FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[*] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1994
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 1-7910
TOSCO CORPORATION
(Exact name of registrant as specified in its charter)
Nevada 95-1865716
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
72 Cummings Point Road
Stamford, Connecticut 06902
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code:(203)
977-1000
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 No
Registrant's Common Stock outstanding at July 31, 1994 was
32,265,867 shares.
<PAGE>
TOSCO CORPORATION AND SUBSIDIARIES
Index to Financial Statements and Exhibits
Filed with the Quarterly Report of the Company on Form 10-Q
For the Six Months Ended June 30, 1994
Page(s)
Part I. Financial Information
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6 -11
Management's Discussion and Analysis of Financial
Condition and Results of Operations 12 - 16
Exhibit I - Computation of Earnings Per Share 17
Part II. Other Information 18
The financial statements listed in Part I above reflect all
adjustments (consisting only of normal recurring accruals) which
are, in the opinion of Management, necessary to a fair
presentation of financial position and results of operations.
Such financial statements are presented in accordance with the
Securities and Exchange Commission's disclosure requirements for
Form 10-Q. These unaudited interim consolidated financial
statements should be read in conjunction with the audited
Consolidated Financial Statements (from which the year-end
balance sheet presented herein was derived) and the Notes to
Consolidated Financial Statements filed with the Commission in
Tosco's 1993 Annual Report on Form 10-K.
TOSCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Thousands of Dollars
June 30, December 31,
ASSETS 1994 1993
(Unaudited)
Current assets
Cash and cash equivalents $ 7,764 $ 55,091
Short-term investments and deposits 57,091 30,035
Trade accounts receivable,
less allowance for uncollectibles
of $8,098,000 (1994)
and $5,091,000 (1993) 252,594 174,285
Inventories 452,342 363,348
Prepaid expenses and other
current assets 38,494 36,180
Deferred income taxes 12,123 12,123
Total current assets 820,408 671,062
Property, plant and equipment, net 727,959 723,265
Deferred turnarounds and charges 58,923 43,661
Deferred income taxes 37,108 37,108
Other assets 15,438 17,763
Total assets $1,659,836 $1,492,859
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and
accrued liabilities $ 435,220 $ 310,243
Current installments of
long-term debt 783 787
Total current liabilities 436,003 311,030
Long-term debt 610,496 603,306
Other liabilities 13,522 12,433
Environmental cost liability 29,440 29,440
Net liabilities of discontinued
operations 7,996 11,733
Deferred income taxes 3,273 3,273
Shareholders' equity:
$4.375 Series F Cumulative
Convertible Preferred Stock - $1.00 par
value - Authorized 2,500,000 shares;
issued and outstanding
2,300,000 shares
(liquidation preference
of $115,000,000) 111,197 111,197
Common shareholders' equity:
Common Stock - $.75 par value,
50,000,000 shares authorized,
34,814,491 shares issued 26,114 26,112
Capital in excess of par value 533,579 534,727
Retained earnings (deficit) ( 42,904) ( 81,512)
Reductions from capital ( 68,880) ( 68,880)
Total common shareholders' equity 447,909 410,447
Total shareholders' equity 559,106 521,644
Total liabilities and
shareholders' equity $ 1,659,836 $1,492,859
The accompanying notes are an integral part of these financial
statements.
<PAGE>
<TABLE>
TOSCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Thousands of Dollars Except Per Share Data
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Sales $1,399,761 $956,254 $2,895,449 $1,372,390
Cost of sales 1,354,712 891,933 2,744,903 1,266,481
Selling, general and
administrative expense 14,487 14,859 41,585 23,685
Interest expense 14,398 13,489 27,889 22,478
Interest income ( 1,370) ( 1,247) ( 2,355) ( 2,263)
1,382,227 919,034 2,812,022 1,310,381
Income before provision
for income taxes 17,534 37,220 83,427 62,009
Provision for income taxes 3,082 15,079 30,108 25,066
Net income 14,452 22,141 53,319 36,943
Preferred stock
dividend requirements ( 2,516) ( 2,516) ( 5,032) ( 5,032)
Income attributable
to common shareholders $ 11,936 $ 19,625 $ 48,287 $ 31,911
Income per common and common
equivalent share:
Primary $ .37 $ .67 $ 1.48 $ 1.09
Fully Diluted $ .37 $ .65 $ 1.42 $ 1.08
Dividends per
common share $ .15 $ .15 $ .30 $ .30
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE>
TOSCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Thousands of Dollars
Cash flows from Operating Activities Six Months Ended June 30,
1994 1993
Net income $ 53,319 $ 36,943
Adjustments to arrive at net
cash provided by operating
activities:
Depreciation and depletion 25,092 16,469
Amortization of deferred items 15,145 16,180
Deferred income taxes 21,996
Net proceeds from sale of
assets of discontinued operations 103,000
(Increase) decrease:
Short-term deposits ( 31,174) ( 21,025)
Trade accounts receivable ( 78,309) (53,440)
Inventories ( 88,894) ( 258,539)
Prepaid expenses and other
current assets 5,608 ( 6,210)
Increase (decrease):
Accounts payable and accrued
liabilities 124,977 162,796
Other ( 1,548) ( 1,026)
Net cash provided by operating
activities 24,216 17,144
Cash flows from investing activities:
Purchase of property, plant
and equipment, net ( 37,709) ( 29,113)
Purchase of Bayway assets ( 140,150)
Increase in deferred turnarounds,
charges and other assets, net ( 33,939) ( 17,070)
Proceeds from termination of CTLP 4,848
Net change in short-term
investments 4,118 11,541
Net cash used in investing
activities ( 62,682) ( 174,792)
Cash flows from financing activities:
Proceeds from Bayway
Mortgage Bonds 150,000
Borrowings (repayments)
under revolver, net 7,000
Principal payments under
debt agreements ( 4) ( 13)
Dividends on
Preferred and Common Stock ( 14,711) ( 13,802)
Other ( 1,146) ( 525)
Net cash provided by
(used in) financing activities ( 8,861) 135,660
Net increase (decrease)
in cash and cash equivalents ( 47,327) ( 21,988)
Cash and cash equivalents at
beginning period 55,091 71,673
Cash and cash equivalents
at end of period
$ 7,764 $ 49,685
The accompanying notes are an integral part of these financial
statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information with respect to the three and six months
ended
June 30, 1994 and 1993 is unaudited.
1. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include
the accounts of Tosco Corporation and its wholly owned
subsidiaries (Tosco), including Seminole Fertilizer
Corporation (Seminole), a discontinued operation whose
principal operating assets were sold in 1993.
All significant intercompany accounts and transactions have
been eliminated.
Nature of Business
Tosco is one of the largest independent oil refiners and
wholesale marketers of petroleum products in the United States.
Tosco has extensive distribution facilities and engages in
domestic and international commercial activities. Tosco also
markets petroleum products at retail outlets on the West Coast of
the United States under the BP brand and has interest in oil
shale properties in Colorado and Utah.
Reclassifications
Certain previously reported amounts have been reclassified
to conform to classifications adopted in 1994.
Cash, Cash Equivalents, Short-term Investments and Deposits
Cash in excess of operating requirements is invested in
cash equivalent short-term time deposits, money market
instruments, government securities and commercial paper.
Investments with original maturities of more than three
months are classified as short-term investments and carried
at the lower of cost or market.
Tosco purchased director and officer liability insurance
coverage from the Loil Group Ltd.
(Loil), a wholly-owned subsidiary of Tosco,
with limits of liability
coverage of $13,200,000 at June 30, 1994 and December 31,
1993 (an amount approximately equal to the amount of cash,
short-term investments and marketable securities available
to Loil). The assets of Loil are restricted to payment of
defense
costs and claims made against the directors and officers of
Tosco. The cost of investments and marketable securities of Loil
approximate fair value.
From time to time, Tosco makes use of futures and forward
contracts principally
to hedge refining margins (when such hedged margins are at
acceptable levels) on a varying percentage of the
future production of the Bayway Refinery. Futures and
forward contracts are used to lock in margins between the
sales value of refined products produced, primarily gasoline
and heating oil, and the cost of raw materials purchased
generally for periods not exceeding one year. Realized gains and
losses on liquidated raw material futures contracts are generally
deferred in inventory until the related refined products are
produced.
Pursuant to the requirements of the commodity exchanges,
margin deposits for a percentage of the value of futures
contracts have been placed with commodity brokers. The
margin deposits are classified as short-term deposits.
Inventories
Inventories of raw materials and products are valued at the
lower of cost, determined on the last-in, first-out (LIFO)
basis, or market. The net realizable value of LIFO
inventories is measured by aggregating similar pools on a
consolidated basis.
2. Acquisition of the Bayway Refinery and Tosco Northwest
In April 1993, Tosco acquired the Bayway Refinery and
related assets (Bayway) from Exxon Corporation, and in
December 1993, acquired the Ferndale Refinery and retail
marketing assets in the Pacific Northwest (Tosco Northwest)
from BP Oil Company. The purchase price of Tosco Northwest
was $123,895,000 plus the value of inventory, and a profit
participation of up to $150,000,000 over the five years
following the acquisition based on the performance of the
refining and retail marketing segments acquired. Tosco or BP may
elect liquidation of the participation agreement for the retail
marketing segment on an annual basis beginning in December 1994.
The purchase price has been preliminarily allocated to the
refinery, wharf and terminal assets
($47,895,000) and the retail assets acquired ($76,000,000).
A final allocation of the purchase price will be made in
1994 when appraisals and other studies are completed. The
funds for the Tosco Northwest acquisition were received from
a combination of sources, including net proceeds of
$88,418,000 received from a public offering of Common Stock,
available cash and funds available under Tosco's revolving
credit facility.
3. Inventories
June 30, December 31,
1994 1993
(Thousands of Dollars)
Raw materials $ 184,511 $ 130,233
Intermediates 15,209 26,723
Finished products 297,942 205,281
Retail 1,053 1,111
498,715 363,348
Less LIFO reserve ( 46,373)
$ 452,342 $ 363,348
Inventories were written down by $17,651,000 at December 31, 1993
to net realizable value as of that date.
4. Long-Term Debt
New Credit Agreement
In connection with the acquisition of Tosco Northwest, Tosco
amended its existing credit facility to increase credit
availability from $350,000,000 to $450,000,000 (New Revolving
Credit Agreement). Cash borrowings under the New
Revolving Credit Agreement bear interest at the option of
Tosco at either the prime rate plus a margin ranging from
zero to 1/4% or at the Eurodollar rate plus a margin ranging
from 1% to 1-1/2%. The incremental margin is dependent on
the credit rating of the First Mortgage Bonds. A commitment
fee of 3/8% per annum on the unused portion of the
commitment is also due. The New Revolving Credit Agreement which
expires in April 1997, is collateralized by investments, accounts
receivable and inventory.
Utilization of Revolving Credit Facilities
June 30, December 31,
1994 1993
(Thousands of Dollars)
Cash borrowings $ 154,000 $ 147,000
Letters of credit 86,370 142,177
Total utilization 240,370 289,177
Availability 209,630 60,823
Total credit line $ 450,000 $ 350,000
Interest paid was $24,848,000 and $17,299,000 for the
first six months of 1994 and 1993, respectively.
5. Capital Stock
During the first half of 1994, options to purchase 446,000
shares of common stock of Tosco (Common Stock) were granted
at prices ranging from $29.25 to $30.94 per share.
Quarterly dividends of $1.09375 per share of $4.375 Series
F Cumulative Convertible Preferred Stock (Series F Stock)
and $.15 per share of Common Stock were paid on May 16, 1994
and June 30, 1994 to shareholders of record on May 6, 1994
and June 20, 1994, respectively.
Tosco may redeem the Series F Stock, in whole or in part, at the
option of Tosco at redemption prices beginning at $53,0625 per
share plus accrued dividends beginning August 15, 1994 and
declining to $50 per share plus accrued dividends on August 15,
2001.
6. Income Taxes
The provision for income taxes is summarized below:
Three Months Six Months
Ended June 30, Ended June 30,
1994 1993 1994 1993
(Thousands of Dollars)
Federal $ 3,711 $11,647 $ 24,807 $ 19,321
State ( 629) 3,350 5,301 5,581
Foreign 82 164
Provision for income
taxes(a) $ 3,082 $15,079 $30,108 $25,066
Cash payments of income
taxes $8,836 $ 781 $ 9,669 $ 939
(a) The income tax rate for 1994 was lower then 1993 because of
a 1.5% reduction in the expected annual effective income tax rate
and recognition of $2,900,000 in certain revised income tax
benefits from prior years. The effective rate reduction is
attributable to revised state income tax allocation factors and
estimated California investment tax credits.
7. Commitments and Contingencies
On June 28, 1994, Bayway entered in a twelve-year tanker
agreement with Neptune Orient Lines, Ltd. of
Singapore (Neptune) for the charter of three 100,000 DWT crude
oil tankers. The tankers will be built to meet the
specifications of Bayway's dock receiving facilities as well as
the requirements of the U.S. Oil Pollution Act of 1990. The
first tanker is expected to be delivered in the second half of
1996. Bayway also entered into a long-term lease agreement with
Statia Terminals
for 3,600,000 barrels of crude oil storage in Nova Scotia,
Canada. Tosco expects to utilize the three tankers to move crude
oil delivered to the Nova Scotia storage location to the Bayway
Refinery or in direct shipments to its refineries.
Environmental exposures are difficult to assess and estimate
for numerous reasons including the complexity and differing
interpretations of governmental regulations, the lack of
reliable data, the number of potentially responsible parties
and their financial capabilities, the multiplicity of
possible solutions, the years of remedial and monitoring
activity required, and the identification of new sites.
Tosco continues to evaluate, on a quarterly basis, its
liability for environmental costs, net of liabilities
transferred pursuant to the settlement of outstanding
litigation concerning environmental issues with the
predecessor owners of the Avon Refinery. Based upon that
evaluation, the $29,440,000 accrual for environmental costs
was not revised in 1994. While Tosco believes that it has
adequately provided for its environmental exposures, should
matters be resolved unfavorably to Tosco, they could have a
material adverse effect on its long-term consolidated
financial position and results of operations. Tosco
continues to pursue reimbursement of environmental and
defense costs under insurance policies in effect during the
applicable periods of coverage.
8.Subsequent Event
On August 1, 1994, Tosco completed its previously announced
acquisition of BP America's California retail gasoline marketing
system. The California retail system includes approximately 370
retail locations, 130 of which are company controlled, a
distribution terminal, and related assets. Pursuant to the
acquisition and related agreements, Tosco purchased improvements
at the retail service station locations and received
noncompetition and expanded trademark licensing agreements. The
balance of the California retail assets, primarily land and
equipment at retail service station locations, were leased from a
special purpose entity which acquired such assets from BP
America. The trademark licensing agreement extends Tosco's
exclusive license to market under the British Petroleum BP
brand to seven western states for at least twelve years adding to
its existing license in Washington and Oregon. The previous five
year trademark license agreement for the states of Washington and
Oregon was also extended to a term of at least twelve years.
9. Condensed Consolidating Financial Information
The following tables set forth the unaudited condensed
consolidating financial statements as of June 30, 1994 and for
the six month period then ended of Tosco, Bayway and Tosco's
other subsidiaries. They are provided to meet the reporting and
informational requirements of Bayway as a guarantor of the
Exchange Bonds.
<TABLE>
<CAPTION>
Condensed Consolidating Balance Sheet
(Thousands of Dollars)
June 30, 1994
Tosco Bayway Minor Subs
(Issuer) (Guarantor) (Non-guarantors) Eliminations Consolidated
<S> <C> <C> <C> <C> <C>
Assets
Cash and cash equivalents $ 2,847 $ 4,297 $ 620 $ 7,764
Short-term investments and deposits 2,873 36,216 18,002 57,091
Other current assets 348,115 407,419 19 755,553
Total current assets 353,835 447,932 18,641 820,408
Other assets 640,921 177,216 25,657 ($ 4,366) 839,428
Investment in Bayway and other subsidiaries 221,619 ( 221,619)
Intercompany receivables 116,366 4,673 ( 121,039)
Total assets $ 1,332,741 $ 625,148 $48,971 ($ 347,024) $ 1,659,836
Liabilities and shareholders' equity
Current liabilities $ 216,431 $ 218,489 $ 1,083 436,003
Long-term debt 493,934 110,000 6,562 610,496
Other liabilities 58,597 - ($ 4,366) 54,231
Intercompany liabilities 4,673 105,281 11,085 ( 121,039)
Shareholders' equity 559,106 191,378 30,241 ( 221,619) 559,106
Total liabilities and shareholders' equity $1,332,741 $ 625,148 $ 48,971 ($ 347,024) $ 1,659,836
Condensed Consolidating Statement of Income
(Thousands of Dollars)
For the Six Months Ended June 30, 1994
Sales $ 1,259,193 $1,636,256 $ - $ 2,895,449
Cost of sales 1,165,495 1,579,408 2,744,903
Operating contribution 93,698 56,848 150,546
Selling, general, and
administrative expenses(a) 27,259 15,154 ( 828) 41,585
Interest expense, net 16,849 8,799 ( 114) 25,534
Income before provision for income taxes 49,590 32,895 942 83,427
Provision for income taxes 17,114 12,994 30,108
Net income $ 32,476 $ 19,901 $ 942 $ - $ 53,319
(a) The condensed consolidating statement of income does not reflect an allocation of a portion of aggregate corporate
selling, general and administrative expenses of approximately $8,700,000 to Bayway and the Minor Subsidiaries. Tosco may
allocate such costs in the future.
9. Condensed Consolidating Financial Information (continued)
Condensed Consolidating Statement of Cash Flows
(Thousands of Dollars)
For the Six Months Ended June 30, 1994
Tosco Bayway Minor Subs
(Issuer) (Guarantor) (Non-guarantors) Eliminations Consolidated
Cash flows from operating activities:
Net income $ 32,476 $ 19,901 $ 942 $ 53,319
Depreciation, depletion and amortization 34,016 6,034 187 40,237
Changes in working capital
and short-term deposits ( 43,950) ( 23,796) ( 46) ( 67,792)
Other ( 1,683) - 135 ( 1,548)
Net cash provided by operating activities 20,859 2,139 1,218 24,216
Cash flows from investing activities:
Purchase of property, plant and equipment ( 30,595) ( 7,114) ( 37,709)
Increase in deferred turnarounds, charges
and other assets ( 30,320) ( 3,619) ( 33,939)
Intercompany transfers 51,714 ( 50,954) ( 760)
Proceeds from termination of CT-LP 4,848 4,848
Dividend from Minor Subs to Tosco 4,848 (4,848)
Net change in short-term investments 4,136 ( 18) 4,118
Net cash provided by
(used in) investing activities ( 217) ( 61,687) ( 778) ( 62,682)
Cash flows from financing activities:
Borrowings under revolver, net ( 31,000) 38,000 7,000
Principal payments under debt agreements ( 4) ( 4)
Dividends on Preferred and Common Stock ( 14,711) ( 14,711)
Other ( 1,146) ( 1,146)
Net cash provided by
(used in) financing activities ( 46,861) 38,000 ( 8,861)
Net increase (decrease) in cash and cash
equivalents ( 26,219) ( 21,548) 440 ( 47,327)
Cash and cash equivalents
at beginning of period 29,066 25,845 180 55,091
Cash and cash equivalents
at end of period $ 2,847 $ 4,297 $ 620 $ - $ 7,764
</TABLE>
<PAGE>
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Introduction
Management's Discussion and Analysis should be read in
conjunction with Management's Discussion and Analysis included
in Tosco's Annual Report on Form 10-K for 1993. Reference
should also be made to the Financial Statements included in this
Form 10-Q for comparative Balance Sheet and Statement of Income
data.
Tosco's Annual Report sets forth Selected Financial Data which,
in summary form, reviewed Tosco's results of operations and
capitalization over the five year period 1989-1993. This
Management's Discussion and Analysis updates that data.
Results of Operations - For the three months
ended June 30, 1994
Consolidated
Three Months Ended June 30,
1994 1993
(Thousands of Dollars)
Sales $1,399,761 $ 956,254
Cost of sales 1,354,712 891,933
Operating contribution 45,049 64,321
Selling, general, and
administrative expense 14,487 14,859
Net interest expense 13,028 12,242
Pre-tax income 17,534 37,220
Provision for income taxes 3,082 15,079
Net income $ 14,452 $ 22,141
Tosco earned $14.5 million, or $.37 per fully diluted share,
on sales of $1.4 billion for the second quarter of 1994,
compared to $22.1 million, or $.65 per fully diluted share, on
sales of $956.3 million for the second quarter of 1993.
Operating contribution (income before selling, general, and
administrative expense, net interest expense, and income taxes)
of $45.0 million for the second quarter of 1994 declined by $19.3
million from the comparable quarter of 1993. The decline was
primarily due to lower refining margins and reduced production
from the Avon Refinery because of scheduled major maintenance of
the fluid
coker. These negative factors more than offset the operating
contribution from the Ferndale Refinery and retail assets
acquired in December 1993 from British Petroleum (Tosco
Northwest). The Tosco Northwest acquisition, seven additional
days of
production at the Bayway Refinery, as well as expanded wholesale
operations to take advantage of favorable commercial
opportunities, were the principal reasons for the increase in
sales and cost of sales for the
second quarter of 1994 as compared to the comparable quarter of
1993. The Bayway Refinery was acquired on April 8, 1993. See
Note 2 to the June 30, 1994 Consolidated Financial Statements.
Consolidated selling, general, and administrative expense for
the second quarter of 1994 decreased by $.4 million from the
comparable quarter of 1993. The decline was primarily
attributable to a lower provision for incentive compensation
(because required levels of pre-tax earnings were not
achieved) and $1.7 million of non-recurring costs incurred in
the second quarter of 1993 (related to the acquisition of the
Bayway Refinery). These decreases more than offset the higher
costs related to Tosco's expanded wholesale and retail
operations in the Pacific Northwest.
The income tax rate for the second quarter of 1994
was lower than 1993 because of a 1.5% reduction in the expected
annual effective income tax rate and recognition of certain
revised income tax benefits from
prior years. The effective rate reduction is attributable to
revised state income tax allocation factors and estimated
California investment tax credits.
Quarterly contribution is summarized below:
<TABLE>
<CAPTION>
Avon Bayway Northwest Consolidated
Three Months Ended June 30, 1994
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Sales $407,206 $753,464 $239,091 $1,399,761
Cost of sales 407,682 732,819 218,211 1,354,712
Operating contribution $ 3,524 $ 20,645 $ 20,880 $ 45,049
Three months ended June 30,1993
Sales $443,049 $513,205 $956,254
Cost of sales 400,583 491,350 891,933
Operating contribution $ 42,466 $ 21,855 $ 64,321
Increase (decrease) in
Operating contribution ( $38,942) ($ 1,210) $20,880 ($ 19,272)
</TABLE>
Tosco earned operating income (income before selling, general
and administrative expense, net expense, net interest expense,
and income taxes) of $45.0 million for the second quarter of
1994, a decrease of $19.3 million from the second quarter of
1993. The decline in operating contribution was primarily due to
lower refining margins and higher refinery and distribution costs
partially offset by margins from Tosco's retail marketing
operations ($ 11.3 million of operating contribution) (blended
fuel margin of 7.3 cents per gallon on sales volume of
approximately 41,000 B/D). Tosco acquired the Ferndale Refinery,
located in
Washington, and retail marketing operations in Washington and
Oregon, from British Petroleum at the end of 1993.
<TABLE>
<CAPTION>
Refining Data Summary
Avon Ferndale Bayway Consolidated(b)
(In Thousands of barrels per day except for refining margins)
Three Months Ended June 30, 1994 1993 1994 1994 1993 1994 1993
<S> <C> <C> <C> <C> <C> <C> <C>
Crude and other raw materials 138.7 161.4 91.3 270.0 252.3 500.0 413.7
Petroleum products produced:
Clean products 123.6 138.2 62.6 220.2 213.2 406.4 351.4
Other finished products 13.5 22.0 27.4 53.9 43.7 94.8 65.7
Total finished products produced 137.1 160.2 90.0 274.1 256.9 501.2 417.1
Refining margin per
charge barrel(a) $6.72 $ 8.02 $4.19 $3.33 $3.41 $4.42 $5.30
(a) Bayway's refining margins include the net result of
hedges designed to lock in predetermined margins (when such hedged margins are
at acceptable levels) on a varying percentage of Bayway's production.
(b) Consolidated per barrel refining margins for 1994 include Tosco Northwest while
consolidated per barrel refining margins for 1993 do not. As Tosco Northwest
was acquired on December 28, 1993, comparative consolidated refining
margins per barrel may not be indicative of the trend of refining
margins.
</TABLE>
Consolidated refining margins per barrel (the difference between
the sales value of refined products produced for sale and raw
material costs) declined by $.88 to $4.42 per barrel for the
second quarter of 1994. As illustrated by the table, refining
margins vary significantly by refinery. This is due to a number
of reasons including marketing conditions in the principal areas
served by the refineries, their configuration and complexity
(ability to convert raw materials into clean products), and
maintenance schedules.
Results of Operations - For the six months ended June 30, 1994
Consolidated
Six Months Ended June 30,
1994 1993
(Thousands of Dollars)
Sales $2,895,449 $1,372,390
Cost of sales 2,744,903 1,266,481
Operating contribution 150,546 105,909
Selling, general, and
administrative expense 41,585 23,685
Net interest expense 25,534 20,215
Pre-tax income 83,427 62,009
Provision for
income taxes 30,108 25,006
Net income $ 53,319 $ 36,943
Tosco earned $53.3 million, or $1.42 per fully diluted share,
on sales of $2.9 billion for the first six months of 1994,
compared to $36.9 million, or $1.08 per fully diluted share,
on sales of $1.4 billion for the comparable 1993 period.
The increase in consolidated selling, general, and
administrative expense for the first six months of 1994 was
primarily attributable to the acquisitions of the Bayway
Refinery and the Tosco Northwest assets. In addition, Tosco
increased its reserve for potential losses on trade
receivables due to its expanded operations ($3.0 million).
The increase in consolidated net interest expense was
primarily due to higher levels of debt related to the
acquisitions of the Bayway Refinery and Tosco Northwest, and
their associated working capital requirements.
Contribution for the six months ending June 30, 1994 and 1993
summarized below:
Avon Bayway Northwest Consolidated
(Thousands of Dollars)
Six Months Ended June 30, 1994
Sales $812,088 $1,636,256 $447,105 $2,895,449
Cost of sales 770,790 1,579,408 394,705 2,774,903
Operating
contribution $ 41,298 $ 56,848 $ 52,400 $ 150,546
Six Months Ended June 30, 1994
Sales $858,207 $514,183 $1,372,390
Cost of sales 773,575 492,906 1,266,481
Operating
contribution $ 84,632 $ 21,277 $ 105,909
Increase(decrease)
in operating
contribution ($ 43,334) $ 35,571 $52,400 $ 44,637
<TABLE>
<CAPTION>
Refining Data Summary for the six months ended June 30, 1994 and 1993
(In thousands of barrels per day except for refining margins)
Avon Ferndale Bayway Consolidated
1994 1993 1994 1994 1993 1994 1993
<S> <C> <C> <C> <C> <C> <C> <C>
Crude and other raw materials 153.3 164.8 92.0 264.6 252.3 509.9 417.1
Petroleum products produced:
Clean products 127.8 138.6 61.7 208.4 207.3 397.9 345.9
other finished products 23.8 24.8 28.2 62.0 49.6 114.0 74.4
Total finished products produced 151.6 163.4 89.9 270.4 256.9 511.9 420.3
Refining margin per charge barrel $7.30 $7.78 $4.59 $3.35 $3.41 $4.86 $5.96
Tosco generated an operating contribution of $150.5 million for
the first six months of 1994, an increase of $44.6 million from the
comparable 1993 period. The increase in operating contribution
was attributable to six months of operating results for the
Bayway Refinery (acquired on April 8, 1993) and Tosco Northwest
(acquired on December 28, 1993). These favorable operating
results were reduced by a decrease in Avons's operating
contribution primarily because of reduced margins and major
maintenance of the fluid coker in the second quarter of 1994.
</TABLE>
BP California Retail Acquisition
On August 1, 1994, Tosco completed its previously announced
acquisition of BP America's California retail gasoline marketing
system. The California retail system includes approximately 370
retail locations, 130 of which are company controlled, a
distribution terminal, and related assets. Pursuant to the
acquisition and related agreements, Tosco purchased improvements
at the retail service station locations and received
noncompetition and expanded trademark licensing agreements. The
balance of the California retail assets, primarily land and
equipment at
retail service station locations, were leased from a special
purpose entity which acquired such assets from BP America. The
trademark licensing agreement extends Tosco's exclusive license
to market under the British Petroleum BP brand to seven western
states for at least twelve years adding to its existing license
in Washington and Oregon. The previous five year trademark
license agreement for the states of Washington and Oregon was
also extended to a term of at least twelve years.
Outlook
With the acquisitions of Bayway, the Tosco Northwest assets,
and the BP California retail system, Tosco is one of the
largest independent oil companies in the United States, with
annual revenue of over $6 billion. Operating three refineries
on the East and West Coasts of the United States, Tosco now
refines and markets over 500,000 barrels per day of petroleum
products, a three-fold increase over Tosco's pre-acquisition
production. Earnings related to the increased levels of
capacity continue to be determined principally by two factors:
the operating efficiency of the refineries and refining
margins. Tosco schedules periodic maintenance of major
processing units for significant non-routine repairs and
maintenance as the units reach the end of their normal
operating cycles. Refining operating performance and earnings
are lowered, and deferred maintenance expenditures increased,
during such periods. The scheduled turnaround of Avon's fluid
coker, which occurs approximately every three years, was
completed
on time and under budget in the second quarter. Bayway's
fluid catalytic cracking unit, the largest in the world, is
scheduled for maintenance in the third quarter of 1994 and will
negatively impact results of operations. Tosco
is not able to predict the level or trend of refining margins,
despite hopeful signs of a strengthening national economy,
because of the uncertainties associated with oil markets.
However, Tosco believes its acquisitions and extensions
into retail marketing are expected to provide opportunities
for increased and less volatile earnings and cash flow. With
the acquisition of the BP California retail system, Tosco's
retail network now markets in excess of 60,000 B/D of motor
fuel.
Cash flows and liquidity - 1994
Cash generated
from operations (net income plus depreciation and
amortization) of $94.0 million was partially offset by a net
increase in short-term deposits, working capital and other
liabilities of $70.0 million providing cash flow from operating
activities of $24.0 million. Net cash used in investing
activities of $63 million was primarily for capital
expenditures, turnarounds and other assets totalling $72 million
partially offset by a $ 5 million return of Tosco's investment
in Continental-Tosco Limited Partnership, and other short-term
investments ($4 million). Cash used in financing activities
was $9 million, consisting principally of dividends on common
and preferred stock ($15 million) and other payments of $1
million, partially offset by net borrowings under its
revolving credit agreement by $7 million.
Liquidity (as measured by cash, short-term investments and
deposits and unused credit facilities) increased by $129
million during 1994 due to an increase of $149 million in
unused credit facilities, partially offset by a decrease in
cash and short-term investments of $20 million. Tosco amended
the revolving credit agreement to support its expanded working
capital requirements of Tosco due to the acquisitions of
Bayway, Tosco Northwest and the California retail system. At
June 30, 1994, liquidity totaled $275 million (an amount which
Tosco believes is adequate to meet its expected liquidity
demands for at least the next twelve months). See Note 4 to
the June 30, 1994 Consolidated Financial Statements.
Capital Expenditures and Capitalization
During the first half of 1994, Tosco spent $38 million on
budgeted capital projects. Capital spending programs
continued to address compliance with environmental regulations
and permits, operating flexibility and reliability and
personnel/process safety, as well as to meet new federal and
California regulations, adopted in 1992, for fuels that reduce
emissions. During the second quarter of 1994, Tosco's Board
of Directors approved a $25 million project for the
refurbishment and improvement of the Avon Refinery's
65,000 B/D Fluid Catalytic Cracker (FCC). This
expansion project, which is expected to produce a five percent
volume increase in clean products will be completed during the
next scheduled turnaround of the unit in 1995.
Future levels of capital spending will vary depending upon the
extent to which the Avon Refinery is reconfigured to meet the
more stringent regulations requiring reformulated gasoline to
be sold in California (presently anticipated to be enforced by
California Air Resources Board (CARB) by 1996). Tosco has filed
applications for the necessary permits for construction of the
new facilities (which are anticipated to range in costs from $100
million to $300 million depending upon the targeted percentage of
gasoline production meeting CARB's 1996 specifications).
Expenditures of up to $300 million would convert all of Avon's
gasoline production to CARB's 1996 reformulated standards.
However, timely completion of the new
facilities will continue to depend on a reasonable approval
process for these permits and market conditions. While Tosco
is proceeding with detailed design of the new and modified
facilities, Tosco has advised CARB that significant
uncertainty exists concerning the implementation of their
gasoline regulations and has requested that the timing and
substance of the regulations be reevaluated to avoid serious
disruption in the California gasoline market in 1996.
At June 30, 1994, total shareholder's equity was $559 million,
an increase from December 31, 1993 of $37 million due to net
income ($53 million) less dividend and other payments ($16
million). Shareholders' equity includes 2,300,000 shares of
Series F Cumulative Convertible Preferred Stock (Series F Stock)
with a liquidation preference of $115,000,000. The Series F
Stock may be called for redemption, at the option of Tosco,
beginning August 15, 1995 at $53.0625 per share plus accrued
dividends. Series F Stock may be converted to Common Stock if
the Series F Stock is called for redemption. The Series F Stock
is currently convertible inot 2.0833 shares of Common Stock,
equivalent to a conversion price of $24.00 per share. Debt,
including current maturities, increased $7
million to $610 million at June 30, 1994.
<TABLE>
<CAPTION>
TOSCO CORPORATION AND SUBSIDIARIES
PART 1 - EXHIBIT I
COMPUTATION OF EARNINGS PER SHARE
(Unaudited)
In Thousands Except Per Share Data
Three Months Ended June 30, Six Months Ended June 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Net income $ 14,452 $ 22,141 $ 53,319 $ 36,943
Preferred stock dividend requirements ( 2,516) ( 2,516) ( 5,032 ) ( 5,032)
Income attributable to common
shareholders for primary income
per share computations 11,936 19,625 48,287 31,911
Addback of dividends on Series
F Stock for assumed conversion
at beginning of period 2,516 2,516 5,032 5,032
Income attributable to common
shareholders for fully diluted
income per share computations $ 14,452 $22,141 $ 53,319 $36,943
Weighted average number of shares
outstanding during the period 32,263 29,272 32, 263 29,273
Weighted average common stock
equivalents 358 134 389 67
Shares used for computation of
primary income per common and
common equivalent share 32,621 29,406 32,652 29,340
Weighted average potentially dilutive
securities for the assumed conversion
of the Series F Stock 4,792 4,792 4,792 4,792
Shares used for computation of
fully diluted income per common
and common equivalent share 37,413 34,198 37,444 34,132
Income per common and common
equivalent share:
Primary $ .37 $ .67 $ 1.48 $ 1.09
Fully-diluted $ .37 $ .65 $ 1.42 $ 1.08
</TABLE>
PART II. Other Information
Item 1. Legal Proceedings
On May 24, 1994, the United States Environmental Protection
Agency filed an Administrative Complaint and Opportunity to
Request a Hearing and Conference against Tosco alleging that
Tosco discharged oil into or upon the surface of water within
Tosco's Avon refinery and failed to fully implement its Spill
Preventions Control and Counter Measures Plan. On June 13, 1994,
Tosco filed an Answer denying the allegations of the Complaint.
While the amount of any penalty is unknown, it is not expected to
exceed approximately $125,000.
On June 14, 1994, Lion Oil Company (Lion) filed a Complaint
against Tosco (LION OIL COMPANY V. TOSCO CORPORATION, United
States District Court, Western District of Arkansas, Case No.
9401972) seeking an order for reimbursement under the
Comprehensive Environmental Response, Compensation and Liability
Act, contribution and declaratory relief in connection with the
investigation and remediation of alleged environmental
contamination at a refinery formerly owned by Tosco located in El
Dorado, Arkansas. Tosco purchased the property from Monsanto
Company in 1972 and subsequently sold the property to Lion on May
1, 1985, pursuant to an Asset Purchase and Sale Agreement in
which Tosco provided to Lion a limited environmental indemnity
that expired in 1989.
Item 4. Submission of Matters to Vote of Security Holders
On May 17, 1994 an Annual Meeting of the Stockholders was held.
The table below briefly describes the proposals and the results
of the shareholder vote.
Election of Directors
Names Votes For Withhold Authority
Jefferson F. Allen 25,777,474 487,952
Joseph B. Carr 25,774,656 490,770
Houston I. Flournoy 25,775,048 490,378
Clarence G. Frame 25,772,303 493,123
Edmund A. Hajim 25,779,532 485,894
Joseph P. Ingrassia 25,778,624 486,802
Charles J. Luellen 25,779,709 485,717
Thomas D. O'Malley 25,776,830 488,596
Approval of the Tosco Votes For Votes Against Abstain
Corporate Incentive Plan 20,562,516 784,349 103,426
Ratification and approval Votes For Votes Against Abstain
of appointment of Coopers 26,194,635 34,468 36,323
& Lybrand as independent
accountants
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
11. Computation of Earnings Per Share (See Part I,
Exhibit I.)
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
TOSCO CORPORATION
(Registrant)
Date: August 15, 1994 By:
Jefferson F. Allen
Executive Vice President
and Chief Financial Officer
By:
Robert I. Santo
Chief Accounting Officer
