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 MARCH 31, 2000
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
April 26, 2000: 27,491,324
FRONTIER OIL CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2000
INDEX
Page
Part I - Financial Information
Item 1. Financial Statements 1
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
Part II - Other Information 10
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)
For the three months ended March 31, 2000 1999
----------- -----------
Revenues:
Refined products $ 447,601 $ 55,945
Other 206 272
----------- -----------
447,807 56,217
----------- -----------
Costs and Expenses:
Refining operating costs 437,744 54,441
Selling and general expenses 2,583 2,077
Depreciation 5,669 2,841
----------- -----------
445,996 59,359
----------- -----------
Operating Income (Loss) 1,811 (3,142)
Interest Expense, net 8,252 1,627
----------- -----------
Income (Loss) Before Income Taxes (6,441) (4,769)
Provision (Benefit) For Income Taxes (359) 77
----------- -----------
Net Income (Loss) $ (6,082) $ (4,846)
=========== ===========
Basic and Diluted Earnings (Loss) Per Share of Common Stock $ (.22) $ (.18)
=========== ===========
The accompanying notes are an integral part of these financial statements.
-1-
FRONTIER OIL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands except shares)
March 31, 2000 and December 31, 1999 2000 1999
----------- -----------
ASSETS
Current Assets:
Cash, including cash equivalents of
$31,895 in 2000 and $35,771 in 1999 $ 33,183 $ 38,345
Trade receivables, less allowance for doubtful
accounts of $500 in 2000 and 1999 60,398 38,563
Other receivables 19,279 14,512
Inventory of crude oil, products and other 128,384 100,359
Other current assets 1,500 1,211
----------- -----------
Total current assets 242,744 192,990
----------- -----------
Property, Plant and Equipment, at cost:
Refineries and pipeline 378,480 377,613
Furniture, fixtures and other equipment 5,014 4,956
----------- -----------
383,494 382,569
Less - Accumulated depreciation 74,907 69,261
----------- -----------
308,587 313,308
Other Assets 14,654 15,195
----------- -----------
$ 565,985 $ 521,493
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 167,453 $ 121,385
Revolving credit facility 23,000 26,000
Accrued turnaround cost 18,466 8,763
Accrued liabilities and other 4,758 6,554
Accrued interest 9,455 5,456
----------- -----------
Total current liabilities 223,132 168,158
----------- -----------
Long-Term Debt 257,324 257,286
Long-Term Accrued Turnaround Cost 14,605 20,685
Post-Retirement Employee Liabilities 17,677 17,287
Deferred Credits and Other 4,494 4,002
Deferred Income Taxes 3,512 3,394
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,
28,797,434 and 28,542,330 shares issued in 2000 and 1999 57,320 57,294
Paid-in capital 88,133 87,028
Retained earnings (deficit) (93,204) (87,122)
Treasury stock, 1,306,110 shares and 1,230,900 shares
in 2000 and 1999 (7,008) (6,519)
----------- -----------
Total Shareholders' Equity 45,241 50,681
----------- -----------
$ 565,985 $ 521,493
=========== ===========
The accompanying notes are an integral part of these financial statements.
-2-
FRONTIER OIL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
For the three months ended March 31, 2000 1999
----------- -----------
OPERATING ACTIVITIES
Net income (loss) $ (6,082) $ (4,846)
Depreciation 5,669 2,841
Deferred credits and other 715 (62)
Change in working capital from operations (1,166) (10,574)
----------- -----------
Net cash used in operating activities (864) (12,641)
INVESTING ACTIVITIES
Additions to property and equipment (1,887) (1,914)
Other - (250)
----------- -----------
Net cash used in investing activities (1,887) (2,164)
FINANCING ACTIVITIES
Refining credit facility (repayments) borrowings (3,000) 7,400
Issuance of common stock 1,131 476
Purchase of treasury stock (489) (3,143)
Other (53) (56)
----------- -----------
Net cash provided by financing activities (2,411) 4,677
----------- -----------
Increase (decrease) in cash and cash equivalents (5,162) (10,128)
Cash and cash equivalents, beginning of period 38,345 33,589
----------- -----------
Cash and cash equivalents, end of period $ 33,183 $ 23,461
=========== ===========
The accompanying notes are an integral part of these financial statements.
-3-
FRONTIER OIL CORPORATION AND SUBSIDIARIES
NOTES TO INTERIM FINANCIAL STATEMENTS
March 31, 2000
(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,
1999.
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 and diluted earnings per share have been computed based on
the weighted average number of common shares outstanding and did not assume the
exercise of stock option shares for the diluted computation as a loss from
continuing operations was incurred. The basic and diluted average shares
outstanding for the three months ended March 31, 2000 and 1999 were 27,398,019
and 27,589,539 respectively.
New accounting statement
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities". The Statement establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) 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 income statement, and requires
that a company must formally document, designate, and assess the effectiveness
of transactions that receive hedge accounting.
Statement 133, as amended, is effective for fiscal years beginning after
June 15, 2000. A company may also implement the Statement as of the beginning of
any fiscal quarter after issuance (that is fiscal quarters beginning June 16,
1998 and thereafter). Statement 133 cannot be applied retroactively. Statement
133 must be applied to (a) derivative instruments and (b) certain derivative
instruments embedded in hybrid contracts that were issued, acquired, or
substantively modified after December 31, 1997 (and, at the company's election,
before January 1, 1998).
The Company is currently evaluating the provisions of Statement 133, but
has not yet determined the impact it will have on its financial statements.
-4-
2. Schedule of major components of inventory
March 31, December 31,
2000 1999
-------------- --------------
(in thousands)
Crude oil $ 33,909 $ 24,852
Unfinished products 35,581 24,779
Finished products 42,748 35,582
Process chemicals 2,930 2,088
Repairs and maintenance supplies and other 13,216 13,058
-------------- --------------
$ 128,384 $ 100,359
============== ==============
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. Unaudited pro forma information
The El Dorado Refinery was acquired on November 16, 1999. The following
is the unaudited pro forma financial information giving effect as if the El
Dorado Refinery acquisition had occurred at the beginning of 1999.
For the Three Months Ended
(in thousands, except per share amounts) March 31, 1999
--------------
Revenues $ 203,007
Depreciation 5,399
Operating income 6,184
Net loss (2,635)
Basic and diluted earnings (loss) per share (.10)
-5-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three months ended March 31, 2000 compared with the same period in 1999
The terms "Frontier" and "we" refer to Frontier Oil Corporation and its
subsidiaries. On November 16, 1999, we acquired the 110,000 barrel per day crude
oil refinery located in El Dorado, Kansas from Equilon Enterprises LLC
("Equilon"). Operating results for this refinery have been included in our
financial information for the three months ended March 31, 2000, but not for the
same period in 1999. Accordingly, absolute changes between periods are not and
should not be expected to be comparable.
We had a loss for the three months ended March 31, 2000 of $6.1 million,
or $.22 per share, compared to a loss of $4.8 million, or $.18 per share, for
the same period in 1999.
Operating income increased $5.0 million in 2000 versus 1999 due to an
increase in the refined product spread (revenues less material costs) of $35.4
million, offset by a decrease in other income of $66,000, increases in refining
operating expenses of $27.1 million, selling and general costs of $506,000 and
depreciation of $2.8 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 higher in
2000 than in 1999, yet during both periods crude oil prices were increasing. The
refined product spread was $3.44 per barrel in 2000 compared to $3.84 per barrel
in 1999. The Cheyenne Refinery refined product spread was $3.95 per barrel in
2000 compared to $3.84 per barrel in 1999. The improved product spread was
caused by improved light product margins, primarily in March 2000, inventory
profits and an increase in the light/heavy spread, offset by the significant
negative impact of higher crude oil prices on by-product margins. The El Dorado
Refinery refined product spread was $3.25 per barrel in 2000 compared to $4.87
per barrel in 1999 on a pro forma basis. The El Dorado Refinery experienced
extremely poor light product margins during January 2000 with margins recovering
in February to seasonable levels and March gasoline margins being much improved.
The 2000 refined product spread for El Dorado benefitted from inventory gains;
however, both chemical and by-product margins were negatively impacted by high
crude oil prices.
Refined product revenues increased $391.7 million or 700% due to increased
sales prices and increased sales volumes from the El Dorado Refinery
acquisition. Average gasoline prices increased $16.25 per barrel, average diesel
prices increased $16.25 per barrel and there was a 304% overall increase in
sales volumes. Yields of gasoline increased 420% while yields of diesel
increased 364% in 2000 compared to the same period in 1999.
Other income decreased $66,000 to $206,000 in 2000 due to reduced
processing fees.
Refining operating costs increased $383.3 million or 704% from 1999 levels
due to the El Dorado Refinery acquisition and increases in material, freight and
other costs and refinery operating expenses. Material, freight and other costs
per bbl increased 96% or $15.48 per bbl in 2000 primarily due to higher crude
oil prices. The Cheyenne Refinery material, freight and other costs of $25.64
per barrel benefitted from an increased heavy crude oil utilization rate and an
increased light/heavy spread. The heavy crude oil utilization rate expressed as
a percentage of total crude oil increased to 92% in 2000 from 79% in 1999. The
light/heavy spread doubled to average $3.88 per barrel in the first three months
of 2000. Refining operating expense per barrel was $2.74 per barrel in 2000. The
Cheyenne Refinery operating expense per barrel decreased $.43 per barrel to
$2.97 per barrel in 2000 due to increased yields and lower maintenance and
energy costs. The El Dorado Refinery operating expense was $2.66 per barrel in
2000. This is a decrease from the 1999 pro forma operating expense per barrel
due to increased yields, decreases in refinery personnel and our lower overhead
costs.
Selling and general expenses increased $506,000 or 24% for the three
months ended March 31, 2000 because of increased staffing needs and other costs
for the El Dorado Refinery.
Depreciation increased $2.8 million or 100% in the 2000 three-month period
as compared to the same period in 1999 because of the El Dorado acquisition and
increases in capital investment.
The interest expense increase of $6.6 million or 407 % in 2000 was
attributable to higher debt levels used to purchase the El Dorado Refinery.
Average debt for the three months increased from $77 million in 1999 to $298
million in 2000.
The income tax benefit for 2000 is for state deferred income taxes.
-6-
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $864,000 and $12.6 million for
the three months ended March 31, 2000 and 1999, respectively. Working capital
changes required $1.2 million and $10.6 million of cash flows for the first
three months of 2000 and 1999, respectively. During both 1999 and 2000,
increases in receivables, inventory and payables occurred due to rising crude
oil prices. Consistent with the seasonality of its business, the Company invests
in working capital during the first half of the year and recovers working
capital investment in the second half of the year. In addition to normal
seasonality, in 1999, working capital cash flows used were greater than normal
since inventory quantities of crude oil and intermediate products increased
because of the March turnaround.
At March 31, 2000, the Company had $33.2 million of cash and $77 million
available under the its line of credit. The Company had working capital of $19.6
million at March 31, 2000.
Additions to property and equipment in the first three months of 2000 of
$1.9 million decreased $277,000 from the first three months in 1999. Capital
expenditures of approximately $13.2 million are planned in 2000.
-7-
REFINING OPERATING STATISTICAL INFORMATION
Consolidated: Three Months Ended
March 31,
Pro forma
2000 1999 1999(1)
--------- --------- ---------
Raw material input (bpd)
Light crude 43,704 6,400 35,263
Heavy and intermediate crude 96,914 24,032 92,173
Other feed and blend stocks 15,627 5,946 13,649
--------- --------- ---------
Total 156,245 36,378 141,085
Manufactured product yields (bpd)
Gasoline 79,901 15,366 70,362
Diesel and jet fuel 50,544 10,886 46,925
Asphalt 4,688 2,628 2,628
Chemicals 1,874 - 2,418
Other 16,698 6,024 15,998
--------- --------- ---------
Total 153,705 34,904 138,331
Total product sales (bpd)
Gasoline 85,053 21,390 75,316
Diesel and jet fuel 50,862 11,484 47,964
Asphalt 2,861 2,494 2,494
Chemicals 1,911 - 2,589
Other 14,975 3,197 11,270
--------- --------- ---------
Total 155,662 38,565 139,633
Operating margin information (per sales bbl) (2)
Average sales price $ 31.60 $ 16.12
Raw material, freight and other costs (FIFO inventory accounting) 28.16 12.28
--------- ---------
Product spread 3.44 3.84
Refinery operating expenses, excluding depreciation 2.74 3.40
Depreciation .39 .81
--------- ---------
Operating margin $ .31 $ (.37)
Average West Texas Intermediate crude oil price at Cushing, OK $ 29.72 $ 12.79
Average sales price (per sales bbl)
Gasoline $ 34.36 $ 18.11
Diesel and jet fuel 33.24 16.99
Asphalt 19.75 14.16
Chemicals 54.96 -
Other 9.66 1.27
(1) Includes El Dorado Refinery data.
(2) Prior year data restated to conform to current year presentation.
-8-
REFINING OPERATING STATISTICAL INFORMATION
Cheyenne Refinery: Three Months Ended
March 31,
2000 1999
---------- ----------
Raw material input (bpd)
Light crude 2,978 6,400
Heavy crude 32,861 24,032
Other feed and blend stocks 5,284 5,946
---------- ----------
Total 41,123 36,378
Manufactured product yields (bpd)
Gasoline 17,612 15,366
Diesel 12,052 10,886
Asphalt 4,688 2,628
Other 5,409 6,024
---------- ----------
Total 39,761 34,904
Total product sales (bpd)
Gasoline 21,105 21,390
Diesel 12,160 11,484
Asphalt 2,861 2,494
Other 5,910 3,197
---------- ----------
Total 42,036 38,565
Operating margin information (per sales bbl) (1)
Average sales price $ 29.59 $ 16.12
Raw material, freight and other costs (FIFO inventory accounting) 25.64 12.28
---------- ----------
Product spread 3.95 3.84
Refinery operating expenses, excluding depreciation 2.97 3.40
Depreciation .79 .81
---------- ----------
Operating margin (loss) $ .19 $ (.37)
Light/heavy crude spread (per bbl) $ 3.88 $ 1.94
Average sales price (per sales bbl)
Gasoline $ 35.11 $ 18.11
Diesel 34.90 16.99
Asphalt 19.75 14.16
Other 3.74 1.27
(1) Prior year data restated to conform to current year presentation.
-9-
REFINING OPERATING STATISTICAL INFORMATION
El Dorado Refinery (including preacquisition data for 1999): Three Months Ended
March 31,
2000 1999
---------- ----------
Raw material input (bpd)
Light crude 40,726 28,863
Heavy and intermediate crude 64,052 68,141
Other feed and blend stocks 10,343 7,702
---------- ----------
Total 115,121 104,706
Manufactured product yields (bpd)
Gasoline 62,289 54,996
Diesel and jet fuel 38,492 36,039
Chemicals 1,874 2,418
Other 11,289 9,975
---------- ----------
Total 113,944 103,428
Total product sales (bpd)
Gasoline 63,948 53,926
Diesel and jet fuel 38,702 36,479
Chemicals 1,911 2,589
Other 9,065 8,073
---------- ----------
Total 113,626 101,067
Operating margin information (per sales bbl)
Average sales price $ 32.34
Raw material, freight and other costs (FIFO inventory accounting) 29.09
----------
Product spread 3.25
Refinery operating expenses, excluding depreciation 2.66
Depreciation .25
----------
Operating margin $ .34
Average sales price (per sales bbl)
Gasoline $ 34.11
Diesel and jet fuel 32.71
Chemicals 54.96
Other 13.52
-10-
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
27 - Financial Data Schedule
(b) Reports on Form 8-K
A report on Form 8-K/A was filed on January 5,
2000.
This report was an amendment to the Form 8-K filed on December
1, 1999. This report included Item 2 for the reporting of
Acquisition or Disposition of Assets and Item7(a) and 7(b) for
the reporting of Financial Statements of Business Acquired and
Unaudited Pro Forma Financial Information.
-11-
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/ Jon D. Galvin
---------------------------
Jon D. Galvin
Vice President - Controller
Date: May 1, 2000