<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, 1999
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,
MARYLAND 21201
(Address of principal executive offices) (Zip Code)
410-539-7400
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO
The number of shares outstanding at April 30, 1999 of the Registrant's $5 par
value Class A and Class B Common Stock was 4,817,394 shares and 5,236,217
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, 1999 and December 31, 1998 3-4
Consolidated Condensed Statements of
Operations Three months ended March 31,
1999 and 1998 5
Consolidated Condensed Statements of Cash
Flows Three months ended March 31, 1999
and 1998 6
Notes to Unaudited Consolidated Condensed 7-12
Financial Statements
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of
Operations 12-20
Item 3 - Qualitative and Quantitative Disclosures
About Market Risk
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 20
Item 4 - Submission of Matters to a Vote of 20
Security Holders
Item 6 - Exhibits and Reports on Form 8-K 21
Exhibit 20 - Interim Report to
Stockholders for the three months ended March 31, 1999
Exhibit 27 (a)- Financial Data Schedule
for the three months ended March 31, 1999
Exhibit 27 (b)March 31, 1998 - Financial
Data Schedule for the three months ended
March 31, 1998 - revised
SIGNATURE 21
</TABLE>
<PAGE>
<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
1999 1998
---------- ----------
- -
<S> <C> <C>
ASSETS (Unaudited
)
CURRENT ASSETS
Cash and cash equivalents $23,231 $14,470
Restricted cash 12,000
Accounts receivable - net 71,184 60,227
Recoverable income taxes 569 616
Inventories 62,093 80,104
Other current assets 7,056 1,411
---------- ----------
--- ----
TOTAL CURRENT ASSETS 164,133 168,828
INVESTMENTS AND DEFERRED 47,286 47,044
CHARGES
PROPERTY, PLANT AND EQUIPMENT 677,677 668,395
Less allowance for 367,812 362,684
depreciation ---------- ----------
--- ----
NET PROPERTY, PLANT AND 309,865 305,711
EQUIPMENT
--------- ----------
--- ----
$ $
521,284 521,583
========== ==========
=== ===
<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
1999 1998
---------- ----------
---- -----
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' (Unaudited
EQUITY )
CURRENT LIABILITIES
Accounts Payable:
Crude oil and refined $65,882 $48,466
products
Other 39,126 36,750
Accrued Liabilities 42,773 53,730
Borrowings under Secured 20,000 10,000
Credit Facility
Current portion of long-term 617 1,307
debt ---------- ----------
--- ----
TOTAL CURRENT LIABILITIES 168,398 150,253
LONG-TERM DEBT 129,673 129,899
DEFERRED INCOME TAXES 17,421 23,947
OTHER DEFERRED LIABILITIES 38,622 38,711
COMMON STOCKHOLDERS' EQUITY
Common stock, Class A - par
value $5 per share:
Authorized shares --
7,500,000; issued and
Outstanding shares -- 24,087 24,087
4,817,394 in 1999 and 1998
Common stock, Class B - par
value $5 per share:
Authorized shares --
7,500,000; issued and
Outstanding shares -- 26,181 26,181
5,236,217 in 1999 and 1998
Additional paid-in capital 91,536 91,466
Unearned restricted stock (1,343) (1,500)
Retained earnings 26,709 38,539
---------- ----------
--- ----
TOTAL COMMON STOCKHOLDERS' 167,170 178,773
EQUITY
---------- ----------
--- ----
$ 52 $ 52
1,284 1,583
========== ==========
=== ====
<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
1999 1998
--------- -------
---- ------
<S> <C> <C>
REVENUES
Sales and operating revenues $225,165 $327,6
39
OPERATING COSTS AND EXPENSES
Costs and operating expenses 204,568 314,495
Selling expenses 22,584 20,130
Administrative expenses 5,562 5,125
Depreciation and amortization 8,789 8,164
Sales and abandonments of
property, 363 (20)
plant and equipment --------- -------
---- ------
241,866 347,894
--------- -------
---- ------
OPERATING (LOSS) (16,701 )(20,255 )
Interest and other income 1,846 1,593
Interest expense (3,495 )(3,530)
--------- -------
---- ------
(LOSS) BEFORE INCOME TAXES (18,350 ) (22,192 )
INCOME TAX (BENEFIT) (6,520 )(8,449)
--------- -------
---- ------
NET (LOSS) $(11,830 )$(13,7
========= 43 )
==== =======
======
NET (LOSS) PER SHARE - BASIC $ (1.20 )$(1.40)
AND DILUTED ========= =======
==== ======
<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
1999 1998
-------------- ----------
-----
<S> <C> <C>
NET CASH FLOWS FROM OPERATING
ACTIVITIES
Net cash from operations
before
Changes in assets and $4,468 $(13,802 )
liabilities
Net changes in assets and 9,151 (8,742 )
liabilities -------------- ----------
-----
NET CASH PROVIDED BY (USED 13,619 (22,544 )
IN) OPERATING -------------- ----------
ACTIVITIES -----
CASH FLOWS FROM INVESTMENT
ACTIVITIES
Capital Expenditures (9,210) (10,021 )
Proceeds from sales of
property, plant
And equipment 29 211
Capitalization of software (76) (76) (1,078 )
costs
Deferred turnaround (4,630) (474 )
maintenance
Other charges to deferred (552) (92 )
assets --------------- ----------
-----
NET CASH (USED IN) (14,439 ) (11,454 )
INVESTMENT ACTIVITIES --------------- ----------
-----
Cash Flows From Financing
Activities
Proceeds from debt and credit 97,000 27,441
agreement borrowings
(Repayments) of debt and (87,923 ) (372 )
credit agreement borrowings
Net cash flows from long-term 504 85
notes receivable
Issuance of common stock 562
-------------- ----------
----
NET CASH PROVIDED BY 9,581 27,716
FINANCING ACTIVITIES -------------- ----------
----
NET INCREASE (DECREASE) IN CASH $8,761 $(6,282 )
AND CASH 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, 1999
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, 1999 are not necessarily indicative
of the results that may be expected for the year ending December 31, 1999. 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, 1998.
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.
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.
[This space intentionally left blank]
<PAGE>
<TABLE>
<CAPTION>
NOTE B - SUPPLEMENTARY CASH FLOW INFORMATION
Net changes in assets and liabilities presented in the Unaudited Consolidated
Condensed Statements of Cash Flows is comprised on the following:
Three Months Ended
March 31
1999 1998
--------- ---------
----- ------
(thousands of
dollars)
<S> <C> <C>
(Increase) decrease in accounts receivable $(10,957 ) $29,303
Decrease (increase) in inventories 18,011 (29,659 )
(Increase) in other current assets (5,645 ) (1,873)
Increase in crude oil and refined products 17,416 4,660
payable
Increase in other accounts payable 2,376 1,391
(Decrease) in accrued liabilities and other (10,863 ) (12,740 )
deferred liabilities
(Increase) decrease in recoverable and (13,187 ) 176
deferred income taxes
Decrease in restricted cash 12,000
--------- ---------
----- -----
$ 9,151 $ (8,742 )
========= =========
===== =====
</TABLE>
<TABLE>
<CAPTION>
NOTE C - INVENTORIES
Inventories consist of the following:
March December
31 31
1999 1998
---------- ----------
(thousands of dollars)
<S> <C> <C>
Crude oil $16,910 $26,489
Refined products 40,124 39,776
----------- -----------
Total inventories at FIFO 57,034 66,265
(approximates current cost)
LIFO allowance (9,320 ) (184)
----------- -----------
Total crude oil and refined 47,714 66,081
products ----------- -----------
Merchandise inventory at FIFO 8,402 7,950
(approximates current cost)
LIFO allowance (2,515 ) (2,515 )
----------- -----------
Total merchandise 5,887 5,435
----------- -----------
Materials and supplies inventory at 8,492 8,588
FIFO ----------- -----------
TOTAL INVENTORY $62,093 $80,104
=========== ===========
<FN>
Due to the increase in refined product prices, the reserve of approximately $7.1
million recorded as of December 31, 1998 to reflect valuing inventories at the
lower of cost or market was reversed as of March 31, 1999.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NOTE D - LONG-TERM DEBT AND CREDIT ARRANGEMENTS
Long-term debt consists of the following:
March 31 December
31
1999 1998
------------- ---------
--- ------
(thousands of
dollars)
<S> <C> <C>
Unsecured 10.875% Senior $124,818 $124,810
Notes
Loan and Security Agreement 20,000 10,000
Purchase Money Liens 5,265 6,159
Other obligations 207 237
------------- ---------
- -----
150,290 141,206
Less current portion - Loan 20,000 10,000
and Security Agreement
Less current portion 617 1,307
------------- ---------
- -----
LONG-TERM DEBT $129,673 $129,899
============= =========
= =====
</TABLE>
The 10 7/8% Senior Notes due 2005 (Notes) were issued under an Indenture, which
includes certain restrictions and limitations, including the payment of
dividends, repurchase of capital stock and the incurrence of additional debt.
As of March 31, 1999, the Indenture substantially restricted the Company from
effecting borrowings outside of the Secured Credit Facility and precluded the
payment of dividends. The Company has not paid a dividend on its shares of
common stock since the first quarter, 1992.
The Loan and Security Agreement, as amended, (Secured Credit Facility) provides
for up to $125 million availability for cash borrowing and letter of credit
needs. The Secured Credit Facility, which has a three-year term and is secured
by certain current assets of the Company, is intended for general corporate and
working capital requirements. It includes limitations on additional
indebtedness and cash dividends and requires compliance with financial covenants
dealing with minimum levels of working capital and net worth. Up to $75 million
of the Secured Credit Facility is subject to the availability of eligible
collateral while the remaining $50 million (provided through a related party of
the Company) is not subject to such eligibility limitations. This additional
availability is provided to the Company under terms and conditions which are not
less favorable than the Company could obtain from independent third parties, as
was evidenced by a fairness opinion which the Company obtained from an
independent investment banking firm of national reputation. At March 31, 1999,
eligible collateral totaled $60.3 million due to historically low inventory
levels. Borrowings under the Secured Credit Facility bear interest based on the
prime rate or LIBOR based rates. Eligible collateral increased to $75 million
at April 30, 1999.
As of March 31, 1999, under the terms of the Secured Credit Facility, the
Company had cash borrowings bearing interest at 8% per annum of $20 million and
outstanding irrevocable letters of credit in the principal amount of $13.2
million. The unused commitments under the terms of the Secured Credit Facility
were $91.8 million at March 31, 1999. The Company pays an annual commitment fee
on the unused portion of the Secured Credit Facility.
NOTE E - CRUDE OIL AND REFINED PRODUCT HEDGING ACTIVITIES
The net deferred loss from futures contracts included in crude oil and refined
product hedging strategies was approximately $1.4 million at March 31, 1999.
Included in these hedging strategies are futures contracts maturing in April and
September 1999. The Company is using these contracts to defer the pricing of
approximately 6% of its crude oil commitments for the aforementioned period.
<PAGE>
NOTE F - CALCULATION OF NET (LOSS) PER COMMON SHARE
Net (loss) per common share for the three months ended March 31, 1999 and 1998
is based on the weighted average of common shares outstanding of 9,871,431 and
9,812,569, respectively. The average outstanding and equivalent shares excludes
214,325 and 147,300 shares of Performance Vested Restricted Stock (PVRS)
registered to participants in the 1994 Long-Term Incentive Plan (Plan) at March
31, 1999 and 1998, respectively. The PVRS shares are not considered outstanding
for earnings per share calculations until the shares are released to the Plan
participants.
The following table provides a reconciliation of the basic and diluted earnings
per share calculations:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
1999 1998
---------- -----------
---- ---
(dollars in thousands,
except per share data)
<S> <C> <C>
(LOSS) APPLICABLE TO COMMON
SHARES
Net (loss) $(11,830 $
) (13,743 )
========== ===========
== =
Common shares outstanding at
January 1, 1999
and 1998, respectively 10,05
3,611 10,058,168
Restricted shares held by the
Company at January 1,
1999 and 1998, respectively (182,180
) (260,700 )
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, 1999
and 1998, respectively -
basic and diluted 9,871,431
========== 9,812,569
== ===========
==
EARNINGS PER SHARE:
Net (loss) - basic and diluted $(1.20 $
) (1.40)
========== ===========
== ==
</TABLE>
NOTE G - LITIGATION AND CONTINGENCIES
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, 1998.
NOTE H - SEGMENT INFORMATION
The Company has two reportable segments: refinery operations and retail
marketing. The Company's refinery operations segment consists of two high-
conversion petroleum refineries, one located in Pasadena, Texas and the other
located in Tyler, Texas. The Pasadena and Tyler refineries sell petroleum
products directly to other oil companies, jobbers, and independent marketers.
In addition, the Pasadena refinery sells directly into the Gulf Coast spot
market as well as to an independent network of dealer-operated retail units that
sell Crown-branded petroleum products and to the Company's own retail segment.
The Company's retail segment sells petroleum products and convenience store
merchandise directly to retail customers.
The Company evaluates performance and allocates resources based on profit or
loss from operations before income taxes, interest income or expense, and
corporate expenses. The accounting policies of the reportable segments are the
same as those disclosed in the summary of accounting policies described in Note
A of Notes to Consolidated Financial Statements in the Annual Report on Form 10-
K for the fiscal year ended December 31, 1998.
Intersegment sales and transfers are recorded at market prices. Income or loss
on intersegment sales is eliminated in consolidation.
<PAGE>
The Company's reportable segments are business divisions that offer different
operating and gross margin characteristics and different distribution methods.
The reportable segments are each managed separately due to their distinct
operating characteristics.
<TABLE>
<CAPTION>
Three ended March 31, 1999:
Refinery Retail
Operations Marketin Totals
----------- g -------
---- ------- -----
-----
(thousands of dollars)
<S> <C> <C> <C>
Revenues from external $128,436 $89,660 $218,0
customers 96
Intersegment revenues 84,422 84,422
(Loss) (9,073) (1,363) (10,43
6 )
Capital expenditures 4,249 4,246 8,495
</TABLE>
<TABLE>
<CAPTION>
Three Months ended March 31, 1998:
Ref Retail
inery
Ope Market Totals
rations ing -------
----------- ------- -----
-- -----
(thousands of dollars)
<S> <C> <C> <C>
Revenues from external $ 225,291$103,9 $3
customers 20 29,211
Intersegment revenues 120,430 120,4
30
(Loss) Income (18,450) 4,016 (14,4
34 )
Capital expenditures 420 8,215 8,635
</TABLE>
<TABLE>
<CAPTION>
Sales and operating revenues reconciliation:
Three months ended
March 31
1999 1998
------------ --------
----
(thousands of dollars)
<S> <C> <C>
Total external revenues for $218,096 $329,211
reportable segments
Intersegment revenues for 84,422 120,430
reportable segments
Other revenues 8,792 1,526
Other adjustments (1,723) (3,098)
Elimination of intersegment (84,422) (120,430 )
revenues ------------ --------
----
Sales and operating revenues $225,165 $327,639
============ ========
====
</TABLE>
Other adjustments include items that are reported as a component of Sales and
operating revenues for management reporting purposes but are reported as a
component of operating expenses in accordance with generally accepted accounting
principles.
<TABLE>
<CAPTION>
(Loss) income reconciliation:
Three months ended
March 31
1999 1998
------------ --------
----
(thousands of dollars)
<S> <C> <C>
Total (loss) for reportable $(10,436 )$(14,434 )
segments
Other income 1,153 965
Unallocated amounts:
Corporate (expenses) (5,728) (5,926)
Net interest (expense) (3,339) (2,797)
------------ --------
----
(Loss) before income taxes $(18,350 )$(22,192 )
============ ========
====
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Capital expenditure reconciliation:
Three months ended
March 31
1999 1998
-------- --------
---- ---
(thousands of
dollars)
<C> <C>
Total capital expenditures for $8,495 $8,635
reportable segments
Corporate and other capital 715 1,386
expenditures
-------- --------
---- -----
Total $9,210 $10,021
======== ========
===== =====
</TABLE>
Item 2 -Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
The Company's Sales and operating revenues decreased $102.5 million or 31.3% in
the first quarter of 1999 from the comparable period in 1998. The decrease in
Sales and operating revenues was primarily attributable to a 20.4% decrease in
the average sales price per gallon of petroleum products and to a 21.3% decrease
in petroleum product sales volumes (principally at the Company's Wholesale
terminals) due primarily to decreases in the Company's refined product available
for sale. Under The Crude Oil Processing Agreement executed in the fourth
quarter of 1998 (Processing Agreement) with Statoil Marketing and Trading (US)
Inc. (Statoil), the Company processes an average of 35,000 barrels per day (bpd)
of crude oil supplied and owned by Statoil and returns to Statoil an average of
35,000 bpd of refined petroleum products. The effect of this agreement is to
reduce the Company's refined product available for sale. In addition, a planned
maintenance shutdown of the fluid catalytic cracking unit (FCCU) at the Pasadena
refinery for 26 days in the first quarter of 1999 contributed to the sales
volume reduction . Partially offsetting these decreases was a 15.7% increase in
merchandise sales for the three months ended March 31, 1999 compared to the same
period in 1998.
Costs and operating expenses decreased $109.9 million or 35% in the first
quarter of 1999 from the comparable period in 1998. The decrease was due to a
26.5% decrease in the average cost per barrel consumed of crude oil and
feedstocks and to decreases 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 rising prices decreased the
Company's gross margin by $.76 per barrel ($9.1 million) for the three months
ended March 31, 1999, whereas the Company's gross margin increased $1.12 per
barrel ($15.1 million) in the comparable period in 1998 when prices were
falling. Due to the increases in refined products prices, the reserve of
approximately $7.1 million recorded as of December 31, 1998 to reflect valuing
inventories at the lower of cost or market was reversed in the first quarter of
1999 which favorably impacted the Company's Operating (loss) and Net (loss).
The aforementioned decrease in Sales and operating revenues coupled with the
decrease in Costs and operating expenses resulted in an overall increase in
gross margin of $7.4 million for the first quarter of 1999 compared to the same
1998 period. The decrease in average sales price per gallon of petroleum
products reflected similar industry-wide decreases due to excess supply of crude
oil and refined petroleum products. Additionally, decreases in the cost of the
Company's crude oil and purchased feedstocks reflect industry-wide decreases in
prices of these products which prevailed for most of the quarter. With OPEC's
announced reduction, late in the first quarter, of crude oil production, WTI
crude oil prices increased from $12.15 per barrel at the beginning of the
quarter to $16.80 per barrel by the end of the quarter. This increase in price
significantly impacted the LIFO inventory provision for the first quarter of
1999. The decreases in finished product sales prices were not as significant as
the decreases in crude oil and purchased feedstock prices.
<PAGE>
Gasoline gross margin (gasoline gross profit as a percent of gasoline sales) at
the Company's retail locations decreased from $.106 per gallon to $.085 per
gallon, respectively, for the three months ended March 31, 1998 and 1999.
Retail gasoline margins are also generally unfavorably impacted in a period of
rapidly rising crude oil prices as retail prices generally increase less
quickly. The Company experienced similar retail gasoline margins in the first
two months of the quarter in 1999 as were realized during the same period in
1998. However, when crude oil prices increased rapidly in March 1999, retail
gasoline margins quickly eroded before returning to more seasonal levels in mid
April 1999.
Merchandise gross margin (merchandise gross profit as a percent of merchandise
sales) increased slightly from 31.8% to 32.8% for the first quarter of 1998 and
1999, 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 12.1% for the three months ended March
31, 1999 compared to the same 1998 period and has contributed to the $1.5
million or 19.4% increase in merchandise gross profit. Aggregate year to date
merchandise gross profit on a same store basis increased by 9.9% in 1999
compared to the same 1998 period.
Due to the planned decrease in refinery production volumes, yields of gasoline
decreased to 71,100 barrels per day (bpd) (53.2%) for the first quarter 1999
from 83,400 bpd (55.8%) for the first quarter 1998, while distillate production
decreased to 39,900 bpd (29.9%) for the first quarter 1999 from 46,500 bpd (31%)
for the same period in 1998.
Selling expenses increased $2.5 million or 12.2% for the three months ended
March 31, 1999 compared to the same period in 1998. The increase is principally
due to increases in labor costs, and in environmental and maintenance costs at
the Company's retail sites. However, Selling expenses decreased $1.2 million or
5% compared to the fourth quarter of 1998.
Administrative expenses for the three months ended March 31, 1999 increased by
$.4 million or 8.5% compared to the three months ended March 31, 1998 due
primarily to increases in technology related expenses.
Depreciation and amortization in the first quarter of 1999 increased $.6 million
or 7.7% from the comparable 1998 period. This increase is primarily
attributable to increases in the depreciable base of the Company's computer
systems related to the company-wide computer upgrade projects.
Interest and other income for the quarter ended March 31, 1999 increased $.3
million or 15.9% compared to the same 1998 period due to a $.5 million increase
in dividends received from the Company's investments in unconsolidated
affiliates.
Earnings Before Interest, Taxes, Depreciation, Amortization, LIFO inventory, and
Abandonments of Property, Plant and Equipment (EBITDAAL), which measures the
Company's cash flow on a FIFO inventory basis increased dramatically from a loss
of $26.3 million in the first quarter of 1998 to a profit of $3.3 million in
the first quarter of 1999 principally reflecting improved industry margins and
the Company's demonstrated performance in realizing available industry margins.
[This space intentionally left blank]
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities (including changes in assets and
liabilities) totaled $13.6 million for the three months ended March 31, 1999
compared to cash used in operating activities of $22.5 million for the three
months ended March 31, 1998. The 1999 inflows consist primarily of net cash
inflows from changes in assets and liabilities of $9.1 million due primarily to
decreases in inventory requirements due to the Crude Oil Processing Agreement
with Statoil Marketing and Trading (US), Inc. and increases in crude oil and
refined products payable, resulting from increases in the purchase price of
crude oil and other purchased feedstocks. Additional cash inflows from changes
in assets and liabilities included the return of collateral deposits associated
with the Company's financing facilities. These working capital inflows were
partially offset by increases in accounts receivable, increases in prepaid
insurance and decreases in federal excise tax accruals. Additionally, the 1999
inflows include $4.5 million provided by operations before changes in assets and
liabilities. 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 increases in crude oil and refined products payable and in other
accounts payable.
Net cash outflows from investment activities were $14.4 million for the three
months ended March 31, 1999 compared to a net outflow of $11.5 million for the
same 1998 period. The 1999 outflows consist primarily of capital expenditures
of $9.2 million (which includes $4.2 million for refinery operations and $4.2
million relating to the marketing area). Additionally, there were $4.6 million
of deferred refinery turnaround expenditures and $.6 million of other charges to
deferred assets. 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).
Further, 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.
Net cash provided by financing activities was $9.6 million for the three months
ended March 31, 1999 compared to cash provided by financing activities of $27.7
million for the three months ended March 31, 1998. The 1999 cash inflow
consists primarily of $9.1 million in net proceeds received from debt and credit
agreement borrowings due primarily to net cash borrowings from the Company's
Secured Credit Facility. Additionally, long-term notes receivable increased $.5
million. 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 ratio of current assets to current liabilities at March 31, 1999 was .97:1
compared to 1.31:1 at March 31, 1998 and 1.12:1 at December 31, 1998. 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 1.04:1 at March 31, 1999, 1.36:1 at March 31, 1998 and 1.14:1 at
December 31, 1998.
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 $7.1
million as of March 31, 1999 to cover the estimated costs of compliance with
environmental regulations which are not anticipated to be of a capital nature.
The liability of $7.1 million includes accruals for issues extending past 1999.
<PAGE>
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 1999, the Company estimates environmental expenditures at the Pasadena
and Tyler refineries, of at least $4.4 million and $1.4 million, respectively.
Of these expenditures, it is anticipated that $2.1 million for Pasadena and $1
million for Tyler will be of a capital nature, while $2.3 million and $.4
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 $1.7 million during 1999.
The Company's principle purchases (crude oil, petroleum feedstocks, 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.
The Loan and Security Agreement, as amended, (Secured Credit Facility) provides
for up to $125 million availability for cash borrowing and letter of credit
needs. The Secured Credit Facility, which has a three-year term and is secured
by certain current assets of the Company, is intended for general corporate and
working capital requirements. It includes limitations on additional
indebtedness and cash dividends and requires compliance with financial covenants
dealing with minimum levels of working capital and net worth. Up to $75 million
of the Secured Credit Facility is subject to the availability of eligible
collateral, as defined, while the remaining $50 million is provided through
Rosemore, Inc. which is a related party of the Company. (See the Company's
Proxy Statement for Annual Meeting of Stockholders dated March 26, 1999.) This
additional availability, which is not subject to the eligibility limitations of
the Secured Credit Facility, is provided to the Company under terms and
conditions which are not less favorable than the Company could obtain from
independent third parties, as was evidenced by a fairness opinion which the
Company obtained from an independent investment banking firm of national
reputation.. At March 31, 1999, eligible collateral totaled $60.3 million due
to historically low inventory levels. Borrowings under the Secured Credit
Facility bear interest based on the prime rate or LIBOR based rates. Due
primarily to an increase in inventory levels and to increases in crude oil and
refined products prices, eligible collateral totaled $75 million at April 30,
1999. The Company expects December 31, 1999 inventory levels to be consistent
with the levels held at December 31, 1998.
As of March 31, 1999, under the terms of the Secured Credit Facility, the
Company had cash borrowings bearing interest at 8% per annum of $20 million and
outstanding irrevocable letters of credit in the principal amount of $13.2
million. The unused commitments under the terms of the Secured Credit Facility
were $91.8 million at March 31, 1999. The Company pays an annual commitment fee
on the unused portion of the Secured Credit Facility. As of April 30, 1999 cash
borrowings under this Facility were $17.5 million and outstanding irrevocable
letters of credit in the principal amount of $13.2 million. The unused
commitments under the terms of the Credit Facility had increased to $94.3
million at April 30, 1999.
The 10 7/8% Senior Notes due 2005 (Notes) were issued under an Indenture which
includes certain restrictions and limitations, including the payment of
dividends, repurchase of capital stock and the incurrence of additional debt.
As of March 31, 1999, the Indenture substantially restricted the Company from
effecting borrowings outside of the Secured Credit Facility and precluded the
payment of dividends. The Company has not paid a dividend on its shares of
common stock since the first quarter, 1992.
The purchase money liens outstanding as of March 31, 1999, primarily include the
financing of land, buildings and equipment at certain service station and
convenience store locations. These borrowings are generally repayable over 60
to 72 months with an effective interest rate based upon a fixed spread over the
then current applicable U.S. Treasury Note rate. Purchase money liens are
secured by assets having a cost basis of $7.9 million. The remaining principal
balance is payable monthly through May 2004.
<PAGE>
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 1999 are projected
to approximate $42 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, but there can
be no assurance, that cash provided from its operating activities, together with
other available sources of liquidity, including the Secured Credit Facility,
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 Secured Credit Facility
expires on December 10, 2001 but may be extended for additional one year periods
upon agreement between the Company and the Agent. 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, 1998, various contingencies
which involve litigation and environmental liabilities. 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, 1998, 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. Since that time, the union to which the collective bargaining
unit belongs has waged an orchestrated corporate campaign including sponsoring a
boycott of the Company's retail facilities and supporting various lawsuits
against the Company. (Also, see Item 3. Legal Proceedings as previously
discussed in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998.) The Company has been operating the Pasadena refinery
without interruption since the lock-out and intends to continue to do so during
the negotiation period with the collective bargaining unit.
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company's operating results have been, and will continue to be, affected by
a wide variety of factors that could have an adverse effect on profitability
during any particular period, many of which are beyond the Company's control.
Among these are the demand for crude oil and refined products, which is largely
driven by the condition of local and worldwide economies, although seasonality
and weather patterns also play a significant part. Governmental regulations and
policies, particularly in the areas of energy and the environment, also have a
significant impact on the Company's activities. Operating results can be
affected by these industry factors, by competition in the particular geographic
markets that the Company serves and by Company-specific factors, such as the
success of particular marketing programs and refinery operations.
<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 following table estimates the impact on future earnings before taxes of the
Company's outstanding derivative commodity instruments held at March 31, 1999
based on crude oil and refined products market prices at March 31, 1999 (market
prices) and the sensitivity of those instruments to a 10% increase or decrease
in market prices:
<TABLE>
<CAPTION>
ANTICIPATED GAIN (LOSS)
10% 10%
Increase in Decrease in
At Market Market Market
Prices Prices Prices
---------- ----------- -----------
- ------ --
(in thousands)
<S> <C> <C> <C>
Commodity $(1,480) $(3,592 $ 632
futures )
Commodity 3,151 5,282 1,020
forwards ----------- ---------- -----------
--- ---- --
$ 1,671 $1,690 $1,652
Total =========== ========== ===========
=== ==== ==
</TABLE>
Cash borrowings under the Secured Credit Facility bear interest based on the
prime rate or LIBOR based rates. As such, changes in these rates could
significantly impact the level of earnings in future periods.
<PAGE>
As previously disclosed in Item 14, Exhibit 13(a) of the Company's Form 10-K for
the fiscal year ended December 31, 1998, the Company has engaged Credit Suisse
First Boston (CSFB) to act as financial advisor. CSFB will provide the Company
with financial advice and assistance in evaluating strategic alternatives to
maximize the Company's assets in both the refining and retail businesses. The
primary objective is to assure that Crown pursues those opportunities which best
enhance shareholder value. CSFB is actively engaged in the project.
IMPACT OF YEAR 2000
The Company uses software and related information technologies and other
equipment throughout its businesses that may be affected by the year 2000 issue.
The year 2000 issue is the result of computer programs being written using two
digits rather than four to define a particular year. These computer programs
include both information technology (IT) systems such as software programs and
non-information technology (non-IT) systems such as embedded microcontrollers
in electronic equipment. Any of the Company's computer programs that have time-
sensitive software may recognize a date using `00' as the year 1900 rather than
the year 2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, manufacture products, send invoices, or engage in
similar normal business activities. The Company initially commenced its year
2000 readiness program in early 1995.
The Company began a long-term project that encompassed an in-depth
evaluation of all current business processes and the redesign of any of
these processes where significant opportunity for improvement was
identified. One of the results of this project was the decision to purchase
and implement an enterprise-wide state-of-the-art fully integrated software
package (SAP R/3 Trademark) which was selected in connection with re-
designing business practices to further enhance operating and record
keeping efficiencies. This software is year 2000 compliant. Due to the
enterprise-wide scale of the project, the majority of the Company's year
2000 issues should be resolved as an added benefit of this software
implementation. The following paragraphs address those computer systems
that are not encompassed within the SAP R/3 Trademark system.
The evaluation of the Company's state of readiness relating to its year 2000
issues is a continual process emphasizing a constant awareness of computer
systems and business relationships that may be sensitive to year 2000 issues.
Management has categorized the activities necessary to solve the year 2000
issues into the identification and assessment phase, the remediation phase, and
the testing and contingency planning phase. The identification and assessment
phase includes conducting a comprehensive inventory and evaluation of all of the
Company's information technology (IT) systems and non-IT electronic equipment
(collectively referred to as computer programs) to identify those computer
programs that contain date sensitive features. Those computer programs that
contain such features are then further evaluated and categorized as either
mission critical or non-mission critical based upon their relative importance to
the uninterrupted continuation of the Company's daily operations. Mission
critical computer programs gain top priority when allocating the available
resources to solve year 2000 issues.
As of January 31, 1999, with the exception of the non-IT electronic equipment at
the Company's two refineries, the Company had completed the identification and
assessment of all of its information technology (IT) systems and non-IT
electronic equipment, both mission critical and non-mission critical. A
consulting group was engaged to assist with the identification and assessment of
the non-IT electronic equipment at the Pasadena refinery and similar efforts
were undertaken by Company employees at the Tyler refinery. As of April 30,
1999, substantially all of the assessment work at the Pasadena refinery has been
completed, while the Tyler refinery assessment is 95% complete. The Company
expects to complete the remaining assessment activities at the Tyler refinery in
the second quarter of 1999.
<PAGE>
The assessment phase also includes the identification of and communication with
hardware and software vendors with whom the Company transacts business, third
parties with whom the Company exchanges information electronically, major or
sole source suppliers, government agencies, and major customers. The focus of
these communications is to determine the state of readiness of each of these
third parties with respect to their own year 2000 issues and how their progress
may impact the Company. The majority of responses received to third party
inquiries indicate that they are working on their year 2000 issues, but the
responses do not provide specific details. Follow-up action related to material
third party inquiries and responses is expected to continue in 1999 as these
material third parties progress in their own year 2000 readiness projects. The
Company has no means of ensuring that third parties with whom it deals will be
year 2000 compliant or that the information obtained from such third parties
regarding year 2000 compliance will prove to be accurate.
The remediation phase includes the repair, upgrade or replacement of all
computer programs identified as non-compliant in the assessment phase. These
activities will include all computer programs that have not been scheduled to be
repaired, upgraded or replaced as well as those that had been scheduled but
whose timing of repair, upgrading or replacement was accelerated to resolve the
Company's year 2000 issues. The Company's primary strategy for correcting year
2000 issues is to replace all non-compliant technology with newly purchased
technology that, in addition to being year 2000 compliant, provides enhanced
business functionality and capabilities. This phase has been on going since
1995 and is expected to be substantially completed by September 30, 1999. All
of the necessary remediation or replacement of non-compliant components
identified by the assessments at the Company's two refineries is expected to be
completed by the end of July, 1999.
The total cost associated with required modifications and replacement of the
Company's systems in response to the year 2000 issue is not expected to
materially affect the Company's financial condition or results of operations.
The estimated total cost of the year 2000 effort is approximately $1.4 million.
This estimate does not include costs to replace or upgrade systems that were
previously planned and not accelerated due to the year 2000 issue. The total
amount expended through April 1999 was approximately $.7 million. The future
cost is estimated to be approximately $.7 million. The Company's year 2000
efforts are funded primarily from existing IT and business unit budgets.
The testing and contingency planning phase includes testing the computer
programs worked on in the remediation phase for accuracy as well as concurrently
developing contingency plans that may be put into effect in the event that
significant deficiencies are identified. Contingency planning also encompasses
developing alternative sources of supply in the event of failure by material
third parties to remedy their own year 2000 issues. Testing of computer
programs is expected to be completed as remediation or replacement of individual
programs is completed. Due to the number of computer programs utilized by the
Company and the need to begin remediation, replacement, and testing of mission
critical programs in a timely manner, any or all of the phases identified may be
performed concurrently. Testing of implemented technologies will be a continual
process with the expectation that all of the Company's mission critical systems
will be tested by the end of the third quarter of 1999. Contingency plans will
be formulated as the need arises.
While the Company's management anticipates that all mission critical computer
programs will be assessed, remedied and tested by the dates set forth in the
preceding paragraphs, there can be no assurance that all will be completely
error free and that such programs will be compliant by such dates. We rely on
third party software, equipment and services to conduct our business. While the
Company believes it has made reasonable efforts to address this issue, it has no
means of ensuring that third parties with whom it deals will be year 2000
compliant or that the information obtained from such third parties regarding
year 2000 compliance will prove to be accurate.
The Company believes the most reasonably likely worst case year 2000 scenarios
would be failure of the control systems at the Company's refineries, or the
failure of key customers or suppliers (e.g. utility providers) to achieve year
2000 compliance. Either of these scenarios could result in lost sales or lost
production due to the forced shutdown for an indefinite period at one or both
refineries. In order to mitigate the affect of any such disruption, the Company
may increase inventory levels prior to year-end 1999 based on assessments made
closer to the end of 1999. In the event that only one refinery is affected by
year 2000 failures, the Company has the flexibility of shifting feedstocks
between facilities, or procuring petroleum products via sale, trade or exchange
agreements in order to meet any contractual requirements.
<PAGE>
The failure to correct a material year 2000 problem or the inability of any key
customer, key supplier or a governmental agency to make the necessary computer
system changes on a timely basis, the inaccuracy of responses received from
these third parties, and the potential shortage of skilled human resources to
install and test upgraded software and equipment could result in interruptions
to Company operations or business activities. Such interruptions could have a
material adverse impact on the. Company's results of operations, liquidity or
financial condition. Due to the general uncertainty inherent in the year 2000
issue, particularly as it relates to the readiness of the Company's key
customers and suppliers, and of governmental agencies, the Company cannot
ascertain at this time whether the consequences of the year 2000 failures will
have a material impact on the Company's results of operations, liquidity or
financial condition. Insurance coverage available at this time is limited to
business interruption resulting from fire, explosion, or related perils which
are caused by a year 2000 system failure.
The foregoing year 2000 discussion constitutes a `forward-looking' statement
within the meaning of Section 21E of the Securities Exchange Act of 1934, as
amended. It is based on management's current expectations, estimates and
projections, which could ultimately prove to be inaccurate.
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's market risk disclosures relating to outstanding derivative
commodity instruments are discussed in Item 2 Management's Discussion and
Analysis of Financial Condition and Results of Operations (MD&A) on page 17 of
this report. The Company's market risk disclosures relating to outstanding cash
borrowings under the Secured Credit Facility are also discussed in MD&A on page
17 of this report.
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, 1998.
The Company is involved in various matters of litigation, the ultimate
determination of which, in the opinion of management, is not expected to have a
material adverse effect on the Company.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a)At the Annual Meeting of Stockholders held on April 22, 1999, 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 14 and 15
of the Company's Proxy Statement dated March 26, 1999. The results of the
shareholder voting on this proposal was as follows: 300,999 in the
affirmative, 3,585,623 against, 19,632 abstentions and 1,009,167 broker non-
votes. The Shareholder Proposal did not receive two-thirds of all of the
votes cast on the proposal; and, therefore, it did not pass.
<PAGE>
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibit:
10 - Amendment effective as of March 29, 1999
to the Loan and Security Agreement effective as of Dcember
10, 1998 beween the Registrant and Congress Financial
Corporation.
20 - Interim Report to Stockholders for the
three months ended March 31, 1999.
27 (a) - Financial Data Schedule for the three
months ended March 31, 1999.
27 (b) - Financial Data Schedule for the three
months ended March 31, 1998 - 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, 1999.
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, 1999 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 14, 1999
<PAGE>
EXHIBIT 10
Amendment No. 1 to Loan and Security Agreement
Gentlemen:
Reference is made to the Loan and Security Agreement, dated December 10,
1998 (as now or hereafter amended or supplemented, the "Loan Agreement") among
(a) Congress Financial Corporation and First Union National Bank ( individually
and collectively, "Lender"), (b) Congress Financial Corporation, as
Administrative Agent for Lender (in such capacity "Agent") and (c) Crown Central
Petroleum Corporation ("Crown"), Continental American Corporation, Crown Central
Holding Corporation, Crown Central Pipe Line Company, Crown-Rancho Pipe Line
Corporation, Crown Stations, Inc., FZ Corporation, Fast Fare, Inc., La Gloria
Oil and Gas Company, Locot, Inc., McMurrey Pipe Line Company, Mollie's
Properties, Inc. and Crowncen International N.V. (each of such parties,
including Crown, being referred to herein, individually and collectively, as
"Borrower").
Borrower has requested certain amendments to the Loan Agreement and Agent
is willing to agree to such amendments, subject to the terms and conditions
contained herein. By this Amendment, Agent and Borrower desire and intend to
evidence such amendment.
In connection with this Amendment, Borrower has requested that Agent enter
into a Junior Participation Agreement with Rosemore Holdings, Inc., in respect
of the Obligations, the Collateral and the Financing Agreements (as each of such
terms is defined in the Loan Agreement).
<PAGE>
In consideration of the foregoing and the agreements and covenants
contained herein, Borrower and Agent (for itself and on behalf of Lender) each
agree as follows:
1. Existing Definitions in Loan Agreement
Capitalized terms used herein, which are not otherwise defined herein, shall
have the respective meanings ascribed thereto in the Loan Agreement.
2. Additional Definitions. The Loan Agreement shall be and is hereby
amended to include, in addition and not in limitation, each of the following
definitions in Section 1 thereof:
(a) "Blockage Reserve" shall mean the amount of $10,000,000 which shall be
reserved by Agent and deducted from the calculation of Formula Availability.
(b) "Excess Formula Availability" shall mean the amount, as determined by
Agent, calculated at any time, equal to: (i) the amount of Formula availability
at such time, minus (ii) the aggregate amount of all the outstanding and unpaid
Obligations at such time which are not in excess of Formula Availability.
(c) "Formula Availability" shall mean the amount, as determined by Agent,
at any applicable time, equal to (i) the lesser of (A) the amount of the Loans
and Letter of Credit Accommodations available to Borrower at such time based
upon the formulas, as determined by Agent, set forth in Sections 2.1(a), 2.1 (b)
and 2.2(c) of the Loan Agreement, subject to applicable sublimits and other
limitations in respect thereof and after deduction for all availability Reserves
(including reserves for Letter of Credit Accommodations at such time)
established and maintained by Lender, but exclusive of the Supplemental Credit
Facility, or (B) the Maximum Formula Amount, minus (ii) the Blockage Reserve.
The term "Formula Availability" is used herein to mean the Loans and Letter of
Credit Accommodations so available to Borrower without reduction for the amount
of Loans and Letter of Credit Accommodations then outstanding.
(d) "Funded Junior Participation" shall mean each and every Junior
Participation in the Obligations and the Collateral which has been purchased
from and paid for to Agent by or for the account of Rosemore pursuant to the
Junior Participation Agreement.
(e) "Junior Participation" shall mean each and every obligation of
Rosemore to purchase a junior participation in the Obligations and the
Collateral pursuant to the Junior Participation Agreement.
<PAGE>
(f) "Junior Participation Agreement" shall mean the Junior Participation
Agreement between Agent and Rosemore, dated of even date, as the same is from
time to time amended, supplemented, renewed, restated, extended or replaced.
(g) "Maximum Formula Amount" shall mean the amount of $75,000,000, as such
amount may be reduced permanently from time to time pursuant to Section 2.4 the
Loan Agreement as amended herein.
(h) "Rosemore" shall mean Rosemore Holdings, Inc., a Maryland Corporation,
and it successors and assigns.
(i) "Rosemore Charges" shall mean, collectively, the Rosemore Closing Fee,
the Rosemore Unused Line Fee and the Rosemore Usage Fee.
(j) "Rosemore Closing Fee" shall mean the sum of $50,000.
(k) "Rosemore Letter of Credit" shall mean, collectively, each and every
Irrevocable Standby Letter of Credit issued by First Union National Bank for the
account of Rosemore and for the benefit of Agent, in form and substance
satisfactory to Agent, which has been delivered to and is in the possession of
Agent.
(l) "Rosemore Letter of Credit Amount" shall mean the amount, calculated
at any time, of the aggregate outstanding and undrawn face amount of each and
every Rosemore Letter of Credit in the possession of Lender at such time.
(m) "Rosemore Unused Line Fee" shall mean, in any applicable period, an
amount equal to one-quarter of one (.25%) percent per annum of the average daily
amount during such period of (i) $50,000,000 minus (ii) the Rosemore Letter of
Credit Amount.
(n) "Rosemore Usage Fee" shall mean , in any applicable period, an amount
equal to three-tenths of one (.3%) percent per annum of the average daily
Rosemore Letter of Credit Amount during such period.
<PAGE>
(o) "Supplemental Credit Facility" shall mean , at any applicable time, an
amount in excess of Formula Availability equal to the lesser of (i) the sum of
(A) the aggregate oustanding and undrawn face amount of each and every Rosemore
Letter of Credit in the possession of Agent at such time (x) as to which the
original expiration date thereof is not less than one hundred and eighty (180)
days from the date of issuance thereof, (y) Agent has not received a notice from
the issuer thereof that the then current expiration date of such Rosemore Letter
of Credit will not be extended beyond its then current expiration date and (z)
as to which the then current expiration date thereof at such time is not less
than the longer of sixty (60) days after such time or thirty (30) days after
the last expiration date of any then outstanding and undrawn Supplier Letter of
Credit at such time, unless, prior to such current expiration date of the
applicable Rosemore Letter of Credit, Agent receives (and is in possession of )
a written amendment thereto from the issuer thereof that the then current
expiration date of such Rosemore Letter of Credit is extended for not less than
one hundred and eighty (180) days from its then current expiration date, plus
(B) the aggregate amount of each and every Funded Junior Participation at such
time, or (ii) $50,000,000.
(p) "Supplier Letters of Credit" shall mean, collectively, all Letter of
Credit Accommodations in respect of standby letters of credit issued or opened
at the request of any Borrower for the benefit of suppliers of goods to any
Borrower which is in form and substance satisfactory to Agent, taking into
account the reasonable requirements of the beneficiary thereof.
3. Amendment of Definitions.
(a) The definition of "Excess Availability" in the Loan Agreement
shall be and is hereby deleted, and the following is inserted in its stead.
"Excess" Availability" shall mean the amount, as determined by Agent,
calculated at any time, equal to : (a) the sum of (i) the amount of Formula
Availability at such time, and (ii) the amount of the Supplemental Credit
Facility at such time, minus (b) the sum of (i) the amount of all then
outstanding and unpaid Obligations at such time and (ii) the aggregate amount of
all trade payables of Borrower which are more than sixty (60) days past due as
of such time.
(b) The definition of "Maximum Credit" in the Loan Agreement shall be
and is hereby deleted, and the following is inserted in its stead:
<PAGE>
"Maximum Credit" shall mean, at any time, the sum of (a) the Maximum
Formula Amount at such time, plus (b) the amount of the Supplemental Credit
Facility at such time.
(c) All references to the term "Letter of Credit Accommodations" in
the Loan Agreement and, as applicable the other Financing Agreements, shall be
deemed and each such reference is hereby amended to include, in addition, and
not in limitation, Supplier Letters of Credit. All references to the term
"Obligations" in the Loan Agreement and, as applicable, the other Financing
Agreements, shall be deemed and each such reference is hereby amended to include
in addition, and not in limitation, the obligations and indebtedness of Borrower
arising or referred to in this Amendment, including, without limitation, all (a)
Rosemore Charges and (b) reimbursement obligations, fees and charges owed by
Borrower pursuant to the Loan Agreement and this Amendment in respect of
Supplier Letters of Credit.
4. Revolving Loans. Section 2.1(a) of the Loan Agreement shall be and is
hereby amended to delete the words "Maximum Credit" and to insert "Maximum
Formula Amount" in their stead.
5. Cash Borrowings. Section 2.1(a) of the Loan Agreement shall be and is
hereby amended to provide that, notwithstanding anything to the contrary set
forth in the Loan Agreement and subject to the other limitations upon Loans
under the Loan Agreement, the aggregate outstanding amount of all cash
borrowings in respect of Loans thereunder shall not exceed the amount of
$50,000,000 at any time except (a) in Agent's sole discretion, or (b) if Agent
receives a Certificate executed by the chief financial officer of Crown that the
amount of cash borrowings from Lender is not limited by the terms of the
Indenture, and which specifies the applicable provision and calculation of the
applicable formula in respect thereof under the Indenture which removes any
restriction on such cash borrowings under the Indenture, which is reasonably
acceptable to Agent.
6. Limitations on Loans and Letter of Credit Accommodations. Section
2.1(c) of the Loan Agreement shall be and is hereby amended (a) to add the
phrase ", including, without limitation, the Supplier Letters of Credit,"
immediately after the word "Accommodations" in the first sentence thereof, (b)
to add the words "and limitations on the Loans or components thereof set forth
in Section 2.2(a) or otherwise herein" immediately after the words "lending
formulas" in the second sentence thereof, and (c) to add the words "or Formula
Availability" after the words "Maximum Credit" in the second sentence thereof.
<PAGE>
7. Reduction of Eligible Inventory Loans. Section 2.1(d) of the Loan
Agreement shall be and is hereby amended to provide that it shall not be
applicable to Supplier Letters of Credit, to the extent that these are standby
and not documentary letters of credit.
8. Letter of Credit Reserves. Section 2.2(c) of the Loan agreement shall
be and is hereby amended (a) to delete the words "Maximum Credit" and insert
"Maximum Formula Amount" in their stead and to provide that, for purposes of
Section 2.2(c) only, the availability of Revolving Loans shall be determined
without regard to the limitation on cash borrowings imposed by Section 5 of this
Amendment (but the availability of such Revolving Loans for purposes of such
Section 2.2(c) shall be subject to the other limitations in respect thereof as
provided in the Loan Agreement), and (b) to provide that Supplier Letters of
Credit, which are standby and not documentary letters of credit, shall be
included in the "Letter of Credit Accommodations" referenced in Section
2.2(c)(ii) of the Loan Agreement and the last sentence thereof, provided,
however, if Excess Formula Availability does not exist at any time, Section
2.2(c) of the Loan Agreement shall not be applicable to such amount of the
outstanding and undrawn amount of the Supplier Letters of Credit at such time
(x) which is in excess of the outstanding and unpaid amount of all other
Obligations of up to the Formula Availability at such time and (y) which does
not exceed the Supplemental Credit Facility at such time. For example if the
Formula Availability is $60 million at a particular time and the Obligations are
$70 million at such time (including $20 million of Supplier Letters of Credit,
$40 million of Loans and $10 million of other Letter of Credit Accommodations at
such time), then $10 million of Supplier Letters of Credit will not be subject
to Section 2.2(c) of the Loan Agreement. Supplier Letters of Credit which are
issued or opened when Excess Formula Availability does not exist or which would
result in the amount of all then outstanding and unpaid Obligations to be in
excess of Formula Availability at such time shall not have expiration dates in
respect thereof later than thirty (30) days prior to the earliest expiration
date of a then outstanding and undrawn Rosemore Letter of Credit.
9. Requests by Borrower for Rosemore Letters of Credit. If Crown or any
other Borrower delivers a written request to Rosemore that Rosemore arrange for
the delivery of a Letter of Credit (as such term is defined in the he Junior
Participation Agreement) or more than one such Letter of Credit to Agent (a
"Rosemore Request"), a copy of such Rosemore Request shall be delivered by Crown
concurrently therewith to Agent.
<PAGE>
10. Maximum Formula Amount Reduction. Section 2.4 of the Loan Agreement
shall be and is hereby deleted, and replaced by the following:
"2.4" Maximum Formula Amount Reduction. So long
as no Event of Default has occurred and is continuing, Borrowers may elect
to reduce (which reduction shall be irrevocable) the Maximum Formula Amount to
not less than $50,000,000, by prior written notice delivered to and received by
Agent, in increments of $10,000,000 each at any time on or after December 9,
1999."
11. Due Date of Interest Payments. Section 3.1(d) of the Loan Agreement
shall be amended as follows:
(a) In subsection (i) thereof, the word "quarterly" shall be changed
to "monthly" and the words "calendar quarter" shall be changed to "calendar
month".
(b) In subsection (ii) thereof, the words, "on the last day of each
applicable LIBOR Interest Period" and "on each three-month anniversary of the
first day of such LIBOR Interest Period" shall each be changed to "on each
monthly anniversary of the first day of the applicable LIBOR Interest Period."
12. Rosemore Charges.
In consideration of the increase in the Maximum Credit hereunder based
upon the Junior Participation Agreement and the Rosemore Letter of Credit:
(a) Rosemore Closing Fee. Borrower shall pay to Agent, for the
account of Rosemore, on the date hereof, the Rosemore Closing Fee. Agent is
authorized by borrower to charge the Rosemore Closing Fee to the Loan account of
Borrower maintained by Agent and to remit the amount thereof to Rosemore.
(b) Rosemore Unused Line Fee. Borrower shall pay to Agent for the
account of Rosemore, on the first Business Day of each month, the Rosemore
Unused Line Fee, as calculated by Agent, for the immediately preceding month.
Agent is authorized by Borrower to charge the Rosemore Unused Line Fee to the
Loan account of Borrower maintained by Agent and to remit the amount thereof to
Rosemore.
<PAGE>
(c) Rosemore Usage Fee. Borrower shall pay to Agent for the account
of Rosemore, on the first Business Day of each month, the Rosemore Usage Fee, as
calculated by Agent, for the immediately preceding month. Agent is authorized
by Borrower to charge the Rosemore Usage Fee to the Loan account of Borrower
maintained by Agent and to remit the amount thereof to Rosemore.
13. Blocked Account. The first sentence of Section 6.6 of the Loan
Agreement shall be and is hereby amended to delete the words "If Excess
Availability shall be less than $15,000,000: and to insert in their stead "If
the Blockage Reserve shall be less than $10,000,000."
14. Minimum Net Adjusted Working Capital. Section 9.12 of the Loan
Agreement shall be and is hereby deleted in its entirety as of March 30, 1999
and the following shall be inserted in its stead on such date:
"9.12 Minimum Net Adjusted Working Capital. Borrower shall cause
Adjusted Current Assets to exceed consolidated current liabilities by (a)
$10,000,000 at the end of each fiscal quarter, commencing with the fiscal
quarter ending March 31, 1999, and at the end of each fiscal quarter thereafter
through and including March 31, 2000, and (b) $35,000,000 at the end of each
fiscal quarter thereafter."
15. Minimum FIFO Tangible Net Worth. Section 9.13 of the Loan Agreement
shall be and is hereby deleted in its entirety as of March 30, 1999 and the
following shall be inserted in its stead on such date:
"9.13 Minimum FIFO Tangible Net Worth. Borrowers shall cause FIFO
Tangible Net Worth to be at least (a) $150,000,000 at the end of each fiscal
quarter, commencing with the fiscal quarter ending March 31, 1999, and at the
end of each fiscal quarter thereafter through and including March 31, 2000, and
(b) $180,000,000 at the end of each fiscal quarter thereafter."
16. Additional Event of Default. In addition to the Events of Default set
forth in the Loan Agreement and the other Financing Agreements, it shall
constitute an additional Event of Default if Rosemore breaches any covenant,
warranty or term of the Junior Participating Agreement in respect of the
validity or enforceability of any Rosemore Letter of Credit or in respect of
maintaining the existence of any Rosemore Letter of Credit.
<PAGE>
17. Amendment Fee. In consideration of this Amendment, Borrower shall pay
to Agent (for the account of Lender) an amendment fee in the amount of $30,000,
which shall be fully earned and due and payable on the date hereof.
18. Servicing Agent. Borrower acknowledges, consents and agrees that
Agent is authorized to appoint, and has appointed, Congress Financial
Corporation (Southern) ("Servicing Agent") as servicing agent in respect of all
powers, rights and remedies as Agent may have under the Loan Agreement and
Servicing Agent may exercise same as through it were the Agent.
19. Additional Representations, Warranties and Covenants. Borrower
represents, warrants and covenants with and to Lender as follows, which
representations, warranties and covenants are continuing and shall survive the
execution and delivery hereof, and the truth and accuracy of, or compliance with
each, together with the representations, warranties and covenants in the other
Financing Agreements, being a continuing condition of the making of Loans by
Lender to Borrower:
(a) No Event of Default or act, condition or event which with notice
or passage of time or both would constitute an Event of Default exists or has
occurred as of the date of this Amendment (after giving effect to the amendments
to the Loan Agreement made by this Amendment).
(b) This Amendment has been duly executed and delivered by Borrower
and is in full force and effect as of the date hereof and the agreements and
obligations of Borrower contained herein constitute legal, valid and binding
obligations of Borrower enforceable against Borrower in accordance with their
respective terms.
20. Conditions Precedent for Amendment. The effectiveness of the
amendments contained herein shall be subject to the satisfaction of each of the
following conditions, in a manner satisfactory to Agent and its counsel:
(a) Agent shall have received this Amendment No. 1 to the Loan
Agreement duly authorized, executed and delivered by the parties hereto;
(b) Agent shall have received, in form and substance satisfactory to
Lender, the Junior Participation Agreement duly authorized, executed and
delivered by Rosemore;
(c) Agent shall have received the consents to this Amendment from
each Lender and from Rosemore; and
(d) no Event of Default, or event, act or condition which with notice
or passage of time or both would constitute an Event of Default, shall exist or
have occurred.
21. Junior Participation Agreement. Borrower (a) consents to the terms
and conditions of the Junior Participation Agreement, and (b) acknowledges that
Borrower is not a party thereto and has no rights thereunder.
22. Effect of this Amendment. Except as modified pursuant hereto, no
other changes or modifications to the Financing Agreements are intended or
implied, and in all other respects the Financing Agreements are hereby
specifically ratified, restated and confirmed by all parties hereto as of the
effective date hereof. To the extent of conflict between the terms of this
Amendment and the other Financing Agreements, the terms of this Amendment shall
control. The Loan Agreement and this Amendment shall be read and construed as
one agreement.
<PAGE>
23. Further Assurances. The parties hereto shall execute and deliver such
additional documents and take such additional action as may be reasonably
necessary or desirable to effectuate the provisions and purposes of this
Amendment.
24. Governing Law. The validity, interpretation and enforcement of this
Amendment and the other Financing Agreements and any dispute arising out of the
relationship between the parties hereto whether in contract, tort, equity or
otherwise, shall be governed by the internal laws of the State of New York
(without giving effect to principles of conflicts of laws).
25. Binding Effect. This Amendment shall be binding upon and inure to the
benefit of each of the parties hereto and their respective successors and
assigns.
26. Headings. The headings listed herein are for convenience only and do
not constitute maters to be construed in interpreting this Amendment.
27. Counterparts. This Amendment may be executed in any number of
Counterparts, but all of such counterparts shall together constitute but one and
the same agreement. In making proof of this Amendment, it shall not be
necessary to produce or account for more than one counterpart thereof signed by
each of the parties hereto.
<PAGE>
Please sign the enclosed counterpart of this Amendment in the space
provided below, whereupon this Amendment, as so accepted by Lender, shall become
a binding agreement between Borrower and Lender.
<PAGE>
Very truly yours,
CROWN CENTRAL PETROLEUM
CORPORATION
By:/s/--John E. Wheeler, Jr.
Title:Executive Vice President and CFO
CONTINENTAL AMERICAN
CORPORATION
By:/s/--John E. Wheeler, Jr.
Title:President
CROWN CENTRAL HOLDING
CORPORATION
By:/s/--John E. Wheeler, Jr.
Title:President
CROWN CENTRAL PIPE LINE
COMPANY
By:/s/--John E. Wheeler, Jr.
Title: Vice President
CROWN-RANCHO PIPELINE
CORPORATION
By:/s/--John E. Wheeler, Jr.
Title:Vice President
CROWN STATIONS, INC.
By:/s/--John E. Wheeler, Jr.
Title:Vice President
FZ CORPORATION
By:/s/--John E. Wheeler, Jr.
Title:Vice President
FAST FARE, INC.
By:/s/--John E. Wheeler, Jr.
Title:Vice President
LA GLORIA OIL AND GAS COMPANY
By:/s/--John E. Wheeler, Jr.
Title:Vice President
LOCOT, INC.
By:/s/--John E. Wheeler, Jr.
Title:President
MCMURREY PIPE LINE COMPANY
By:/s/--John E. Wheeler, Jr.
Title:President
MOLLIE'S PROPERTIES, INC.
By:/s/--John E. Wheeler, Jr.
Title:Vice President
CROWNCEN INTERNATIONAL N.V.
By:/s/--John E. Wheeler, Jr.
Title:Supervisory Director
AGREED AND ACCEPTED:
CONGRESS FINNACIAL CORPORATION,
as Agent
By:/s/--William H. Bloom
Title:Executive Vice President
CONSENTED TO:
ROSEMORE HOLDINGS, INC.
By:/s/--Kenneth H. Trout
Title:Executive Vice President
CONGRESS FINANCIAL CORPORATION
as Lender
By:/s/--William H. Bloom
Title:Executive Vice President
FIRST UNION NATIONAL BANK
By:/s/--Will J. Fee
Title:Senior Vice President
<PAGE>
EXHIBIT 20
APRIL 22, 1999
RESULTS FIRST QUARTER 1999
Dear Shareholders:
After adjusting for LIFO inventory accounting, taxes, depreciation,
interest and abandonments (EBITDAAL), Crown reported an improved cash flow of
$29.5 million for the first quarter of 1999 resulting from an improvement in
realized refining margins from $.30 per barrel in the first quarter of 1998 to
$2.13 per barrel in this past quarter.
Including the impact of LIFO inventory, Crown announced a net loss of $11.8
million ($1.20 per share) on revenues of $225 million for the first quarter of
1999 compared to a net loss of $13.7 million ($1.40 per share) on revenues of
$328 million in the first quarter of 1998.
The first quarter of 1999 saw retail gasoline prices at their lowest in
history on an inflationary adjusted basis. Gulf Coast refining margins actually
dropped into negative territory for a portion of the quarter as a result of the
extreme volatility crude prices experienced. With the strengthening of crude
prices in early March, refining margins improved substantially from their lows
of January and February, but not in time to produce a profitable quarter. The
quarter's positive EBITDAAL results reflect the Company's ability to capture
more of the available refining margin. Refining runs were reduced during the
quarter in response to the depressed margins and to permit the Company to
complete a 24-day maintenance shutdown of the Houston fluid catalytic cracking
unit.
Crown's retail marketing segment experienced a difficult first quarter as
retail gasoline margins did not keep pace with the increase in crude prices.
Gasoline margins per gallon decreased 20% for the quarter while volumes were
down as well. However, merchandise revenues increased 15% resulting in a
merchandise gross profit increase of 12%.
Crown announced that it is one of 190 companies that have agreed to
participate in EPA's voluntary testing program for high production volume (HPV)
chemicals. Through the Petroleum HPV group consortium, Crown will sponsor the
development of hazard and toxicity data on the chemicals it and others in the
consortium produce. Crown was one of the first companies to make a commitment
to participate in this program. Developed by EPA, the program is in response to
Vice President Gore's Earth Day Challenge to industry to expand the public's
right to know about 2,800 chemicals manufactured or imported in quantities in
excess of one million pounds a year. Crown and La Gloria support EPA's goal in
this program which is to promote the better management of and education
regarding chemicals.
<PAGE>
The outlook for the remainder of 1999 is promising. Our refining results
during these difficult times as measured by the margin benchmark have been
better than the industry average. I remain confident about the future.
Sincerely,
/S/ -- Henry A. Rosenberg, Jr.
------------------------------
HENRY A. ROSENBERG, JR.
Chairman of the Board,
Chief Executive Officer and President
<PAGE>
<TABLE>
<CAPTION>
CROWN CENTRAL PETROLEUM CORPORATION
OPERATING STATISTICS
Three Months Ended
March 31
1999 1998
-------- -------
<S> <C> <C>
COMBINED REFINERY OPERATIONS
- ----------------------------
Production (BPD - M) 134 150
Production (MMbbl) 12.0 13.5
Sales (MMbbl) 11.8 15.0
Gross Margin ($/bbl) 2.13 0.30
Gross Profit ($MM) 25.2 4.5
Operating Cost ($/bbl) (2.58) (2.30)
Operating Cost ($MM) (30.6) (34.4)
Refining Operating (Loss)($MM) (5.4) (29.9)
RETAIL
- -------
Number Stores 344 343
Volume (pmps - Mgal) 118 121
Volume (MMgal) 122 1.25
Gasoline Gross Margin ($/gal) 0.085 0.106
Gasoline Gross Profit ($MM) 10.4 13.3
Merchandise Sales (pmps - $M) 28.9 25.3
Merchandise Sales ($MM) 29.8 26.0
Merchandise Gross Margin (%) 30.7 31.3
Merchandise Gross Profit ($MM) 10.9 9.7
Retail Gross Profit ($MM) 21.3 23.0
Retail Operating Costs (pmps - $M) (21.9) (18.4)
Retail Operating Costs ($MM) (22.6) (19.0)
Retail Operating (Loss) Profit ($MM) (1.3) 4.0
WHOLESALE/TERMINAL
OPERATING PROFIT (LOSS) ($MM) 5.3 (4.0)
OTHER
- ----------
LIFO (Provision) Recovery ($MM) (9.1) 15.1
Corporate Overhead ($MM) (6.3) (5.6)
Net Interest (Expense) ($MM) (3.3) (2.8)
Other Income ($MM) 1.8 0.7
Income Tax Benefit ($MM) 6.5 8.4
Total Net (Loss)($MM) (11.8) (13.7)
Depreciation & Amortization ($MM) 8.8 8.2
Net Interest Expense ($MM) 3.3 2.8
LIFO Provision (Recovery) $MM) 9.1 (15.1)
Loss from Asset Disposals ($MM) 0.4 0.0
Income Tax (Benefit) ($MM) (6.5) (8.4)
EBITDAAL ($MM) 3.3 (26.2)
- --------------------------------------------
<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>
<PAGE>
<TABLE>
<CAPTION>
CROWN CENTRAL PETROLEUM CORPORATION AND SUBSIDIARIES
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
Three Months Ended
March 31
1999 1998
--------- ---------
<S> <C> <C>
Sales and operating revenues $225,165 $ 327,639
(Loss) before income taxes (18,350) (
22,192)
Net (loss) income (11,830) (
13,743)
Net (loss) per basic and diluted $(1.20) $ (1.40)
share
Weighted average shares used in
the computation of net (loss)
per basic and diluted share: 9,871,431 9
,812,569
<FN>
-------------------
To conform to the 1999 presentation, Sales and operating revenues for the three
months ended March 31, 1998 have been restated. These statements had no effect
on the net (loss) or net (loss) per share amounts previously reported.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<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 Ended
March 31, 1999
------------------
<S> <C>
<CASH> $ 7,783
<SECURITIES> 15,448
<RECEIVABLES> 71,900
<ALLOWANCES> (716 )
<INVENTORY> 62,093
<CURRENT-ASSETS> 164,133
<PP&E> 677,677
<DEPRECIATION> 367,812
<TOTAL-ASSETS> 521,284
<CURRENT-LIABILITIES> 168,398
<BONDS> 129,673
0
0
<COMMON> 50,268
<OTHER-SE> 116,902
<TOTAL-LIABILITY-AND-EQUITY> 521,284
<SALES> 225,165
<TOTAL-REVENUES> 225,165
<CGS> 204,568
<TOTAL-COSTS> 204,568
<OTHER-EXPENSES> 37,298
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,495
<INCOME-PRETAX> (18,350 )
<INCOME-TAX> (6,520 )
<INCOME-CONTINUING> (11,830 )
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,830 )
<EPS-PRIMARY> (1.20 )
<EPS-DILUTED> (1.20 )
</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 (b)
Crown Central Petroleum Corporation and Subsidiaries
Financial Data Schedule - as revised
(In thousands, except per share amounts)
Three Months Ended
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> 327,639
<TOTAL-REVENUES> 327,639
<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
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