<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 June 30, 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
(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
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 August 11, 1998 2,668,122
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<PAGE> 2
CRYSTAL OIL COMPANY
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I
Item 1. Financial Statements
Consolidated Condensed Balance Sheets -
June 30, 1998 (Unaudited) and December 31, 1997 3
Consolidated Condensed Statements of Operations -
Three and Six Months Ended June 30, 1998 and 1997 (Unaudited) 4
Consolidated Condensed Statements of Stockholders' Equity -
Six Months Ended June 30, 1998 and 1997 (Unaudited) 5
Consolidated Condensed Statements of Cash Flows -
Six Months Ended June 30, 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 4. Submission of Matters to a Vote of Security Holders 19
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 20
</TABLE>
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<PAGE> 3
CRYSTAL OIL COMPANY
CONSOLIDATED CONDENSED BALANCE SHEETS
($ in Thousands)
<TABLE>
<CAPTION>
June 30 December 31
ASSETS 1998 1997
-------- --------
(Unaudited) (1)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 22,994 $ 11,550
Marketable securities 23,725 58,162
Accounts receivable - net 1,234 1,406
Prepaid expenses and other current assets 939 123
-------- --------
TOTAL CURRENT ASSETS 48,892 71,241
MARKETABLE SECURITIES 33,901 76,648
PROPERTY, PLANT AND EQUIPMENT - net 142,521 107,346
OTHER ASSETS
Deferred tax assets 30,151 34,649
Restricted cash and marketable securities 1,864 1,901
Others 1,940 1,777
-------- --------
33,955 38,327
-------- --------
TOTAL ASSETS $259,269 $293,562
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term obligations $ 516 $ 517
Accounts payable 9,568 2,904
Other accrued expenses 345 462
-------- --------
TOTAL CURRENT LIABILITIES 10,429 3,883
LONG-TERM OBLIGATIONS, NET OF CURRENT PORTION 38,172 38,528
DEFERRED REVENUE FROM SALE OF FUTURE CONTRACT
RECEIVABLES AND FORWARD SALES 70,077 110,931
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Senior preferred stock 148 148
Common stock 27 27
Additional paid-in capital 122,020 122,020
Retained earnings 18,396 18,025
-------- --------
TOTAL STOCKHOLDERS' EQUITY 140,591 140,220
-------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $259,269 $293,562
======== ========
</TABLE>
(1) The balance sheet at December 31, 1997, has been taken from the audited
financial statements of the Company at that date, and condensed.
See accompanying notes to consolidated condensed financial statements.
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CRYSTAL OIL COMPANY
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
($ in Thousands Except Shares and Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
------------------------- -----------------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
NET REVENUES
Gas storage fees $ 3,690 $ 3,012 $ 6,891 $ 6,341
Crude oil and natural gas 1,916 272 3,687 513
Interest, investment and
other income 1,259 909 2,969 1,803
------- ------- ------- -------
6,865 4,193 13,547 8,657
COSTS AND EXPENSES
Operating expense and taxes 1,165 543 2,139 1,007
General and administrative
expense 725 669 1,303 1,358
Interest and debt expense 818 804 1,639 1,610
Amortization of discount on
sale of future contract
receivables and forward
sales 1,545 427 3,375 756
Exploration cost 1,300 -- 1,300 --
Depreciation, depletion and
amortization 1,677 903 3,098 1,776
------- ------- ------- -------
7,230 3,346 12,854 6,507
------- ------- ------- -------
INCOME (LOSS) BEFORE PROVISION
FOR INCOME TAXES (365) 847 693 2,150
PROVISION FOR INCOME
TAXES (BENEFIT) (141) 352 322 841
------- ------- ------- -------
NET INCOME (LOSS) $ (224) $ 495 $ 371 $ 1,309
======= ======= ======= =======
NET INCOME (LOSS) PER
COMMON SHARE $ (.08) $ .19 $ .14 $ .49
======= ======= ======= =======
NET INCOME (LOSS) PER COMMON
SHARE - ASSUMING DILUTION $ (.08) $ .18 $ .14 $ .48
======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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<PAGE> 5
CRYSTAL OIL COMPANY
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
($ in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30
----------------------------
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 of period 122,020 97,156
Utilization of net operating loss carryforward
and recognition of deferred tax assets -- 6,800
Recognition of environmental remediation
liability, net of tax -- (660)
--------- ---------
Balance at end of period 122,020 103,296
--------- ---------
RETAINED EARNINGS
Balance at beginning of period 18,025 15,945
Net income 371 1,309
--------- ---------
Balance at end of period 18,396 17,254
--------- ---------
TOTAL STOCKHOLDERS' EQUITY $ 140,591 $ 120,725
========= =========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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<PAGE> 6
CRYSTAL OIL COMPANY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
($ in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30
-----------------------------
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 371 $ 1,309
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of deferred financing cost 158 129
Depreciation, depletion and amortization 3,098 1,776
Exploration cost 1,300 --
Deferred income taxes 234 734
Net loss on sale of property, plant and equipment 91 --
Net change in accrued interest income 615 (19)
Decrease (increase) in accounts receivable 570 (128)
Increase in prepaid expense and other current assets (808) (206)
Decrease (increase)in other assets (381) 1
Increase in accounts payable and accrued expenses 6,315 226
--------- ---------
Net cash provided by operating activities 11,563 3,822
--------- ---------
Cash flows from investing activities:
Acquisition of DeSoto Properties -- (11,917)
Acquisition of Petal Gas Storage Company,
net of cash received (29,141) --
Proceeds from sale of property, plant and equipment 669 --
Capital expenditures (7,042) (119)
Purchases of marketable securities (113,092) (58,878)
Maturity of marketable securities 189,661 51,788
Investment of restricted funds (4,478) --
Reduction of restricted funds 4,515 55
--------- ---------
Net cash provided by (used in) investing activities: 41,092 (19,071)
--------- ---------
Cash flows from financing activities:
Reduction of long-term obligations (357) (622)
Reduction of deferred revenue from sale of future
contract receivables and forward sales (40,854) (2,274)
Proceeds from natural gas forward sale -- 14,120
Payment of costs for natural gas forward sale contract -- (249)
--------- ---------
Net cash provided by (used in) financing activities (41,211) 10,975
--------- ---------
Net increase (decrease) in cash and cash equivalents 11,444 (4,274)
Cash and cash equivalents at beginning of period 11,550 11,576
--------- ---------
Cash and cash equivalents at end of period $ 22,994 $ 7,302
========= =========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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<PAGE> 7
CRYSTAL OIL COMPANY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Continued)
($ in Thousands)
(Unaudited)
Supplemental disclosures of cash flow information:
<TABLE>
<CAPTION>
Six Months Ended
June 30
----------------------
1998 1997
------ ------
<S> <C> <C>
Cash paid during the period for:
Interest, net of amounts capitalized $1,482 $1,481
====== ======
Amortization of discount on sale of
future contract receivables and
natural gas forward sale $3,375 $ 756
====== ======
Income taxes $ 50 $ 134
====== ======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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<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 June 30, 1998, the consolidated condensed
statements of operations for the three and six months ended June 30, 1998 and
1997, and the consolidated condensed statements of stockholders' equity and cash
flows for the six months ended June 30, 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 Annual Report on Form 10-K for the year ended December 31, 1997.
In June 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards 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.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133 ("SFAS No. 133"), "Accounting for Derivative Instruments and Hedging
Activities." This statement established accounting and reporting standards for
derivative instruments and hedging activities. Effective January 1, 2000, it
will require the Company to recognize all derivatives as either assets or
liabilities and to measure those instruments at fair value in its Consolidated
Balance Sheet. A derivative meeting certain conditions may be designated as a
hedge of a specific exposure; accounting for changes in a derivative's fair
value will depend on the intended use of the derivative and the resulting
designation. Any transition adjustments resulting from adopting this statement
will be reported in net income or other comprehensive income, as appropriate, as
the cumulative effect of a change in accounting principle. The Company has not
yet determined the effects that SFAS No. 133 will have on its future
consolidated financial statements or the amount of the cumulative adjustment
that will be made upon adopting this new standard.
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<PAGE> 9
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 $186 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 $56 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 other potentially responsible parties to recover
the remediation costs from a site on which a refinery was owned in the 1970s by
a now-dissolved subsidiary of the Company. On May 15, 1998, the Bankruptcy Court
approved a compromise between the Company and the State of Indiana and barred
other potentially responsible parties from asserting related claims against the
Company. The order from the Bankruptcy Court is non-appealable and the Company
will pay the settlement amount of $125 thousand upon the dismissal of the
complaint for cost recovery in circuit court. Based on information known to the
Company, the Company does not believe that its ultimate payment obligations with
respect to the matters above 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 (Loss) Per Share
A reconciliation of the weighted-average shares outstanding for computation
of basic and diluted income (loss) per share for the three and six month periods
ended June 30, 1998 and 1997, follows. No difference existed between net income
(loss) used in computing basic and diluted income (loss) per share for these
periods.
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<PAGE> 10
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
---------------------------- ----------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Weighted-average shares
outstanding
Basic method 2,668,122 2,665,622 2,668,122 2,665,622
Dilutive preferred stock 33,274 33,274 33,274 33,274
Dilutive stock options 39,979 27,954 39,979 27,823
--------- --------- --------- ---------
Assuming dilution 2,741,375 2,726,850 2,741,375 2,726,719
========= ========= ========= =========
</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 billion cubic feet
("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 condensed statements of operations
from the acquisition date.
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.
Note 6. Deferred Revenue From Forward Sales
During 1997, the Company sold in a forward sale 32.7 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. Current deliveries required under the
forward sales aggregate 10.4 Bcf of natural gas and 810 thousand 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 reduced
from approximately $ 98 million as of December 31, 1997, to approximately $59
million as of June 30, 1998.
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<PAGE> 11
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
financial condition of Crystal Oil Company and its subsidiaries (the "Company")
as of June 30, 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.
On March 12, 1998, the Company consummated the acquisition of Petal Gas from
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 billion
cubic feet ("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 June 30, 1998, the Company's financial resources
included $81 million in cash, cash equivalents and marketable securities that
could be utilized for future acquisitions. Approximately $40 million of such
marketable securities are
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<PAGE> 12
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
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 of $371 thousand, or $.14 per basic share
($.14 per diluted share) for the six month period ended June 30, 1998, compared
to net income of $1.3 million or $.49 per basic share ($.48 per diluted share),
respectively, for the comparative period in 1997. The Company realized a net
loss of approximately $224 thousand, or $.08 per basic share ($.08 per diluted
share) for the three months ended June 30, 1998, compared to net income of
approximately $495 thousand, or $.19 per basic share ($.18 per diluted share).
The results for the three and six month period ended June 30, 1998, included the
effect of the acquisition of the DeSoto Properties on May 30, 1997, the
acquisition of the Petal Facility during the first quarter of 1998, the forward
sales of crude oil and natural gas late in the second quarter of 1997 and during
the third quarter of 1997 and dry hole costs relating to the drilling of an
unsuccessful exploratory well in South Louisiana during the second quarter of
1998. In comparison to the three and six month periods ended June 30, 1997, the
Company's operations for the three and six month periods ended June 30, 1998,
reflected additional revenues of approximately $2.7 million and $4.9 million,
respectively, primarily as a result of an increase in natural gas revenues from
the acquisition of the DeSoto Properties, additional natural gas storage
revenues from the acquisition of the Petal Facility and an increase in interest
and investment income from the investment of proceeds from the forward sales of
crude oil and natural gas. These increases were offset by additional expenses of
$3.9 million and $6.3 million for the three and six month periods ended June 30,
1998, resulting from the acquisition of natural gas storage operations,
expansion of crude oil and natural gas activities, a dry hole charge of $1.3
million 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 and six month
periods ended June 30, 1998, provided revenues of $3.7 million and $6.9 million,
respectively, and operating income of $2.1 million and $4.2 million,
respectively. For the three and six month periods ended June 30, 1997, natural
gas storage activities contributed revenues of $3.0 million and $6.3 million,
respectively, and operating income of $2.0 million and $4.3 million,
respectively. Natural gas storage revenues derived from firm long-term contracts
were $3.5 million and $6.4 million for the three and six month periods ended
June 30, 1998, and $2.8 million
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<PAGE> 13
and $5.5 million for the comparative periods in 1997. The remaining natural gas
storage revenues for the three and six month periods ended June 30, 1998 and
1997, 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 and six month
periods ended June 30, 1998, reflected approximately $822 thousand and $1.0
million, respectively, in revenues from the Petal Facility which was partially
offset by a lower demand for interruptible and other storage services due to
milder weather conditions. 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.
During the three and six month periods ended June 30, 1998, the Company's
operating income from natural gas storage activities reflected operational
expenses of $624 thousand and $1.0 million, respectively, and depreciation and
amortization of $949 thousand and $1.7 million, respectively. The Company's
natural gas storage activities for the three and six month periods ended June
30, 1997, included operational expenses of $342 thousand and $645 thousand,
respectively, and depreciation and amortization of $695 thousand and $1.4
million, respectively. The expenses for the natural gas storage segment
reflected increases 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 and six month periods ended June 30, 1998, provided revenues of
$1.9 million and $3.7 million, respectively, and an operating loss of $473
thousand and operating income of $171 thousand, respectively. For the three and
six month periods ended June 30, 1997, the crude oil and natural gas exploration
and production segment contributed revenues of $272 thousand and $513 thousand,
respectively, and operating income of $53 thousand and $137 thousand,
respectively. Operating results from crude oil and natural gas production
reflected the effect of increased revenues from additional natural gas
production and increased operating expense and depletion expense following the
acquisition of the DeSoto Properties on May 30, 1997, and a dry hole charge of
$1.3 million relating to the drilling of an unsuccessful exploratory well in
South Louisiana.
Interest and Investment Income
The Company's interest and investment income for the three and six month
periods ended June 30, 1998, was approximately $1.3 million and $3.0 million,
respectively. For the three and six month periods ended June 30, 1997, the
Company's interest and investment income was approximately $901 thousand and
$1.8 million, respectively. The levels of interest and investment income
reflected an average investment in debt securities of $104 million and $61
million for the six month periods ended June 30, 1998 and 1997, respectively,
and the effect of the proceeds derived from the forward sales late in the second
quarter of 1997 and during the third quarter of 1997, net of the funds utilized
to satisfy forward sale obligations. The average interest rate received by the
Company was 5.7% and 5.9% for the six month periods ended June 30, 1998
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<PAGE> 14
and 1997, respectively. The Company's 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 and six
month periods ended June 30, 1998, to $1.7 million and $3.1 million,
respectively, from $903 thousand and $1.8 million, respectively, for the
comparative periods in 1997. The increase was primarily attributable to
increases in the volumes of natural gas production following the acquisition and
development activities of the DeSoto Properties as well as the acquisition of
the Petal Facility.
Interest and Debt Expense
The Company's interest and debt expense for the three and six month periods
ended June 30, 1998, was $818 thousand and $1.6 million, respectively, and $804
thousand and $1.6 million, respectively, for the comparative periods 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.
Amortization of Discount on Sale of Future Contract Receivables and
Forward Sales
For the three and six month periods ended June 30, 1998, the Company's
amortization of discount on sale of future contract receivables and forward
sales was $1.5 million and $3.4 million, respectively, 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 late in the second quarter of 1997
and during the third quarter of 1997. The Company recorded an expense for the
amortization of discount on sale of future contract receivables of approximately
$427 thousand and $756 thousand, respectively, during the three and six month
periods ended June 30, 1997.
General and Administrative Expense
The Company's general and administrative expense for the three and six month
periods ended June 30, 1998, was approximately $725 thousand and $1.3 million,
respectively, compared to approximately $669 thousand and $1.4 million,
respectively, 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 the Company's ongoing exploration and production
activities. The Petal Facility is also expected not to add any significant
corporate overhead and administrative expenses.
Provision for Income Taxes
The results for the three month period ended June 30, 1998, included an
income tax benefit of approximately $141 thousand and for the six month period
ended June 30, 1998, included a provision for income taxes of $322 thousand. For
the three and six month periods ended June 30, 1997, the Company had a provision
for income taxes of approximately
-14-
<PAGE> 15
$352 thousand and $841 thousand, respectively. The Company's income tax benefit
for the three month period ended June 30, 1998, included a deferred tax benefit
and a corresponding increase in deferred tax assets of approximately $126
thousand. The Company's provision for income taxes included deferred tax expense
and a corresponding reduction in deferred tax assets of approximately $234
thousand for the six month period ended June 30, 1998, and $289 thousand and
$734 thousand, respectively, for the three and six month periods ended June 30,
1997, 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 June 30, 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 June 30, 1998, the Company had marketable securities and cash and cash
equivalents of approximately $80.6 million compared to marketable securities and
cash and cash equivalents of $146.4 million at December 31, 1997. During the six
months ended June 30, 1998, the Company utilized approximately $29 million for
the acquisition of Petal Gas, approximately $32 million to satisfy its
obligations under the forward sale transactions entered into during 1997 and
approximately $6.0 million for development drilling activities at the DeSoto
Properties. As of June 30, 1998, approximately $40 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 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 volumes of crude oil and natural gas
are delivered and is being recorded as amortization of discount on forward
sales. Current deliveries required under the forward sales aggregate 10.4 Bcf of
natural gas and 810 thousand 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 $59 million as of June 30, 1998.
-15-
<PAGE> 16
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 into 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
June 30, 1998, the Company recorded an accounts payable of approximately $5.9
million with respect to its obligations under the forward sale contracts and
commodity swap contracts.
During the second quarter of 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 $501 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 12.5 Bcf of natural gas at prices ranging from $1.89 to $2.55
per MMbtu and up to 810 million barrels of crude oil at prices ranging from
$20.26 to $20.61 per barrel.
Risks associated with the Company's hedge contracts arise primarily from the
possible inability of a concentrated number of counterparties to meet their
obligations under these contracts. The Company's existing hedge contracts are
with a major investment grade financial institution or are 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
-16-
<PAGE> 17
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 $10.8 million as
of June 30, 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 is being 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 $28.9
million to $38.5 million at June 30, 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 $11.6 million and $3.8
million during the six month periods ended June 30, 1998 and 1997, respectively.
During the six month period ended June 30, 1998, the net cash from operating
activities benefitted from an increase in accounts payable and accrued expenses
of approximately $6.3 million.
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 to enable
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 incurred 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
-17-
<PAGE> 18
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 June 30, 1998, the Company
has an accrued liability of approximately $2.2 million for defense and related
costs resulting from such environmental claims against the Company.
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 its pending litigation with
the State of Louisiana 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.
-18-
<PAGE> 19
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of shareholders was held on June 4, 1998, in New Orleans,
Louisiana. Three proposals were submitted to shareholders as described in the
Company's Proxy Statement dated April 29, 1998, and were voted upon and approved
by shareholders at the meeting. The table below briefly describes the proposals
and results of the shareholders votes.
<TABLE>
<CAPTION>
Votes in Votes
Favor Withheld/Against
--------- ----------------
<S> <C> <C>
Election of six directors:
J. N. Averett, Jr. 2,552,791 46,948
George P. Giard, Jr. 2,552,966 46,773
Gary S. Gladstein 2,552,965 46,774
Robert B. Hodes 2,552,966 46,773
Donald G. Housley 2,552,966 46,773
Lief D. Rosenblatt 2,552,965 46,774
</TABLE>
<TABLE>
<CAPTION>
Votes in Votes
Favor Against Abstain
-------- -------- -------
<S> <C> <C> <C>
Proposal to increase the number of
authorized shares of the Company's
common stock 2,444,271 154,150 376
Proposal for ratification of
appointment of independent auditors 2,579,899 20,099 751
</TABLE>
There were 942 broker non votes.
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 11th day of August 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 (LOSS) PER COMMON SHARE (In Thousands
Except Share and Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
--------------------------------- --------------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Earnings (loss) per common share
Net income (loss) $ (224) $ 495 $ 371 $ 1,309
=========== =========== =========== ===========
Weighted average of common
shares outstanding 2,668,122 2,665,622 2,668,122 2,665,622
=========== =========== =========== ===========
Earnings (loss) per common share $ (.08) $ .19 $ .14 $ .49
=========== =========== =========== ===========
Earnings (loss) per common share -
Assuming dilution
Income (loss) from operations $ (224) $ 495 $ 371 $ 1,309
Adjustments to income (loss)
(net of income tax) -- -- -- --
----------- ----------- ----------- -----------
Adjusted net income (loss) $ (224) $ 495 $ 371 $ 1,309
=========== =========== =========== ===========
Weighted average of common
and common equivalent
shares:
Outstanding 2,668,122 2,665,622 2,668,122 2,665,622
Assuming conversion or
exercise of:
Stock options, net
of treasury shares 39,979 27,954 39,979 27,823
Senior preferred
stock 33,274 33,274 33,274 33,274
----------- ----------- ----------- -----------
2,741,375 2,726,850 2,741,375 2,726,719
=========== =========== =========== ===========
Earnings (loss) per common share -
Assuming dilution $ (.08) $ .18 $ .14 $ .48
=========== =========== =========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT JUNE 30, 1998 AND THE CONSOLIDATED STATEMENT OF
INCOME FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 22,994
<SECURITIES> 23,725
<RECEIVABLES> 1,285
<ALLOWANCES> 51
<INVENTORY> 0
<CURRENT-ASSETS> 48,892
<PP&E> 154,874
<DEPRECIATION> 12,353
<TOTAL-ASSETS> 259,269
<CURRENT-LIABILITIES> 10,429
<BONDS> 70,077
0
148
<COMMON> 27
<OTHER-SE> 140,416
<TOTAL-LIABILITY-AND-EQUITY> 259,269
<SALES> 10,578
<TOTAL-REVENUES> 13,547
<CGS> 0
<TOTAL-COSTS> 4,742
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,639
<INCOME-PRETAX> 693
<INCOME-TAX> 322
<INCOME-CONTINUING> 271
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 371
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.14
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT JUNE 30, 1997 AND THE CONSOLIDATED STATEMENT OF
INCOME FOR THE SIX MONTHS ENDED JUNE 30, 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 7,302
<SECURITIES> 49,120
<RECEIVABLES> 13,969
<ALLOWANCES> 62
<INVENTORY> 0
<CURRENT-ASSETS> 70,637
<PP&E> 110,600
<DEPRECIATION> 7,315
<TOTAL-ASSETS> 202,229
<CURRENT-LIABILITIES> 1,799
<BONDS> 79,705
0
148
<COMMON> 27
<OTHER-SE> 120,550
<TOTAL-LIABILITY-AND-EQUITY> 202,229
<SALES> 6,654
<TOTAL-REVENUES> 8,657
<CGS> 0
<TOTAL-COSTS> 2,783
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 18
<INTEREST-EXPENSE> 1,610
<INCOME-PRETAX> 2,150
<INCOME-TAX> 841
<INCOME-CONTINUING> 1,309
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,309
<EPS-PRIMARY> 0.49
<EPS-DILUTED> 0.49
</TABLE>
