<PAGE>
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 MARCH 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
COMMISSION FILE NUMBER 1-1059
CROWN CENTRAL PETROLEUM CORPORATION
(Exact name of registrant as specified in its charter)
MARYLAND 52-0550682
(State or jurisdiction of (I.R.S. Employer
Identification Number)
incorporation or organization)
ONE NORTH CHARLES STREET, BALTIMORE, 21201
MARYLAND
(Address of principal executive offices) (Zip Code)
410-539-7400
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the Registrant (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months, and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
The number of shares outstanding at April 30, 1998 of
the Registrant's $5 par value Class A and Class B
Common Stock was 4,817,394 shares and 5,169,188
shares, respectively.
<PAGE>
<TABLE>
<CAPTION>
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
March 31, 1998 and December 31, 1997 3-4
Consolidated Condensed Statements of
Operations
Three months ended March 31, 1998 and 1997 5
Consolidated Condensed Statements of Cash
Flows
Three months ended March 31, 1998 and 1997 6
Notes to Unaudited Consolidated Condensed 7-11
Financial Statements
Item 2 - Management's Discussion and Analysis of
Financial
Condition and Results of Operations 11-17
PART - OTHER INFORMATION
II
Item 1 - Legal Proceedings 17
Item 4 - Submission of Matters to a Vote of Security 17
Holders
Item 6 - Exhibits and Reports on Form 8-K 17
Exhibit 20
- Interim Report to Stockholders for
the three months ended March 31, 1998
Exhibit 27 (a)
- Financial Data Schedule for the
three months ended
March 31, 1998
Exhibit 27 (b)
- Financial Data Schedule for the
three months ended
March 31, 1997 - revised
SIGNATURE 18
</TABL
E>
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</TABLE>
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED BALANCE SHEETS
Crown Central Petroleum Corporation and Subsidiaries
(Thousands of dollars)
March 31 December
31
1998 1997
--------- ---------
-- --
<S> <C> <C>
ASSETS (Unaudite
d)
CURRENT ASSETS
Cash and cash equivalents $30,340 $36,622
Accounts receivable - net 73,227 102,529
Recoverable income taxes 7,417 3,819
Inventories 138,937 109,279
Other current assets 3,971 2,097
--------- ---------
-- --
TOTAL CURRENT ASSETS 253,892 254,346
INVESTMENTS AND DEFERRED CHARGES 43,634 44,448
PROPERTY, PLANT AND EQUIPMENT 644,727 635,063
Less allowance for depreciation 345,802 339,854
--------- ---------
-- --
NET PROPERTY, PLANT AND EQUIPMENT 298,925 295,209
--------- ---------
-- --
$596,451 $594,003
========= =========
= =
<FN>
See notes to unaudited consolidated condensed financial
statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED CONDENSED BALANCE SHEETS
Crown Central Petroleum Corporation and Subsidiaries
(Thousands of dollars)
March 31 December
31
1998 1997
--------- ---------
-- --
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudite
d)
CURRENT LIABILITIES
Accounts Payable:
Crude oil and refined products $109,051 $104,391
Other 21,757 20,366
Accrued Liabilities 36,574 46,766
Current portion of long-term debt 26,894 1,498
--------- ---------
-- --
TOTAL CURRENT LIABILITIES 194,276 173,021
LONG-TERM DEBT 129,188 127,506
DEFERRED INCOME TAXES 38,991 43,854
OTHER DEFERRED LIABILITIES 39,822 42,267
COMMON STOCKHOLDERS' EQUITY
Common stock, Class A - par value $5 per
share:
Authorized shares -- 7,500,000; issued
and
outstanding shares -- 4,817,394 in
1998 and 24,087 24,087
1997
Common stock, Class B - par value $5 per
share:
Authorized shares -- 7,500,000; issued
and
outstanding shares -- 5,166,654 in
1998 and
5,240,774 in 1997 25,833 26,204
Additional paid-in capital 93,009 94,655
Unearned restricted stock (2,712 ) (5,291)
Retained earnings 53,957 67,700
--------- ---------
-- --
TOTAL COMMON STOCKHOLDERS' EQUITY 194,174 207,355
$596,451 $594,003
========= =========
= =
<FN>
See notes to unaudited consolidated condensed financial
statements.
</FN>
</TABLE>
<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
March 31
1998 1997 --------
---------
<S> <C> <C>
REVENUES
Sales and operating revenues $325,960 $394,5
13
OPERATING COSTS AND EXPENSES
Costs and operating expenses 314,495 361,058
Selling expenses 20,130 18,454
Administrative expenses 5,125 5,046
Depreciation and 8,164 7,775
amortization
Sales of property, plant and (20 ) (556)
equipment --------- -------
- --
347,894 391,777
--------- -------
- --
OPERATING (LOSS) INCOME (21,934 ) 2,736
Interest and other income 3,272 2,188
Interest expense (3,530 )(3,501)
--------- -------
- --
(LOSS) INCOME BEFORE INCOME (22,192 ) 1,423
TAXES
INCOME TAX (BENEFIT) EXPENSE (8,449 ) 699
--------- -------
- --
NET (LOSS) INCOME $(13,743 )$ 724
========= =======
= ==
NET (LOSS) INCOME PER SHARE -
BASIC AND DILUTED $ (1.40 )$ .07
========= =======
= ==
<FN>
See notes to unaudited consolidated condensed financial
statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Crown Central Petroleum Corporation and Subsidiaries
(Thousands of dollars)
(Unaudited)
Three Months Ended
March 31
1998 1997
--------- ----------
--
<S> <C> <C>
NET CASH FLOWS FROM OPERATING
ACTIVITIES
Net cash from operations before
changes in assets and liabilities $(13,802 ) $ 6,086
Net changes in assets and (8,742) (20,094 )
liabilities --------- ----------
-
NET CASH (USED IN) OPERATING (22,544 )(14,008 )
ACTIVITIES --------- ----------
-
CASH FLOWS FROM INVESTMENT ACTIVITIES
Capital Expenditures (10,021 )(7,145)
Proceeds from sales of property,
plant
and equipment 211 878
Investments in Subsidiaries 300
Capitalization of software costs (1,078) (945)
Deferred turnaround maintenance (474) (1,792)
Other charges to deferred assets (92) (97)
--------- ----------
-
NET CASH (USED IN) INVESTMENT (11,454 )(8,801)
ACTIVITIES --------- ----------
-
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from debt and credit
agreement 27,441 21,000
borrowings
(Repayments) of debt and credit
agreement (372) (6,341)
borrowings
Net cash flows from long-term notes
receivable 85 456
Issuance of common stock 562
--------- ---------
-
NET CASH PROVIDED BY FINANCING
ACTIVITIES 27,716 15,115
--------- ---------
-
NET (DECREASE) IN CASH AND CASH $(6,282 )$(7,694 )
EQUIVALENTS ========= ==========
=
<FN>
See notes to unaudited consolidated condensed financial
statements.
</FN>
</TABLE>
<PAGE>
NOTES TO UNAUDITED CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
Crown Central Petroleum Corporation and
Subsidiaries
March 31, 1998
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed
financial statements have been prepared in
accordance with generally accepted accounting
principles for interim financial information and
with the instructions to Form 10-Q and Rule 10-01
of Regulation S-X. Accordingly, they do not
include all of the information and footnotes
required by generally accepted accounting
principles for complete financial statements. In
the opinion of Management, all adjustments
considered necessary for a fair and comparable
presentation have been included. Operating
results for the three months ended March 31, 1998
are not necessarily indicative of the results
that may be expected for the year ending December
31, 1998. The enclosed financial statements
should be read in conjunction with the
consolidated financial statements and footnotes
thereto included in the Company's annual report
on Form 10-K for the year ended December 31,
1997.
The following summarizes the significant
accounting policies and practices followed by the
Company:
PRINCIPLES OF CONSOLIDATION: The consolidated
financial statements include the accounts of
Crown Central Petroleum Corporation and all
majority-owned subsidiaries. All significant
intercompany accounts and transactions have been
eliminated. The Company's investments in
unconsolidated affiliates are accounted for under
the equity method.
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 March
31, 1998, approximately 3.3 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.
<PAGE>
DERIVATIVE FINANCIAL INSTRUMENTS - Futures,
forwards and exchange traded options are used to
minimize 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 affect 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
March 31, 1998. 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.
OTHER COMPREHENSIVE INCOME - The Company has no
material items of other comprehensive income as
defined by Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive
Income", for the three months ended March 31,
1998.
RECLASSIFICATIONS - To conform to the 1998
presentation, the Consolidated Condensed
Statement of Operations for the three months
ended March 31, 1997 has been restated. Service
station rental income and certain other retail
marketing recoveries, which had previously been
reported as a reduction of Selling and
administrative expenses, have been reclassified
and are now reported as components of Interest
and other income, and Costs and operating
expenses, respectively. Additionally, beginning
with the three months ended March 31, 1998, the
Company began reporting Selling expenses and
Administrative expenses as separate amounts in
the Consolidated Condensed Statement of
Operations. Selling and administrative expenses
as originally reported in the Company's Form 10-Q
for the three months ended March 31, 1997, have
been restated to reflect these changes. These
reclassifications had no effect on the net income
or net income per share amounts as originally
reported.
RECENTLY ISSUED PRONOUNCEMENTS - In June 1997,
the Financial Accounting Standards Board (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.
<PAGE>
In February 1998, the FASB issued Statement of
Financial Accounting Standards No. 132,
"Employers' Disclosure about Pensions and Other
Postretirement Benefits" (SFAS No. 132), which
standardizes the disclosure requirements for
pensions and other postretirement benefits to the
extent practicable, eliminates certain
disclosures required by former guidance and
requires additional disclosures not included in
the former guidance. This Statement is effective
for fiscal years beginning after December 15,
1997. The Company will adopt SFAS No. 132 for
the fourth quarter of 1998.
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>
Three Months Ended
March 31
1998 1997
--------- ---------
- -
(thousands of
dollars)
<S> <C> <C>
Decrease in accounts receivable $29,303 $9,129
(Increase) in inventories (29,659 ) (58,670 )
(Increase) Decrease in prepaid operating (1,873 ) 7,961
expenses and other current assets
Increase in crude oil and refined products 4,660 26,624
payable
Increase (decrease) in other accounts 1,391 (3,536)
payable
(Decrease) in accrued liabilities and other (12,740 ) (4,095)
deferred liabilities
Decrease in recoverable and deferred income 176 2,493
taxes --------- ---------
-- --
$(8,742 ) $ (20,094 )
========= =========
== ==
</TABLE>
<TABLE>
<CAPTION>
NOTE B - INVENTORIES
Inventories consist of the following:
March 31 December
31
1998 1997
--------- ---------
-- --
(thousands of
dollars)
<S> <C> <C>
Crude oil $59,651 $42,164
Refined products 76,955 79,905
--------- ---------
-- --
Total inventories at FIFO (approximates
current 136,606 122,069
cost)
LIFO allowance (10,500 )(25,586 )
--------- ---------
-- --
Total crude oil and refined products 126,106 96,483
--------- ---------
-- --
Merchandise inventory at FIFO 6,783 6,806
(approximates current cost)
LIFO allowance (1,929 ) (
--------- 1,929)
-- ---------
--
Total merchandise 4,854 4,877
--------- ---------
-- --
Materials and supplies inventory at FIFO 7,977 7,919
--------- ---------
-- --
TOTAL INVENTORY $138,937 $109,279
========= =========
== ==
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NOTE C - LONG-TERM DEBT AND CREDIT ARRANGEMENTS
Long-term debt consists of the following:
March 31 December
31
1998 1997
--------- ---------
--- ---
(thousands of
dollars)
<S> <C> <C>
Unsecured 10.875% Senior Notes $124,786 $124,779
Credit Agreement 25,000
Purchase Money Liens 5,962 3,859
Other obligations 334 366
--------- ---------
-- --
156,082 129,004
Less current portion 26,894 1,498
--------- ---------
-- --
LONG-TERM DEBT $129,188 $127,506
========= =========
== ==
</TABLE>
As of March 31, 1998, under the terms of the
First Restated Credit Agreement dated as of
August 1, 1997, as amended (Credit Agreement),
the Company had outstanding cash borrowings in
the principal amount of $25 million, which is
included in the current portion of long-term
debt, and outstanding irrevocable standby letters
of credit in the principal amount of $5.4
million. Unused commitments under the terms of
the Credit Agreement totaling $79.6 million were
available for future cash borrowings and issuance
of letters of credit at March 31, 1998. As of
March 31, 1998, the Company was in compliance
with all covenants and provisions of the Credit
Agreement, as amended, and forecasts that, but
there can be no assurance that, it will remain in
compliance for the remainder of the year. As
discussed in the Liquidity and Capital Resources
section of Management's Discussion and Analysis
of Financial Condition, subsequent to March 31,
1998, the level of cash borrowings and letters of
credit outstanding under the Credit Agreement
decreased significantly.
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 March 31, 1998, the Company was in
compliance with the terms of the Indenture. The
Indenture includes certain restrictions and
limitations customary with senior indebtedness of
this type, including, but not limited to the
amount of additional indebtedness the Company may
incur outside of the Credit Agreement, the
payment of dividends and the repurchase of
capital stock . As of March 31, 1998, the
Indenture substantially restricted the Company
from effecting borrowings outside of the Credit
Agreement and precluded the payment of dividends.
The Company has not paid a dividend on its shares
of common stock since the first quarter, 1992.
NOTE D - CRUDE OIL AND REFINED PRODUCT HEDGING
ACTIVITIES
The net deferred gain from futures contracts
included in crude oil and refined product hedging
strategies was $.8 million at March 31, 1998.
Included in these hedging strategies are futures
contracts maturing from May 1998 to December
1998. The Company is using these contracts to
defer the pricing of approximately 9% of its
crude oil commitments, fix the supply cost of
crude oil on less than 1% of supply and fix the
margin on less than 1% of its refined products,
for the aforementioned period.
NOTE E - CALCULATION OF NET (LOSS) INCOME PER
COMMON SHARE
Net (loss) income per common share for the three
months ended March 31, 1998 and 1997 is based on
the weighted average of common shares outstanding
of 9,812,569 and 9,733,480, respectively. The
average outstanding and equivalent shares
excludes 147,300 and 168,000 shares of
Performance Vested Restricted Stock (PVRS)
registered to participants in the 1994 Long-Term
Incentive Plan (Plan) at March 31, 1998 and 1997,
respectively. The PVRS shares are not considered
outstanding for earnings per share calculations
until the shares are released to the Plan
participants.
<PAGE>
The following table provides a reconciliation of
the basic and diluted earnings per share
calculations:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
31
1998 1997
--------- ------------
-- -
(dollars in thousands,
except per share data)
<S> <C> <C>
(LOSS) INCOME APPLICABLE TO COMMON
SHARES
Net (loss) income $ (13,743 ) $ 724
========= ============
== =
Common shares outstanding at January 1,
1998 and 1997, respectively 10,058,168 9,983,180
Restricted shares held by the Company
at January 1, 1998 and 1997,
respectively (260,700 ) (249,700 )
Weighted average effect of shares of
common stock issued for stock
option exercises 15,101
--------- ------------
-- -
Weighted average number of
common shares outstanding,
as adjusted at March 31,
1998 and 1997, respectively
basic and diluted 9,812,569 9,733,480
========= ============
== =
EARNINGS PER SHARE:
Net (loss) income - basic and diluted $ (1.40 ) $ .07
========= ============
==
</TABLE>
At March 31, 1998, the Company had non-qualified stock
options and performance vested restricted awards
outstanding representing 357,357 total potential common
shares that were not included in the diluted earnings
per share calculation since doing so would have been
anti-dilutive.
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 $10.7 million as of March 31,
1998 to cover the estimated costs of compliance
with environmental regulations which are not
anticipated to be of capital nature.
Except as noted above, there have been no
material changes in the status of litigation and
contingencies as discussed in Note I of Notes to
Consolidated Financial Statements in the Annual
Report on Form 10-K for the fiscal year ended
December 31, 1997.
ITEM 2 -MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company's Sales and operating revenues decreased
$68.6 million or 17.4% in the first quarter of 1998
from the comparable period in 1997. The decrease in
Sales and operating revenues was primarily attributable
to a 25.3% decrease in the average sales price per
gallon of petroleum products which was partially offset
by a 10.1% increase in petroleum product sales volumes
due principally to the expiration of the processing
agreement with Statoil North America, Inc. which
effectively increased the Company's refined product
available for sale. Merchandise sales for the three
months ended March 31, 1998 remained consistent with
the same 1997 period.
<PAGE>
Costs and operating expenses decreased $46.6 million or
12.9% in the first quarter of 1998 from the comparable
period in 1997. The decrease was due to a 29% decrease
in the average cost per barrel consumed of crude oil
and feedstocks. These decreases were partially offset
by increases in volumes sold as previously discussed.
The results of operations were significantly affected
by the Company's use of the LIFO method to value
inventory, which in a period of falling prices
increased the Company's gross margin $1.12 per barrel
($15.1 million) in 1998 and $.72 per barrel ($9.9
million) in 1997.
The aforementioned decrease in Sales and operating
revenues coupled with the decrease in Costs and
operating expenses resulted in an overall decrease in
gross margin of $22 million for the first quarter of
1998 compared to the same 1997 period. The decrease in
average sales price per gallon of petroleum products
reflected similar industry-wide decreases due to excess
supply of refined petroleum products, principally
distillates, due primarily to the unseasonably warm
winter in the Company's marketing areas. Additionally,
decreases in the cost of the Company's crude oil and
purchased feedstocks reflect industry-wide decreases in
prices of these products, however, these decreases
were not as significant as the decreases in finished
product sales prices.
Gasoline gross margin (gasoline gross profit as a
percent of gasoline sales) at the Company's retail
locations increased from $.116 per gallon to $.131 per
gallon, respectively, for the three months ended March
31, 1997 and 1998 due primarily to improved driving
conditions which resulted in an increase in retail
gasoline prices driven by an increase in demand for
gasoline. Retail gasoline margins are also generally
favorably impacted in a period of rapidly falling crude
oil prices as retail prices generally decline less
quickly. Aggregate gasoline gross profit on a same
store basis increased by 8.5% for the quarter ended
March 31, 1998 compared to the same 1997 period.
Merchandise gross margin (merchandise gross profit as a
percent of merchandise sales) increased slightly from
30.8% to 31.8% for the first quarter of 1997 and 1998,
respectively. This slight 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. This marketing strategy has
resulted in average monthly merchandise sales
increases, on a same store basis, of approximately 2.2%
for the three months ended March 31, 1998 compared to
the same 1997 period and has contributed to the $.3
million or 4% increase in merchandise gross profit.
Aggregate year to date merchandise gross profit on a
same store basis increased by 1.3% in 1998 compared to
the same 1997 period.
Yields of gasoline increased slightly from 83,200
barrels per day (bpd) (54.1%) for the first quarter
1997 to 83,500 bpd (55.8%) for the first quarter 1998
while distillate production decreased slightly from
49,800 bpd (32.4%) for the first quarter 1997 to 46,500
bpd (31%) for the same period in 1998.
Selling expenses increased $1.7 million or 9.1% for the
three months ended March 31, 1998 compared to the same
period in 1997. The increase is principally due to
increases in expenses for technology enhancements at
the Company's retail sites and in retail support
locations and to increases in labor costs at retail
sites. Additionally, marketing promotion related
expenses increased slightly in the first quarter of
1998 compared to the first quarter of 1997.
Administrative expenses for the three months ended
March 31, 1998 were comparable to the same period in
1997.
Depreciation and amortization in the first quarter of
1998 increased $.4 million or 5% from the comparable
1997 period. This increase is primarily attributable
to increases in the amortization of refinery deferred
turnaround expenses related to turnarounds performed in
the second and fourth quarters of 1997.
Operating costs and expenses for the three months ended
March 31, 1998 included $.3 million of expenses for
retail units that have been closed compared to $.3
million of expenses for closed retail units for the
three months ended March 31, 1997. Additionally, the
first quarter of 1997 includes $2.5 million in
reductions of accruals related to environmental
matters.
Interest and other income for the quarter ended March
31, 1998 increased $1 million or 49.5% compared to the
same 1997 period due to a $.9 million dividend from the
Company's investment in an unconsolidated affiliate.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities (including
changes in assets and liabilities) totaled $22.5
million for the three months ended March 31, 1998
compared to cash used in operating activities of $14
million for the three months ended March 31, 1997. The
1998 outflows consist primarily of cash used in
operations of $13.8 million before changes in assets
and liabilities. Additionally, the 1998 outflows
included net cash outflows from changes in assets and
liabilities of $8.7 million due primarily to increases
in the volume of crude oil and finished product
inventories, to decreases in incentive plan accruals
and to decreases in accrued interest payable related to
the Company's long-term obligations. These working
capital outflows were partially offset by decreases in
accounts receivable, and increasesin crude oil and
refined products payable and in other accounts payable.
The 1997 outflows consist primarily of net cash
outflows of $20.1 million related primarily to working
capital requirements resulting from increases in the
volume of crude oil and finished product inventories
and decreases in accrued interest payable related to
the Company's long-term obligations and decreases in
other accounts payable. These working capital outflows
were partially offset by increases in crude oil and
refined products payables, decreases in accounts
receivable and decreases in prepaid operating expenses
principally related to prepaid insurance premiums and
deferred losses on futures trading activity. Partially
offsetting these cash outflows was net cash provided by
operations of $6.1 million before changes in assets and
liabilities.
Net cash outflows from investment activities were $11.5
million for the three months ended March 31, 1998
compared to a net outflow of $8.8 million for the same
1997 period. The 1998 outflows consist primarily of
capital expenditures of $10 million (which includes
$8.2 million relating to the marketing area, $1.4
relating to corporate projects and $.4 million for
refinery operations). Additionally, there were $1.1
million in capitalized software costs and $.5 million
of deferred refinery turnaround expenditures. These
cash outflows were partially offset by proceeds from
the sale of property, plant and equipment of $.2
million. The 1997 amount consists principally of
capital expenditures of $7.1 million (which includes
$2.6 million for refinery operations and $2.4 million
relating to the marketing area). Additionally, there
were deferred turnaround expenditures of $1.8 million
and $.9 million in capitalized expenditures related to
corporate strategic projects. These cash outflows were
partially offset by proceeds from the sale of property,
plant and equipment of $.9 million and decreases in
investments in unconsolidated affiliatesof $.3 million.
Net cash provided by financing activities was $27.7
million for the three months ended March 31, 1998
compared to cash provided by financing activities of
$15.1 million for the three months ended March 31,
1997. The 1998 cash inflow consists primarily of $27.4
in net proceeds received from debt and credit agreement
borrowings due primarily to net cash borrowings from
the Company's unsecured revolving Credit Agreement.
Additionally, cash inflows include $.6 million received
from the issuance of the Company's Class B Common Stock
resulting from exercises of non-qualified stock options
granted to participants of the Company's Long-Term
Incentive Plans. The 1997 cash inflow consists
principally of $14.7 million in net proceeds received
from debt and credit agreement borrowings due primarily
to net cash borrowings from the Company's unsecured
revolving Credit Agreement. Additionally, long-term
notes receivable decreased $.4 million.
Cash and cash equivalents at March 31, 1998 were $2
million higher than at March 31, 1997. This increase
resulted primarily from cash provided by operating
activities of $32.4 million. Additionally, cash
provided by financing activities for the twelve month
period ended March 31, 1998 totaled $14.3 million
relating primarily to net borrowings from the Company's
debt and credit agreement facilities of $12.8 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 $1.4 million. Partially
offsetting these cash inflows was cash used in
investment activities of $44.6 million, which includes
capital expenditures of $28.1 million, net of $6.7
million of proceeds received from the sale of property,
plant and equipment. Additionally, cash outflows from
investment activities included deferred turnaround
charges of $12.7 million and $4.1 million in
capitalized expenditures related to corporate strategic
projects. These cash outflows were partially offset by
an increase in cash of $.5 million resulting from
decreases in other deferred assets.
The ratio of current assets to current liabilities at
March 31, 1998 was 1.31:1 compared to 1.25:1 at March
31, 1997 and 1.47:1 at December 31, 1997. If FIFO
values had been used for all inventories, assuming an
incremental effective income tax rate of 38.5%, the
ratio of current assets to current liabilities would
have been 1.37:1 at March 31, 1998, 1.46:1 at March 31,
1997 and 1.63:1 at December 31, 1997.
<PAGE>
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 $10.7 million as
of March 31, 1998 to cover the estimated costs of
compliance with environmental regulations which are not
anticipated to be of a capital nature. The liability
of $10.7 million includes accruals for issues extending
past 1998.
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 1998, the Company estimates environmental
expenditures at the Pasadena and Tyler refineries, of
at least $2.5 million and $1.4 million, respectively.
Of these expenditures, it is anticipated that $1.5
million for Pasadena and $1 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 $1.6 million
during 1998.
The Company's principle purchases (crude oil and
convenience store merchandise) are transacted primarily
under open lines of credit with its major suppliers.
The Company maintains two credit facilities to finance
its business requirements and supplement internally
generated sources of cash.
Under the First Restated Credit Agreement effective
August 1, 1997, as amended (Credit Agreement), as of
April 30, 1998, the Company had outstanding $5 million
in cash borrowings and outstanding irrevocable standby
letters of credit in the principal amount of $5.4
million for purposes in the ordinary course of
business. At March 31, 1998, the Company was in
compliance with all covenants and provisions of the
Credit Agreement, as amended. Meeting the covenants
imposed by the Credit Agreement is dependent, among
other things, upon the level of future earnings. The
Company reasonably expects to continue to be in
compliance with the covenants imposed by the Credit
Agreement or a successor agreement for the remainder of
the year.
At the Company's option, the Unsecured 10.875% Senior
Notes (Notes) may be redeemed at 105.438% of the
principal amount at any time after January 31, 2000 and
thereafter at an annually declining premium over par
until February 1, 2003 when they are redeemable at par.
The Notes were issued under an Indenture which includes
certain restrictions and limitations customary with
senior indebtedness of this type including, but not
limited to, the payment of dividends and the repurchase
of capital stock. There are no sinking fund
requirements on the Notes. As of March 31, 1998, the
Indenture substantially restricted the Company from
effecting borrowings outside of the Credit Agreement
and precluded the Company from paying any dividends.
The Company has not paid a dividend on its shares of
common stock since the first quarter of 1992. As
outlined in the Company's planned capital requirements
described below, while the Company is limited by the
Indenture from effecting borrowings outside of the
Credit Agreement, it does not currently plan to effect
any borrowings outside of the Credit Agreement.
The Purchase Money Lien effective December 1, 1993 is
secured by certain service station and terminal
equipment and office furnishings having a cost basis of
$6.5 million. The effective rate for this Purchase
Money Lien is 6.65%. Ninety percent of the principal
is payable in 60 equal monthly installments which
commenced in February 1994 with a balloon payment of
10% of the principal payable in January 1999.
<PAGE>
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
borrowing 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 borrowing for equipment
under the Money Lien is repayable in 60 monthly
installments. The effective rate of each borrowing 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 borrowing of $15 million. At
March 31, 1998, the Company has borrowed $3.9 million
from the Money Lien. The Money Lien is secured by the
service station and convenience store land, buildings
and equipment having a cost basis of $4.2 million at
March 31, 1998. 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 $4 million
Lease Line of Credit (Lease Line) to finance point-of-
sale computer equipment to be installed at its company
operated retail facilities. At March 31, 1998, the
Company has drawn $3.9 million of the Lease Line.
The Company's management is involved in a continual
process of evaluating growth opportunities in its core
business as well as its capital resource alternatives.
Total capital expenditures and deferred turnaround
costs in 1998 are projected to approximate $50 million.
The capital expenditures relate primarily to planned
enhancements at the Company's refineries, retail unit
improvements, additionally retail units 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 First Restated Credit Agreement 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. The First Restated Credit Agreement
expires on September 30, 1999 but may be extended for a
period of one year upon agreement between the Company
and a majority of the participant banks. 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.
The Company faces intense competition in all of the
business areas in which it operates. Many of the
Company's competitors are substantially larger and
therefore, the Company's earnings can be affected by
the marketing and pricing policies of its competitors,
as well as changes in raw material costs.
Merchandise sales and operating revenues from the
Company's convenience stores are seasonal in nature,
generally producing higher sales and net income in the
summer months than at other times of the year.
Gasoline sales, both at the Crown multi-pumps and
convenience stores, are also somewhat seasonal in
nature and, therefore, related revenues may vary during
the year. The seasonality does not, however,
negatively impact the Company's overall ability to sell
its refined products.
The Company maintains business interruption insurance
to protect itself against losses resulting from
shutdowns to refinery operations from fire, explosions
and certain other insured casualties. Business
interruption coverage begins for such losses in excess
of $1 million.
The Company has disclosed in Item 3. Legal Proceedings
of the Annual Report on Form 10-K for the fiscal year
ended December 31, 1997, various contingencies which
involve litigation, environmental liabilities and
examinations by the Internal Revenue Service.
Depending on the occurrence, amount and timing of an
unfavorable resolution of these contingencies, the
outcome of which cannot reasonably be determined at
this time, it is possible that the Company's future
results of operations and cash flows could be
materially affected in a particular quarter or year.
However, the Company has concluded, after consultation
with counsel, that there is no reasonable basis to
believe that the ultimate resolution of any of these
contingencies will have a material adverse effect on
the Company. Additionally, as discussed in Item 3.
Legal Proceedings of the Annual Report on Form 10-K for
the fiscal year ended December 31, 1997, the Company's
collective bargaining agreement at its Pasadena
refinery expired on February 1, 1996, and on February
5, 1996, the Company invoked a lock-out of employees in
the collective bargaining unit. The Company has been
operating the Pasadena refinery without interruption
since the lock-out and intends to continue to do so
during the negotiation period with the collective
bargaining unit.
<PAGE>
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company's operating results have been, and will
continue to be, affected by a wide variety of factors
that could have an adverse effect on profitability
during any particular period, many of which are beyond
the Company's control. Among these are the demand for
crude oil and refined products, which is largely driven
by the condition of local and worldwide economies,
although seasonality and weather patterns also play a
significant part. Governmental regulations and
policies, particularly in the areas of energy and the
environment, also have a significant impact on the
Company's activities. Operating results can be
affected by these industry factors, by competition in
the particular geographic markets that the Company
serves and by Company-specific factors, such as the
success of particular marketing programs and refinery
operations.
In addition, the Company's profitability depends
largely on the difference between market prices for
refined petroleum products and crude oil prices. This
margin is continually changing and may significantly
fluctuate from time to time. Crude oil and refined
products are commodities whose price levels are
determined by market forces beyond the control of the
Company. Additionally, due to the seasonality of
refined products and refinery maintenance schedules,
results of operations for any particular quarter of a
fiscal year are not necessarily indicative of results
for the full year. In general, prices for refined
products are significantly influenced by the price of
crude oil. Although an increase or decrease in the
price for crude oil generally results in a
corresponding increase or decrease in prices for
refined products, often there is a lag time in the
realization of the corresponding increase or decrease
in prices for refined products. The effect of changes
in crude oil prices on operating results therefore
depends in part on how quickly refined product prices
adjust to reflect these changes. A substantial or
prolonged increase in crude oil prices without a
corresponding increase in refined product prices, a
substantial or prolonged decrease in refined product
prices without a corresponding decrease in crude oil
prices, or a substantial or prolonged decrease in
demand for refined products could have a significant
negative effect on the Company's earnings and cash
flows.
The Company is dependent on refining and selling
quantities of refined products at margins sufficient to
cover operating costs, including any future
inflationary pressures. The refining business is
characterized by high fixed costs resulting from the
significant capital outlays associated with refineries,
terminals and related facilities. Furthermore, future
regulatory requirements or competitive pressures could
result in additional capital expenditures, which may or
may not produce desired results. Such capital
expenditures may require significant financial
resources that may be contingent on the Company's
continued access to capital markets and commercial bank
financing on favorable terms.
Purchases of crude oil supply are typically made
pursuant to relatively short-term, renewable contracts
with numerous foreign and domestic major and
independent oil producers, generally containing market-
responsive pricing provisions. Futures, forwards and
exchange traded options are used to minimize the
exposure of the Company's refining margins to crude oil
and refined product fluctuations. The Company also
uses the futures market to help manage the price risk
inherent in purchasing crude oil in advance of the
delivery date, and in maintaining the inventories
contained within its refinery and pipeline system.
Hedging strategies used to minimize this exposure
include fixing a future margin between crude and
certain finished products and also hedging fixed price
purchase and sales commitments of crude oil and refined
products. While the Company's hedging activities are
intended to reduce volatility while providing an
acceptable profit margin on a portion of production,
the use of such a program can effect the Company's
ability to participate in an improvement in related
product profit margins. Although the Company's net
sales and operating revenues fluctuate significantly
with movements in industry crude oil prices, such
prices do not have a direct relationship to net
earnings, which are subject to the impact of the
Company's LIFO method of accounting discussed below.
The effect of changes in crude oil prices on the
Company's operating results is determined more by the
rate at which the prices of refined products adjust to
reflect such changes.
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.
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.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
There has been no material change in the status of
legal proceedings as reported in Item 3 of the
Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1997.
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 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
(a)At the Annual Meeting of Stockholders held on
April 23, 1998, a shareholder proposal concerning
executive compensation was submitted. The
complete Shareholder Proposal, the proponents
Supporting Statement and the Board of Directors
Statement in Opposition are set forth on pages 13
and 14 of the Company's Proxy Statement dated
March 26, 1998. The results of the shareholder
voting on this proposal was as follows: 200,295
in the affirmative, 3,7377,037 against, 12,250
abstentions and 546,257 broker non-votes.
(b) At the Annual Meeting of Stockholders held on
April 23, 1998, a shareholder proposal concerning
relationships between the Company and certain
officers was submitted. The complete Shareholder
Proposal, the proponents Supporting Statement and
the Board of Directors Statement in Opposition are
set forth on pages 14 and 15 of the Company's
Proxy Statement dated March 26, 1998. The results
of the shareholder voting on this proposal was as
follows: 202,004 in the affirmative, 3,736,859
against, 10,731 abstentions and 546,245 broker non-
votes.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit:
4 - Amendment, effective as of March 31,
1998, to the First Restated Credit Agreement
effective as of August 1, 1997.
10 - Second Amendment, effective as of
January 29, 1998, to the Crown Central Petroleum
Corporation 1994 Long-Term Incentive Plan.
20 - Interim Report to Stockholders for the
three months ended March 31, 1998.
27 (a)- Financial Data Schedule for the
three months ended March 31, 1998.
27 (b)- Financial Data Schedule for the
three months ended March 31, 1997 - revised.
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed with
the Securities and Exchange Commission during the
three months ended March 31, 1998.
<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 March 31, 1998 to be signed on its
behalf by the undersigned thereunto duly
authorized.
CROWN CENTRAL PETROLEUM
CORPORATION
/s/--Jan L. Ries
Jan L. Ries
Controller
Chief Accounting Officer
and Duly Authorized Officer
Date: May 15, 1998
<PAGE>
EXHIBIT 4
FIRST AMENDMENT TO FIRST RESTATED CREDIT
AGREEMENT
THIS FIRST AMENDMENT TO FIRST RESTATED
CREDIT AGREEMENT (this "Amendment") is made as of
the 14th day of May, 1998 and effective as of
March 31, 1998, among: Crown Central Petroleum
Corporation, a corporation duly organized and
validly existing under the laws of the State of
Maryland (the "Company"); each Bank signatory
hereto; BankBoston, N.A., as Documentation Agent,
and NationsBank, N.A. (f/k/a NationsBank of
Texas, N.A.), as Administrative Agent and as
Letter of Credit Agent.
RECITALS
1. The Company and the Bank Parties
entered into that certain First Restated Credit
Agreement dated as of August 1, 1997 (the
"Original Agreement"), for the purpose and
consideration therein expressed.
2. The Company and the Bank Parties
signatory hereto desire to amend the Original
Agreement as expressly set forth herein.
NOW, THEREFORE, in consideration of the
premises and the mutual covenants and agreements
contained herein and in the Original Agreement
and in consideration of the credit which may
hereafter be extended by the Banks to the
Company, and for other good and valuable
consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I. -- Definitions and References
Section 1.1. TERMS DEFINED IN THE ORIGINAL
AGREEMENT. Unless the context otherwise requires
or unless otherwise expressly defined herein, the
terms defined in the Original Agreement shall
have the same meanings whenever used in this
Amendment.
Section 1.2. OTHER DEFINED TERMS. Unless
the context otherwise requires, the following
terms when used in this Amendment shall have the
meanings assigned to them in this Section 1.2.
"Amendment" shall mean this First Amendment
to First Restated Credit Agreement.
"Credit Agreement" shall mean the Original
Agreement as amended hereby.
ARTICLE II. -- AMENDMENTS TO ORIGINAL AGREEMENT
Section 2.1. SHORT-TERM FIFO NET INCOME
(LOSS). Section 8.23 of the Original Agreement
is hereby amended in its entirety to read as
follows:
Section 8.23. SHORT-TERM FIFO NET INCOME
(LOSS). The Company shall cause FIFO Net Income
(Loss) to be greater than ($15,200,000) for each
short-term measurement period commencing on or
after August 1, 1996 (i.e., either to be positive
or, if a loss, not to be a loss of more than
$15,200,000), except for the short-term
measurement periods commencing on April 1, 1997,
May 1, 1997, June 1, 1997 and July 1, 1997, for
which the Company shall cause FIFO Net Income
(Loss) to be greater than ($18,500,000) for such
periods.. As used in this Section 8.23, "short-
term measurement period" means any period of
twelve consecutive calendar months.
ARTICLE III. -- CONDITIONS OF EFFECTIVENESS
Section 3.1. EFFECTIVE DATE. This
Amendment shall become effective when, and only
when, (i) Administrative Agent shall have
received, at Administrative Agent's office, a
counterpart of this Amendment executed and
delivered by the Company, the Administrative
Agent, the Letter of Credit Agent and the
Majority Banks and (ii) Administrative Agent
shall have additionally received such supporting
documents as Administrative Agent may reasonably
request.
Section 3.2. AMENDMENT FEE. In
consideration hereof, the Company hereby agrees
to pay to the Administrative Agent, for the
account of each Bank signatory hereto on or
before 12:00 noon EST, Thursday, May 14, 1998, an
amendment fee equal to ten Basis Points times
such Bank's Commitment; provided, Majority Banks
shall have executed and delivered this Amendment
on or before such time and date.
ARTICLE IV. -- REPRESENTATIONS AND WARRANTIES
Section 4.1. REPRESENTATIONS AND WARRANTIES
OF THE COMPANY. In order to induce each Bank to
enter into this Amendment, the Company represents
and warrants to each Bank that:
(a) The representations and warranties
contained in Section 7 of the Original Agreement
are true and correct and no Default or Event of
Default exists at and as of the time of the
effectiveness hereof, in each case after giving
effect to the amendments herein made.
(b) The Company is duly authorized to
execute and deliver this Amendment and is and
will continue to be duly authorized to borrow
monies and to perform its obligations under the
Credit Agreement. The Company has duly taken all
corporate action necessary to authorize the
execution and delivery of this Amendment and to
authorize the performance of the obligations of
the Company hereunder.
(c) The execution and delivery by the
Company of this Amendment, the performance by the
Company of its obligations hereunder and the
consummation of the transactions contemplated
hereby do not and will not conflict with any
provision of law, statute, rule or regulation or
of the articles or certificate of incorporation
and bylaws of the Company, or of any material
agreement, judgment, license, order or permit
applicable to or binding upon the Company, or
result in the creation of any lien, charge or
encumbrance upon any assets or properties of the
Company. Except for those which have been
obtained, no consent, approval, authorization or
order of any court or governmental authority or
third party is required in connection with the
execution and delivery by the Company of this
Amendment or to consummate the transactions
contemplated hereby.
(d) When duly executed and delivered, each
of this Amendment and the Credit Agreement will
be a legal and binding obligation of the Company,
enforceable in accordance with its terms, except
as limited by bankruptcy, insolvency or similar
laws of general application relating to the
enforcement of creditors' rights and by equitable
principles of general application.
ARTICLE V. -- MISCELLANEOUS
Section 5.1. RATIFICATION OF AGREEMENTS.
The Original Agreement as hereby amended,
together with all of the other Loan Documents,
are hereby ratified and confirmed in all
respects. Any reference to the Credit Agreement
in any Loan Document shall be deemed to be a
reference to the Original Agreement as hereby
amended. The execution, delivery and
effectiveness of this Amendment shall not, except
as expressly provided herein, operate as a waiver
of any right, power or remedy of the Banks under
the Credit Agreement, the Notes, or any other
Loan Document nor constitute a waiver of any
provision of the Credit Agreement, the Notes or
any other Loan Document.
Section 5.2. SURVIVAL OF AGREEMENTS. All
representations, warranties, covenants and
agreements of the Company herein shall survive
the execution and delivery of this Amendment and
the performance hereof, including without
limitation the making or granting of the Loans,
and shall further survive until all of the
Obligations are paid in full. All statements and
agreements contained in any certificate or
instrument delivered by the Company hereunder or
under the Credit Agreement to any Bank shall be
deemed to constitute representations and
warranties by, and/or agreements and covenants
of, the Company under this Amendment and under
the Credit Agreement.
Section 5.3. LOAN DOCUMENTS. This
Amendment is a Loan Document, and all provisions
in the Credit Agreement pertaining to Loan
Documents apply hereto.
Section 5.4. GOVERNING LAW. This Amendment
shall be governed by and construed in accordance
the laws of the State of Texas and any applicable
laws of the United States of America in all
respects, including construction, validity and
performance.
Section 5.5. COUNTERPARTS. This Amendment
may be separately executed in counterparts and by
the different parties hereto in separate
counterparts, each of which when so executed
shall be deemed to constitute one and the same
Amendment.
IN WITNESS WHEREOF, this Amendment is
executed as of the date first above written.
CROWN CENTRAL PETROLEUM CORPORATION
By: /S/ - - - JOHN E. WHEELER, JR.
----------------------------
John E. Wheeler, Jr.
Executive Vice President and
Chief Financial Officer
NATIONSBANK, N.A.
(f/k/a NationsBank of Texas, N.A.),
as Administrative Agent, Letter of
Credit Agent
and a Bank
By: /S/ - - - PATRICK M. DELANEY
--------------------------
Patrick M. Delaney
Senior Vice President
BANKBOSTON, N.A.,
as Documentation Agent and a Bank
By: /S/ - - - CHRISTOPHER HOLMGREN
------------------------------
Name: Christopher Holmgren
Title: Director
FIRST NATIONAL BANK OF MARYLAND, as a
Bank
By: /S/ - - - SUSAN ELLIOTT BENNINGHOFF
-----------------------------------
Name: Susan Elliott Benninghoff
Title: Vice President
FIRST UNION NATIONAL BANK, as a Bank
By: /S/ - - - KEVIN MAHON
---------------------
Name: Kevin Mahon
Title: Vice President
DEN NORSKE BANK ASA, as a Bank
By: /S/ - - - BYRON L. COOLEY
--------------------------
Name: Byron L. Cooley
Title:Senior Vice President
HIBERNIA NATIONAL BANK, as a Bank
By: /S/ - - - COLLEEN MCEVOY
------------------------
Name: Colleen McEvoy
Title:Vice President
CRESTAR BANK, as a Bank
By: /S/ - - - PAUL R. BELIVEAU
--------------------------
Name:Paul R. Beliveau
Title:Vice President
PNC BANK, N.A., as a Bank
By: /S/ - - - JOHN R. WAY
---------------------
Name: John R. Way
Title: Assistant Vice President
<PAGE>
EXHIBIT 10
SECOND AMENDMENT
TO THE
CROWN CENTRAL PETROLEUM CORPORATION
1994 LONG-TERM INCENTIVE PLAN
THIS SECOND AMENDMENT TO THE CROWN CENTRAL PETROLEUM
CORPORATION 1994 LONG-TERM INCENTIVE PLAN, made on this
29th day of January, 1998 BY CROWN CENTRAL PETROLEUM
CORPORATION, a Maryland corporation:
WITNESSETH
WHEREAS, Crown Central Petroleum Corporation (the
"Company") maintains the Crown Central Petroleum
Corporation 1994 Long-Term Incentive Plan (the "Plan").
The Company has the power to amend the Plan and now
wishes to do so.
NOW, THEREFORE, the Plan is amended as follows:
I. Section 6(a)(1) of the Plan is amended in its
entirety to read as follows:
1) Non-assignability.
A. A provision that no Award shall be assignable or
transferable other than by will or the laws of descent
and distribution, except as provided in B. below.
Except for an Award transferred pursuant to a provision
meeting the requirements of B. below, a provision that
the Award shall be exercisable, during the lifetime of
the Participant, only by the Participant or the
Participant's guardian or legal representative.
B. To the extent determined by the Committee in new
or amended Awards, a provision that, subject to
applicable securities laws, a Participant may transfer
Non-qualified Stock Options that have been or will be
granted to the Participant under this Plan to one or
more of the Participant's immediate family members, to
a trust or trusts for the benefit of any one or more of
the Participant's immediate family members, or to a
partnership, limited liability company or other entity
the only partners, members or interest holders of which
are the Participant or are among the Participant's
immediate family members. No consideration may be paid
for the transfer of any Non-qualified Stock Options.
The transferee shall be subject to all conditions
applicable to the Non-qualified Stock Option prior to
its transfer. The Committee may impose on any Non-
qualified Stock Option, and on Stock issued upon
exercise of a Non-qualified Stock Option, such
limitations and conditions as the Committee deems
appropriate, and may amend the agreement granting the
Non-qualified Stock Option to set forth such
limitations and conditions.
II. This Amendment shall be effective as of January
29, 1998
IN WITNESS WHEREOF, the Company has caused this
Amendment to be executed by its duly authorized officer
and its corporate seal duly attested as of the day and
year first above written.
ATTEST: CROWN CENTRAL PETROLEUM
CORPORATION
/s/--DELORES B. RAWLINGS By /S/--HENRY A.
ROSENBERG, JR.
- ------------------------ ------------------------------
- --
Delores B. Rawlings Henry A. Rosenberg, Jr.
Chairman of the Board
<PAGE>
EXHIBIT 20
APRIL 24, 1998 RESULTS FIRST QUARTER 1998
Dear Shareholders:
Crown Central Petroleum Corporation announced
a loss of $13.7 million ($1.40 per share) on
revenues of $326 million for the first quarter of
1998 compared to a profit of $.07 million on
revenues of $395 million in the first quarter of
1997.
The erosion of gasoline and distillate
margins that began in the fourth quarter of 1997
carried over through the first quarter of 1998.
Crude oil having finally bottomed out in mid-March
having dropped by 40% since November, was the
primary cause of the quarterly loss.
Operationally, during the first quarter, the fluid
catalytic cracking unit at our Pasadena, Texas
refinery was down for 12 days for unscheduled
maintenance. One of two alkylation units at
Pasadena and the one unit at our Tyler, Texas
refinery underwent scheduled 10 day maintenance
turnarounds.
The loss the Company experienced was
primarily due to the sharp fall in the price of
oil during the first quarter of 1998. Because of
the severe backwardization in the oil markets that
occurred in 1996, during the first quarter of 1997
the Company decided to price its crude oil more
into the future, meaning pricing the crude before
it is manufactured into products. The Company
continues to maintain its current pricing strategy
as it is believed that raw materials should
expectedly recover from the extreme lows recorded
during the first quarter. At different price
levels the Company will consider changing its
pricing strategy.
Crown's retail marketing operations reported
improved results compared to the same period in
1997. Retail merchandise gross profit increased
4.1% on comparable sales. Gasoline margins per
gallon improved 12.9% in the first quarter.
The volatility of crude, the basic,
fundamental component to our industry, makes for
challenging times. Both internally and
externally, Crown will continue to be disciplined
yet flexible in conducting its day to day
business. We have experienced this volatility in
the past but are encouraged by more positive
forecasts for the independent domestic refining
industry for the year ahead. I would like to
recognize the positive contribution retail
marketing continues to make.
Sincerely,
/S/--HENRY A. ROSENBERG,
JR.
--------------------------
- ---
HENRY A. ROSENBERG, JR.
Chairman of the Board,
Chief Executive Officer
and President
<TABLE>
<CAPTION>
CROWN CENTRAL PETROLEUM CORPORATION AND SUBSIDIARIES
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
Three Months Ended
March 31
1998 1997
--------- ---------
- --
<S> <C> <C>
Sales and operating revenues $325,960 $394,513
Income (loss) before income (22,192) 1
taxes ,423
Net income (loss) (13,743) 7
24
Net income (loss) per share $ (1.4 $.
0) 07
Weighted average shares used in
the computation of income (loss) 9,812,569 9
per share ,733,478
</TABLE>
<TABLE>
<CAPTION>
CROWN CENTRAL PETROLEUM CORPORATION
OPERATING STATISTICS
Three Months Ended
March 31
1998 1997
--------- ---------
-- --
<S> <C> <C>
COMBINED REFINERY OPERATIONS
- -----------------------------
Production (BPD-M) 150 154
Production (MMbbl) 13.5 13.9
Sales (MMbbl) 15.0 14.3
Gross Margin ($/bbl) 0.30 1.99
Gross Profit ($MM) 4.5 28.4
Operating Cost ($/bbl) (2.30) (2.17)
Operating Cost ($MM) (34.4) (30.9)
Net Refining (Loss)($MM) (29.9) (2.5)
RETAIL
- ----------------
Number Stores 343 341
Volume (pmps - Mgal) 121 126
Volume (MMgal) 125 129
Gasoline Gross Margin ($/gal) 0.131 0.116
Gasoline Gross Profit ($MM) 16.3 14.9
Merchandise Sales (pmps - $M) 23.7 23.7
Merchandise Sales ($MM) 24.3 24.2
Merchandise Gross Margin (%) 31.8 30.7
Merchandise Gross Profit ($MM) 7.7 7.4
Retail Gross Profit ($MM) 24.0 22.3
Retail Operating Costs (pmps - $M) (19.4) (18.0)
Retail Operating Costs ($MM) (19.9) (18.2)
Retail Non-Operating (Expense) (0.1) (0.2)
Income ($MM)
Retail Net Profit (Loss) ($MM) 4.0 3.9
WHOLESALE/TERMINAL NET (3.6) (1.8)
PROFIT(LOSS)($MM)
OTHER
- ----------------
LIFO Recovery (Provision)($MM) 15.1 9.9
Corporate Overhead ($MM) (5.6) (5.2)
Net Interest Expense ($MM) (2.8) (2.9)
Other Income ($MM) 0.7 0.0
(Loss) from Extrordinary Item ($MM)
Total Net Income (Loss) ($MM) (13.7) 0.7
Depreciation & Amortization ($MM) 8.2 7.8
LIFO (Recovery) Provision ($MM) (15.1) (9.9)
(Gain) from Asset Disposals ($MM) (0.0) (0.6)
Loss from Extraordinary Item ($MM)
Income Tax Expense (Benefit) (8.4) 0.7
EBITDAAL ($MM) (26.2) 1.6
-------------------------------
<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
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<PERIOD-TYPE> 3-MOS
<CAPTION>
EXHIBIT 27 (a)
Crown Central Petroleum Corporation and Subsidiaries
Financial Data Schedule
(In thousands, except per share amounts)
Three Months End
ed
March 31, 1998
----------------
--
<S> <C>
<CASH> $ (2 )
<SECURITIES> 30,342
<RECEIVABLES> 73,956
<ALLOWANCES> (729 )
<INVENTORY> 138,937
<CURRENT-ASSETS> 253,892
<PP&E> 644,727
<DEPRECIATION> 345,802
<TOTAL-ASSETS> 596,451
<CURRENT-LIABILITIES> 194,276
<BONDS> 129,188
0
0
<COMMON> 49,920
<OTHER-SE> 144,254
<TOTAL-LIABILITY-AND-EQUITY> 596,451
<SALES> 325,960
<TOTAL-REVENUES> 325,960
<CGS> 314,495
<TOTAL-COSTS> 314,495
<OTHER-EXPENSES> 33,324
<LOSS-PROVISION> 75
<INTEREST-EXPENSE> 3,530
<INCOME-PRETAX> (22,192 )
<INCOME-TAX> (8,449 )
<INCOME-CONTINUING> (13,743 )
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,743 )
<EPS-PRIMARY> (1.40 )
<EPS-DILUTED> (1.40 )
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<PERIOD-TYPE> 3-MOS
<CAPTION>
EXHIBIT 27 (b)
Crown Central Petroleum Corporation and Subsidiaries
Financial Data Schedule - AS REVISED
(In thousands, except per share amounts)
Three Months En
ded
March 31, 19
97
--------------
----
<S> <C>
<CASH> $ (1,878)
<SECURITIES> 30,215
<RECEIVABLES> 105,019
<ALLOWANCES> (701)
<INVENTORY> 124,674
<CURRENT-ASSETS> 267,473
<PP&E> 630,224
<DEPRECIATION> 331,710
<TOTAL-ASSETS> 600,073
<CURRENT-LIABILITIES> 214,214
<BONDS> 126,862
0
0
<COMMON> 49,507
<OTHER-SE> 138,590
<TOTAL-LIABILITY-AND-EQUITY> 600,073
<SALES> 394,513
<TOTAL-REVENUES> 394,513
<CGS> 361,058
<TOTAL-COSTS> 361,058
<OTHER-EXPENSES> 31,114
<LOSS-PROVISION> (377)
<INTEREST-EXPENSE> 3,501
<INCOME-PRETAX> 1,423
<INCOME-TAX> 699
<INCOME-CONTINUING> 724
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 724
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
