<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 March 31, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
For the transition period from ................. to ..................
Commission file number 1-8715
CRYSTAL OIL COMPANY
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(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
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (318) 222-7791
----------------------
NOT APPLICABLE
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (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 May 12, 1998 2,668,122
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CRYSTAL OIL COMPANY
INDEX
Page No.
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Part I
Item 1. Financial Statements
Consolidated Condensed Balance Sheets -
March 31, 1998 (Unaudited) and December 31, 1997 3
Consolidated Condensed Statements of Operations -
Three Months Ended March 31, 1998 and 1997 (Unaudited) 4
Consolidated Statement of Stockholders' Equity -
Three Months Ended March 31, 1998 and 1997 (Unaudited) 5
Consolidated Condensed Statements of Cash Flows -
Three Months Ended March 31, 1998 and 1997 (Unaudited) 6
Notes to Consolidated Condensed Financial Statements
(Unaudited) 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Part II
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 20
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CRYSTAL OIL COMPANY
CONSOLIDATED CONDENSED BALANCE SHEETS
($ in Thousands)
<TABLE>
<CAPTION>
March 31 December 31
ASSETS 1998 1997
---------- -----------
(Unaudited) (1)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 16,754 $ 11,550
Marketable securities 27,204 58,162
Accounts receivable - net 1,913 1,406
Prepaid expenses and other current assets 855 123
---------- ----------
TOTAL CURRENT ASSETS 46,726 71,241
MARKETABLE SECURITIES 53,657 76,648
PROPERTY, PLANT AND EQUIPMENT - net 142,605 107,346
OTHER ASSETS
Deferred tax assets 30,025 34,649
Restricted cash and marketable securities 3,991 1,901
Others 1,852 1,777
---------- ----------
35,868 38,327
---------- ----------
TOTAL ASSETS $ 278,856 $ 293,562
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term obligations $ 516 $ 517
Accounts payable 9,048 2,904
Other accrued expenses 444 462
---------- ----------
TOTAL CURRENT LIABILITIES 10,008 3,883
LONG-TERM OBLIGATIONS, NET OF CURRENT PORTION 38,371 38,528
DEFERRED REVENUE FROM SALE OF FUTURE CONTRACT
RECEIVABLES AND FORWARD SALES 89,662 110,931
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Senior preferred stock 148 148
Common stock 27 27
Additional paid-in capital 122,020 122,020
Retained earnings 18,620 18,025
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 140,815 140,220
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 278,856 $ 293,562
========== ==========
</TABLE>
(1) The balance sheet at December 31, 1997, has been taken from the audited
financial statements of the Company 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>
<CAPTION>
Three Months Ended
March 31
-------------------------
1998 1997
----------- -----------
<S> <C> <C>
NET REVENUES
Gas storage fees $ 3,201 $ 3,329
Crude oil and natural gas 1,771 241
Interest, investment and other income 1,710 894
----------- -----------
6,682 4,464
COSTS AND EXPENSES
Operating expense and taxes 974 464
General and administrative expense 578 689
Interest and debt expense 821 806
Amortization of discount on sale of future
contract receivables and forward sales 1,830 329
Depreciation, depletion and amortization 1,421 873
----------- -----------
5,624 3,161
----------- -----------
INCOME BEFORE PROVISION FOR INCOME TAXES 1,058 1,303
PROVISION FOR INCOME TAXES 463 489
----------- -----------
NET INCOME $ 595 $ 814
=========== ===========
NET INCOME PER COMMON SHARE $ .22 $ .31
=========== ===========
NET INCOME PER COMMON SHARE-
ASSUMING DILUTION $ .22 $ .30
=========== ===========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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CRYSTAL OIL COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
($ in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31
--------------------
1998 1997
--------- ---------
<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 27
--------- ---------
ADDITIONAL PAID-IN CAPITAL
Balance at beginning and end of period 122,020 97,156
--------- ---------
RETAINED EARNINGS
Balance at beginning of period 18,025 15,945
Net income 595 814
--------- ---------
Balance at end of period 18,620 16,759
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TOTAL STOCKHOLDERS' EQUITY $ 140,815 $ 114,090
========= =========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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CRYSTAL OIL COMPANY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
($ in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31
-------------------------
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 595 $ 814
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of deferred financing cost 80 65
Depreciation, depletion and amortization 1,421 873
Deferred income taxes 360 445
Net loss on sale of property, plant and equipment 91 -
Net change in accrued interest income 820 416
Increase in accounts receivable (109) (323)
Increase in prepaid expense and other
current assets (185) (30)
Increase in other assets (724) -
Increase in accounts payable and
accrued expenses 5,894 75
----------- -----------
Net cash provided by operating activities 8,243 2,335
----------- -----------
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment 669 -
Acquisition of Petal Gas Storage Company,
net of cash received (29,141) -
Capital expenditures (4,179) (52)
Purchases of marketable securities (103,882) (42,618)
Maturity of marketable securities 157,011 37,888
Investment of restricted funds (2,127) -
Reduction of restricted funds 37 50
----------- -----------
Net cash provided by(used in)investing activities 18,388 (4,732)
----------- -----------
Cash flows from financing activities:
Reduction of long-term obligations (158) (400)
Reduction of deferred revenue from sale of
future contract receivables and forward sales (21,269) (1,127)
----------- -----------
Net cash used in financing activities (21,427) (1,527)
----------- -----------
Net increase (decrease) in cash and cash equivalents 5,204 (3,924)
Cash and cash equivalents at beginning of period 11,550 11,576
----------- -----------
Cash and cash equivalents at end of period $ 16,754 $ 7,652
=========== ===========
</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:
<TABLE>
<CAPTION>
Three Months Ended
March 31
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Cash paid during the period for:
Interest $ 741 $ 741
========= =========
Amortization of discount on sale of
future contract receivables and forward sales $ 1,830 $ 329
========= =========
Income taxes $ 50 $ 37
========= =========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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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 March 31, 1998, and the consolidated
condensed statements of operations, stockholders' equity and cash flows for the
three months ended March 31, 1998 and 1997, 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 1997 Annual Report on Form 10-K.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting No. 131 ("SFAS 131"), "Disclosure about Segments of an
Enterprise and Related Information". SFAS 131 established standards for the
disclosure of information about operating segments beginning with the results
for the year ending December 31, 1998, and for each period thereafter, with
restated comparative disclosures for earlier periods. SFAS 131 requires
disclosures about an enterprise's components for which separate financial
information is available and regularly used by the chief operating decision
maker in allocating resources and assessing performance. Even though the Company
expects to provide additional descriptive information about its operating
segments, SFAS 131 is not expected to impact how the Company currently reports
its segment information.
Note 2. Commitments and Contingencies
The Company currently has outstanding $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 and approximately $189 thousand in
standby letters of credit that relate to certain tax benefits transferred
pursuant to safe harbor lease transactions. The Company's obligations with
respect to the letters of credit for the safe harbor lease transactions are
secured by approximately $57 thousand in restricted marketable securities.
The Company has been named as a potentially responsible party for
environmental remediation in three separate actions. Two of the actions have
been brought in Louisiana state court by agencies of the State of Louisiana
concerning properties operated by the Company in the 1920s and 1930s. In the
first claim from the State of Louisiana, the Bankruptcy Court barred the State
of Louisiana from asserting claims against the Company on the grounds that such
claims had accrued prior to the Company's 1986 bankruptcy proceedings. In the
second proceeding, the State of Louisiana prevailed in Bankruptcy Court and is
seeking $4.5 million from all potentially responsible parties under state court
proceedings. In the third action, an agency of the State of Indiana brought an
action against the Company and others to recover approximately $1.8 million in
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remediation costs from a site on which a refinery was owned in the 1970s by a
now-dissolved subsidiary of the Company. Although the cost of cleanup of these
sites is currently estimated to involve the expenditure of funds by all
potentially responsible parties in excess of $6 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.
A subsidiary of the Company was named in a suit brought in 1979 alleging
breach of contract, breach of fiduciary duty, mismanagement and fraud in
connection with the operation of the Caloosa 1974 Limited Partnership, of which
the Company's subsidiary was general partner. In recent years, the suit has been
generally inactive. However, in 1996 the plaintiff amended its complaint and
added Crystal Oil Company as a defendant to the lawsuit. The Company and
plaintiff are currently in a mediation process. The Company does not believe
that a recovery by plaintiff of a material amount is likely.
Note 3. Net Income Per Share
A reconciliation of the weighted-average shares outstanding for computation
of basic and diluted income per share for the three month periods ended March
31, 1998 and 1997, follows. No difference existed between net income used in
computing basic and diluted income per share for these periods.
<TABLE>
<CAPTION>
Three Months Ended March 31
---------------------------
(Weighted-average shares outstanding) 1998 1997
------------- ------------
<S> <C> <C>
Basic method 2,668,122 2,665,622
Dilutive preferred stock 33,274 33,274
Dilutive stock options 40,408 30,585
------------- ------------
Assuming dilution 2,741,804 2,729,481
============= ============
</TABLE>
Note 4. Property Acquisition
On March 12, 1998, the Company consummated the acquisition of Petal Gas
Storage Company ("Petal Gas"), an indirect wholly-owned subsidiary of CMS Energy
Corp., for approximately $29 million, net of certain adjustments and inclusive
of acquisition costs of approximately $400 thousand. Petal Gas owns and operates
a high-deliverability natural gas storage facility near Hattiesburg,
Mississippi, with a working natural gas capacity of 3.2 Bcf. The facility is
connected directly to two interstate pipelines, Tennessee Gas Pipeline and Koch
Gateway Pipeline, as well as Transcontinental Gas Pipe Line and Associated
Intrastate of Mississippi through a pipeline owned by Hattiesburg Gas Storage
Company, a subsidiary of the Company. In addition, the cost of the gas storage
facility includes costs associated with the deferred tax liability of $4.3
million resulting from the difference between the book and tax bases of the net
assets acquired.
The acquisition has been accounted for in accordance with the "purchase
method" of accounting, and accordingly, the results of operations of Petal Gas
are included in the Company's consolidated statement of operations from the
acquisition date.
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Note 5. Dispositions
During the first quarter of 1998, the Company sold its interest in certain
non-strategic undeveloped crude oil and natural gas properties for cash
consideration of approximately $651 thousand and recognized a net loss on such
disposition of approximately $91 thousand.
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
The following is provided to assist in a further understanding of the
Company's financial condition as of March 31, 1998, 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, 1997, should be read in
conjunction with this discussion.
The Company currently owns and operates through wholly-owned subsidiaries,
First Reserve Gas Company ("FRGC") and Petal Gas Storage Company ("Petal Gas"),
two natural gas storage facilities located near Hattiesburg, Mississippi, and
holds various interests in crude oil and natural gas properties in Louisiana and
Mississippi.
Corporate Strategy
The Company's corporate strategy is to expand its revenue generating asset
base through the utilization of available financial resources for acquiring
income producing assets and properties that would benefit from the Company's
existing tax position and present potential for capital appreciation. To date,
acquisitions have been in energy related business that can be acquired at
attractive prices and operated by the Company without the addition of
substantial corporate overhead and administrative expenses and have included the
Company's 1995 acquisition of FRGC, the Company's 1997 acquisition of proved
producing and undeveloped properties in the Bethany Longstreet and Holly Fields
in DeSoto Parish, Louisiana (the "DeSoto Properties") and the Company's 1998
acquisition of Petal Gas described below.
During the first quarter of 1998, the Company consummated the acquisition of
Petal Gas, an indirect wholly-owned subsidiary of CMS Energy Corp., for
approximately $29 million net of certain adjustments and inclusive of
acquisition costs of approximately $400 thousand. Petal Gas owns and operates a
high-deliverability natural gas storage facility near Hattiesburg, Mississippi,
with a working natural gas capacity of 3.2 Bcf (the "Petal Facility"). The Petal
Facility is connected directly to two interstate pipelines, Tennessee Gas
Pipeline and Koch Gateway Pipeline, as well as Transcontinental Gas Pipe Line
and Associated Intrastate of Mississippi through a pipeline owned by Hattiesburg
Gas Storage Company, a subsidiary of the Company. The Petal Facility compliments
and provides opportunity for synergies with the natural gas storage facility
owned by FRGC (the "Hattiesburg Facility") due to similarity in operations and
proximity of less than one mile between locations.
The Company is continuing to review additional acquisition opportunities
with a focus on acquisitions that will maximize the return on the Company's
existing capital resources and benefit from the availability of the Company's
large net operating loss carryforwards and other tax benefits. Potential
acquisitions include companies and assets in the energy industry as well as
other industries. As of March 31, 1998, the Company's financial resources
included $98 million in cash, cash equivalents and marketable securities that
could be utilized for future acquisitions. Approximately $55 million of such
marketable securities are dedicated to acquisitions of crude oil and natural gas
properties as well
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<PAGE> 12
as purchases of crude oil and natural gas that may be necessary to satisfy
obligations under certain forward sale transactions.
The Company's only material debt consists of the indebtedness directly
associated with the permanent financing for the acquisition of FRGC in 1995 with
the recourse primarily to FRGC and the assets and operations of the Hattiesburg
Facility. 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.
Results of Operations
General
The Company recorded net income for the three months ended March 31, 1998,
of $595 thousand, or $.22 per basic share ($.22 per diluted share), compared to
net income of $814 thousand, or $.31 per basic share ($.30 per diluted share),
for the comparative period in 1997. In comparison to the three months ended
March 31, 1997, the Company's operations for the three months ended March 31,
1998, reflected additional revenues of approximately $2.2 million primarily as a
result of an increase in natural gas revenues from the acquisition of the DeSoto
Properties during the second quarter of 1997 and an increase in interest and
investment income from the investment of proceeds from the forward sales of
crude oil and natural gas during the second and third quarters of 1997. These
increases were offset by additional expenses of $2.5 million resulting from the
expansion of crude oil and natural gas activities and the effect of the
amortization of discount from forward sales of crude oil and natural gas.
Natural Gas Storage
The Company's natural gas storage activities for the three months ended
March 31, 1998, provided revenues of $3.2 million and operating income of $2.1
million. For the three month period ended March 31, 1997, natural gas storage
activities contributed revenues of $3.3 million and operating income of $2.3
million. Natural gas storage revenues derived from firm long-term contracts were
$2.9 million and $2.8 million for the three month periods ended March 31, 1998
and 1997, respectively. The remaining natural gas storage revenues of
approximately $.3 million and $.5 million for the three month periods ended
March 31, 1998 and 1997, respectively, were derived from interruptible storage
services, injection and withdrawal charges and other fees relating to services
provided in connection with the storage and delivery of natural gas. Revenues
for the three month period ended March 31, 1998, reflected a lower demand for
interruptible and other storage services due to milder weather conditions, which
was partially offset by approximately $190 thousand in revenues from the Petal
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 utilization of its facilities beyond the use for firm storage
services. In addition, the acquisition of the Petal Facility during the first
quarter of 1998 is expected to contribute additional revenues from the natural
gas storage segment in future periods.
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<PAGE> 13
During the three month period ended March 31, 1998, the Company's operating
income from natural gas storage activities reflected operational expenses of
$380 thousand and depreciation and amortization of $727 thousand. The Company's
natural gas storage activities for the three month period ended March 31, 1997,
included operational expenses of $303 thousand and depreciation and amortization
of $690 thousand. The expenses for the natural gas storage segment are expected
to increase in future periods as a result of the Petal Gas acquisition.
Crude Oil and Natural Gas Exploration and Production
The Company's crude oil and natural gas exploration and production segment
for the three month period ended March 31, 1998, provided revenues of $1.8
million and operating income of $644 thousand. For the three month period ended
March 31, 1997, the crude oil and natural gas exploration and production segment
contributed revenues of $241 thousand and operating income of $84 thousand.
Operating income from crude oil and natural gas production for the first quarter
of 1998 reflected the effect of increased revenues from additional natural gas
production and increased operating expense and depletion expense from the effect
of the acquisition of the DeSoto Properties during the second quarter of 1997.
Interest and Investment Income
The Company's interest and investment income for the three month period
ended March 31, 1998, was approximately $1.8 million and approximately $877
thousand for the comparative period in 1997. The levels of interest and
investment income reflected an average investment in debt securities of $132
million and $63 million for the three month periods ended March 31, 1998 and
1997, respectively, and the effect of the proceeds derived from the forward
sales during the second and third quarters of 1997, net of the funds utilized to
satisfy forward sale obligations. The average interest rate received by the
Company was 5.4% and 5.6% for the three month periods ended March 31, 1998 and
1997, respectively. The Company's investments of its liquid assets are primarily
invested in investment grade corporate and government obligations that are for
terms of less than two years.
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization increased in the three month period
ended March 31, 1998, to $1.4 million from $873 thousand for the comparative
period in 1997. The increase was primarily attributable to increases in the
volumes of natural gas production following the acquisition of the DeSoto
Properties during the second quarter of 1997. Depreciation, depletion and
amortization will also increase in future periods as a result of the development
activities of the DeSoto Properties and the acquisition of the Petal Facility
during the first quarter of 1998.
Interest and Debt Expense
The Company's interest and debt expense for the three month period ended
March 31, 1998, was $821 thousand and $806 thousand for the comparative period
in 1997. Such interest and debt expense related primarily to the $36.5 million
of long-term debt incurred to finance the acquisition of FRGC.
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<PAGE> 14
Amortization of Discount on Sale of Future Contract Receivables and
Forward Sales
For the three month period ended March 31, 1998, the Company's amortization
of discount on sale of future contract receivables and forward sales was $1.8
million and reflected the amortization of discount on the Company's sale in
November 1995 of the contract receivables from firm gas storage services and the
amortization of discount on two forward sale transactions entered into during
the second and third quarters of 1997. The Company recorded an expense for the
amortization of discount on sale of future contract receivables of approximately
$329 thousand during the three month period ended March 31, 1997.
General and Administrative Expense
The Company's general and administrative expense for the three month period
ended March 31, 1998, was approximately $578 thousand compared to approximately
$689 thousand for the comparative period in 1997. The acquisition of the DeSoto
Properties during the second quarter of 1997 did not result in any significant
increase in general and administrative expense due to the consolidation of the
acquired operations with its ongoing exploration and production activities. The
Petal Facility is also expected to be operated by the Company without the
addition of significant corporate overhead and administrative expenses.
Provision for Income Taxes
The results for the three month periods ended March 31, 1998 and 1997,
included a provision for income taxes of $463 thousand and $489 thousand,
respectively. The Company's provision for income taxes for the three month
periods ended March 31, 1998 and 1997, included deferred tax expense and a
corresponding reduction in deferred tax assets of approximately $360 thousand
and $445 thousand, respectively, as a result of the reversal of previously
existing temporary differences and the utilization of the Company's tax net
operating loss carryforwards.
As of March 31, 1998, the Company had a net deferred tax asset of
approximately $30 million. In assessing the deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Based upon
projections for future taxable income over the periods which the deferred tax
assets are deductible, management believes it is more likely than not the
Company will realize the benefits of these deductible differences, net of the
existing valuation allowance. The amount of the deferred tax asset considered
realizable, however, could be reduced in the near term if estimates of future
taxable income during the carryforward period are reduced.
Liquidity and Capital Resources
At March 31, 1998, the Company had marketable securities and cash and cash
equivalents of approximately $97.6 million compared to marketable securities and
cash and cash equivalents of $146.4 million at December 31, 1997. During the
first quarter of 1998, the Company utilized approximately $29 million for the
acquisition of Petal Gas, approximately
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<PAGE> 15
$16 million to satisfy its obligations under the forward sale transactions
entered into during 1997 and approximately $3.5 million for development drilling
activities at the DeSoto Properties. As of March 31, 1998, approximately $55
million of the Company's investment in marketable securities is dedicated to
acquisitions of crude oil and natural gas properties as well as purchases of
crude oil and natural gas that may be necessary to satisfy certain forward sale
transactions. In addition, the Company had no material debt other than the debt
directly associated with and recourse primarily limited to FRGC and the
Hattiesburg Facility.
During 1997, the Company sold in a forward sale 32.7 billion cubic feet
("BCF") of natural gas and 1.6 million barrels of crude oil for a total amount
of approximately $97 million. The proceeds from these sales are reflected for
financial accounting purposes as "Deferred Revenues from Forward Sales" and are
being recognized as deliveries are made by the Company based on an undiscounted
reference price for the crude oil and natural gas sold. The imputed charge used
in establishing the sales price of the crude oil and natural gas sold is being
amortized over the life of the forward sale contract as the crude oil and
natural gas are delivered and recorded as amortization of discount on forward
sales. Current deliveries required under the forward sales aggregate 15.4 Bcf of
natural gas and 1.2 million barrels of crude oil during the remainder of 1998
and 12 Bcf of natural gas through December 2002. The balance of deferred
revenues from forward sales was approximately $78 million as of March 31, 1998.
The Company has entered into hedging arrangements for the purpose of hedging
against the volatility in prices of crude oil and natural gas in the event the
Company is unable to deliver enough volumes of natural gas from its existing
production or acquire producing crude oil and natural gas properties to fully
satisfy its obligations under the forward sale arrangements entered during 1997
and is therefore required to purchase crude oil and natural gas to satisfy these
obligations. These hedges are designed to limit any potential losses that the
Company could incur on the purchase of crude oil and natural gas at prices
higher than the prices used in the forward sales to fulfill its obligations
under the contracts relating thereto to the extent its available production at
the scheduled delivery date is less than the amounts required to be delivered.
Under these hedging arrangements, the Company will either be entitled to receive
or be required to pay an amount of cash equal to the difference between a
scheduled price stated in the hedging contracts and a reference price per barrel
of crude oil or per MMbtu of natural gas multiplied by the schedule of volumes
hedged. These hedge contracts are derivative financial instruments and do not
require deliveries of the commodity hedged. The gains or losses on the Company's
hedge contracts will be recognized as deliveries are made by the Company. As of
March 31, 1998, the Company recorded an accounts payable of approximately $6.3
million with respect to its obligations under the forward sale contracts and
commodity swap contracts.
On April 14, 1998, as a result of increased natural gas production from the
DeSoto Properties, the Company amended one of its commodity swap contracts to
reduce the volumes hedged during the remainder of 1998 for consideration to the
Company of approximately $330 thousand. Such gain will be recognized over the
scheduled delivery date of the original volumes hedged under the commodity swap
contract. Currently, the Company's hedging arrangements cover purchases of up to
17.4 Bcf of natural gas at prices ranging from $1.89 to $2.55 and up to 1.2
million
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<PAGE> 16
barrels of crude oil at prices ranging from $20.26 to $20.89 per barrel.
Risks associated with the Company's hedge contracts arise primarily from
the possible inability of a concentrated number of counterparties meeting their
obligations under these contracts. The Company's existing hedge contracts are
with a major investment grade financial institution or secured by an irrevocable
letter of credit. The cash flows from future contracts are accounted for as
hedges for sales of production and are classified as operating activities in the
consolidated statements of cash flows.
As a part of the acquisition of the Hattiesburg Facility in 1995, the
Company sold to a trust for approximately $42.7 million the right to receive
payment from the accounts receivable generated by the Hattiesburg Facility's
long-term contracts. The receivables were sold without recourse to the Company
or its subsidiaries, but certain subsidiaries of the Company (the "FRGC
Parties") have agreed to be responsible in limited circumstances for failure to
collect on the accounts receivable and for certain force majeure events. The
obligations of the FRGC Parties are secured by substantially all of their
assets, including the Hattiesburg Facility. A subsidiary of the Company
purchased approximately 47.3% of the interests in the trust. The net proceeds of
$22.5 million from such receivables have been classified for accounting purposes
as "Deferred Revenue from Sale of Future Contract Receivables" and are being
recognized over the period during which the receivables are being generated. The
amount of the deferred revenue reflected on the Company's Consolidated Condensed
Balance Sheets include the amount of revenue generated from the sale less the
Company's carrying value of the senior and subordinated interests in the trust
that were purchased by the Company's subsidiary. The balance of deferred revenue
from the sale of future contract receivables was approximately $12.0 million as
of March 31, 1998. The discount between the funds received on the sale of the
receivables and the scheduled payments thereunder is being amortized over the
life of the receivables based on the discount rate applied in determining the
sale price of the receivables and recorded as "Amortization of Discount on Sale
of Future Contract Receivables."
Simultaneously with the sale of the Hattiesburg receivables, a subsidiary of
the Company issued approximately $36.5 million in 8.12% Secured Guaranteed Notes
Due 2005 (the "Notes"). The terms of the Notes provide for the payment of
interest only through June 30, 2000, at which time principal is to be amortized
over the remaining life of the Notes. The Notes, which are without recourse to
the Company, are secured by substantially all the assets of the FRGC Parties. In
addition, the Company currently has outstanding a $1.5 million irrevocable
letter of credit to support certain obligations with respect to the Notes.
The Company's working capital position decreased by approximately $30.7
million to $36.7 million at March 31, 1998, compared to $67.4 million at
December 31, 1997, primarily as a result of the utilization of existing funds
for the acquisition of Petal Gas during the first quarter of 1998. The Company
generated net cash from operating activities of approximately $8.2 million and
$2.3 million during the three month periods ended March 31, 1998 and 1997,
respectively. During the first quarter of 1998, the net cash from operating
activities benefitted from an increase in accounts payable and accrued expenses
of approximately $5.9 million.
-16-
<PAGE> 17
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 to the Company's liquidity, operations or financial position.
Other Matters
Based on internal reviews, the Company is not expected to incur any
significant expenditures to modify its computer information systems enabling
proper processing of transactions relating to the year 2000 and beyond. The
Company continues to evaluate appropriate courses of corrective action,
including replacement of certain systems whose associated costs would be
recorded as assets and amortized. Accordingly, the Company does not expect the
amounts required to be expensed to have a material effect on its financial
position or results of operations.
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 such remediation cost. 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. As of March 31,
1998, the Company has an accrued liability of approximately $2.3 million for
defense and related costs resulting from such environmental claims against the
Company. Because such claims relate to matters existing prior to the Company's
quasi-reorganization in 1986, this accrual was recorded net of related tax
impact as an offset to additional paid-in capital.
Forward Looking Statements
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 risks 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 crude oil and natural gas prices, demand and supply
for crude oil and natural gas, changes in the market for natural gas storage and
transportation, the ultimate recovery and realization of the estimated reserves
from the proved producing and undeveloped reserves in the DeSoto Properties,
success of the Company's ability to market interruptible service at the
Hattiesburg Facility and the Petal Facility, the use of the Company's existing
net operating tax loss carryforwards, the Company's successful execution of its
acquisition strategy and internal operating plans, labor relations, regulatory
uncertainties and legal proceedings, in particular
-17-
<PAGE> 18
its pending litigation with 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.
-18-
<PAGE> 19
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
-19-
<PAGE> 20
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 12th day of May 1998.
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)
-20-
<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
March 31
----------------------------
1998 1997
----------- -----------
<S> <C> <C>
Earnings per common share
Net income $ 595 $ 814
=========== ===========
Weighted average of common
shares outstanding 2,668,122 2,665,622
=========== ===========
Earnings per common share $ .22 $ .31
=========== ===========
Earnings per common share -
Assuming dilution
Income from operations $ 595 $ 814
Adjustments to income
(net of income tax) - -
----------- -----------
Adjusted net income $ 595 $ 814
=========== ===========
Weighted average of common
and common equivalent shares:
Outstanding 2,668,122 2,665,622
Assuming conversion or exercise of:
Stock options, net of
treasury shares 40,408 30,585
Senior preferred stock 33,274 33,274
----------- -----------
2,741,804 2,729,481
=========== ===========
Earnings per common share -
Assuming dilution $ .22 $ .30
=========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT MARCH 31, 1998 AND THE CONSOLIDATED STATEMENT OF
INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 16,754
<SECURITIES> 27,204
<RECEIVABLES> 1,964
<ALLOWANCES> 51
<INVENTORY> 0
<CURRENT-ASSETS> 46,726
<PP&E> 153,312
<DEPRECIATION> 10,707
<TOTAL-ASSETS> 278,856
<CURRENT-LIABILITIES> 10,008
<BONDS> 89,662
0
148
<COMMON> 27
<OTHER-SE> 140,640
<TOTAL-LIABILITY-AND-EQUITY> 278,856
<SALES> 4,972
<TOTAL-REVENUES> 6,682
<CGS> 0
<TOTAL-COSTS> 2,395
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 821
<INCOME-PRETAX> 1,058
<INCOME-TAX> 463
<INCOME-CONTINUING> 595
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 595
<EPS-PRIMARY> 0.22
<EPS-DILUTED> 0.22
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
RESTATED FINANCIAL DATA SCHEDULE. THIS SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AT MARCH 31, 1997 AND
THE CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
THIS FINANCIAL DATA SCHEDULE HAS BEEN RESTATED AS A RESULT OF THE IMPLEMENTATION
OF FINANCIAL ACCOUNTING STANDARDS NUMBER 128 AMENDING EARNING PER SHARE
CALCULATIONS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 7,652
<SECURITIES> 51,740
<RECEIVABLES> 1,418
<ALLOWANCES> 53
<INVENTORY> 0
<CURRENT-ASSETS> 60,889
<PP&E> 98,645
<DEPRECIATION> 6,471
<TOTAL-ASSETS> 168,955
<CURRENT-LIABILITIES> 1,543
<BONDS> 53,322
0
148
<COMMON> 27
<OTHER-SE> 113,915
<TOTAL-LIABILITY-AND-EQUITY> 168,955
<SALES> 3,570
<TOTAL-REVENUES> 4,464
<CGS> 0
<TOTAL-COSTS> 1,337
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 9
<INTEREST-EXPENSE> 806
<INCOME-PRETAX> 1,303
<INCOME-TAX> 489
<INCOME-CONTINUING> 814
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 814
<EPS-PRIMARY> 0.31
<EPS-DILUTED> 0.30
</TABLE>
