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, 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
-----------------------------------------------------------
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 October 23, 1998:
28,111,231
FRONTIER OIL CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 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 7
Part II - Other Information 12
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(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
1998 1997 1998 1997
--------- --------- --------- ---------
Revenues:
Refined products $ 233,605 $ 292,354 $ 80,598 $ 107,684
Other 1,208 1,654 265 424
--------- --------- --------- ---------
234,813 294,008 80,863 108,108
--------- --------- --------- ---------
Costs and Expenses:
Refining operating costs 197,343 262,950 64,910 88,567
Selling and general expenses 6,425 6,011 2,210 2,504
Depreciation 7,926 6,833 2,728 2,294
--------- --------- --------- ---------
211,694 275,794 69,848 93,365
--------- --------- --------- ---------
Operating Income 23,119 18,214 11,015 14,743
Interest Expense, Net 5,305 11,907 1,567 2,937
--------- --------- --------- ---------
Income (Loss) From Continuing
Operations Before Income Taxes 17,814 6,307 9,448 11,806
Provision for Income Taxes - - - -
--------- --------- --------- ---------
Income (Loss) From Continuing Operations 17,814 6,307 9,448 11,806
Discontinued Operations:
Income from oil and gas operations,
net of taxes - 1,721 - -
Gain on disposal of Canadian oil and gas
properties, net of $800 of taxes - 23,301 - -
Recognition of cumulative
translation adjustment - (9,862) - -
--------- --------- --------- ---------
Income Before Extraordinary Item 17,814 21,467 9,448 11,806
Extraordinary Loss on Retirement of Debt 3,013 2,622 - 2,622
--------- --------- --------- ---------
Net Income $ 14,801 $ 18,845 $ 9,448 $ 9,184
========= ========= ========= =========
Basic Earnings (Loss) Per Share of Common Stock:
Continuing Operations $ .63 $ .23 $ .34 $ .42
Discontinued Operations - .55 - -
Extraordinary Loss (.11) (.10) - (.09)
--------- --------- --------- ---------
Net Income $ .52 $ .68 $ .34 $ .33
========= ========= ========= =========
Diluted Earnings (Loss) Per Share of Common Stock:
Continuing Operations $ .62 $ .23 $ .33 $ .42
Discontinued Operations - .55 - -
Extraordinary Loss (.11) (.10) - (.09)
--------- --------- --------- ---------
Net Income $ .51 $ .68 $ .33 $ .33
========= ========= ========= =========
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)
September 30, 1998 and December 31, 1997 1998 1997
--------- ---------
ASSETS
Current Assets:
Cash, including cash equivalents of
$24,619 in 1998 and $19,981 in 1997 $ 26,013 $ 21,735
Trade and other receivables, less allowance for
doubtful accounts of $500 in 1998 and 1997 17,959 17,204
Inventory of crude oil, products and other 23,674 27,666
Other current assets 431 1,391
--------- ---------
Total current assets 68,077 67,996
--------- ---------
Property, Plant and Equipment, at cost:
Refinery and pipeline 161,769 149,201
Furniture, fixtures and other equipment 3,292 3,044
--------- ---------
165,061 152,245
Less - Accumulated depreciation 53,433 45,586
--------- ---------
111,628 106,659
Other Assets 4,632 3,260
--------- ---------
$ 184,337 $ 177,915
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 31,434 $ 33,527
Accrued turnaround cost 1,477 6,771
Accrued liabilities and other 4,819 5,240
Accrued interest 799 1,530
--------- ---------
Total current liabilities 38,529 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 3,577 2,801
Deferred Income Taxes 1,174 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,
28,314,971 and 28,111,289 shares issued in 1998 and 1997 57,271 57,251
Paid-in capital 86,006 84,785
Retained earnings (deficit) (71,065) (85,866)
Treasury stock, 177,300 shares and 52,500 shares
in 1998 and 1997 (1,155) (236)
--------- ---------
Total Shareholders' Equity 71,057 55,934
--------- ---------
$ 184,337 $ 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 nine months ended September 30, 1998 1997
--------- ---------
OPERATING ACTIVITIES
Net income $ 14,801 $ 18,845
Gain on disposal of Canadian oil and gas properties - (23,301)
Recognition of cumulative translation adjustment - 9,862
Extraordinary loss on retirement of debt 3,013 2,622
Depreciation, depletion and amortization 7,926 10,681
Deferred income taxes (366) -
Deferred credits and other (259) 698
Change in working capital from operations (1,861) (12,607)
--------- ---------
Net cash provided by operating activities 23,254 6,800
INVESTING ACTIVITIES
Additions to property and equipment:
Continuing operations (14,304) (3,418)
Discontinued operations - (3,298)
Sale of Canadian oil and gas properties,
net of transaction costs - 91,307
Other - (590)
--------- ---------
Net cash (used in) provided by investing activities (14,304) 84,001
FINANCING ACTIVITIES
Borrowings:
9-1/8% Senior Notes 70,000 -
Refining credit facility - -
12% Senior Notes - 2,000
Repayments of debt:
12% Senior Notes, including redemption premium (25,423) (49,329)
7-3/4% Convertible Subordinated Debentures, including
redemption premium (45,971) -
Debt issuance costs (2,575) -
Issuance of common stock 510 1,182
Purchase of treasury stock (919) -
Other (294) (297)
--------- ---------
Net cash (used in) provided by financing activities (4,672) (46,444)
Effect of exchange rate changes on cash - (10)
--------- ---------
Increase in cash and cash equivalents 4,278 44,347
Cash and cash equivalents, beginning of period 21,735 5,183
--------- ---------
Cash and cash equivalents, end of period $ 26,013 $ 49,530
========= =========
The accompanying notes are an integral part of these financial statements.
- 3 -
FRONTIER OIL CORPORATION AND SUBSIDIARIES
NOTES TO INTERIM FINANCIAL STATEMENTS
September 30, 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 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
1998 1997 1998 1997
---------- ---------- ---------- ----------
Basic 28,138,086 27,321,122 28,154,984 27,444,319
Diluted 28,826,136 27,644,610 28,726,516 28,117,648
Comprehensive income
Total comprehensive income for the nine months and three months ended
September 30, 1998 and 1997 is as follows:
Nine Months Ended Three Months Ended
September 30 September 30
1998 1997 1998 1997
---------- ---------- ---------- ----------
(in thousands)
Net income $ 14,801 $ 18,845 $ 9,448 $ 9,184
Cumulative translation adjustment - (1,361) - -
---------- ---------- ---------- ----------
Comprehensive income $ 14,801 $ 17,484 $ 9,448 $ 9,184
========== ========== ========== ==========
- 4 -
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.
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 is effective for fiscal years beginning after June 15, 1999. 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 has not yet quantified the impacts of adopting Statement 133 on
the financial statements and has not determined the timing of or method of the
adoption of Statement 133. However, the Statement could increase volatility in
earnings and other comprehensive income.
2. Schedule of major components of inventory
September 30, December 31,
1998 1997
---------- ----------
(in thousands)
Crude oil $ 4,199 $ 3,904
Unfinished products 3,770 6,338
Finished products 8,026 9,929
Chemicals 1,414 1,534
Repairs and maintenance supplies and other 6,265 5,961
---------- ----------
$ 23,674 $ 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
- 5 -
these debt obligations were funded with proceeds from the issuance of the
9-1/8% Senior Notes as discussed in Note 3.
5. Refining Credit Facility
The Refinery credit facility was amended in 1998 to extend the maturity from
April 2, 1999 to June 30, 2000. An additional interest rate option was added
based on the prevailing Federal Funds Rate plus 2-1/4%.
- 6 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Nine months ended September 30, 1998 compared with the same period in 1997
The Company had net income for the nine months ended September 30, 1998 of
$14.8 million, or $.52 per share, compared to net income of $18.8 million, or
$.68 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 a $23.3 million gain on the sale of the Canadian oil and gas operations
which closed on June 16, 1997, a $9.9 million reduction to income in recognition
of the cumulative translation adjustment, a $2.6 million extraordinary loss on
retirement of debt and $1.7 million of income from the discontinued Canadian oil
and gas operations. Income from continuing operations for the nine months ended
September 30, 1998 was $17.8 million compared to $6.3 million for the same
period in 1997. 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 $4.9 million in 1998 as compared to 1997 due to an
increase in the refined product spread (revenues less material costs) of $10.0
million offset by a decrease in other income of $446,000 and increases in
refining operating expenses of $3.1 million, selling and general expenses of
$414,000 and depreciation of $1.1 million.
Refined product revenues and refining operating costs are impacted by changes
in the price of crude oil. The price of crude oil was significantly lower in
1998 than in 1997. The refined product spread was $6.40 per bbl compared to
$5.72 per bbl in 1997. The 1998 refined product spread increased due to an
improved light/heavy crude oil spread and better by-product margins from lower
crude oil prices. Both periods' refined product spreads were negatively
impacted by first quarter 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 $58.7 million or 20%. The decrease in
refined product revenues resulted from a $6.84 per bbl decrease in average
gasoline sales prices and a $6.68 per bbl decrease in average diesel sales
prices. Refined product sales volumes increased 3% in 1998 over 1997 levels.
Yields of gasoline and diesel decreased 11% and 4%, respectively in 1998
compared to the same period in 1997. The decrease in yields was due to the
major turnaround, which commenced April 19, 1998 and was completed May 15, 1998,
on the fluid catalytic cracking unit and alkylation and related units.
Other income, which consists primarily of processing fees, decreased $446,000
to $1.2 million in 1998 as compared to 1997. Other income for 1997 included a
$496,000 foreign currency transaction gain while other income for 1998 includes
sulfur credit sales of $360,000.
Refining operating costs decreased $65.6 million or 25% from 1997 levels due
to a decrease in material costs offset by an increase in operating expenses.
Material costs per bbl decreased 32% or $ 6.36 per bbl in 1998 due to lower oil
prices, increased percentage use of heavy crude oil, an increase in the
light/heavy spread and a 4% decrease in charge rates. During 1998, the Refinery
heavy crude oil utilization rate expressed as a percentage of total crude oil
increased to 94% in 1998 from 91% in 1997. The light/heavy spread increased 28%
to average $4.40 per bbl in the nine months of 1998. Refinery operating
expenses increased $3.1million in 1998 as compared to 1997, and refining
operating expense per bbl increased $.18 per bbl to $3.34 per bbl in 1998. The
increase in refining operating expenses during 1998 was due to higher natural
gas usage during the turnaround, increased chemical usage and increased
transportation costs for asphalt and other product sales.
Selling and general expenses increased $414,000 or 7% for the nine months
ended September 30, 1998 reflecting increases in salaries and benefits.
Depreciation increased $1.1 million or 16% in the 1998 nine-month period as
compared to the same period in 1997, attributable to increases in capital
investment and the write-off of certain equipment replaced in connection with
the turnaround work.
The interest expense decrease of $6.6 million or 55% in 1998 was attributable
to utilizing Canadian sale proceeds to retire debt during the third and fourth
quarters of 1997. Average debt for the nine months decreased from $153 million
in 1997 to $81 million in 1998.
- 7 -
The low price of crude oil has caused the production of some heavy crude oil
in both Wyoming and Canada to become uneconomical. The reduced supply of heavy
crude oil and the high demand for heavy crude oil due to attractive asphalt
margins are major factors contributing to the current decline in the light/heavy
spread. During the third quarter of 1998, the Company experienced a shortfall
in contracted heavy crude oil deliveries from Wyoming of approximately 4,400
bpd which required the Company to buy additional heavy Canadian crude oil at
spot prices. The price of heavy crude oil purchased at spot prices was
substantially higher than contracted Wyoming and Canadian crude oil resulting in
the decline of the light/heavy spread from $4.81 per bbl in the second quarter
of 1998 to $3.66 per bbl in the third quarter of 1998.
Based on current spreads, the cost of heavy crude oil could be $1.75 to $2.25
per bbl more expensive relative to light crude oil than what has been contracted
for in 1998. Consequently, the light/heavy spread is expected to continue to
decline in the fourth quarter of 1998.
Three months ended September 30, 1998 compared with the same period in 1997
The Company had net income for the three months ended September 30, 1998 of
$9.4 million, or $.34 per share, compared to net income of $9.2 million, or $.33
per share, for the same period in 1997. The 1997 results included a $2.6
million extraordinary loss on retirement of debt. Income from continuing
operations for the three months ended September 30, 1998 was $9.4 million
compared to $11.8 million for the same period in 1997.
Operating income decreased $3.7 million in 1998 as compared to 1997 due to a
decrease in the refined product spread (revenues less material costs) of $1.7
million, a decrease in other income of $159,000, increases in refining
operating expenses of $1.7 million and depreciation of $434,000, offset by a
decrease in selling and general expenses of $294,000.
Refined product revenues and refining operating costs are impacted by changes
in the price of crude oil. The price of crude oil was significantly lower in
1998 than in 1997. The refined product spread was $7.14 per bbl compared to
$7.36 per bbl in 1997. The 1998 refined product spread decreased due to lower
gasoline and diesel margins despite better by-product margins in 1998. Refined
product revenues decreased $27.1 million or 25%. The decrease in refined
product revenues resulted from a $8.24 per bbl decrease in average gasoline
sales prices and a $6.24 per bbl decrease in average diesel sales prices.
Refined product sales volumes decreased 3% in 1998 over 1997 levels. Yields of
gasoline and diesel decreased 13% and 1%, respectively in 1998 compared to the
same period in 1997. Gasoline and diesel yields were down due to a ten day
unplanned crude unit shut down to repair the crude unit furnace.
Other income, which consists primarily of processing fees, decreased $159,000
to $265,000 in 1998 as compared to 1997.
Refining operating costs decreased $23.7 million or 27% from 1997 levels due
to a decrease in material costs offset by an increase in operating expenses.
Material costs per bbl decreased 31% or $5.66 per bbl in 1998 due to lower oil
prices, and a 7% decrease in charge rates. The light/heavy spread increased 3%
to average $3.66 per bbl in the three months of 1998. Refining operating
expense per bbl increased $.49 per bbl to $3.35 per bbl in 1998 due to higher
maintenance cost on the crude unit furnace and increased transportation costs
for asphalt and other product sales in 1998 compared to 1997.
Selling and general expenses decreased $294,000 or 12% for the three months
ended September 30, 1998 reflecting adjustments in salaries and benefits in 1997
for extra employee compensation.
Depreciation increased $434,000 or 19% 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 $1.4 million or 47% 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 $141 million
in 1997 to $70 million in 1998.
The low price of crude oil has caused the production of some heavy crude oil
in both Wyoming and Canada to become uneconomical. The reduced supply of heavy
crude oil and the high demand for heavy crude oil due to attractive asphalt
margins are major factors contributing to the current decline in the light/heavy
spread. During the third quarter of 1998, the Company experienced a shortfall
in contracted heavy crude oil deliveries from Wyoming of approximately 4,400
bpd which required the Company to buy additional heavy Canadian crude oil at
spot prices. The price of heavy crude oil purchased at spot prices was
substantially higher than contracted Wyoming and Canadian crude oil resulting in
the decline of the light/heavy spread from $4.81 per bbl in the second quarter
of 1998 to $3.66 per bbl in the third quarter of 1998.
- 8 -
Year 2000
Many of the computer systems used by the Company today were designed and
developed using two digits, rather than four, to specify the year. As a result,
such systems will recognize the year 2000 as "00". This could cause many
computer applications to fail completely or to create erroneous results unless
corrective measures are taken. The Company utilizes software and related
computer technology essential to its operations that may be affected by the Year
2000 issue. The Company has completed a review of its accounting and
operational computer systems for Year 2000 compliance. The review of the
Company's primary computer systems, including its accounting system, indicated
only minor modifications will be required to make them Year 2000 compliant. The
Company believes it will be able to implement the necessary corrections to its
computer systems by mid 1999. The estimated costs of these corrections will be
between $125,000 to $350,000 to implement and will be financed from operating
cash flows. The Company is also reviewing the possible impact on the Company of
Year 2000 noncompliance by its outside service providers and vendors (outside
providers) such as utilities, pipelines, crude oil suppliers, banks and others.
The Company's refinery operations are very dependent upon outside providers and
in certain areas an alternative to the Company is not available. The Company is
in contact with the outside providers to monitor their Year 2000 compliance. To
date, the Company is not aware of any significant Year 2000 problems with these
outside providers that would have a material adverse effect on the Company's
business or results of operations.
- 9 -
REFINING OPERATING STATISTICAL INFORMATION
Nine Months Ended Three Months Ended
September 30 September 30
1998 1997 1998 1997
--------- --------- --------- ---------
Raw material input (bpd)
Light crude 2,235 3,340 2,176 3,643
Heavy crude 32,549 32,800 33,902 35,301
Other feed and blend stocks 5,581 5,839 5,704 5,963
--------- --------- --------- ---------
Total 40,365 41,979 41,782 44,907
Manufactured product yields (bpd)
Gasoline 15,619 17,473 16,233 18,679
Diesel 12,801 13,349 11,951 12,936
Asphalt and other 10,572 10,021 11,818 11,774
--------- --------- --------- ---------
Total 38,992 40,843 40,002 43,389
Total product sales (bpd)
Gasoline 21,746 20,861 21,373 21,919
Diesel 12,365 12,751 12,246 13,214
Asphalt and other 9,167 8,470 11,391 11,072
--------- --------- --------- ---------
Total 43,278 42,082 45,010 46,205
Operating margin information (per sales bbl)
Average sales price $ 19.77 $ 25.45 $ 19.46 $ 25.34
Material costs (under FIFO inventory accounting) 13.37 19.73 12.32 17.98
--------- --------- --------- ---------
Product spread 6.40 5.72 7.14 7.36
Operating expenses excluding depreciation 3.34 3.16 3.35 2.86
Depreciation .66 .58 .64 .53
--------- --------- --------- ---------
Operating margin $ 2.40 $ 1.98 $ 3.15 $ 3.97
Manufactured product margin
before depreciation (per bbl) $ 3.15 $ 2.56 $ 3.89 $ 4.50
Purchased product margin (per purchased product bbl) $ 1.66 $ 3.36 $ 1.31 $ 4.20
Light/heavy crude spread (per bbl) $ 4.40 $ 3.45 $ 3.66 $ 3.54
Average sales price (per sales bbl)
Gasoline $ 22.45 $ 29.29 $ 21.88 $ 30.12
Diesel 20.49 27.17 18.82 25.06
Asphalts and other 12.46 13.39 15.63 16.19
- 10 -
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 premiums and the issuance of 83,542 shares
of common stock. Under a stock repurchase plan, approved by the board of
directors to purchase the approximate number of shares issued upon conversion of
the Convertible Debentures, 83,500 shares of common stock have been repurchased
by the Company for $651,000.
On September 1, 1998, the Company announced that the Board of Directors had
approved a stock repurchase program of up to three million shares of common
stock. During September 1998, an additional 41,300 shares of common stock have
been purchased by the Company for $268,000.
Net cash provided by operating activities was $23.3 million and $6.8 million
for the nine months ended September 30, 1998 and 1997, respectively. Working
capital changes required $1.9 million and $12.6 million of cash flows for the
first nine months of 1998 and 1997, respectively. The major use of cash for
working capital changes in 1998 was the reduction in accrued liabilities for the
1998 turnaround work. 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.
At September 30, 1998, the Company had $26 million of cash and $20 million
available under the Refinery line of credit. The Company had working capital of
$29.5 million at September 30, 1998.
Additions to property and equipment in the first nine months of 1998 of $14.3
million, increased $7.6 million from the first nine months in 1997 attributable
to an increase of $10.9 million in Refinery capital expenditures in 1998 offset
by the 1997 discontinued Canadian oil and gas operations capital expenditures of
$3.3 million. Capital expenditures of approximately $15.5 million are planned
for the Refinery in 1998.
- 11 -
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
None.
- 12 -
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: October 27, 1998