 30,
1996, Operating costs and expenses included $1.3
million related to environmental matters and
reductions of $.2 million relating to retail units
that have been closed compared to $2.3 million and
$1.6 million, respectively, for the same 1995
period. Additionally, Operating costs and
expenses for the third quarter and year to date
periods of 1996 were reduced by $1.1 million and
$3.7 million, respectively, related to the
adjustment of certain pending litigation and
employee benefit costs and other accruals.
Depreciation and amortization decreased $1.7
million or 18% in the third quarter of 1996 and
$4.7 million or 16.4% for the nine months ended
September 30, 1996 compared to the same 1995
periods. These decreases are primarily the result
of a reduction in the depreciable base of the
Tyler refinery assets due to the adoption of SFAS
No. 121 ``
Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be
Disposed Of''
effective October 1, 1995.
In the first quarter of 1995, the Company
completed the sale of $125 million of Unsecured
10.875% Senior Notes due February 1, 2005 priced
at 99.75% (Notes). Approximately $55 million of
the net proceeds from the sale were 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 used in operating activities (including
changes in working capital) totaled $10.1 million
for the nine months ended September 30, 1996
compared to cash provided from operating
activities of $1.5 million for the nine months
ended September 30, 1995. The 1996 outflows
consist primarily of $18.3 million related to
working capital requirements resulting primarily
from decreases in accrued income and excise tax
liabilities and other accounts payable and to
increases in accounts receivable and prepaid
operating expenses, principally related to
insurance premiums. These working capital
outflows were partially offset by decreases in
crude oil and finished products inventories and
increases in crude oil and refined products
payables. Partially offsetting these cash
outflows was net cash provided by operations of
$8.2 million before changes in working capital.
The 1995 outflows consist of net cash provided by
operations before changes in working capital of
$22.4 million which was partially offset by $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 crude oil and finished product
inventories and increases in accrued liabilities.
Net cash outflows from investment activities were
$26.5 million for the nine months ended September
30, 1996 compared to a net outflow of $33.5
million for the same 1995 period. The 1996 amount
consists principally of capital expenditures of
$19.8 million (which includes $8.5 million for
refinery operations and $8.7 million relating to
marketing operations). Additionally, there were
refinery turnaround expenditures of $4.5 million
and increases in other deferred assets of $4.4
million. These cash outflows were partially offset
by proceeds from the sale of property, plant and
equipment of $2.1 million. The 1995 activity
relates primarily to $27.1 million of capital
expenditures ($11.9 million relating to refinery
operations and $15.2 relating to the marketing
area). In addition, 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
10.875% Senior Notes in January 1995, and refinery
turnaround expenditures of $1.1 million. The 1995
cash outflows were partially offset by proceeds
from the sale of property, plant and equipment of
$2.1 million.
-13-
Net cash provided by financing activities was $18
million for the nine months ended September 30,
1996 compared to cash provided by financing
activities of $24.8 million for the nine months
ended September 30, 1995. The 1996 cash inflow
consists principally of $17.8 million in net
proceeds received from debt and credit agreement
borrowings due primarily to net cash borrowings
from the Company's unsecured revolving Credit
Agreement. Additionally, cash inflows include $.5
million from issuances of the Company's common
stock due to the exercise of stock options issued
under the Company's incentives plans. Partially
offsetting these cash inflows were increases of
$.3 million in long-term notes receivable. 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 10.875% 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.
Cash and cash equivalents at September 30, 1996
were $24.2 million lower than at September 30,
1995. This decrease resulted primarily from cash
used in investment activities of $30.4 million,
which includes capital expenditures of $27.3
million, net of $6.4 million of proceeds received
from the sale of property, plant and equipment.
Additionally, cash outflows from investment
activities included deferred turnaround charges of
$6.4 million and charges to other deferred assets
of $3.5 million. These cash outflows were
partially offset by an increase in cash of $6.8
million resulting from the consolidation of the
Company's wholly-owned insurance subsidiaries in
the fourth quarter of 1995. Cash used in
operating activities totaled $7.4 million for the
twelve month period ended September 30, 1996.
These cash outflows were partially offset by cash
provided by financing activities of $13.6 million
for the period October 1, 1995 to September 30,
1996 relating primarily to net borrowings from the
Company's debt and credit agreement facilities of
$13.4 million for the twelve month period ended
September 30, 1996.
The ratio of current assets to current liabilities
at September 30, 1996 was 1.13:1 compared to
1.48:1 at September 30, 1995 and 1.22:1 at
December 31, 1995. 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 1.30:1 at September 30, 1996, 1.59:1 at
September 30, 1995 and 1.35:1 at December 31,
1995.
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, but provides no assurance, that cash
provided from its operating activities, together
with other available sources of liquidity,
including borrowings under the Credit Agreement,
or a successor agreement, will be sufficient to
fund these costs. The Company had recorded a
liability of approximately $17 million as of
September 30, 1996 to cover the estimated costs of
compliance with environmental regulations which
are not anticipated to be of a capital nature.
The liability of $17 million includes accruals for
issues extending past 1997.
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.
-14-
During the years 1996-1998, the Company estimates
environmental expenditures at the Pasadena and
Tyler refineries of at least $6.9 million and
$13.5 million, respectively. Of these
expenditures, it is anticipated that $4.4 million
for Pasadena and $8.1 million for Tyler will be of
a capital nature, while $2.5 million and $5.4
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
$25.5 million through 1998. Environmental
expenditures at the Pasadena and Tyler refineries
and at the Company's marketing facilities totaled
$1.4 million, $1.8 million and $1.3 million,
respectively, for the nine months ended September
30, 1996.
The Company's principle purchases (crude oil and
convenience store merchandise) are transacted
primarily under open lines of credit with its
major suppliers. The Company maintains two credit
facilities to finance its business requirements
and supplement internally generated sources of
cash.
The Credit Agreement dated as September 25, 1995
(Credit Agreement) is used solely for the purpose
of financing the working capital requirements of
the Company. As of October 31, 1996, the Company
had outstanding irrevocable standby letters of
credit in the principal amount of $60.5 million
for performance obligations related to crude oil
acquisition, environmental and insurance matters
and unused commitments available for future cash
borrowings and letters of credit totaling $69.5
million. As of September 30, 1996, the Company
was in compliance with all covenants and
provisions of the Credit Agreement as amended and
forecasts that, but there can be no assurance
that, it will remain in compliance for the
remainder of the year.
The $125 million unsecured 10.875% Senior Notes
(Notes) due January 25, 2005 require semi-annual
interest payments. There are no sinking fund
requirements on the Notes. This facility is
principally used to finance the permanent capital
requirements of the Company and, to the extent
required, working capital. At the Company's
option, up to $37.5 million of the 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. These restrictions and limitations
include, but are not limited to, restrictions on
the incurrence of additional indebtedness, on the
payment of dividends and on the repurchase of
capital stock. These restrictions and limitations
are not applicable to letter of credit
availability and up to $50 million of cash
borrowings provided by the Credit Agreement. As
of September 30, 1996, the Indenture substantially
restricted the Company from effecting borrowings
outside of the Credit Agreement and precluded the
Company from paying any dividends. The Company
has not paid a dividend on its shares of common
stock since the first quarter of 1992. As
outlined in the Company's planned capital
requirements described below, while the Company is
limited by the Indenture from effecting borrowings
outside of the Credit Agreement, it does not
currently plan to effect any borrowings outside of
the Credit Agreement.
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 net capital
expenditures and deferred turnaround costs in 1996
are projected to approximate $37 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's
existing Credit Agreement matures on September 30,
1997. It is management's intention to extend or
replace the existing Credit Agreement prior to its
expiration date in order that cash provided from
its operating activities, together with other
available sources of liquidity, including
availability from the Credit Agreement, or a
successor agreement, will be sufficient over the
next year 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.
-15-
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.
As discussed in Item 3. Legal Proceedings of the
Annual Report on Form 10-K for the fiscal year
ended December 31, 1995, the Company's collective
bargaining agreement at its Pasadena refinery
expired on February 1, 1996, and on February 5,
1996, the Company invoked a lock-out of employees
in the collective bargaining unit. The Company
has been operating the Pasadena refinery without
interruption since the lock-out with management
and supervisory personnel and intends to continue
full operations until an agreement is reached with
the collective bargaining unit. The Oil, Chemical
& Atomic Workers Union (OCAW) filed unfair labor
practice charges against the Company in connection
with the lock-out. The Regional Office of the
National Labor Relations Board (NLRB) has
dismissed the charges; and; accordingly, no
accruals related to back wages have been recorded.
The union appealed this ruling, and the General
Counsel of the NLRB currently has the matter under
consideration. In July and August, the union
filed additional unfair labor practice charges and
those charges have also been dismissed by the
Regional Office. The OCAW has appealed the
dismissal of the charges filed in July. The
Company intends to continue to vigorously contest
all of the matters that have been appealed.
-16-
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
There has been no material change in the status of
legal proceedings as reported in Item 3 of the
Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995.
The unfair labor practice charges filed by the
Oil, Chemical & Atomic Workers Union in connection
with the lock-out of employees in the collective
bargaining unit at the Pasadena refinery, which
were previously reported in the Annual Report on
Form 10-K for the year ended December 31, 1995,
were dismissed by the Regional Office of the
National Labor Relations Board. The union appealed
this ruling, and the General Counsel of the NLRB
currently has the matter under consideration. In
July and August, the union filed additional unfair
labor practice charges and those charges have also
been dismissed by the Regional Office. The OCAW
has appealed the dismissal of the charges filed in
July. The Company intends to continue to
vigorously contest all of the matters that have
been appealed.
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
Item 6 - Exhibits and Reports on Form 8-K
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibit:
10(a) - Executive Severance Plan effective
September 26, 1996
10(b) - Supplemental Retirement Income Plan as
Restated effective September 26, 1996
10(c) - Amendment effective as of September 26,
1996 to the Crown Central Employees Savings Plan
10(d) - Amendment effective as of September 26,
1996 to the Crown Central Petroleum Corporation
1994 Long-Term Incentive Plan
11 - Statement re: Computation of Earnings Per
Share
20 - Interim Report to Stockholders for the three
and nine months ended September 30, 1996
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, 1996.
-17-
SIGNATURE
SIGNATURE
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, 1996 to be signed on
its behalf by the undersigned thereunto duly
authorized.
CROWN CENTRAL PETROLEUM CORPORATION
CROWN CENTRAL PETROLEUM CORPORATION
CROWN CENTRAL PETROLEUM CORPORATION
/s/---Jan L. Ries
/s/---Jan L. Ries
/s/---Jan L. Ries
Jan L. Ries
Controller
Chief Accounting Officer
and Duly Authorized Officer
Date: November 14, 1996
-18-