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, 1997
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
WAINOCO 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
Not Applicable
- --------------------------------------------------------------------------
Former name, former address and former fiscal year, if
changed since last report.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [x] No . . .
Registrant's number of common shares outstanding as of April 30, 1997:
27,258,502
WAINOCO OIL CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1997
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 13
Definition of Terms
mcf = one thousand cubic feet
mmcf = one million cubic feet
bbl(s) = barrel(s)
bpd = barrels per day
mbbls = one thousand barrels
mmcfe = one million cubic feet equivalent
Equivalent information is based on British Thermal units at a ratio of six mcf
of natural gas to one bbl of oil. All dollar amounts are expressed in United
States dollars unless otherwise indicated as Canadian dollars (C$).
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WAINOCO OIL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands except per share)
For the three months ended March 31, 1997 1996
----------- -----------
Revenues:
Refined products $ 89,212 $ 75,304
Oil and gas sales 5,544 4,985
Other 672 1,274
----------- -----------
95,428 81,563
Costs and Expenses:
Refining operating costs 91,149 74,381
Oil and gas operating costs 1,104 1,181
Selling and general expenses 2,344 2,602
Depreciation, depletion and amortization 4,746 4,529
----------- -----------
99,343 82,693
Operating Income (Loss) (3,915) (1,130)
Interest Expense, net 4,525 4,202
----------- -----------
Income (Loss) Before Income Taxes (8,440) (5,332)
Provision For Income Taxes 39 110
----------- -----------
Net Income (Loss) $ (8,479) $ (5,442)
=========== ===========
Net Income (Loss) Per Share $ (.31) $ (.20)
=========== ===========
The accompanying notes are an integral part of these financial statements.
- 1 -
WAINOCO OIL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands except shares)
March 31, 1997 and December 31, 1996 1997 1996
---------- ----------
ASSETS
Current Assets:
Cash, including cash equivalents of
$613 in 1997 and $609 in 1996 $ 5,154 $ 5,183
Trade receivables 18,752 19,422
Joint operators and other receivables 1,642 1,357
Inventory of crude oil, products and other 31,124 29,617
Other current assets 683 730
---------- ----------
Total current assets 57,355 56,309
---------- ----------
Property and Equipment, at cost:
Oil and gas properties, on a full-cost basis 170,561 170,879
Refinery and pipeline 143,595 143,172
Furniture, fixtures and other equipment 3,666 3,646
---------- ----------
317,822 317,697
Less - Accumulated depreciation, depletion
and amortization 142,738 139,091
---------- ----------
175,084 178,606
Other Assets 4,783 4,950
---------- ----------
$ 237,222 $ 239,865
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 33,784 $ 43,789
Oil and gas proceeds payable 1,802 1,207
Accrued interest 3,564 5,249
Accrued turnaround cost 4,131 3,490
Other accrued liabilities 3,360 3,826
Current maturities of long-term debt 2,500 2,500
---------- ----------
Total current liabilities 49,141 60,061
---------- ----------
Long-Term Debt, net of current maturities:
Revolving credit facilities 14,600 -
12% Senior Notes 97,000 95,000
7 % Convertible Subordinated Debentures 46,000 46,000
10 % Subordinated Debentures 4,941 4,928
---------- ----------
162,541 145,928
---------- ----------
Deferred Credits and Other 7,035 6,189
Deferred Income Taxes 2,418 2,418
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,
27,313,502 shares issued in 1997 and 1996 57,172 57,172
Paid-in capital 81,767 81,767
Retained earnings (deficit) (113,400) (104,921)
Cumulative translation adjustment (9,204) (8,501)
Treasury stock, 55,000 shares (248) (248)
---------- ----------
Total Shareholders' Equity 16,087 25,269
---------- ----------
$ 237,222 $ 239,865
========== ==========
The accompanying notes are an integral part of these financial statements.
- 2 -
WAINOCO OIL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
For the three months ended March 31, 1997 1996
---------- ----------
OPERATING ACTIVITIES
Net income (loss) $ (8,479) $ (5,442)
Depreciation, depletion and amortization 4,746 4,529
Deferred credits and other 730 1,110
---------- ----------
(3,003) 197
Changes in working capital from operations (11,062) (8,650)
---------- ----------
Net cash provided by (used in) operating activities (14,065) (8,453)
INVESTING ACTIVITIES
Additions to property and equipment (3,019) (3,789)
Sales of oil and gas properties 180 123
Net cash received (distributed) as operator of properties 341 420
---------- ----------
Net cash provided by (used in) investing activities (2,498) (3,246)
FINANCING ACTIVITIES
Long-term borrowings -
Bank debt 15,971 10,028
12% Senior Notes 2,000 2,000
Repayments of long-term bank debt (1,371) (3,828)
Other (56) (101)
---------- ----------
Net cash provided by financing activities 16,544 8,099
Effect of exchange rate changes on cash (10) 7
---------- ----------
Decrease in Cash and Cash Equivalents (29) (3,593)
Cash and Cash Equivalents, beginning of period 5,183 6,045
---------- ----------
Cash and Cash Equivalents, end of period $ 5,154 $ 2,452
========== ==========
The accompanying notes are an integral part of these financial statements.
- 3 -
WAINOCO OIL CORPORATION AND SUBSIDIARIES
NOTES TO INTERIM FINANCIAL STATEMENTS
March 31, 1997
(Unaudited)
1. Financial statement presentation and earnings per share
Financial statement presentation
The condensed consolidated financial statements include the accounts of
Wainoco Oil Corporation, a Wyoming Corporation, and its wholly owned
subsidiaries, including Frontier Holdings Inc. ("Frontier" or the "Refinery"),
collectively referred to as Wainoco 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 generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, although Wainoco 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
Wainoco's annual report on Form 10-K for the year ended December 31, 1996.
Wainoco's oil and gas operations are undertaken in western Canada and the
refining operation conducts business in the Rocky Mountain region of the United
States. The Company's Cheyenne, Wyoming Refinery purchases the crude oil to be
refined and markets the refined petroleum products produced, including various
grades of gasoline, diesel fuel, asphalt and petroleum coke.
Earnings per share
Primary and fully 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 as a loss was incurred. The primary and fully
diluted average shares outstanding for the three months ended March 31, 1997 and
1996 were 27,258,502 and 27,256,002, respectively.
2. Schedule of major components of inventory
March 31, December 31,
1997 1996
---------- ----------
(in thousands)
Crude oil $ 6,058 $ 2,863
Unfinished products 5,189 7,024
Finished products 12,787 12,816
Chemicals 878 851
Repairs and maintenance supplies and other 6,212 6,063
---------- ----------
$ 31,124 $ 29,617
========== ==========
- 4 -
3. Accounting policy for oil and gas properties
Wainoco follows the accounting policy (commonly referred to as "full-cost"
accounting) of capitalizing costs incurred in the acquisition, exploration and
development of oil and gas reserves. No gains or losses are recognized upon the
sale or disposition of oil and gas properties, except for significant
transactions.
Wainoco computes the provision for depreciation, depletion and amortization
(DD&A) of oil and gas properties on a quarterly basis using the composite
unit-of-production method based on future gross revenue attributable to proved
reserves.
Capitalized oil and gas property costs are limited to the present value of
future net income from estimated production of proved oil and gas reserves
discounted at 10%, plus the value of unproved properties.
As of March 31, 1997, the present value of future net income from estimated
Canadian oil and gas proved reserves exceeded the related capitalized property
costs. Future price declines, if any, might require Wainoco to provide
additional provisions for DD&A in future periods.
4. Sale of Canadian oil and gas operations
In a press release dated March 12, 1997, Wainoco announced that it has
retained a financial advisor to assist the Company in the potential sale of its
Canadian oil and gas assets in order to maximize shareholder value. The Company
provided access to relevant information regarding its Canadian assets to
interested parties and has received bids which are currently being evaluated.
Should the Company be successful in obtaining an acceptable contract to sell its
Canadian oil and gas assets, it is anticipated the sale could be completed in
the second quarter of 1997.
- 5 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three months ended March 31, 1997 compared with the same period in 1996
The Company had a loss for the three months ended March 31, 1997 of
$8,479,000, or $.31 per share, compared to a loss of $5,442,000, or $.20 per
share, for the same period in 1996. Operating income decreased by $2,785,000
resulting in an operating loss of $3,915,000 in 1997. The operating loss was
attributable to a decrease in refining operating income of $2,967,000, offset by
an increase in Canadian oil and gas operating income of $519,000. Other income
for the first quarter of 1996 included $731,000 related to the reduction of
certain accruals previously established.
Refining operating income decreased in 1997 versus 1996 due to a reduced
refined product spread and higher refinery operating costs. The refined product
spread was $3.16 per bbl compared to $3.43 per bbl in 1996. The 1997 refined
product spread was negatively affected by inventory losses of approximately $4.0
million from a decline in crude prices of more than $6 per bbl during the first
quarter of 1997. Inventories are recorded at the lower of cost on a first in,
first out (FIFO) basis or market. Refined products revenues increased
$13,908,000 or 18%. The increase in refined products revenues resulted from a
$3.40 per bbl increase in average product sales prices. Refined product sales
volumes also increased 4% in 1997 over 1996 levels. Yields of gasoline decreased
2%, while yields of distillate increased by 7% from the same period in 1996.
Refining operating costs increased $16,768,000 or 23% over 1996 levels due to
an increase in material costs and refinery operating expense. Material costs
increased 19% or $3.67 per bbl in 1997 due to higher oil prices and inventory
losses caused by the rapid decline in crude prices since year-end 1996, whereas
the inventory value change was approximately $1.7 million positive in the first
quarter of 1996. The sweet/sour spread increased 38% to average $3.48 per bbl
in the first quarter of 1997 as Frontier contracted approximately 30,000 bpd of
Wyoming and Canadian sour crude oil for much of 1997 at a sweet/sour spread
substantially better than in 1996. Refinery operating expense increased $.58
per bbl to $3.73 per bbl in 1997 due to higher natural gas and maintenance costs
compared to 1996 first quarter operating expenses which were reduced by a $1.3
million settlement of repair costs related to a 1995 pipeline gas explosion.
Oil and gas operating income increased $519,000 from $1,140,000 in 1996 to
$1,659,000 in 1997. The income improvement was due to improved oil and gas
pricing, a lower depletion rate, and reduced production costs. The improvement
in operating income occurred despite significantly lower oil and gas sales
volumes in 1997 than in 1996.
In 1997, an 8% decline in oil revenue to $1,376,000 was the result of a 26%
decrease in sales volumes offset by a 23% increase in average oil price. Sales
volumes were lower in 1997 due to declining deliverability, a reduction in later
1996 of the allowable production rates for several wells discovered in 1995, and
the sale of various oil and gas properties throughout 1996.
Gas revenues increased $684,000, or 20%, due to a 59% increase in the average
gas price offset by a 24% decline in sales volumes. The gas sales volume
decline in 1997 is attributable to an increase in the provincial share of
production due to price sensitive royalty burdens, the disposition of various
high operating cost properties during 1996 and early 1997, and productivity
declines at various areas.
Oil and gas operating costs were 7% or $77,000 lower in 1997 due to the
implementation of various cost reduction procedures in early 1996 and the
disposition of abnormally high operating cost areas. Operating costs for first
quarter 1996 reflected various favorable annual joint account adjustments which
did not recur in 1997.
Selling and general expenses decreased $258,000 or 10% to $2,344,000 for the
three months ended March 31, 1997 as the three months ended March 31, 1996
included $240,000 of salary and salary-related expenses of certain employees who
were not retained subsequent to March 31, 1996 in connection with the
disposition of United States oil and gas operations in late 1995 and corporate
reorganization in early 1996.
- 6 -
Depreciation, depletion and amortization increased $217,000 or 5% in the 1997
three-month period as compared to the same period in 1996, most of which
increase was incurred in the Canadian oil and gas operations. In 1997, Canadian
oil and gas DD&A increased $155,000 or 7% as a result of higher oil and gas
revenues in the first quarter of 1997 versus 1996. In Canada, the oil and gas
DD&A rate as a percentage of sales decreased from 46% in 1996 to 45% in 1997.
The interest expense increase of $323,000 or 8% in 1997 was attributable to
interest on higher borrowings during 1997 under the refining revolving credit
facility and more 12% senior notes outstanding during 1997 than 1996. Average
long term debt for the first quarter increased from $151 million in 1996 to $161
million in 1997.
- 7 -
OPERATING EARNINGS BY SEGMENT
The following (in thousands) presents the operating income (loss) by
operating segment for the three months ended March 31, 1997 and 1996. Operating
income (loss) is income (loss) before net interest expense and provision for
income taxes and does not include unallocated net corporate expenses of $518,000
and $912,000 in the three months ended March 31, 1997 and 1996, respectively.
Oil and Gas
Refining Canada Total
---------- ---------- ----------
Three Months Ended March 31,
1997 - Operating margin (loss) $ (1,637) $ 4,754 $ 3,117
Selling and general expenses 1,164 622 1,786
Depreciation, depletion and amortization 2,255 2,473 4,728
---------- ---------- ----------
Operating income (loss) $ (5,056) $ 1,659 $ (3,397)
========== ========== ==========
1996 - Operating margin $ 1,185 $ 4,085 $ 5,270
Selling and general expenses 1,063 627 1,690
Depreciation, depletion and amortization 2,211 2,318 4,529
---------- ---------- ----------
Operating income (loss) $ (2,089) $ 1,140 $ (949)
========== ========== ==========
The 1996 segmented operating earnings disclosed above excludes $731,000 of other
income associated with the disposition of United States oil and gas operations,
due to the reduction of certain accruals.
- 8 -
REFINING OPERATING STATISTICAL INFORMATION
Three Months Ended
March 31,
1997 1996
---------- ----------
Raw material input (bpd)
Sweet crude 3,311 5,102
Sour crude 28,605 27,555
Other feed and blend stocks 6,707 5,413
---------- ----------
Total 38,623 38,070
Manufactured product yields (bpd)
Gasoline 17,268 17,668
Distillates 13,441 12,570
Asphalt and other 7,174 6,187
---------- ----------
Total 37,883 36,425
Total product sales (bpd)
Gasoline 20,288 19,942
Distillates 12,691 12,126
Asphalt and other 5,126 4,511
---------- ----------
Total 38,105 36,579
Operating margin information (per sales bbl)
Average sales price $ 26.02 $ 22.62
Material costs (under FIFO inventory accounting) 22.86 19.19
---------- ----------
Product spread 3.16 3.43
Operating expenses excluding depreciation 3.73 3.15
Depreciation .65 .65
---------- ----------
Operating margin $ (1.22) $ (.37)
Manufactured product margin before depreciation (per bbl) $ (.56) $ .28
Purchased product margin (per purchased product bbl) $ - $ -
Sweet/sour spread (per bbl) $ 3.48 $ 2.53
Average sales price (per sales bbl)
Gasoline $ 29.14 $ 25.01
Distillates 28.44 24.60
Asphalts and other 7.65 6.71
- 9 -
CANADIAN OIL AND GAS EXPLORATION AND PRODUCTION STATISTICAL INFORMATION
Three Months Ended
March 31,
1997 1996
---------- ----------
Oil and gas revenue (in thousands)
Net oil and condensate sales $ 1,376 $ 1,501
Net gas sales 4,168 3,484
---------- ----------
$ 5,544 $ 4,985
========== ==========
Production
Net oil and condensate (bbls) 72,000 96,000
Net gas (mmcf) 2,675 3,539
Price
Average oil and condensate sales (per bbl)
before deduction for production taxes $ 19.17 $ 15.56
Average gas sales (per mcf) before
deduction for production taxes $ 1.56 $ .98
C$/US$
Period end $ .7222 $ .7357
Average .7358 .7306
- 10 -
The following presents Canadian production information which allows comparison
to other Canadian oil and gas companies. Gross volumes and revenues represent
the Company's working interest before deduction of associated freehold,
provincial and other royalties.
Three Months Ended
March 31,
1997 1996
---------- ----------
Gross volume
Oil (bbls) 80,000 107,000
Gas (mmcf) 3,189 3,944
Royalty
Provincial and other
Oil (bbls) (12,000) (15,000)
Gas (mmcf) (558) (480)
ARTC
Oil (bbls) 4,000 4,000
Gas (mmcf) 44 75
Net volume
Oil (bbls) 72,000 96,000
Gas (mmcf) 2,675 3,539
Gross revenue (in thousands)
Oil $ 1,562 $ 1,684
Gas 4,996 3,931
Royalty
Provincial and other (1,172) (781)
ARTC 158 151
---------- ----------
Net revenue (in thousands)
Oil $ 1,376 $ 1,501
Gas 4,168 3,484
---------- ----------
$ 5,544 $ 4,985
========== ==========
- 11 -
LIQUIDITY AND CAPITAL RESOURCES
During the first quarter of 1997, $14,065,000 of cash flows were used in
operating activities primarily by the Refinery operations. In 1996, $8,453,000
of cash flows were used in operating activities primarily for a Refinery
inventory increase of $7,216,000. The primary source of cash was net borrowings
of $14,600,000 in 1997 and $6,200,000 in 1996 under the Frontier line of credit.
Proceeds on the resale of $2,000,000 of 12% Senior Notes in each of the years
were used to finance operating and investing activities.
At March 31, 1997, the Company had $13,000,000 (C$18,000,000) available
under its oil and gas line of credit and $10,400,000 available under the
Frontier line of credit. As of March 31, 1997 there is no outstanding debt on
the reserve-based credit facility. The Company had working capital of
$8,214,000 at March 31, 1997 compared with $3,599,000 at March 31, 1996. At
March 31, 1997, Frontier would have violated the liquidity coverage covenant
under its credit facility but has obtained bank waivers. Frontier does not
expect the violation to continue after March 31, 1997. Total available cash
under the Frontier line of credit was increased an additional $5 million to $25
million through June 1997.
Additions to property and equipment in the first quarter decreased $770,000
from the first quarter in 1996. In the first quarter of 1997, capital
expenditures in Canada decreased approximately $.4 million to $2.1 million,
while expenditures at the refinery decreased approximately $.4 million to $.9
million. Investing activities include proceeds from the sale of oil and gas
properties of $180,000 for the three months ended March 31, 1997, an increase
from $123,000 in 1996. Capital expenditures of approximately $10.2 million are
currently planned for 1997, of which $2.1 million had been incurred as of March
31, 1997.
Should a sale of the Company's Canadian oil and gas assets as described on
page 5 occur, net proceeds from the sale would be used to repay any borrowings
under the reserve-based credit facility, to prepay other long-term debt and
potentially to fund future growth activities.
- 12 -
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 -
Exhibit
27 - Financial Data Schedule
- 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.
WAINOCO OIL CORPORATION
By: /s/ Julie H. Edwards
-------------------------------
Julie H. Edwards
Senior Vice President - Finance
and Chief Financial Officer
Date: April 30, 1997