UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1998
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 jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
ONE NORTH CHARLES STREET, BALTIMORE, MARYLAND 21201
(Address of principal executive offices) (Zip Code)
410-539-7400
(Registrant's telephone number, including area code)
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, 1998 of the Registrant's $5
par value Class A and Class B Common Stock was 4,817,394 shares and
5,253,638 shares, respectively.
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, 1998 and December 31, 1997 3-4
Consolidated Condensed Statements of
Operations Three and nine months ended
September 30, 1998 and 1997 5
Consolidated Condensed Statements of Cash
Flows Nine months ended September 30, 1998
and 1997 6
Notes to Unaudited Consolidated Condensed
Financial Statements 7-11
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of
Operations 12-19
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 20
Item 5 - Other Information 20
Item 6 - Exhibits and Reports on Form 8-K 21
Exhibit 20 - Interim Report to Stockholders
for the three and nine months ended
September 30, 1998
Exhibit 27 (a) - Financial Data Schedule
for the nine months ended
September 30, 1998
Exhibit 27 (b) - Financial Data Schedule
for the nine months ended September 30,
1997 - revised
SIGNATURE 21
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
1998 1997
---------- ----------
ASSETS (Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 64,368 $ 43,586
Accounts receivable - net 70,845 102,529
Recoverable income taxes 3,819
Inventories 125,954 109,279
Other current assets 3,493 2,097
-------- --------
TOTAL CURRENT ASSETS 264,660 261,310
INVESTMENTS AND DEFERRED CHARGES 44,409 44,448
PROPERTY, PLANT AND EQUIPMENT 658,025 635,063
Less allowance for depreciation 357,031 339,854
-------- --------
NET PROPERTY, PLANT AND
EQUIPMENT 300,994 295,209
-------- --------
$610,063 $600,967
======== ========
<FN>
See notes to unaudited consolidated condensed financial statements.
</FN>
CONSOLIDATED CONDENSED BALANCE SHEETS
Crown Central Petroleum Corporation and Subsidiaries
(Thousands of dollars)
September 30 December 31
1998 1997
--------- ----------
LIABILITIES AND STOCKHOLDERS'
EQUITY (Unaudited)
CURRENT LIABILITIES
Accounts Payable:
Crude oil and refined products $ 84,608 $104,391
Other 30,823 27,330
Accrued Liabilities 95,295 46,766
Current portion of long-term
debt 2,432 1,498
---------- ---------
TOTAL CURRENT LIABILITIES 213,158 179,985
LONG-TERM DEBT 130,046 127,506
DEFERRED INCOME TAXES 33,128 43,854
OTHER DEFERRED LIABILITIES 38,607 42,267
COMMON STOCKHOLDERS' EQUITY
Common stock, Class A - par value
$5 per share:
Authorized shares -- 7,500,000;
issued and outstanding
shares -- 4,817,394 in 1998
and 1997 24,087 24,087
Common stock, Class B - par value
$5 per share:
Authorized shares -- 7,500,000;
issued and outstanding
shares -- 5,253,638 in 1998 and
5,240,774 in 1997 26,268 26,204
Additional paid-in capital 92,150 94,655
Unearned restricted stock (2,270) (5,291)
Retained earnings 54,889 67,700
----------- ---------
TOTAL COMMON STOCKHOLDERS'
EQUITY 195,124 207,355
----------- ---------
$ 610,063 $ 600,967
=========== =========
<FN>
See notes to unaudited consolidated condensed financial statements.
</FN>
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
Crown Central Petroleum Corporation and Subsidiaries
(Thousands of dollars, except per share amounts)
(Unaudited)
Three Months Ended
September 30
1998 1997
---------- ----------
REVENUES
Sales and operating
revenues $ 312,461 $ 414,473
OPERATING COSTS AND EXPENSES
Costs and operating
expenses 268,211 362,903
Selling expenses 21,198 19,334
Administrative expenses 5,775 3,944
Depreciation and
amortization 8,619 7,896
Sales of property,
plant and equipment (179) (260)
--------- ----------
303,624 393,817
--------- ----------
OPERATING INCOME (LOSS) 8,837 20,656
Interest and other income 527 519
Interest expense (3,806) (3,635)
--------- ----------
INCOME (LOSS) BEFORE
INCOME TAXES 5,558 17,540
INCOME TAX EXPENSE (BENEFIT) 2,475 6,275
--------- ----------
NET INCOME (LOSS) $ 3,083 $ 11,265
========= ==========
NET INCOME (LOSS) PER SHARE:
Basic $ .31 $ 1.16
========= ==========
Diluted $ .31 $ 1.12
========= ==========
(Unaudited)
Nine Months Ended
September 30
1998 1997
------- ----------
REVENUES
Sales and operating
revenues $ 979,254 $ 1,203,654
OPERATING COSTS AND EXPENSES
Costs and operating
expenses 884,952 1,068,921
Selling expenses 63,340 57,798
Administrative expenses 16,284 13,543
Depreciation and amortization 25,237 23,219
Sales of property, plant and
equipment (430) (413)
--------- -----------
989,383 1,163,068
========= ===========
OPERATING INCOME (LOSS) (10,129) 40,586
Interest and other income 2,297 1,920
Interest expense (10,977) (10,652)
--------- -----------
INCOME (LOSS) BEFORE INCOME TAXES (18,809) 31,854
INCOME TAX EXPENSE (BENEFIT) (5,998) 11,958
---------- -----------
NET INCOME (LOSS) $ (12,811) $ 19,896
========== ===========
NET INCOME (LOSS) PER SHARE:
Basic $ (1.30) $ 2.04
========= ==========
Diluted $ (1.30) $ 2.03
========= ==========
<FN>
See notes to unaudited consolidated condensed financial statements.
</FN>
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Crown Central Petroleum Corporation and Subsidiaries
(Thousands of dollars)
(Unaudited)
Nine Months Ended September 30
1998 1997
--------- ---------
NET CASH FLOWS FROM OPERATING
ACTIVITIES
Net cash from operations before
changes in assets and
liabilities $ 2,635 $ 52,373
Net changes in assets and
liabilities 45,889 (12,859)
-------- ---------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 48,524 39,514
-------- ---------
CASH FLOWS FROM INVESTMENT ACTIVITIES
Capital Expenditures (25,839) (20,372)
Proceeds from sales of
property, plant
and equipment 785 5,215
Investments in subsidiaries 164 136
Capitalization of software costs (3,035) (2,986)
Deferred turnaround maintenance (2,496) (12,994)
Other charges to deferred assets (1,668) (479)
-------- ---------
NET CASH (USED IN)
INVESTMENT ACTIVITIES (32,089) (31,480)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from debt and credit
agreement borrowings 64,729 26,316
(Repayments) of debt and
credit agreement borrowings (61,295) (26,982)
Net cash flows from long-term
notes receivable 316 616
Issuance of common stock 597 580
-------- --------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 4,347 530
-------- --------
NET INCREASE IN CASH
AND CASH EQUIVALENTS $ 20,782 $ 8,564
======== ========
<FN>
See notes to unaudited consolidated condensed financial statements.
</FN>
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Crown Central Petroleum Corporation and Subsidiaries
September 30, 1998
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, 1998 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1998. 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, 1997.
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.
The Company has no material items of other comprehensive income as defined
by Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income", for the three and nine months ended September 30,
1998 and 1997.
To conform to the 1998 presentation, the Consolidated Condensed Statements
of Operations for the three and nine months ended September 30, 1997 have
been restated. Service station rental income and certain other retail
marketing recoveries, which had previously been reported as a reduction of
Selling and administrative expenses, have been reclassified and are now
reported as components of Sales and operating revenues, and Costs and
operating expenses, respectively. Additionally, beginning with the three
months ended March 31, 1998, the Company began reporting Selling expenses
and Administrative expenses as separate amounts in the Consolidated
Condensed Statements of Operations. Selling and administrative expenses as
originally reported in the Company's Form 10-Q for the three and nine
months ended September 30, 1997, have been restated to reflect these
changes. These reclassifications had no effect on the net income or net
income per share amounts as originally reported.
To conform to the 1998 presentation, certain balance sheet amounts at
December 31, 1997 have been restated.
In February 1998, the FASB issued Statement of Financial Accounting
Standards No. 132, "Employers' Disclosure about Pensions and Other
Postretirement Benefits" (SFAS No. 132), which standardizes the disclosure
requirements for pensions and other postretirement benefits to the extent
practicable, eliminates certain disclosures required by former guidance and
requires additional disclosures not included in the former guidance. This
Statement is effective for fiscal years beginning after December 15, 1997.
The Company will adopt SFAS No. 132 for the fourth quarter of 1998.
In June 1998, The FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities"
(SFAS No. 133), which requires that all derivatives be recognized as either
assets or liabilities in the statement of financial position and that those
instruments shall be measured at fair value. SFAS No. 133 also prescribes
the accounting treatment for changes in the fair value of derivatives which
depends on the intended use of the derivative and the resulting
designation. Designations include hedges of the exposure to changes in the
fair value of a recognized asset or liability, hedges of the exposure to
variable cash flows of a forecasted transaction, hedges of the exposure to
foreign currency translations, and derivatives not designated as hedging
instruments. SFAS No. 133 is effective for fiscal years beginning after
June 15, 1999. The Company expects to adopt SFAS No. 133 in the first
quarter of the year 2000. The financial statement impact of adopting SFAS
No. 133 has not yet been determined.
Net changes in assets and liabilities presented in the Unaudited
Consolidated Condensed Statements of Cash Flows is comprised of the
following:
Nine Months Ended
September 30
1998 1997
-------- --------
(thousands of dollars)
Decrease in accounts receivable $ 31,685 $ 13,568
(Increase) in inventories (16,675) (44,540)
(Increase) decrease in
prepaid operating expenses
and other current assets (1,396) 10,558
(Decrease) in crude oil and
refined products payable (19,783) (7,102)
Increase in other accounts payable 3,493 17,623
Increase (decrease) in accrued
liabilities and other deferred
liabilities 44,578 (5,498)
Decrease in recoverable and
deferred income taxes 3,987 2,532
-------- ---------
$ 45,889 $(12,859)
======== =========
NOTE B - INVENTORIES
Inventories consist of the following:
September 30 December 31
1998 1997
---------- ---------
thousands of dollars)
Crude oil $ 49,688 $ 42,164
Refined products 68,882 79,905
-------- --------
Total inventories at FIFO
(approximates current cost) 118,570 122,069
LIFO allowance (6,698) (25,586)
-------- --------
Total crude oil and refined
products 111,872 96,483
-------- --------
Merchandise inventory at FIFO
(approximates current cost) 7,573 6,806
LIFO allowance (1,929) (1,929)
-------- --------
Total merchandise 5,644 4,877
-------- --------
Materials and supplies inventory
at FIFO 8,438 7,919
-------- --------
TOTAL INVENTORY $125,954 $109,279
======== ========
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. At September
30, 1998, approximately 2.3 million barrels of crude oil and refined
products inventory, which are valued at the lower of cost (first-in, first-
out) or market, were held in excess of anticipated year-end quantities
prior to considering the impact on anticipated quantities of the Crude oil
Processing Agreement executed in October 1998.
NOTE C - LONG-TERM DEBT AND CREDIT ARRANGEMENTS
As of September 30, 1998, under the terms of the First Restated Credit
Agreement dated as of August 1, 1997, as amended (Credit Agreement), the
Company had outstanding irrevocable standby letters of credit in the
principal amount of $5.3 million. The Company had no outstanding cash
borrowings as of September 30, 1998 under the Credit Agreement. As of
September 30, 1998, the Company was in compliance with all covenants and
provisions of the Credit Agreement, as amended, and reasonably believes,
but there can be no assurance that, it will remain in compliance with the
Credit Agreement until the end of November 1998, when an amended or
successor agreement is expected to become effective.
As of September 30, 1998, the Company had outstanding $125 million of
unsecured 10.875% Senior Notes (Notes), which were issued in January 1995
under an Indenture. As of September 30, 1998, 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, including, but not limited to the amount of additional indebtedness
the Company may incur outside of the Credit Agreement, the payment of
dividends and the repurchase of capital stock. As of September 30, 1998,
the Indenture substantially restricted the Company from effecting
additional borrowings and precluded the payment of dividends. The Company
has not paid a dividend on its shares of common stock since the first
quarter of 1992.
NOTE D - CRUDE OIL AND REFINED PRODUCT HEDGING ACTIVITIES
The net deferred loss from futures contracts included in crude oil and
refined product hedging strategies was approximately $.9 million at
September 30, 1998. Included in these hedging strategies are futures
contracts maturing from October 1998 to February 1999. The Company is
using these contracts to defer the pricing of approximately 5.7% of crude
oil commitments for the aforementioned period.
NOTE E - INTEREST AND OTHER INCOME
Interest and other income as shown in the Consolidated Condensed Statements
of Operations consists of the following:
Three Months Ended
September 30
1998 1997
-------- -------
(thousands of dollars)
Interest income $ 756 $ 697
Equity (loss) in
unconsolidated subsidiaries (314)
Other income (expense) 85 (178)
----- -----
Total Interest and
other income $ 527 $ 519
===== =====
Nine Months Ended
September 30
1998 1997
------ -------
(thousands of dollars)
Interest income $ 1,814 $ 1,858
Equity (loss) in
unconsolidated subsidiaries (414)
Other income (expense) 897 62
------- --------
Total Interest and
other income $ 2,297 $ 1,920
======= ========
This space intentionally left blank
NOTE F - CALCULATION OF NET INCOME (LOSS) PER COMMON SHARE
The average outstanding and equivalent shares used to calculate basic
earnings per share excludes 231,750 and 260,700 shares of Performance
Vested Restricted Stock (PVRS) registered to participants in the 1994 Long-
Term Incentive Plan (Plan) at September 30, 1998 and 1997, respectively.
The PVRS shares are not considered outstanding for basic earnings per share
calculations until the shares are released to the Plan participants.
The following tables provide a reconciliation of the basic and diluted
earnings per share calculations:
THREE MONTHS ENDED SEPTEMBER 30
1998 1997
----------- -----------
(dollars in thousands,
except per share data)
INCOME APPLICABLE TO COMMON SHARES
- ----------------------------------
Net income $ 3,083 $ 11,265
=========== ============
Common shares outstanding at
July 1, 1998
and 1997, respectively 10,071,032 9,995,180
Restricted shares held by
the Company at July 1,
1998 and 1997, respectively (231,750) (260,700)
Weighted average effect of
shares of common stock
issued for stock option
exercises 13,694
----------- ------------
Weighted average number of
common shares outstanding,
as adjusted at September 30,
1998 and 1997,respectively:
Basic 9,839,282 9,748,174
Effect of Dilutive Securities:
Contingent issuance
- Performance Vested
Restricted Shares 52,972
Employee stock options 248,526
----------- ------------
Weighted average number of
common shares outstanding,
as adjusted at September 30,
1998 and 1997,
respectively:
Diluted 9,839,282 10,049,672
=========== ============
EARNINGS PER SHARE:
- ------------------
Net income - Basic $ .31 $ 1.16
=========== ===========
- Diluted $ .31 $ 1.12
=========== ===========
This space intentionally left blank
NINE MONTHS ENDED
SEPTEMBER 30
1998 1997
------ --------
(dollars in thousands,
except per share data)
(LOSS) INCOME APPLICABLE TO COMMON SHARES
- ----------------------------------------
Net (loss) income $ (12,811) $ 19,896
========== =========
Common shares outstanding
at January 1, 1998
and 1997, respectively 10,058,168 9,983,180
Restricted shares held by
the Company at January 1,
1998 and 1997, respectively (260,700) (249,700)
Weighted average effect of
shares of common stock
issued for stock option
exercises 32,215 5,341
----------- ----------
Weighted average number of
common shares outstanding,
as adjusted at
September 30, 1998 and 1997,
respectively:
Basic 9,829,683 9,738,821
Effect of Dilutive Securities:
Contingent issuance -
Performance Vested
Restricted Shares 62,210
Employee stock options 15,954
----------- ----------
Weighted average number
of common shares outstanding,
as adjusted at September 30,
1998 and 1997,respectively:
Diluted 9,829,683 9,816,985
=========== ==========
EARNINGS PER SHARE:
- -------------------
Net (loss) income - Basic $ (1.30) $ 2.04
=========== ==========
- Diluted $ (1.30) $ 2.03
=========== ==========
At September 30, 1998, the Company had non-qualified stock options and
performance vested restricted awards outstanding representing 231,750 total
potential common shares that were not included in the diluted earnings per
share calculation since doing so would have been anti-dilutive.
NOTE G - LITIGATION AND CONTINGENCIES
Except as noted in Part II, Item 1 - Legal Proceedings of this Quarterly
Report on Form 10-Q for the quarterly period ended Septemner 30, 1998,
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, 1997.
ITEM 2 -MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company's Sales and operating revenues decreased $102 million or 24.6%
in the third quarter of 1998 from the comparable period in 1997. The
decrease in Sales and operating revenues was primarily attributable to a
28.3% decrease in the average sales price per gallon of petroleum products
which was partially offset by a 1.1% increase in petroleum product sales
volumes. Additionally, merchandise sales for the three months ended
September 30, 1998 increased 7.5% from the same 1997 period. Sales and
operating revenues decreased $224.4 million or 18.6% for the nine months
ended September 30, 1998 compared to the nine months ended September 30,
1997. The year to date decrease is primarily attributable to a 32.6%
decrease in the average sales price per gallon of petroleum products which
was partially offset by a 7% increase in petroleum product sales volumes.
The increases in petroleum product sales volumes for the three and nine
month periods ended September 30, 1998 compared to the respective 1997
periods was due principally to the expiration of the processing agreement
with Statoil North America, Inc. which effectively increased the Company's
refined product available for sale in 1998. Merchandise sales for the year
to date period ended September 30, 1998 increased 6.3% from the same 1997
period.
Costs and operating expenses decreased $94.7 million or 26.1% in the third
quarter of 1998 from the comparable period in 1997. The decrease was
primarily due to a decrease in the average cost per barrel consumed of
crude oil and feedstocks. Costs and operating expenses decreased $184
million or 17.2% for the nine months ended September 30, 1998 from the
comparable period in 1997 due primarily to a decrease in the average cost
per barrel consumed of crude oil and feedstocks. These third quarter and
year to date decreases were partially offset by increases in volumes sold
as previously discussed.
As previously reported in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997, futures, forwards and exchange traded
options are used to minimize the exposure arising from fluctuations in the
price of crude oil and refined products and to help manage the price risk
inherent in purchasing crude oil in advance of delivery or in carrying
finished product inventory. The Company's hedging strategies are generally
intended to reduce volatility and to capture an acceptable profit margin.
During the first half of 1998, the Company held long positions,
particularly with respect to finished product, that exceeded its hedging
requirements and as a result incurred losses in a falling market. The net
recognized loss from these long trading positions included in cost of goods
sold for the nine months ended September 30, 1998 was approximately $9
million. Management subsequently implemented a policy to limit the use of
commodity derivatives to transactions that hedge underlying recognized
assets or liabilities or firm commitments as those terms are defined by
Generally Accepted Accounting Principles. The long positions that were
previously noted have been closed. As a result of this policy, the effect
of holding long positions that exceed hedging requirements was not material
to the results of operations for the three months ended September 30, 1998.
The results of operations were significantly affected by the Company's use
of the LIFO method to value inventory, which in a period of falling prices
increased the Company's gross margin $.22 per barrel ($3.1 million) and
$.44 per barrel ($18.9 million), respectively for the third quarter and
year to date periods ended September 30, 1998. Similarly, the use of the
LIFO method increased the Company's gross margin $.35 per barrel ($15
million) for the nine months ended September 30, 1997. The third quarter
of 1997 was characterized by rising prices which decreased the Company's
gross margin $.12 per barrel ($1.7 million).
The aforementioned decrease in Sales and operating revenues coupled with
the decrease in Costs and operating expenses resulted in an overall
decrease in gross margin of $7.3 million and $40.4 million, respectively,
for the three and nine months ended September 30, 1998 compared to the same
1997 periods. The decreases in average sales price per gallon of petroleum
products reflected similar industry-wide decreases due to excess supply of
refined petroleum products, principally distillates, due primarily to the
unseasonably warm winter in the Company's marketing areas. Additionally,
decreases in the cost of the Company's crude oil and purchased feedstocks
reflect industry-wide decreases in prices of these products, however,
these decreases were not as significant as the decreases in finished
product sales prices. As a result, the Company's refining gross margin
decreased from $3.18 per barrel for the nine months ended September 30,
1997 to $1.77 per barrel for the nine months ended September 30, 1998.
Similarly, the Company's refining gross margin decreased from $4.16 per
barrel for the third quarter of 1997 to $2.57 per barrel for the comparable
period in 1998. However, this realized gross margin of $2.57 per barrel
for the third quarter of 1998 compares favorably with the industry average
3-2-1 crack spread of $2.52 per barrel for the same period. Such
performance reflects the Company's ability to produce above market
performance in a challenging refining environment.
Gasoline gross margin (gasoline gross profit as a percent of gasoline
sales) at the Company's retail locations increased significantly from $.092
per gallon for the three months ended September 30, 1997 to $.129 per
gallon for the three months ended September 30, 1998 while increasing
slightly from $.105 per gallon from the nine months ended September 30,
1997 to $.118 per gallon for the nine months ended September 30, 1998.
Aggregate gasoline gross profit on a same store basis increased 35.6% for
the three months ended September 30, 1998 from the comparable period in
1997 while gasoline gallons sold measured on a same store basis decreased
2%. For the year to date period ended September 30, 1998 compared to the
same 1997 period, aggregate gasoline gross profit on a same store basis
increased 9.3% while gasoline gallons sold measured on a same store basis
decreased 2.5%.
Merchandise gross margin (merchandise gross profit as a percent of
merchandise sales) increased slightly to 30.6% for the third quarter of
1998 from 30.1% for the comparable 1997 period while increasing slightly to
30.8% for the nine months ended September 30, 1998 from 30.6% for the
comparable period in 1997. Monthly merchandise sales, on a same store
basis, averaged $8.1 million per month, an increase of 4.1% for the nine
months ended September 30, 1998 compared to the same 1997 period and has
contributed to a $1.7 million or 7% increase in merchandise gross profit.
Aggregate year to date merchandise gross profit on a same store basis
increased by 1.1% in 1998 compared to the same 1997 period.
Yields of gasoline decreased from 95,100 barrels per day (bpd) (60.2% of
production) for the third quarter 1997 to 90,200 bpd (56.9%) for the third
quarter 1998 while distillate production increased slightly from 49,100 bpd
(31.1%) for the third quarter 1997 to 51,800 bpd (32.7%) for the same
period in 1998. Yields of gasoline decreased slightly from 89,900 bpd
(56.5%) for the nine months ended September 30, 1997 to 88,600 bpd (56%)
for the same period in 1998 and distillate yields decreased slightly from
51,900 bpd (32.7%) for the nine months ended September 30, 1997 to 50,300
bpd (31.8%) for the nine months ended September 30, 1998. The Company's
1998 refining yield was adversely impacted by two separate unit shutdowns
at the Pasadena refinery which negatively impacted yields and increased
operating costs by approximately $3.3 million for the nine month period
ended September 30, 1998. The Company's 1998 refining yield was negatively
impacted by two separate unit shutdowns at the Pasadena refinery which
adversely impacted yields and increased operating costs resulting in a
decrease in operating of approximately $3.3 million for the nine month
period ended September 30, 1998.
Selling expenses increased $1.9 million or 9.6% for the third quarter of
1998 compared to the same period in 1997 while increasing $5.5 million or
9.6% for the nine months ended September 30, 1998 compared to the nine
months ended September 30, 1997. These increases are principally due to
increases in expenses for technology enhancements at the Company's retail
sites and in retail support locations and to increases in labor costs at
retail sites. Additionally, marketing promotion related expenses increased
slightly in the third quarter and year to date periods ended September 30,
1998 compared to the same periods of 1997.
Administrative expenses increased $1.8 million or 46.4% and $2.7 million or
20.2%, respectively, for the three and nine months ended September 30, 1998
compared to the same periods in 1997. These increases are primarily due to
increases in labor costs at the Company's administrative offices.
Depreciation and amortization expenses in the third quarter of 1998
increased $.7 million or 9.2% from the comparable 1997 period. Similarly,
Depreciation and amortization expenses increased $2 million or 8.7% for the
nine months ended September 30, 1998 from the comparable 1997 period.
These increases are primarily attributable to the amortization of refinery
deferred turnaround expenses related to turnarounds performed in the second
and fourth quarters of 1997 and in the first quarter of 1998.
Operating costs and expenses for the three and nine months ended September
30, 1998 included $1.6 million and $3.4 million, respectively, related to
litigation settlements. This compares to $.5 million related to litigation
settlements for the three and nine months ended September 30, 1997. Also
included in Operating costs and expenses for the three and nine months
ended September 30, 1998 were accruals for certain pending litigation of
$.9 million compared to $1 million and $1.3 million, respectively, for the
three and nine months ended September 30, 1997. Additionally, the third
quarter and year to date periods ended September 30, 1997 included
incentive plan accruals of $5 million and $6 million, respectively.
Operating costs and expenses for the nine months ended September 30, 1998
included reductions of $1.3 million in other accrued liabilities. The nine
months ended September 30, 1997 included $2.5 million in reductions of
accruals related to environmental matters.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities (including changes in assets and
liabilities) totaled $48.5 million for the nine months ended September 30,
1998 compared to cash provided by operating activities of $39.5 million for
the nine months ended September 30, 1997. The 1998 inflows consist
primarily of cash inflows from changes in assets and liabilities of $45.9
million due primarily to increases in federal excise and refinery operating
tax accruals. The moratorium that was in effect at September 30, 1998
deferred the tax payments that ordinarily are paid monthly. Additional
cash inflows from working capital activities resulted from decreases in
accounts receivable and in recoverable income taxes. These working capital
inflows were partially offset by decreases in crude oil and refined
products payables and increases in the volume of crude oil and finished
product inventories, as well as, increases in prepaid operating expenses.
Additionally, cash provided by operations before changes in assets and
liabilities totaled $2.6 million for the nine months ended September 30,
1998. The 1997 inflows consist primarily of net cash provided by
operations before changes in assets and liabilities of $52.4 million.
Partially offsetting these cash inflows were cash outflows of $12.9 million
related primarily to working capital requirements resulting from increases
in the volume of crude oil and finished product inventories and decreases
in crude oil and refined products payables and in federal excise tax
accruals (net of payments). These working capital outflows were partially
offset by increases in other accounts payable primarily related to accrued
refinery turnaround expenses and to decreases in accounts receivable and in
prepaid operating expenses principally related to prepaid insurance
premiums and deferred losses on futures trading activity.
Net cash outflows from investment activities totaled $32.1 million for the
nine months ended September 30, 1998 compared to a net outflow of $31.5
million for the same 1997 period. The 1998 outflows consist primarily of
capital expenditures of $25.8 million (which includes $15.6 million
relating to the marketing area and $8.5 million for refinery operations).
Additionally, there were $3 million in capitalized software costs, $2.5
million in refinery deferred turnaround expenditures and $1.7 million in
other charges to deferred assets. These cash outflows were partially
offset by proceeds from the sale of property, plant and equipment of $.8
million. The 1997 amount consists principally of capital expenditures of
$20.4 million (which includes $11.5 million relating to the marketing area
and $6.7 million for refinery operations). Additionally, there were
refinery turnaround expenditures of $13 million and $3 million in
capitalized expenditures related to internal use software and hardware.
These cash outflows were partially offset by proceeds from the sale of
property, plant and equipment of $5.2 million.
Net cash provided by financing activities was $4.3 million for the nine
months ended September 30, 1998 compared to cash provided by financing
activities of $.5 million for the nine months ended September 30, 1997.
The 1998 cash inflow consists primarily of $3.4 million in net proceeds
received from debt and credit agreement borrowings. Additionally, cash
inflows include $.6 million received from the issuance of the Company's
Class B Common Stock resulting from exercises of non-qualified stock
options granted to participants of the Company's Long-Term Incentive Plans.
The 1997 cash inflow consists principally of increases in long-term notes
receivable of $.6 million and $.6 million received from issuances of the
Company's common stock due to the exercise of stock options issued under
the Company's incentive plans. These cash inflows were partially offset by
$.7 million in amortization of the Company's capitalized lease obligations.
The ratio of current assets to current liabilities at September 30, 1998
was 1.24:1 compared to 1.41:1 at September 30, 1997 and 1.47:1 at December
31, 1997. 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 1.28:1 at September 30, 1998, 1.62:1
at September 30, 1997 and 1.63:1 at December 31, 1997.
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 a credit facility to finance its
business requirements and supplement internally generated sources of cash.
Under the First Restated Credit Agreement effective August 1, 1997, as
amended (Credit Agreement), as of November 12, 1998, the Company had
outstanding irrevocable standby letters of credit in the principal amount
of $1.9 million for purposes in the ordinary course of business. As
indicated in Note C, the Company had no outstanding cash borrowings as of
September 30, 1998 under the Credit Agreement and there have been no cash
borrowings through November 12, 1998. The Company was in compliance with
all covenants and provisions of the Credit Agreement at September 30, 1998,
and reasonably believes that it will remain in compliance with the Credit
Agreement through the end of November 1998 when an amended of successor
agreement is expected to become effective. Meeting the covenants imposed
by the Credit Agreement or a successor is dependent, among other things,
upon the level of future earnings and cash flow.
The Credit Agreement is an unsecured credit facility with restrictive
covenants that limit its reliability as a source of short-term liquidity.
The Company believes that similarly rated companies in the petroleum
industry generally have secured working capital credit facilities with more
flexible terms and conditions. Consequently, one of the options which the
Company is pursuing is replacing the Credit Agreement with an agreement
that will provide for a senior security interest in the Company's current
assets (the "Secured Credit Agreement").
The Company's 10 7/8% Senior Notes due 2005 (the "Notes") are unsecured
with lien restrictions that generally provide the Note holders with equal
and ratable security interests in the Company's assets. In order to
provide a senior secured position to the financial institutions who would
participate in the Secured Credit Agreement, the Company issued a Consent
Solicitation to the Note holders on October 16, 1998, whereby the Note
holders would be paid a fee to grant the proposed senior credit position to
the banks (the "Consent"). The Consent Solicitation will expire at 5:00
p.m., New York time, on November 16, 1998, unless extended by the Company.
The Secured Credit Agreement or amended Credit Agreement is anticipated to
be finalized by the end of November 1998.
At the Company's option, the Unsecured 10.875% Senior Notes (Notes) may be
redeemed at 105.438% of the principal amount at any time after January 31,
2000 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. As of September 30, 1998,
the Indenture substantially restricted the Company from effecting
additional borrowings 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.
At September 30, 1998, the Company had gross borrowings of $6.4 million
under the Purchase Money Lien dated August 11, 1997 which is secured by
service station and convenience store land, buildings and equipment having
a cost basis of $9.1 million at September 30, 1998.
The Company's management is involved in a continual process of evaluating
growth opportunities in its core business as well as its capital resource
alternatives. Total capital expenditures and deferred turnaround costs in
1998 are projected to approximate $36 million. The capital expenditures
relate primarily to retail unit improvements, additional retail units and
planned enhancements at the Company's refineries.
Effective October 15, 1998, the Company executed a Crude Oil Processing
Agreement (Processing Agreement) with Statoil Marketing and Trading (US)
Inc., (Statoil) whereby the Company will process a monthly average of
35,000 barrels per day of crude oil owned and supplied by Statoil at the
Company's Pasadena, Texas refinery. The Company will receive a specified
fee per barrel processed and will return to Statoil a specified mix of
finished petroleum products. This Processing Agreement is scheduled to
expire on October 14, 2000. As a result of this Processing Agreement, the
Company expects to decrease the level of crude oil and finished product
inventories maintained and owned by the Company as well as the level of
accounts receivable owed to the Company. These anticipated decreases in
working capital needs are expected to generate positive cash flows
approximating $15-$18 million based upon the prices prevailing at the
execution of the Processing Agreement.
The Company believes, but there can be no guarantee, that cash provided
from its operating activities, together with other available sources of
liquidity, including the Credit Agreement or a successor agreement, will be
sufficient over the next several years to meet the Company's capital
requirements.
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 in excess of $1 million.
The Company has disclosed in Item 3. Legal Proceedings of the Annual Report
on Form 10-K for the fiscal year ended December 31, 1997, and in Part II,
Item 1 - Legal Proceedings of this Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1998,various contingencies which
involve litigation, environmental liabilities and examinations by the
Internal Revenue Service. Depending on the occurrence, amount and timing
of an unfavorable resolution of these contingencies, the outcome of which
cannot reasonably be determined at this time, it is possible that the
Company's future results of operations and cash flows could be materially
affected in a particular quarter or year. However, the Company has
concluded, after consultation with counsel, that there is no reasonable
basis to believe that the ultimate resolution of any of these contingencies
will have a material adverse effect on the Company. Additionally, as
discussed in Item 3. Legal Proceedings of the Annual Report on Form 10-K
for the fiscal year ended December 31, 1997, 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 and intends to continue to
do so during the negotiation period with the collective bargaining unit.
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company's operating results have been, and will continue to be,
affected by a wide variety of factors that could have an adverse effect on
profitability during any particular period, many of which are beyond the
Company's control. Among these are the demand for crude oil and refined
products, which is largely driven by the condition of local and worldwide
economies, although seasonality and weather patterns also play a
significant part. Governmental regulations and policies, particularly in
the areas of energy and the environment, also have a significant impact on
the Company's activities. Operating results can be affected by these
industry factors, by competition in the particular geographic markets that
the Company serves and by Company-specific factors, such as the success of
particular marketing programs and refinery operations.
In addition, the Company's profitability depends largely on the difference
between market prices for refined petroleum products and crude oil prices.
This margin is continually changing and may significantly fluctuate from
time to time. Crude oil and refined products are commodities whose price
levels are determined by market forces beyond the control of the Company.
Additionally, due to the seasonality of refined products and refinery
maintenance schedules, results of operations for any particular quarter of
a fiscal year are not necessarily indicative of results for the full year.
In general, prices for refined products are significantly influenced by the
price of crude oil. Although an increase or decrease in the price for
crude oil generally results in a corresponding increase or decrease in
prices for refined products, often there is a lag time in the realization
of the corresponding increase or decrease in prices for refined products.
The effect of changes in crude oil prices on operating results therefore
depends in part on how quickly refined product prices adjust to reflect
these changes. A substantial or prolonged increase in crude oil prices
without a corresponding increase in refined product prices, a substantial
or prolonged decrease in refined product prices without a corresponding
decrease in crude oil prices, or a substantial or prolonged decrease in
demand for refined products could have a significant negative effect on the
Company's earnings and cash flows.
The Company is dependent on refining and selling quantities of refined
products at margins sufficient to cover operating costs, including any
future inflationary pressures. The refining business is characterized by
high fixed costs resulting from the significant capital outlays associated
with refineries, terminals and related facilities. Furthermore, future
regulatory requirements or competitive pressures could result in additional
capital expenditures, which may or may not produce desired results. Such
capital expenditures may require significant financial resources that may
be contingent on the Company's continued access to capital markets and
commercial bank financing on favorable terms.
Purchases of crude oil supply are typically made pursuant to relatively
short-term, renewable contracts with numerous foreign and domestic major
and independent oil producers, generally containing market-responsive
pricing provisions. Futures, forwards and exchange traded options are used
to minimize the exposure of the Company's refining margins to crude oil and
refined product fluctuations. The Company also uses the futures market to
help manage the price risk inherent in purchasing crude oil in advance of
the delivery date, and in maintaining the inventories contained within its
refinery and pipeline system. Hedging strategies used to minimize this
exposure include fixing a future margin between crude and certain finished
products and also hedging fixed price purchase and sales commitments of
crude oil and refined products. 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 effect the
Company's ability to participate in an improvement in related product
profit margins. Although the Company's net sales and operating revenues
fluctuate significantly with movements in industry crude oil prices, such
prices do not have a direct relationship to net earnings, which are subject
to the impact of the Company's LIFO method of accounting discussed below.
The effect of changes in crude oil prices on the Company's operating
results is determined more by the rate at which the prices of refined
products adjust to reflect such changes.
IMPACT OF YEAR 2000
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define a particular year. These computer
programs include both information technology such as software programs and
non-information technology systems such as embedded microcontrollers in
equipment. Any of the Company's computer programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than the
year 2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary
inability to process transactions, send invoices, or engage in similar
normal business activities. The Company initially commenced its Year 2000
readiness program in early 1995.
In 1993, the Company began a long-term project which encompassed an in-
depth evaluation of all current business processes and the redesign of any
of these processes where significant opportunity for improvement was
identified. One of the results of this project was the decision to purchase
and implement an enterprise-wide state-of-the-art fully integrated software
package (SAP R/3 "Trademark") which was selected in connection with re-
designing business practices to further enhance operating and record
keeping efficiencies. This software is year 2000 ready. Due to the
enterprise-wide scale of the project, the majority of the Company's year
2000 issues will be resolved as an added benefit of this software
implementation. The following paragraphs address those computer systems
that are not encompassed within the SAP R/3 "Trademark" system.
The evaluation of the Company's state of readiness relating to its year
2000 issues is a continual process emphasizing a constant awareness of
computer systems and business relationships that may be sensitive to year
2000 issues. Management has categorized the activities necessary to solve
the year 2000 issues into the assessment phase, the remediation phase, and
the testing and contingency planning phase. The assessment phase includes
the evaluation of all of the Company's information technology systems and
embedded microcontrollers (collectively referred to as computer programs)
to identify those computer programs that contain date sensitive features.
Those computer programs that contain such features are then further
evaluated and categorized as either mission critical or non-mission
critical based upon their relative importance to the uninterrupted
continuation of the Company's daily operations. Mission critical computer
programs gain top priority when allocating the available resources to solve
year 2000 issues. With the exception of the Company's two refineries, as
of September 30, 1998, the Company has completed the assessment of all of
its mission critical information technology (IT) systems and embedded
microcontrollers and the majority of those not deemed to be mission
critical. The Company's management is currently in the process of
interviewing potential consulting groups to assist with the further
assessment of the embedded microcontrollers at the Pasadena and Tyler
refineries. The Company expects to complete the assessment of the
remainder of its own IT systems and embedded microcontrollers by the end of
the first quarter of 1999.
The assessment phase also includes the identification of and communication
with hardware and software vendors with whom the Company transacts
business, third parties with whom the Company exchanges information
electronically, major or sole source suppliers, and major customers. The
focus of these communications is to determine the state of readiness of
each of these third parties with respect to their own year 2000 issues and
how their progress may impact the Company. The majority of responses
received to third party inquiries indicate that they are working on their
year 2000 issues without elaborating specific details. Follow-up action
related to material third party inquiries and responses is expected to
continue into 1999 as these material third parties progress in their own
year 2000 readiness projects. No material third party suppliers have been
identified that could not be replaced by alternative suppliers in the event
of non-compliance by a particular party.
The remediation phase includes the repair, upgrade or replacement of all
computer programs identified as non-compliant in the assessment phase.
These activities will include all computer programs that have not been
scheduled to be repaired, upgraded or replaced as well as those that had
been scheduled but whose timing of repair, upgrading or replacement was
accelerated to resolve the Company's year 2000 issues. The Company's
primary strategy for correcting year 2000 issues is to replace all non-
compliant technology with newly purchased technology that, in addition to
being year 2000 compliant, provide enhanced business functionality and
capabilities. This phase has been on-going since 1995 and is expected to
be substantially completed by June 30, 1999. Total costs of upgrading or
replacing computer software and upgrading computer hardware are expected to
approximate $1.5 million, respectively.
The testing and contingency planning phase includes testing the computer
programs worked on in the remediation phase for accuracy as well as
concurrently developing contingency plans that may be placed into effect in
the event that significant deficiencies are identified. Contingency
planning also encompasses developing alternative sources of supply in the
event of failure by material third parties to remedy their own year 2000
issues. Testing of computer programs is expected to be completed as
remediation or replacement of individual programs is completed. Due to the
number of computer programs utilized by the Company and the need to begin
remediation, replacement, and testing of mission critical programs in a
timely manner, any or all of the phases identified may be performed
concurrently. Testing of implemented technologies will be a continual
process with the expectation that all of the Company's mission critical
systems will be tested by the end of the third quarter of 1999.
Contingency plans will be formulated as the need arises.
While the Company' management anticipates that all mission critical
computer programs will be assessed, remedied and tested by the dates set
forth in the preceding paragraphs, there can be no assurance that all will
be completely error free. We rely on third party software, equipment and
services to conduct our business. While the Company has made reasonable
efforts to address this issue, third party compliance efforts are not fully
within our control.
The most reasonably likely worst case scenario of failure to remedy all
year 2000 issues would be the failure of the control systems at the
Company's refineries. Until the Company has completed the assessment of
the embedded microcontrollers at the Pasadena and Tyler refineries, which
as previously stated is scheduled for the end of the first quarter of 1999,
no estimate can be made concerning the financial impact to the Company.
Additionally, the most likely possibility of material third party non-
compliance would result from the loss of utility services at either of the
Company's refineries or in any of the Company's marketing areas. Insurance
coverage available at this time is limited to business interruption
resulting from fire, explosion, or related perils which are caused by a
year 2000 system failure.
The failure to correct a material year 2000 problem or the inability of any
key customer, key supplier or a governmental agency to make the necessary
computer system changes on a timely basis, the inaccuracy of responses
received from these third parties, and the potential shortage of skilled
human resources to install and test upgraded software and equipment could
result in interruptions to Company operations or business activities. Such
interruptions could have a material adverse impact on the Company's results
of operations , liquidity or financial condition. Due to the general
uncertainty inherent in the year 2000 issue, particularly as it relates to
the readiness of the Company's key customers and suppliers, and of
governmental agencies, the Company cannot ascertain at this time whether
the consequences of the year 2000 failures will have a material impact on
the Company's results of operations, liquidity or financial condition.
The foregoing year 2000 discussion constitutes a "forward-looking"
statement within the meaning of Section 21E of the Securities Exchange Act
of 1934, as amended. It is based on management's current expectations,
estimates and projections, which could ultimately prove to be inaccurate.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
In August of 1998, the Pasadena refinery was issued an Agreed Order by the
Texas Natural Resource Conservation Commission (TNRCC) pertaining primarily
to alleged exceedances of concentration standards for hydrogen sulfide and
air emissions of sulfur dioxide from the refinery. (Agreed Order Docket No.
97-1088-AIR-E) Substantially all of the alleged violations covered by the
Agreed Order were included in the Notice of Violation previously discussed
in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997. The Company paid a penalty of $1.1 million and agreed
to hire a consultant to study the cause of the exceedances and to implement
corrective measures recommended by the study. By the time the Agreed Order
was entered, the Company had already upgraded certain equipment and
installed backup equipment to improve the removal efficiencies of hydrogen
sulfide and disulfides from certain operating processes at a cost of
approximately $.4 million. On September 30, 1998, Texans United for a Safe
Economy Education Fund and several individuals, filed suit against the
TNRCC in the District Court of Travis County, Texas requesting the court
modify or set aside the Agreed Order and that TNRCC be required to assess
additional penalties against the Company based on economic benefit
considerations. TEXANS UNITED FOR A SAFE ECONOMY EDUCATION FUND, ET AL.,
98-11008 (126th Judicial District, Travis Co., Tex.) The Company plans to
seek to intervene in this case. The Company does not reasonably expect
that the plaintiffs will prevail.
On October 5, 1998, the Company was served in a lawsuit naming it as an
additional defendant in an existing lawsuit filed by approximately 5,500
Houston Ship Channel area residents against approximately 11 other
refineries and petrochemical plant operators. CRYE ET AL. VS. REICHHOLD
CHEMICALS, INC., ET AL., 97-24399 (334th Judicial District, Harris Co.,
Tex.). The plaintiffs claim they are adversely affected by the noise,
light, emissions and discharges from defendants' operations and seek
unspecified damages and injunctive relief for alleged nuisance, trespass,
negligence, and gross negligence. The Company has answered and intends to
vigorously defend this lawsuit. The ultimate determination of the matter,
in the opinion of management, is not expected to have a material adverse
effect on the Company.
There have been no other material changes in the status of legal
proceedings as previously reported in Item 3 of the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1997 and in Part II,
Item 1 - Legal Proceedings of the Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1998.
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 5 - OTHER INFORMATION
Edward L. Rosenberg, Executive Vice President - Supply & Transportation,
has announced that he will resign his position with the Company effective
December 31, 1998, to be actively involved in family business interests.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit:
10 Crude oil processing agreement between the
Registrant and Statoil Marketing and Trading
(US) Inc.is filed as part of the Quarterly
Report on Form 10-Q. Certain portions of the
Agreement have been
omitted because of their confidential nature,
and have been filed separately with the
Securities and Exchange Commission marked
"Confidential Treatment".
20 - Interim Report to Stockholders for the three and
nine months ended September 30, 1998.
27 (a) - Financial Data Schedule for the nine months ended
September 30, 1998.
27 (b) - Financial Data Schedule for the nine months
ended September 30, 1997 - revised.
(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, 1998.
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, 1998 to be signed on its behalf by the undersigned
thereunto duly authorized.
CROWN CENTRAL PETROLEUM CORPORATION
/s/--Jan L. Ries
-------------------------------
Jan L. Ries
Controller
Chief Accounting Officer
and Duly Authorized Officer
Date: November 16, 1998