<PAGE>
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 June 30, 1996
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 1-8715
CRYSTAL OIL COMPANY
-------------------
(Exact name of registrant as specified in its charter)
Louisiana 72-0163810
--------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
229 Milam Street, Shreveport, Louisiana 71101
--------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (318) 222-7791
--------------
NONE
----
(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 (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Common Stock outstanding on August 5, 1996 2,665,622
-----------------------
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CRYSTAL OIL COMPANY
INDEX
Page No.
--------
Part I
Item 1. Financial Statements
Consolidated Condensed Balance Sheets -
June 30, 1996 (Unaudited) and December 31, 1995 3
Consolidated Condensed Statements of Operations -
Three and Six Months Ended June 30, 1996 and 1995 (Unaudited) 4
Consolidated Condensed Statements of Stockholders' Equity -
Six Months Ended June 30, 1996 and 1995 (Unaudited) 5
Consolidated Condensed Statements of Cash Flows -
Six Months Ended June 30, 1996 and 1995 (Unaudited) 6
Notes to Consolidated Condensed Financial Statements
(Unaudited) 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Part II
Item 1. Legal Proceedings 18
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 6. Exhibits and Reports on Form 8-K 20
Signatures 21
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CRYSTAL OIL COMPANY
CONSOLIDATED CONDENSED BALANCE SHEETS
($ in Thousands)
June 30 December 31
1996 1995
---------- -----------
ASSETS (Unaudited) (1)
CURRENT ASSETS
Cash and cash equivalents $ 11,712 $ 10,812
Marketable securities available for sale 52,897 54,447
Accounts receivable - net 574 704
Prepaid expenses and other current assets 257 357
---------- ----------
TOTAL CURRENT ASSETS 65,440 66,320
PROPERTY, PLANT AND EQUIPMENT - net 94,709 96,281
OTHER ASSETS
Deferred tax assets 7,087 7,398
Restricted cash equivalents and
marketable securities 2,394 1,476
Others 1,942 1,970
---------- ----------
11,423 10,844
---------- ----------
TOTAL ASSETS $ 171,572 $ 173,445
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term obligations $ 286 $ 294
Accounts payable 1,229 1,948
Other accrued expenses 358 634
---------- ----------
TOTAL CURRENT LIABILITIES 1,873 2,876
LONG-TERM OBLIGATIONS 37,596 37,860
DEFERRED REVENUE FROM SALE OF
FUTURE CONTRACT RECEIVABLES 20,051 22,160
COMMITMENT AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Senior preferred stock 148 148
Common stock 27 27
Additional paid-in capital 97,123 96,902
Retained earnings - Since January 1, 1987 14,754 13,472
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 112,052 110,549
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 171,572 $ 173,445
---------- ----------
---------- ----------
(1) The balance sheet at December 31, 1995, has been taken from the audited
financial statements at that date, and condensed.
See accompanying notes to consolidated condensed financial statements.
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CRYSTAL OIL COMPANY
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
($ in Thousands Except Shares and Per Share Amounts)
(Unaudited)
<TABLE>
Three Months Ended Six Months Ended
June 30 June 30
------------------------- -------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET REVENUES
Gas storage fees $ 3,015 $ 351 $ 6,433 $ 351
Crude oil and natural gas 177 - 336 -
Net gain (loss) on sale of
property, plant and equipment 7 (383) 42 444
Interest and investment income 850 1,328 1,730 2,674
Other 22 10 36 28
----------- ----------- ----------- -----------
4,071 1,306 8,577 3,497
COSTS AND EXPENSES
Operating expense and taxes 458 160 947 271
General and administrative
expense 699 1,029 1,520 2,183
Interest and debt expense 820 177 1,642 177
Amortization of discount on
sale of future contract
receivables 390 - 800 -
Depreciation, depletion and
amortization 801 172 1,562 231
----------- ----------- ----------- -----------
3,168 1,538 6,471 2,862
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE PROVISION
FOR INCOME TAXES 903 (232) 2,106 635
PROVISION FOR INCOME TAXES
(BENEFIT) 364 (93) 824 246
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 539 $ (139) $ 1,282 $ 389
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 2,662,082 2,624,045 2,658,229 2,624,045
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
NET INCOME (LOSS) PER COMMON
SHARE $ .20 $ (.05) $ .48 $ .15
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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<PAGE>
CRYSTAL OIL COMPANY
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
($ IN THOUSANDS)
(UNAUDITED)
Six Months Ended
June 30
-------------------
1996 1995
-------- -------
SENIOR PREFERRED STOCK
Balance at beginning and end of period $ 148 $ 148
-------- -------
COMMON STOCK
Balance at beginning and end of period 27 26
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ADDITIONAL PAID-IN CAPITAL
Balance at beginning of period 96,902 74,045
Issuance of Common Stock 221 932
Utilization of net operating loss carryforward
and recognition of deferred tax assets - 246
-------- -------
Balance at end of period 97,123 75,223
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RETAINED EARNINGS
Balance at beginning of period 13,472 12,068
Net income 1,282 389
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Balance at end of period 14,754 12,457
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TOTAL STOCKHOLDERS' EQUITY $112,052 $87,854
-------- -------
-------- -------
See accompanying notes to consolidated condensed financial statements.
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<PAGE>
CRYSTAL OIL COMPANY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
($ in Thousands)
(Unaudited)
<TABLE>
Six Months Ended
June 30
---------------------
1996 1995
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,282 $ 389
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of deferred financing cost 142 -
Net accretion on investments in debt securities (232) (1,340)
Depreciation, depletion and amortization 1,562 231
Deferred income taxes 722 246
Net gain on sale of property, plant and equipment (42) (860)
Decrease in accounts receivable 130 4,868
Decrease (increase) in prepaid expense and
other current assets 100 (77)
Decrease in other assets - 39
Decrease in accounts payable and accrued expenses (995) (3,167)
--------- ---------
Net cash provided by operating activities 2,669 329
--------- ---------
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment 52 2,794
Capital expenditures (411) (619)
Acquisition of First Reserve Gas Company,
net of cash received - (78,336)
Purchases of marketable securities (58,679) (70,245)
Maturity of marketable securities 60,461 16,378
Investment of restricted funds (918) -
Reduction of restricted funds - 4,695
Investment in Russian joint venture (25) (274)
--------- ---------
Net cash provided by (used in) investing activities: 480 (125,607)
--------- ---------
Cash flows from financing activities:
Reduction of long-term obligations (272) (31)
Increase in note payable to bank - 60,000
Reduction of deferred revenue from sale of future
contract receivables (2,109) -
Payment of costs for financing and sale of future
contract receivables (89) -
Proceeds from issuance of common stock 221 932
--------- ---------
Net cash provided by (used in) financing activities (2,249) 60,901
--------- ---------
Net increase (decrease) in cash and cash equivalents 900 (64,377)
Cash and cash equivalents at beginning of period 10,812 75,541
--------- ---------
Cash and cash equivalents at end of period $ 11,712 $ 11,164
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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CRYSTAL OIL COMPANY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Continued)
($ in Thousands)
(Unaudited)
Supplemental disclosures of cash flow information:
Six Months Ended
June 30
-------------------
1996 1995
--------- -------
Cash paid during the period for:
Interest, net of amounts capitalized $ 1,607 $ -
-------- -------
-------- -------
Amortization of discount on sale of
future contract receivables $ 800 $ -
-------- -------
-------- -------
Income taxes $ 128 $ 425
-------- -------
-------- -------
See accompanying notes to consolidated condensed financial statements.
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<PAGE>
CRYSTAL OIL COMPANY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
-------------------------------------------
The consolidated condensed balance sheet of Crystal Oil Company and its
subsidiaries (the "Company") as of June 30, 1996, and the consolidated condensed
statements of operations for the three and six months and stockholders' equity
and cash flows for the six months ended June 30, 1996 and 1995, have been
prepared by the Company without audit. In the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial position, results of operations, and cash flows at
June 30, 1996, and for all periods presented have been made.
There have been no changes in the accounting policies from those set forth
in Note A of the Notes to Consolidated Financial Statements included in the
Company's 1995 Annual Report on Form 10-K, except as noted below.
The Company adopted Statement of Financial Accounting Standards No. 121
("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of", during the first quarter of 1996.
SFAS 121 establishes accounting standards for the impairment of long-lived
assets and certain identifiable intangibles related to those assets to be held
and used, and for long-lived assets and certain identifiable intangibles to be
disposed of. The effect of adoption of SFAS 121 did not affect the Company's
consolidated financial position or results of operations.
The Company will implement the disclosure provisions of Statement of
Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation," in the financial statements for the year ending
December 31, 1996. SFAS 123 establishes financial accounting and reporting
standards for stock-based employee compensation plans. As allowed by SFAS 123,
the Company plans to continue to measure compensation cost for employee stock
compensation plans using the method prescribed by Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," and will provide pro
forma disclosures in the Notes to the Consolidated Financial Statements at
December 31, 1996, as required by SFAS 123.
Note 2. COMMITMENTS AND CONTINGENCIES
-----------------------------
The Company currently has outstanding approximately $4.7 million in standby
letters of credit that primarily relate to certain tax benefits transferred
pursuant to safe harbor lease transactions and $1.5 million in an irrevocable
letter of credit to support certain obligations with respect to the outstanding
$36.5 million in Secured Guaranteed Notes Due 2005. The Company's obligations
with respect to the letters of credit for the safe harbor lease transactions are
secured by approximately $1.3 million in marketable securities, which have been
classified as non-current assets on the consolidated balance sheet of the
Company at June 30, 1996.
In 1995, the Company was advised by Atlantic Richfield Corporation
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<PAGE>
("ARCO") of the existence of a potential environmental clean-up claim as to a
mining site in Colorado that was sold by a wholly-owned subsidiary of the
Company to ARCO in 1980. The mining property, which had been operated by others
for over 50 years, was owned by the Company's subsidiary for approximately seven
years prior to the sale to ARCO. Although no specific cost estimates have been,
or could be, made by the Company, the Company has been advised by ARCO that the
total cost of clean-up could exceed $20 million. In response to ARCO's expected
claim, in November 1995 the Company and the subsidiary filed a declaratory
judgment action in the Federal District Court for the Western District of
Louisiana, Shreveport Division, seeking a determination that the Company and its
subsidiary have no liability to ARCO with respect to the mining site because (i)
a contractual agreement exists between ARCO and the subsidiary of the Company
that sold the property to ARCO in which ARCO agreed that the Company's
subsidiary would have no further obligation or responsibility with respect to
the property after closing other than for certain de minimis and specifically
identified items and (ii) any potential claim by ARCO against the Company is
barred by reason of the Company's previous completed bankruptcy reorganization
proceeding as to which an order confirming the Company's plan of reorganization
was issued December 31, 1986. ARCO responded by counterclaiming in the
Louisiana Federal District Court proceeding against the Company and its
subsidiary for unspecified environmental clean-up costs as to the mining site
pursuant to the Federal Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA") and by seeking a venue transfer of the whole
proceeding, including the Company's declaratory judgment action and its own
counterclaim, to Federal Court in Colorado.
Subsequent to the Company's action in the ARCO matter, in another separate
matter an agency of the State of Louisiana notified the Company by letter dated
January 19, 1996, that the Company had potential, but unspecified, liability
under a Louisiana environmental act on account of certain alleged activity on a
30 acre site in Louisiana while the Company was "owner/operator" of a fuel oil
refinery there from 1920 until 1940. Such property was sold by the Company in
1965. In still another completely separate matter, another agency of the State
of Louisiana notified the Company by letter dated December 29, 1995, that the
Company had potential liability under a Louisiana environmental act on account
of certain activity while the Company was "owner/operator and/or owner" of a
particular facility located in Louisiana from 1926 until 1935. Such property
was sold by the Company in 1935. In regard to the latter environmental matter,
the State of Louisiana is seeking $4.5 million from all potentially responsible
parties.
Believing that the potential claims by the State of Louisiana were barred by
reason of the Company's bankruptcy proceeding, the Company filed a motion in
April 1996 to reopen the Company's 1986 bankruptcy proceeding for the sole
purpose of enforcing the previous confirmation order and other orders in the
bankruptcy proceeding to establish that the claims by the State of Louisiana are
barred and can no longer be brought against the Company. The motion to reopen
was granted for the purpose of considering such issues and the reopened case is
now pending in the United States Bankruptcy Court for the Western District of
Louisiana, Shreveport Division. Subsequent to the reopening of the bankruptcy
proceeding, the Company moved the Federal District Court for the Western
District of Louisiana to refer the matter of the Company's bankruptcy discharge
defense in the above-described ARCO case to such Bankruptcy Court where it could
be heard in conjunction with the two State of Louisiana matters. On
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<PAGE>
July 19, 1996, the Magistrate for the Federal District Court in Louisiana
granted the Company's motion to refer the bankruptcy discharge issue in the
ARCO case to such Bankruptcy Court. The Magistrate for the Federal District
Court also issued an order transferring the subsidiary's contractual defense
to the ARCO claim and ARCO's CERCLA counter-claim against the Company and the
subsidiary to the Federal District Court in Colorado, apparently on the
assumption that such matters would not proceed in Colorado until the
bankruptcy discharge issue as to the ARCO matters was decided in the
Bankruptcy Court in Louisiana. The Magistrate on his own motion also stayed
such transfer order pending an appeal thereof by the Company to the District
Judge for the Louisiana Federal District Court. The Company has appealed
such transfer order to such District Judge, and ARCO has appealed the
Magistrate's referral of the bankruptcy discharge issue to the Bankruptcy
court (which was not stayed pending appeal by the Magistrate) to such
District Judge.
The Company intends vigorously to pursue in Bankruptcy Court its position
that the claims against it by the State of Louisiana and ARCO are barred by
reason of orders entered in its previous bankruptcy proceeding and has filed a
summary judgment motion in the Bankruptcy Court requesting such a ruling in the
ARCO matter and will contest ARCO's appeal of the referral of the matter to the
Bankruptcy Court. The Company and the subsidiary also intend to prosecute their
position that the ARCO claim is also contractually barred (as described above)
in whichever court such issue is heard and has filed a summary judgment motion
in such regard in the Louisiana Federal District Court. Favorable rulings, if
they are obtained, on the contract and bankruptcy discharge issues should
obviate the need to defend the potential claims on the merits thereof.
In 1991, the Company was named, among others, as a potentially responsible
party ("PRP"), for environmental clean-up by an agency of the State of Indiana
and received an informational request concerning the Company's activities at a
site located in Indiana. A now dissolved subsidiary of the Company owned a
refinery on this site for a period of approximately four years during the 1970s.
Except for such period, other parties have owned and operated this site since
the construction of the refinery in 1946. On July 5, 1996, the State of Indiana
sued the Company and others to recover approximately $1.8 million in remediation
costs incurred from 1990 through 1994 for the environmental clean-up of this
site. The Company is currently reviewing the complaint to determine what, if
any, liability it may have with respect to this matter and whether such claims
may have been discharged in the Company's 1986 bankruptcy proceeding.
In July 1979, a suit styled "AGB Oil Company et al vs. The Charter Company,
Charter Oil Company, and Crystal Exploration and Production Company", was filed
in the Circuit Court of the Eleventh Judicial Circuit in and for Dade County,
Florida. The plaintiff is the limited partner of Caloosa 1974 Limited
Partnership, a Colorado limited partnership, of which a subsidiary of the
Company, Crystal Exploration and Production Company (formerly Charter
Exploration and Production Company), is the general partner. The plaintiff
claims compensatory damages of $10 million, punitive damages in an undetermined
amount, interest and costs of litigation. The suit alleges breach of contract,
breach of fiduciary duty, mismanagement and fraud in connection with the
operation of Caloosa
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<PAGE>
1974 Limited Partnership. In recent years, the suit has been generally
inactive. The Company, however, was recently notified that the case has been
scheduled for trial in November 1996. The Company believes that the likelihood
of a recovery, if any, by Plaintiff of a material amount is remote.
NOTE 3. EARNINGS PER SHARE
------------------
Earnings per common share were computed by dividing net income by the
weighted average number of shares of Common Stock outstanding during the periods
presented. The Senior Preferred Stock, all classes of the Company's warrants
and the stock options have been considered to be the equivalent of Common Stock
for all periods presented. No warrants were assumed converted during the
periods presented because the effective exercise prices were greater than the
average market price of the Common Stock. Earnings per common share, assuming
full dilution, was determined on the same basis as primary earnings per common
share and was not presented for the three and six month periods ended
June 30, 1996 and 1995, because the dilution effect is less than 3%.
-11-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following should assist in a further understanding of the Company's
financial condition as of June 30, 1996, as well as changes in the Company's
operating results. The notes to the Company's Consolidated Condensed Financial
Statements included in this report, as well as the Company's Annual Report on
Form 10-K for the year ended December 31, 1995, should be read in conjunction
with this discussion.
GENERAL
After the disposition of substantially all of its domestic crude oil and
natural gas properties for approximately $98 million and the prepayment of all
of its outstanding indebtedness in the fourth quarter of 1994, the Company
embarked on an acquisition program aimed at identifying assets that would
generate income for the Company on a current basis and would benefit from the
Company's tax position as well as present the opportunity for capital
appreciation. The initial step under this program was the acquisition of First
Reserve Gas Company ("FRGC") for approximately $78.5 million in June 1995.
FRGC's principal asset was a natural gas storage facility near Hattiesburg,
Mississippi (the "Hattiesburg Facility").
The acquisition of FRGC was funded with the Company's available cash and
permanent financing of $58 million. The Company's financing of the acquisition
was structured through the sale to a newly formed business trust of
approximately five years of accounts receivable to be generated through
June 30, 2000, from the operations of the Hattiesburg Facility (the "Hattiesburg
Sold Receivables") and $36.5 million in debt, the recourse of which is primarily
limited to FRGC and the Hattiesburg Facility.
Prior to the Company's acquisition of FRGC, the Company's sources of revenue
and income for 1995 were primarily limited to income from government and other
marketable securities. With the acquisition of FRGC, the principal source of
the Company's income is currently the revenue from the operation of the
Hattiesburg Facility. Further, while the Company will be recognizing income for
accounting purposes in respect of the Hattiesburg Sold Receivables over the life
of those receivables as if the Company continued to own the receivables, actual
payments in respect of the Hattiesburg Sold Receivables are being made to the
purchasing trust and are not actually received by the Company.
As of June 30, 1996, the Company had $64.6 million in cash, cash equivalents
and marketable securities that could be utilized for future acquisitions. In
addition, the Company had no debt other than the debt directly associated with
and recourse primarily limited to FRGC and the Hattiesburg Facility.
Future acquisitions will focus on income generating businesses and assets
without limitation on the type of business or industry. Future acquisitions
will likely involve a combination of the use of a portion of the Company's
available cash and debt or other financing. To the extent possible, the Company
will seek to limit the recourse of any financing to the business and assets
acquired. The Company may also seek to finance future acquisitions with
additional equity if desirable.
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<PAGE>
Results of Operations
General
The Company recorded net income for the three and six month periods ended
June 30, 1996, of $539 thousand, $.20 per share, and $1.3 million, $.48 per
share, respectively, compared to a net loss of $139 thousand, $.05 per share,
and net income of $389 thousand, $.15 per share, for the three and six months
ended June 30, 1995. Results for the three and six months ended June 30, 1996,
included $3.0 million and $6.4 million, respectively, in revenues and
$2.0 million and $4.4 million, respectively, in operating income from natural
gas storage activities. In addition, the revenues for the three and six months
ended June 30, 1996, included interest and investment income of approximately
$.9 million and $1.7 million, respectively, and sales of crude oil and natural
gas of $177 thousand and $336 million, respectively, resulting primarily from
the Company's participation in drilling activities during the fourth quarter of
1995 and first half of 1996.
Revenues for the three and six months ended June 30, 1995, were primarily
attributable to interest income from the investment by the Company of cash
received on the disposition of its crude oil and natural gas properties in late
1994. Results for 1995 also included a net gain of approximately $.9 million
from the sale of assets and a charge of $421 thousand for severance and other
related expenses associated with the reduction in the Company's staff. The
charge for severance and related expenses was recorded as an offset to the gains
on sales of crude oil and natural gas properties and as an extension of the
restructuring plan contemplated in connection with the sale of crude oil and
natural gas properties in the fourth quarter of 1994. The Company did not
reflect any sales of crude oil and natural gas during the three and six month
periods ended June 30, 1995, due to the 1994 disposition of its crude oil and
natural gas properties. The Company recognized $351 thousand in revenues from
gas storage activities during the period of June 19, 1995, through
June 30, 1995, as a result of its acquisition of FRGC.
Included in gas storage revenues for the three and six months ended
June 30, 1996, was approximately $2.8 million and $5.5 million, respectively,
attributable to the Hattiesburg Sold Receivables. The remaining gas storage
revenues of $.2 million and $.9 million for the three and six months ended
June 30, 1996, respectively, were derived from winter and interruptible storage
services, injection and withdrawal charges and other fees relating to services
provided in connection with the storage and delivery of natural gas at the
Hattiesburg Facility. The Company is actively marketing its interruptible
storage services as well as pursuing joint venture and other arrangements with
third parties to increase the use of the Hattiesburg Facility beyond the firm
storage at the facility.
During the three and six months ended June 30, 1996, the Company's operating
income from natural gas storage activities reflected operational expenses of
$296 thousand and $654 thousand, respectively, and depreciation and amortization
of $706 thousand and $1.4 million, respectively.
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<PAGE>
Interest and Investment Income
The Company's interest and investment income for the three and six month
periods ended June 30, 1996, were approximately $.9 million and $1.7 million,
respectively, compared to approximately $1.3 million and $2.7 million,
respectively, for the comparative periods in 1995. Such decrease in interest
and investment income reflected a decline in the average investment in debt
securities from $79.3 million for the six month period ended June 30, 1995, to
$63.9 million for the six month period ended June 30, 1996, as a result of the
utilization of available liquid assets to partially fund the acquisition of FRGC
in June 1995. In addition, the average interest rate received by the Company
decreased from 6.41% for the six month period ended June 30, 1995, to 5.21% for
the six month period ended June 30, 1996. The Company's investments of its
liquid assets are currently in investment grade commercial paper and short term
government securities.
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization increased substantially in the
three and six month periods ended June 30, 1996, to $801 thousand and
$1.6 million, respectively, from $172 thousand and $231 thousand, respectively,
for the comparative periods in 1995. The increase was attributable to the
depreciation and amortization of the Hattiesburg Facility and its related assets
acquired in June 1995.
Interest and Debt Expense
The Company's interest and debt expense for the three and six month periods
ended June 30, 1996, was $820 thousand and $1.6 million, respectively, and
reflected the incurrence of $36.5 million of long-term debt to refinance the
acquisition of FRGC. The Company incurred interest and debt expense of
$177 thousand for the three and six month periods ended June 30, 1995, as a
result of the borrowing $60 million in late June 1995 for the acquisition of
FRGC. Such bridge loan was repaid in the fourth quarter of 1995 with the
proceeds from the Hattiesburg Sold Receivables, the $36.5 million in long-term
debt and existing cash. The Company had no interest and debt expense prior to
the acquisition of FRGC due to the repayment of substantially all of its
outstanding debt at year end 1994.
Amortization of Discount on Sale of Future Contract Receivables
The net proceeds received by the Company from the Hattiesburg Sold
Receivables are being recognized for accounting purposes over the period during
which the receivables are to be generated. However, because the Hattiesburg
Sold Receivables were disposed of by the Company at a discount to reflect their
then present value, the discount between the net proceeds from the sale of the
Hattiesburg Sold Receivables and the scheduled payments thereunder is being
amortized over the life of the Hattiesburg Sold Receivables based on the
discount rate (7.52%) applied in fixing the sale price of the Hattiesburg Sold
Receivables. For the three and six month periods ended June 30, 1996, the
Company recorded an expense of approximately $390 thousand and $800 thousand,
respectively, for the amortization of discount on sale of future contract
receivables.
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<PAGE>
General and Administrative Expense
The Company's general and administrative expense for the three and six month
periods ended June 30, 1996, decreased approximately $330 thousand and
$663 thousand, respectively, as compared to the same periods in 1995. The
decrease in general and administrative expense primarily reflected the reduction
in the Company's staff following the disposition of its crude oil and natural
gas properties in late 1994 and early 1995.
Taxes and Quasi-Reorganization Adjustment
The results for the three and six month periods ended June 30, 1996,
included a provision for income taxes of $364 thousand and $824 thousand,
respectively. The Company had an income tax benefit of $93 thousand for the
three months ended June 30, 1995, and a provision for income taxes of
$246 thousand for the six months ended June 30, 1995. For 1995, the provision
for income taxes includes a noncash accounting charge required by virtue of the
Company's quasi-reorganization in 1986 in an amount equal to the deferred income
taxes that the Company would have recognized had it not been able to utilize its
net operating loss carryforwards against such income taxes. As a result of the
Company's quasi-reorganization accounting treatment and the expected generation
of future taxable income following the acquisition of FRGC, during 1995 the
Company recorded a deferred tax asset and an increase to additional paid-in
capital to account for the expected realization of benefits from the Company's
utilization of its net operating loss carryforwards and other tax benefits
generated prior to the Company's reorganization. The Company's provision for
income taxes for 1996 includes deferred tax expense and a corresponding
reduction in deferred tax assets of approximately $321 thousand and
$722 thousand, respectively, as a result of utilization of such tax benefits
during the three and six month periods ended June 30, 1996.
Liquidity Capital Resources
At June 30, 1996, the Company had cash and cash equivalents of approximately
$11.7 million and marketable securities of approximately $52.9 million. The
Company also had approximately $2.4 million in restricted cash and cash
equivalents and marketable securities securing the Company's contingent
obligations with respect to outstanding letters of credit and the Hattiesburg
Sold Receivables. In addition, the Company had no debt other than the debt
directly associated with and recourse primarily limited to FRGC and the
Hattiesburg Facility.
The Company generated net cash flow from operating activities of
approximately $2.7 million and $329 thousand for the six month periods ended
June 30, 1996 and 1995, respectively. Such net cash flows from operations for
the six month periods ended June 30, 1996 and 1995, were net of approximately
$232 thousand and $1.3 million, respectively, for the accretion on investments
in debt securities, which amounts are realized at maturity of investments. The
cash flow from operations for the six month period ended June 30, 1995, included
the payment of liabilities and collection of accounts receivable generated prior
to the disposition of crude oil and natural gas properties in late 1994. The
Company's working capital was approximately $63.6 million at June 30, 1996, and
approximately $63.4 million at December 31, 1995.
-15-
<PAGE>
At June 30, 1996, the Company had outstanding approximately $36.5
million in 8.12% Secured Guaranteed Notes Due 2005 (the "Notes") requiring
payment of interest only through June 30, 2000, at which time principal is to
be amortized over the remaining life of the Notes. At June 30, 1996, the
Company also had approximately $20.1 million in deferred revenue from the
sale of future contract receivables as net proceeds received by the Company
in 1995 from the Hattiesburg Sold Receivables are to be recognized for
accounting purposes over the period during which the receivables are to be
generated. Deferred revenue is recorded net of the Company's minority
interest in the trust that acquired the Hattiesburg Sold Receivables. During
the six month period ended June 30, 1996, the Company recognized approximately
$5.5 million of revenue from the Hattiesburg Sold Receivables, which provided
approximately $.8 million for the accretion of the discount on the sale of
the receivables and included approximately $2.6 million attributable to the
Company's interest in the trust. The Notes and obligations under the agreement
of the Hattiesburg Sold Receivables are secured by substantially all of the
assets of FRGC and its subsidiaries and are without recourse to Crystal Oil
Company, except for certain amounts in the event of bankruptcy of FRGC and
its subsidiaries. As of June 30, 1996, restricted funds of approximately
$1.1 million, consisting of distributions from the trust that acquired the
Hattiesburg Sold Receivables, had been pledged to secure the obligations
with respect to the Hattiesburg Sold Receivables. In addition, the Company
currently has outstanding $1.5 million in an irrevocable letter of credit to
support certain obligations with respect to the Notes.
Pending the redeployment of the Company's available funds, the Company is
investing its cash primarily in investment grade commercial paper and short term
United States government securities having maturities of up to one year. The
Company believes that these securities do not present any material risks with
respect to its liquidity, operations or financial position.
Other Matters
The Company is currently subject to various claims regarding environmental
matters, which will require the expenditure of funds for defense costs and could
require additional expenditure of funds for remediation if it is determined that
the Company is responsible for such remediation or otherwise agrees to
contribute to the cost of such remediation. It is the Company's policy to
accrue for environmental remediation costs if it is probable that a liability
has been incurred and an amount is reasonably estimable. The resolution of the
known environmental matters affecting the Company will be subject to various
factors, including the discovery of additional information with respect to the
nature of contamination at the known sites, the legal responsibility of various
parties for any cleanup obligations, the financial capability of responsible
parties and other actions by governmental agencies and private parties.
Although the cost of cleanup of sites in which the Company has been notified of
potential liability is currently estimated to involve the expenditure of funds
by all potentially responsible parties in excess of $26 million, based on
information known to the Company, the Company does not believe that its ultimate
payment obligations with respect to such matters will have a material adverse
impact on the Company's financial position.
-16-
<PAGE>
Statements in this Report other than historical facts are forward looking
statements made in reliance upon the safe harbor of the Private Securities
Litigation Reform Act of 1995. As such, the involved risk and uncertainties are
subject to change any time. The Company derives its forward-looking statements
from its operating budgets which are based on various assumptions about many
important factors such as natural gas prices, demand and supply for natural gas,
changes in the market for natural gas storage and transportation, the success of
the Company's ability to market interruptable service at its Hattiesburg
facility, the Company's successful execution of its acquisition strategy and
internal operating plans, labor relations, regulatory uncertainties and legal
proceedings, in particular its pending litigation with Atlantic Richfield
Corporation, the State of Louisiana and the State of Indiana regarding
environmental matters. Although the Company believes its assumptions are
reasonable, it is impossible to predict the impact of certain factors that could
cause the actual results to differ materially from predictive results. These
factors are discussed in the Company's filings with the Securities and Exchange
Commission, in particular its most recent Form 10-K filed with the Securities
and Exchange Commission.
-17-
<PAGE>
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
In 1995, the Company was advised by Atlantic Richfield Corporation
("ARCO") of the existence of a potential environmental clean-up claim as to a
mining site in Colorado that was sold by a wholly-owned subsidiary of the
Company to ARCO in 1980. The mining property, which had been operated by others
for over 50 years, was owned by the Company's subsidiary for approximately
seven years prior to the sale to ARCO. Although no specific cost estimates have
been, or could be, made by the Company, the Company has been advised by ARCO
that the total cost of clean-up could exceed $20 million. In response to ARCO's
expected claim, in November 1995 the Company and the subsidiary filed a
declaratory judgment action in the Federal District Court for the Western
District of Louisiana, Shreveport Division, seeking a determination that the
Company and its subsidiary have no liability to ARCO with respect to the mining
site because (i) a contractual agreement exists between ARCO and the subsidiary
of the Company that sold the property to ARCO in which ARCO agreed that the
Company's subsidiary would have no further obligation or responsibility with
respect to the property after closing other than for certain de minimis and
specifically identified items and (ii) any potential claim by ARCO against the
Company is barred by reason of the Company's previous completed bankruptcy
reorganization proceeding as to which an order confirming the Company's plan of
reorganization was issued December 31, 1986. ARCO responded by counterclaiming
in the Louisiana Federal District Court proceeding against the Company and its
subsidiary for unspecified environmental clean-up costs as to the mining site
pursuant to the Federal Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA") and by seeking a venue transfer of the whole
proceeding, including the Company's declaratory judgment action and its own
counterclaim, to Federal Court in Colorado.
Subsequent to the Company's action in the ARCO matter, in another separate
matter an agency of the State of Louisiana notified the Company by letter dated
January 19, 1996, that the Company had potential, but unspecified, liability
under a Louisiana environmental act on account of certain alleged activity on a
30 acre site in Louisiana while the Company was "owner/operator" of a fuel oil
refinery there from 1920 until 1940. Such property was sold by the Company in
1965. In still another completely separate matter, another agency of the State
of Louisiana notified the Company by letter dated December 29, 1995, that the
Company had potential liability under a Louisiana environmental act on account
of certain activity while the Company was "owner/operator and/or owner" of a
particular facility located in Louisiana from 1926 until 1935. Such property
was sold by the Company in 1935. In regard to the latter environmental matter,
the State of Louisiana is seeking $4.5 million from all potentially responsible
parties.
Believing that the potential claims by the State of Louisiana were barred
by reason of the Company's bankruptcy proceeding, the Company filed a motion in
April 1996 to reopen the Company's 1986 bankruptcy proceeding for the sole
purpose of enforcing the previous confirmation order and other orders in the
bankruptcy proceeding to establish that the claims by the State of Louisiana are
barred and can no longer be brought against the Company. The motion to reopen
was granted for the purpose of considering such issues and the reopened case is
now pending in the United States Bankruptcy Court for the Western District of
Louisiana, Shreveport
-18-
<PAGE>
Division. Subsequent to the reopening of the bankruptcy proceeding, the
Company moved the Federal District Court for the Western District of
Louisiana to refer the matter of the Company's bankruptcy discharge defense
in the above-described ARCO case to such Bankruptcy Court where it could be
heard in conjunction with the two State of Louisiana matters. On July 19,
1996, the Magistrate for the Federal District Court in Louisiana granted the
Company's motion to refer the bankruptcy discharge issue in the ARCO case to
such Bankruptcy Court. The Magistrate for the Federal District Court also
issued an order transferring the subsidiary's contractual defense to the ARCO
claim and ARCO's CERCLA counter-claim against the Company and the subsidiary
to the Federal District Court in Colorado, apparently on the assumption that
such matters would not proceed in Colorado until the bankruptcy discharge
issue as to the ARCO matters was decided in the Bankruptcy Court in
Louisiana. The Magistrate on his own motion also stayed such transfer order
pending an appeal thereof by the Company to the District Judge for the
Louisiana Federal District Court. The Company has appealed such transfer
order to such District Judge, and ARCO has appealed the Magistrate's referral
of the bankruptcy discharge issue to the Bankruptcy court (which was not
stayed pending appeal by the Magistrate) to such District Judge.
The Company intends vigorously to pursue in Bankruptcy Court its position
that the claims against it by the State of Louisiana and ARCO are barred by
reason of orders entered in its previous bankruptcy proceeding and has filed a
summary judgment motion in the Bankruptcy Court requesting such a ruling in the
ARCO matter and will contest ARCO's appeal of the referral of the matter to the
Bankruptcy Court. The Company and the subsidiary also intend to prosecute their
position that the ARCO claim is also contractually barred (as described above)
in whichever court such issue is heard and has filed a summary judgment motion
in such regard in the Louisiana Federal District Court. Favorable rulings, if
they are obtained, on the contract and bankruptcy discharge issues should
obviate the need to defend the potential claims on the merits thereof.
In 1991, the Company was named, among others, as a potentially responsible
party ("PRP"), for environmental clean-up by an agency of the State of Indiana
and received an informational request concerning the Company's activities at a
site located in Indiana. A now dissolved subsidiary of the Company owned a
refinery on this site for a period of approximately four years during the 1970s.
Except for such period, other parties have owned and operated this site since
the construction of the refinery in 1946. On July 5, 1996, the State of Indiana
sued the Company and others to recover approximately $1.8 million in remediation
costs incurred from 1990 through 1994 for the environmental clean-up of this
site. The Company is currently reviewing the complaint to determine what, if
any, liability it may have with respect to this matter and whether such claims
may have been discharged in the Company's 1986 bankruptcy proceeding.
In July 1979, a suit styled "AGB Oil Company et al vs. The Charter Company,
Charter Oil Company, and Crystal Exploration and Production Company", was filed
in the Circuit Court of the Eleventh Judicial Circuit in and for Dade County,
Florida. The plaintiff is the limited partner of Caloosa 1974 Limited
Partnership, a Colorado limited partnership, of which a subsidiary of the
Company, Crystal Exploration and Production Company (formerly Charter
Exploration and Production Company), is the general partner. The plaintiff
claims compensatory damages of $10 million, punitive damages in an undetermined
amount, interest and costs of
-19-
<PAGE>
litigation. The suit alleges breach of contract, breach of fiduciary duty,
mismanagement and fraud in connection with the operation of Caloosa 1974
Limited Partnership. In recent years, the suit has been generally inactive.
The Company, however, was recently notified that the case has been scheduled
for trial in November 1996. The Company believes that the likelihood of a
recovery, if any, by Plaintiff of a material amount is remote.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders was held on May 30, 1996, in New York,
New York. Three proposals were submitted to shareholders as described in the
Company's Proxy Statement dated April 25, 1996, and were voted upon and approved
by shareholders at the meeting. The table below briefly describes the proposals
and results of the shareholders votes.
Votes in Votes
Favor Withheld/Against
--------- ----------------
Election of six directors:
J. N. Averett, Jr. 2,576,407 45,374
George P. Giard, Jr. 2,576,407 45,374
Gary S. Gladstein 2,576,407 45,374
Robert B. Hodes 2,576,392 45,389
Donald G. Housley 2,576,407 45,374
Lief D. Rosenblatt 2,576,407 45,374
Votes in Votes
Favor Against Abstain
--------- ------- -------
Proposal to approve an amendment
to the Company's 1992 Employee
Stock Option Plan 2,552,241 66,786 2,754
Proposal for ratification of
appointment of independent auditors 2,616,634 4,966 181
There were no broker non votes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
*11 Computation of Earnings (Loss) Per Common Share.
27 Financial Data Schedule
(b) Reports on Form 8-K
None
_________________________
* Filed herein
-20-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on the 5th day of August 1996.
CRYSTAL OIL COMPANY
BY: /S/ J. N. AVERETT, JR.
---------------------------------------
J. N. Averett, Jr.
President
and Director
(Principal Executive Officer)
BY: /S/ J. A. BALLEW
---------------------------------------
J. A. Ballew
Senior Vice President,
Treasurer, and
Chief Financial Officer
BY: /S/ PAUL E. HOLMES
---------------------------------------
Paul E. Holmes
Vice President/Controller
(Principal Accounting Officer)
-21-
<PAGE>
Exhibit 11
CRYSTAL OIL COMPANY
COMPUTATION OF INCOME (LOSS) PER COMMON SHARE
(In Thousands Except Share and Per Share Amounts)
(Unaudited)
<TABLE>
Three Months Ended Six Months Ended
June 30 June 30
----------------------- -----------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Earnings per common share:
Income from operations $ 539 $ (139) $ 1,282 $ 389
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted average of common
shares outstanding 2,662,082 2,624,045 2,658,229 2,624,045
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Earnings per common share $ .20 $ (.05) $ .48 $ .15
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Primary: (Including dilutive
Common Stock
equivalents)
Income (loss) from operations $ 539 $ (139) $ 1,282 $ 389
Adjustments to income (loss)
(net of income tax): - - - -
---------- ---------- ---------- ----------
Adjusted net income (loss) $ 539 $ (139) $ 1,282 $ 389
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted average of common
and common equivalent
shares:
Outstanding 2,662,082 2,624,045 2,658,229 2,624,045
Assuming conversion or
exercise of:
Stock options, net
of treasury shares 26,974 - 30,666 29,701
Remaining senior
preferred stock 33,274 - 33,274 33,274
---------- ---------- ---------- ----------
2,722,330 2,624,045 2,722,169 2,687,020
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Per share amount:
Net income (loss) $ .20 $ (.05) $ .47 $ .14
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
-22-
<PAGE>
Exhibit 11
(continued)
CRYSTAL OIL COMPANY
COMPUTATION OF INCOME (LOSS) PER COMMON SHARE
(In Thousands Except Share and Per Share Amounts)
(Unaudited)
<TABLE>
Three Months Ended Six Months Ended
June 30 June 30
----------------------- -----------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Fully-diluted:
Income (loss) from operations $ 539 $ (139) $ 1,282 $ 389
Adjustments to income (loss)
(net of income tax): - - - -
---------- ---------- ---------- ----------
Adjusted net income (loss) $ 539 $ (139) $ 1,282 $ 389
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted average of
common shares:
Outstanding 2,662,082 2,624,045 2,658,229 2,624,045
Assuming conversion or
exercise of:
Stock options, net
of treasury shares 26,974 - 30,666 29,701
Remaining senior
preferred stock 33,274 - 33,274 33,274
---------- ---------- ---------- ----------
2,722,330 2,624,045 2,722,169 2,687,020
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Per share amount:
Net income (loss) $ .20 $ (.05) $ .47 $ .14
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
NOTE: See Note 3 of Notes to Consolidated Condensed Financial Statements.
-23-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT JUNE 30, 1996 AND THE CONSOLIDATED STATEMENT OF
INCOME FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 11,712
<SECURITIES> 52,897
<RECEIVABLES> 871
<ALLOWANCES> 297
<INVENTORY> 0
<CURRENT-ASSETS> 65,440
<PP&E> 98,867
<DEPRECIATION> 4,158
<TOTAL-ASSETS> 171,572
<CURRENT-LIABILITIES> 1,873
<BONDS> 57,647
0
148
<COMMON> 27
<OTHER-SE> 111,877
<TOTAL-LIABILITY-AND-EQUITY> 171,572
<SALES> 6,769
<TOTAL-REVENUES> 8,577
<CGS> 0
<TOTAL-COSTS> 2,449
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 18
<INTEREST-EXPENSE> 2,442
<INCOME-PRETAX> 2,106
<INCOME-TAX> 824
<INCOME-CONTINUING> 1,282
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,282
<EPS-PRIMARY> .48
<EPS-DILUTED> .47
</TABLE>
