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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, 1997
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
Number)
incorporation or organization)
One North Charles Street, 21201
Baltimore, Maryland
(Address of principal executive (Zip Code)
offices)
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, 1997 of the Registrant's $5
par value Class A and Class B Common Stock was 4,817,394 shares and
5,227,967 shares, respectively.
1
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CROWN CENTRAL PETROLEUM CORPORATION AND SUBSIDIARIES
Table of Contents
<S> < <C> <C>
C
>
Page
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements (Unaudited)
Consolidated Condensed Balance Sheets
September 30, 1997 and December 31, 1996 3-4
Consolidated Condensed Statements of
Operations
Three and nine months ended September 30, 5
1997 and 1996
Consolidated Condensed Statements of Cash
Flows
Nine months ended September 30, 1997 and 6
1996
Notes to Unaudited Condensed Financial 7-11
Statements
Item 2 - Management's Discussion and Analysis of
Financial
Condition and Results of Operations 12-18
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 18
Item 6 - Exhibits and Reports on Form 8-K 18
Exhibit 11 - Statement re:
Computation of Earnings Per Share
Exhibit 20 - Interim Report to
Stockholders for the three and nine months
ended September 30, 1997
Exhibit 27 - Financial Data
Schedule
SIGNATURE 19
</TABLE>
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<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
CONSOLIDATED CONDENSED BALANCE SHEETS
Crown Central Petroleum Corporation and Subsidiaries
(Thousands of dollars)
September December
30 31
1997 1996
Assets (Unaudite
d)
<S> <C> <C>
Current Assets
Cash and cash equivalents $42,862 $36,031
Accounts receivable - net 99,879 113,447
Recoverable income taxes 5,083 4,820
Inventories 110,544 66,004
Other current assets 2,649 13,207
Total Current Assets 261,017 233,509
Investments and Deferred Charges 46,208 33,807
Property, Plant and Equipment 628,042 640,238
Less allowance for depreciation 335,301 342,321
Net Property, Plant and Equipment 292,741 297,917
$ 59 $ 56
9,966 5,233
<FN>
See notes to unaudited consolidated condensed financial statements.
</TABLE>
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<TABLE>
<CAPTION>
CONSOLIDATED CONDENSED BALANCE SHEETS
Crown Central Petroleum Corporation and Subsidiaries
(Thousands of dollars)
September December
30 31
1997 1996
Liabilities and Stockholders' Equity (Unaudite
d)
<S> <C> <C>
Current Liabilities
Accounts payable:
Crude oil and refined products $105,431 $112,532
Other 33,019 17,130
Accrued liabilities 43,570 49,594
Current portion of long-term debt 1,452 1,379
Total Current Liabilities 183,472 180,635
Long-Term Debt 126,483 127,196
Deferred Income Taxes 44,726 30,535
Other Deferred Liabilities 37,437 39,492
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 24,087 24,087
1997 and 1996
Common stock, Class B - par value $5 per
share:
Authorized shares -- 7,500,000; issued
and
outstanding shares -- 5,218,975 in
1997 and
5,165,786 in 1996 26,095 25,829
Additional paid-in capital 94,323 91,817
Unearned restricted stock (5,145 ) (2,951)
Retained earnings 68,488 48,593
Total Common Stockholders' Equity 207,848 187,375
$ 599 $ 56
,966 5,233
<FN>
See notes to unaudited consolidated condensed financial statements.
</TABLE>
4
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<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
1997 1 1997 1996
996
<S> <C> <C> <C> <C>
Revenues
Sales and operating revenues $412,798 $3 $1,198,7 $
97,889 61 1,200,18
8
Operating Costs and Expenses
Costs and operating expenses 361,380 3 1,067, 1
68,068 053 ,118,435
Selling and administrative 23,126 2 68,316 6
expenses 2,815 9,438
Depreciation and amortization 7,896 7 23,219 2
,970 3,999
Sales of property, plant and (260 ) 139 (413 ) 116
equipment
392,142 3 1,158, 1
98,992 175 ,211,988
Operating Income (Loss) 20,656 ( 40,586 (
1,103) 11,800)
Interest and other income 519 344 1,920 1
,608
Interest expense (3,635 ) ( (10,652 ) (
3,584) 10,778)
Income (Loss) Before Income Taxes 17,540 ( 31,854 (
4,343) 20,970)
Income Tax Expense (Benefit) 6,275 ( 11,958 (
707 ) 7,336)
Net Income (Loss) $11,265 $ $19,896 $
(3,636) (13,634 )
Net Income (Loss) Per Share $ 1.16 $( $ 2.04 $(
.37 ) 1.40)
<FN>
See notes to unaudited consolidated condensed financial statements.
</TABLE>
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<TABLE>
<CAPTION>
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Crown Central Petroleum Corporation and Subsidiaries
(Thousands of dollars)
(Unaudited)
Nine Months Ended
September 30
1997 1996
<S> <C> <C>
Net Cash Flows From Operating
Activities
Net cash from operations before
changes in assets and liabilities $52,373 $ 8,184
Net changes in assets and (14,592 )(18,280 )
liabilities
Net Cash Provided by (Used in) 37,781 (10,096 )
Operating Activities
Cash Flows From Investment Activities
Capital expenditures (20,372 )(19,752 )
Proceeds from sales of property,
plant
and equipment 5,215 2,135
Capitalization of software costs (2,986) (2,225 )
Deferred turnaround maintenance (12,994 ) (4,518 )
Other charges to deferred assets (343) (2,188 )
Net Cash (Used in) Investment (31,480 )(26,548 )
Activities
Cash Flows From Financing Activities
Proceeds from debt and credit 26,316 71,000
agreement borrowings
(Repayments) of debt and credit (26,982 )(53,181 )
agreement borrowings
Net cash flows from long-term notes 616 (308 )
receivable
Issuance of common stock 580 490
Net Cash Provided by Financing 530 18,001
Activities
Net Increase (Decrease) in Cash and $6,831 $(18,643 )
Cash Equivalents
<FN>
See notes to unaudited consolidated condensed financial statements.
</TABLE>
6
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NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Crown Central Petroleum Corporation and Subsidiaries
September 30, 1997
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, 1997 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1997. 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, 1996.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires Management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Cash and Cash Equivalents - Cash in excess of daily requirements is
invested in marketable securities with maturities of three months or less.
Such investments are deemed to be cash equivalents for purposes of the
statements of cash flows.
Inventories - The Company's crude oil, refined products, and convenience
store merchandise and gasoline inventories are valued at the lower of cost
(last-in, first-out) or market with the exception of crude oil inventory
held for resale which is valued at the lower of cost (first-in, first-out)
or market. Materials and supplies inventories are valued at cost.
Incomplete exchanges of crude oil and refined products due the Company or
owing to other companies are reflected in the inventory accounts.
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, 1997, approximately 2.2 million barrels of crude oil and refined
products inventory were held in excess of anticipated year-end quantities
which are valued at the lower of cost (first-in, first-out) or market.
Environmental Costs: The Company conducts environmental assessments and
remediation efforts at multiple locations, including operating facilities,
and previously owned or operated facilities. Estimated closure and post-
closure costs for active refinery and finished product terminal facilities
are not recognized until a decision for closure is made. Estimated closure
and post-closure costs for active and operating retail marketing facilities
and costs of environmental matters related to ongoing refinery, terminal
and retail marketing operations are recognized as follows. Expenditures
for equipment necessary for environmental issues relating to ongoing
operations are capitalized. The Company accrues environmental and clean-up
related costs of a non-capital nature when it is both probable that a
liability has been incurred and the amount can be reasonably estimated.
Accruals for losses from environmental remediation obligations generally
are recognized no later than completion of the remediation feasibility
study. Estimated costs, which are based upon experience and assessments,
are recorded at undiscounted amounts without considering the impact of
inflation, and are adjusted periodically as additional or new information
is available.
7
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In October 1996, the American Institute of Certified Public Accountants
issued Statement of Position 96-1 (SOP 96-1) "Environmental Remediation
Liabilities" which provides further authoritative guidance with respect to
the recognition, measurement, display and disclosure of environmental
remediation liabilities effective for fiscal years beginning after December
15, 1996. The Company will adopt SOP 96-1 in the fourth quarter of 1997.
Based upon the Company's review of the information available as of
September 30, 1997, the adoption of SOP 96-1 is not expected to have a
material adverse effect on the Company.
Derivative Financial Instruments - Futures, forwards and exchange traded
options are used periodically to manage the exposure of the Company's
refining margins to crude oil and refined product price fluctuations. The
Company also uses the futures market to 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 oil and certain finished products and also hedging fixed
price purchase and sales commitments of crude oil and refined products.
Futures, forwards and exchange traded options entered into with commodities
brokers and other integrated oil and gas companies are utilized to execute
the Company's strategies. These instruments generally allow for settlement
at the end of their term in either cash or product.
Net realized gains and losses from these hedging strategies are recognized
in costs and operating expenses when the associated refined products are
sold. Unrealized gains and losses represent the difference between the
market price of refined products and the price of the derivative financial
instrument, inclusive of refining costs. Individual transaction unrealized
gains and losses are deferred in other current assets and liabilities to
the extent that the associated refined products have not been sold. 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 refined product profit margins.
Credit Risk - The Company is potentially subjected to concentrations of
credit risk with accounts receivable and futures, forwards and exchange
traded options for crude oil and finished products. Because the Company
has a large and diverse customer base with no single customer accounting
for a significant percentage of accounts receivable, there was no material
concentration of credit risk in these accounts at September 30, 1997. The
Company evaluates the credit worthiness of the counterparties to futures,
forwards and exchange traded options and considers non-performance credit
risk to be remote. The amount of exposure with such counterparties is
generally limited to unrealized gains on outstanding contracts.
Stock Based Compensation - The Company has adopted the disclosure
provisions prescribed by Statement of Financial Accounting Standards No.
123 "Accounting for Stock-Based Compensation," which permit companies to
continue to value their stock-based compensation using the intrinsic value
method prescribed by Accounting Principles Board Opinion No. 25 while
providing proforma disclosures of net income and earnings per share
calculated using the fair value based method.
Statements of Cash Flows - Net changes in assets and liabilities presented
in the Unaudited Consolidated Condensed Statements of Cash Flows is
composed of the following:
<TABLE>
<CAPTION>
Nine Months Ended
September 30
1997 1996
(thousands of
dollars)
<S> <C> <C>
Decrease (increase) in accounts receivable $13,568 $ (929)
(Increase) decrease in inventories (44,540 ) 3,486
Decrease (increase) in prepaid operating 10,558 (1,751)
expenses and other current assets
(Decrease) increase in crude oil and (7,102 ) 18,179
refined products payable
Increase (decrease) in other accounts 15,890 (11,325)
payable
(Decrease) in accrued liabilities and other (5,498 )(26,704)
deferred liabilities
Decrease in recoverable and deferred income 2,532 764
taxes
$(14,592 )$(18,280 )
</TABLE>
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Reclassifications - To conform to the 1997 presentation, the Consolidated
Condensed Statement of Cash Flows for the nine months ended September 30,
1996 has been restated to disclose as a separate line item those costs
related to capitalization of software costs which had been previously
included in Other charges to deferred assets. This reclassification had no
effect on net cash used in investment activities as originally reported.
Recently Issued Pronouncements - In February 1997, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards
No. 128, Earnings Per Share (SFAS No. 128), which specifies the
computation, presentation and disclosure requirements for earnings per
share (EPS) for entities with publicly held common stock or potential
common stock. This Statement attempts to simplify the computation of EPS
and make the United States standard for computing EPS more compatible with
the similar standard of the International Accounting Standards Committee.
SFAS No. 128 supersedes Accounting Principles Board Opinion No. 15,
Earnings Per Share (APB Opinion No. 15), and is effective for financial
statements for both interim and annual periods ending after December 15,
1997 with earlier application prohibited. After the effective date, all EPS
data presented shall be restated to conform with the provisions of SFAS No.
128. The Company will adopt this Statement in the fourth quarter of 1997.
Restated EPS data for prior periods is not expected to differ materially
from the EPS data originally disclosed for those periods.
Also in February 1997, the FASB issued Statement of Financial Accounting
Standards No. 129, Disclosure of Information About Capital Structure (SFAS
No. 129), which requires disclosures about capital structure previously
found in APB Opinion No. 15, Earnings Per Share. SFAS No. 129 is effective
for financial statements for periods ending after December 15, 1997. The
capital structure disclosures currently provided by the Company are in
compliance with the provisions of APB Opinion No. 15. As such, the
adoption of SFAS No. 129 in the fourth quarter of 1997 will have no impact
on the Company's financial statements.
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income (SFAS No. 130), which applies to all enterprises that
provide a full set of financial statements that report financial position,
results of operations, and cash flows. The provisions of SFAF No. 130 are
effective for fiscal years beginning after December 15, 1997 with earlier
application permitted. SFAS No. 130 need not be applied to immaterial
items. Since the Company currently has no material items of other
comprehensive income as defined by this Statement, the adoption of SFAS No.
130 in the first quarter of 1998 is not expected to have an impact on the
Company's financial statements.
Also in June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131, Disclosures about Segments of an Enterprise and Related
Information (SFAS No. 131), which applies to all public business
enterprises that are required to file financial statements with the
Securities and Exchange Commission or that provide financial statements for
the purpose of issuing any class of securities in a public market. SFAS
No. 131 requires that public business enterprises report certain
information about operating segments in complete annual sets of financial
statements and in condensed financial statements of interim periods issued
to shareholders. This Statement is effective for fiscal years beginning
after December 15, 1997 with earlier application encouraged. This
Statement need not be applied to interim financial statements in the
initial year of application. The Company expects to adopt SFAS No. 131 in
the fourth quarter of 1998.
9
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Note B - Inventories
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Inventories consist of the following:
September December
30 31
1997 1996
(thousands of
dollars)
<S> <C> <C>
Crude oil $41,308 $22,150
Refined products 94,251 84,516
Total inventories at FIFO (approximates 135,559 106,666
current cost)
LIFO allowance (37,978 )(52,988 )
Total crude oil and refined products 97,581 53,678
Merchandise inventory at FIFO 6,870 6,001
(approximates current cost)
LIFO allowance (1,861 ) (
1,861)
Total merchandise 5,009 4,140
Materials and supplies inventory at FIFO 7,954 8,186
Total Inventory $110,544 $66,004
</TABLE>
Note C - Long-term Debt and Credit Arrangements
<TABLE>
<CAPTION>
Long-term debt consists of the following:
September December
30 31
1997 1996
(thousands of
dollars)
<S> <C> <C>
Unsecured 10.875% Senior Notes $124,771 $124,748
Purchase Money Lien 2,724 3,330
Other obligations 440 497
127,935 128,575
Less current portion 1,452 1,379
Long-Term Debt $126,483 $127,196
</TABLE>
Effective as of August 1, 1997, the Company entered into the First Restated
Credit Agreement (Restated Credit Agreement) with NationsBank of Texas,
N.A., as administrative agent and letter of credit agent, and BankBoston,
N.A. as documentation agent and six other participant banks. The Restated
Credit Agreement is essentially a renewal of the Credit Agreement dated as
of September 25, 1995, as amended. Under the Restated Credit Agreement,
the banks have committed a maximum of $110 million to the Company for cash
borrowings and letters of credit. The Agreement allows for interest on
outstanding borrowings to be computed under one of two methods based on the
Base Rate or the London Interbank Offered Rate (all as defined). The
Restated Credit Agreement limits indebtedness (as defined) and cash
dividends and requires the maintenance of various covenants including, but
not limited to, minimum consolidated FIFO tangible net worth, minimum
working capital, minimum FIFO net income or (loss) and a cumulative
adjusted liquidity capacity test (all as defined). The Company intends to
use the Restated Credit Agreement for general corporate and working capital
purposes.
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As of September 30, 1997, under the terms of the First Restated Credit
Agreement dated as of August 1, 1997, the Company had no outstanding cash
borrowings and outstanding irrevocable standby letters of credit in the
principal amount of $5.5 million. Unused commitments under the terms of
the Restated Credit Agreement totaling $104.5 million were available for
future cash borrowings and issuance of letters of credit at September 30,
1997. As of September 30, 1997, the Company was in compliance with all
covenants and provisions of the Restated Credit Agreement and forecasts
that, but there can be no assurance that, it will remain in compliance for
the remainder of the year.
The $125 million unsecured 10.875% Senior Notes (Notes), which were issued
in January 1995 under an Indenture are used principally to finance the
permanent capital requirements of the Company. As of September 30, 1997,
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 Restated
Credit Agreement or a successor agreement, the payment of dividends and the
repurchase of capital stock . The Company has not paid a dividend on its
shares of common stock since the first quarter, 1992.
Note D - Crude Oil and Refined Product Hedging Activities
The net deferred loss from crude oil and refined product hedging strategies
was $.6 million at September 30, 1997. Included in these hedging strategies
are contracts maturing from November 1997 to February 1998. The Company is
using these contracts to defer the pricing of approximately 7% of its crude
oil commitments and to fix the margin on approximately 1% of its refined
products, for the aforementioned period.
Note E - Calculation of Net Income (Loss) Per Common Share
Net income (loss) per common share for the three months ended September 30,
1997 and 1996 is based on the weighted average of common shares outstanding
of 9,745,626 and 9,732,378, respectively. Net income (loss) per common
share for the nine months ended September 30, 1997 and 1996 is based on the
weighted average of common shares outstanding of 9,737,640 and 9,718,152,
respectively.
Note F - Litigation and Contingencies
As discussed in Management's Discussion and Analysis of Financial Condition
and Results of Operations, the Company had recorded a liability of
approximately $12.1 million as of September 30, 1997 to cover the estimated
costs of compliance with environmental regulations which are not
anticipated to be of capital nature.
Except as noted above and in Part II, Item I, Legal Proceedings, of this
Quarterly Report on Form 10-Q, there have been no material changes in the
status of litigation and contingencies as discussed in Item 3, Legal
Proceedings and in Note I of Notes to Consolidated Financial Statements in
the Annual Report on Form 10-K for the fiscal year ended December 31, 1996.
11
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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 $14.9 million or 3.7%
in the third quarter of 1997 from the comparable period in 1996. The
increase in Sales and operating revenues was primarily attributable to an
8.2% increase in petroleum product sales volumes and to a 4.3% increase in
merchandise revenues. Partially offsetting these increases was a 3.1%
decrease in the average sales price per gallon of petroleum products. The
increase in sales volumes is due primarily to a planned increase in
refinery production volumes in reaction to improvements in the 3-2-1 crack
spread for the third quarter of 1997 compared to the third quarter of 1996,
as well as increased demand in the Company's market area. Sales and
operating revenues decreased $1.4 million or .1% for the nine months ended
September 30, 1997 compared to the same period in 1996. The year to date
decrease was a result of a 2.6% decrease in petroleum product sales volumes
which was partially offset by a 1.3% increase in the average sales price
per gallon of petroleum products. The decreases in sales volumes of
petroleum products for the nine months ended September 30, 1997 as compared
to the same 1996 periods is due principally to the processing agreement
with Statoil North America, Inc. which effectively reduced the Company's
refined product available for sale. The Statoil agreement expired during
the third quarter of 1997.
Costs and operating expenses decreased $6.7 million or 1.8% in the third
quarter of 1997 from the comparable period in 1996. The decrease was due
to a 10.5% decrease in the average cost per barrel consumed of crude oil
and feedstocks which was partially offset by increases in petroleum
products sales volumes as previously discussed. Costs and operating
expenses decreased $51.4 million or 4.6% for the nine months ended
September 30, 1997 compared to the same period in 1996. The year to date
decrease was due principally to decreases in petroleum products sales
volumes as previously discussed and to slight decreases in the average cost
per barrel consumed of crude oil and feedstocks of 1.4%. Additionally,
despite increases in fuel gas costs due to higher processing rates and
higher prices, Pasadena refinery operating expenses decreased 3.9% for the
nine months ended September 30, 1997 compared to the same 1996 period. The
results of operations were significantly affected by the Company's use of
the LIFO method to value inventory, which in a period of rising prices
decreased the Company's gross margin $.12 per barrel ($1.7 million) and
$.48 per barrel ($6.8 million), respectively, for the third quarter of 1997
compared to the same 1996 period. The use of the LIFO method decreased the
Company's gross margin by $.38 per barrel ($15.7 million) for the year to
date period ended September 30, 1996. While prices rose during the third
quarter of 1997, overall, prices have fallen for the nine months ended
September 30, 1997. During this period the use of the LIFO method
increased the Company's gross margin $.35 per barrel ($15 million).
Retail gasoline gross margin per gallon (gasoline gross profit as a
percentage of gallons sold) decreased from $.14 to $.09 for the third
quarter of 1996 and 1997, respectively. This decrease is due to a $.03
reduction in the average selling price of retail gasoline and to a $.02
increase in the average cost per gallon of retail gasoline sales.
Merchandise gross margin (merchandise gross profit as a percent of
merchandise sales) increased from 28.9% to 30.6% for the nine months ended
September 30, 1997 compared to the same 1996 period. This increase in
gross margin is a result of the Company's merchandise pricing program which
has selectively increased targeted merchandise yet still maintains an
everyday low pricing policy which is competitive with major retail
providers in the applicable market area. While merchandise sales on a same
store basis for the year to date period September 1997 were comparable with
the same 1996 period, this marketing strategy has resulted in average
monthly merchandise gross profit increases, on a same store basis, of
approximately 4.6% for the nine months ended September 30, 1997 compared to
the same 1996 period and has contributed to the $1.8 million or 8% increase
in merchandise gross profit.
In the third quarter of 1997, the Company adjusted its gasoline and
distillate production to take advantage of better gasoline margins compared
to distillate margins. Correspondingly, yields of finished gasoline
increased to 95,100 barrels per day (bpd) (60.2%) for the third quarter of
1997 from 85,400 bpd (57%) for the same period in 1996 while yields of
distillates decreased slightly from 51,700 bpd (34.6%) for the third
quarter 1996 to 49,100 bpd (31.1%) for the third quarter 1997. Yields of
finished gasoline were increased slightly to 89,900 bpd (56.5%) for the
nine months ended September 30, 1997 from 86,900 bpd (58.8%) for the same
period in 1996 while distillate production was increased slightly from
49,300 bpd (33.3%) for the nine months ended September 30, 1996 to 51,900
bpd (32.7%) for the nine months ended September 30, 1997.
12
<PAGE>
Selling and administrative expenses decreased $1.1 million or 1.6% for the
nine months ended September 30, 1997 compared to the same period in 1996.
The decrease is principally due to the inclusion in 1996 of approximately
$1 million in corporate administrative expenses associated with a
management reorganization. Selling and administrative expenses for the
third quarter of 1997 were comparable to the same 1996 period.
Depreciation and amortization for the three and nine months ended September
30, 1997 were comparable to the same 1996 periods.
During the second quarter of 1997, the Company closed two product
terminals, one located in Curtis Bay, Maryland and the other located in
Doraville, Georgia. The Company has made arrangements with another major
petroleum company with terminal facilities located in these areas to meet
our supply needs.
Operating costs and expenses for the three and nine months ended September
30, 1997 included $.1 million and $.4 million, respectively, of expenses
for retail units that have been closed. This compares to $.2 million and
$.2 million, respectively, for the three and nine months ended September
30, 1996. The nine months ended September 30, 1997 included $2.5 million
in reductions of accruals related to environmental matters compared to
expenses of $.2 million and $1.3 million, respectively, for the third
quarter and year to date periods ended September 30, 1996. Additionally,
Operating costs and expenses included $5.5 million and $6.8 million,
respectively, related to incentive plan accruals and certain pending
litigation for the third quarter and year to date periods of 1997 while the
third quarter and year to date periods ended September 30, 1996 included
reductions of $1.1 million and $3.7 million, respectively, related to the
adjustment of certain pending litigation and employee benefit costs.
Liquidity and Capital Resources
Net cash provided by operating activities (including changes in assets and
liabilities) totaled $37.8 million for the nine months ended September 30,
1997 compared to cash used in operating activities of $10.1 million for the
nine months ended September 30, 1996. 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 $14.6 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. The 1996 outflows consist primarily of $18.3 million
related to working capital requirements resulting primarily from decreases
in accrued income and excise tax liabilities and other accounts payable and
to increases in accounts receivable and prepaid operating expenses,
principally related to insurance premiums. These working capital outflows
were partially offset by decreases in the value of crude oil and finished
products inventories and increases in crude oil and refined products
payables. Partially offsetting these cash outflows was cash provided by
operations of $8.2 million before changes in working capital.
Net cash outflows from investment activities were $31.5 million for the
nine months ended September 30, 1997 compared to a net outflow of $26.5
million for the same 1996 period. 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. The 1996
activity relates primarily to $19.8 million of capital expenditures (which
includes $8.7 million relating to the marketing area and $8.5 million
relating to refinery operations). In addition, there were refinery
turnaround expenditures of $4.5 million, $2.2 million in capitalized
expenditures related to internal use software and hardware and increases in
other deferred assets of $2.2 million. These cash outflows were partially
offset by proceeds from the sale of property, plant and equipment of $2.1
million.
13
<PAGE>
Net cash provided by financing activities was $.5 million for the nine
months ended September 30, 1997 compared to $18 million for the nine months
ended September 30, 1996. 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 1996 cash inflows consist
principally of $17.8 million in net proceeds received from debt and credit
agreement borrowings due primarily to cash borrowings from the Company's
unsecured revolving Credit Agreement. Additionally, cash inflows included
$.5 million from issuances of the Company's common stock due to the
exercise of stock options issued under the Company's incentive plans.
Partially offsetting these cash inflows were increases of $.3 million in
long-term notes receivable.
Cash and cash equivalents at September 30, 1997 were $19.5 million higher
than at September 30, 1996. This increase resulted primarily from cash
provided by operating activities of $75.6 million. Partially offsetting
these cash inflows was cash used in investment activities of $37.5 million,
which includes capital expenditures of $19.1 million, net of $5.6 million
of proceeds received from the sale of property, plant and equipment,
principally related to the sale of the Elizabeth, New Jersey bulk product
terminal and six non-strategic retail facilities in South Carolina.
Additionally, cash outflows from investment activities included deferred
turnaround charges of $13.3 million and $6.8 million in capitalized
expenditures related to internal use software and hardware. These cash
outflows were partially offset by an increase in cash of $1.8 million
resulting from decreases in other deferred assets. Additionally, cash used
in financing activities for the twelve month period ended September 30,
1997 totaled $18.7 million relating primarily to net repayments of
borrowings under the Company's debt and credit agreement facilities of $20
million which were partially offset by net proceeds from long-term notes
receivable of $.7 million and net proceeds from the issuance of the
Company's Class B Common Stock resulting from exercises of non-qualified
stock options granted to participants of the Long-Term Incentive Plan of
$.6 million.
The ratio of current assets to current liabilities at September 30, 1997
was 1.42:1 compared to 1.13:1 at September 30, 1996 and 1.29:1 at December
31, 1996. If FIFO values had been used for all inventories, assuming an
incremental effective income tax rate of 37%, the ratio of current assets
to current liabilities would have been 1.64:1 at September 30, 1997, 1.47:1
at September 30, 1996 and 1.60:1 at December 31, 1996.
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. The Company believes, but provides no assurance,
that cash provided from its operating activities, together with other
available sources of liquidity will be sufficient to fund future
environmental related expenditures. The Company had recorded a liability
of approximately $12.1 million as of September 30, 1997 to cover the
estimated costs of compliance with environmental regulations which are not
anticipated to be of a capital nature. The liability of $12.1 million
includes accruals for issues extending past 1997.
Environmental liabilities are subject to considerable uncertainties which
affect the Company's ability to estimate its ultimate cost of remediation
efforts. These uncertainties include the exact nature and extent of the
contamination at each site, the extent of required cleanup efforts, varying
costs of alternative remediation strategies, changes in environmental
remediation requirements, the number and financial strength of other
potentially responsible parties at multi-party sites, and the
identification of new environmental sites. As a result, charges to income
for environmental liabilities could have a material effect on results of
operations in a particular quarter or year as assessments and remediation
efforts proceed or as new claims arise. However, management is not aware
of any matters which would be expected to have a material adverse effect on
the Company.
During the years 1997-1998, the Company estimates environmental
expenditures at the Pasadena and Tyler refineries of at least $3.8 million
and $2 million, respectively. Of these expenditures, it is anticipated
that $2.8 million for Pasadena and $1.5 million for Tyler will be of a
capital nature, while $1 million and $.5 million, respectively, will be
related to previously accrued non-capital remediation efforts. At the
Company's marketing facilities, environmental expenditures relating to
previously accrued non-capital compliance efforts are planned totaling
approximately $3.2 million through 1998.
14
<PAGE>
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.
Effective August 1, 1997, the Company entered into the First Restated
Credit Agreement (Restated Credit Agreement) which is essentially a renewal
of the Revolving Credit Agreement dated as of September 25, 1995, as
amended. Management believes the Restated Credit Agreement will adequately
provide anticipated working capital requirements as well as support future
growth opportunities. As a result of a strong balance sheet and overall
favorable credit relationships, the Company has been able to maintain open
lines of credit with its major suppliers. Under the Restated Credit
Agreement, the Company had outstanding as of September 30, 1997,
irrevocable standby letters of credit in the principal amount of $5.5
million for purposes in the ordinary course of business and unused
commitments totaling $104.5 million. Meeting the covenants imposed by the
Restated Credit Agreement is dependent, among other things, upon the level
of future earnings. At September 30, 1997, the Company was in compliance
with all covenants and provisions of the First Restated Credit Agreement
effective as of August 1, 1997. The Company reasonably expects to continue
to be in compliance with the covenants imposed by the Restated Credit
Agreement for the remainder of the year.
At the Company's option, up to $37.5 million of the Unsecured 10.875%
Senior Notes (Notes) may be redeemed at 110.875% of the principal amount at
any time prior to February 1, 1998. After such date, they may not be
redeemed until February 1, 2000 when they are redeemable at 105.438% of the
principal amount, and thereafter at an annually declining premium over par
until February 1, 2003 when they are redeemable at par. The Notes were
issued under an Indenture which includes certain restrictions and
limitations customary with senior indebtedness of this type including, but
not limited to, the payment of dividends and the repurchase of capital
stock. There are no sinking fund requirements on the Notes. At this time,
management does not intend to exercise any options for early redemption of
its Senior Notes.
Effective August 11, 1997, the Company entered into a Purchase Money Lien
(Money Lien) for the financing of land, buildings and equipment at certain
service station and convenience store locations. Each draw-down for land
and buildings under the Money Lien is repayable in 72 monthly installments
based on twelve year amortization with the remaining principal balance
payable after 72 months. Each draw-down for equipment under the Money Lien
is repayable in 60 monthly installments. The effective rate of each draw-
down is based upon a fixed spread over the then current six year or five
year U.S. Treasury Note rate for land and buildings, and equipment,
respectively. The Money Lien allows for a maximum draw-down of $10
million. The Money Lien is secured by the service station and convenience
store land, buildings and equipment having a cost basis of $.3 million at
September 30, 1997. It is the Company's intention to draw the remaining
balance by the end of fiscal year 1998.
In addition, the Company has arranged a $6 million Lease Line of Credit
(Lease Line) to finance point-of-sale computer equipment to be installed at
its company operated retail facilities. The Company will commence
utilization of the Lease Line in the fourth quarter of 1997 as the
equipment is delivered and installed with full utilization occurring in
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,
net of proceeds from sales of property, plant and equipment, in 1997 are
projected to approximate $46 million. The capital expenditures relate
primarily to planned enhancements at the Company's refineries, retail unit
improvements and to company-wide environmental requirements. The Company
believes that cash provided from its operating activities, together with
other available sources of liquidity, including the Credit Agreement
effective as of August 1, 1997, or a successor agreement, will be
sufficient over the next several years to make required payments of
principal and interest on its debt, permit anticipated capital expenditures
and fund the Company's working capital requirements. Any major acquisition
would likely require a combination of additional debt and equity.
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.
15
<PAGE>
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 $5 million.
The Company has disclosed in Note I of Notes to the Consolidated Financial
Statements in the Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 and in Note F of Notes to Unaudited Consolidated
Condensed Financial Statements in this Quarterly Report on Form 10-Q,
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.
Additional disclosures concerning litigation are contained in Item 3, Legal
Proceedings, of the Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 and in Item 1 of Part II of this Quarterly Report on Form
10-Q. The Company has concluded, after consultation with counsel, that
there is no reasonable basis to believe that the ultimate resolution of any
of the litigation or the 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, 1996,
the Company's collective bargaining agreement at its Pasadena refinery
expired on February 1, 1996, and on February 5, 1996, the Company invoked a
lock-out of employees in the collective bargaining unit. The Company has
been operating the Pasadena refinery without interruption since the lock-
out with management and supervisory personnel and intends to continue full
operations until an agreement is reached with the collective bargaining
unit.
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.
16
<PAGE>
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.
The Company conducts environmental assessments and remediation efforts at
multiple locations, including operating facilities and previously owned or
operated facilities. The Company accrues environmental and clean-up
related costs of a non-capital nature when it is both probable that a
liability has been incurred and the amount can be reasonably estimated.
Accruals for losses from environmental remediation obligations generally
are recognized no later than completion of the remedial feasibility study.
Estimated costs, which are based upon experience and assessments, are
recorded at undiscounted amounts without considering the impact of
inflation, and are adjusted periodically as additional or new information
is available. Expenditures for equipment necessary for environmental
issues relating to ongoing operations are capitalized.
17
<PAGE>
The Company's crude oil, refined products and convenience store merchandise
and gasoline inventories are valued at the lower of cost (based on the last-
in, first-out or LIFO method of accounting) or market, with the exception
of crude oil inventory held for resale which is valued at the lower of cost
(based on the first-in first-out or FIFO method of accounting) or market.
Under the LIFO method, the effects of price increases and decreases in
crude oil and other feedstocks are charged directly to the cost of refined
products sold in the period that such price changes occur. In periods of
rising prices, the LIFO method may cause reported operating income to be
lower than would otherwise result from the use of the FIFO method.
Conversely, in periods of falling prices the LIFO method may cause
reported operating income to be higher than would otherwise result from the
use of the FIFO method. In addition, the Company's use of the LIFO method
understates the value of inventories on the Company's consolidated balance
sheet as compared to the value of inventories under the FIFO method.
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
The Notice of Violation issued by the Environmental Protection Agency
regarding illegal exceedances of the Pasadena refinery's NPDES permit was
resolved by the Company in November 1997. In settlement of this matter,
the Company paid a penalty of $.1 million and agreed to complete a schedule
of stormwater management system improvements by July 1998. Plaintiffs in
the Allman suit have dropped all class action claims, and discovery has now
begun in the Allman, Burrell and Texans United suits.
There have been no other material changes in the status of legal
proceedings as reported in Item 1 of Part II of the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1997.
The Company is involved in various matters of litigation, the ultimate
determination of which, in the opinion of management, are not expected to
have a material adverse effect on the Company.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibit:
11 - Statement re: Computation of Earnings Per Share
20 - Interim Report to Stockholders for the three and nine months
ended September 30, 1997
27 - Financial Data Schedule
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed with the Securities
and Exchange Commission during the three months ended September 30,
1997.
18
<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, 1997 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 13, 1997
19
<PAGE>
EXHIBIT 11
<TABLE>
<CAPTION>
CROWN CENTRAL PETROLEUM CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(thousands of dollars except per share amounts)
Three Months Ended Nine Months
September 30 Ended
September 30
1997 1997
1996 1996
<S> <C> <C> <C> <C>
Primary and Fully Diluted
Earnings Per Share
Net income (loss) applicable to $11,265 $(3,636 $ $
common shares ) 19,896 (13,634
)
Shares outstanding as reported
at the beginning
of the period 9,995,1 9,988,
80 989 9,983,180 9,952,950
Restricted shares held by the
Company at the
beginning or the period (260,700 (264,750
) ) (249,700 (255,300
) )
Weighted average effect of 9,306
shares of common
stock issued in September 1997 3,102
1,034
Weighted average effect of 9,306
shares of common
stock issued in August 1997 6,204
2,068
Weighted average effect of 1,840
shares of common
stock issued in July 1997 1,840
614
Weighted average effect of 1,000
shares of common
stock issued in June 1997
444
Weighted average effect of 8,139
shares of common
stock issued in July 1996 8,139
2,713
Weighted average effect of 1,000
shares of common
stock issued in June 1996
444
Weighted average effect of 4,730
share of common
stock issued in May 1996
2,628
Weighted average effect of
13,559 share of common
stock issued in April 1996
9,039
Weighted average effect of 7,300
shares of common
stock issued in March 1996
5,678
Weighted average number of
common shares
outstanding, at period end 9,745,6 9,732,
26 378 9,737,640 9,718,152
Net income (loss) per common $ 1.16 $ (.37) $ $
share 2.04 (1.40
)
</TABLE>
<PAGE>
CROWN
(registered trademark)
Crown Central Petroleum Corporation
Refiners / marketers of petroleum products & petrochemicals
One North Charles Street, P.O. Box 1168, Baltimore, Maryland 21203, (410)
539-7400
EXHIBIT 20
October 30, 1997 RESULTS THIRD QUARTER 1997
Dear Shareholders:
Crown Central Petroleum Corporation announced today a net profit of
$11.3 million ($1.16 per share) compared to a net loss of $3.6 million
($.37 per share) for the same period in 1996. Sales and operating revenues
in the quarter amounted to $413 million compared to $398 million last year.
For the first nine months of the year, Crown reported a net profit of $19.9
million ($2.04 per share) on revenues of $1.2 billion. This compares to a
net loss of $13.6 million ($1.40 per share) on flat revenues for the same
period in 1996.
Crown experienced its strongest third quarter since 1988 and the best
quarter since the second quarter of 1990. For the nine months, refinery
operating gross profit was up from $97 million in 1996 to over $136
million, an increase of 41%. The U.S. Gulf Coast 3.2.1 instantaneous crack
spread, used for measuring refining margins, averaged $4.28 per barrel for
the third quarter as compared to $2.31 per barrel for the same period in
1996. Wholesale margins on gasoline were especially strong, driven by full
utilization of U.S. domestic refining capacity and low inventories. Crude
prices remained relatively stable throughout the period with the exception
of an upward spike at the end of September continuing into the fourth
quarter.
The long planned maintenance turnaround, involving the crude
distillation and coking process units at the Company's Pasadena, Texas
refinery, was carried out successfully and on budget within a three week
period beginning the middle of September. The turnaround was timed to
capture peak margins in the market during the summer driving season cycle.
Crown's retail marketing segment results were mixed for the quarter.
Third quarter same store merchandise sales and margins showed 7% and 11%
increases, respectively, over the same period of last year. Retail
gasoline gallonage was down 3%, as the Company had a less aggressive
gasoline pricing posture. As with most of the retail gasoline businesses,
Crown's gross retail gasoline margin was down for the third quarter
reflecting a change of 35% from the previous year; the petroleum industry
frequently experiences lower retail margins when refining margins are
higher.
Crown personnel have performed exceptionally well and achieved very
positive operating results. While margins have improved, the Company's
successful strategies have contributed to these earnings. I am more
confident than ever of Crown's future role in the domestic refining and
marketing industry despite the many challenges facing us.
Following passage of the Clean Air Act in 1990, domestic refiners
began investing heavily in capital facilities to achieve compliance. At
the same time, this provided the opportunity for the industry to engineer
refinements that led to increased capacity known as "capacity creep" and
the production of more higher priced transportation fuels (higher
conversion ratios). As a result, significant new transportation fuel
capacity was added to the domestic refining industry. More recently, this
increase has peaked but demand has continued to increase at the same time.
This has led to a classic supply demand scenario leading to the longer term
potential of higher margins and greater investment returns.
Thank you for your continued support and confidence during this
challenging period.
Sincerely,
HENRY A. ROSENBERG, JR.
Chairman of the Board,
Chief Executive Officer and President
<PAGE>
<TABLE>
<CAPTION>
Crown Central Petroleum Corporation and Subsidiaries
Dollars in thousands, except per share data
Nine Months Ended Three Months Ended
September 30 September 30
1997 1996 1997 1996
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Sales and operating $1,198,76 $1,200,18 $412,798 $397,889
revenues 1 8
Income (loss) before 31,854 (20,970 ) 17,540 (
income taxes 4,343 )
Net income (loss) 19,896 (13,634 ) 11,265 (
3,636 )
Net income (loss) per 2.04 (1.40 ) 1.16 (
share .37 )
Weighted average shares
used in the computation 9,737,64 9,718,1529,745,62 9
of income (loss) per 0 6 ,732,378
share
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CROWN CENTRAL PETROLEUM CORPORATION
OPERATING STATISTICS
Nine Months Ended Three Months Ended
September 30 September 30
1997 1996 1997 1996
--------- --------- -------- --------
- - -
<S> <C> <C> <C> <C>
COMBINED REFINERY
OPERATIONS
- -----------------------
Production (BPD - M) 159 151 158 153
Production (MMbbl) 43.4 41.4 14.5 14.1
Sales (MMbbl) 42.8 43.9 15.0 13.8
Gross Margin ($/bbl) 3.18 2.20 4.16 2.48
Gross Profit ($MM) 136.1 96.8 62.3 34.3
Operating Cost ($/bbl) (2.24 ) (2.13) (2.23) (2.33 )
Operating Cost ($MM) (96.1 ) (93.6) (33.4) (32.2 )
Refining Operating Profit 40.0 3.2 28.9 2.1
(Loss) ($MM)
RETAIL
- -----------------------
Number Stores 339 344 339 344
Volume (pmps - Mgal) 130 129 132 133
Volume (MMgal) 396 398 134 138
Gasoline Gross Margin 0.105 0.128 0.092 0.139
($/gal)
Gasoline Gross Profit ($MM) 41.5 51.1 12.3 19.2
Merchandise Sales (pmps - 25.8 24.9 27.6 26.1
$M)
Merchandise Sales ($MM) 78.7 77.2 28.1 26.9
Merchandise Gross Margin 30.6 28.9 30.1 29.2
(%)
Merchandise Gross Profit 24.1 22.3 8.4 7.9
($MM)
Retail Gross Profit ($MM) 65.6 73.4 20.7 27.1
Retail Operating Costs (18.0 ) (19.4) (18.5) (20.0 )
(pmps - $M)
Retail Operating Costs (54.9 ) (59.9) (18.8) (20.6 )
($MM)
Retail Non-Operating (0.9 ) 1.5 (0.1) (0.3 )
(Expense) Income ($MM)
Retail Operating Profit 9.8 15.0 1.8 6.2
($MM)
WHOLESALE / TERMINAL
OPERATING (LOSS) PROFIT (2.9 ) 1.0 1.2 1.5
($MM)
OTHER
- ----------
LIFO Recovery (Provision) 15.0 (15.7) (1.7) (6.8 )
($MM)
Corporate Overhead ($MM) (15.2 ) (14.8) (4.7) (4.7 )
Net Interest (Expense) (8.8 ) (9.5) (2.9) (3.3 )
($MM)
Other (Expense) Income (6.0 ) (0.2) (5.0) 0.7
($MM)
Income Tax (Expense) (12.0 ) 7.4 (6.3) 0.7
Benefit ($MM)
Total Net Income (Loss) 19.9 (13.6) 11.3 (3.6 )
($MM)
Depreciation & Amortization 23.2 24.0 7.9 8.0
($MM)
Net Interest Expense ($MM) 8.8 9.5 2.9 3.3
LIFO (Recovery) Provision (15.0 ) 15.7 1.7 6.8
($MM)
(Gain) loss from Asset (0.4 ) 0.1 (0.3) 0.1
Disposals ($MM)
Income Tax Expense 12.0 (7.4) 6.3 (0.7 )
(Benefit) ($MM)
EBITDAAL ($MM) 48.5 28.3 29.8 13.9
Capital Expenditures ($MM) 20.4 19.8 8.2 5.0
<FN>
BPD = Barrels Per Day
bbl = barrel or barrels as applicable
gal = gallon or gallons as applicable
pmps = per month per store
M = in thousands
MM = in millions
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<PERIOD-TYPE> 9-MOS
<CAPTION>
Crown Central Petroleum Corporation and Subsidiaries
Dollars in thousands, except per share data
Crown Central Petroleum Corporation and Subsidiaries
Financial Data Schedule
(In thousands, except per share amounts)
Nine Months Ended
September 30, 1997
<S> <C>
<CASH> $ (525 )
<SECURITIES> 43,387
<RECEIVABLES> 100,535
<ALLOWANCES> (656 )
<INVENTORY> 110,544
<CURRENT-ASSETS> 261,017
<PP&E> 628,042
<DEPRECIATION> 335,301
<TOTAL-ASSETS> 599,966
<CURRENT-LIABILITIES> 183,472
<BONDS> 126,483
0
0
<COMMON> 50,182
<OTHER-SE> 157,666
<TOTAL-LIABILITY-AND-EQUITY> 599,966
<SALES> 1,198,761
<TOTAL-REVENUES> 1,198,761
<CGS> 1,067,053
<TOTAL-COSTS> 1,067,053
<OTHER-EXPENSES> 91,499
<LOSS-PROVISION> (377 )
<INTEREST-EXPENSE> 10,652
<INCOME-PRETAX> 31,854
<INCOME-TAX> 11,958
<INCOME-CONTINUING> 19,896
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,896
<EPS-PRIMARY> 2.04
<EPS-DILUTED> 2.04
</TABLE>
