-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PVrNoYgtnyVuMrfU/KWQC39ZWMcG7wuqspOEIGT1TwtpjeBRKrGJBU/5KhCoZ/p1 bnqkp0h9imRBsLI8bh+iag== 0000912057-96-009493.txt : 19960515 0000912057-96-009493.hdr.sgml : 19960515 ACCESSION NUMBER: 0000912057-96-009493 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960514 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: CRYSTAL OIL CO CENTRAL INDEX KEY: 0000745907 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 720163810 STATE OF INCORPORATION: LA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08715 FILM NUMBER: 96563497 BUSINESS ADDRESS: STREET 1: 229 MILAM ST CITY: SHREVEPORT STATE: LA ZIP: 71101 BUSINESS PHONE: 3182227791 10-Q 1 FORM 10-Q 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, 1996 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE - ----- SECURITIES EXCHANGE ACT OF 1934 For the transition period from ................. to .................. Commission file number 1-8715 CRYSTAL OIL COMPANY ------------------------------------------------------ (Exact name of registrant as specified in its charter) Louisiana 72-0163810 - ---------------------------------- ---------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 229 Milam Street, Shreveport, Louisiana 71101 - ----------------------------------------- ---------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (318) 222-7791 -------------------- NONE - ---------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Common Stock outstanding on May 9, 1996 2,662,042 --------------------------- CRYSTAL OIL COMPANY INDEX Page No. -------- Part I Item 1. Financial Statements Consolidated Condensed Balance Sheets - March 31, 1996 (Unaudited) and December 31, 1995 3 Consolidated Condensed Statements of Operations - Three Months Ended March 31, 1996 and 1995 (Unaudited) 4 Consolidated Statement of Stockholders' Equity - Three Months Ended March 31, 1996 and 1995 (Unaudited) 5 Consolidated Condensed Statements of Cash Flows - Three Months Ended March 31, 1996 and 1995 (Unaudited) 6 Notes to Consolidated Condensed Financial Statements (Unaudited) 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 Part II Item 1. Legal Proceedings 17 Item 6. Exhibits and Reports on Form 8-K 18 Signatures 19 -2- CRYSTAL OIL COMPANY CONSOLIDATED CONDENSED BALANCE SHEETS ($ in Thousands) ASSETS MARCH 31 DECEMBER 31 1996 1995 -------- ----------- (UNAUDITED) (1) CURRENT ASSETS Cash and cash equivalents $ 1,422 $ 10,812 Marketable securities available for sale 63,400 54,447 Accounts receivable - net 691 704 Prepaid expenses and other current assets 372 357 -------- -------- TOTAL CURRENT ASSETS 65,885 66,320 PROPERTY, PLANT AND EQUIPMENT - net 95,241 96,281 OTHER ASSETS Deferred tax assets 7,408 7,398 Restricted marketable securities 1,950 1,476 Others 1,996 1,970 -------- -------- 11,354 10,844 -------- -------- TOTAL ASSETS $172,480 $173,445 -------- -------- -------- -------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current portion of long-term obligations $ 225 $ 294 Accounts payable 1,374 1,948 Other accrued expenses 575 634 -------- -------- TOTAL CURRENT LIABILITIES 2,174 2,876 LONG-TERM OBLIGATIONS 37,855 37,860 DEFERRED REVENUE FROM SALE OF FUTURE CONTRACT RECEIVABLES 21,115 22,160 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY Senior preferred stock 148 148 Common stock 27 27 Additional paid-in capital 96,946 96,902 Retained earnings - Since January 1, 1987 14,215 13,472 -------- -------- TOTAL STOCKHOLDERS' EQUITY 111,336 110,549 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $172,480 $173,445 -------- -------- -------- -------- (1) The balance sheet at December 31, 1995, has been taken from the audited financial statements at that date, and condensed. See accompanying notes to consolidated condensed financial statements. -3- CRYSTAL OIL COMPANY CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS ($ in Thousands Except Shares and Per Share Amounts) (Unaudited) THREE MONTHS ENDED MARCH 31 -------------------- 1996 1995 -------- --------- NET REVENUES Gas storage fees $ 3,418 $ - Crude oil and natural gas 159 - Net gain on sale of property, plant and equipment 35 827 Interest and investment income 880 1,346 Other income 14 18 --------- --------- 4,506 2,191 COST AND EXPENSES Operating expense and taxes 489 111 General and administrative expense 821 1,154 Interest and debt expense 822 - Amortization of discount on sale of future contract receivables 410 - Depreciation, depletion and amortization 761 59 --------- --------- 3,303 1,324 --------- --------- INCOME BEFORE PROVISION FOR INCOME TAXES 1,203 867 PROVISION FOR INCOME TAXES 460 339 --------- --------- NET INCOME $ 743 $ 528 --------- --------- --------- --------- WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 2,654,375 2,603,209 --------- --------- --------- --------- NET INCOME PER COMMON SHARE $ .28 $ .20 --------- --------- --------- --------- See accompanying notes to consolidated condensed financial statements. -4- CRYSTAL OIL COMPANY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY ($ IN THOUSANDS) (UNAUDITED) THREE MONTHS ENDED MARCH 31 ------------------ 1996 1995 -------- ------- SENIOR PREFERRED STOCK Balance at beginning and end of period $ 148 $ 148 -------- ------- COMMON STOCK Balance at beginning and end of period 27 26 -------- ------- ADDITIONAL PAID-IN CAPITAL Balance at beginning of period 96,902 74,045 Issuance of Common Stock 44 646 Utilization of net operating loss carryforward and recognition of deferred tax assets - 339 -------- ------- Balance at end of period 96,946 75,030 -------- ------- RETAINED EARNINGS Balance at beginning of period 13,472 12,068 Net income 743 528 -------- ------- Balance at end of period 14,215 12,596 -------- ------- TOTAL STOCKHOLDERS' EQUITY $111,336 $87,800 -------- ------- -------- ------- See accompanying notes to consolidated condensed financial statements. -5- CRYSTAL OIL COMPANY CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS ($ in Thousands) (Unaudited) THREE MONTHS ENDED MARCH 31 ------------------ 1996 1995 -------- -------- Cash flows from operating activities: Net income $ 743 $ 528 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of deferred financing cost 63 - Net accretion on investments in debt securities (703) (699) Depreciation, depletion and amortization 761 59 Deferred income taxes 401 339 Net gain on sale of property, plant and equipment (35) (827) Decrease in accounts receivable 13 3,791 Increase in prepaid expense and other current assets (15) (6) Decrease in other assets - 24 Decrease in accounts payable and accrued expenses (633) (2,899) -------- -------- Net cash provided by operating activities 595 310 -------- -------- Cash flows from investing activities: Proceeds from sale of property, plant and equipment 46 805 Capital expenditures (143) (270) Purchases of marketable securities (20,308) (65,983) Maturity of marketable securities 11,584 - Reduction of restricted funds - 4,673 Investment in Russian joint venture - (103) -------- -------- Net cash used in investing activities (8,821) (60,878) -------- -------- Cash flows from financing activities: Proceeds from issuance of common stock 44 646 Reduction of long-term obligations (74) (16) Reduction of deferred revenue from sale of future contract receivables (1,045) - Payment of costs for financing and sale of future contract receivables (89) - -------- -------- Net cash provided by (used in) financing activities (1,164) 630 -------- -------- Net decrease in cash and cash equivalents (9,390) (59,938) Cash and cash equivalents at beginning of period 10,812 75,541 -------- -------- Cash and cash equivalents at end of period $ 1,422 $ 15,603 -------- -------- -------- -------- See accompanying notes to consolidated condensed financial statements. -6- CRYSTAL OIL COMPANY CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Continued) ($ in Thousands) (Unaudited) Supplemental disclosures of cash flow information: THREE MONTHS ENDED MARCH 31 ------------------ 1996 1995 ---- ---- Cash paid during the period for: Interest, net of amounts capitalized $866 $ - ---- ---- ---- ---- Amortization of discount on sale of future contract receivables $410 $ - ---- ---- ---- ---- Income taxes $ 25 $350 ---- ---- ---- ---- See accompanying notes to consolidated condensed financial statements. -7- 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, 1996, and the consolidated condensed statements of operations and cash flows for the three months ended March 31, 1996 and 1995, have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows at March 31, 1996, and for all periods presented have been made. There have been no changes in the accounting policies from those set forth in Note A of the Notes to Consolidated Financial Statements included in the Company's 1995 Annual Report on Form 10-K, except as noted below. The Company adopted Statement of Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", during the first quarter of 1996. SFAS 121 establishes accounting standards for the impairment of long-lived assets and certain identifiable intangibles related to those assets to be held and used, and for long-lived assets and certain identifiable intangibles to be disposed of. The effect of adoption of SFAS 121 did not affect the Company's consolidated financial position or results of operations. The Company will implement the disclosure provisions of Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation," in the financial statements for the year ending December 31, 1996. SFAS 123 establishes financial accounting and reporting standards for stock-based employee compensation plans. As allowed by SFAS 123, the Company plans to continue to measure compensation cost for employee stock compensation plans using the method prescribed by Accounting Principles Board Option No. 25, "Accounting for Stock Issued to Employees," and will provide pro forma disclosures in the Notes to the Consolidated Financial Statements at December 31, 1996, as required by SFAS 123. Note 2. DEFERRED REVENUE FROM SALE OF FUTURE CONTRACT RECEIVABLES In the fourth quarter of 1995, First Reserve Gas Company ("FRGC"), through its wholly owned subsidiaries sold to a newly formed business trust the right to receive payment on the firm natural gas storage contract receivables to be generated by the subsidiaries through June 30, 2000, from the operation of a natural gas storage facility near Hattiesburg, Mississippi (the "Hattiesburg Sold Receivables"). The net proceeds from this sale were approximately $22.5 million. As of March 31, 1996, the Company had approximately $21.1 million in deferred revenue from the sale of future contract receivables as net proceeds received by the Company from the Hattiesburg Sold Receivables are to be recognized for accounting purposes over the period during which the receivables are to be generated. The discount between the net proceeds from the sale of the Hattiesburg Sold Receivables and the scheduled -8- payments thereunder is being amortized over the life of the Hattiesburg Sold Receivables based on the discount rate (7.52%) applied in fixing the sale price of the Hattiesburg Sold Receivables. The Company recorded an expense of approximately $410 thousand for the amortization of discount on sale of future contract receivables for the three month period ended March 31, 1996. The obligations under the agreement relating to the sale of the Hattiesburg Sold Receivables are secured by substantially all of the assets of FRGC and its subsidiaries and are without recourse to Crystal Oil Company, except for certain amounts in the event of bankruptcy of FRGC and its subsidiaries. As of March 31, 1996, restricted funds of approximately $539 thousand also secured the obligations with respect to the Hattiesburg Sold Receivables. Note 3. PROVISION FOR INCOME TAXES As a result of the Company's quasi-reorganization accounting treatment and the expected generation of future taxable income following the acquisition of FRGC, during 1995 the Company recorded a deferred tax asset and an increase in additional paid-in capital to account for the expected realization of benefits from the Company's utilization of its net operating loss carryforwards and other tax benefits generated prior to the Company's reorganization. The recognition of certain benefits generated subsequent to the reorganization were recorded as a reduction in the carrying value of the storage facility. In 1996, an additional $411 thousand of tax credit carryforwards were recognized by a further reduction in the carrying value of the storage facility. The Company's provision for income taxes includes deferred tax expense and a corresponding reduction in deferred tax assets of approximately $401 thousand as a result of utilization of such tax benefits during the three month period ended March 31, 1996. Note 4. COMMITMENTS AND CONTINGENCIES The Company currently has outstanding approximately $4.7 million 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 these letters of credit are secured by approximately $1.4 million in marketable securities, which have been classified as non-current assets on the consolidated balance sheet of the Company at March 31, 1996. In 1995, the Company was advised by Atlantic Richfield Corporation ("ARCO") of the existence of a potential environmental cleanup of a mining site in Colorado that was sold by a subsidiary of the Company to ARCO. The mining assets were owned by the Company's subsidiary for approximately eight years during the 1970s and were sold by the subsidiary to ARCO in 1980. The Company has filed a declaratory action in the Federal District Court for the Northern District of Louisiana, Shreveport Division, seeking a determination that the Company has no liability to ARCO with respect to this site due to, among other things, a contractual agreement between the subsidiary of the Company that sold the property to ARCO's predecessor by merger in which such predecessor agreed that the Company's subsidiary would have no further liability with respect to the properties other than for certain expressed items. ARCO is currently seeking a transfer of the declaratory action to Colorado, which the Company is vigorously contesting. The Company is currently reviewing the scope of the potential -9- cleanup and the cost thereof. Although no specific cost estimates have been made by the Company to date, the Company has been advised by ARCO that the total cost of cleanup could exceed $20 million. The Company intends to vigorously defend this matter. In 1991, the Company was named, among others, as a potentially responsible party ("PRP"), for environmental cleanup by the Indiana Department of Environmental Management and received an informational request concerning the Company's activities at a site located in Indiana. A now dissolved subsidiary of the Company owned a refinery on this site for a period of approximately four years during the 1970s. Other parties have owned and operated this site since the construction of the refinery in 1946. Presently, no environmental-related cost have been assessed for remediation of this site. As previously reported, the State of Louisiana through the Department of Environmental Quality ("the State of Louisiana") notified the Company by letter dated January 19, 1996, that the Company had potential liability under a Louisiana environmental act on account of certain alleged activity on a 30 acre site while the Company was "owner/operator" of a fuel oil refinery from 1920 until 1940. Such property was sold by the Company in 1965. Independently, the State of Louisiana notified the Company by letter dated December 29, 1995, that the Company had potential liability under a Louisiana environmental act on account of certain activity while the Company was "owner/operator and/or owner" of a particular facility located in Caddo Parish, Louisiana, from 1926 until 1935. Such property was sold by the Company in 1935. In regard to the latter environmental matter, the State of Louisiana is seeking $4.5 million from all potentially responsible parties. Believing that such potential claims by the State of Louisiana were barred by reason of the Company's bankruptcy proceeding as to which a plan of reorganization was confirmed on December 31, 1986 (which plan of reorganization was consummated on January 30, 1987), the Company filed a motion in April 1996 to reopen the 1986 bankruptcy proceeding for the sole purpose of enforcing the previous confirmation order and other orders in the bankruptcy proceeding to establish that the claims by the State of Louisiana are barred and can no longer be brought against the Company. The motion to reopen was granted for such purpose and the reopened case is now pending in the United States Bankruptcy Court for the Western District of Louisiana, Shreveport Division. The Company intends vigorously to prosecute its position that the claims by the State of Louisiana are barred by reason of orders entered in its previous bankruptcy proceeding. At this time, the Company has not given any substantial consideration to the merits of the claims since a favorable ruling, if one is obtained, on the bankruptcy bar issue would obviate the need to defend the potential claims on the merits thereof. Under federal and state environmental laws providing for joint and several liability for environmental cleanup, a governmental plaintiff could seek to recover all remediation costs at a waste disposal site from any one of the PRPs for such site, including the Company, despite the involvement of other PRPs. The Company's policy is to accrue environmental remediation costs if it is probable that a liability has been incurred and an amount is reasonably estimable. In light of the foregoing matters, the Company has accrued approximately $1.4 million as of March 31, 1996, for defense and related costs of such matters. Such accrual will be reviewed periodically and adjusted, if necessary, to reflect any additional charges that the Company believes will be probable. -10- In July 1979, a suit styled "AGB Oil Company et al vs. The Charter Company, Charter Oil Company, and Crystal Exploration and Production Company", was filed in the Circuit Court of the Eleventh Judicial Circuit in and for Dade County, Florida, Cause No. 79-12012-CA-07. Plaintiff, the limited partner of Caloosa 1974 Limited Partnership, a Colorado limited partnership, of which Crystal Exploration and Production Company, formerly Charter Exploration and Production Company, is the general partner, claims compensatory damages of $10 million, punitive damages in an undetermined amount, interest and costs of litigation. The suit alleges breach of contract, breach of fiduciary duty, mismanagement and fraud in connection with the operation of Caloosa 1974 Limited Partnership. In recent years, the suit has been generally inactive. The Company, however, was recently notified that the case has been set for trial in September 1996. The Company believes that the likelihood of a recovery, if any, by Plaintiff in a material amount is remote. Note 5. EARNINGS PER SHARE Earnings per common share were computed by dividing net income by the weighted average number of shares of Common Stock outstanding during the periods presented. The Senior Preferred Stock, all classes of the Company's warrants and the stock options have been considered to be the equivalent of Common Stock for all periods presented; however, such securities were not assumed converted because the dilution effect is less than 3%. No warrants were assumed converted during the periods presented because the effective exercise prices were greater than the average market price of the Common Stock. Earnings per common share, assuming full dilution, was determined on the same basis as primary earnings per common share for the three months ended March 31, 1996 and 1995, except that the closing market price of the Common Stock was utilized to purchase treasury shares with proceeds from the assumed exercise of the stock options, because such market price was higher than the 90-day average market price. -11- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following should assist in a further understanding of the Company's financial condition as of March 31, 1996, as well as changes in the Company's operating results. The notes to the Company's Consolidated Condensed Financial Statements included in this report, as well as the Company's Annual Report on Form 10-K for the year ended December 31, 1995, should be read in conjunction with this discussion. General After the disposition of substantially all of its domestic crude oil and natural gas properties for approximately $98 million and the prepayment of all of its outstanding indebtedness in the fourth quarter of 1994, the Company embarked on an acquisition program aimed at identifying assets that would generate income for the Company on a current basis and would benefit from the Company's tax position as well as present the opportunity for capital appreciation. The initial step under this program was the acquisition of First Reserve Gas Company ("FRGC") for approximately $78.5 million in June 1995. FRGC's principal asset was a natural gas storage facility near Hattiesburg, Mississippi (the "Hattiesburg Facility"). The acquisition of FRGC was funded with the Company's available cash and permanent financing of $58 million. The Company's financing of the acquisition was structured through the sale to a newly formed business trust of approximately five years of accounts receivable to be generated through June 30, 2000, from the operations of the Hattiesburg Facility (the "Hattiesburg Sold Receivables") and $36.5 million in debt, the recourse of which is primarily limited to FRGC and the Hattiesburg Facility. Prior to the Company's acquisition of FRGC, the Company's sources of revenue and income for 1995 were primarily limited to income from government and other marketable securities. With the acquisition of FRGC, the principal source of the Company's income is currently the revenue from the operation of the Hattiesburg Facility. Further, while the Company will be recognizing income for accounting purposes in respect of the Hattiesburg Sold Receivables over the life of those receivables as if the Company continued to own the receivables, actual payments in respect of the Hattiesburg Sold Receivables are being made to the purchasing trust and are not actually received by the Company. As of March 31, 1996, the Company had $64.8 million in cash, cash equivalents and marketable securities that could be utilized for future acquisitions. In addition, the Company had no debt other than the debt directly associated with and recourse primarily limited to FRGC and the Hattiesburg Facility. Future acquisitions will focus on income generating businesses and assets without limitation on the type of business or industry. Future acquisitions will likely involve a combination of the use of a portion of the Company's available cash and debt or other financing. To the extent possible, the Company will seek to limit the recourse of any financing to the business and assets acquired. The Company may also seek to finance future acquisitions with additional equity if desirable. -12- Results of Operations General The Company recorded net income for the three months ended March 31, 1996, of $743 thousand, $.28 per share, compared to net income of $528 thousand, $.20 per share, for the comparative period in 1995. First quarter 1996 results included $3.4 million in revenues and $2.4 million in operating income from the natural gas storage activities. In addition, the revenues for the first quarter of 1996 included interest and investment income of approximately $.9 million and sales of crude oil and natural gas of $159 thousand resulting primarily from the Company's participation in drilling activities during the fourth quarter of 1995. First quarter 1995 results included a gain of approximately $.8 million from the sale of fixed assets and interest and investment income of approximately $1.3 million. The Company did not reflect any sales of crude oil and natural gas during the three months ended March 31, 1995, due to the 1994 disposition of its crude oil and natural gas properties. Included in gas storage revenues for the quarter ended March 31, 1996, was approximately $2.8 million attributable to the Hattiesburg Sold Receivables. The remaining gas storage revenues were derived from winter and interruptible storage services, injection and withdrawal charges and other fees relating to services provided in connection with the storage and delivery of natural gas at the Hattiesburg Facility. The Company's operating income from natural gas storage activities reflected operational expenses of $358 thousand and depreciation and amortization of $665 thousand during the first quarter of 1996. The results for 1996 are expected to continue benefitting from the natural gas storage activities as the operations of FRGC are consolidated with those of the Company. Interest and Investment Income The Company's interest and investment income for the three month period ended March 31, 1996, was approximately $.9 million compared to approximately $1.3 million for the comparative period in 1995. The decrease in interest and investment income reflected a decline in the average investment in debt securities from $81.9 million in the first quarter of 1995 to $64.4 million in the first quarter of 1996 as a result of the utilization of available liquid assets to partially fund the acquisition of FRGC during the second quarter of 1995. In addition, the average interest rate received by the Company decreased from 6.3% in the first quarter of 1995 to 5.3% in the first quarter of 1996. The Company's investments of its liquid assets are currently in short term government securities. Gain on Sale of Fixed Assets The gain on sale of fixed assets in the first quarter of 1995 included $827 thousand from the disposition of the Company's proportionate share of the net proceeds of asset sales from the Company's partnerships, the sale of an exploratory prospect and the final liquidation and disposition of various surplus equipment and inventory. The gain on sale of fixed assets in the first quarter of 1996 was $35 thousand. -13- Depreciation, Depletion and Amortization Depreciation, depletion and amortization increased substantially in the three month period ended March 31, 1996, to $761 thousand from $59 thousand for the comparative period in 1995. The increase was attributable to the Company's acquisition of the Hattiesburg Facility and its related assets in June 1995. Interest and Debt Expense The Company's interest and debt expense for the three month period ended March 31, 1996, was $822 thousand and reflected the effect of debt financing $36.5 million of FRGC's purchase price. The Company had no interest and debt expense for the three month period ended March 31, 1995, due to the repayment of substantially all of its outstanding debt at year end 1994. Amortization of Discount on Sale of Future Contract Receivables As noted above, the net proceeds received by the Company from the Hattiesburg Sold Receivables are being recognized for accounting purposes over the period during which the receivables are to be generated. However, because the Hattiesburg Sold Receivables were disposed of by the Company at a discount to reflect their then present value, the discount between the net proceeds from the sale of the Hattiesburg Sold Receivables and the scheduled payments thereunder is being amortized over the life of the Hattiesburg Sold Receivables based on the discount rate (7.52%) applied in fixing the sale price of the Hattiesburg Sold Receivables. The Company recorded an expense of approximately $410 thousand for the amortization of discount on sale of future contract receivables for the three month period ended March 31, 1996. General and Administrative Expense The Company's general and administrative expense for the three month period ended March 31, 1996, decreased approximately $333 thousand as compared to the same period in 1995. The decrease in general and administrative expenses primarily reflected the reduction in the Company's staff following the disposition of its crude oil and natural gas properties in late 1994 and early 1995. Taxes and Quasi-Reorganization Adjustment The results for the three month periods ended March 31, 1996 and 1995, included a provision for income taxes of $460 thousand and $339 thousand, respectively. For 1995, the provision for income taxes includes a noncash accounting charge required by virtue of the Company's quasi-reorganization in 1986 in an amount equal to the deferred income taxes that the Company would have recognized had it not been able to utilize its net operating loss carryforwards against such income taxes. As a result of the Company's quasi-reorganization accounting treatment and the expected generation of future taxable income following the acquisition of FRGC, during 1995 the Company recorded a deferred tax asset and an increase to additional paid-in capital to account for the expected realization of benefits from the Company's utilization of its net operating loss carryforwards and other tax benefits generated prior to the Company's reorganization. The Company's provision for income taxes for 1996 includes deferred tax expense and a corresponding reduction in deferred -14- tax assets of approximately $401 thousand as a result of utilization of such tax benefits during the three month period ended March 31, 1996. Liquidity Capital Resources At March 31, 1996, the Company had cash and cash equivalents of approximately $1.4 million and marketable securities of approximately $65.4 million, which included approximately $2.0 million in restricted funds securing the Company's contingent obligations with respect to outstanding letters of credit and the Hattiesburg Sold Receivables. In addition, the Company had no debt other than the debt directly associated with and recourse limited to FRGC and the Hattiesburg Facility. The Company generated net cash flow from operating activities of approximately $595 thousand and $310 thousand for the three month periods ended March 31, 1996 and March 31, 1995, respectively. Such net cash flow from operations in each of the periods was net of approximately $.7 million for the accretion on investments in debt securities, which amounts are realized at maturity of investments. The cash flow from operations for the first quarter of 1995 related primarily to the collection of accounts receivables generated prior to the disposition of crude oil and natural gas properties in late 1994. The Company's working capital was approximately $63.7 million at March 31, 1996, and approximately $63.4 million at December 31, 1995. At March 31, 1996, the Company had outstanding approximately $36.5 million in 8.12% Secured Guaranteed Notes Due 2005 (the "Notes") requiring payment of interest only through June 30, 2000, at which time principal is to be amortized over the remaining life of the Notes. At March 31, 1996, the Company also had approximately $21.1 million in deferred revenue from the sale of future contract receivables as net proceeds received by the Company in 1995 from the Hattiesburg Sold Receivables are to be recognized for accounting purposes over the period during which the receivables are to be generated. Deferred revenue is recorded net of the Company's minority interest in the trust that acquired the Hattiesburg Sold Receivables. During the first quarter of 1996, the Company recognized approximately $2.8 million of deferred revenue from the Hattiesburg Sold Receivables, which included approximately $.4 million for the accretion of the discount on the sale of the receivables and approximately $1.4 million attributable to the Company's interest in the trust. The Notes and obligations under the agreement of the Hattiesburg Sold Receivables are secured by substantially all of the assets of FRGC and its subsidiaries and are without recourse to Crystal Oil Company, except for certain amounts in the event of bankruptcy of FRGC and its subsidiaries. As of March 31, 1996, restricted funds of approximately $539 thousand consisting of distributions from the trust that acquired the Hattiesburg Sold Receivables also secure the obligations with respect to the Hattiesburg Sold Receivables. Pending the redeployment of the Company's available funds, the Company is investing its cash primarily in short term United States government securities having maturities of up to one year. The Company believes that these securities do not present any material risks with respect to its liquidity, operations or financial position. -15- Other Matters The Company is currently subject to various claims regarding environmental matters, which will require the expenditure of funds for defense costs and could require additional expenditure of funds for remediation if it is determined that the Company is responsible for such remediation or otherwise agrees to contribute to the cost of such remediation. It is the Company's policy to accrue for environmental remediation costs if it is probable that a liability has been incurred and an amount is reasonably estimable. The resolution of the known environmental matters affecting the Company will be subject to various factors, including the discovery of additional information with respect to the nature of contamination at the known sites, the legal responsibility of various parties for any cleanup obligations, the financial capability of responsible parties and other actions by governmental agencies and private parties. Although the cost of cleanup of sites in which the Company has been notified of potential liability is currently estimated to involve the expenditure of funds by all potentially responsible parties in excess of $25 million, based on information known to the Company, the Company does not believe that its ultimate payment obligations with respect to such matters will have a material adverse impact on the Company's financial position. -16- PART II: OTHER INFORMATION Item 1. Legal Proceedings In 1995, the Company was advised by Atlantic Richfield Corporation ("ARCO") of the existence of a potential environmental cleanup of a mining site in Colorado that was sold by a subsidiary of the Company to ARCO. The mining assets were owned by the Company's subsidiary for approximately eight years during the 1970s and were sold by the subsidiary to ARCO in 1980. The Company has filed a declaratory action in the Federal District Court for the Northern District of Louisiana, Shreveport Division, seeking a determination that the Company has no liability to ARCO with respect to this site due to, among other things, a contractual agreement between the subsidiary of the Company that sold the property to ARCO's predecessor by merger in which such predecessor agreed that the Company's subsidiary would have no further liability with respect to the properties other than for certain expressed items. ARCO is currently seeking a transfer of the declaratory action to Colorado, which the Company is vigorously contesting. The Company is currently reviewing the scope of the potential cleanup and the cost thereof. Although no specific cost estimates have been made by the Company to date, the Company has been advised by ARCO that the total cost of cleanup could exceed $20 million. The Company intends to vigorously defend this matter. As previously reported, the State of Louisiana through the Department of Environmental Quality ("the State of Louisiana") notified the Company by letter dated January 19, 1996, that the Company had potential liability under a Louisiana environmental act on account of certain alleged activity on a 30 acre site while the Company was "owner/operator" of a fuel oil refinery from 1920 until 1940. Such property was sold by the Company in 1965. Independently, the State of Louisiana notified the Company by letter dated December 29, 1995, that the Company had potential liability under a Louisiana environmental act on account of certain activity while the Company was "owner/operator and/or owner" of a particular facility located in Caddo Parish, Louisiana, from 1926 until 1935. Such property was sold by the Company in 1935. In regard to the latter environmental matter, the State of Louisiana is seeking $4.5 million from all potentially responsible parties. Believing that such potential claims by the State of Louisiana were barred by reason of the Company's bankruptcy proceeding as to which a plan of reorganization was confirmed on December 31, 1986 (which plan of reorganization was consummated on January 30, 1987), the Company filed a motion in April 1996 to reopen the 1986 bankruptcy proceeding for the sole purpose of enforcing the previous confirmation order and other orders in the bankruptcy proceeding to establish that the claims by the State of Louisiana are barred and can no longer be brought against the Company. The motion to reopen was granted for such purpose and the reopened case is now pending in the United States Bankruptcy Court for the Western District of Louisiana, Shreveport Division. The Company intends vigorously to prosecute its position that the claims by the State of Louisiana are barred by reason of orders entered in its previous bankruptcy proceeding. At this time, the Company has not given any substantial consideration to the merits of the claims since a favorable ruling, if one is obtained, on the bankruptcy bar issue would obviate the need to defend the potential claims on the merits thereof. -17- In July 1979, a suit styled "AGB Oil Company et al vs. The Charter Company, Charter Oil Company, and Crystal Exploration and Production Company", was filed in the Circuit Court of the Eleventh Judicial Circuit in and for Dade County, Florida, Cause No. 79-12012-CA-07. Plaintiff, the limited partner of Caloosa 1974 Limited Partnership, a Colorado limited partnership, of which Crystal Exploration and Production Company, formerly Charter Exploration and Production Company, is the general partner, claims compensatory damages of $10 million, punitive damages in an undetermined amount, interest and costs of litigation. The suit alleges breach of contract, breach of fiduciary duty, mismanagement and fraud in connection with the operation of Caloosa 1974 Limited Partnership. In recent years, the suit has been generally inactive. The Company, however, was recently notified that the case has been set for trial in September 1996. The Company believes that the likelihood of a recovery, if any, by Plaintiff in a material amount is remote. 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 -18- 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 9th day of May 1996. CRYSTAL OIL COMPANY BY: /s/ J. N. AVERETT, JR. --------------------------------------- J. N. Averett, Jr. President and Director (Principal Executive Officer) BY: /s/ J. A. BALLEW --------------------------------------- J. A. Ballew Senior Vice President, Treasurer, and Chief Financial Officer BY: /s/ PAUL E. HOLMES --------------------------------------- Paul E. Holmes Vice President/Controller (Principal Accounting Officer) -19- EX-11 2 EXHIBIT 11 Exhibit 11 CRYSTAL OIL COMPANY COMPUTATION OF INCOME PER COMMON SHARE (In Thousands Except Share and Per Share Amounts) (Unaudited) THREE MONTHS ENDED MARCH 31 --------------------------- 1996 1995 ---------- ---------- Earnings per common share: Income from operations $ 743 $ 528 ---------- ---------- ---------- ---------- Weighted average of common shares outstanding 2,654,375 2,603,209 ---------- ---------- ---------- ---------- Earnings per common share $ .28 $ .20 ---------- ---------- ---------- ---------- Primary: (Including dilutive Common Stock equivalents) Income from operations $ 743 $ 528 Adjustments to income (net of income tax): - - ---------- ---------- Adjusted net income $ 743 $ 528 ---------- ---------- ---------- ---------- Weighted average of common and common equivalent shares: Outstanding 2,654,375 2,603,209 Assuming conversion or exercise of: Stock options, net of treasury shares 25,931 39,764 Remaining senior preferred stock 33,274 33,274 ---------- ---------- 2,713,580 2,676,247 ---------- ---------- ---------- ---------- Per share amount: Net income $ .27 $ .20 ---------- ---------- ---------- ---------- -20- Exhibit 11 (continued) CRYSTAL OIL COMPANY COMPUTATION OF INCOME PER COMMON SHARE (In Thousands Except Share and Per Share Amounts) (Unaudited) THREE MONTHS ENDED MARCH 31 --------------------------- 1996 1995 ---------- ---------- Fully-diluted: Income from operations $ 743 $ 528 Adjustments to income (net of income tax): - - ---------- ---------- Adjusted net income $ 743 $ 528 ---------- ---------- ---------- ---------- Weighted average of common shares: Outstanding 2,654,375 2,603,209 Assuming conversion or exercise of: Stock options, net of treasury shares 28,929 42,225 Remaining senior preferred stock 33,274 33,274 ---------- ---------- 2,716,578 2,678,708 ---------- ---------- ---------- ---------- Per share amount: Net income $ .27 $ .20 ---------- ---------- ---------- ---------- NOTE: See Note 5 of Notes to Consolidated Condensed Financial Statements. -21- EX-27 3 EXHIBIT 27 (FDS)
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AT MARCH 31, 1996 AND THE CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 1,422 63,400 979 288 0 65,885 98,618 3,377 172,881 2,174 58,970 0 148 27 111,562 172,881 3,577 4,506 0 1,241 0 9 1,232 1,203 460 743 0 0 0 743 .27 .27
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