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, 1998
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
Wainoco Oil Corporation
----------------------------------------------------------
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 May 14, 1998: 28,180,101
FRONTIER OIL CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1998
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 9
FORWARD-LOOKING STATEMENTS
This Form 10-Q contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), including, without limitation,
statements that include the words "anticipates," "believes," "could,"
"estimates," "expects," "intends," "may," "plan," "predict," "project,"
"should," and similar expressions, and statements relating to the Company's
strategic plans, capital expenditures, industry trends and prospects and the
Company's financial position. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors that may cause actual results,
performance or achievements of the Company to differ materially from those
expressed or implied by such forward-looking statements. Although the Company
believes that its plans, intentions and expectations reflected in such
forward-looking statements are reasonable, it can give no assurance that such
plans, intentions or expectations will be achieved. Important factors that
could cause actual results to differ materially from the Company's expectations
("Cautionary Statements") are set forth under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
elsewhere in this document. All subsequent written and oral forward-looking
statements attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by the Cautionary Statements.
Definitions of Terms
bbl(s) = barrel(s)
bpd = barrel per day
mbbls = thousand barrels
All dollar amounts are expressed in United States dollars unless otherwise
indicated as Canadian dollars (C$).
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, 1998 1997
--------- ---------
Revenues:
Refined products $ 69,023 $ 89,212
Other 668 358
--------- ---------
69,691 89,570
--------- ---------
Costs and Expenses:
Refining operating costs 64,190 91,149
Selling and general expenses 1,994 1,722
Depreciation 2,376 2,273
--------- ---------
68,560 95,144
--------- ---------
Operating Income (Loss) 1,131 (5,574)
Interest Expense, net 1,970 4,459
Income (Loss) From Continuing
Operations Before Income Taxes (839) (10,033)
Provision For Income Taxes - -
--------- ---------
Income (Loss) From Continuing Operations (839) (10,033)
Discontinued Operations:
Income from oil and gas operations, net of taxes - 1,554
--------- ---------
Income (Loss) Before Extraordinary Item (839) (8,479)
Extraordinary Loss on Retirement of Debt, net of taxes 3,013 -
--------- ---------
Net Income (Loss) $ (3,852) $ (8,479)
========= =========
Basic and Diluted Earnings (Loss) Per Share of Common Stock:
Continuing Operations $ (.03) $ (.37)
Discontinued Operations - .06
Extraordinary Loss (.11) -
--------- ---------
Net Income (Loss) $ (.14) $ (.31)
========= =========
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, 1998 and December 31, 1997 1998 1997
--------- ---------
ASSETS
Current Assets:
Cash, including cash equivalents of
$8,955 in 1998 and $19,981 in 1997 $ 14,132 $ 21,735
Trade and other receivables, less allowance for
doubtful accounts of $500 in 1998 and 1997 16,764 17,204
Inventory of crude oil, products and other 30,002 27,666
Other current assets 1,179 1,391
--------- ---------
Total current assets 62,077 67,996
--------- ---------
Property, Plant and Equipment, at cost:
Refinery and pipeline 151,740 149,201
Furniture, fixtures and other equipment 3,048 3,044
--------- ---------
154,788 152,245
Less - Accumulated depreciation 47,962 45,586
--------- ---------
106,826 106,659
Other Assets 4,455 3,260
--------- ---------
$ 173,358 $ 177,915
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 29,634 $ 33,527
Revolving credit facility 5,700 -
Accrued turnaround cost 6,382 6,771
Accrued liabilities and other 3,516 5,240
Accrued interest 930 1,530
--------- ---------
Total current liabilities 46,162 47,068
--------- ---------
Long-Term Debt, net of current maturities:
9-1/8% Senior Notes 70,000 -
12% Senior Notes - 24,572
7-3/4% Convertible Subordinated Debentures - 46,000
--------- ---------
70,000 70,572
--------- ---------
Deferred Credits and Other 2,932 2,801
Deferred Income Taxes 1,540 1,540
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, 28,242,691 and 28,111,289 shares
issued in 1998 and 1997 57,264 57,251
Paid-in capital 85,698 84,785
Retained earnings (deficit) (89,718) (85,866)
Treasury stock, 89,300 shares and 52,500 shares
in 1998 and 1997 (520) (236)
--------- ---------
Total Shareholders' Equity 52,724 55,934
--------- ---------
$ 173,358 $ 177,915
========= =========
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, 1998 1997
--------- ---------
OPERATING ACTIVITIES
Net income (loss) $ (3,852) $ (8,479)
Extraordinary loss on retirement of debt 3,013 -
Depreciation, depletion and amortization 2,376 4,746
Deferred credits and other 207 730
Change in working capital from operations (7,706) (11,062)
--------- ---------
Net cash provided by (used in) operating activities (5,962) (14,065)
INVESTING ACTIVITIES
Additions to property and equipment:
Continuing operations (3,097) (957)
Discontinued operations - (2,062)
Other - 521
--------- ---------
Net cash provided by (used in) investing activities (3,097) (2,498)
FINANCING ACTIVITIES
Borrowings:
9-1/8% Senior Notes 70,000 -
Refining credit facility 5,700 14,600
12% Senior Notes - 2,000
Repayments of debt:
12% Senior Notes, including redemption premium (25,423) -
7-3/4% Convertible Subordinated Debentures,
including redemption premium (45,971) -
Debt issuance costs (2,700) -
Issuance of common stock 195 -
Purchase of treasury stock (284) -
Other (61) (56)
--------- ---------
Net cash provided by financing activities 1,456 16,544
Effect of exchange rate changes on cash - (10)
--------- ---------
Increase (decrease) in cash and cash equivalents (7,603) (29)
Cash and cash equivalents, beginning of period 21,735 5,183
--------- ---------
Cash and cash equivalents, end of period $ 14,132 $ 5,154
========= =========
The accompanying notes are an integral part of these financial statements.
- 3 -
FRONTIER OIL CORPORATION AND SUBSIDIARIES
NOTES TO INTERIM FINANCIAL STATEMENTS
March 31, 1998
(Unaudited)
1. Financial statement presentation
Financial statement presentation
The condensed consolidated financial statements include the accounts of
Frontier Oil Corporation (formerly Wainoco Oil Corporation), a Wyoming
Corporation, and its wholly owned subsidiaries, including Frontier Holdings Inc.
(the "Refinery"), collectively referred to as Frontier or the Company. The
annual meeting of the Company was held April 27, 1998 with the shareholders
approving the change in corporate name from Wainoco Oil Corporation to Frontier
Oil Corporation. 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 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, 1997.
Frontier conducts its refining operations 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.
Prior to the third quarter of 1997, the Company also explored for and
produced oil and gas in Canada and prior to the first quarter of 1996 in the
United States (together, the "oil and gas operations"). Operating results for
the Company's oil and gas operations segment are presented as discontinued
operations in the accompanying statements of operations.
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, 1998 and 1997 were 28,104,335
and 27,258,502 respectively.
Comprehensive income (loss)
Total comprehensive income (loss) for the three months ended March 31, 1998
and 1997 is as follows:
Three Months Ended
March 31,
-----------------------
1998 1997
--------- ---------
(in thousands)
Net income (loss) $ (3,852) $ (8,479)
Cumulative translation adjustment - (703)
--------- ---------
Comprehensive income (loss) $ (3,852) $ (9,182)
========= =========
Refined product revenues
Revenues are recognized when product ownership is transferred to the
customer. Excise and other taxes on products sold are netted against revenues.
- 4 -
2. Schedule of major components of inventory
March 31, December 31,
1998 1997
--------- ------------
(in thousands)
Crude oil $ 2,747 $ 3,904
Unfinished products 6,044 6,338
Finished products 13,475 9,929
Chemicals 1,622 1,534
Repairs and maintenance supplies and other 6,114 5,961
--------- ------------
$ 30,002 $ 27,666
========= ============
3. Issuance of Senior Notes
On February 9, 1998, the Company issued $70 million of 9-1/8% Senior Notes
due 2006. The Notes are redeemable, at the option of the Company, at a premium
of 104.563% after February 15, 2002, declining to 100% in 2005. Prior to
February 15, 2002, the Company at its option may redeem the Notes at a defined
make-whole amount. Interest is paid semiannually. The net proceeds were
utilized to fund redemptions of the Company's 12% Senior Notes and 7-3/4%
Convertible Subordinated Debentures as discussed in Note 4.
4. Extraordinary loss
On February 10, 1998, the Company called for redemption the remaining $24.8
million of its 12% Senior Notes and the $46 million 7-3/4% Convertible
Subordinated Debentures. The redemptions were completed on March 12, 1998.
Holders of $731,000 of 7-3/4% Convertible Subordinated Debentures elected to
convert into 83,542 shares of the Company's common stock. Based on the
redemptions, the Company has recognized a first quarter extraordinary loss of
$3,013,000 due to the redemption premiums on the Senior Notes and Convertible
Debentures and the write-off of the related remaining debt issuance costs. The
redemptions and retirement of these debt obligations were funded with proceeds
from the issuance of the 9-1/8% Senior Notes as discussed in Note 3.
- 5 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three months ended March 31, 1998 compared with the same period in 1997
The Company had a loss for the three months ended March 31, 1998 of $3.9
million, or $.14 per share, compared to a loss of $8.5 million, or $.31 per
share, for the same period in 1997. The 1998 results include a $3.0 million
extraordinary loss on early retirement of debt. The 1997 results included $1.6
million income from Canadian oil and gas operations. The sale of the Canadian
oil and gas operations closed on June 16, 1997, thus the 1997 operating results
for the Company's oil and gas exploration and production segment have been
presented as discontinued operations in the accompanying statements of
operations. Frontier's primary continuing operation is its refining operation
in the Rocky Mountain region of the United States.
Operating income increased $6.7 million in 1998 versus 1997 due to an increase
in the refined product spread (revenues less material costs) of $6.3 million, an
increase in other income of $310,000 and a decrease in refining operating costs
of $435,000, offset by an increase in selling and general costs of $272,000 and
depreciation of $103,000.
Refined product revenues and refining operating costs are impacted by changes
in the price of crude oil. The price of crude oil was lower in 1998 than in
1997. The refined product spread was $4.74 per bbl compared to $3.16 per bbl in
1997. The 1998 refined product spread increased due to better by-product
margins from lower crude prices and an improved light/heavy crude spread. Both
periods' refined product spreads were negatively impacted by declines in crude
oil prices of approximately $3.7 million in 1998 and approximately $4.0 million
in 1997. Inventories are recorded at the lower of cost on a first in, first out
(FIFO) basis or market. Refined product revenues decreased $20.2 million or
23%. The decrease in refined product revenues resulted from a $7.32 per bbl
decrease in average gasoline sales prices and a $7.66 per bbl decrease in
average diesel sales prices. Refined product sales volumes increased 6% in 1998
over 1997 levels. Yields of gasoline were the same while yields of diesel
increased 6% in 1998 compared to the same period in 1997.
Other income increased $310,000 to $668,000 in 1998 versus 1997 due to sulfur
credit sales in 1998 of $360,000.
Refining operating costs decreased $27.0 million or 30% from 1997 levels due
to a decrease in both material and operating costs. Material costs per bbl
decreased 37% or $8.56 per bbl in 1998 due to lower oil prices, increased use of
heavy crude oil and an increase in the light/heavy spread offset by a 7%
increase in charge rates. During 1998, the Refinery increased its use of heavy
crude oil by 4% and the heavy crude oil utilization rate expressed as a
percentage of total crude oil increased to 94% in 1998 from 90% in 1997. The
light/heavy spread increased 36% to average $4.72 per bbl in the three months of
1998. Refining operating expense per bbl decreased $.32 per bbl to $3.41 per
bbl in 1998 due to reduced maintenance costs and turnaround accruals in 1998
compared to 1997.
A major turnaround commenced April 19, 1998 on the fluid catalytic cracking
unit and alkylation and related units. These units are scheduled to be down for
28 days which will decrease average yields during this period.
Selling and general expenses increased $272,000 or 16% for the three months
ended March 31, 1998 reflecting increases in salaries and benefits.
Depreciation increased $103,000 or 5% in the 1998 three-month period as
compared to the same period in 1997, attributable to increases in capital
investment.
The interest expense decrease of $2.5 million or 56% in 1998 was attributable
to utilizing Canadian sale proceeds to retire debt during the third and fourth
quarters of 1997. Average debt for the three months decreased from $161 million
in 1997 to $94 million in 1998.
- 6 -
REFINING OPERATING STATISTICAL INFORMATION
Three Months Ended
March 31,
1998 1997
-------- --------
Raw material input (bpd)
Light crude 2,293 3,311
Heavy crude 32,729 28,605
Other feed and blend stocks 6,333 6,707
-------- --------
Total 41,355 38,623
Manufactured product yields (bpd)
Gasoline 17,268 17,268
Diesel 14,228 13,441
Asphalt and other 9,047 7,174
-------- --------
Total 40,543 37,883
Total product sales (bpd)
Gasoline 21,176 20,288
Diesel 12,492 12,691
Asphalt and other 6,625 5,126
-------- --------
Total 40,293 38,105
Operating margin information (per sales bbl)
Average sales price $ 19.04 $ 26.02
Material costs (under FIFO inventory accounting) 14.30 22.86
-------- --------
Product spread 4.74 3.16
Operating expenses excluding depreciation 3.41 3.73
Depreciation .65 .65
-------- --------
Operating margin $ .68 $ (1.22)
Manufactured product margin before depreciation (per bbl) $ 1.33 $ (.56)
Purchased product margin (per purchased product bbl) $ 1.48 $ -
Light/heavy crude spread (per bbl) $ 4.72 $ 3.48
Average sales price (per sales bbl)
Gasoline $ 21.82 $ 29.14
Diesel 20.78 28.44
Asphalt and other 6.84 7.65
- 7 -
LIQUIDITY AND CAPITAL RESOURCES
On February 9, 1998, the Company issued $70 million of 9-1/8% Senior Notes due
2006 and received net proceeds of approximately $67.9 million. On February 10,
1998, the Company called for redemption the remaining $24.8 million of its 12%
Senior Notes and $46 million of its 7-3/4% Convertible Subordinated Debentures.
This redemption was completed on March 12, 1998 resulting in the payment of
$71.4 million, including redemption premium and the issuance of 83,542 shares of
common stock. Under a stock repurchase plan, approved by the board of
directors, 36,800 shares of common stock were repurchased by the Company for
$284,000.
During the first three months of 1998, $6.0 million of cash flows were used by
operating activities. In 1997, $14.1 million of cash flows were used in
operating activities primarily by the Refinery operations. 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, the Refinery used
approximately $3.6 million of cash in 1998 to increase its level of gasoline and
diesel inventories in preparation for the April 1998 turnaround.
At March 31, 1998, the Company had $14.3 million available under the Refinery
line of credit. The Company had working capital of $15.9 million at March 31,
1998 compared with $8.2 million at March 31, 1997.
Additions to property and equipment in the first three months of 1998 of $3.1
million increased $78,000 from the first three months in 1997 attributable to an
increase in Refinery capital expenditures in 1998 over 1997, mostly offset by
the 1997 discontinued Canadian oil and gas operations capital expenditures of
$2.1 million. Capital expenditures of approximately $13 million are planned for
the Refinery in 1998.
- 8 -
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 -
The annual meeting of the registrant was held April 27, 1998 with the
shareholders approving the change in corporate name from Wainoco Oil
Corporation to Frontier Oil Corporation.
ITEM 5. Other Information -
None.
ITEM 6. Exhibits and Reports on Form 8-K -
(a) Exhibits
10.01 - Executive Employment Agreement dated April 2, 1998 between
the Company and James R. Gibbs.
10.02 - Executive Employment Agreement dated April 2, 1998 between
the Company and Julie H. Edwards.
10.03 - Executive Employment Agreement dated April 2, 1998 between
the Company and S. Clark Johnson.
10.04 - Executive Employment Agreement dated April 2, 1998 between
the Company and J. Currie Bechtol.
10.05 - Executive Employment Agreement dated April 2, 1998 between
the Company and Gerald B. Faudel.
10.06 - Executive Employment Agreement dated April 2, 1998 between
the Company and Jon D. Galvin.
27 - Financial Data Schedule
(b) Reports on Form 8-K
None.
- 9 -
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 14, 1998