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 JUNE 30, 1999
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 July 30, 1999: 27,293,360
<PAGE>
FRONTIER OIL CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1999
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
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
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FRONTIER OIL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands except per share amounts)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30 June 30
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Refined products $ 144,845 $ 153,007 $ 88,900 $ 83,984
Other 1,638 943 1,366 275
--------- --------- --------- ---------
146,483 153,950 90,266 84,259
--------- --------- --------- ---------
Costs and Expenses:
Refining operating costs 134,136 132,433 79,695 68,243
Selling and general expenses 4,080 4,215 2,003 2,221
Depreciation 5,735 5,198 2,894 2,822
--------- --------- --------- ---------
143,951 141,846 84,592 73,286
--------- --------- --------- ---------
Operating Income 2,532 12,104 5,674 10,973
Interest Expense, Net 3,291 3,738 1,664 1,768
--------- --------- --------- ---------
Income (Loss) Before Income Taxes (759) 8,366 4,010 9,205
Provision for Income Taxes 173 - 96 -
--------- --------- --------- ---------
Income (Loss) Before Extraordinary Item (932) 8,366 3,914 9,205
Extraordinary Loss on Retirement of Debt - 3,013 - -
--------- --------- --------- ---------
Net Income (Loss) $ (932) $ 5,353 $ 3,914 $ 9,205
========= ========= ========= =========
Basic Earnings (Loss) Per Share of Common Stock:
Continuing Operations $ (.03) $ .30 $ .14 $ .33
Extraordinary Loss - (.11) - -
--------- --------- --------- ---------
Net Income (Loss) $ (.03) $ .19 $ .14 $ .33
========= ========= ========= =========
Diluted Earnings (Loss) Per Share of Common Stock:
Continuing Operations $ (.03) $ .29 $ .14 $ .32
Extraordinary Loss - (.10) - -
--------- --------- --------- ---------
Net Income (Loss) $ (.03) $ .19 $ .14 $ .32
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 1-
<PAGE>
FRONTIER OIL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands except shares)
<TABLE>
<CAPTION>
June 30, 1999 (unaudited) and December 31, 1998 1999 1998
--------- ---------
<S> <C> <C>
ASSETS
Current Assets:
Cash, including cash equivalents of
$21,657 in 1999 and $31,781 in 1998 $ 23,425 $ 33,589
Trade and other receivables, less allowance for
doubtful accounts of $500 in 1999 and 1998 22,884 11,021
Inventory of crude oil, products and other 31,353 20,269
Other current assets 353 560
--------- ---------
Total current assets 78,015 65,439
--------- ---------
Property, Plant and Equipment, at cost:
Refinery and pipeline 170,123 164,664
Furniture, fixtures and other equipment 3,459 3,426
--------- ---------
173,582 168,090
Less - Accumulated depreciation 61,949 56,217
--------- ---------
111,633 111,873
Other Assets 6,334 4,714
--------- ---------
$ 195,982 $ 182,026
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 37,058 $ 23,492
Revolving credit facility 8,000 3,800
Accrued turnaround cost 1,393 1,339
Accrued liabilities and other 2,258 4,280
Accrued interest 2,402 2,403
--------- ---------
Total current liabilities 51,111 35,314
--------- ---------
Long-Term Debt, net of current maturities:
9-1/8% Senior Notes 70,000 70,000
Deferred Credits and Other 6,938 5,238
Deferred Income Taxes 1,067 1,121
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, 28,524,260 and 28,385,584 shares
issued in 1999 and 1998 57,292 57,278
Paid-in capital 86,918 86,305
Retained earnings (deficit) (70,993) (70,061)
Treasury stock, 1,205,900 shares and 605,700 shares
in 1999 and 1998 (6,351) (3,169)
--------- ---------
Total Shareholders' Equity 66,866 70,353
--------- ---------
$ 195,982 $ 182,026
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 2 -
<PAGE>
FRONTIER OIL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
<TABLE>
<CAPTION>
For the six months ended June 30, 1999 1998
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (932) $ 5,353
Depreciation 5,735 5,198
Deferred credits and other 135 (655)
Extraordinary loss on retirement of debt - 3,013
Change in working capital from operations (9,664) (6,896)
--------- ---------
Net cash (used in) provided by operating activities (4,726) 6,013
INVESTING ACTIVITIES
Additions to property and equipment (6,039) (8,349)
Other (861) -
--------- ---------
Net cash used in investing activities (6,900) (8,349)
FINANCING ACTIVITIES
Borrowings:
Refining credit facility 4,200 -
9-1/8% Senior Notes - 70,000
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 - (2,501)
Issuance of common stock 627 353
Purchase of treasury stock (3,193) (617)
Other (172) (124)
--------- ---------
Net cash provided by (used in) financing activities 1,462 (4,283)
Increase (decrease) in cash and cash equivalents (10,164) (6,619)
Cash and cash equivalents, beginning of period 33,589 21,735
--------- ---------
Cash and cash equivalents, end of period $ 23,425 $ 15,116
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 3 -
<PAGE>
FRONTIER OIL CORPORATION AND SUBSIDIARIES
NOTES TO INTERIM FINANCIAL STATEMENTS
June 30, 1999
(Unaudited)
1. FINANCIAL STATEMENT PRESENTATION
FINANCIAL STATEMENT PRESENTATION
The condensed consolidated financial statements include the accounts of
Frontier Oil Corporation, a Wyoming Corporation, and its wholly owned
subsidiaries, including Frontier Holdings Inc. (the "Refinery"), collectively
referred to as Frontier 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 we believe 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 our annual report on Form
10-K for the year ended December 31, 1998.
Frontier conducts its refining operations in the Rocky Mountain region of
the United States. Our Cheyenne, Wyoming Refinery purchases the crude oil to be
refined and markets the refined petroleum products produced, including various
grades of gasoline, diesel fuel, asphalt and petroleum coke.
EARNINGS PER SHARE
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:
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30 June 30
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Basic 27,439,327 28,129,387 27,290,765 28,154,164
Diluted 27,439,327 28,887,049 27,701,557 28,911,826
</TABLE>
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, as amended, is effective for fiscal years beginning after June
15, 2000. 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 impact of adopting Statement 133 on the
financial statements. However, Statement 133 could increase volatility in
earnings and other comprehensive income.
- 4 -
<PAGE>
2. SCHEDULE OF MAJOR COMPONENTS OF INVENTORY
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
--------- ---------
(in thousands)
<S> <C> <C>
Crude oil $ 7,483 $ 1,407
Unfinished products 4,835 2,644
Finished products 11,111 8,602
Chemicals 1,741 1,333
Repairs and maintenance supplies and other 6,183 6,283
--------- ---------
$ 31,353 $ 20,269
========= =========
</TABLE>
3. ACQUISITION OF EL DORADO REFINERY
On June 4, 1999, the Company announced that it had entered into a letter of
intent with Equilon Enterprises LLC ("Equilon") to purchase Equilon's 110,000
barrel per day crude oil refinery located in El Dorado, Kansas. The purchase
price will be approximately $170 million plus a contingency payment of up to $40
million to be paid over the next eight years if cash flow generated by the El
Dorado Refinery exceeds certain thresholds. The Company will also purchase from
Equilon certain inventories in place at the time of closing.
Upon consummation of the planned transaction the Company will have a total
refining capacity of over 150,000 barrels per day and will be able to more
effectively provide refined products into the markets it serves.
The Company is in the process of completing due diligence and is in detailed
discussions with Equilon regarding this transaction to negotiate a definitive
acquisition agreement. The Company currently anticipates an agreement will be
reached and the acquisition will close in the latter part of the third quarter
or early in the fourth quarter of 1999.
- 5 -
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999 COMPARED WITH THE SAME PERIOD IN 1998
We had a loss for the six months ended June 30, 1999 of $932,000, or $.03 per
share, compared to net income of $5.4 million, or $.19 per share, for the same
period in 1998. The 1998 results included a $3.0 million extraordinary loss on
early retirement of debt.
Operating income decreased $9.6 million in 1999 versus 1998 due to a decrease
in the refined product spread (revenues less material costs) of $10.2 million,
an increase in depreciation of $537,000, an increase in other income of
$695,000, and decreases in refining operating expenses of $298,000 and selling
and general costs of $135,000.
The refined product spread was $4.69 per bbl compared to $6.01 per bbl in
1998. The 1999 refined product spread decreased due to lower light product
margins and a reduction in the light/heavy crude spread offset by inventory
profits. High nationwide levels of gasoline and diesel inventories in 1999 have
kept margins for gasoline and diesel at their lowest levels since 1995.
Frontier's market place was accordingly impacted with decreases in average
gasoline and diesel margins of 29% and 27%, respectively, from the first six
months of 1998. During the second quarter of 1999, product margins began their
seasonal improvement, but remained below expectations due to high nationwide and
local inventory levels. We believe light product margins for the third quarter
of 1999 may improve to near historical levels as product demand is strong and
local inventories are near seasonal levels.
The light/heavy spread was $2.08 per bbl for the six months ended June 30,
1999, the lowest ever experienced by Frontier. The tightening spread has been
caused by low crude oil prices during 1998 and the resulting reduced supply of
heavy crude oil as certain heavy crude oil has been uneconomic to produce. With
the recent increase in crude oil prices, more heavy crude oil has become
available for purchase, and the light/heavy spread has slowly begun to widen.
The light/heavy spread during the second quarter of 1999 was $2.21 per bbl
compared to $1.94 per bbl in the first quarter. In July 1999, the light/heavy
spread is estimated to be $2.46 per bbl. Because of the higher cost of heavy
crude oil, fewer heavy bbls have been contracted for at a fixed price above
postings than in prior years and the length of the 1999 contracts has shortened
to average approximately three to six months. Consequently, any sustained
improvement in crude oil prices may enable us to purchase a higher percentage of
heavy crude oil and benefit from an improvement in the light/heavy spread.
The price of crude oil reached its low point in December 1998 when crude
closed at below $10.75 per bbl on the New York Mercantile Exchange and stayed at
or below $13.00 per bbl during January and February 1999. Commencing in March,
with the announcement of OPEC production cuts, the price of crude oil increased
and ended June at $19.29 per bbl. In 1999, we realized a benefit to the refined
product spread for inventory profits of approximately $6.6 million because of
increasing crude prices. In 1998, we realized a reduction to the refined
product spread of approximately $3.7 million because of declines in crude oil
prices. Inventories are recorded at the lower of cost on a first in, first out
(FIFO) basis or market.
Refined product revenues decreased $8.2 million or 5%. The decrease in
refined product revenues resulted from a $1.21 per bbl decrease in average
gasoline sales prices and a $1.51 per bbl decrease in average diesel sales
prices. Yields of gasoline increased 8% while yields of diesel decreased 9% in
1999 compared to the same period in 1998.
Other income increased $695,000 to $1.6 million in 1999 versus 1998 due to a
$516,000 legal settlement received in 1999.
Refining operating costs increased $1.7 million or 1% from 1998 levels due to
an increase in material costs offset by a decrease in refining operating
expenses. Material costs per bbl increased 2% or $.30 per bbl in 1999 primarily
due to higher oil prices, the use of a lower percentage of less expensive heavy
crude oil and a lower light/heavy spread. During 1999, the Refinery decreased
its use of heavy crude oil by 6% and the heavy crude oil utilization rate
expressed as a percentage of total crude oil decreased to 87% in 1999 from 93%
in 1998. The light/heavy spread decreased 56% to average $2.08 per bbl in the
six months of 1999. Refining operating expense per bbl decreased $.02 per bbl
to $3.30 per bbl in 1999 due to lower chemical usage and lower maintenance
costs.
Selling and general expenses decreased $135,000 or 3% for the six months
ended June 30, 1999 resulting from lower salaries and benefits.
- 6 -
<PAGE>
Depreciation increased $537,000 or 10% in the 1999 six-month period as
compared to the same period in 1998, which was attributable to increases in
capital investment. The 1998 depreciation provision also included a write-off of
certain equipment replaced in connection with turnaround work.
The interest expense decrease of $447,000 or 12% in 1999 was attributable to
utilizing proceeds of the 9 1/8% Senior Notes to retire the remaining 12% Senior
Notes in March 1998. Average debt for the six months decreased from $85.3
million in 1998 to $77.6 million in 1999.
Income tax expense for 1999 is for state income taxes.
THREE MONTHS ENDED JUNE 30, 1999 COMPARED WITH THE SAME PERIOD IN 1998
We had net income for the three months ended June 30, 1999 of $3.9 million,
or $.14 per share, compared to net income of $9.2 million, or $.33 per share,
for the same period in 1998.
Operating income decreased $5.3 million in 1999 versus 1998 due to a decrease
in the refined product spread (revenues less material costs) of $7 million, an
increase in depreciation of $72,000 , an increase in other income of $1.1
million, and decreases in refining operating expenses of $504,000 and selling
and general costs of $218,000.
The refined product spread was $5.23 per bbl compared to $7.15 per bbl in
1998. The 1999 refined product spread decreased due to lower light product
margins and a reduction in the light/heavy crude spread offset by inventory
profits. High nationwide levels of gasoline and diesel inventories in 1999 have
kept margins for gasoline and diesel at their lowest levels since 1995.
Frontier's market place was accordingly impacted with decreases in average
gasoline and diesel margins of 25% and 36%, respectively, compared to the second
quarter of 1998. During the second quarter of 1999, product margins began their
seasonal improvement, but remained below expectations due to high nationwide and
local inventory levels.
The light/heavy spread was $2.21 per bbl for the second quarter ended June
30, 1999, compared to $1.94 per bbl for the first quarter 1999, the lowest
quarter ever experienced by Frontier. The tightening spread has been caused by
low crude oil prices during 1998 and the resulting reduced supply of heavy crude
oil as certain heavy crude oil has been uneconomic to produce. With the recent
increase in crude oil prices, more heavy crude oil has become available for
purchase, and the light/heavy spread has slowly begun to widen. Because of the
higher cost of heavy crude oil, fewer heavy bbls have been contracted for at a
fixed price above postings than in prior years and the length of the 1999
contracts has shortened to average approximately three to six months.
Consequently, any sustained improvement in crude oil prices may enable us to
purchase a higher percentage of heavy crude oil and benefit from an improvement
in the light/heavy spread.
During the second quarter of 1999 we realized a benefit to the refined
product spread for inventory profits of approximately $3.8 million because of
increasing crude prices. Inventories are recorded at the lower of cost on a
first in, first out (FIFO) basis or market.
Refined product revenues increased $4.9 million or 6%. The increase in
refined product revenues resulted from a $1.14 per bbl increase in average
gasoline sales prices, a $.34 per bbl increase in average diesel sales prices
and a refined product sales volumes increase of 3% in 1999 from 1998 levels.
Yields of gasoline increased 32% while yields of diesel increased 8% in 1999
compared to the same period in 1998. Yields during 1998 were negatively
impacted by a major turnaround.
Other income increased $1.1 million to $1.4 million in 1999 versus 1998 due
to sulfur credit sales in 1999 of $311,000 and $516,000 from a legal settlement
received in 1999.
Refining operating costs increased $11.5 million or 17% from 1998 levels due
to an increase in material costs offset by a decrease in refining operating
expenses. Material costs per bbl increased 18% or $2.41 per bbl in 1999
primarily due to higher oil prices. During 1999, the heavy crude oil
utilization rate expressed as a percentage of total crude oil was 93%, the same
as in 1998. The light/heavy spread decreased 54% to average $2.21 per bbl in
the three months of 1999. Refining operating expense per bbl decreased $.23 per
bbl to $3.03 per bbl in 1999 due to lower turnaround accruals and lower
maintenance costs.
Selling and general expenses decreased $218,000 or 10% for the three months
ended June 30, 1999 resulting from lower salaries and benefits.
Depreciation increased $72,000 or 3% in the 1999 three-month period as
compared to the same period in 1998, which was attributable to increases in
capital investment. The 1998 depreciation provision also included a write-off
of certain equipment replaced in connection with turnaround work.
The interest expense decrease of $104,000 or 6% in 1999 was attributable to
$97,000 more interest income earned in 1999 over 1998. Average debt for the
three months increased from $74 million in 1998 to $79 million
- 7 -
<PAGE>
in 1999. This increase was due to more borrowings under the Company's revolving
credit facility resulting from increased working capital requirements due to
rising crude oil prices.
Income tax expense for 1999 is for state income taxes.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $4.7 million in 1999 while $6.0
million cash was provided by operating activities in 1998. Working capital
changes required $9.7 million and $6.9 million of cash flows for the first six
months of 1999 and 1998, respectively. During 1999, increases in receivables,
inventory and payables occurred due to rising crude oil prices. Consistent with
the seasonality of its business, we invest in working capital during the first
half of the year and recover working capital investment in the second half of
the year.
At June 30, 1999, we had $23.4 million of cash and $12 million available
under our line of credit. We had working capital of $26.9 million at June 30,
1999.
Capital expenditures in the first six months of 1999 of $6.9 million
decreased $1.4 million from the first six months in 1998. Capital expenditures
of approximately $9.0 million are planned in 1999.
On September 1, 1998, we announced that the Board of Directors had approved a
stock repurchase program of up to three million shares of common stock. In
1998, 469,700 shares of common stock were purchased for $2.3 million. Through
June 1999, an additional 602,700 shares of common stock have been purchased for
$3.2 million.
YEAR 2000
Many of the computer systems used by us 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. We utilize software and related information technology
("IT") essential to our operations that may be affected by the Year 2000 issue.
We also rely on non-IT systems in our daily operations, such as fax machines,
radios, voice mail systems, alarms, monitors and other miscellaneous systems.
Additionally we are dependent upon third party relationships with both suppliers
and customers.
We initiated a company wide task force to assess and resolve the business
risks associated with the Year 2000 issues. The process implemented by the task
force included identification of possibly effected systems, assessment of
probability of and implications of noncompliance, alternative modifications to
or replacements of existing systems or technology and cost and timetables for
completion. The analysis is being substantially completed by internal resources
with third party vendor verification when available.
We have completed a review of our IT, accounting and operational, systems for
Year 2000 compliance. The review of our primary financial computer systems,
including its accounting system, indicated only minor modifications will be
required to make them Year 2000 compliant. The process control system has been
documented as Year 2000 compliant by the vendor literature but further testing
is being pursued to verify this. We believe we will be able to implement the
necessary corrections to all of our critical information technology and non-IT
systems by mid 1999 with one exception. The weigh scale software will be
upgraded in October 1999 to avoid disrupting high volume seasonal operations.
Systems identified as non-critical noncompliant will be addressed at later
dates.
We do significant business with and are dependent upon various third party
entities. These relationships include customers, critical suppliers of products
and utilities, financial institutions, transportation companies and others. We
are also reviewing the possible impact of Year 2000 noncompliance by our outside
providers. Communications with critical third parties regarding their plans and
progress addressing the Year 2000 has been initiated and continues. We are
dependent upon the reliability and completeness of the third parties
representations in assessing their Year 2000 readiness.
The estimated costs of the software and hardware modifications and some
consultant support identified to date will be between $65,000 to $150,000 to
implement and will be financed from operating cash flows. Expenditures incurred
through June 30, 1999 totaled approximately $62,000. We do not separately track
the internal costs for the Year 2000 project, and such costs are principally the
related payroll costs for its information systems group.
Our refinery operations are very dependent upon outside providers and in
certain areas an alternative to
- 8 -
<PAGE>
us is not available. Failure to correct a material year 2000 issue could result
in an interruption in, or a failure of, certain normal business activities or
operations. Although we are taking steps to reduce the likelihood of
interruption or failure of normal operations, there can be no guarantee that
other companies' systems, on which our systems rely, will be timely Year 2000
compliant. To date, we are not aware of any significant Year 2000 problems with
these outside providers that would have a material adverse effect on our
business or results of operations, liquidity and financial operations.
We are in the process of developing contingency plans to address issues
associated with the reasonably likely worst case scenarios. We expect to have
such contingency plans formulated by the end of August 1999.
- 9 -
<PAGE>
REFINING OPERATING STATISTICAL INFORMATION
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Raw material input (bpd)
Light crude 4,524 2,265 2,668 2,237
Heavy crude 30,721 31,862 37,337 31,004
Other feed and blend stocks 5,518 5,518 5,095 4,712
--------- --------- --------- ---------
Total 40,763 39,645 45,100 37,953
Manufactured product yields (bpd)
Gasoline 16,489 15,307 17,600 13,368
Diesel 12,055 13,233 13,212 12,248
Asphalt and other 10,901 9,939 13,124 10,820
--------- --------- --------- ---------
Total 39,445 38,479 43,936 36,436
Total product sales (bpd)
Gasoline 21,977 21,935 22,558 22,687
Diesel 12,418 12,426 13,342 12,360
Asphalt and other 7,895 8,036 10,076 9,432
--------- --------- --------- ---------
Total 42,290 42,397 45,976 44,479
Operating margin information
(per sales bbl)
Average sales price $ 18.92 $ 19.94 $ 21.24 $ 20.75
Material costs (under FIFO
inventory accounting) 14.23 13.93 16.01 13.60
--------- --------- --------- ---------
Product spread 4.69 6.01 5.23 7.15
Operating expenses excluding depreciation 3.30 3.32 3.03 3.26
Depreciation .74 .67 .68 .69
--------- --------- --------- ---------
Operating margin $ .65 $ 2.02 $ 1.52 $ 3.20
Manufactured product margin
before depreciation (per bbl) $ 1.46 $ 2.74 $ 2.21 $ 4.04
Purchased product margin
(per purchased product bbl) $ .01 $ 1.79 $ 1.44 $ 1.95
Light/heavy crude spread (per bbl) $ 2.08 $ 4.77 $ 2.21 $ 4.81
Average sales price (per sales bbl)
Gasoline $ 21.52 $ 22.73 $ 24.71 $ 23.57
Diesel 19.81 21.32 22.21 21.87
Asphalt and other 10.30 10.18 12.20 12.51
</TABLE>
- 10 -
<PAGE>
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 29, 1999 with the
shareholders approving the proposals for the election of six
directors, a new stock option plan and the appointment of the
Company's auditors.
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.
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: August 2, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 23,425
<SECURITIES> 0
<RECEIVABLES> 22,884
<ALLOWANCES> 0
<INVENTORY> 31,353
<CURRENT-ASSETS> 78,015
<PP&E> 173,582
<DEPRECIATION> 61,949
<TOTAL-ASSETS> 195,982
<CURRENT-LIABILITIES> 51,111
<BONDS> 70,000
0
0
<COMMON> 57,292
<OTHER-SE> 9,574
<TOTAL-LIABILITY-AND-EQUITY> 195,982
<SALES> 144,845
<TOTAL-REVENUES> 146,483
<CGS> 139,871
<TOTAL-COSTS> 139,871
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,291
<INCOME-PRETAX> (759)
<INCOME-TAX> 173
<INCOME-CONTINUING> (932)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (932)
<EPS-BASIC> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
