UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 5, 2000 (November 16,
1999)
FRONTIER OIL CORPORATION
(Exact name of registrant as specified in its charter)
Wyoming 1-7627 74-1895085
(State of other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
10000 Memorial Drive, Suite 600
Houston, Texas 77024-3411
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 688-9600
Not Applicable
(Former name or former address, if changed since last report)
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On November 16, 1999, Frontier El Dorado Refining Company ("FEDRC"), an
indirect wholly-owned subsidiary of Frontier Oil Corporation (the "Company"),
acquired the 110,000 barrel per day ("bpd") crude oil refinery located in El
Dorado, Kansas from Equilon Enterprises LLC ("Equilon"). The acquired assets
were used by Equilon to refine crude oil. The Company intends to continue such
use. The Company also purchased the crude oil, intermediate product and
finished product inventories at the refinery at closing.
Total consideration for the acquisition of the refinery consisted of
$170 million cash. In addition, the Company will make contingent earn-out
payments for the next eight years equal to one-half of the excess over $60
million per year 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. Total consideration for the acquisition of the inventory at closing
consisted of approximately $50.8 million cash. The acquisition will be
accounted for under the purchase method of accounting for financial reporting
purposes.
The sources of financing for the cash portion of the acquisition
consideration were (i) approximately $180 million of net proceeds from the
issuance of the $190 million aggregate principal amount of the Company's 11-3/4%
Senior Notes due 2009 on November 5, 1999 and (ii) approximately $40 million
under a new credit facility established by Frontier Oil and Refining Company
("FORC"), an indirect wholly-owned subsidiary of the Company, with Union Bank of
California, N.A., as administrative agent, documentation agent and lead
arranger, and Paribas, as syndication agent and lead arranger.
The El Dorado refinery, which produces gasoline, diesel and jet fuel,
and asphalt and other products, serves the Denver market via pipeline and
additionally serves Kansas City and other important markets in the Kansas,
Nebraska, Iowa, Missouri, North Dakota and South Dakota. Assets of the El
Dorado refinery also include a small petrochemical plant and a leased 38
megawatt cogeneration facility. The Refinery is a complex refinery and includes
the following major processing units: crude/vacuum unit, hydrotreating units,
reformer complex, coker, fluid catalytic cracking unit, alkylation unit, and an
avgas/naphtha fractionation unit.
The purchase price and all negotiations relating to the El Dorado
Refinery acquisition were on an arm's length basis.
- 1 -
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
This Form 8-K/A is being filed to include in the Current Report on Form 8-K
filed by the registrant with the Securities and Exchange Commission on December
1, 1999 the financial statements and pro forma financial information required by
Item 7.
Item Page
(a) Financial Statements of Business Acquired 3
(b) Unaudited Pro Forma Financial Information 8
Unaudited Pro Forma Condensed Consolidated Balance
Sheet as of September 30, 1999 9
Unaudited Pro Forma Condensed Consolidated Statement
of Operations for the Year Ended December 31, 1998 10
Unaudited Pro Forma Condensed Consolidated Statement
of Operations for the Nine Months Ended September 30, 1999 11
Notes to Unaudited Pro Forma Condensed Consolidated
Financial Statements 12
(c) Exhibits
*10.1 Asset Purchase and Sale Agreement among Frontier El Dorado
Refining Company, as buyer, Frontier Oil Corporation, as
Guarantor and Equilon Enterprises LLC, as seller, dated as of
October 19, 1999.
*10.2 Revolving Credit Agreement dated as of November 16, 1999 among
Frontier Oil and Refining Company, as borrower, the lenders named
therein, Union Bank of California, N.A., as administrative agent,
documentation agent and lead arranger, and Paribas, as
syndication agent and lead arranger.
*Filed with initial Current Report on Form 8-K, filed on December 1,
1999.
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ITEM 7(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Equilon Enterprises LLC:
We have audited the accompanying statements of income before interest and
income taxes for the El Dorado refinery (El Dorado) for each of the three years
in the period ended December 31, 1998. These financial statements are the
responsibility of Equilon Enterprises LLC's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying statements were prepared for the purpose of complying with
the rules and regulations of the Securities and Exchange Commission as described
in Note 1 and are not intended to be a complete presentation of El Dorado's
revenues and expenses.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the income before interest and income taxes of El
Dorado for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
October 6, 1999
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El Dorado Refinery
Statements of Income Before Interest and Income Taxes
(In Thousands)
For the nine months ended
For the year ended December 31, September 30,
------------------------------------- ------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
(Unaudited)
REVENUES
Sales and other revenue $ 1,009,065 $ 962,162 $ 712,910 $ 556,876 $ 637,419
COSTS AND EXPENSES
Purchases and other costs 847,066 754,451 509,871 386,086 498,243
Operating expenses 144,287 149,654 144,087 104,506 101,721
Selling, general and administrative
expenses 7,693 7,025 6,455 4,182 4,919
Depreciation and amortization 19,552 19,520 19,651 14,468 10,309
Taxes other than income taxes 3,617 3,534 3,388 2,634 2,825
Impairment expense - - - - 190,600
----------- ----------- ----------- ----------- -----------
Total costs and expenses 1,022,215 934,184 683,452 511,876 808,617
INCOME BEFORE INTEREST
AND INCOME TAXES $ (13,150) $ 27,978 $ 29,458 $ 45,000 $ (171,198)
=========== =========== =========== =========== ===========
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El Dorado Refinery
Notes to Statements of Income Before Interest and Income Taxes
1. Basis of Presentation
In October 1999, Frontier Oil Corporation (the "Company") signed an agreement
to acquire from Equilon Enterprises LLC ("Equilon"), a refinery located in El
Dorado, Kansas, for approximately $170 million. In addition, the Company will
purchase the hydrocarbon inventory located at the refinery on the closing date.
The acquisition is expected to close in November 1999.
The Statements of Income Before Interest and Income Taxes associated with the
El Dorado refinery were derived from Equilon's accounting records. Certain
expense items not directly associated with the El Dorado refinery, such as
interest, income taxes and corporate overhead, were not recorded in the El
Dorado refinery's accounting records. Any allocation of such costs would be
arbitrary and would not be indicative of what such costs actually would have
been had the El Dorado refinery been operated as a stand-alone entity.
Because of the lack of segregated or easily obtainable and reliable data for
asset and liability balances other than property, plant and equipment and
inventories, a balance sheet is not presented for the El Dorado refinery.
2. Related Party Transactions
Sales of refined products from the El Dorado refinery were primarily
intercompany in nature based on prevailing refined product market prices. Such
intercompany sales amounted to $940,979,000, $877,135,000 and $643,564,000 for
the years ended December 31, 1996, 1997 and 1998, respectively. Intercompany
sales amounted to $495,820,000 (unaudited) and 573,972,000 (unaudited) for the
nine months ended September 30, 1998 and 1999, respectively. Substantially all
crude purchases were intercompany in nature based on prevailing crude market
prices.
3. Acquired Assets
The following tables present the historical cost of the fixed assets and
inventories of the El Dorado refinery, as of December 31, 1997 and 1998 and
September 30, 1999 (in thousands).
December 31, December 31, September 30,
1997 1998 1999
------------ ------------ -------------
(unaudited)
<c
>
Property, Plant and Equipment $ 546,000 $ 563,800 $ 565,000
Less: Accumulated Depreciation 175,400 194,100 204,400
Accumulated Impairment - - 190,600
------------ ------------ -------------
Net Property, Plant and Equipment $ 370,600 $ 369,700 $ 170,000
============ ============ =============
The total capital expenditures were $18.8 million, $18.7 million and $1.2
million (unaudited) for the years ended December 31, 1997 and 1998 and for the
nine months ended September 30, 1999, respectively.
In the second quarter of 1999, Equilon recorded an impairment charge of
approximately $190.6 million (unaudited), in accordance with Statement of
Financial Accounting Standards (SFAS) No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," to reduce the
carrying value of the El Dorado refinery to the estimated sales price of $170
million.
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December 31, December 31, September 30,
1997 1998 1999
------------ ------------ -------------
(unaudited)
Hydrocarbon Inventories $ 19,930 $ 26,767 $ 15,098
Materials and Supplies 11,400 7,700 8,087
------------ ------------ -------------
Total Inventories $ 31,330 $ 34,467 $ 23,185
============ ============ =============
All inventories are valued at the lower of cost or market. The cost of
hydrocarbon inventories is determined on the last-in, first-out (LIFO) method,
while materials and supplies are stated at average cost. The excess of market
value over the book value of inventories carried at cost on the LIFO basis of
accounting was approximately $33.9 million, $8.8 million and $32.6 million
(unaudited) at December 31, 1997 and 1998 and September 30, 1999, respectively.
4. Subsequent Event (subsequent to the date of auditor's examination and
unaudited)
On November 16, 1999, the Company completed the purchase of the El Dorado
refinery for a price of $170 million.
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ITEM 7(b) UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated financial
information of Frontier is based on the historical financial statements of
Frontier, adjusted to give effect to the acquisition of the El Dorado refinery
and its inventory (the "Acquisition") and the related issuance of senior debt
obligations and borrowings under Frontier's credit facility (together, the "Debt
Issuances"). The pro forma balance sheet as of September 30, 1999 assumes the
Acquisition and Debt Issuances occurred as of September 30, 1999. The pro forma
statements of operations for the year ended December 31, 1998 and the nine
months ended September 30, 1999 assume the Acquisition and Debt Issuances had
occurred on January 1, 1998. The pro forma condensed consolidated financial
information is not necessarily indicative of the results that actually would
have occurred if the acquisition had been in effect on the dates indicated or
which may be obtained in the future. The pro forma condensed financial
information should be read in conjunction with the separate historical financial
statements of Frontier, incorporated by reference in this document, and the El
Dorado refinery included herein.
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UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
September 30, 1999
(dollars in thousands)
As of September 30, 1999
------------------------------------------
Historical Pro Forma Pro Forma
Frontier Adjustments Frontier
----------- --------------- ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 26,024 $ 225,861 (a) $ 34,167
(217,718) (b)
Receivables 26,540 - 26,540
Inventory and other current assets 31,657 55,805 (b) 87,462
----------- ----------- ------------
Total current assets 84,221 63,948 148,169
----------- ----------- ------------
Property and Equipment, at cost 175,577 204,340 (b) 379,917
----------- ----------- ------------
Less - Accumulated depreciation 64,919 - 64,919
----------- ----------- ------------
110,658 204,340 314,998
Other Assets 6,409 9,125 15,534
----------- ----------- ------------
$ 201,288 $ 277,413 $ 478,701
=========== =========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 42,501 $ - $ 42,501
Revolving Credit Facility - 47,718 (d) 47,718
Accrued Liabilities 5,428 9,359 (b) 14,787
----------- ----------- ------------
Total current liabilities 47,929 57,077 105,006
----------- ----------- ------------
Long-Term Debt:
9-1/8% Senior Notes 70,000 - 70,000
11-3/4% Senior Notes - 187,268 (e) 187,268
----------- ----------- ------------
70,000 187,268 257,268
----------- ----------- ------------
Other Liabilities 8,191 33,068 (b) 41,259
Commitments and Contingencies
Shareholders' Equity:
Preferred stock
Common stock 57,294 - 57,294
Paid-in capital 87,028 - 87,028
Retained earnings (deficit) (62,635) - (62,635)
Treasury stock (6,519) - (6,519)
----------- ----------- ------------
Total Shareholders' Equity 75,168 - 75,168
----------- ----------- ------------
$ 201,288 $ 277,413 $ 478,701
=========== =========== ============
See accompanying notes to unaudited pro forma consolidated financial statements.
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UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 1998
(dollars in thousands except per share)
Historical
Historical El Dorado Pro Forma Pro Forma
Frontier Refinery Adjustments Frontier
---------- ---------- ---------------- ----------
Revenues:
Refined products $ 297,662 $ 712,910 $ - $1,010,572
Other 1,706 - - 1,706
---------- ---------- ---------- ----------
299,368 712,910 - 1,012,278
---------- ---------- ---------- ----------
Costs and expenses:
Refining operating costs 254,733 657,346 24,140 (f) 936,219
Selling and general expenses 8,225 6,455 - 14,680
Depreciation 10,710 19,651 (19,651) (g) 20,927
10,217 (g)
---------- ---------- ---------- ----------
273,668 683,452 14,706 971,826
---------- ---------- ---------- ----------
Operating Income 25,700 29,458 (14,706) 40,452
Interest Expense, net 6,732 - 27,996 (i) 34,728
---------- ---------- ---------- ----------
Income Before Income Taxes 18,968 29,458 (42,702) 5,724
Provision for Income Taxes 150 - - (j) 150
---------- ---------- ---------- ----------
Income From Continuing Operations $ 18,818 $ 29,458 $ (42,702) $ 5,574
========== ========== ========== ==========
Average Number of Common
Shares Outstanding 28,124 28,124
========== ==========
Basic Earnings Per Share of Common
Stock from Continuing Operations $ .67 $ .20
========== ==========
Diluted Earnings Per Share of Common
Stock from Continuing Operations $ .65 $ .19
========== ==========
See accompanying notes to unaudited pro forma consolidated financial statements.
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UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 1999
(dollars in thousands except per share)
Historical
Historical El Dorado Pro Forma Pro Forma
Frontier Refinery Adjustments Frontier
---------- ---------- ---------------- ----------
Revenues:
Refined products $ 261,098 $ 637,419 $ - $ 898,517
Other 1,829 - - 1,829
---------- ---------- ---------- ----------
262,927 637,419 - 900,346
---------- ---------- ---------- ----------
Costs and expenses:
Refining operating costs 235,111 602,789 (23,835) (f) 814,065
Selling and general expenses 6,331 4,919 - 11,250
Depreciation 8,706 10,309 (10,309) (g) 16,369
7,663 (g)
Impairment Expense - 190,600 (190,600) (h) -
---------- ---------- ---------- ----------
250,148 808,617 (217,081) 841,684
---------- ---------- ---------- ----------
Operating Income (Loss) 12,779 (171,198) 217,081 58,662
Interest Expense, net 4,971 - 20,998 (i) 25,969
---------- ---------- ---------- ----------
Income (Loss) Before Income Taxes 7,808 (171,198) 196,083 32,693
Provision for Income Taxes 382 - 1,253 (j) 1,635
---------- ---------- ---------- ----------
Income (Loss) From Continuing Operations $ 7,426 $ (171,198) $ 194,830 $ 31,058
========== ========== ========== ==========
Average Number of Common
Shares Outstanding 27,394 27,394
========== ==========
Basic Earnings (Loss )Per Share of Common
Stock from Continuing Operations $ .27 $ 1.13
========== ==========
Diluted Earnings Per Share of Common
Stock from Continuing Operations $ .27 $ 1.12
========== ==========
See accompanying notes to unaudited pro forma consolidated financial statements.
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NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(a) To reflect the adjustment to cash as a result of the issuance of the notes
and borrowings under the new credit facility, as follows (in thousands):
Proceeds from issuance of the notes, net of issuance costs $ 180,768
Proceeds from borrowings under the new credit facility,
net of credit facility fees 45,093
---------
Total net proceeds $ 225,861
=========
(b) To reflect the acquisition of the El Dorado refinery. The El Dorado
refinery acquisition will be accounted for as a purchase and the acquired
assets and liabilities are included in the September 30, 1999 pro forma
balance sheet of Frontier at values based on a preliminary allocation of the
purchase price. The purchase price allocation is expected to be finalized
during 2000 based upon further evaluation of the acquired assets. The
preliminary purchase price allocation is as follows (in thousands):
September 30,
1999
-------------
Inventory-crude oil, intermediate product
and refined product $ 47,718
Inventory-parts and supplies, chemicals 8,087
Property, plant and equipment 204,340
Accrued liabilities (3,000)
Accrued turnaround costs (22,331)
Post-retirement employee liabilities (17,096)
-------------
$ 217,718
=============
(c) The adjustment to other assets consists of $6.5 million of cost related to
the issuance of the notes and $2.6 million of costs related to the
arrangement of the new credit facility.
(d) To reflect borrowings under the bank credit facility to purchase the El
Dorado refinery inventory at closing.
(e) To reflect the issuance of $190,000,000 of 11-3/4% Senior Notes.
(f) To adjust refining operating expenses to reflect inventories on a FIFO basis
of accounting used by Frontier.
(g) To record (1) the reversal of historical El Dorado refinery depreciation and
(2) pro forma depreciation based on preliminary purchase price allocation to
the El Dorado refinery property, plant and equipment.
(h) To reverse the El Dorado refinery second quarter 1999 impairment expense.
In the second quarter of 1999, Equilon recorded an impairment charge of
approximately $190.6 million, in accordance with Statement of Financial
Accounting Standards (SFAS) No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," to reduce
the carrying value of the El Dorado refinery to the estimated sales price of
$170 million.
- 12 -
(i) Reflects the adjustment to interest expense relating to the offering of the
notes and borrowings under the bank credit facility, as follows (in
thousands):
Nine Months
Year Ended Ended
December 31, September 30,
1998 1998
------------ -------------
Interest expense on notes and new credit facility* $ 26,321 $ 19,741
Amortization of debt issue costs and discount 1,675 1,257
------------ -------------
Adjustment to interest expense $ 27,996 $ 20,998
============ =============
_________
* Interest expense on the new credit facility is calculated as if the $47.8
million borrowed to acquire the crude oil, intermediate product and refined
product inventory in the acquisition remains outstanding for the periods
presented. Frontier believes interest expense for the new credit facility
will be lower as average borrowings under the facility are expected to be less
than $47.8 million. A $10 million average decrease in borrowings under the
facility will decrease interest expense by $838,000 per year.
(j) To reflect the income tax expense effects of pro forma adjustments at an
assumed state tax rate of 5%. No U.S. federal income tax expense is
reflected in the accompanying pro forma statements of operations as Frontier
has $125.2 million of regular net operating loss carryforwards at December
31, 1998 to reduce future federal taxable income.
- 13 -
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/ Julie H. Edwards
---------------------------
Julie H. Edwards
Senior Vice President - Finance and
Chief Financial Officer
Date: January 5, 2000