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, 1995
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.)
1200 Smith Street, Suite 2100 77002-4367
Houston, Texas (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (713) 658-9900
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 24, 1995:
27,250,842
WAINOCO OIL CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1995
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 11
Definition of Terms
mcf = one thousand cubic feet
mmcf = one million cubic feet
bbl = one barrel
bbls = barrels
bpd = one barrel per day
mbbls = one thousand barrels
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
WAINOCO OIL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands except per share)
For the three months ended March 31, 1995 1994
-------- --------
<S> <C> <C>
Revenues:
Refined products $ 67,942 $ 62,298
Oil and gas sales 7,698 9,398
Other 1,708 510
-------- --------
77,348 72,206
-------- --------
Costs and Expenses:
Refining operating costs 69,607 53,664
Oil and gas operating costs 3,022 3,233
Selling and general expenses 3,083 2,987
Depreciation, depletion and amortization 6,115 5,958
-------- --------
81,827 65,842
-------- --------
Operating Income (Loss) (4,479) 6,364
Interest Expense, Net 5,081 5,061
-------- --------
Income (Loss) Before Income Taxes (9,560) 1,303
Provision (Benefit) for Income Taxes 31 (172)
-------- --------
Net Income (Loss) $ (9,591) $ 1,475
======== ========
Income (Loss) Per Share $ (.35) $ .05
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
WAINOCO OIL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands except shares)
March 31, 1995 and December 31, 1994 1995 1994
-------- --------
<S> <C> <C>
ASSETS
Current Assets:
Cash, including cash equivalents of
$455 in 1995 and $467 in 1994 $ 4,396 $ 5,831
Trade receivables 18,143 17,990
Joint operators and other receivables 2,485 3,209
Inventory of crude oil, products and other 27,805 23,618
Other current assets 1,019 1,129
-------- --------
Total current assets 53,848 51,777
-------- --------
Property and Equipment, at cost:
Oil and gas properties, on a full-cost basis 451,388 454,559
Refinery and pipeline 134,462 132,872
Furniture, fixtures and other equipment 5,349 5,505
-------- --------
591,199 592,936
Less - Accumulated depreciation, depletion
and amortization 378,483 372,937
-------- --------
212,716 219,999
Other Assets 5,751 5,760
-------- --------
$272,315 $277,536
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 35,881 $ 32,991
Oil and gas proceeds payable 2,651 3,421
Accrued interest 3,750 5,602
Accrued turnaround cost 1,865 2,245
Other accrued liabilities 4,273 5,986
-------- --------
Total current liabilities 48,420 50,245
-------- --------
Long-Term Debt, net of current maturities:
Revolving credit facilities 19,600 15,000
12% Senior Notes 100,000 100,000
7 3/4% Convertible Subordinated Debentures 46,000 46,000
10 3/4% Subordinated Debentures 9,814 9,797
-------- --------
175,414 170,797
-------- --------
Deferred Credits and Other 6,025 4,627
Deferred Income Taxes 2,418 2,418
Commitments and Contingencies
Shareholders' Equity:
Preferred stock, $100 par value, 500,000
shares authorized, no shares issued 0 0
Common stock, no par, 50,000,000 shares
authorized, 27,310,842 shares issued
in 1995 and 1994 57,172 57,172
Paid-in capital 81,758 81,758
Retained earnings (deficit) (88,495) (78,904)
Cumulative translation adjustment (10,127) (10,307)
Treasury stock, 60,000 shares (270) (270)
-------- --------
Total Shareholders' Equity 40,038 49,449
-------- --------
$272,315 $277,536
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
WAINOCO OIL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
For the three months ended March 31, 1995 1994
-------- --------
<S> <S> <S>
OPERATING ACTIVITIES
Net income (loss) $ (9,591) $ 1,475
Depreciation, depletion and amortization 6,115 5,958
Deferred credits and other 830 (281)
-------- --------
(2,646) 7,152
Change in working capital from operations (3,544) (6,317)
-------- --------
Net cash provided by (used in)
operating activities (6,190) 835
INVESTING ACTIVITIES
Additions to property and equipment (6,454) (7,910)
Sales of oil and gas properties 7,018 803
Net cash distributed as operator of properties (354) (1,049)
-------- --------
Net cash provided by (used in)
investing activities 210 (8,156)
FINANCING ACTIVITIES
Long-term bank borrowings 5,100 8,300
Payments of long-term bank debt (500) (3,000)
Other (41) 268
-------- --------
Net cash provided by financing activities 4,559 5,568
Effect of exchange rate changes on cash (14) 17
-------- --------
Decrease in Cash and Cash Equivalents (1,435) (1,736)
Cash and Cash Equivalents, beginning of period 5,831 3,770
-------- --------
Cash and Cash Equivalents, end of period $ 4,396 $ 2,034
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
WAINOCO OIL CORPORATION AND SUBSIDIARIES
NOTES TO INTERIM FINANCIAL STATEMENTS
March 31, 1995
(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") and Wainoco Oil & Gas Company, 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, 1994.
Earnings per share
Primary and fully diluted earnings per share have been computed on the
weighted average number of common shares outstanding and assume the
exercise of stock option shares for the three months ended March 31, 1994.
The effect of dilution for the fully diluted computation was immaterial.
No effect was given for the addition of dilutive stock options for the
three months ended March 31, 1995 as a loss was incurred. The primary and
fully diluted average shares outstanding for the three months ended March
31, 1995 and 1994 were 27,250,842 and 27,330,353, respectively.
2. Schedule of major components of inventory
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
------------ ------------
(in thousands)
<S> <C> <C>
Crude oil $ 6,520 $ 6,135
Unfinished products 6,840 3,489
Finished products 8,218 7,737
Chemicals and in-transit inventory 1,210 1,277
Repairs and maintenance supplies and other 5,017 4,980
------------ ------------
$ 27,805 $ 23,618
============ ============
</TABLE>
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, by country, 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, by country, 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, 1995, price declines for oil and gas resulted in
Canadian oil and gas property costs exceeding the limitation. However,
subsequent higher pricing was used to reevaluate proved oil and gas
reserves, and an additional provision for DD&A was not necessary. A
downward revision in the present value of future net income, the result of
future price declines, might require Wainoco to provide additional
provisions for DD&A in future periods.
4. Restructuring of operations
In the fourth quarter of 1994, Wainoco accrued a loss for the sale of
its United States oil and gas producing properties, except for its Conroe
field reserves and some minor properties which were not anticipated to be
sold. Cash proceeds from the sale of $6.2 million were received during
the first quarter of 1995. The remaining property sales are anticipated to
be closed during the second quarter of 1995 and net proceeds of
approximately $6.6 million will be received.
The following presents the revenues, lease operating expense, DD&A and
sales volumes recorded for the three months ended March 31, 1995 for United
States oil and gas producing properties which the Company intends to sell.
The revenues, lease operating expense and DD&A related to these properties
will be recorded until the sales are closed.
<TABLE>
<CAPTION>
March 31
1995
--------
<S> <C>
Financial Information (in thousands)
Revenues $ 2,057
Lease operating expense 947
DD&A 979
Production Volumes
Oil (bbls) 95,000
Gas (mmcf) 343
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three months ended March 31, 1995 compared with the same period in 1994
The Company had a net loss for the three months ended March 31, 1995
of $9,591,000, or $.35 per share, compared to net income of $1,475,000, or
$.05 per share, for the same period in 1994.
Revenues increased 7% as compared to the same period in 1994,
primarily the result of refined products revenues increasing 9%. The
increase in refined product revenues results from a $1.58 per barrel
increase in average product sales prices, primarily reflecting an increase
in the cost of crude oil.
Refining operating income decreased $9,631,000 for the three months
ended March 31, 1995 due to extremely poor margins on light refined
products, primarily gasoline and diesel. The first quarter 1995 refined
product spread was $3.26 per barrel compared with $6.54 per barrel for the
same period in 1994. Mild winter weather causing excessive inventory
levels of distillate fuels and a general cyclical downturn caused
nationwide refinery margins to be the lowest in several years.
Yields of gasoline and distillate were down by 3% and 11%,
respectively, from the same period in 1994. On February 21, 1995, a
distributor's natural gas pipeline near the refinery developed a leak which
caused underground migration of the gas and a subsequent explosion in the
electrical area of the Refinery's diesel hydrotreating unit. All refinery
units, with the exception of the delayed coking unit, were impacted by the
electrical interruption and subsequent repairs. The diesel hydrotreater
was down 18 days causing a decline in distillate yields. The repair cost
for the utility incident totaled $1.2 million in the first quarter of 1995
and is included in operating expenses. We are aggressively pursuing the
responsible utility company for reimbursement of physical damages and lost
refining throughput. Refining material costs increased 38% per barrel in
1995 due to higher crude oil prices. Crude oil costs averaged $4.42 per
barrel higher in 1995 than 1994. The sweet/sour spread declined to $3.21
in 1995 from $3.99 per barrel for the same period in 1994, a result of the
increased competition for heavy crude oils.
Oil and gas revenues decreased 18% primarily the result of a 30%
decrease in gas sales as the average price for natural gas declined 37% to
$.98/mcf from $1.55/mcf. In response to the significant decline in gas
prices in 1995, the Company curtailed Canadian gas production by
approximately 4 mmcf per day in February and 5 mmcf per day in March while
continuing to supply certain existing purchasers by acquiring like
replacement gas volumes in the spot market. Canadian oil sales increased
35% primarily a result of a 36% average oil price increase.
Oil and gas operating costs decreased 7% in the first three months of
1995. In Canada, operating costs increased 8% due to placing newly
discovered areas on stream and the adding compression at various mature
areas to maintain or increase gas production levels, subsequent to March
31, 1994. This increase was offset by reduced activity associated with
ceasing certain United States oil and gas activities.
Depreciation, depletion and amortization increased 3% in the 1995
three-month period as compared to the same period in 1994. As a percentage
of oil and gas sales, the oil and gas DD&A rate increased to 52% in the
first quarter of 1995 from 43% in the prior year's first quarter, primarily
the impact of the lower average gas sales prices received during the first
quarter of 1995 compared with the prior year first quarter.
Other income for the first quarter of 1995 includes $856,000 received
in settlement of a contract dispute.
The provision for income taxes increased as the Alberta Royalty Tax
Credit is currently classified as oil and gas revenue whereas it was
classified as a tax benefit in prior years. The credits were $154,000 and
$202,000 during the first quarters of 1995 and 1994, respectively.
OPERATING EARNINGS BY SEGMENT
The following (in thousands) presents the operating income (loss) by
operating segment, by country for the three months ended March 31, 1995 and
1994. Operating income (loss) is income (loss) before net interest expense
and provision for income taxes and does not include unallocated net
corporate expenses of $622,000 and $661,000 in the three months ended March
31, 1995 and 1994, respectively.
<TABLE>
<CAPTION>
Oil and Gas
Exploration and Production
------------------------------
United
Refining States Canada Total
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Three Months Ended March 31,
1995 - Operating margin $ (548) $ 1,789 $ 3,478 $ 5,267
Selling and general expenses 1,214 613 634 1,247
Depreciation, depletion
and amortization 2,053 1,470 2,592 4,062
-------- -------- -------- --------
Operating income (loss) $ (3,815) $ (294) $ 252 $ (42)
======== ======== ======== ========
1994 - Operating margin $ 8,779 $ 1,633 $ 4,897 $ 6,530
Selling and general expenses 1,128 593 605 1,198
Depreciation, depletion
and amortization 1,835 1,653 2,470 4,123
-------- -------- -------- --------
Operating income (loss) $ 5,816 $ (613) $ 1,822 $ 1,209
======== ======== ======== ========
</TABLE>
Wainoco is in the process of selling all of its United States oil and
gas properties, except for its Conroe field reserves and other certain
minor properties. The operating margins for United States properties to be
retained for the three months ended March 31, 1995 and 1994 are $504,000
and $223,000, respectively. Depreciation, depletion and amortization
applicable to retained properties is estimated to be $470,000 and $348,000
for the three months ended March 31, 1995 and 1994.
Additionally, the Company capitalized general and administrative
expenses of $1.7 million in 1994 as United States exploration overhead,
whereas in 1995, no general and administrative costs associated with
exploration overhead will be incurred. Upon completion of the sale of the
United States properties, Company wide general and administrative expenses
should be reduced by approximately $1.1 million on an annual basis as a
result of restructuring of operations primarily resulting from the sale of
the United States oil and gas properties.
<TABLE>
<CAPTION>
REFINING OPERATING STATISTICAL INFORMATION
Three Months Ended
March 31,
--------------------
1995 1994
-------- --------
<S> <C> <C>
Raw material input (bpd)
Sweet crude 4,990 6,885
Sour crude 26,638 24,904
Other feed and blend stocks 4,853 4,653
-------- --------
Total 36,481 36,442
Manufactured product yields (bpd)
Gasoline 15,620 16,029
Distillates 11,430 12,860
Asphalt and other 8,114 6,210
-------- --------
Total 35,164 35,099
Total product sales (bpd)
Gasoline 19,379 18,573
Distillates 11,729 12,258
Asphalt and other 4,978 4,954
-------- --------
Total 36,086 35,785
Operating margin information (per sales bbl)
Average sales price $ 20.92 $ 19.34
Material costs
(under FIFO inventory accounting) 17.66 12.80
-------- --------
Product spread 3.26 6.54
Operating expenses excluding depreciation 3.77 3.87
Depreciation .61 .55
-------- --------
Operating margin $ (1.12) $ 2.12
Manufactured product margin
before depreciation (per bbl) $ (.52) $ 2.68
Purchase product margin
(per purchased product bbl) $ (.23) $ 0
Sweet/sour spread (per bbl) $ 3.21 $ 3.99
Average sales price (per sales bbl)
Gasoline $ 23.27 $ 21.72
Distillates 21.87 20.90
Asphalts and other 9.52 6.56
</TABLE>
<TABLE>
<CAPTION>
OIL AND GAS EXPLORATION AND PRODUCTION STATISTICAL INFORMATION
Three Months Ended
March 31,
--------------------
1995 1994
-------- --------
<S> <C> <C>
Revenue (in thousands)
Net oil and condensate sales
Canada $ 844 $ 624
United States 2,602 2,151
-------- --------
3,446 2,775
-------- --------
Net gas sales
Canada 3,706 5,301
United States 546 1,322
-------- --------
4,252 6,623
-------- --------
$ 7,698 $ 9,398
======== ========
Production
Net oil and condensate (bbls)
Canada 60,000 60,000
United States 163,000 172,000
-------- --------
223,000 232,000
======== ========
Net gas (mmcf)
Canada 4,004 3,677
United States 346 607
-------- --------
4,350 4,284
======== ========
Price
Average oil and condensate sales (per bbl)
before deduction for production taxes
Canada $ 14.04 $ 10.36
United States 15.92 12.52
Weighted average 15.42 11.96
Average gas sales (per mcf) before
deduction for production taxes
Canada $ .93 $ 1.44
United States 1.58 2.18
Weighted average .98 1.55
</TABLE>
Wainoco is in the process of selling all of its United States oil and
gas properties, except for its Conroe field reserves and certain other
minor properties. The revenues and production for the three months ended
March 31, 1994 and 1995 related to the United States properties to be
retained are as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1995 1994
-------- --------
<S> <C> <C>
Revenues (in thousands)
Net oil and condensate sales 1,106 736
Net gas sales 4 9
Production
Net oil and condensate (bbls) 68,000 53,000
Net gas (mmcf) 3 6
Price
Average oil and condensate sales (per bbl)
before deduction for production taxes $ 16.22 $ 13.78
Average gas sales (per mcf) before
deduction for production taxes 1.23 1.74
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
During the first quarter of 1995, $6,190,000 of cash flows were used
in operating activities primarily by the Refinery operations. These cash
flows were provided primarily by net bank borrowing of $4,600,000 under the
Frontier line of credit. During the first quarter of 1994, $835,000 of
cash flows were provided by operating activities reflecting the stronger
1994 operating results. During the first quarter 1994, the Company
incurred net bank borrowings of $5,300,000.
At March 31, 1995, the Company had $27,300,000 available under its oil
and gas lines of credit and $10,400,000 under the Frontier line of credit.
The Company had working capital of $5,428,000 at March 31, 1995 compared
with $1,532,000 at March 31, 1994. The estimated five-year maturities of
long-term debt are $2,500,000 in 1996 and 1997 and $5,000,000 in 1998
assuming that the oil and gas reserve-based credit facilities are extended.
Effective March 31, 1995, the Company and its reserve-based lenders
entered into amendments to its U.S. and Canadian credit facilities which
extended the revolving period of those facilities from December 31, 1995 to
December 31, 1996. The amended term-loan period begins March 31, 1997 and
was shortened from five to four years. Additionally, based on discussions
with its banks, the Company expects that by the end of April, 1995, it will
receive revised borrowing base amounts of C$33 million and $4 million for
its Canadian and U.S. facilities, respectively.
Investing activities include proceeds from the sale of oil and gas
producing properties of $7,018,000 for the three months ended March 31,
1995. Additions to property and equipment in the first quarter decreased
$1,456,000 from the first quarter in 1994 primarily the result of reduced
capital requirements at the Refinery. Capital expenditures of
approximately $18,300,000 are currently budgeted for 1995, of which
$5,758,000 had been accrued as of March 31, 1995.
In conjunction with the Company's intent to cease all exploration in
the United States and to sell certain of its United States oil and gas
assets, exploration and development activities are now focused in Canada.
Canadian accrued capital expenditures increased from $1,662,000 in the
first quarter of 1994 to $3,911,000 in the first quarter of 1995. This
increased activity includes increased drilling, seismic exploration and
land acquisition.
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
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/George E. Aldrich
--------------------
George E. Aldrich
Vice President - Controller
Date: April 26, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 4,396
<SECURITIES> 0
<RECEIVABLES> 20,628
<ALLOWANCES> 0
<INVENTORY> 27,805
<CURRENT-ASSETS> 53,848
<PP&E> 591,199
<DEPRECIATION> 378,483
<TOTAL-ASSETS> 272,315
<CURRENT-LIABILITIES> 48,420
<BONDS> 155,814
<COMMON> 57,172
0
0
<OTHER-SE> (17,134)
<TOTAL-LIABILITY-AND-EQUITY> 272,315
<SALES> 75,640
<TOTAL-REVENUES> 77,348
<CGS> 78,744
<TOTAL-COSTS> 78,744
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,081
<INCOME-PRETAX> (9,560)
<INCOME-TAX> 31
<INCOME-CONTINUING> (9,591)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,591)
<EPS-PRIMARY> (0.35)
<EPS-DILUTED> (0.35)
</TABLE>
