WAINOCO OIL CORPORATION
10-Q
March 31, 1996
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, 1996
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
1200 Smith Street, Suite 2100, Houston, Texas 77002-4367
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 3, 1996: 27,256,002
WAINOCO OIL CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1996
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 12
Definition of Terms
mcf = thousand cubic feet
mmcf = million cubic feet
bbl = barrel
bbls = barrels
bpd = barrels per day
mbbls = 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, 1996 1995
------------ ------------
<S> <C> <C>
Revenues:
Refined products $ 75,304 $ 67,942
Oil and gas sales 4,985 7,698
Other 1,274 1,708
------------ ------------
81,563 77,348
------------ ------------
Costs and Expenses:
Refining operating costs 74,381 69,607
Oil and gas operating costs 1,181 3,022
Selling and general expenses 2,602 3,083
Depreciation, depletion and amortization 4,529 6,115
------------ ------------
82,693 81,827
------------ ------------
Operating Loss (1,130) (4,479)
Interest Expense, Net 4,202 5,081
------------ ------------
Loss Before Income Taxes (5,332) (9,560)
Provision for Income Taxes 110 31
------------ ------------
Loss $ (5,442) $ (9,591)
============ ============
Loss Per Share $ (.20) $ (.35)
============ ============
</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, 1996 and December 31, 1995 1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash, including cash equivalents of
$302 in 1996 and $1,000 in 1995 $ 2,452 $ 6,045
Trade receivables 18,298 20,022
Joint operators and other receivables 2,566 2,345
Inventory of crude oil, products and other 26,953 19,736
Other current assets 666 708
------------ ------------
Total current assets 50,935 48,856
------------ ------------
Property and Equipment, at cost:
Oil and gas properties, on a full-cost basis 167,544 164,711
Refinery and pipeline 138,447 137,598
Furniture, fixtures and other equipment 4,489 4,416
------------ ------------
310,480 306,725
Less - Accumulated depreciation, depletion
and amortization 127,323 122,404
------------ ------------
183,157 184,321
Other Assets 5,027 5,205
------------ ------------
$ 239,119 $ 238,382
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 36,801 $ 35,909
Oil and gas proceeds payable 2,360 2,705
Accrued interest 3,064 5,230
Accrued turnaround cost 1,160 882
Other accrued liabilities 3,951 6,615
------------ ------------
Total current liabilities 47,336 51,341
------------ ------------
Long-Term Debt, net of current maturities:
Revolving credit facilities 6,200 -
12% Senior Notes 94,000 92,000
7 % Convertible Subordinated Debentures 46,000 46,000
10 % Subordinated Debentures 7,390 7,377
------------ ------------
153,590 145,377
------------ ------------
Deferred Credits and Other 8,467 6,782
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
1996 and 1995 57,172 57,172
Paid-in capital 81,767 81,767
Retained earnings (deficit) (103,471) (98,029)
Cumulative translation adjustment (7,901) (8,187)
Treasury stock, 57,500 shares (259) (259)
------------ ------------
Total Shareholders' Equity 27,308 32,464
------------ ------------
$ 239,119 $ 238,382
============ ============
</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, 1996 1995
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Loss $ (5,442) $ (9,591)
Depreciation, depletion and amortization 4,529 6,115
Deferred credits and other 1,110 830
------------ ------------
197 (2,646)
Change in working capital from operations (8,650) (3,544)
------------ ------------
Net cash provided by (used in) operating
activities (8,453) (6,190)
INVESTING ACTIVITIES
Additions to property and equipment (3,789) (6,454)
Sales of oil and gas properties 123 7,018
Net cash received (distributed) as operator
of properties 420 (354)
------------ ------------
Net cash provided by (used in) investing
activities (3,246) 210
FINANCING ACTIVITIES
Long-term borrowings -
Bank debt 10,028 5,100
12% Senior Notes 2,000 -
Repayments of long-term bank debt (3,828) (500)
Other (101) (41)
------------ ------------
Net cash provided by financing activities 8,099 4,559
Effect of exchange rate changes on cash 7 (14)
------------ ------------
Decrease in Cash and Cash Equivalents (3,593) (1,435)
Cash and Cash Equivalents, beginning of period 6,045 5,831
------------ ------------
Cash and Cash Equivalents, end of period $ 2,452 $ 4,396
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
WAINOCO OIL CORPORATION AND SUBSIDIARIES
NOTES TO INTERIM FINANCIAL STATEMENTS
March 31, 1996
(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, 1995.
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, 1996
and 1995 were 27,256,002 and 27,250,842, respectively.
2. Schedule of major components of inventory
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
------------ ------------
(in thousands)
<S> <C> <C>
Crude oil $ 5,414 $ 2,517
Unfinished products 4,017 4,016
Finished products 10,719 6,629
Chemicals and in-transit inventory 997 1,060
Repairs and maintenance supplies and other 5,806 5,514
------------ ------------
$ 26,953 $ 19,736
============ ============
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, 1996, 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. Restructuring of operations
In the third quarter of 1994, Wainoco announced its intention to cease all
exploration in the United States and sell its United States oil and gas assets.
During 1995, Wainoco completed the sales process and ended its production
activities in the United States. In the fourth quarter of 1995, Wainoco
accrued restructuring losses of $1.7 million, net of a $.7 million property
disposition gain. With respect to the restructuring loss, during the three
months ended March 31, 1996, the Company paid liabilities of approximately $1.5
million, reduced related accruals of $88,000 (which together with the reduction
of other accruals resulted in other income of $731,000) and has a remaining
restructuring accrual approximating $.8 million.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three months ended March 31, 1996 compared with the same period in 1995
The Company had a loss for the three months ended March 31, 1996 of
$5,442,000, or $.20 per share, compared to a loss of $9,591,000, or $.35 per
share, for the same period in 1995. Operating income increased $3,349,000 in
1996 to a loss of $1,130,000, attributable to an increase in refining operating
income of $1,726,000, an increase in Canadian oil and gas operating income of
$888,000, and other income in 1996 including $731,000 associated with the
disposition of United States oil and gas operations due to the reduction of
certain accruals. Other income for the first quarter of 1995 included $856,000
received in settlement of a contract dispute which was included in refining
operating income.
Refining operating income increased in 1996 versus 1995 due to an increase in
refined product revenues partially offset by an increase in refining operating
costs. Refined products revenues increased $7,362,000 or 11%. The increase in
refined products revenues resulted from a $1.70 per bbl increase in average
product sales prices. Refined product sales volumes also increased 1% in 1996
over 1995 levels. Yields of gasoline and distillate increased by 13% and 10%,
respectively, from the same period in 1995. The 1995 yields were negatively
impacted by an explosion of natural gas that migrated from a leaking pipeline
near the refinery.
Refining operating costs increased $4,774,000 or 7% over 1995 levels
primarily as a result of significant increase in material costs offset by a
decrease in refinery operating expense. Material costs increased approximately
8% or $1.53 per bbl in 1996 due to the increase in oil price. Additionally,
the sweet/sour spread declined 21% to average $2.53 per bbl in 1996, as a
result of the increased competition for Wyoming sour crude oil and the
alternate sour crudes. Refinery operating expense decreased $.62 per bbl to
$3.15 per bbl in 1996 as a result of Frontier's recovery in the first quarter
of 1996 of approximately $1.3 million by mediated settlement, of repair costs
related to the 1995 pipeline gas explosion. The repair costs approximating
$1.3 million, and related recovery, were included in refinery operating expense
in the first quarter of 1995 and 1996, respectively. The amount recovered was
lower than the claim amount primarily due to a reduction in the business
interruption claim.
Oil and gas revenues decreased $2,713,000 or 35% in the first three months of
1996 due to the disposition in 1995 of oil and gas operations in the United
States (1995 - $3,148,000, 1996 - nil), partially offset by a 10% increase in
Canadian oil and gas revenues of $435,000 in 1996.
The increase in Canadian oil and gas operating income for the three months
ended March 31, 1996 is due to an increase in Canadian oil and gas revenues and
decreased Canadian operating costs versus 1995. In 1996, Canadian oil revenue
increased 78% over 1995 levels to $1,501,000 as a result of a 60% increase in
sales volumes and an 11% increase in average oil price. The average price
increase was attributable to an increase in the price of crude oil, together
with an increase in the weighting of oil versus liquids in 1996 as a result of
commencement of production from the Company's 1995 oil discoveries. In the
first quarter of 1996, Canadian gas revenue decreased $222,000 or 6%,
attributable to a 12% decrease in sales volume offset by a 5% improvement in
gas price over 1995. The gas sales volume decline in 1996 was attributable to
productivity declines at various areas, and operating difficulties encountered
due to the prolonged abnormally cold winter conditions in 1996.
Oil and gas operating costs decreased $1,841,000 or 61% in the first three
months of 1996 of which $1,552,000 was related to United States oil and gas
operations included in 1995. In Canada, operating costs decreased $289,000 or
20% in 1996 due to various cost reduction factors including production
curtailment or disposition of abnormally high operating cost areas,
implementation of cost reduction procedures, and inclusion in 1996 of certain
annual joint venture adjustments at areas operated by Wainoco.
Selling and general expenses decreased $481,000 or 16% to $2,602,000 for
the three months ended March 31, 1996 primarily as a result of staff
reductions associated with disposition of United States oil and gas
operations in late 1995. The three months ended March 31, 1996 also
includes $240,000 of salary and related expense of certain United States
employees who were not retained subsequent to March 31, 1996.
Depreciation, depletion and amortization decreased $1,586,000 or 26% in the
1996 three-month period as compared to the same period in 1995 of which
$1,470,000 related to United States oil and gas operations included in 1995.
In 1996, Canadian oil and gas DD&A decreased $274,000 or 11% as a result of a
18% decline in average DD&A rate partially offset by DD&A attributable to
higher oil and gas revenues in the first quarter of 1996 versus 1995. In
Canada, the oil and gas DD&A rate as a percentage of sales decreased from 57%
in 1995 to 47% in 1996, primarily as a result of oil reserves discovered
throughout 1995 and the improved oil price in 1996 versus 1995.
The interest expense reduction of $879,000 or 17% in 1996 was attributable to
the repayment of long term debt in 1995 utilizing the sale proceeds on
disposition of the United States oil and gas properties. Average long term
debt for the first quarter decreased from $173 million in 1995 to $153 million
in 1996.
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, 1996 and
1995. Operating income (loss) is income (loss) before net interest expense and
provision for income taxes and does not include unallocated net corporate
expenses of $912,000 and $622,000 in the three months ended March 31, 1996 and
1995, respectively. In 1995, the Company completed disposition of the oil and
gas assets located in the United States, and accordingly the segmented
information below reflects only the oil and gas activity conducted in Canada.
</TABLE>
<TABLE>
<CAPTION>
Oil and Gas
Refining Canada Total
---------- ---------- ----------
<S> <C> <C> <C>
Three Months Ended March 31,
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)
========== ========== ==========
1995 - Operating margin $ (548) $ 3,478 $ 2,930
Selling and general expenses 1,214 634 1,848
Depreciation, depletion and amortization 2,053 2,592 4,645
---------- ---------- ----------
Operating income (loss) $ (3,815) $ 252 $ (3,563)
========== ========== ==========
</TABLE>
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. The 1995 segmented
operating earnings disclosed above exclude an operating loss of $294,000
attributable to United States oil and gas operations.
<TABLE>
<CAPTION>
REFINING OPERATING STATISTICAL INFORMATION
Three Months Ended
March 31,
-----------------------
1996 1995
----------- -----------
<S> <C> <C>
Raw material input (bpd)
Sweet crude 5,102 4,990
Sour crude 27,555 26,638
Other feed and blend stocks 5,413 4,853
----------- -----------
Total 38,070 36,481
Manufactured product yields (bpd)
Gasoline 17,668 15,620
Distillates 12,570 11,430
Asphalt and other 6,187 8,114
----------- -----------
Total 36,425 35,164
Total product sales (bpd)
Gasoline 19,942 19,379
Distillates 12,126 11,729
Asphalt and other 4,511 4,978
----------- -----------
Total 36,579 36,086
Operating margin information (per sales bbl)
Average sales price $ 22.62 $ 20.92
Material costs (under FIFO inventory accounting) 19.19 17.66
----------- -----------
Product spread 3.43 3.26
Operating expenses excluding depreciation 3.15 3.77
Depreciation .65 .61
----------- -----------
Operating margin $ (.37) $ (1.12)
Manufactured product margin before depreciation (per bbl) $ .28 $ (.52)
Purchased product margin (per purchased product bbl) $ - $ (.23)
Sweet/sour spread (per bbl) $ 2.53 $ 3.21
Average sales price (per sales bbl)
Gasoline $ 25.01 $ 23.27
Distillates 24.60 21.87
Asphalts and other 6.71 9.52
</TABLE>
<TABLE>
<CAPTION>
OIL AND GAS EXPLORATION AND PRODUCTION STATISTICAL INFORMATION
Three Months Ended
March 31,
------------------------
1996 1995
----------- -----------
<S> <C> <C>
Revenue (in thousands)
Net oil and condensate sales
Canada $ 1,501 $ 844
United States - 2,602
----------- -----------
1,501 3,446
----------- -----------
Net gas sales
Canada 3,484 3,706
United States - 546
----------- -----------
3,484 4,252
----------- -----------
$ 4,985 $ 7,698
=========== ===========
Production
Net oil and condensate (bbls)
Canada 96,000 60,000
United States - 163,000
----------- -----------
96,000 223,000
=========== ===========
Net gas (mmcf)
Canada 3,539 4,004
United States - 346
----------- -----------
3,539 4,350
=========== ===========
Price
Average oil and condensate sales (per bbl)
before deduction for production taxes
Canada $ 15.56 $ 14.04
United States - 15.92
Weighted average 15.56 15.42
Average gas sales (per mcf) before
deduction for production taxes
Canada $ .98 $ .93
United States - 1.58
Weighted average .98 .98
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
During the first quarter of 1996, $8,453,000 of cash flows were used in
operating activities primarily by the refinery operations for an inventory
increase of $7,217,000. These cash flows were provided primarily by net bank
borrowing of $6,200,000 under the Frontier line of credit and the proceeds on
resale of $2,000,000 of 12% Senior Notes. 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.
At March 31, 1996, the Company had $13,243,000 (C$18,000,000) available
under its oil and gas line of credit and $12,200,000 under the Frontier line of
credit. The Company had working capital of $3,599,000 at March 31, 1996
compared with $5,428,000 at March 31, 1995. The estimated five-year maturities
of long-term debt are $2,500,000 in 1997, $5,000,000 in 1998 and $2,300,000 in
2000, assuming that the existing oil and gas reserve-based credit facilities is
extended. As of March 31, 1996 , the reserve-based credit facility is
scheduled to convert to a two-year term loan on December 31, 1997 with payments
commencing on March 31, 1998. As of March 31, 1996 there is no outstanding
debt on this reserve-based credit facility. At March 31, 1996, the Company
violated interest coverage, fixed charge coverage and tangible net worth
covenants under the reserve-based facility and has obtained bank waivers. If
any of the violations continue, the Company expects to be able to obtain
additional waivers or arrange alternate sources of financing.
Investing activities include proceeds from the sale of Canadian oil and gas
properties of $123,000 for the three months ended March 31, 1996, a decrease
from $7,018,000 in 1995 of which $6,165,000 was attributable to United States
properties and $853,000 was related to Canadian properties. Additions to
property and equipment in the first quarter decreased $2,665,000 from the first
quarter in 1995. In the first quarter of 1996, capital expenditures in Canada
decreased approximately $1.6 million to $2.4 million, while expenditures at the
refinery decreased approximately $.8 million to $.8 million. Capital
expenditures of approximately $15 million are currently budgeted for 1996, of
which $3.2 million had been incurred as of March 31, 1996. The Company
anticipates funding the remaining 1996 capital expenditures with cash provided
by operations, currently arranged lines of credit or other sources if
necessary.
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/Joel M. Mann
Joel M. Mann
Vice President - Controller
Date: May 3, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 2,452
<SECURITIES> 0
<RECEIVABLES> 20,864
<ALLOWANCES> 0
<INVENTORY> 26,953
<CURRENT-ASSETS> 50,935
<PP&E> 310,480
<DEPRECIATION> 127,323
<TOTAL-ASSETS> 239,119
<CURRENT-LIABILITIES> 47,336
<BONDS> 153,590
0
0
<COMMON> 57,172
<OTHER-SE> (29,864)
<TOTAL-LIABILITY-AND-EQUITY> 239,119
<SALES> 80,289
<TOTAL-REVENUES> 81,563
<CGS> 80,091
<TOTAL-COSTS> 80,091
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,202
<INCOME-PRETAX> (5,332)
<INCOME-TAX> 110
<INCOME-CONTINUING> (5,442)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,442)
<EPS-PRIMARY> (0.20)
<EPS-DILUTED> (0.20)
</TABLE>
