<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 November 7, 1996 2,665,622
---------------------------
<PAGE> 2
CRYSTAL OIL COMPANY
INDEX
Page No.
--------
Part I
Item 1. Financial Statements
Consolidated Condensed Balance Sheets -
September 30, 1996 (Unaudited) and December 31, 1995 3
Consolidated Condensed Statements of Operations -
Three and Nine Months Ended
September 30, 1996 and 1995 (Unaudited) 4
Consolidated Condensed Statements of Stockholders' Equity -
Nine Months Ended
September 30, 1996 and 1995 (Unaudited) 5
Consolidated Condensed Statements of Cash Flows -
Nine Months Ended
September 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 6. Exhibits and Reports on Form 8-K 20
Signatures 21
-2-
<PAGE> 3
CRYSTAL OIL COMPANY
CONSOLIDATED CONDENSED BALANCE SHEETS
($ in Thousands)
<TABLE>
<CAPTION>
September 30 December 31
ASSETS 1996 1995
------------ -----------
(Unaudited) (1)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 3,726 $ 10,812
Marketable securities available for sale 60,575 54,447
Accounts receivable - net 868 704
Prepaid expenses and other current assets 288 357
---------- ----------
TOTAL CURRENT ASSETS 65,457 66,320
PROPERTY, PLANT AND EQUIPMENT - net of
allowances for depreciation and depletion
of $4,929 and $2,727, respectively 94,200 96,281
OTHER ASSETS
Deferred tax assets 6,737 7,398
Restricted cash equivalents and
marketable securities 2,936 1,476
Other 1,800 1,970
---------- ----------
11,473 10,844
---------- ----------
TOTAL ASSETS $ 171,130 $ 173,445
========== ==========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Current portion of long-term obligations $ 271 $ 294
Accounts payable 1,439 1,948
Other accrued expenses 540 634
---------- ----------
TOTAL CURRENT LIABILITIES 2,250 2,876
LONG-TERM OBLIGATIONS 37,203 37,860
---------- ----------
DEFERRED REVENUE FROM SALE OF
FUTURE CONTRACT RECEIVABLES 18,966 22,160
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Senior preferred stock 148 148
Common stock 27 27
Additional paid-in capital 97,156 96,902
Retained earnings - Since January 1, 1987 15,380 13,472
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 112,711 110,549
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 171,130 $ 173,445
========== ==========
</TABLE>
(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.
-3-
<PAGE> 4
CRYSTAL OIL COMPANY
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
($ in Thousands Except Shares and Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------------------- -------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET REVENUES
Gas storage fees $ 3,126 $ 2,927 $ 9,559 $ 3,278
Crude oil and natural gas 191 - 527 -
Interest and investment income 879 1,049 2,609 3,723
Other 17 (67) 95 405
----------- ----------- ----------- -----------
4,213 3,909 12,790 7,406
COSTS AND EXPENSES
Operating expense and taxes 487 449 1,434 720
General and administrative
expense 715 739 2,235 2,922
Interest and debt expense 809 1,062 2,451 1,239
Amortization of discount on
sale of future contract
receivables 371 - 1,171 -
Depreciation, depletion and
amortization 800 688 2,362 919
----------- ----------- ----------- -----------
3,182 2,938 9,653 5,800
----------- ----------- ----------- -----------
INCOME BEFORE PROVISION
FOR INCOME TAXES 1,031 971 3,137 1,606
PROVISION FOR INCOME TAXES 405 381 1,229 627
----------- ----------- ----------- -----------
NET INCOME $ 626 $ 590 $ 1,908 $ 979
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 2,665,372 2,643,708 2,660,610 2,620,667
=========== =========== =========== ===========
NET INCOME PER COMMON SHARE $ .23 $ .22 $ .72 $ .37
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
-4-
<PAGE> 5
CRYSTAL OIL COMPANY
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
($ IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
--------------------
1996 1995
--------- ---------
<S> <C> <C>
SENIOR PREFERRED STOCK
Balance at beginning and end of period $ 148 $ 148
--------- ---------
COMMON STOCK
Balance at beginning and end of period 27 26
--------- ---------
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of period 96,902 74,045
Issuance of Common Stock 254 1,346
Utilization of net operating loss carryforward
and recognition of deferred tax assets - 527
--------- ---------
Balance at end of period 97,156 75,918
--------- ---------
RETAINED EARNINGS
Balance at beginning of period 13,472 12,068
Net income 1,908 979
--------- ---------
Balance at end of period 15,380 13,047
--------- ---------
TOTAL STOCKHOLDERS' EQUITY $ 112,711 $ 89,139
========= =========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
-5-
<PAGE> 6
CRYSTAL OIL COMPANY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
($ in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
-----------------------
1996 1995
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,908 $ 979
Adjustments to reconcile net income
to net cash provided by operating activities:
Amortization of deferred financing cost 210 -
Net accretion on investments in debt securities (312) (1,091)
Depreciation, depletion and amortization 2,362 919
Deferred income taxes 1,072 527
Net gain on sale of property, plant and equipment (50) (860)
Decrease (increase) in accounts receivable (164) 4,569
Decrease (increase) in prepaid expense and
other current assets 69 (6)
Decrease in other assets 75 39
Decrease in accounts payable and accrued expenses (603) (3,092)
---------- ----------
Net cash provided by operating activities 4,567 1,984
---------- ----------
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment 65 2,793
Capital expenditures (707) (907)
Acquisition of First Reserve Gas Company,
net of cash received - (78,443)
Purchases of marketable securities (100,971) (102,435)
Maturity of marketable securities 95,155 48,160
Investment of restricted funds (1,460) -
Reduction of restricted funds - 4,718
Investment in Russian joint venture (26) (352)
---------- ----------
Net cash used in investing activities (7,944) (126,466)
---------- ----------
Cash flows from financing activities:
Reduction of long-term obligations (680) (47)
Increase in note payable to bank - 60,000
Reduction of deferred revenue from sale of future
contract receivables (3,194) -
Payment of costs for financing and sale of future
contract receivables (89) (17)
Proceeds from issuance of common stock 254 1,346
---------- ----------
Net cash provided by (used in) financing activities (3,709) 61,282
---------- ----------
Net decrease in cash and cash equivalents (7,086) (63,200)
Cash and cash equivalents at beginning of period 10,812 75,541
---------- ----------
Cash and cash equivalents at end of period $ 3,726 $ 12,341
========== ==========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
-6-
<PAGE> 7
CRYSTAL OIL COMPANY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Continued)
($ in Thousands)
(Unaudited)
Supplemental disclosures of cash flow information:
<TABLE>
<CAPTION>
Nine Months Ended
September 30
--------------------
1996 1995
--------- ---------
<S> <C> <C>
Cash paid during the period for:
Interest, net of amounts capitalized $ 2,348 $ 1,087
========= =========
Amortization of discount on sale of
future contract receivables $ 1,171 $ -
========= =========
Income taxes $ 177 $ 425
========= =========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
-7-
<PAGE> 8
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 September 30, 1996, and the consolidated
condensed statements of operations for the three and nine months ended
September 30, 1996 and 1995, and consolidated condensed statements of
stockholders' equity and cash flows for the nine months ended September 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 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 $4.3 million in standby
letters of credit that 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 September 30, 1996. Effective on November 10, 1996, the letters of
credit for the safe harbor
-8-
<PAGE> 9
lease transactions will be reduced to $774 thousand; and accordingly, the
restricted funds for such obligation will be decreased to $232 thousand.
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 ("Crystal Sub") to ARCO in 1980. In November 1995, the Company and the
Crystal Sub filed a declaratory judgment action against ARCO in the Federal
District Court for the Western District of Louisiana, Shreveport Division,
seeking a determination that the Company and Crystal Sub have no liability to
ARCO with respect to the mining site because (i) a contractual agreement exists
between ARCO and Crystal Sub in which ARCO agreed that Crystal Sub 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 previously completed bankruptcy reorganization proceeding as to which
an order confirming the Company's plan of reorganization was issued on December
31, 1986. In addition, the Company moved the Bankruptcy Court for the Western
District of Louisiana to refer the matter of the Company's bankruptcy discharge
defense to such court where it could be heard in conjunction with the two State
of Louisiana matters described below.
On November 6, 1996, the Company, Crystal Sub and ARCO entered into an
agreement (the "ARCO Agreement") whereby ARCO released the Company and Crystal
Sub from all costs incurred to date by ARCO relating to environmental clean-up
at the Colorado mining site and indemnified the Company and Crystal Sub from
any third-party claims relating to the voluntary clean-up plans that have been
approved by the Colorado Department of Public Health and Environment with
respect to the mining site. In addition, all proceedings in Federal District
Court and Bankruptcy Court relating to this matter will be dismissed without
prejudice. In the ARCO Agreement, the Company and ARCO have reserved their
rights with regard to other claims that may involve the Colorado mining
property and have agreed that the contract release issue or the bankruptcy
discharge issue, as appropriate, described above shall be decided first if
there is any future litigation regarding the environmental clean-up of the
mining site. Neither ARCO nor the Company paid any amount of money to the
other party in conjunction with the execution of the ARCO Agreement.
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 owned
land there from 1920 until 1940 on which a fuel oil refinery was once operated.
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
-9-
<PAGE> 10
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.
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 has referred this claim to the Bankruptcy
Court for the Western District of Louisiana based on the consideration that
such claim was barred 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 1974 Limited Partnership. In recent years, the suit has
been generally inactive. However, on September 18, 1996, the plaintiff amended
its complaint and added Crystal Oil Company as a defendant to the lawsuit. The
Company believes that the likelihood of a recovery, if any, by Plaintiff of a
material amount is remote.
On October 24, 1996, the Bankruptcy Court entered an order that the State
of Louisiana was barred from asserting claims against the Company concerning
the refinery site, which had accrued prior to the Company's 1986 bankruptcy.
The Company intends to similarly pursue in Bankruptcy Court its position that
the other claim by the State of Louisiana, and the State of Indiana, and AGB
claims against the Company are barred by reason of orders entered in its
previous bankruptcy proceeding and has filed motions in the Bankruptcy Court
requesting such a ruling.
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; however, the Senior Preferred Stock and
the stock options were not assumed converted in 1996 and 1995, because the
dilution effect was less than 3%. No warrants were assumed converted during
the periods presented because the effective
-10-
<PAGE> 11
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 earnings per common share and was not presented for the three and nine
month periods ended September 30, 1996 and 1995, because the dilution effect
was less than 3%.
-11-
<PAGE> 12
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 September 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.
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 has
directed its efforts toward the acquisition of 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. In
response to this acquisition objective, the Company acquired First Reserve Gas
Company ("FRGC") for approximately $78.5 million in June 1995. FRGC's
principal asset is a natural gas storage facility near Hattiesburg, Mississippi
(the "Hattiesburg Facility"). The Company has also emphasized the enhancement
of value of its Hattiesburg Facility through establishment of alliances with
gas marketing companies, an addition of an interconnection and other capital
improvements.
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, 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.
As of September 30, 1996, the Company had $64.3 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.
The Company is currently focusing its acquisition efforts on seeking 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.
-12-
<PAGE> 13
Results of Operations
General
The Company recorded net income for the three and nine month periods ended
September 30, 1996, of $626 thousand, $.23 per share, and $1.9 million, $.72
per share, respectively, compared to net income of $590 thousand, $.22 per
share, and $979 thousand, $.37 per share, for the comparative periods in 1995.
Such results included revenues that were primarily derived from natural gas
storage activities following the acquisition of FRGC in the second quarter of
1995, interest and investment income from the investment by the Company of cash
received on the disposition of its crude oil and natural gas properties in late
1994 and to a lesser extent from sales of crude oil and natural gas following
the Company's participation in drilling activities during 1996 and the fourth
quarter of 1995.
The Company's natural gas storage activities for the three and nine months
ended September 30, 1996, provided revenues of $3.1 million and $9.6 million,
respectively, and operating income of $2.1 million and $6.5 million,
respectively. Following the initial acquisition of the Hattiesburg Facility,
natural gas storage activities for the three and nine months ended September
30, 1995, contributed revenues of $2.9 million and $3.3 million, respectively,
and operating income of $2.0 million and $2.1 million, respectively. Gas
storage revenues were up approximately 7% in the third quarter of 1996 compared
to the third quarter in 1995 due to increased interruptible storage and other
services being provided by the Hattiesburg Facility. Included in gas storage
revenues for the three and nine months ended September 30, 1996, was
approximately $2.8 million and $8.3 million, respectively, attributable to the
Hattiesburg Sold Receivables. The remaining gas storage revenues of
approximately $300 thousand and $1.3 million for the three and nine months
ended September 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. Such fees were approximately $100
thousand in each of the three and nine months ended September 30, 1995. The
Company is actively marketing its interruptible storage services as well as
pursuing joint venture and other arrangements with third parties to increase
the utilization of the Hattiesburg Facility beyond the use for firm storage
services.
During the three and nine months ended September 30, 1996, the Company's
operating income from natural gas storage activities reflected operational
expenses of $344 thousand and $998 thousand, respectively, and depreciation and
amortization of $693 thousand and $2.1 million, respectively. The Company's
natural gas storage activities for three months ended September 30, 1995,
included operational expenses and depreciation and amortization of $347
thousand and $617 thousand, respectively.
The Company's drilling activities in late 1995 and 1996 provided sales of
crude oil and natural gas for the three and nine months ended September 30,
1996, of $191 thousand and $527 thousand, respectively. The Company did not
reflect any sales of crude oil and natural gas during the three and nine month
periods ended September 30, 1995, due to the 1994 disposition of its crude oil
and natural gas properties.
-13-
<PAGE> 14
In addition, results for 1995 also included a net gain of approximately
$860 thousand from the sale of assets and a charge of $490 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.
Interest and Investment Income
The Company's interest and investment income for the three and nine month
periods ended September 30, 1996, were approximately $879 thousand and $2.6
million, respectively, compared to approximately $1.0 million and $3.7 million,
respectively, for the comparative periods in 1995. The levels of interest and
investment income reflected a decline in the average investment in debt
securities from $75.5 million for the nine month period ended September 30,
1995, to $64.0 million for the nine month period ended September 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 6.27% for the nine month period ended
September 30, 1995,to 5.21% for the nine month period ended September 30, 1996.
The Company's investments of its liquid assets are primarily invested in short
term government securities.
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization increased in the three and nine
month periods ended September 30, 1996, to $800 thousand and $2.4 million,
respectively, from $688 thousand and $919 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 nine month
periods ended September 30, 1996, was $809 thousand and $2.5 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 for the three and nine month periods ended September 30, 1995, of $1.1
million and $1.2 million, respectively, as a result of the borrowing of $60
million in late June 1995 for the acquisition of FRGC. This borrowing 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 in the fourth
quarter of 1994.
-14-
<PAGE> 15
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 nine month periods ended September 30, 1996,
the Company recorded an expense of approximately $371 thousand and $1.2
million, respectively, for the amortization of discount on sale of future
contract receivables.
General and Administrative Expense
The Company's general and administrative expense for the three and nine
month periods ended September 30, 1996, was approximately $715 thousand and
$2.2 million, respectively, compared to approximately $739 thousand and $2.9
million, respectively, for the comparative periods in 1995. The decrease in
general and administrative expense for the comparative nine month periods
primarily reflected the continued reduction in 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 nine month periods ended September 30, 1996,
included a provision for income taxes of $405 thousand and $1.2 million,
respectively. The Company had a provision for income taxes for the three and
nine months ended September 30, 1995, of $381 thousand and $627 thousand,
respectively. 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 $350 thousand
and $1.1 million, respectively, as a result of utilization of such tax benefits
during the three and nine month periods ended September 30, 1996.
Liquidity and Capital Resources
At September 30, 1996, the Company had cash and cash equivalents of
approximately $3.7 million and marketable securities of approximately $60.6
million. The Company also had approximately $2.9 million in restricted cash
equivalents and marketable securities securing the Company's contingent
obligations with respect to outstanding letters of
-15-
<PAGE> 16
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 $4.6 million and $2.0 million for the nine month periods ended
September 30, 1996 and 1995, respectively. Such net cash flows from operations
for the nine month periods ended September 30, 1996 and 1995, were net of
approximately $312 thousand and $1.1 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 nine month period ended
September 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
$63.2 million at September 30, 1996, and approximately $63.4 million at
December 31, 1995.
At September 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 September 30, 1996, the
Company also had approximately $19.0 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.
During the nine month period ended September 30, 1996, the Company recognized
approximately $8.3 million of revenue from the Hattiesburg Sold Receivables,
which provided approximately $1.2 million for the accretion of the discount on
the sale of the receivables and included approximately $3.9 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 September 30, 1996, restricted
funds of approximately $1.6 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 United States government and other investment
grade securities. 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 legal 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
-16-
<PAGE> 17
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,
the resolution of the reopening of the Company's bankruptcy proceeding 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 $10 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.
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 at any time. The Company derives its forward-looking
statements from its operating budgets which are based on various assumptions,
including matters regarding 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 interruptible service at the
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
ARCO, 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 actual
results to differ materially from those currently anticipated. These factors
are discussed in the Company's filings with the Securities and Exchange
Commission, in particular its most recent Annual Report on Form 10-K filed with
the Securities and Exchange Commission.
-17-
<PAGE> 18
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 ("Crystal Sub") to ARCO in 1980. In November 1995, the Company and the
Crystal Sub filed a declaratory judgment action against ARCO in the Federal
District Court for the Western District of Louisiana, Shreveport Division,
seeking a determination that the Company and Crystal Sub have no liability to
ARCO with respect to the mining site because (i) a contractual agreement exists
between ARCO and Crystal Sub in which ARCO agreed that Crystal Sub 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 previously completed bankruptcy reorganization proceeding as to which
an order confirming the Company's plan of reorganization was issued on December
31, 1986. In addition, the Company moved the Bankruptcy Court for the Western
District of Louisiana to refer the matter of the Company's bankruptcy discharge
defense to such court where it could be heard in conjunction with the two State
of Louisiana matters described below.
On November 6, 1996, the Company, Crystal Sub and ARCO entered into an
agreement (the "ARCO Agreement") whereby ARCO released the Company and Crystal
Sub from all costs incurred to date by ARCO relating to environmental clean-up
at the Colorado mining site and indemnified the Company and Crystal Sub from
any third-party claims relating to the voluntary clean-up plans that have been
approved by the Colorado Department of Public Health and Environment with
respect to the mining site. In addition, all proceedings in Federal District
Court and Bankruptcy Court relating to this matter will be dismissed without
prejudice. In the ARCO Agreement, the Company and ARCO have reserved their
rights with regard to other claims that may involve the Colorado mining
property and have agreed that the contract release issue or the bankruptcy
discharge issue, as appropriate, described above shall be decided first if
there is any future litigation regarding the environmental clean-up of the
mining site. Neither ARCO nor the Company paid any amount of money to the
other party in conjunction with the execution of the ARCO Agreement.
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 owned
land there from 1920 until 1940 on which a fuel oil refinery was once operated.
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
-18-
<PAGE> 19
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.
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 has referred this claim to the Bankruptcy
Court for the Western District of Louisiana based on the consideration that
such claim was barred 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 1974 Limited Partnership. In recent years, the suit has
been generally inactive. However, on September 18, 1996, the plaintiff amended
its complaint and added Crystal Oil Company as a defendant to the lawsuit. The
Company believes that the likelihood of a recovery, if any, by Plaintiff of a
material amount is remote.
On October 24, 1996, the Bankruptcy Court entered an order that the State
of Louisiana was barred from asserting claims against the Company concerning
the refinery site, which had accrued prior to the Company's 1986 bankruptcy.
The Company intends to similarly pursue in Bankruptcy Court its position that
the other claim by the State of Louisiana, and the State of Indiana, and AGB
claims against the Company are barred by reason of orders entered in its
previous bankruptcy proceeding and has filed motions in the Bankruptcy Court
requesting such a ruling.
-19-
<PAGE> 20
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
*11 Computation of Earnings Per Common Share.
27 Financial Data Schedule
(b) Reports on Form 8-K
None
- -------------------------
* Filed herein
-20-
<PAGE> 21
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 7th day of November 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> 1
EXHIBIT 11
CRYSTAL OIL COMPANY
COMPUTATION OF INCOME PER COMMON SHARE
(In Thousands Except Share and Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------------------- --------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Earnings per common share:
Income from operations $ 626 $ 590 $ 1,908 $ 979
=========== =========== =========== ===========
Weighted average of common
shares outstanding 2,665,372 2,643,708 2,660,610 2,620,667
=========== =========== =========== ===========
Earnings per common share $ .23 $ .22 $ .72 $ .37
=========== =========== =========== ===========
Primary: (Including dilutive
Common Stock
equivalents)
Income from operation $ 626 $ 590 $ 1,908 $ 979
Adjustments to income
(net of income tax) - - - -
----------- ----------- ----------- -----------
Adjusted net income $ 626 $ 590 $ 1,908 $ 979
=========== =========== =========== ===========
Weighted average of common
and common equivalent
shares:
Outstanding 2,665,372 2,643,708 2,660,610 2,620,667
Assuming conversion or
exercise of:
Stock options, net
of treasury shares 27,790 32,246 32,082 49,732
Senior preferred stock 33,274 33,274 33,274 33,274
----------- ----------- ----------- -----------
2,726,436 2,709,228 2,725,966 2,703,673
=========== =========== =========== ===========
Per share amount:
Net income $ .23 $ .22 $ .70 $ .36
=========== =========== =========== ===========
</TABLE>
-22-
<PAGE> 2
EXHIBIT 11
(continued)
CRYSTAL OIL COMPANY
COMPUTATION OF INCOME PER COMMON SHARE
(In Thousands Except Share and Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------------------- -------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Fully-diluted:
Income from operation $ 626 $ 590 $ 1,908 $ 979
Adjustments to income
(net of income tax) - - - -
----------- ----------- ----------- -----------
Adjusted net income $ 626 $ 590 $ 1,908 $ 979
=========== =========== =========== ===========
Weighted average of
common shares:
Outstanding 2,665,372 2,643,708 2,660,610 2,620,667
Assuming conversion or
exercise of:
Stock options, net
of treasury shares 29,948 32,246 34,038 49,732
Senior preferred stock 33,274 33,274 33,274 33,274
----------- ----------- ----------- -----------
2,728,594 2,709,228 2,727,922 2,703,673
=========== =========== =========== ===========
Per share amount:
Net income $ .23 $ .22 $ .70 $ .36
=========== =========== =========== ===========
</TABLE>
NOTE: See Note 3 of Notes to Consolidated Condensed Financial Statements.
-23-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1996 AND THE CONSOLIDATED STATEMENT
OF INCOME FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 3,726
<SECURITIES> 60,575
<RECEIVABLES> 1,174
<ALLOWANCES> 306
<INVENTORY> 0
<CURRENT-ASSETS> 65,457
<PP&E> 99,129
<DEPRECIATION> 4,929
<TOTAL-ASSETS> 171,130
<CURRENT-LIABILITIES> 2,250
<BONDS> 56,169
0
148
<COMMON> 27
<OTHER-SE> 112,536
<TOTAL-LIABILITY-AND-EQUITY> 171,130
<SALES> 10,086
<TOTAL-REVENUES> 12,790
<CGS> 0
<TOTAL-COSTS> 3,645
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 24
<INTEREST-EXPENSE> 3,622
<INCOME-PRETAX> 3,137
<INCOME-TAX> 1,229
<INCOME-CONTINUING> 1,908
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,908
<EPS-PRIMARY> .72
<EPS-DILUTED> .70
</TABLE>
