UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001
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 1-7627
FRONTIER OIL CORPORATION
(Exact name of registrant as specified in its charter)
| | Wyoming | | 74-1895085 |
| | (State or other jurisdiction of | | (I.R.S. Employer |
| | incorporation or organization) | | Identification No.) |
| | | | |
| | 10000 Memorial Drive, Suite 600 | | 77024-3411 |
| | Houston, Texas | | (Zip Code) |
| | (Address of principal executive offices) | | |
Registrant’s telephone number, including area code:(713) 688-9600
| |
|
| | 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 . . .
Registrant’s number of common shares outstanding as of November 2, 2001: 25,564,058
FRONTIER OIL CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2001
INDEX
FORWARD-LOOKING STATEMENTS
Statements in this Form 10-Q concerning us which are (1) projections of revenues, earnings, earnings per share, capital expenditures or other financial items, (2) statements of plans and objectives for future operations, including acquisitions, (3) statements of future economic performance, or (4) statements of assumptions or estimates underlying or supporting the foregoing are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and Section 21E of the Exchange Act. The ultimate accuracy of forward-looking statements is subject to a wide range of business risks and changes in circumstances, and actual results and outcomes often differ from expectations.
All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We undertake no obligation to publicly release the result of any revisions to any such forward-looking statements that may be made to reflect events or circumstances after the date of this Form 10-Q, or to reflect the occurrence of unanticipated events.
Definitions of Terms
bbl(s) = barrel(s)
bpd = barrel(s) per day
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FRONTIER OIL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands except per share amounts)
Nine Months Ended Three Months Ended
September 30 September 30
2001 2000 2001 2000
------------- ------------- ----------- ----------
Revenues:
Refined products (1) $ 1,525,126 $ 1,508,049 $ 538,441 $ 532,998
Other (2,285) 4,532 (392) 3,181
------------- ------------- ----------- ----------
1,522,841 1,512,581 538,049 536,179
------------- ------------- ----------- ----------
Costs and Expenses:
Refining operating costs (1) 1,315,641 1,423,061 464,810 508,241
Selling and general expenses 13,034 9,578 4,431 3,648
Depreciation 18,619 17,113 6,335 5,755
------------- ------------- ----------- ----------
1,347,294 1,449,752 475,576 517,644
------------- ------------- ----------- ----------
Operating Income 175,547 62,829 62,473 18,535
Interest Expense, Net 21,943 24,411 6,590 7,666
------------- ------------- ----------- ----------
Income Before Income Taxes 153,604 38,418 55,883 10,869
Provision for Income Taxes 35,529 2,486 21,221 758
------------- ------------- ----------- ----------
Net Income $ 118,075 $ 35,932 $ 34,662 $ 10,111
============= ============= =========== ==========
Basic Earnings Per Share
of Common Stock: $ 4.49 $ 1.31 $ 1.33 $ .37
============= ============= =========== ==========
Diluted Earnings Per Share
of Common Stock: $ 4.32 $ 1.29 $ 1.27 $ .36
============= ============= =========== ==========
(1) Prior year data restated to conform to current year presentation.
The accompanying notes are an integral part of these financial statements.
FRONTIER OIL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands except shares)
September 30, 2001 and December 31, 2000 2001 2000
----------- ----------
ASSETS
Current Assets:
Cash, including cash equivalents of
$133,311 in 2001 and $62,593 in 2000 $ 134,935 $ 64,446
Trade receivables, less allowance for doubtful
accounts of $500 in 2001 and 2000 68,217 69,220
Other receivables 11,420 8,905
Inventory of crude oil, products and other 124,400 125,481
Deferred tax current assets 3,903 687
Other current assets 1,243 3,780
----------- ----------
Total current assets 344,118 272,519
----------- ----------
Property, Plant and Equipment, at cost:
Refineries and pipeline 402,710 389,874
Furniture, fixtures and other equipment 5,665 5,364
----------- ----------
408,375 395,238
Less - Accumulated depreciation 110,861 92,245
----------- ----------
297,514 302,993
Other Assets 12,095 12,701
----------- ----------
$ 653,727 $ 588,213
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 155,446 $ 171,563
Revolving credit facility - 23,000
Accrued turnaround cost 12,103 17,531
Accrued income taxes 14,609 12
Accrued liabilities and other 16,047 11,960
Accrued interest 8,052 4,843
----------- ----------
Total current liabilities 206,257 228,909
----------- ----------
Long-Term Debt 211,825 239,583
Long-Term Accrued Turnaround Cost 14,091 13,525
Post-Retirement Employee Liabilities 18,720 17,847
Deferred Credits and Other 3,330 3,072
Deferred Income Taxes 17,499 3,853
Commitments and Contingencies
Shareholders' Equity:
Preferred stock, $100 par value, 500,000 shares authorized,
no shares issued - -
Common stock, no par, 50,000,000 shares authorized,
29,913,524 and 29,190,004 shares issued in 2001 and 2000 57,431 57,359
Paid-in capital 96,723 89,706
Retained earnings (deficit) 65,487 (49,916)
Treasury stock, 4,089,160 shares and 2,622,596 shares
in 2001 and 2000 (35,837) (15,725)
Deferred employee compensation, 260,306 restricted shares in 2001 (1,799) -
----------- ----------
Total Shareholders' Equity 182,005 81,424
----------- ----------
$ 653,727 $ 588,213
=========== ==========
The accompanying notes are an integral part of these financial statements.
FRONTIER OIL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
For the nine months ended September 30, 2001 2000
----------- ----------
OPERATING ACTIVITIES
Net income $ 118,075 $ 35,932
Depreciation 18,619 17,113
Deferred credits and other 14,121 1,043
Change in working capital from operations (1,413) (31,427)
----------- ----------
Net cash provided by operating activities 149,402 22,661
----------- ----------
INVESTING ACTIVITIES
Additions to property and equipment (14,160) (5,966)
Other (79) -
----------- ----------
Net cash used in investing activities (14,239) (5,966)
----------- ----------
FINANCING ACTIVITIES
Refining credit facility (repayments) borrowings (23,000) 19,800
Repayments of debt:
9-1/8% Senior Notes (21,410) (2,000)
11-3/4% Senior Notes (5,541) (5,000)
Issuance of common stock 2,585 2,651
Purchase of treasury stock (15,692) (4,589)
Dividends paid (1,323) -
Other (293) (50)
----------- ----------
Net cash (used in) provided by financing activities (64,674) 10,812
----------- ----------
Increase in cash and cash equivalents 70,489 27,507
Cash and cash equivalents, beginning of period 64,446 38,345
----------- ----------
Cash and cash equivalents, end of period $ 134,935 $ 65,852
=========== ==========
The accompanying notes are an integral part of these financial statements.
FRONTIER OIL CORPORATION AND SUBSIDIARIES
NOTES TO INTERIM FINANCIAL STATEMENTS
September 30, 2001
(Unaudited)
1. Financial statement presentation
Financial statement presentation
The condensed consolidated financial statements include the accounts of Frontier Oil Corporation, a Wyoming corporation, and its wholly owned subsidiaries, including Frontier Holdings Inc., collectively referred to as Frontier or the Company. These financial statements have been prepared by the registrant without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) and include all adjustments (comprised of only normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. It is suggested that the financial statements included herein be read in conjunction with the financial statements and the notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2000.
The Company is an independent energy company engaged in crude oil refining and wholesale marketing of refined petroleum products (the “refining operations”). The Company operates refineries (“the Refineries”) in Cheyenne, Wyoming and El Dorado, Kansas with a total crude oil capacity of over 150,000 barrels per day. The Company focuses its marketing efforts in the Rocky Mountain and Plains States regions of the United States. The Company purchases the crude oil to be refined and markets the refined petroleum products produced, including various grades of gasoline, diesel fuel, jet fuel, asphalt, chemicals and petroleum coke.
Earnings per share
Basic earnings per share has been computed based on the weighted average number of common shares outstanding. Diluted earnings per share assumes the additional dilution for the exercise of in-the-money stock options. No adjustments to income are used in the calculation of earnings per share. The basic and diluted average shares outstanding are as follows:
Nine Months Ended Three Months Ended
September 30 September 30
2001 2000 2001 2000
---------- ---------- ---------- ----------
Basic 26,301,573 27,481,483 25,980,754 27,507,070
Diluted 27,330,764 27,905,196 27,337,379 28,164,760
New accounting pronouncements
In June 1998, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities” effective for fiscal years beginning after June 15, 1999. In June 1999, the FASB issued SFAS No. 137 which delayed the effective date of SFAS No. 133 for one year, to fiscal years beginning after June 15, 2000. In June 2000, the FASB issued SFAS No. 138, which amends the accounting and reporting standards of SFAS No. 133 for certain derivative instruments and certain hedging activities. SFAS No. 133, as amended by SFAS No. 137 and No. 138, cannot be applied retroactively and must be applied to (a) derivative instruments and (b) certain derivative instruments embedded in hybrid contracts that were issued, acquired or substantively modified after the transition date of December 31, 1998. The statement establishes accounting and reporting standards requiring that every derivative instrument be recorded in the balance sheet as either an asset or liability measured at its fair value. The statement requires that changes in the derivative’s fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative’s gains and losses to offset related results on the hedged item in the statements of operations, and requires a company to formally document, designate, and assess the effectiveness of transactions that receive hedge accounting treatment.
Upon adoption of SFAS No. 133 on January 1, 2001, the Company redesignated the natural gas collars it had in place to hedge its natural gas purchases for the first quarter of 2001 as cash flow hedges. Accordingly, at January 1, 2001, the Company recorded the costless collars at fair market value by increasing other current assets by $3.9 million ($4.1 million net of deferred tax current assets of $.2 million) and increasing cumulative adjustment to other comprehensive income (equity account) by a corresponding amount. The costless collars were closed out during the first quarter of 2001 and the realized gain of $2.4 million reduced refinery operating expense when the corresponding natural gas was purchased.
The Company utilizes derivative instruments to protect against price declines on foreign crude oil purchases and these contracts qualify for hedge accounting as fair value hedges under SFAS No. 133. The Company also uses derivative instruments to fix margins on certain gasoline production and hedge inventory. The Company’s derivative contracts to fix margins or hedge inventory currently do not qualify for hedge accounting under SFAS No. 133. At September 30, 2001, the Company has open derivative instruments to protect against price declines on foreign crude oil purchases. Realized and unrealized futures trading net losses on inventories and/or future refining production in 2001 and the ineffective portion of fair value hedges on crude oil was $3.1 million for the first nine months of 2001 and is reflected as a reduction of other revenues.
In June 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations” (“Statement No. 143”). Statement No. 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred with the associated asset retirement costs being capitalized as a part of the carrying amount of the long-lived asset. Statement No. 143 also includes disclosure requirements that provide a description of asset retirement obligations and reconciliation of changes in the components of those obligations. The Company is evaluating the future financial effects of adopting Statement No. 143 and expects to adopt the standard effective January 1, 2003.
In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“Statement No. 144”). Statement No. 144 addresses the accounting and reporting for the impairment or disposal of long-lived assets and supersedes FASB Statement No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of” and APB Opinion No. 30, “Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions.” The objective of Statement No. 144 is to establish one accounting model for long-lived assets to be disposed of by sale as well as resolve implementation issues related to Statement No. 121. The Company expects to adopt Statement No. 144 effective January 1, 2002 and does not expect such adoption to have a material impact on its financial condition and results of operations.
2. Schedule of major components of inventory
September 30, December 31,
2001 2000
-------------- -------------
(in thousands)
Crude oil $ 31,289 $ 39,947
Unfinished products 39,349 36,078
Finished products 38,030 33,587
Process chemicals 2,897 2,743
Repairs and maintenance supplies and other 12,835 13,126
-------------- -------------
$ 124,400 $ 125,481
============== ==============
Inventories of crude oil, other unfinished oils and all finished products are recorded at the lower of cost on a first in, first out (FIFO) basis or market.
3. Restricted stock plan
On March 13, 2001 the Company established the Frontier Oil Corporation Restricted Stock Plan (the “Plan”) covering 1,000,000 shares of common stock held as treasury stock by the Company. The Plan’s purpose is to permit grants of shares, subject to restrictions, to key employees of the Company and is intended to promote the interests of the Company by encouraging key employees of the Company to acquire or increase their equity interest in the Company. The Plan is also intended to enhance the ability of the Company to attract and retain the services of key employees who are important to the growth and profitability of the Company. It is designed that the Plan work in conjunction with the Company’s annual bonus program for employees whereby all or a portion of a bonus awarded shall be paid in the form of restricted stock granted under the Plan. Shares awarded under the Plan entitle the shareholder to all rights of common stock ownership except that the shares may not be sold, transferred or pledged during the restriction period except as provided for in the Plan.
As of September 30, 2001 the Company has granted 260,306 restricted shares of common stock of which 25% vest in March, 2002, 25% vest in March, 2003 and 50% vest in March, 2004. The shares were recorded at the market value on the date of issuance (March 13, 2001) as deferred employee compensation (equity account) and will be amortized to compensation expense over the respective vesting periods of the stock. Amortization expenses for the nine months and quarter ended September 30, 2001 were $256,000 and $128,000, respectively.
4. Canadian Tax Assessment
Prior to the sale of its Canadian oil and gas operations in June 1997, the Company conducted business in Canada. As a result of an audit in 1999 of its Canadian tax returns for the years 1995, 1996 and 1997 conducted by the Canada Customs and Revenue Agency (“CCRA”, formerly Revenue Canada), the Company was assessed for approximately C$27 million of additional taxes. More than C$20 million of this assessment related to certain foreign exploration and development expenditure (“FEDE”) deductions. As previously reported, the Company and the CCRA had been awaiting the passage of legislation drafted and released by the Department of Finance in Canada that would eliminate this portion of the assessment. On June 14, 2001, the legislation received Royal Assent and was thereby passed into law. As a result, the major portion of the Canadian tax assessment was vacated. In addition to the FEDE assessment, approximately C$2 million of the original assessment related to minor items, which the Company did not dispute and settled in 2000 through a cash payment of C$1.1 million and the application of tax pools.
Approximately C$3.7 million of the original assessment (plus accumulated interest on this amount estimated to be C$2.4 million) remains to be resolved. The outstanding amount relates to the deductibility of interest and certain related financing costs in 1995, which were not previously challenged by the Canada Customs and Revenue Agency in its audits of prior periods. The Company is currently in discussions with the CCRA related to its planned appeal of the deductibility of the interest and related expenses. While the Company acknowledges the inherent uncertainties associated with any tax disputes, management believes that this matter will be resolved without any further material effect on the Company’s financial position, results of operations or liquidity. Since a reasonable estimate of any possible assessment the Company may be required to pay is not possible at this time, no accrual has been made in the accompanying financial statements.
5. El Dorado Contingent Earn-Out Payment
As part of the consideration for the November 1999 acquisition of the El Dorado refinery, the Company may be required to make contingent earn-out payments to the seller of the El Dorado refinery for each of the years 2001 through 2007. These annual payments are calculated on a calendar year basis, and are equal to one- half of the excess over $60 million of the El Dorado refinery’s revenues less its material costs and operating costs, other than depreciation. The total amount of these contingent payments is capped at $40 million, with an annual cap of $7.5 million. Such contingency payments, if any, will be recorded as additional acquisition cost when the contingent payment is determinable beyond a reasonable doubt. If the contingent payment were calculated based on the Company’s earnings for the nine months ended September 30, 2001, the Company would make an earn-out payment of $7.5 million in early 2002.
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS |
RESULTS OF OPERATIONS
The terms “Frontier” and “we” refer to Frontier Oil Corporation and its subsidiaries.
Nine months ended September 30, 2001 compared with the same period in 2000
We had net income for the nine months ended September 30, 2001 of $118.1 million, or $4.32 per diluted share, compared to net income of $35.9 million, or $1.29 per diluted share, for the same period in 2000.
Operating income increased $112.7 million in 2001 versus 2000 due to an increase in the refined product spread (revenues less raw material, freight and other costs) of $139.2 million, offset by a decrease in other revenues of $6.8 million and increases in refinery operating expenses (excluding depreciation) of $14.7 million, selling and general costs of $3.5 million and depreciation of $1.5 million.
Refined product revenues and refining operating costs are impacted by changes in the price of crude oil. The average price of crude oil was lower in 2001 than in 2000. The refined product spread was $8.23 per barrel in 2001 compared to $4.92 per barrel in 2000. The Cheyenne refinery refined product spread was $9.37 per barrel in 2001 compared to $5.22 per barrel in 2000. The improved product spread was due to improved light product margins and an increase in the light/heavy crude oil spread. The El Dorado refinery refined product spread was $7.78 per barrel in 2001 compared to $4.81 per barrel in 2000 due to improved light product margins and an increase in the WTI/WTS crude oil spread.
Refined product revenues increased $17.1 million or 1% due to increased overall sales prices offset by decreased sales volumes. While the average gasoline price increased $1.71 per barrel and average diesel and jet fuel prices increased $.94 per barrel, we experienced a 1% overall decrease in sales volumes. Yields of gasoline decreased 1% while yields of diesel and jet fuel increased 2% in 2001 compared to the same period in 2000. The Cheyenne refinery throughput and resulting yields in the first three months of 2001 was constrained by asphalt inventory storage availability that was impacted by increased throughput during the fourth quarter of 2000. Sales and yields at the El Dorado refinery were reduced in 2001 due to the major turnaround, or planned maintenance, which commenced in mid-March and was completed in mid-April.
Other revenues decreased $6.8 million to a loss of $2.3 million in 2001 due to $3.1 million realized and unrealized futures trading net losses on inventories and/or future production in 2001 and the ineffective portion of fair value hedges on crude oil compared to an $2.1 million futures trading net gain in 2000. Other revenues in 2000 also included $1.1 million proceeds from the sale of excess catalyst platinum from the El Dorado refinery and insurance proceeds of $300,000, which was related to a business interruption at the El Dorado refinery, and sulfur credit sales of $230,000.
Refining operating costs decreased $107.4 million or 8% from 2000 levels due to decreases in raw material, freight and other costs offset by higher refinery operating expenses.
Raw material, freight and other costs per barrel decreased 8% or $2.45 per barrel in 2001 primarily due to lower crude oil prices. The Cheyenne refinery raw material, freight and other costs of $25.70 per barrel decreased from $28.13 per barrel in 2000 due to lower crude oil prices and an increased light/heavy spread but offsetting these were higher feed and blendstock prices, which are not impacted by lower crude oil prices. The heavy crude oil utilization rate at the Cheyenne refinery expressed as a percentage of total crude oil decreased to 91% in 2001 from 93% in 2000. The light/heavy spread averaged $7.39 per barrel compared to $3.83 per barrel in the first nine months of 2000. The El Dorado refinery raw material, freight and other costs of $27.80 per barrel decreased from $30.26 per barrel due to lower crude oil prices offset by higher feed and blendstock prices, whose prices are not impacted by lower crude oil prices.
Refinery operating expense (excluding depreciation) per barrel was $3.36 in 2001 compared to $2.98 per barrel in 2000. Higher natural gas and electrical costs comprised approximately 47% of the per barrel operating expense increase. The Cheyenne refinery operating expense (excluding depreciation) per barrel increased $.50 to $3.16 per barrel in 2001 primarily due to higher natural gas and electrical costs, higher maintenance costs and higher salaries. The El Dorado refinery operating expense (excluding depreciation) was $3.44 per barrel in 2001 increasing from the 2000 operating expense of $3.11 per barrel primarily due to higher natural gas and electrical costs and higher additives and chemical costs.
Selling and general expenses increased $3.5 million or 36% for the nine months ended September 30, 2001 because of increased personnel and other costs relating to the El Dorado refinery acquisition.
Depreciation increased $1.5 million or 9% in the 2001 nine-month period as compared to the same period in 2000 because of increases in capital investments.
The interest expense decrease of $2.5 million or 10% in 2001 was attributable to the reduction of debt including repurchases of 9-1/8% Senior Notes and 11-3/4% Senior Notes during 2000 and 2001, lower borrowing rates, balances and fees on the revolving credit facility and more interest income. Average debt for the nine months decreased from $301 million in 2000 to $260 million in 2001.
Income taxes increased as a result of the full utilization in 2001 of our previously unbenefitted deferred tax assets (net operating loss carryforwards).
Three months ended September 30, 2001 compared with the same period in 2000
We had net income for the three months ended September 30, 2001 of $34.7 million, or $1.27 per diluted share, compared to net income of $10.1 million, or $.36 per diluted share, for the same period in 2000.
Operating income increased $43.9 million in 2001 versus 2000 due to an increase in the refined product spread (revenues less raw material, freight and other costs) of $48.2 million and a decrease in refinery operating expenses (excluding depreciation) of $.7 million offset by a decrease in other revenues of $3.6 million and increases in selling and general costs of $.8 million and depreciation of $.6 million.
Refined product revenues and refining operating costs are impacted by changes in the price of crude oil. The average price of crude oil was lower in 2001 than in 2000. The refined product spread was $7.43 per barrel in 2001 compared to $4.89 per barrel in 2000. The Cheyenne refinery refined product spread was $8.11 per barrel in 2001 compared to $5.29 per barrel in 2000. The improved product spread was due to improved light product margins and an increase in the light/heavy crude oil spread. The El Dorado refinery refined product spread was $7.15 per barrel in 2001 compared to $4.71 per barrel in 2000 due to improved light product margins and an increase in the WTI/WTS crude oil spread.
Refined product revenues increased $5.4 million or 1% due to increased sales volumes offset by overall decreased sales prices. While the average gasoline price decreased $2.01 per barrel and average diesel and jet fuel prices decreased $3.23 per barrel, we experienced a 10% overall increase in sales volumes. Yields of gasoline increased 8% while yields of diesel and jet fuel increased 8% in 2001 compared to the same period in 2000.
Other revenues decreased $3.6 million to a loss of $.4 million in 2001 due to $.7 million realized and unrealized futures trading net losses on inventories and/or future production in 2001 and the ineffective portion of fair value hedges on crude oil compared to an $1.3 million futures trading net gain in 2000. Other revenues in 2000 also included $1.1 million proceeds from the sale of excess catalyst platinum from the El Dorado refinery and insurance proceeds of $300,000, which was related to a business interruption at the El Dorado refinery, and sulfur credit sales of $230,000.
Refining operating costs decreased $43.4 million or 9% from 2000 levels due to decreases in both raw material, freight and other costs and refinery operating expenses.
Raw material, freight and other costs per barrel decreased 18% or $5.68 per barrel in 2001 primarily due to lower crude oil prices. The Cheyenne refinery raw material, freight and other costs of $25.03 per barrel decreased from $31.51 per barrel in 2000 due to lower crude oil prices and an increased light/heavy spread. The heavy crude oil utilization rate at the Cheyenne refinery expressed as a percentage of total crude oil decreased to 91% in 2001 from 95% in 2000 to better meet our light product supply requirements. The light/heavy spread averaged $6.42 per barrel compared to $4.16 per barrel in the three months ended September 2000. The El Dorado refinery raw material, freight and other costs of $26.60 per barrel decreased from $31.98 per barrel due to lower crude oil prices.
Refinery operating expense (excluding depreciation) per barrel was $2.83 in 2001 compared to $3.18 per barrel in 2000 due to higher El Dorado sales volumes and lower El Dorado operating expenses in 2001 offset by higher Cheyenne operating expenses. The Cheyenne refinery operating expense (excluding depreciation) per barrel increased $.17 to $2.73 per barrel in 2001 primarily due to higher electrical costs, salaries and turnaround accruals offset by lower natural gas costs. The El Dorado refinery operating expense (excluding depreciation) was $2.88 per barrel in 2001 decreasing from the 2000 operating expense of $3.44 per barrel due to more sales volumes, lower natural gas costs and turnaround accruals offset by higher additive and chemical costs.
Selling and general expenses increased $.8 million or 21% for the three months ended September 30, 2001 because of increased personnel and other costs relating to the El Dorado refinery acquisition.
Depreciation increased $580,000 or 10% in the 2001 three-month period as compared to the same period in 2000 because of increases in capital investments.
The interest expense decrease of $1.1 million or 14% in 2001 was attributable to the reduction of debt including repurchases of 9-1/8% Senior Notes and 11-3/4% Senior Notes during 2000 and 2001 and lower borrowing rates, balances and fees on the revolving credit facility. Average debt for the three months decreased from $288 million in 2000 to $222 million in 2001.
Income taxes increased as a result of the full utilization in mid-2001 of our previously unbenefitted deferred tax assets in mid-2001 (net operating loss carryforwards).
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities for the nine months ended September 30, 2001 was $149.4 million compared to $22.7 million cash provided by operating activities for the nine months ended September 30, 2000. Working capital changes required $1.4 million and $31.4 million of cash flows for the first nine months of 2001 and 2000, respectively.
At September 30, 2001, we had $134.9 million of cash and cash equivalents, $125 million available under our line of credit and working capital of $137.9 million. In addition, we purchased $21.4 million of 9-1/8% Senior Notes and $5.5 million of 11-3/4% Senior Notes during the first nine months of 2001 and had committed to purchase $1.0 million of 9-1/8% Senior Notes which were purchased in early October 2001. Of these, $4.5 million of the 9-1/8% Senior Notes purchases and all $5.5 million of the 11-3/4% Senior Notes purchases were completed in the quarter ended September 30, 2001.
Additions to property and equipment in the first nine months of 2001 of $14.2 million increased $8.2 million from the first nine months in 2000. Total capital expenditures for 2001 are currently planned to be approximately $23.9 million.
In June 2001 our Board of Directors authorized an additional two million shares under our previously announced stock repurchase program bringing the total authorization to six million shares which may be purchased and held as treasury shares. Through December 2000, 2,345,900 shares of common stock had been purchased under this program. During the first nine months of 2001, an additional 1,628,000 shares were purchased for approximately $20.7 million under this program. Of these, 600,400 shares were purchased in the quarter ended September 30, 2001.
Our Board of Directors declared an initial quarterly cash dividend in June 2001 of $.05 per share which was paid on July 16, 2001 to shareholders of record on June 29, 2001 and totaled $1.3 million. Our Board of Directors declared an additional quarterly cash dividend in September 2001 of $.05 per share which will be paid on October 15, 2001 to shareholders of record on September 28, 2001. The total cash required for this dividend is $1.3 million.
Our refining revolving credit facility was amended, effective June 20, 2001, to extend the facility expiration date from November 16, 2002 to June 15, 2004.
Market Risk - Derivative Instruments. Other income includes futures trading losses of $3.1 million and $.7 million, for the nine months and three months September 30, 2001, respectively, on derivative instruments to hedge inventories and/or production in 2001 and the ineffective portion of fair value hedges on crude oil.
As of September 30, 2001 we had open derivative contracts on 1,092,000 barrels of crude oil to hedge against price declines on prepaid foreign crude oil purchases and which are accounted for as fair value hedges under SFAS No. 133. The unrealized ineffective portion of this hedge recorded in other revenues at September 30, 2001 is a $.3 million gain.
REFINING OPERATING STATISTICAL INFORMATION
Consolidated:
Nine Months Ended Three Months Ended
September 30, September 30,
2001 2000 2001 2000
--------- --------- --------- ---------
Raw material input (bpd)
Light crude 31,812 36,496 34,545 30,514
Heavy and intermediate crude 112,397 106,688 118,474 116,670
Other feed and blend stocks 15,331 14,912 16,859 15,587
--------- --------- --------- ---------
Total 159,540 158,096 169,878 162,771
Manufactured product yields (bpd)
Gasoline 76,716 77,072 83,506 77,237
Diesel and jet fuel 51,849 50,677 54,578 50,441
Asphalt 6,644 7,412 10,374 10,075
Chemicals 1,531 1,783 1,351 1,665
Other 19,900 17,936 16,227 19,544
--------- --------- --------- ---------
Total 156,640 154,880 166,036 158,962
Total product sales (bpd)
Gasoline 81,688 83,213 90,198 82,320
Diesel and jet fuel 51,406 51,197 53,812 50,270
Asphalt 7,291 6,982 11,047 9,662
Chemicals 1,544 2,054 1,481 1,672
Other 15,728 15,770 17,743 13,848
--------- --------- --------- ---------
Total 157,657 159,216 174,281 157,772
Operating margin information (per sales bbl) (1)
Average sales price $ 35.43 $ 34.57 $ 33.58 $ 36.72
Raw material, freight and other costs (2) 27.20 29.65 26.15 31.83
--------- --------- --------- ---------
Product spread 8.23 4.92 7.43 4.89
Refinery operating expenses, excl depreciation 3.36 2.98 2.83 3.18
Depreciation .43 .39 .39 .39
--------- --------- --------- ---------
Operating margin $ 4.44 $ 1.55 $ 4.21 $ 1.32
Average West Texas Intermediate
crude oil price at Cushing, OK $ 28.08 $ 30.72 $ 27.03 $ 32.69
Average sales price (per sales bbl) (1)
Gasoline $ 39.84 $ 38.13 $ 37.59 $ 39.60
Diesel and jet fuel 36.69 35.75 35.66 38.89
Asphalt 22.55 25.44 24.09 27.22
Chemicals 71.88 66.23 62.36 74.93
Other 10.85 11.86 10.38 13.77
(1) Prior year data restated to conform to current year presentation.
(2) FIFO inventory accounting.
REFINING OPERATING STATISTICAL INFORMATION
Cheyenne Refinery:
Nine Months Ended Three Months Ended
September 30, September 30,
2001 2000 2001 2000
--------- --------- --------- ---------
Raw material input (bpd)
Light crude 3,565 2,718 3,999 1,995
Heavy crude 34,834 36,318 38,527 38,655
Other feed and blend stocks 4,649 4,848 5,212 4,378
--------- --------- --------- ---------
Total 43,048 43,884 47,738 45,028
Manufactured product yields (bpd)
Gasoline 16,774 17,573 17,300 17,170
Diesel 12,825 12,215 12,826 11,713
Asphalt 6,644 7,412 10,374 10,075
Other 5,775 5,315 6,059 4,611
--------- --------- --------- ---------
Total 42,018 42,515 46,559 43,569
Total product sales (bpd)
Gasoline 21,295 22,408 22,543 22,653
Diesel 12,188 12,265 11,702 12,129
Asphalt 7,291 6,982 11,047 9,662
Other 4,095 5,025 4,018 2,769
--------- --------- --------- ---------
Total 44,869 46,680 49,310 47,213
Operating margin information (per sales bbl) (1)
Average sales price $ 35.07 $ 33.35 $ 33.14 $ 36.80
Raw material, freight and other costs (2) 25.70 28.13 25.03 31.51
--------- --------- --------- ---------
Product spread 9.37 5.22 8.11 5.29
Refinery operating expenses, excl depreciation 3.16 2.66 2.73 2.56
Depreciation .83 .72 .75 .71
--------- --------- --------- ---------
Operating margin $ 5.38 $ 1.84 $ 4.63 $ 2.02
Light/heavy crude spread (per bbl) $ 7.39 $ 3.83 $ 6.42 $ 4.16
Average sales price (per sales bbl) (1)
Gasoline $ 42.21 $ 39.72 $ 39.65 $ 42.13
Diesel 39.18 37.57 37.42 40.61
Asphalt 22.55 25.44 24.09 27.22
Other 8.01 5.62 9.04 9.92
(1) Prior year data restated to conform to current year presentation.
(2) FIFO inventory accounting.
REFINING OPERATING STATISTICAL INFORMATION
El Dorado Refinery:
Nine Months Ended Three Months Ended
September 30, September 30,
2001 2000 2001 2000
--------- --------- --------- ---------
Raw material input (bpd)
Light crude 28,246 33,778 30,546 28,519
Heavy and intermediate crude 77,563 70,369 79,948 78,016
Other feed and blend stocks 10,682 10,064 11,647 11,209
--------- --------- --------- ---------
Total 116,491 114,211 122,141 117,744
Manufactured product yields (bpd)
Gasoline 59,942 59,499 66,206 60,067
Diesel and jet fuel 39,024 38,462 41,752 38,728
Chemicals 1,531 1,783 1,351 1,665
Other 14,125 12,621 10,168 14,932
--------- --------- --------- ---------
Total 114,622 112,365 119,477 115,392
Total product sales (bpd)
Gasoline 60,393 60,805 67,655 59,666
Diesel and jet fuel 39,218 38,932 42,110 38,141
Chemicals 1,544 2,054 1,481 1,672
Other 11,633 10,745 13,725 11,079
--------- --------- --------- ---------
Total 112,788 112,536 124,971 110,558
Operating margin information (per sales bbl) (1)
Average sales price $ 35.58 $ 35.07 $ 33.75 $ 36.69
Raw material, freight and other costs (2) 27.80 30.26 26.60 31.98
--------- --------- --------- ---------
Product spread 7.78 4.81 7.15 4.71
Refinery operating expenses, excl depreciation 3.44 3.11 2.88 3.44
Depreciation .27 .25 .25 .26
--------- --------- --------- ---------
Operating margin $ 4.07 $ 1.45 $ 4.02 $ 1.01
WTI/WTS crude spread (per bbl) $ 3.39 $ 1.84 $ 2.68 $ 1.93
Average sales price (per sales bbl) (1)
Gasoline $ 39.00 $ 37.54 $ 36.91 $ 38.64
Diesel and jet fuel 35.92 35.18 35.17 38.34
Chemicals 71.88 66.23 62.36 74.93
Other 11.85 14.77 10.77 14.73
(1) Prior year data restated to conform to current year presentation.
(2) FIFO inventory accounting.
PART II - OTHER INFORMATION
| ITEM 1. | Legal Proceedings -
None, which in the opinion of management would have a material impact on the registrant.
|
| ITEM 2. | Changes in Securities -
There have been no changes in the constituent instruments defining the rights of the holders of any class of registered securities during the current quarter.
|
| ITEM 3. | Defaults Upon Senior Securities -
None.
|
| ITEM 4. | Submission of Matters to a Vote of Security Holders -
None.
|
| ITEM 5. | Other Information -
None.
|
| ITEM 6. | Exhibits and Reports on Form 8-K -
(a) Exhibits
None
(b) Reports on Form 8-K
None.
|
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
| | FRONTIER OIL CORPORATION
By: /s/ Nancy J. Zupan
Nancy J. Zupan
Vice President - Controller
(principal accounting officer)
|
Date: November 5, 2001
