<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q/A
Amendment No. 1
(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, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ___________
COMMISSION FILE NUMBER 1-1059
CROWN CENTRAL PETROLEUM CORPORATION
(Exact name of registrant as specified in its charter)
Maryland 52-0550682
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
One North Charles Street, Baltimore, Maryland 21201
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 410-539-7400
Not Applicable
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months, and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
The number of shares outstanding at October 31, 1994 of the
Registrant's $5 par value Class A and Class B Common Stock was
4,817,392 shares and 4,984,806 shares, respectively.
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<PAGE>
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, 1994 and December 31, 1993 3-4
Consolidated Condensed Statements of Operations
Three and nine months ended September 30, 1994 and 1993 5
Consolidated Condensed Statements of Cash Flows
Nine months ended September 30, 1994 and 1993 6
Notes to Unaudited Consolidated Condensed
Financial Statements 7-11
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-14
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 15
Item 6 - Exhibits and Reports on Form 8-K 15
Exhibit 4(a) - Amendment effective as of September 30, 1994
to the Credit Agreement dated as of May 10, 1993.
Exhibit 4(b) - Amendment effective as of September 30, 1994
to the Note Purchase Agreement dated January 3, 1991.
Exhibit 20 - Interim Report to Stockholders for the three
and nine months ended September 30, 1994
Exhibit 27 - Financial Data Schedule
Exhibit 99 - Agreement between Jack Africk, Director and
Crown Central Petroleum Corporation dated
October 28, 1993.
SIGNATURE 16
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<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
<TABLE>
<CAPTION>
CONSOLIDATED CONDENSED BALANCE SHEETS
Crown Central Petroleum Corporation and Subsidiaries
(Thousands of dollars)
September 30 December 31
Assets 1994 1993
----------- -----------
(Unaudited)
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 21,165 $ 52,021
Accounts receivable - net 81,670 91,413
Recoverable income taxes 14,996
Inventories 90,440 86,811
Other current assets 3,412 762
-------- --------
Total Current Assets 211,683 231,007
Investments and Deferred Charges 29,766 42,908
Property, Plant and Equipment 689,427 676,405
Less allowance for depreciation 326,632 294,142
-------- --------
Net Property, Plant and Equipment 362,795 382,263
-------- --------
$604,244 $656,178
======== ========
<FN>
See notes to unaudited consolidated condensed financial statements.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED CONDENSED BALANCE SHEETS
Crown Central Petroleum Corporation and Subsidiaries
(Thousands of dollars)
September 30 December 31
Liabilities and Stockholders' Equity 1994 1993
----------- ------------
(Unaudited)
<S> <C> <C>
Current Liabilities
Accounts payable:
Crude oil and refined products $ 97,879 $104,166
Other 16,604 20,500
Accrued liabilities 46,787 50,145
Income taxes payable 3,264
Current portion of long-term debt 10,053 1,094
------- -------
Total Current Liabilities 171,323 179,169
Long-Term Debt 56,955 65,579
Deferred Income Taxes 73,960 81,217
Other Deferred Liabilities 31,621 31,860
Common Stockholders' Equity
Common stock, Class A - par value $5 per share:
Authorized 7,500,000 shares; issued and
outstanding shares--4,817,392 in 1994 and 1993 24,087 24,087
Common stock, Class B - par value $5 per share:
Authorized 7,500,000 shares: issued and
outstanding shares--4,984,806 in 1994
and 5,015,206 in 1993 24,924 25,076
Additional paid-in capital 91,014 91,870
Retained earnings 132,086 157,320
Unearned restricted stock (1,726)
-------- --------
Total Common Stockholders' Equity 270,385 298,353
-------- --------
$604,244 $656,178
======== ========
<FN>
See notes to unaudited consolidated condensed financial statements.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
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
1994 1993 1994 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Sales and operating revenues (including
excise taxes of $97,012, $69,003,
$295,131 and $207,289) $468,275 $455,691 $1,315,284 $1,316,770
-------- -------- ---------- ----------
Operating Costs and Expenses:
Costs and operating expenses 456,997 421,714 1,234,556 1,222,371
Selling and administrative expenses 21,379 23,693 62,564 69,723
Depreciation and amortization 12,665 10,537 33,734 31,307
Sales and abandonments
of property, plant and equipment 16,899 169 16,554 (108)
-------- -------- ---------- ----------
507,940 456,113 1,347,408 1,323,293
-------- -------- ---------- ----------
Operating (Loss) (39,665) (422) (32,124) (6,523)
Interest and other income 283 179 1,152 398
Interest expense (1,979) (1,894) (5,836) (5,514)
-------- -------- ---------- ----------
(Loss) Before Income Taxes (41,361) (2,137) (36,808) (11,639)
Income Tax (Benefit) Expense (14,753) 1,119 (11,574) (397)
-------- -------- ---------- ----------
Net (Loss) $(26,608) $ (3,256)$ (25,234)$ (11,242)
======== ======== ========== ==========
Net (Loss) Per Share $ (2.71) $ (.33) $ (2.57) $ (1.14)
======== ======== ======== ========
<FN>
See notes to unaudited consolidated condensed financial statements.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Crown Central Petroleum Corporation and Subsidiaries
(Thousands of dollars)
(Unaudited)
Nine Months Ended September 30
1994 1993
-------- --------
<S> <C> <C>
Net Cash Flows From Operating Activities
Net cash from operations before
changes in working capital $ 17,888 $ 20,060
Net changes in working capital (28,337) (10,713)
-------- --------
Net Cash (Used in) Provided by
Operating Activities (10,449) 9,347
-------- --------
Cash Flows From Investment Activities
Capital expenditures (21,121) (29,797)
Proceeds from sale of property, plant
and equipment 3,369 2,782
Deferred turnaround maintenance and other (103) (3,522)
-------- --------
Net Cash (Used in) Investment Activities (17,855) (30,537)
-------- --------
Cash Flows From Financing Activities
Net cash flows from long-term debt (101) (255)
Net proceeds from purchase money lien 437
Proceeds from interest rate swap terminations 2,403
Net cash flows from long-term
notes receivable (154) (53)
Purchases of Class B Common Stock (2,734)
-------- --------
Net Cash (Used in) Provided by Financing Activities (2,552) 2,095
-------- --------
Net (Decrease) in Cash and Cash Equivalents $(30,856) $(19,095)
======== ========
<FN>
See notes to unaudited consolidated condensed financial statements.
</TABLE>
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<PAGE>
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Crown Central Petroleum Corporation and Subsidiaries
September 30, 1994
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, 1994 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 1994. 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, 1993.
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, 1994, approximately .4 million barrels of crude oil
and refined products, or approximately $7.5 million of inventory, were
held in excess of anticipated quantities and were 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. The Company
accrues environmental and clean-up related costs of a non-capital
nature when it is both probable that a liability has been incurred and
that the amount can be reasonably estimated. Accruals for losses from
environmental remediation obligations generally are recognized no later
than completion of the remedial feasibility study. Estimated costs,
which are based upon experience and assessments, are recorded at
undiscounted amounts without considering the impact of inflation, and
are adjusted periodically as additional or new information is
available.
Estimated closure and post-closure costs for active, operated refinery
and finished product terminal facilities are not recognized until a
decision for closure is made. Estimated closure and post-closure costs
for active and operated marketing facilities and costs of environmental
matters related to ongoing refinery, terminal and marketing operations
are recognized as described above. Expenditures for equipment
necessary for environmental issues relating to ongoing operations are
capitalized.
Income Taxes - The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109 "Accounting for
Income Taxes." The income tax provision for the three and nine months
ended September 30, 1994 has been computed based upon the Company's
estimated effective tax rate for the year, after recognizing permanent
tax differences, to which the federal statutory rate of 35%, state
income taxes of approximately 4% and state franchise taxes have been
applied. Certain state franchise taxes are calculated based on the
Company's net assets and not as a percentage of income.
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<PAGE>
Financial Instruments and Hedging Activities - The Company periodically
enters into interest rate swap agreements to effectively manage the
cost of borrowings. All interest rate swaps are only subject to market
risk as interest rates fluctuate. For interest rate swaps designated
to the Company's long-term debt and accounted for as a hedge, the net
amounts payable or receivable from periodic settlements under
outstanding interest rate swaps are included in interest expense.
Realized gains and losses from terminated interest rate swaps are
deferred and amortized into interest expense over the remaining term of
the original swap agreement. Settlement of interest rate swaps
involves the receipt or payment of cash on a periodic basis during the
duration of the contract, or upon the Company's termination of the
contract, for the differential of the interest rates swapped over the
term of the contract.
Other instruments are used to minimize the exposure of the Company's
refining margins to crude oil and refined product price fluctuations.
Hedging strategies used to minimize this exposure include fixing a
future margin between crude oil and certain finished products and also
hedging fixed price purchase and sales commitments of crude oil and
refined products. Futures, forwards and exchange traded options
entered into with commodities brokers and other integrated oil and gas
companies are utilized to execute the Company's strategies. These
financial instruments generally allow for settlement at the end of
their term in either cash or product.
Net realized gains and losses from these hedging strategies are
recognized in costs and operating expenses when the associated refined
products are sold. Unrealized gains and losses represent the
difference between the market price of refined products and the price
of the instrument, inclusive of refining costs. Individual transaction
unrealized gains and losses are deferred in inventory and other current
assets and liabilities to the extent that the associated refined
products have not been sold. A hedging strategy position generating an
overall net unrealized loss is recognized in costs and operating
expenses. While the Company's hedging activities are intended to
reduce volatility while providing an acceptable profit margin on a
portion of production, the use of such a program can limit the
Company's ability to participate in an improvement in related product
profit margins.
The Company is exposed to credit risk in the event of non-performance
by counterparties on interest rate swaps, and futures, forwards and
exchange traded options for crude and finished products, but the
Company does not anticipate non-performance by any of these
counterparties. The amount of such exposure is generally the
unrealized gains in such contracts.
Statements of Cash Flows - Net changes in working capital items
presented in the 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 - Deferred gains from interest rate swap terminations
for the nine months ended September 30, 1993 have been reclassified on
the Consolidated Condensed Statements of Cash Flows as a cash inflow
from financing activities consistent with the presentation in the
Consolidated Statements of Cash Flows in the Annual Report on Form 10-K
for the fiscal year ended December 31, 1993. These deferred gains had
previously been reported as a cash inflow from operations in the
Company's Form 10-Q for the period ended September 30, 1993. This
reclassification had no effect on the net decrease in cash and cash
equivalents for the nine months ended September 30, 1993.
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<PAGE>
Note B - Inventories
Inventories consist of the following:
September 30 December 31
1994 1993
---------- -----------
(thousands of dollars)
Crude oil $ 47,859 $ 38,989
Refined products 73,152 60,519
-------- --------
Total inventories at FIFO
(approximates current cost) 121,011 99,508
LIFO allowance (43,756) (25,828)
-------- --------
Total crude oil and refined products 77,255 73,680
-------- --------
Merchandise inventory at FIFO
(approximates current cost) 7,662 7,200
LIFO allowance (2,387) (2,387)
-------- --------
Total merchandise 5,275 4,813
-------- --------
Materials and supplies inventory at FIFO 7,910 8,318
-------- --------
Total Inventory $ 90,440 $ 86,811
======== ========
Note C - Long-term Debt and Credit Arrangements
As of September 30, 1994, the Company has entered into interest rate
swap agreements with various financial institutions to effectively
convert $47.5 million of its fixed rate debt to variable interest rate
debt for periods ranging from 1996 to 1998.
The following is a summary, by year of maturity, of the Company's
outstanding interest rate swap agreements:
Instruments Expected to Mature in
---------------------------------
1996 1997 1998
------ ------ ------
(thousands of dollars)
Interest rate swaps $17,500 $15,000 $15,000
Average pay rates assuming
current market conditions 5.86% 5.70% 5.73%
Average fixed rate received 5.14% 5.36% 5.67%
The variable interest rates to be paid by the Company are reset on
various predetermined dates which range from November 1994 to March
1998 and are based upon the London Interbank Offered Rate (LIBOR).
The termination of existing interest rate swap agreements as of
September 30, 1994 would result in a loss of approximately $2 million.
During 1993, the Company terminated certain other interest rate swap
agreements resulting in deferred gains of $1.4 million at September 30
1994, which will be recognized as a reduction of interest expense over
the remaining portion of the original swap periods which range from
1996 to 1997.
Effective as of September 30, 1994, the Company executed amendments to
the Credit Agreement dated as of May 10, 1993 and the Note Purchase
Agreement dated January 3, 1991. These amendments, which are included
as Exhibits 4(a) and 4(b) of this filing, establish new financial
covenants which became necessary due to decreased refining margins in
1994, and the write-down of the refinery equipment as discussed in the
Results of Operations section of Management's Discussion and Analysis
of Financial Condition and Results of Operations. In addition, subject
to certain conditions, the amendment to the Credit Agreement increases
the limit of additional indebtedness which can be incurred by the
Company in the form of notes in an aggregate principle amount not
exceeding $125.0 million.
At September 30, 1994, the Company was in compliance with all amended
covenants and provisions of the Credit and Note Purchase Agreements.
Meeting the covenants imposed by the Credit and Note Purchase
Agreements is dependent, among other things, upon the level of future
earnings and the rate of capital spending. The Company reasonably
expects to continue to be in compliance with the covenants imposed by
the Credit and Note Purchase Agreements over the next twelve months.
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<PAGE>
Note D - Crude Oil and Refined Product Hedging Activities
The net deferred loss from hedging strategies at September 30, 1994 was
$.2 million. Included in these hedging strategies are contracts
maturing through January 1995. The effect of these contracts was
effectively to hedge approximately 31% of its crude requirements, and
approximately 22% of its refined products, for the aforementioned
period, at current related market prices. The Company is exposed to
credit risk to the extent of counterparty nonperformance on forward
contracts. Management monitors this credit risk by evaluating
counterparties prior to and during their contractual obligation.
Management considers nonperformance credit risk to be remote.
Note E - Long-Term Incentive Plan
At the Annual Meeting held April 24, 1994, stockholders approved the
1994 Long-Term Incentive Plan (Plan). Under the Plan, the Company may
distribute to selected employees restricted shares of the Company's
Class B Common Stock and options to purchase Class B Common Stock. Up
to 1.1 million shares of Class B Common Stock may be distributed under
the Plan over a five year period. During the second quarter of 1994,
the Company acquired 135,000 shares of Class B Common Stock at a cost
of $2,734,000 which could be required for use in connection with the
awards of stock and options under the Plan during the first year. The
balance sheet caption "Unearned restricted stock" is charged for the
market value of restricted shares issued, and is shown as a reduction
of stockholders' equity.
Note F - Calculation of Net (Loss) Per Common Share
Net (loss) per common share for the three and nine months ended
September 30, 1994 is based upon the number of common shares
outstanding of 9,802,198. Net (loss) per common share for the three
and nine months ended September 30, 1993 is based upon the number of
common shares outstanding of 9,832,598.
Note G - Litigation and Contingencies
Like other petroleum refiners and marketers, the Company's operations
are subject to extensive and rapidly changing federal and state
environmental regulations governing air emissions, waste water
discharges, and solid and hazardous waste management activities. The
Company's policy is to accrue environmental and clean-up related costs
of a non-capital nature when it is both probable that a liability has
been incurred and that the amount can be reasonably estimated. While
it is often extremely difficult to reasonably quantify future
environmental related expenditures, the Company anticipates that a
substantial capital investment will be required over the next several
years to comply with existing regulations. The Company had recorded a
liability of approximately $16.3 million as of September 30, 1994
relative to the estimated costs of a non-capital nature related to
compliance with environmental regulations. This liability is
anticipated to be expended over the next five years and is included in
the balance sheet as a noncurrent liability. No amounts have been
accrued as receivables for potential reimbursement or recoveries to
offset this liability. Included in costs and operating expenses in the
statements of operations for the nine months ended September 30, 1994
and 1993 were costs related to environmental remediation in the amount
of $2.4 million and $3.5 million, respectively.
Environmental liabilities are subject to considerable uncertainties
which affect the Company's ability to estimate its ultimate cost of
remediation efforts. These uncertainties include the exact nature and
extent of the contamination at each site, the extent of required
cleanup efforts, varying costs of alternative remediation strategies,
changes in environmental remediation requirements, the number and
strength of other potentially responsible parties at multi-party sites,
and the identification of new environmental sites. It is possible that
the ultimate cost, which cannot be determined at this time, could
exceed the Company's recorded liability. As a result, charges to
income for environmental liabilities could have a material effect on
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.
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<PAGE>
As disclosed in Note G of Notes to Consolidated Financial Statements in
the Annual Report on Form 10-K for the fiscal year ended December 31,
1993 (Note G), the Company's federal income tax returns for the years
1988 and 1989 are currently being examined by the Internal Revenue
Service. In conjunction with this examination, certain Notices of
Proposed Adjustments have been received recently. The Company is
currently evaluating these matters, but while an estimate cannot be
determined at this time, does not believe that the ultimate resolution
of these matters will have a material adverse effect on the Company.
There have been no other material changes in the status of
contingencies as discussed in Note G.
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 $12.6 million or
2.8% in the third quarter of 1994 and decreased $1.5 million or .1% for
the nine months ended September 30, 1994 from the comparable periods in
1993. The Company's sales and operating revenues include all Federal
and state excise taxes and other similar taxes. These taxes totalled
$97 million and $69 million for the three months ended September 30,
1994 and 1993, respectively; and $295.1 million and $207.3 million for
the nine months ended September 30, 1994 and 1993, respectively. The
third quarter increase in sales and operating revenues was primarily
attributable to the increase in excise taxes and a 1.8% increase in the
average sales price per gallon of petroleum products. Due to
deteriorating refinery gross margins which occurred during the third
quarter of 1994, the Company reduced operating runs which resulted in
a 7.4% decrease in petroleum product sales volumes. The year to date
decrease was a result primarily of an 8.5% decrease in the average
sales price per gallon of petroleum products and a .3% decrease in
petroleum products sales volumes which were partially offset by the
increase in excise taxes.
Costs and operating expenses increased $35.3 million or 8.4% in the
third quarter of 1994 compared to the third quarter in 1993. The
increase was due to the increase in excise taxes and a 7.7% increase in
the average cost per barrel consumed of crude oil and feedstocks.
These increases were partially offset by the sales volume decreases as
previously discussed. Costs and operating expenses increased $12.2
million or 1.0% for the nine months ended September 30, 1994 compared
to the same period in 1993. This increase was due to excise tax
increases as previously discussed which were partially offset by a
10.8% decrease in the average cost per barrel consumed of crude oil and
feedstocks. The results of operations were affected by the Company's
use of the LIFO method to value inventory which decreased the Company's
gross margin $.54 per barrel ($7.4 million) for the three months ended
September 30, 1994, while increasing the gross margin $.11 per barrel
($1.6 million) for the three months ended September 30, 1993. The use
of the LIFO method decreased the Company's gross margin $.43 per barrel
($17.9 million) for the nine months ended September 30, 1994, but did
not have a significant effect on the Company's gross margin for the
nine months ended September 30, 1993.
Total refinery throughput averaged 149,500 barrels per day (bpd) for
the third quarter of 1994 compared to 165,600 bpd for the third quarter
of 1993 due to planned reductions in throughput. Total refinery
throughput averaged 155,000 bpd for the nine months ended September 30,
1994 compared to 159,300 bpd for the same period in 1993. Yields of
gasoline and distillates were 87,100 bpd (58.3%) and 48,900 bpd
(32.7%), respectively, in the third quarter of 1994 and 90,700 bpd
(54.8%) and 54,300 bpd (32.8%), respectively, for the third quarter of
1993. Yields of gasoline and distillates were 88,100 bpd (56.8%) and
50,600 bpd (32.6%), respectively, for year to date 1994 and 87,600 bpd
(55.0%) and 50,900 bpd (31.9%), respectively, for the year to date
1993.
A majority of the Company's total crude oil and related raw material
purchases are transacted on the spot market. The Company continues to
selectively enter into forward hedging contracts to minimize price
fluctuations for a portion of its crude oil and refined products.
Selling and administrative expenses decreased $2.3 million or 9.8% for
the three months ended September 30, 1994 and $7.2 million or 10.3% for
year to date 1994 as compared to the same periods in 1993. The
decreases are principally due to decreased costs associated with the
sale or closing throughout 1993 of retail marketing outlets which were
either not profitable or did not fit with the Company's strategic
direction, and cost reductions related to the Company's administrative
functions. As of September 30, 1994, the Company operated 250 retail
gasoline facilities and 106 convenience stores (105 of which contain
gasoline) compared to 245 retail gasoline facilities and 148
convenience stores at September 30, 1993.
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<PAGE>
Depreciation and amortization increased $2.1 million or 20.2% for the
three months ended September 30, 1994 and $2.4 million or 7.8% for year
to date 1994 compared to the same periods in 1993. These increases
were due primarily to accelerated deferred turnaround amortization
related to the Pasadena Refinery fluid catalytic cracking (FCC) unit.
A maintenance turnaround of the FCC unit which was previously scheduled
for the first quarter of 1995 began in October 1994. The turnaround is
expected to be completed in the fourth quarter 1994. While the FCC and
certain related units will be out of service for a significant portion
of the fourth quarter, the remainder of the Pasadena Refinery will
operate and is expected to average approximately 81,000 bpd of
throughput during the fourth quarter of 1994.
As was discussed in the Company's 1993 Form 10-K, since 1991, the
Company had incurred expenditures of approximately $20.4 million in
connection with engineering and equipment acquisition which would
enable the Pasadena Refinery to manufacture low sulphur distillate.
Low sulphur distillate requirements were enacted effective October
1993. As of December 31, 1993, this project had been temporarily
halted while the Company further studied the market economics of high
sulphur versus low sulphur distillate during a complete business cycle.
Management estimates that additional expenditures in the range of
approximately $50 million to $80 million would be required to complete
this project. Following an evaluation of current and projected margins
based on available supply and forecasted demand for low sulphur
distillate after one full business cycle, management abandoned its
plans to construct a hydrodesulphurization unit at its Pasadena
Refinery. Accordingly, losses from sales and abandonments of property,
plant, and equipment in the third quarter of 1994 reflect a write-down
of the capitalized project expenditures of $16.8 million to an
estimated net realizable salvage value of $4 million. The Pasadena
Refinery will continue to manufacture high sulphur distillates which
are readily saleable in the Company's market areas.
In the three months ended September 30, 1994, operating costs and
expenses included $.7 million and $.9 million, respectively, related to
environmental matters and retail outlet closings. This compares to $1.0
million and $.7 million for the same period of 1993. For the nine
month periods ended September 30, 1994 and 1993, costs and operating
expenses included $1.8 million and $3.4 million, respectively, for
environmental matters and $1.7 million and $1.8 million, respectively,
for retail unit closings. Interest expense for the nine months ended
September 30, 1994 and 1993 included the reduction of $0.7 million and
$0.6 million, respectively, as a result of the interest rate swap
contracts.
Liquidity and Capital Resources
Net cash used in operating activities (including changes in working
capital) totaled $10.4 million for the nine months ended September 30,
1994 compared to cash provided by operating activities of $9.3 million
for the nine months ended September 30, 1993. The 1994 outflows
consist of $28.3 million related to working capital requirements
resulting from increases in the value and volume of crude oil and
finished product inventories, receivables and prepaid operating
expenses and to decreases in inventory payables and in accrued excise
tax liabilities. These outflows were partially offset by $17.9 million
of cash provided from operations before changes in working capital.
The 1993 amount consists of cash provided from operations before
working capital of $20 million, and cash outflows of $10.7 million
relating to working capital, resulting primarily from decreases in
crude oil and refined products payable and increases in the value of
crude oil and finished product inventories, which were partially offset
by net decreases in accounts receivable. The timing of collection of
the Company's receivables is impacted by the specific type of sale and
associated terms. Bulk sales of finished products are typically sold
in 25,000 barrel increments with three day payment terms. Rack sales
at the Company's product terminals are sold by truckload (approximately
8,000 gallons) with seven to ten day payment terms. While the
Company's overall sales are aligned to its refining capability,
receivables can vary between periods depending upon the specific type
of sale and associated payment terms for sales near the end of a
reporting period. At September 30, 1994 and December 31, 1993,
accounts receivable had decreased from the same period of the previous
year due to bulk sales representing a higher proportion of overall
sales volume immediately preceding the end of the respective years.
Net cash outflows from investment activities were $17.9 million for the
nine months ended September 30, 1994 compared to a net outflow of $30.5
million for the same 1993 period. The 1994 activity relates primarily
to $21.1 million of capital expenditures (which includes $11.8 million
for refinery operations and $6.9 million related to the marketing
area). These cash outflows were partially offset by proceeds from the
sale of property, plant and equipment of $3.4 million. The 1993 amount
consists principally of capital expenditures of $29.8 million ( $15.3
million relating to marketing and $14 million relating to the
refineries) and $2.6 million in Tyler Refinery deferred turnaround
charges.
-12-
<PAGE>
Net cash used in financing activities was $2.6 million for the nine
months ended September 30, 1994 compared to cash provided by financing
activities of $2.1 million for the nine months ended September 30,
1993. The 1994 cash outflows relate primarily to the acquisition of
135,000 shares of Class B Common Stock for use in connection with the
awards of stock and options under the 1994 Long-Term Incentive Plan, as
disclosed in Note E of Notes to Unaudited Consolidated Condensed
Financial Statements. The 1993 inflows are the result of proceeds from
the termination of interest rate swap contracts.
Cash and cash equivalents at September 30, 1994 of $21.2 million was
$30.9 million lower than at December 31, 1993. This decrease resulted
from cash used in investment activities of $17.9 million for the nine
month period ended September 30, 1994, which consists of capital
expenditures of $21.1 million and deferred turnaround expenditures of
$.6 million net of proceeds from sales of property, plant and equipment
of $6.1 million. Additionally, cash outflows included $2.7 million for
the acquisition of shares of Class B Common Stock as previously
discussed. Partially offsetting these cash outflows was cash provided
from operations before working capital of $17.9 million and net
proceeds received from the purchase money lien of $.5 million.
The ratio of current assets to current liabilities was 1.24:1 and
1.20:1 at September 30, 1994 and 1993, respectively, compared to 1.29:1
at December 31, 1993. If FIFO values had been used for all
inventories, assuming an incremental effective income tax rate of
38.5%, the ratio of current assets to current liabilities would have
been 1.36:1 at September 30, 1994, 1.34:1 at September 30, 1993 and
1.36:1 at December 31, 1993.
Like other petroleum refiners and marketers, the Company's operations
are subject to extensive and rapidly changing federal and state
environmental regulations governing air emissions, waste water
discharges, and solid and hazardous waste management activities. The
Company's policy is to accrue environmental and clean-up related costs
of a non-capital nature when it is both probable that a liability has
been incurred and that the amount can be reasonably estimated. While
it is often extremely difficult to reasonably quantify future
environmental related expenditures, the Company anticipates that a
substantial capital investment will be required over the next several
years to comply with existing regulations. The Company had recorded a
liability of approximately $16.3 million as of September 30, 1994 to
cover the estimated costs of compliance with environmental regulations
which are not anticipated to be of a capital nature. The liability of
$16.3 million includes accruals for issues extending past 1996.
Environmental liabilities are subject to considerable uncertainties
which affect the Company's ability to estimate its ultimate cost of
remediation efforts. These uncertainties include the exact nature and
extent of the contamination at each site, the extent of required
cleanup efforts, varying costs of alternative remediation strategies,
changes in environmental remediation requirements, the number and
financial strength of other potentially responsible parties at multi-
party sites, and the identification of new environmental sites. As a
result, charges to income for environmental liabilities could have a
material effect on results of operations in a particular quarter or
year as assessments and remediation efforts proceed or as new claims
arise. However, management is not aware of any matters which would be
expected to have a material adverse effect on the Company.
During the years 1994 - 1996, the Company estimates environmental
related expenditures at the Houston and Tyler refineries of at least
$4.9 million and $16.8 million, respectively. Of these expenditures,
it is anticipated that $3.5 million for Houston and $15.8 million for
Tyler will be of a capital nature, while $1.4 million and $1 million,
respectively, will be related to previously accrued non-capital
remediation efforts. At the Company's marketing facilities,
environmental related expenditures (capital and non-capital) of at
least $10.5 million are planned for 1994 and 1995, which includes $5.1
million previously accrued relating to site testings and inspections,
site clean-up, and monitoring wells.
As a result of a strong balance sheet and overall favorable credit
relationships, the Company has been able to maintain open lines of
credit with its major suppliers. Under the Revolving Credit Agreement
(Credit Agreement), effective as of May 10, 1993, as amended, the
Company had outstanding as of September 30, 1994, irrevocable standby
letters of credit in the principal amount of $18.8 million for purposes
in the ordinary course of business. During the second quarter of 1994,
the Company obtained an additional uncommitted line of credit with a
major financial institution, for up to $20 million in standby letters
of credit, primarily for the purchase of crude oil. Under this
agreement, the Company had outstanding as of September 30, 1994, an
irrevocable standby letter of credit in the principal amount of $7.2
million.
-13-
<PAGE>
The $60 million outstanding under the Company's unsecured 10.42% Senior
Notes dated as of January 3,1991, as amended (Notes) requires seven
annual repayments of $8.6 million beginning in January 1995. The
Company has various options available to either refinance this debt or
incur additional debt including short-term borrowings, long-term
borrowings, lease financing and structures such as the Purchase Money
Lien.
As discussed in Note C of Notes to Unaudited Consolidated Condensed
Financial Statements, the Company has entered into interest rate swap
agreements to manage the cost of borrowings. These swaps have
effectively converted $47.5 million of its fixed rate debt to variable
interest rates for periods ranging from 1996 to 1998. According to the
terms of these swap agreements, interest rates are reset on various
predetermined dates which range from November 1994 to March 1998. Due
to recent increases in market interest rates, it is possible the
Company's effective interest rate will increase from current levels.
The Company may utilize interest rate swaps in the future to manage the
cost of funds.
Also as discussed in Note C of Notes to Unaudited Consolidated
Condensed Financial Statements, effective September 30, 1994, the
Company executed amendments to the Credit Agreement dated as of May 10,
1993 and the Note Purchase Agreement dated January 3, 1991. These
amendments, which are included as Exhibits 4(a) and 4(b) of this
filing, establish new financial covenants which became necessary due to
decreased refining margins in 1994 and the write-down of refinery
equipment as previously discussed. The Credit and Note Purchase
Agreements, as amended, limit the payment of cash dividends on common
stocks and require the maintenance of various covenants (all as
defined) including, but not limited to, minimum working capital of $30
million to March 30, 1995 and $50 million thereafter, and minimum
consolidated tangible net worth of $250 million, and, effective for the
four quarter period ending June 30, 1995, a fixed charge coverage
ratio. At September 30, 1994, the Company was in compliance with all
amended covenants and provisions of the Credit and Note Purchase
Agreements. Meeting the covenants imposed by the Credit and Note
Purchase Agreements is dependent, among other things, upon the level of
future earnings and the rate of capital spending. The Company
reasonably expects to continue to be in compliance with the covenants
imposed by the Credit and Note Purchase Agreements over the next twelve
months.
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 1994 are projected to approximate the 1993
expenditures of $44.9 million. The capital expenditures relate
primarily to planned enhancements at the Company's refineries, retail
unit improvements and company-wide environmental requirements. The
estimated expenditures for 1994 include approximately $17.4 million
expected during the fourth quarter relating to the Pasadena turnaround
and associated capital expenditures. Management anticipates funding
these 1994 expenditures principally through funds from operations,
existing available cash and has alternative financing options as
previously discussed.
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 Crown's sales volumes generally represent a small portion of
the overall products sold in the Company's marketing areas. Therefore,
the Company's earnings are affected by the marketing and pricing
policies of its competitors, as well as changes in raw material costs.
Merchandise sales and operating revenues from the Company's convenience
stores are seasonal in nature, generally producing higher sales and net
income in the summer months than at other times of the year. Gasoline
sales, both at the Crown multi-pumps and convenience stores, are also
somewhat seasonal in nature and, therefore, related revenues may vary
during the year. The seasonality does not, however, negatively impact
the Company's overall ability to sell its refined products.
The Company maintains business interruption insurance to protect itself
against losses resulting from shutdowns to refinery operations from
fire, explosions and certain other insured casualties. Business
interruption coverage begins for such losses at the greater of $5
million or shutdowns for periods in excess of 25 days.
-14-
<PAGE>
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
The Annual Report on Form 10-K for the fiscal year ended December 31,
1993 described a number of pending enforcement matters involving the
Pasadena refinery. As previously reported in the Company's Form 10-Q
for the quarter ended June 30, 1994, the alleged solid waste violations
have been settled. During the third quarter, all open enforcement
actions then pending involving alleged violations of air regulations at
the Pasadena refinery, including charges filed by the United States
Environmental Protection Agency and by the Harris County Pollution
Control Board, were combined into one proceeding before the Texas
Natural Resource Conservation Commission (TNRCC). The Company and the
TNRCC staff have recently reached an agreement in principal to settle
all of the alleged violations. Under the proposed agreement, which is
subject to Commission approval, the Company will implement various
corrective measures and improved record keeping procedures and will pay
administrative penalties of $110,000. Recently, TNRCC has issued a
Notice of Violation (NOV) with respect to certain alleged violations at
the No. 3 Reformer unit which the Company had self-reported earlier in
the year. The Company and the staff of TNRCC are currently working to
resolve the issues raised by this NOV.
Many of the Company's facilities are involved in environmental
enforcement actions or are subject to agreements, orders or permits
that require remedial activities. Environmental expenditures are
discussed in the Liquidity and Capital Resources section of
Management's Discussion and Analysis of Financial Conditions and
Results of Operations on pages 10 and 14 of this report. These
enforcement actions and remedial activities including all open
enforcement matters involving the Pasadena refinery described above, in
the opinion of management, are not expected to have a material adverse
effect on the Company.
The Company is involved in various matters of litigation, the ultimate
determination of which, in the opinion of management, is not expected
to have a material adverse effect on the Company.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibit:
4(a) - Amendment effective as of September 30, 1994 to the
Credit Agreement dated as of May 10, 1993.
4(b) - Amendment effective as of September 30, 1994 to the Note
Purchase Agreement dated January 3, 1991.
20 - Interim Report to Stockholders for the three and nine
months ended September 30, 1994
27 - Financial Data Schedule
99 - Agreement between Jack Africk, Director and Crown Central
Petroleum Corporation dated October 28, 1993.
(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,
1994.
-15-
<PAGE>
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, 1994 to be signed on its behalf by the
undersigned thereunto duly authorized.
CROWN CENTRAL PETROLEUM CORPORATION
John E. Wheeler, Jr.
John E. Wheeler, Jr.,
Senior Vice President - Treasurer and Controller,
Chief Accounting Officer and Duly Authorized Officer
Date: January 13, 1995
-16-
<PAGE>
AMENDMENT NO. 2
AMENDMENT AGREEMENT dated as of September 30, 1994 in connection
with the Credit Agreement dated as of May 10, 1993 (as amended by
Amendment No. 1 dated as of December 20, 1993, the "Credit Agreement")
among CROWN CENTRAL PETROLEUM CORPORATION (the "Company"), certain
Banks and THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION), as Agent
(the "Agent") and as Letter of Credit Agent.
The Company has requested the Banks to amend certain provisions of
the Credit Agreement as specified below, and the Banks are prepared to
do so on and subject to the terms and conditions hereof. Accordingly,
the parties agree as follows:
1. Definitions. Terms defined in the Credit Agreement and used
herein have their respective defined meanings when used herein.
2. Amendments. Effective as of September 30, 1994, the Credit
Agreement is amended as follows:
(a) The term "Applicable Margin" is amended in its entirety to
read as follows:
"Applicable Margin" shall mean: (a) with respect to Base Rate
Loans, 0%; (b) with respect to CD Loans, 1-5/8% per annum; and
(c) with respect to Eurodollar Loans, 1-3/4% per annum; provided,
that (1) if, for any period of four consecutive fiscal quarters of
the Company (a "rolling four-quarter period"), the Fixed Charge
Coverage Ratio is greater than 2.0 to 1.0, then for the fiscal
quarter immediately following such rolling four-quarter period the
Applicable Margin with respect to Eurodollar Loans will be reduced
by 1/4 of 1% per annum (to 1-1/2% per annum); and (2) if for any
rolling four-quarter period the Fixed Charge Coverage Ratio is
greater than 4.0 to 1.0, then for the fiscal quarter immediately
following such rolling four-quarter period the Applicable Margin
with respect to CD Loans will be reduced by 1/4 of 1% per annum
(to 1-3/8% per annum) and the Applicable Margin with respect to
Eurodollar Loans will be reduced by 1/2 of 1% per annum (to 1-1/4%
per annum).
<PAGE>
(b) The definition of "Fixed Charge Coverage Ratio" in
Section 1.01 is amended by adding at the end thereof the following:
"provided, that if prior to March 31, 1995 the Company shall have
repaid in full the principal of the unsecured senior notes of the
Company issued under the note purchase agreement referred to in
Schedule I and outstanding on the date hereof from the proceeds of
the notes or bonds referred to in Section 8.10(c), then neither
the amount of principal of said notes repaid from such proceeds
nor (without duplication) the amount of the initial payment of
principal of such notes scheduled to be paid on January 3, 1995
shall be included in the computation of "Fixed Charges" for
purposes of this definition."
(c) The last sentence of Section 7.02 is amended by adding at the
end thereof the words "except as expressly described in the letter
dated September 15, 1994 from the Company to the Agent and in the
projections of the Company enclosed therewith, copies of all of which
have been furnished to the Banks".
(d) Section 8.10(c) of the Credit Agreement is amended by deleting
the period and adding at the end thereof the words "and Indebtedness
evidenced by notes or bonds of the Company (issued after the Effective
Date of Amendment No. 2 hereto) in an aggregate principal amount not
exceeding $125,000,000, provided, that (i) such notes or bonds shall be
issued on or before March 31, 1995, (ii) no payments of principal,
redemptions, repurchases, sinking fund payments or the like shall be
scheduled to be made on such notes or bonds before the date four years
after the date of issuance of such notes or bonds, and (iii) the
proceeds of such notes or bonds shall forthwith upon issuance thereof
be applied to pay in full the principal of the unsecured senior notes
of the Company issued under the note purchase agreement referred to in
Schedule I in the amount of $60,000,000 (and thereafter to the costs
and expenses relating to the issuance thereof and to the funding of
capital projects of the Company and for the general corporate purposes
of the Company);"
(e) Anything in Section 8.14 of the Credit Agreement or in this
Amendment Agreement to the contrary notwithstanding, the Company agrees
that it will not make any Restricted Payments that might otherwise be
permitted under Section 8.14(d) of the Credit Agreement, and said
Section 8.14(d) shall be construed as prohibiting such Restricted
Payments, until such time as (i) the Company is in compliance with
Section 8.20 of the Credit Agreement as in effect immediately prior to
the Effective Date (meaning that Consolidated Current Assets shall
exceed Consolidated Current Liabilities by not less than $50,000,000)
and (ii) there is no Event of Default under Section 9.01(k) of the
Credit Agreement as in effect immediately prior to the Effective Date
(meaning that the Fixed Charge Coverage Ratio for the latest period of
four consecutive fiscal quarters shall be greater than 2.0 to 1.0).
The Company agrees that breach of this clause (e) or of Section 8.14 as
modified hereby shall be an Event of Default for purposes of the first
clause of Section 9.01(d) of the Credit Agreement.
<PAGE>
(f) Section 8.20 is amended to read in its entirety as follows
(without prejudice, however, to clause (e) above):
8.20 Working Capital. The Company shall cause Consolidated
Current Assets to exceed Consolidated Current Liabilities by not
less than (1) at all times from and including September 30, 1994
to and including March 30, 1995, $30,000,000, and (2) from and
including March 31, 1995, and at all times thereafter,
$50,000,000.
(g) Section 8.21 is amended by changing the figure $285,000,000
in line 3 thereof to read $250,000,000 effective as of September 30,
1994.
(h) Section 9.01(k) is amended to read in its entirety as follows
(without prejudice, however, to clause (e) above):
(k) For each period of four consecutive fiscal quarters of the
Company (treated for these purposes as one accounting period) referred
to below, the Fixed Charge Coverage Ratio shall be less than the ratio
set forth below opposite the reference to such period:
The four-quarter period
ending on June 30, 1995 1.5 to 1.0
Each four-quarter period
ending thereafter 2.0 to 1.0
3. Effective Date. This Amendment Agreement shall become
effective on the date (the "Effective Date") on which the Agent shall
notify the Company that it has received (i) counterparts of this
Amendment Agreement duly executed by the Company, the Letter of Credit
Agent and the Agent, (ii) evidence satisfactory to the Agent (including
without limitation an appropriate legal opinion of counsel to the
Company) as to the due authorization, execution and delivery by the
Company of, and the legality, validity, binding effect and
enforceability of, this Amendment Agreement and the Credit Agreement as
amended hereby, and (iii) payment of an amendment fee in the amount of
1/8 of 1% of the aggregate amount of the Commitments as of the
Effective Date.
<PAGE>
4. Representations and Warranties. The Company represents and
warrants to the Agent and the Banks as of the Effective Date that (a)
the representations and warranties of the Company set forth in
Sections 7.01, 7.04, 7.05 and 7.06 are true on and as of the Effective
Date as if the references therein to the Credit Agreement, the Notes
and the Letter of Credit Documents referred instead to this Amendment
Agreement and the Credit Agreement as amended hereby and (b) no Default
has occurred and is continuing except as described in the letter from
the Company to the Agent dated October 6, 1994, a copy of which is
attached hereto. The Company agrees that breach of any of the
foregoing representations and warranties shall be deemed to be an Event
of Default for all purposes of Section 9.01(c) of the Credit Agreement.
5. Miscellaneous. (a) Except as expressly amended hereby, the
Credit Agreement and all related documents shall remain unchanged and
in full force and effect.
(b) This Amendment Agreement shall be governed by and construed
in accordance with the law of the State of New York.
(c) Without limiting the provisions of Section 11.03 of the Credit
Agreement, the Company agrees to pay or reimburse the Agent on demand
for all reasonable out-of-pocket costs and expenses (including without
limitation reasonable legal fees and expenses) incurred by it in
connection with this Amendment Agreement.
(d) This Amendment Agreement may be executed in any number of
counterparts and shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
signed as of the day first above written.
CROWN CENTRAL PETROLEUM
CORPORATION
By John E. Wheeler, Jr.
Title: Senior Vice President -
Treasurer and Controller
THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION), as Agent
By Caryn E. Cosentini
Title: Vice President
<PAGE>
THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION), as
Letter of Credit Agent
By Caryn E. Cosentini
Title: Vice President
THE FIRST NATIONAL BANK OF
MARYLAND
By Kellie M. Matthews
Title: Assistant Vice President
SIGNET BANK / MARYLAND
By Janice E. Godwin
Title: Vice President
THE FIRST NATIONAL BANK OF
BOSTON
By Stefan Breuer
Title: Vice President
TEXAS COMMERCE BANK, N.A.
By Martha S. Gurwit
Title: Vice President
THE YASUDA TRUST AND BANKING CO.
LTD., NEW YORK BRANCH
By Neil T. Chau
Title: First Vice President
THE BANK OF NOVA SCOTIA
By J. Alan Edwards
Title: Authorized Signatory
<PAGE>
NATIONSBANK OF TEXAS, N.A.
By Timothy Proffitt
Title: Senior Vice President
NATIONSBANK, N.A. (formerly known
as Maryland National Bank)
By Timothy Proffitt
Title: Senior Vice President
<PAGE>
AMENDMENT NO. 3
THIS AMENDMENT NO. 3 dated as of September 30, 1994, is an amendment
with respect to certain provisions of a Note Purchase Agreement dated
as of January 3, 1991, as amended by Amendment No. 1, dated as of
February 14, 1992, and Amendment No. 2, dated as of November 10, 1992,
(the "Agreement") by and between Crown Central Petroleum Corporation
(the "Company") and Principal Mutual Life Insurance Company, Life
Investors Insurance Company of America, AUSA Life Insurance Company,
State Mutual Life Assurance Company of America, SMA Life Assurance
Company, American Family Mutual Insurance Company and American Family
Life Insurance Company. Terms defined in the Agreement and not
otherwise defined herein have the same meaning when used herein.
Section 1. Amendment of Section 10.5(b). Effective as of the date
hereof, the parties agree to amend section 10.5(b) of the Agreement by
deleting the current text thereof and substituting the following:
The Company and its Subsidiaries, on a consolidated basis, will not
permit at any time its Consolidated Tangible Net Worth to be less
than $250,000,000, plus 50% of Consolidated Net Income on a
cumulative basis for each fiscal year subsequent to the year ended
December 31, 1991 and for which year Consolidated Net Income is
positive.
Section 2. Amendment of Section 10.5(d). Effective as of the date
hereof, the parties agree to amend Section 10.5(d) of the Agreement by
deleting the current text thereof, as amended, and substituting the
following:
<PAGE>
The Company and its Subsidiaries, on a consolidated basis, for each
period of four (4) consecutive fiscal quarters of the Company
(treated for these purposes as one accounting period) referred to
below, will not permit the ratio of (i) Cash Flow plus Operating
Lease rental expense plus Interest Expense to (ii) Fixed Charges
plus scheduled mandatory payments of principal of Indebtedness, to
be less than the ratio set forth below opposite the reference to
such period:
The four-quarter period
ending on June 30, 1995 1.5 to 1.0
Each four-quarter period
ending thereafter 2.0 to 1.0
Section 3. Interest Rate. If the Notes shall not have been prepaid
in full in accordance with the terms of the Agreement prior to January
31, 1995, the interest rates set forth in Section 9.1 of the Agreement
payable with respect to the Notes outstanding shall be increased by 1/4
of 1% (from 10.42% to 10.67% in the case of the regular rate and from
12.42% to 12.67% in the case of the default rate) retroactively from
October 1, 1994 to and including the last day of the last fiscal
quarter of the Company prior to the quarter in which the Company
completes a period of four consecutive fiscal quarters of the Company
(treated for this purpose as one accounting period) during which the
ratio of (i) Cash Flow plus Operating Lease rental expense plus
Interest Expense to (ii) Fixed Charges plus scheduled mandatory
payments of principal of Indebtedness for the four-quarter period is
2.0 to 1.0 or greater.
<PAGE>
Payment of the additional interest due, if any, as a result of the
retroactive increase in interest rate from October 1, 1994 through
December 31, 1994 shall be due and payable on January 31, 1995, and all
other additional interest payable under this Amendment No. 3 shall be
due and payable on January 31, and July 31 in each year.
Section 4. Representations and Warranties of the Company. The
Company represents and warrants that:
(a) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Maryland; has full
corporate power and authority to execute, deliver and perform its
obligations under this Amendment No. 3; the execution, delivery and
performance by the Company of this Amendment No. 3 have been duly
authorized by all necessary corporate action on its part; and this
Amendment No. 3 has been duly and validly executed and delivered by the
Company and constitutes its legal, valid and binding obligation,
enforceable in accordance with its terms. The Company has all licenses
and permits, the absence of which could reasonably be expected to have
a Material Adverse Effect.
(b) Neither the Company nor any of its Subsidiaries is in violation
of any term of its certificate or articles of incorporation or by-laws,
and neither the Company nor any of its Subsidiaries is in violation of
any term of any agreement or instrument to which it is a party or by
which it or any of its properties is bound so that such violation could
reasonably be expected to have a Material Adverse Effect, or, except as
disclosed in reasonable detail on Exhibit E to the Agreement or as
disclosed in the Reports, any term of any applicable law, ordinance,
rule or regulation of any governmental authority or any term of any
applicable order, judgment or decree of any court, arbitrator or
governmental authority so that such violation could reasonably be
expected to have a Material Adverse Effect; the execution, delivery and
performance of this Amendment No. 3 do not result in any violation of
or in a conflict with or constitute a default under any such term or
result in the creation of (or impose any obligation on the Company or
any of its Subsidiaries to create) any Lien upon any of the properties
or assets of the Company or any of its Subsidiaries pursuant to any
such term; and there is no such term which has a Material Adverse
Effect or in the future may reasonably be expected to (so far as the
Company or any of its Subsidiaries can now forsee) have a Material
Adverse Effect.
<PAGE>
(c) Except for filings of 10-Ks, 10-Qs and other reports of a
routine nature with the Securities and Exchange Commission, no consent,
approval, authorization or declaration of, or filing with, any
governmental authority is required of the Company for the valid
execution, delivery and performance of this Amendment No. 3 or for the
validity or enforceability thereof.
Section 5. Amendment Fee. An amendment fee in the amount of 1/8 of
1% of the principal amount of the Notes outstanding on September 30,
1994 shall be due and payable on January 31, 1995 to the then holders
of the Notes if and only if the Notes shall not have been paid in full
prior to said January 31, 1995.
Section 6. Status of Agreement. Except as otherwise expressly
provided herein, all terms and conditions of the Agreement, as amended,
shall remain unchanged and continue in full force and effect.
Section 7. Counterparts. This Amendment No. 3 may be executed in
any number of counterparts, all of which taken together shall
constitute one document, and any one of the parties hereto may execute
this Amendment No. 3 by signing such counterpart.
Section 8. Condition Precedent. The effectiveness of this Amendment
No. 3 is subject to the condition precedent that the Company shall
have received this Amendment No. 3 executed by holders of at least a
Majority in aggregate principal amount of the Notes now outstanding.
WITNESS the signatures of the undersigned as of the date first above
written.
CROWN CENTRAL PETROLEUM CORPORATION
By: John E. Wheeler, Jr.
John E. Wheeler, Jr.
Senior Vice President-Treasurer
and Controller
<PAGE>
The foregoing Amendment No. 3 is hereby agreed to as of the date
hereof.
PRINCIPAL MUTUAL LIFE INSURANCE
COMPANY
By: James K. Hovey
Name: James K. Hovey
Title: Director - Securities
Investment
By: Daniel J. Garrett
Name: Daniel J. Garrett
Title: Assistant Director -
Securities Investment
LIFE INVESTORS INSURANCE COMPANY OF
AMERICA
By: Gregory W. Theobald
Name: Gregory W. Theobald
Title: VP & Asst. Secretary
FIRST AUSA LIFE INSURANCE
COMPANY
By: Gregory W. Theobald
Name: Gregory W. Theobald
Title: VP & Asst. Secretary
STATE MUTUAL LIFE ASSURANCE COMPANY
OF AMERICA
By: Scott C. Hyney
Name: Scott C. Hyney
Title: Assistant Treasurer
SMA LIFE ASSURANCE COMPANY
By: Scott C. Hyney
Name: Scott C. Hyney
Title: Assistant Treasurer
AMERICAN FAMILY MUTUAL INSURANCE
COMPANY
By: Phillip Hannifan
Name: Phillip Hannifan
Title: Investment Director
AMERICAN FAMILY LIFE INSURANCE
COMPANY
By: Phillip Hannifan
Name: Phillip Hannifan
Title: Investment Director
<PAGE>
CROWN
(registered trademark)
Crown Central Petroleum Corporation
Interim Report
3
Third Quarter
September 30, 1994
<PAGE>
To The Shareholders:
The Company experienced a net loss of $26.6 million or $2.71 per
share in the third quarter compared to a net loss of $3.3 million or
$.33 per share for the same period in 1993. Sales and operating
revenues in the quarter amounted to $468 million compared to $456
million last year. For the nine months, after tax losses amounted to
$25.2 million or $2.57 per share compared to $11.2 million or $1.14 per
share in 1993 on essentially flat revenues.
Net income for the quarter and nine months of 1994 includes a one
time pre-tax non-cash charge of $16.8 million or ($1.05 per share on an
after tax basis) for the write-down of hydrodesulfurization (HDS)
equipment intended for use at the Pasadena refinery. The equipment was
purchased in 1992 for $25 million and had a remaining book value of
$20.8 million prior to the write-down. Completion of the project would
have required an additional $50-$80 million of investment. At the
present time, price premiums for low sulfur diesel do not justify the
project and accordingly, the Company has written the equipment down to
the estimated realizable value.
Gulf Coast 3-2-1 crack spreads, a standard by which petroleum
products are valued, fluctuated widely over the quarter averaging $1.98
in July, recovering briefly to $3.25 in August and dropping again in
September to a $1.46 average. Although crude prices stabilized during
the period after their 42% increase in the second quarter, volatile
margins averaged the lowest in a decade. Gulf Coast prices for
unleaded 87 octane gasoline fell from $27.50 per barrel at the
beginning of August to $18.00 by the end of the quarter.
The drop in product pricing can, in part, be attributed to the
purging of conventional gasoline by refiners in order to prepare for
the introduction of RFG - Reformulated Gasoline - and a record level of
imported finished product. In addition, refineries were operating near
capacity levels (96%) during this period. Several refineries have
announced cut backs in volumes or have shut down for regular
maintenance turnarounds which should bring supplies more in balance
with market demand.
Crown marketing continued to report impressive gains in both
merchandise and gasoline sales during the quarter. Merchandise sales
at comparable stores were 42% higher in the quarter compared to the
same period in 1993 while year to date sales have shown a 29%
improvement. Aggressive pricing on convenience items, tobacco products
and beer instituted in March is credited with these improved figures.
While comparable store margins were down 32%, our strategy has now
succeeded in generating more margin dollars. Comparable gasoline sales
showed a 6% increase in the quarter despite ten fewer stores in the
system.
Two new stations are currently under construction in Prince William,
Virginia and Cary, North Carolina. They are due to be completed in
November.
Stage II vapor recovery installation at affected facilities is on
schedule for completion by November 15, 1994 in the Baltimore,
Washington, Richmond and Atlanta areas. Plans are proceeding for the
introduction of Reformulated Gasoline (RFG) on January 1, 1995 where
required by the Clean Air Act of 1990.
Because of weak refining margins, turnaround work on our Fluid
Catalytic Cracking unit at the Houston refinery has been moved into the
current quarter instead of the first quarter of 1995. During the
estimated five week period of the turnaround, the refinery will be
reduced to approximately 70% of rated crude capacity. It is fortuitous
the Texas flood and subsequent October 19, 1994 fire on the Colonial
Pipeline, six miles east of the refinery, occurred shortly after the
turnaround began. While Crown is not able to ship product via Colonial
or other pipelines crossing the San Jacinto River due to flooding at
the time of this report, the stress on our operations for storage is
lessened. Crown's Supply and Transportation personnel are reviewing
available options for moving product, if necessary, to east coast
markets to assure a constant gasoline and distillate supply until
repairs are completed by Colonial.
This period is an especially difficult time for the domestic refining
industry. However, our efforts continue with a heightened sense of
optimism that the commitments and planning currently being made will be
rewarded. We have the confidence in our strategies, our people, and
our future to maintain Crown's traditional competitiveness in a rapidly
changing marketplace.
Respectfully submitted,
Henry A. Rosenberg, Jr.
Henry A. Rosenberg, Jr.
Chairman and Chief Executive Officer
Charles L. Dunlap
Charles L. Dunlap
President and Chief Operating Officer
October 27, 1994
<PAGE>
<TABLE>
<CAPTION>
CROWN CENTRAL PETROLEUM CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Operations
(Unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
Dollars in thousands,
except amounts per share 1994 1993 1994 1993
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Sales and operating revenues - Note 1 $468,275 $455,691 $1,315,284 $1,316,770
-------- -------- ---------- ----------
Operating Costs and Expenses:
Costs and operating expenses - Note 1 456,997 421,714 1,234,556 1,222,371
Selling and administrative expenses 21,379 23,693 62,564 69,723
Depreciation and amortization 12,665 10,537 33,734 31,307
Sales of property, plant and equipment 16,899 169 16,554 (108)
-------- -------- ---------- ----------
507,940 456,113 1,347,408 1,323,293
-------- -------- ---------- ----------
Operating (Loss) (39,665) (422) (32,124) (6,523)
Interest and other income 283 179 1,152 398
Interest expense (1,979) (1,894) (5,836) (5,514)
-------- -------- ---------- ----------
(Loss) Before Income Taxes (41,361) (2,137) (36,808) (11,639)
Income Tax (Benefit) Expense (14,753) 1,119 (11,574) (397)
-------- -------- ---------- ----------
Net (Loss) $(26,608) $ (3,256) $ (25,234)$ (11,242)
======== ======== ========== ==========
Net (Loss) Per Share $ (2.71 ~)$ (.33)$ (2.57)$ (1.14)
======== ======== ========== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CROWN CENTRAL PETROLEUM CORPORATION AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(Unaudited)
Sept. 30 December 31
Dollars in thousands 1994 1993
--------- ----------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 21,165 $ 52,021
Accounts receivable (net) 81,670 91,413
Recoverable income taxes 14,996
Inventories - Notes 2 and 3 90,440 86,811
Other current assets 3,412 762
-------- --------
Total Current Assets 211,683 231,007
Property, Plant and Equipment (net) 362,795 382,263
Investments and Deferred Charges 29,766 42,908
-------- --------
$604,244 $656,178
======== ========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $114,483 $124,666
Accrued liabilities 46,787 50,145
Income taxes payable 3,264
Current portion of long-term debt 10,053 1,094
-------- --------
Total Current Liabilities 171,323 179,169
Long-Term Debt 56,955 65,579
Deferred Income Taxes 73,960 81,217
Other Deferred Liabilities 31,621 31,860
Common Stockholders' Equity 270,385 298,353
-------- --------
$604,244 $656,178
======== ========
</TABLE>
<PAGE>
CROWN CENTRAL PETROLEUM CORPORATION AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
1. Sales and operating revenues and Costs and operating expenses
include all Federal and State Excise Taxes. These taxes totalled
$97,012 and $295,131 for the three and nine months ended September
30, 1994; and $69,003 and $207,289 for the three and nine months
ended September 30, 1993, respectively.
2. The Company values the majority of its inventories of crude oil
and refined products at the lower of annual average cost (last-in,
first-out) or market. Convenience store inventories are also
valued under the LIFO method. The use of LIFO in valuing
inventories has a significant impact on the Company's reported
working capital. If inventories were valued using current
acquisition costs (first-in, first-out) the September 30, 1994
current ratio would increase from 1.24 to 1 on a LIFO cost basis
to 1.36 to 1 on a FIFO cost basis. With inventories valued on a
LIFO cost basis, working capital is $40,360 whereas on a FIFO cost
basis, working capital increases to $68,738 assuming the same
effective tax rate as used in computing the value of inventories
under the LIFO method.
3. Inventories are presented net of the LIFO allowance of $46,143 and
$28,215 at September 30, 1994 and December 31, 1993, respectively.
4. The financial information is compiled from the books of the
Company and its subsidiaries without audit, but the Company
believes that all adjustments and reclassifications necessary for
a fair and comparable presentation of the results of operations
for the unaudited periods have been made. Form 10-Q dated
September 30, 1994 will be filed with the Securities and Exchange
Commission by November 14, 1994.
<PAGE>
CROWN
(registered trademark)
General Offices
The Blaustein Building
One North Charles Street
P.O. Box 1168
Baltimore, Maryland 21203
(410) 539-7400
Crown Central Petroleum Corporation
Refiners/Marketers of Petroleum Products
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<PERIOD-TYPE> 9-MOS
<CASH> 6,560
<SECURITIES> 14,605
<RECEIVABLES> 83,411
<ALLOWANCES> 1,741
<INVENTORY> 90,440
<CURRENT-ASSETS> 211,683
<PP&E> 689,427
<DEPRECIATION> 326,632
<TOTAL-ASSETS> 604,244
<CURRENT-LIABILITIES> 171,323
<BONDS> 56,955
0
0
<COMMON> 49,011
<OTHER-SE> 221,374
<TOTAL-LIABILITY-AND-EQUITY> 604,244
<SALES> 1,315,284
<TOTAL-REVENUES> 1,315,284
<CGS> 1,234,556
<TOTAL-COSTS> 1,234,556
<OTHER-EXPENSES> 112,476
<LOSS-PROVISION> 376
<INTEREST-EXPENSE> 5,836
<INCOME-PRETAX> (36,808)
<INCOME-TAX> (11,574)
<INCOME-CONTINUING> (25,234)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (25,234)
<EPS-PRIMARY> (2.57)
<EPS-DILUTED> (2.57)
</TABLE>
<PAGE>
October 28, 1993
Mr. Jack Africk
5780 Bridleway Circle
Boca Raton, Florida 33496
Dear Jack:
This letter will confirm our agreement that, in addition to your
duties as a member of our Board of Directors and of the Executive and
Audit Committees, Crown has agreed to retain you and you have agreed to
serve as a general business advisor and consultant on matters relating
to the business of Crown. It is contemplated that these services will
require an additional two or three days per month of your time beyond
the time required by your director's duties. You have agreed to be
reasonably available for such services, either by telephone or in
person with Crown management, at our offices or elsewhere.
We have agreed to pay you, as compensation for your consultancy
services, a consultancy fee of $3,000.00 per month. This fee is in
addition to compensation paid to you as a director and as a member of
committees of the Board of Directors. Because your time commitment is
uncertain at this time, we have agreed to review our arrangement
periodically and to adjust your compensation if necessary to conform it
to similar arms-length arrangements. In addition to the consultancy
fee, Crown will reimburse you for expenses incurred by you in
performance of your duties under this letter agreement, including, but
not limited to, travel expenses to and from meetings with Crown
management.
Because of the nature of the services to be rendered, either you or
Crown may terminate this arrangement at any time by notification to the
other party.
In discussing your retention as a consultant and the amount of
compensation to be paid, you and I have agreed that the consultancy
arrangement, including compensation, will be promptly disclosed to the
other members of the Board of Directors of Crown.
If this accurately sets forth your understanding of our arrangement,
I would appreciate you so indicating on the attached copy of this
letter.
Sincerely,
Henry A. Rosenberg, Jr.
Henry A. Rosenberg, Jr.
Agreed: Jack Africk
Jack Africk
