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 September 30, 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 1-7910
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.
X Yes No
---- ----
Registrant's Common Stock outstanding at October 31, 1996 was 43,639,886 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 Three and Nine Months Ended September 30, 1996
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 6-10
Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-15
Exhibit I - Computation of Earnings Per Share 16
Part II. Other Information 17
The financial statements listed in Part I above reflect all adjustments
(consisting only of normal recurring accruals) that 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 1995
Annual Report on Form 10-K.
<TABLE>
<CAPTION>
TOSCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Thousands of Dollars
September 30, December 31,
ASSETS 1996 1995
(Unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 52,365 $ 19,148
Short-term investments and deposits 34,517 29,125
Trade accounts receivable, less allowance for uncollectibles
of $9,416,000 (1996) and $8,523,000 (1995) 272,908 296,768
Inventories 686,199 489,479
Prepaid expenses and other current assets 48,372 42,363
Deferred income taxes 30,517 4,558
--------- --------
Total current assets 1,124,878 881,441
Property, plant and equipment, net 1,696,693 961,418
Deferred turnarounds 66,996 82,249
Intangibles (primarily tradenames) 608,775 38,731
Other deferred charges and assets 131,730 39,332
------------ -----------
Total assets $ 3,629,072 $2,003,171
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 599,544 $ 503,900
Accrued expenses and other liabilities 365,460 166,391
------------- ---------
Total current liabilities 965,004 670,291
Revolver debt 360,000 45,000
Long-term debt 930,827 579,036
Environmental cost liability 90,680 34,379
Other liabilities 153,187 16,916
Deferred income taxes 80,285 30,439
Shareholders' equity:
Common Stock - $.75 par value, 50,000,000 shares authorized,
46,168,861 (1996) and 39,613,950 (1995) shares issued 34,626 29,714
Capital in excess of par value 963,635 640,306
Retained earnings 124,098 27,903
Treasury stock, at cost (73,270) (70,813)
---------- ---------
Total shareholders' equity 1,049,089 627,110
---------- ---------
Total liabilities and shareholders' equity $ 3,629,072 $ 2,003,171
============= ============
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<TABLE>
<CAPTION>
TOSCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Thousands of Dollars Except Per Share Data
Three Months Nine Months
Ended September 30, Ended September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Sales $ 2,709,388 $ 1,816,846 $ 7,160,151 $ 5,417,203
----------- ------------ ----------- -----------
Cost of sales 2,538,718 1,734,096 6,741,605 5,227,809
Consolidation charge - 13,500 5,200
Selling, general and administrative 72,281 24,879 147,218 69,775
Interest expense 27,157 14,586 64,764 45,525
Interest income (1,079) (903) (2,766) (2,641)
------------ ------------- ------------ ------------
2,637,077 1,772,658 6,964,321 5,345,668
------------ ------------- ------------ ------------
Income before provision for income 72,311 44,188 195,830 71,535
Provision for income taxes 29,818 17,344 79,733 28,240
------------ ------------- ------------ -----------
Net income $ 42,493 $ 26,844 $ 116,097 $ 43,295
============= ============ ============ ===========
Income per common and common equivalent share:
Primary $ 0.95 $ 0.72 $ 2.86 $ 1.16
============= ============ ============ ===========
Fully diluted $ 0.95 $ 0.71 $ 2.84 $ 1.15
============= ============ ============ ==========
Dividends per common share $ 0.16 $ 0.16 $ 0.48 $ 0.48
============= ============ ============ ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
TOSCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Thousands of Dollars
Nine Months
Ended September 30,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income $116,097 $43,295
Adjustments to arrive at net cash provided by operating activities:
Depreciation 81,144 45,415
Amortization of deferred items and intangibles 49,934 34,735
Deferred income taxes 23,887 8,901
(Increase) decrease:
Trade accounts receivable (Note 3) 73,681 110,084
Inventories (43,128) (76,082)
Prepaid expenses and other current assets 7,097 1,912
Increase (decrease):
Accounts payable and accrued liabilities (128,499) 116,011
Other 4,348 6,755
--------- --------
Net cash provided by operating activities 184,561 291,026
--------- ---------
Cash flows from investing activities:
Acquisition of Circle K, excluding cash - $740,268,000, net of
issuance of Common Stock - $327,039,000 (Note 2) (413,229)
Purchase of property, plant and equipment, net (184,359) (133,323)
Increase in deferred turnarounds, charges and other assets (57,820) (58,539)
Net change in short-term investments and deposits (5,392) 1,546
---------- ---------
Net cash used in investing activities (660,800) (190,316)
Cash flows from financing activities:
Proceeds from bond offering 240,000 125,000
Borrowings (repayments) under revolver, net 315,000 (179,000)
Short-term bank repayments (20,000) (41,500)
Dividends on Preferred and Common Stock (19,902) (17,789)
Other (5,642) (1,513)
--------- ---------
Net cash provided by (used in) financing activities 509,456 (114,802)
--------- ---------
Net increase (decrease) in cash and cash equivalents 33,217 (14,092)
Cash and cash equivalents at beginning of period 19,148 23,793
--------- ----------
Cash and cash equivalents at end of period $52,365 $9,701
========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information with respect to the three and nine months
ended September 30, 1996 and 1995 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 The
Circle K Corporation (Circle K) acquired on May 30, 1996 (Note 2). All
significant intercompany accounts and transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management estimates and assumptions
that affect the reported amounts of assets and liabilities, reported results of
operations, and disclosures of contingent assets and liabilities.
Nature of Business
Tosco is one of the largest independent refiners and marketers of petroleum
products in the United States. Tosco has extensive distribution facilities and
engages in related commercial activities throughout the United States and
internationally. With the acquisition of Circle K, Tosco is the nation's largest
retailer of company-operated convenience stores.
Reclassifications
Certain previously reported amounts have been reclassified to conform to
classifications adopted in 1996.
Cash, Cash Equivalents, Short-term Investments and Deposits
Cash and cash equivalents include cash items on hand at convenience stores
or in transit. As such, certain balances are not immediately available for
investment. Cash available for investment is invested in certificates of deposit
and other highly liquid investments. Investments with original maturities of
more than three months and less than twelve months are classified as short-term
investments and carried at cost which approximates market. In accordance with
agreements with various state agencies, Circle K maintains cash balances in
excess of outstanding money orders. Checks outstanding in excess of offsettable
cash balances are reclassified and included in accounts payable.
Tosco purchased director and officer liability insurance coverage from its
wholly owned subsidiary with limits of liability coverage of $14,100,000 at
September 30, 1996. Approximately this amount of the subsidiary's assets is
restricted to payment of defense costs and claims made against the directors and
officers of Tosco.
Inventories
Inventories are stated at the lower of cost or market. The last-in,
first-out (LIFO) method is primarily used to determine cost for raw materials
and refined petroleum products. Prior to its acquisition of Circle K (see Note
2), Tosco operated 130 retail outlets. The fuel inventories at these
outlets had been accounted for under the LIFO method. Circle K operates 2,400
retail outlets and has used the first-in, first-out (FIFO) method of accounting
for retail inventories. Because of the insignificance of the Tosco's prior
retail inventories compared to the inventories of the newly acquired retail
operations, Tosco believes it is appropriate, in the third quarter of
1996, to change its method of accounting to that used by the predominate portion
of its present retail operations. The change does not have a significant impact
on the results of operations for 1995 or 1996, nor is it anticipated that it
will have a material effect on future periods. Prior to this change,
Tosco's inventory costs would not have differed significantly under the two
methods and, therefore, prior periods have not been restated.
Intangibles
Intangible assets consist principally of values assigned to tradenames.
Other intangible assets include the excess of cost over the assigned value of
net assets acquired (goodwill) in the Circle K acquisition. Tradenames and
goodwill acquired in the Circle K acquisition are being amortized on a
straight-line basis over 40 years. Other tradenames are being amortized over
their respective licensing periods of up to 15 years.
Supplier Advances
Advances received in connection with supplier marketing or display
allowances are amortized to income over the term of the respective arrangement
based upon purchase levels.
Self - Insurance
Tosco is self-insured up to certain limits for worker's compensation,
property damage and general liability claims. Accruals for loss incidences are
made based on claims experience and certain actuarial assumptions followed in
the insurance industry. Due to uncertainties inherent in the estimation process,
actual losses could differ from amounts accrued.
Excise Taxes
Excise taxes collected on behalf of governmental agencies are excluded from
sales, cost of sales or other expenses.
Environmental Costs
Environmental expenditures that relate to current operations are expensed or
capitalized as appropriate. Expenditures that relate to an existing condition
caused by past operations, which do not contribute to current or future revenue
generation, are expensed. Liabilities are recorded when environmental
assessments and/or remedial efforts are probable and the costs can be reasonably
estimated. Generally, the timing of these accruals coincides with completion of
investigations and other studies or a commitment to a formal plan of action.
Estimated reimbursements of remediation costs of petroleum releases from
underground storage tanks are recorded as assets for those states in which trust
fund programs are currently reimbursing applicants and in which future
reimbursement is probable.
2. Acquisitions
Circle K Acquisition
Tosco completed its acquisition of Circle K on May 30, 1996 (Merger Date).
Circle K has approximately 2,500 convenience stores in the United States, 2,300
of which are company operated and 200 are franchised. Approximately 1,900 of the
Circle K stores sell gasoline. The total consideration for the acquisition
consisted of $451 million of cash, 6,492,085 shares of Tosco Common Stock, and
certain other costs. The cash portion of the acquisition was financed by the
issuance of $240 million of 7 5/8% senior uncollateralized notes due May 15,
2006 and borrowings under Tosco's revolving credit facilities.
The acquisition has been accounted for as a purchase. Accordingly, Circle
K's assets and liabilities are included in the accompanying balance sheet at
values based upon a preliminary allocation of the purchase price. The allocation
is expected to be finalized by the end of 1996 based upon appraisals and other
evaluations currently in progress.
The preliminary allocation of the purchase price is summarized below:
May 30, 1996
(Thousands of Dollars)
Cash $ 41,465
Other current assets 245,032
Property, plant, and equipment 631,760
Other long-term assets 85,375
Intangibles, principally tradenames 555,401
Current liabilities ( 443,740)
Long-term debt (a) ( 114,356)
Other non-current liabilities ( 219,204)
------------
Total $ 781,733
==============
(a) As required by the terms of its Senior Credit Agreement, Circle K retired
debt obligations of $102,503,750 at the Merger Date from available cash and
cash advances from Tosco.
The consolidated results of operations of Tosco include the operations of
Circle K from the Merger Date. Unaudited pro-forma results of operations of
Tosco, assuming the acquisition had occurred on January 1, 1995 are as follows:
Pro-Forma Nine Months Pro-Forma Year
Ended Sept 30, 1996 Ended December 31, 1995
(Thousands of Dollars)
Sales $8,461,052 (a) $10,298,582
------------- ------------
Net income from
continuing operations $ 127,561 (a) $ 80,768
-------------- ------------
Earnings per share:
Primary $ 2.86 (a) $ 1.84
-------- ------------
Fully diluted $ 2.85 (a) $ 1.83
---------- ------------
(a) The pro-forma financial information excludes the pre-tax charge of
$13,500,000 ($8,100,000 after-tax, $.20 per share), recorded in 1996, for the
consolidation of Tosco's marketing division following the acquisition of Circle
K. The costs of consolidation include employee severance, office lease
termination and other costs that are not associated with or do not benefit
activities that will be continued.
The pro-forma financial information is presented for informational
purposes only and does not reflect the improvement in operating contribution
anticipated from the merger or the possible reduction in operating and
administrative costs expected from the consolidation of operations. Accordingly,
it is not necessarily indicative of the operating results that would have
occurred had the acquisition of Circle K been consummated as of January 1, 1995
nor are they necessarily indicative of future operating results.
Northeast marketing and refining assets
On February 2, 1996, Tosco completed the purchase of the U.S. Northeast
marketing and refining assets from British Petroleum (BP) for $59,000,000,
excluding inventories. Under the purchase agreement, Tosco obtained an exclusive
license valid for fifteen years, with various renewal options, to market retail
gasoline and diesel fuels under the BP brand in the U.S. Northeast. The purchase
included the 190,000 B/D Trainer Refinery near Philadelphia (which was taken
over in a non-operating mode), petroleum product terminals and certain
associated pipeline interests. In May 1996, Tosco sold 3 of the terminals
acquired which were surplus to Tosco's needs. Other acquired assets may be sold.
BP retains environmental obligations relating to the Trainer Refinery and other
properties included in the sale.
In September 1996, Tosco announced it has conditionally approved a plan to
modernize and reopen the Trainer Refinery. The plan includes a modernization
program of approximately $50,000,000 and a site-wide turnaround of all
processing units. The updated refinery would be reconfigured to operate in the
150,000 B/D range. The necessary satisfactory agreement has been reached with
organized labor and, assuming that required permits from various regulatory
agencies are obtained, the refinery is expected to restart by mid-1997. The
final allocation of the purchase price will be determined by the end of 1996.
3. Accounts Receivable
In June 1995, Tosco entered into a three-year agreement with a financial
institution to sell on a revolving basis up to $100,000,000 of an undivided
percentage ownership interest in a designated pool of accounts receivable
(Receivable Transfer Agreement). The agreement was amended in May 1996 to
increase the program to $175,000,000. As of September 30, 1996 and December 31,
1995 approximately $174,300,000 and $99,800,000, respectively, of receivables
had been sold.
<PAGE>
4. Inventories
Sept. 30, December 31,
1996 1995
-------- -----------
(Thousands of Dollars)
Raw materials (a) $217,918 $223,795
Intermediates (a) 27,080 18,147
Refined petroleum products (a) 290,641 242,558
Retail merchandise 111,193 2,851
Retail gasoline/diesel 37,223 2,128
Retail other 2,144
---------- ------------
$686,199 $489,479
========== ============
(a) The excess of replacement cost over the value of inventories based upon the
LIFO method was $158,180,000 and $43,304,000 at September 30, 1996 and
December 31, 1995, respectively.
<TABLE>
<CAPTION>
5. Utilization of Revolving Credit Facilities
Sept. 30, December 31,
1996 1995
(Thousands of Dollars)
<S> <C> <C>
Revolving credit facilities
Cash borrowings $ 360,000 $ 45,000
Letters of credit 108,707 90,055
---------- ----------
Total utilization 468,707 135,055
Availability 131,293 314,945
---------- ----------
Total credit line $ 600,000 $ 450,000
=========== =============
</TABLE>
Interest paid was $63,780,000 and $50,075,000 for the first nine months of
1996 and 1995, respectively.
<TABLE>
<CAPTION>
6. Income Taxes
Three Months Nine Months
Ended Sept 30, Ended Sept 30,
1996 1995 1996 1995
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Federal $ 24,152 $15,039 $ 64,804 $ 23,230
State 5,072 3,093 14,708 5,007
Foreign 594 (788) 221 3
---------- ------- -------- --------
Provision for income taxes $ 29,818 $17,344 $ 79,733 $ 28,240
========= ======= ========= =========
Cash payments (refunds) of income
taxes, net $ 24,373 $ 1,523 $41,372 ($ 928)
========== ======= ========= =========
</TABLE>
7. Commitments and Contingencies
Three cases were filed against Circle K in Idaho state courts which
involved former employees who alleged discrimination due to their gender and
age. Two of the cases were recently settled. The third case has been granted
class certification. Circle K denies such allegation. Discovery is proceeding.
The extent of liability, if any, is unknown.
There are various other legal proceedings and claims pending against Tosco
and Circle K that are common to its operations. While it is not feasible to
predict or determine the ultimate outcome of these matters, it is the opinion of
management that these suits will not result in monetary damages that in the
aggregate would be material to the business or operations of Tosco.
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 1995. The Annual Report sets forth Selected Financial Data that, in
summary form, reviewed Tosco's results of operations and capitalization over the
five-year period 1991-1995. This Management's Discussion and Analysis updates
that data.
ACQUISITIONS
On February 2, 1996, Tosco purchased British Petroleum's U.S. Northeast
marketing and refining assets. On May 30, 1996 Tosco completed its acquisition
of the Circle K Corporation (Circle K). See Note 2 to the Consolidated Financial
Statements.
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30,
1996
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
1996 1995
(Thousands of Dollars)
<S> <C> <C>
Sales (a) $ 2,709,388 $ 1,816,846
Cost of sales 2,538,718 1,734,096
----------- ------------
Operating contribution 170,670 82,750
Selling, general, and
administrative expense 72,281 24,879
Net interest expense 26,078 13,683
----------- ------------
Pre-tax income 72,311 44,188
Provision for income taxes 29,818 17,344
----------- ------------
Net income $ 42,493 $ 26,844
============= ==============
Fully-diluted earnings per share (b) $ 0.95 $ 0.71
======== ==============
(a) The increase in sales is primarily due to Tosco's acquisitions and higher
petroleum sales prices. Higher petroleum sales prices are primarily
attributable to higher crude oil costs.
(b) Earnings per share for 1996 reflects the increase in shares issued in
connection with the acquisition of Circle K.
</TABLE>
<TABLE>
<CAPTION>
REFINING DATA SUMMARY
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(IN THOUSANDS OF BARRELS PER DAY (B/D)
EXCEPT FOR REFINING MARGINS)
AVON BAYWAY (a) FERNDALE CONSOLIDATED
1996 1995 1996 1995 1996 1995 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Crude oil 163.7 153.7 222.0 239.9 89.4 91.4 475.1 485.0
Add'l refinery feeds 23.9 20.8 46.3 43.9 1.0 .1 71.2 64.8
---- ---- ---- ---- --- ---- ---- ----
Total charges 187.6 174.5 268.3 283.8 90.4 91.5 546.3 549.8
====== ======== ===== ====== ===== ===== ===== =====
Petroleum products
produced:
Clean products (b) 156.8 150.0 223.2 227.3 62.2 62.4 442.2 439.7
Other finished products 29.5 23.1 48.5 60.4 26.1 27.8 104.1 111.3
--------- ---- ---- ---- ---- ----- ----- ------
Total finished products
produced 186.3 173.1 271.7 287.7 88.3 90.2 546.3 551.0
========= ===== ===== ==== ===== ===== ====== =====
Operating margin per charge
barrel (c) (d) $ 7.60 $ 5.68 $ 2.89 $ 2.93 $ 3.49 $ 2.99 $ 4.60 $ 3.81
========= ==== ===== ===== ==== ====== ====== ======
(a) Bayway's margins include the results of hedges designed to lock in a
predetermined level of operating margins on a varying percentage of Bayway's
production. At September 30, 1996, Tosco had hedged approximately 5% of
Bayway's remaining 1996 production.
(b) Clean products are defined as clean transportation fuels (gasoline, diesel,
and jet fuel) and heating oil.
(c) Per-charge-barrel operating margin is defined as sales minus cost of sales,
excluding refinery operating costs and non-operating items, divided by total
refinery charges.
(d) As illustrated by the table, operating margins vary significantly by
refinery. This variance is due to a number of reasons including marketing
conditions in the principal areas served by the refineries, each refinery's
configuration and complexity (ability to convert raw materials into clean
products), and maintenance schedules.
</TABLE>
Tosco earned $42.5 million, or $.95 per fully diluted share, on sales of
$2.7 billion for the third quarter of 1996, compared to net income of $26.8
million, or $.71 per fully diluted share, on sales of $1.8 billion for the third
quarter of 1995.
Tosco generated an operating contribution (income before selling, general
and administrative expense, net interest expense, and income taxes) for the
third quarter of 1996 of $170.7 million, an increase of $87.9 million from 1995.
The increase was primarily due to good refining margins and the acquisition of
Circle K.
Consolidated margins increased by $ .79 per barrel to $4.60 per barrel due
to better West Coast margins for most of the third quarter. Margins deteriorated
late in the third quarter. Higher operating margins were aided by improvements
in clean product production which increased by 2,500 B/D to 442,200 B/D despite
a reduction of total throughput charges.
Retail marketing fuel margins averaged $.14 per gallon for the third
quarter of 1996 compared to $.12 for the third quarter of 1995 and volumes sold
increased by 408 million gallons to 684 million gallons. The increase in margins
reflects the strong retail margins achieved through most of the third quarter
particulary through the now higher percentage of retail sales from company
operated stores. The increase in volumes sold is due to the May 30th acquisition
of Circle K. Margins achieved from company operated stores are typically higher
than margins on sales to the dealer/jobber class of trade. Merchandise gross
profit (defined as merchandise sales less merchandise cost of sales excluding
store operating expenses) increased by $152 million due to the Circle K
acquisition.
The increase in selling, general, and administrative expense for the third
quarter of 1996 is attributable to Tosco's acquisitions and higher levels of
incentive compensation due to higher levels of operating income. Interest
expense increased in 1996 primarily due to higher debt levels related to Tosco's
acquisitions. See Notes 2 and 3 to the Consolidated Financial Statements.
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1996
SEPTEMBER 30,
1996 1995
(Thousands of Dollars)
Sales $ 7,160,151 $ 5,417,203
Cost of sales 6,741,605 5,227,809
----------- -----------
Operating contribution 418,546 189,394
Consolidation charge 13,500 5,200
Selling, general, and administrative expense 147,218 69,775
Net interest expense 61,998 42,884
----------- -----------
Pre-tax income 195,830 71,535
Provision for income taxes 79,733 28,240
----------- -----------
Net income $ 116,097 $ 43,295
=========== ============
Fully-diluted earnings per share $ 2.84 $ 1.15
============ ============
<PAGE>
<TABLE>
<CAPTION>
REFINING DATA SUMMARY
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(IN THOUSANDS OF B/D EXCEPT FOR REFINING
MARGINS)
AVON (a) BAYWAY FERNDALE (a) CONSOLIDATED
1996 1995 1996 1995 1996 1995 1996 1995
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Crude oil 160.7 154.5 226.4 231.9 87.3 76.3 474.4 462.7
Add'l refinery feeds 17.6 13.4 49.6 58.8 1.3 1.2 68.5 73.4
---- ---- ---- ---- --- --- ---- ----
Total charges 178.3 167.9 276.0 290.7 88.6 77.5 542.9 536.1
====== ======= ====== ====== ===== ====== ===== ======
Petroleum products produced:
Clean products 146.5 132.4 229.8 239.7 61.4 51.3 437.7 423.4
Other finished products 29.8 32.8 51.2 56.1 25.3 24.0 106.3 112.9
---------- ---- ---------- ---- --------- ------ ------- ------
Total finished products
produced 176.3 165.2 281.0 295.8 86.7 75.3 544.0 536.3
======= ======= ========= ===== ========= ====== ======= ======
Operating margin per charge
barrel $ 7.15 $ 5.14 $ 3.68 $ 2.80 $ 3.79 $ 2.75 $ 4.84 $ 3.53
========== ==== ===== ==== ==== ====== ====== ======
(a)Avon's catalytic cracker, the refinery's principal gasoline production unit,
and the processing units at the Ferndale Refinery were shut down for 55 and
33 days, respectively, in the first quarter of 1995 for major scheduled
turnaround maintenance.
</TABLE>
Tosco earned $116.1 million, or $2.84 per fully diluted share, on sales of
$7.2 billion for the first nine months of 1996, compared to $43.3 million, or
$1.15 per fully diluted share, on sales of $5.4 billion for the first nine
months of 1995. Results of operations for 1996 include a consolidation charge of
$13.5 million ($8.1 million after-tax, $.20 per share) for the consolidation of
Tosco's marketing division following the completion of the acquisition of Circle
K. Results of operations for 1995 include an after-tax restructuring charge of
$5.2 million ($3.1 million after tax, $.08 per share) related to a major expense
reduction program at the Avon Refinery.
Tosco generated an operating contribution for the first nine months of 1996
of $418.5 million, an increase of $229.1 million from 1995. The increase was
attributable to good refining margins, the acquisition of Circle K and Bayway's
strong first quarter 1996 performance due to the cold winter weather in the
Northeast. Conversely, first quarter 1995 operating contribution was severely
impacted by extremely poor refining margins and extensive scheduled turnaround
maintenance. Retail marketing fuel margins averaged $.12 per gallon for 1996
compared to $.10 for the comparable 1995 period. Retail volumes sold for the
nine month period also increased by 610 million gallons to 1.4 billion gallons
due to Tosco's acquisitions.
The increase in selling, general, and administrative expense for the first
nine months of 1996 versus the comparable period of 1995 was due to Tosco's
expanded operations. The increase in net interest expense for 1996 is primarily
due to higher levels of debt due to Tosco's acquisitions.
OUTLOOK
Results of operations continue to be determined by two factors: the
operating efficiency of the refineries and refining and retail marketing
margins. Tosco's refineries have had no major turnaround activity in 1996.
Assuming reasonable margins, Tosco presently expects to run its operating
refineries at high production levels for the balance of 1996. The favorable
refining margins and strong retail margins achieved through most of the third
quarter deteriorated late in the quarter driven by continuing increases in crude
oil prices. These poor margins have continued into the fourth quarter. Tosco is
not able to predict the level or direction of margins for the balance of the
fourth quarter due to uncertainties associated with oil markets. In view of
uncertain operating margins in highly competitive markets, Tosco is committed to
improving its operating results by lowering costs in all areas.
Tosco's acquisitions of BP's Northeast assets and of Circle K advanced
Tosco's goal of becoming a major gasoline retailer. In addition, the Circle K
acquisition made Tosco the largest retailer of company-operated convenience
stores in the United States. Tosco expects to achieve significant economies of
scale and enhanced earnings and cash flows from the Circle K acquisition. Tosco
continues to look for opportunities to add to its existing refining and
marketing assets under the right conditions.
Construction of a solvent deasphalting unit (SDA) at the Bayway Refinery
was completed in August 1996. The SDA will process approximately 20,000 B/D of
low-value residual fuel to produce feedstock for the cat cracker, the refinery's
principal gasoline manufacturing unit. The SDA will reduce the amount of
high-cost, partially refined feedstocks that Bayway purchases from third parties
which should improve Bayway's margins. In addition, the first of four chartered
crude oil tankers began deliveries of crude oil in the third quarter. The
tankers will transport crude oil from Bayway's leased deep-water terminal in
Nova Scotia, Canada or in direct shipments from suppliers and should provide
competitive shipping costs and reduce the potential for spills.
In September 1996, Tosco announced that it has conditionally approved a
plan to modernize and reopen the Trainer Refinery. The plan includes a
modernization program of approximately $50 million and a site-wide turnaround of
all processing units. The updated refinery would be reconfigured to operate in
the 150,000 B/D range (lower throughput rates than under previous management).
Assuming that required permits from various regulatory agencies are obtained,
the refinery is expected to restart by mid-1997. Tosco expects the Trainer
Refinery as reconfigured, to be competitive in its marketplace, with cash
operating costs below $2.00 per barrel.
CASH FLOWS AND LIQUIDITY
As summarized in the Statement of Cash Flows, cash increased by $33 million
during the first nine months of 1996 as cash provided by operating and financing
activities of $185 million and $509 million, respectively, exceeded cash used in
investing of $661 million.
Cash provided by operating activities of $185 million was from cash earnings
from operations of $271 million (net income plus depreciation, amortization, and
deferred income taxes) and other sources of $4 million offset by an increase in
working capital of $90 million. The increase in working capital, net of proceeds
from Tosco's expanded Receivable Transfer Agreement, is attributable to Tosco's
acquisitions.
Cash provided by financing activities, primarily for the acquisition of
Circle K, totaled $509 million, consisting of proceeds from Tosco's $240 million
bond offering, net borrowings under the revolving credit facility of $315
million, partially offset by short-term bank repayments of $20 million,
dividends on common stock and other payments of $26 million.
Net cash used in investing activities of $661 million was for the
acquisition of Circle K ($413 million), capital additions of $185 million
(including $40 million for the BP Northeast refining and marketing assets),
increases in deferred charges and other assets of $58 million and increases in
short-term investments and deposits of $5 million.
Liquidity (as measured by cash, short-term investments and deposits and
unused credit facilities) decreased by $145 million during 1996 due to a
decrease in unused credit facilities of $230 million, partially offset by an
increase of $33 million in cash and cash equivalents and $6 million short-term
investments and deposits. Effective April 8,1996, Tosco's revolving credit
agreement was amended to provide an unsecured $600 million revolving credit
facility. Tosco's former $450 million credit facility restricted borrowings to a
percentage of a borrowing base. At September 30, 1996, liquidity totaled $218
million (an amount which Tosco believes is adequate to meet its expected
liquidity demands for at least the next twelve months).
Tosco has the intent and ability to refinance $100 million of First
Mortgage Bonds due March 15, 1997 on a long-term basis.
CAPITAL EXPENDITURES AND CAPITALIZATION
On February 2, 1996, Tosco completed the purchase of BP's U.S. Northeast
marketing and refining assets. On May 30, 1996, Tosco completed its acquisition
of Circle K. Other capital expenditures for 1996 of $145 million were for
budgeted capital projects, primarily at the Avon and Bayway Refineries and
retail outlets. Refinery capital spending programs were for the completion of
projects to meet reformulated fuel specifications, compliance with environmental
regulations and permits, personnel/process safety, and operating flexibility and
reliability (including projects to tie into the SDA unit at Bayway). Retail
capital spending was primarily focused on expansion and modernization of
company stores. Due to the acquisition of Circle K, future retail capital
spending will be focused on integrating operations and enhancing existing retail
sites that can be financed from internal cash flows.
The quarterly dividend rate for Tosco's $.75 par value Common Stock will be
increased from $0.16 to $0.17 per share beginning with the fourth quarter of
1996. The decision to raise the dividend after two years of regular $0.16 per
share quarterly share reflects the Board of Directors' satisfaction with Tosco's
growth and development over the past few years and their confidence in the
future.
At September 30, 1996, total shareholders' equity was $1.0 billion, an
increase from December 31, 1995 of $422 million due to the issuance of
approximately 6.5 million shares of Common Stock ($327 million) and net income
of $116 million less dividend and other payments of $21 million. Debt, including
current maturities and short-term borrowings, increased by $659 million to $1.3
billion at September 30, 1996 primarily due to the acquisition of Circle K.
<TABLE>
<CAPTION>
TOSCO CORPORATION AND SUBSIDIARIES
PART I - EXHIBIT I
COMPUTATION OF EARNINGS PER SHARE
(Unaudited)
In Thousands Except Per Share Data
Three Months Nine Months
Ended September 30 Ended September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net income $ 42,493 $ 26,844 $ 116,097 $43,295
======== ========== ========== =======
Weighted average number of shares
outstanding during the period 43,617 37,065 39,732 37,058
Stock option equivalents 992 413 926 371
--------- -------- -------- --------
Shares used for computation of primary
earnings per share 44,609 37,478 40,658 37,429
Additional stock option equivalents 116 101 182 143
---------- -------- -------- -------
Shares and equivalents used for computation
of fully diluted earnings per share 44,725 37,579 40,840 37,572
========== ======== ======== =======
Earnings per share:
Primary $ 0.95 $ 0.72 $ 2.86 $ 1.16
========= ======== ======== =======
Fully diluted $ 0.95 $ 0.71 $ 2.84 $ 1.15
========= ======== ======== =======
</TABLE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Two lawsuits and several unfair labor practice charges had been filed with
the National Labor Relations Board (NLRB) against Tosco and/or its subsidiaries
either by the labor union that represented BP's former employees or former BP
employees at the Marcus Hook refinery near Philadelphia, Pennsylvania that was
purchase by a subsidiary of Tosco from BP on February 2, 1996. The labor union
has agreed to withdraw the NLRB charges, Tosco Corporation (NLRB Case Nos.
4-CA-24570, 4-CA-24755 and 4-CA-24771-2) and has dismissed the case of Oil,
Chemical & Atomic Workers International Union, et al v. Tosco (United States
District Court, Eastern District Of Pennsylvania, Case No. 96-CV-1712). The
union has agreed to cause the plaintiffs in the case of Stefano v. Marcus Hook
Refining, et, al, (Court of Common Pleas for Delaware County, Case No. 96-1187)
to dismiss this matter. See 10-Q first quarter 1996.
Two cases filed by former employees against Circle K Corporation, now a
Tosco subsidiary, in Idaho state court alleging discrimination and termination
due to gender and age have been settled. Vernita Bunch and Helen Lewis v. Circle
K Corporation, (District Court for the Sixth Judicial District of the State of
Idaho, Case No. CV OC 95-50466, Rhonda Terrell v. Circle K Corporation,
(District Court for the Fourth Judicial District of the State of Idaho, Case No.
CV OC 95-00930D). A third case of similar allegations has been certified as a
class action. Constance Clark, et al v. Circle K Corporation (District Court for
the Fourth Judicial District of the State of Idaho, Case No CV OC 96-01115D).
Discovery is in progress. See 10-Q second quarter 1996.
A case has been filed by private litigants against all major petroleum
refiners, distributors and retailers in California, including Tosco, alleging
they have restraint trade and restricted the supply of a certain type of cleaner
burning gasoline sold in California. Aguilar, et al. v. Atlantic Richfield
Corporation et al (Superior Court Of California, County of San Diego, Case No.
00700810). Plaintiffs are seeking certification as a class. Discovery is
proceeding.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
11. Computation of Earnings Per Share (See Part I, Exhibit I).
18. Letter of Coopers and Lybrand concurring with change of accounting.
27. Financial Statement Data Schedule.
<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: November 14, 1996 By:/s/ JEFFERSON F. ALLEN
(Jefferson F. Allen)
Executive Vice President
and Chief Financial Officer
By:/s/ ROBERT I. SANTO
(Robert I. Santo)
Chief Accounting Officer
EXHIBIT 18
LETTERHEAD OF COOPERS AND LYBRAND L.L.P.
Tosco Corporation
72 Cummings Point Road
Stamford, CT
We are providing this letter to you for inclusion as an exhibit to your
Form 10-Q filing pursuant to Item 601 of Regulation S-K.
We have read management's justification for the change in accounting for
retail fuel inventories from the last-in, first-out (LIFO) method of inventory
valuation to the first-in, first-out (FIFO) method contained in the Company's
Form 10-Q for the quarter ended September 30, 1996. Based on our reading of the
data and discussions with the Company officials of the business judgment and
business planning factors relating to the change, we believe management's
justification to be reasonable. Accordingly, in reliance on management's
determination as regards elements of business judgment and business planning, we
concur that the newly adopted accounting principle described above is preferable
in the Company's circumstances to the method previously applied.
We have not audited any financial statements of Tosco Corporation as of any
date or for any period subsequent to December 31, 1995, nor have we audited the
application of the change in accounting principle disclosed in Form 10-Q of
Tosco Corporation for the quarterly period ended September 30, 1996;
accordingly, our comments are subject to revision on completion of an audit of
the financial statements that include the accounting change.
/s/ Coopers and Lybrand L.L.P.
San Francisco, California
November 13, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 52,365
<SECURITIES> 34,517
<RECEIVABLES> 223,036
<ALLOWANCES> 9,416
<INVENTORY> 686,199
<CURRENT-ASSETS> 1,124,878
<PP&E> 2,153,964
<DEPRECIATION> 457,271
<TOTAL-ASSETS> 3,629,072
<CURRENT-LIABILITIES> 965,004
<BONDS> 450,000
0
0
<COMMON> 34,626
<OTHER-SE> 963,635
<TOTAL-LIABILITY-AND-EQUITY> 3,629,072
<SALES> 7,160,151
<TOTAL-REVENUES> 7,160,151
<CGS> 6,755,105
<TOTAL-COSTS> 6,755,105
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 64,764
<INCOME-PRETAX> 195,830
<INCOME-TAX> 79,733
<INCOME-CONTINUING> 116,097
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 116,097
<EPS-PRIMARY> 2.86
<EPS-DILUTED> 2.84
</TABLE>
