FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
for the transition period from_________________to________________________
COMMISSION FILE NUMBER 1-7910
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 April 30, 1996 was 37,126,228
shares.
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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 MONTHS ENDED MARCH 31, 1996
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 1995
ANNUAL REPORT ON FORM 10-K.
<TABLE>
<CAPTION>
TOSCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Thousands of Dollars
ASSETS March 31, December 31,
1996 1995
(Unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 5,740 $ 19,148
Short-term investments and deposits 55,233 29,125
Trade accounts receivable, less allowance for uncollectibles
of $8,555,000 (1996) and $8,523,000 (1995) 298,627 296,768
Inventories 510,845 489,479
Prepaid expenses and other current assets 40,470 42,363
Deferred income taxes 4,558 4,558
--------- ----------
Total current assets 915,473 881,441
Property, plant and equipment, net 1,036,882 961,418
Deferred turnarounds 82,769 82,249
Other deferred charges and assets 101,293 78,063
---------- ----------
Total assets $2,136,417 $2,003,171
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 468,978 $ 503,900
Accrued expenses and other liabilties 187,797 166,391
---------- ----------
Total current liabilities 656,775 670,291
Revolver debt 159,000 45,000
Long-term debt 579,122 579,036
Other liabilities 16,744 15,660
Environmental cost liability 33,911 34,379
Net liabilities of discontinued operations 3,309 1,256
Deferred income taxes 42,476 30,439
Shareholders' equity:
Common Stock - $.75 par value, 50,000,000 shares authorized,
39,675,269 (1996) and 39,613,950 (1995) shares issued 29,757 29,714
Capital in excess of par value 641,231 640,306
Retained earnings 45,925 27,903
Treasury stock, at cost (71,833) (70,813)
--------- -----------
Total shareholders' equity 645,080 627,110
--------- -----------
Total liabilities and shareholders' equity $2,136,417 $2,003,171
========== ==========
The accompanying notes are an integral part of these financial statements.
</TABLE>
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<TABLE>
<CAPTION>
TOSCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Thousands of Dollars Except Per Share Data
(Unaudited)
Three Months Ended March 31,
1996 1995
<S> <C> <C>
Sales $ 2,020,023 $ 1,696,319
Cost of sales 1,937,412 1,666,373
Selling, general and administrative expense 27,070 22,602
Interest expense 16,723 15,398
Interest income (800) (899)
----------- -----------
1,980,405 1,703,474
----------- -----------
Income (loss) before provision for income taxes 39,618 (7,155)
Provision (credit) for income taxes 15,652 (2,882)
----------- ------------
Net income (loss) $ 23,966 $ (4,273)
=========== ============
Income (loss) per common and common equivalent share:
Primary: $ 0.63 $ (0.12)
========== ============
Fully diluted: $ 0.63 $ (0.12)
========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<TABLE>
<CAPTION>
TOSCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
(Unaudited)
Three Months Ended March 31,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 23,966 $ (4,273)
Adjustments to arrive at net cash provided by operating activities:
Depreciation 17,833 14,160
Amortization of deferred items 14,996 9,768
Deferred income taxes 11,848
Restructuring charge 2,200
(Increase) decrease:
Trade accounts receivable (1,859) 30,548
Inventories, including acquired inventories from BP (Note 2) (21,366) 6,145
Prepaid expenses and other current assets 1,893 3,357
Increase (decrease):
Accounts payable and accrued liabilities (43,327) 57,109
Other liabilities and deferred gains 870 941
Other, net 2,053 (2,210)
--------- ----------
Net cash provided by operating activites 6,907 117,745
Cash flows from investing activities:
Purchase of property, plant and equipment, net (93,317) (47,882)
Increase in deferred turnarounds, charges and other assets (38,894) (43,426)
Net change in short-term investments and deposits (26,108) (31,617)
Transfers to discontinued operations (6,646)
--------- ----------
(158,319) (129,571)
Cash flows from financing activities:
Borrowings under revolver, net 114,000 40,000
Short-term bank borrowings (repayments) 30,000 (12,000)
Dividends paid on Preferred and Common Stock (5,940) (5,932)
Other, net (56) (225)
--------- ----------
Net cash provided by financing activities 138,004 21,843
--------- ---------
Net increase(decrease) in cash and cash equivalents (13,408) 10,017
Cash and cash equivalents at beginning of period 19,148 23,793
--------- ---------
Cash and cash equivalents at end of period $ 5,740 $ 33,810
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION WITH RESPECT TO THE THREE MONTHS
ENDED MARCH 31, 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
Seminole Fertilizer Corporation (Seminole), a discontinued operation whose
principal operating assets were sold in 1993.
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 a large independent refiner, wholesaler, and retail marketer of
petroleum products, principally on the East and West Coasts of the United
States. Tosco has extensive distribution facilities and engages in related
commercial activities throughout the United States and internationally.
RECLASSIFICATIONS
Certain previously reported amounts have been reclassified to conform to
classifications adopted in 1996.
CASH, CASH EQUIVALENTS, SHORT-TERM INVESTMENTS AND DEPOSITS
Tosco purchased director and officer liability insurance coverage from
its wholly owned subsidiary Loil Group Ltd. (Loil), with limits of liability
coverage of $14,100,000 at March 31, 1996 (an amount approximately equal to the
amount of cash and investments of Loil). The assets of Loil are restricted to
payment of defense costs and claims made against the directors and officers of
Tosco. As of March 31, 1996, the portfolio's carrying value of marketable
investments, considered "available for sale" in accordance with SFAS No. 115 -
"Accounting for Certain Investments in Debt and Equity Securities", approximated
fair value.
MARGIN DEPOSITS
Pursuant to the requirements of the commodity exchanges, margin deposits
based on a percentage of the value of futures contracts have been placed
with commodity brokers. Margin deposits are classified as short-term deposits on
the balance sheet.
INVENTORIES
Inventories of raw materials and products are valued at the lower of
cost, determined by 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.
DEFERRED CHARGES AND TURNAROUNDS
Financing charges related to the acquisition or refinancing of debt
are deferred and amortized over the term of the related debt using the effective
interest method.
Refinery processing units are periodically shut down for major
maintenance (turnarounds). Turnaround costs are deferred and amortized on a
straight-line basis over the expected period of benefit (the period to the next
scheduled shutdown of the unit, which generally ranges from 24 to 48 months).
2. RECENT ACQUISITIONS
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. The license covers eleven
northeastern states, plus the Washington D.C. metropolitan area. The term of
Tosco's exclusive license in nine western states was also extended to fifteen
years from the closing date. The purchase included the 180,000 B/D Marcus Hook
Refinery near Philadelphia (which was taken over in a non-operating mode),
petroleum product terminals and certain associated pipeline interests (some of
which are surplus to Tosco's needs and will be sold.) BP retains environmental
obligations relating to the Marcus Hook Refinery and other properties included
in the sale. The purchase price was fully allocated to property, plant and
equipment ($40,000,000) and trademarks and licenses ($19,000,000) based upon
their estimated fair values as of the date of acquisition. A final allocation of
the purchase price will be determined by the end of 1996.
THE CIRCLE K CORPORATION
On February 16, 1996, Tosco agreed to acquire all of the outstanding shares
of The Circle K Corporation (Circle K). Circle K has approximately 2,500
convenience stores in the United States of which 2,300 are company-controlled
and 200 are franchised. Approximately 1,900 of the Circle K stores sell
gasoline. Upon completion of the transaction, Tosco will be the largest operator
of company-owned convenience stores in the United States. A large portion of the
Circle K system is located in areas where Tosco is licensed to operate under the
BP or Exxon brand.
Stockholders of Circle K will be asked at a special stockholders meeting to
be held on May 30, 1996 (Special Meeting) to approve a merger agreement (Merger
Agreement) pursuant to which Tosco Acquisition Sub, Inc., a wholly owned
subsidiary of Tosco (Tosco Acquisition Sub.), will be merged with and into
Circle K. Each Circle K stockholder will receive shares of common stock of Tosco
(Common Stock). The number of shares of Common Stock to be issued will be
determined based upon the average of the closing prices of Common Stock during
the ten consecutive trading days ending on the second trading day prior to the
Special Meeting (Average Tosco Stock Price). Circle K stockholders exchanging
their shares in the Merger will receive shares of Common Stock which, depending
upon the Average Tosco Stock Price, is expected to have a value of between
$28.288 and $31.482 per share of Circle K stock.
The amount of Common Stock to be issued will increase upon the exercise
of outstanding options issued pursuant to option plans of Circle K at per share
exercise prices ranging from $7.93 to $17.88. Tosco has agreed to purchase for
cash, at prevailing market prices, a portion of the Circle K shares received
upon exercise of options. Through March 31, 1996, Tosco has purchased an
aggregate of 257,558 shares for $7,714,000 (classified as short-term investments
on the Balance Sheet). To the extent that any options are not exercised or do
not vest prior to the consummation of the Merger, such options will be canceled
for $29.00 per share minus the per share exercise prices of such options.
Concurrently with the execution of the Merger Agreement, Tosco will acquire
16,555,852 shares of Circle K Common Stock, (approximately 65% of the
outstanding shares of Circle K) from certain Circle K stockholders (Selling
Shareholders) pursuant to a stock sale agreement between Tosco and the Selling
Shareholders. The Selling Shareholders will receive for each share of Circle K
Common Stock, $25.825 in cash (aggregate of approximately $427.5 million) and
shares of Tosco Common Stock, which is expected to have a value of between
$1.941 and $3.572. Therefore, the total value of the per share consideration to
be received by the Selling Shareholders is expected to be between $27.766 and
$29.397. The Selling Shareholders have granted proxies to Tosco to vote their
shares in favor of the Merger at the Special Meeting.
If the Average Tosco Stock Price is greater than $51.00, Circle K may
elect to terminate the Merger Agreement. however, Circle K may not terminate the
Merger Agreement if Tosco elects to issue 0.6173 shares of Tosco Common Stock
for each share of Circle K Common Stock. If the Average Tosco Stock Price is
greater than $51.00 and Circle K does not elect to terminate the Merger
Agreement, the number of shares of Common Stock to be issued for each share of
Circle K Common Stock will be reduced to less than 0.6173 (depending upon the
ratio of the Average Tosco Stock Price) to $31.482 (the maximum value of
Common Stock to be received by Circle K stockholders). Circle K may also elect
to terminate the Merger Agreement if the Average Stock Price is less than
$35.00. If Circle K so elects, Tosco has the ability to continue the agreement.
3. ACCOUNTS RECEIVABLE
As part of its ongoing program to reduce interest costs, 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). Under the Receivable Transfer Agreement, Tosco retains substantially
the same risk of credit loss as if the receivables had not been sold. Tosco also
retains collection and administrative responsibilities on the participating
interest sold as agent for the financial institution. As of March 31, 1996, and
December 31, 1995, approximately $99,800,000 of receivables had been sold under
the Receivable Transfer Agreement and the sales are reflected as a reduction of
accounts receivable. Proceeds were used to reduce indebtedness under Tosco's
revolving credit facilities (Note 6).
4. INVENTORIES
MARCH 31, DECEMBER 31,
1996 1995
------------ ------------
(THOUSANDS OF DOLLARS)
Raw materials $ 190,249 $ 223,795
Intermediates 17,967 18,147
Finished products 297,137 242,558
Retail 5,492 4,979
----------- -----------
$ 510,845 $ 489,479
========= =========
The excess of replacement cost over the carrying value of inventories
based upon the LIFO method was $85,352,000 and $43,304,000 at March 31, 1996 and
December 31, 1995, respectively.
<TABLE>
<CAPTION>
5. ACCRUED EXPENSES AND OTHER LIABILITIES
MARCH 31, DECEMBER 31,
1996 1995
------------ ------------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Accrued taxes other than taxes on income $ 67,040 $ 64,122
Accrued compensation and related benefits 12,894 15,759
Accrued interest 8,471 14,197
Income taxes payable (receivable) 2,467 (1,943)
Acquisition-related liabilities (a) 37,681 37,841
Other accrued costs 8,473 9,714
Short-term borrowings (b) 50,000 20,000
Dividends payable 5,930
Current installments of long-term debt 771 771
---------- -------------
$ 187,797 $ 166,391
========== =========
(a) In December 1993, Tosco acquired the Ferndale Refinery, retail
marketing assets in the Pacific Northwest, and the right to market under the BP
brand from BP Exploration and Oil Inc. (BP) The purchase price included annual
contingent participation payments of up to $50,000,000 to $100,000,000 over the
five years following the acquisition based on the performance of the refining
and retail marketing segments, respectively. In December 1995, Tosco and BP
agreed to settle all contingent participation payments, including participation
payments due for 1995, for $35,000,000 (paid in April 1996).
(b) Represents unsecured cash borrowings under short-term lines of credit
with interest at alternative rates at Tosco's option.
</TABLE>
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<CAPTION>
6. UTILIZATION OF REVOLVING CREDIT FACILITIES
MARCH 31, DECEMBER 31,
1996 1995
------------ ------------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Revolving Credit Facility
Cash borrowings $ 159,000 $45,000
Letters of credit 85,552 90,055
----- ---------
Total utilization 244,552 135,055
Availability 205,448 314,945
-------- ---------
Total credit line $450,000 $ 450,000
======== =========
Interest paid was $21,973,000 and $19,194,000 for the first three months
of 1996 and 1995, respectively.
</TABLE>
7. CAPITAL STOCK
Quarterly dividends of $.16 per share of Common Stock were paid on March
29, 1996 to shareholders of record on March 19, 1996.
<TABLE>
<CAPTION>
8. INCOME TAXES
THREE MONTHS ENDED MARCH 31,
1996 1995
------------ --------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Federal $ 12,899 ($ 2,487)
State 2,773 (530)
Foreign (20) 135
------------- ------------
Provision (credit) for income taxes $ 15,652 ($ 2,882)
========= =========
Cash payments (refunds) of income
taxes, net ($ 796) ($ 3,746)
======== ==========
</TABLE>
9. CONTINGENCIES
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 its liability for
environmental costs, net of liabilities transferred pursuant to the settlement
of outstanding litigation with the predecessor owners of the Avon Refinery
concerning environmental issues. While Tosco believes it has adequately provided
for environmental exposures, should these matters be resolved unfavorably to
Tosco, they could have a material adverse effect on its long-term consolidated
financial position and results of operations.
10. SUBSEQUENT EVENTS
New Credit Agreement
Effective April 8, 1996 Tosco entered into an amended and restated
revolving credit agreement expiring in April 2000 (New Credit Agreement). The
New Credit Agreement provides Tosco with an unsecured $600 million revolving
credit facility that is available to Tosco for working capital and general
corporate purposes, including the acquisition of Circle K. Tosco's former $450
million revolving credit agreement was a collateralized loan agreement, expiring
in April, 1998, which restricted borrowings to a percentage of the borrowing
base.
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 which, 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.
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 1996
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<CAPTION>
CONSOLIDATED
THREE MONTHS ENDED MARCH 31,
1996 1995
---- ----
(Thousands of Dollars)
<S> <C> <C>
Sales (a) $2,020,023 $1,696,319
Cost of sales 1,937,412 1,664,173
Restructuring charge 2,200
------------ ----------
Operating contribution 82,611 29,946
Selling, general, and administrative expense 27,070 22,602
Net interest expense 15,923 14,499
------ ------------
Pre-tax income (loss) 39,618 (7,155)
Provision for income taxes 15,652 2,882
-------- ---------
Net income (loss) $ 23,966 $ ( 4,273)
========= ============
(a) The increase in sales for the first quarter of 1996 was primarily due
to higher sales volumes and sales prices. Higher sales volumes were due to
increased commercial activity (in response to higher demands for heating oil on
the East Coast of the U.S.) and increased refinery production levels.
</TABLE>
<TABLE>
<CAPTION>
REFINING DATA SUMMARY
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(IN THOUSANDS OF BARRELS PER DAY (B/D) EXCEPT FOR OPERATING MARGINS)
AVON Bayway FERNDALE CONSOLIDATED
1996 1995(a) 1996(b) 1995 1996 1995(a) 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Crude oil 159.8 161.2 227.2 226.3 83.9 56.1 470.9 443.6
Add'l refinery feeds 14.5 4.5 50.0 67.7 2.7 2.4 67.2 74.6
---- --- ----- ----- ----- ----- ----- ----
Total Charges 174.3 165.7 277.2 294.0 86.6 58.5 538.1 518.2
===== ===== ===== ===== ===== ===== ====== =====
Petroleum products produced:
Clean Products (c) 137.5 107.5 233.5 245.8 61.0 36.3 432.0 389.6
Other finished products 35.7 54.1 50.4 54.4 23.4 13.4 109.5 121.9
---- ---- ----- ----- ----- ----- ------ -----
Total finished products
produced 173.2 161.6 283.9 300.2 84.4 49.7 541.5 511.5
===== ===== ===== ===== ======= ====== ===== =====
Operating margin per
charge barrel (d)(e) $4.65 $4.54 $4.17 $2.43 $3.67 $2.32 $ 4.25 $3.09
===== ===== ===== ===== ===== ===== ====== =====
(a) Avon's cat cracker (the principal gasoline production unit) and the
processing units at the Ferndale Refinery were shut down for scheduled
maintenance during the first quarter of 1995.
(b) Bayway improved its operating margin by reducing the ratio of
high-cost, partially refined feedstocks to total refinery charges, while
improving the ratio of higher valued clean products to total yields.
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 March 31, 1996, Tosco had hedged approximately 18% and 9% of
Bayway's second quarter and remaining 1996 production, respectively.
(c) Clean products are defined as clean transportation fuels (gasoline,
diesel, and jet fuel) and heating oil.
(d) 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.
(e) 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, their configuration
and complexity (ability to convert raw materials into clean products), and
maintenance schedules.
</TABLE>
Tosco earned $24.0 million, or $.63 per fully diluted share, on sales of
$2.0 billion for the first quarter of 1996, compared to a net loss of $4.3
million, or ($.12) per fully diluted share, on sales of $1.7 billion for the
first quarter of 1995. Results of operations for the first quarter of 1995
included a restructuring charge of $2.2 million ($1.3 million after-tax, $.04
per share), related to a major expense reduction program at the Avon Refinery.
Tosco generated an operating contribution (income before selling, general
and administrative expense, net interest expense, and income taxes) for the
first quarter of 1996 of $82.6 million, an increase of $50.5 million from 1995.
The increase was primarily attributable to strong operating margins at Bayway,
lower levels of scheduled maintenance at the three refineries and lower cash
operating expenses. Consolidated margins increased $1.16 per barrel to $4.25 per
barrel but varied widely by refinery. Consolidated raw material throughput for
the first quarter of 1996 increased by 19,900 barrels per day (B/D) to 538,100
B/D and production of clean transportation fuels and heating oil increased by
42,400 B/D to 432,000 B/D over the comparable 1995 quarter.
Avon's operating margin modestly improved by $.11 per barrel (2%) over year
ago levels to $4.65 per barrel. Higher production results and improved per
barrel refinery operating costs were nearly offset by lower refining margins as
finished product prices lagged higher costs of raw materials. The lag in
product prices was primarily attributable to the destocking of conventional
gasoline inventories to meet the cleaner burning reformulated gasoline standards
of the California Air Resources Board (CARB) effective March 1, 1996 (CARB Phase
II gasoline). Raw material throughput increased by 8,600 B/D to 174,300 B/D and
yields of clean transportation fuels increased by 30,000 B/D to !37,500 B/D.
Avon's fluid catalytic cracker, the refinery's principal gasoline production
unit, was shutdown for 55 days during the first quarter of 1995.
Bayway's operating margins for the first quarter of 1996 increased $1.74
per barrel over the comparable 1995 quarter to $4.17 per barrel. Bayway achieved
improved margins despite higher raw material costs primarily because the cold
winter weather in the Northest created strong product demand. This was in sharp
contrast to the weak market conditions of the first quarter of 1995 when mild
winter conditions created a surplus of heating oil, and higher production costs
of reformulated gasoline could not be fully recovered in highly competitive
markets.
Ferndale's operating margins improved by $1.35 per barrel to $3.67 per
barrel. The improvement was primarily attributable to full refinery operations
for the first quarter of 1996. Ferndale's processing units were shutdown for 33
days in the first quarter of 1995 for scheduled turnaround maintenance.
Retail marketing fuel margins averaged $.08 per gallon for the first three
months of 1996 compared to $.09 for the comparable 1995 quarter. Retail fuel
margins declined because increases in wholesale product costs could not be fully
recovered in higher retail prices. These lower retail margins were partially
offset by increased sales volumes due to the acquisition of BP's Northeast
marketing system in February 1996.
The increase in selling, general, and administrative expense for the
first quarter of 1996 is primarily attributable to Tosco's expanded operations.
Interest expense increased in 1996, despite the reduction in interest costs
resulting from a receivable transfer agreement, due to higher average debt
levels and higher price levels of raw materials and products. The acquisition of
BP's northeast marketing and refinery assets was the principal reason for higher
average debt levels. See Notes 2 and 3 to the Consolidated Financial
Statements.
OUTLOOK
Results of operations continue to be determined by two factors: the
operating efficiency of the refineries and refining and retail marketing
margins. The first quarter of 1996 had no major turnaround activity and assuming
reasonable margins, Tosco presently expects to run its operating refineries at
high production levels for the balance of 1996. Tosco is not able to predict the
level or trend of refining and retail margins because of uncertainties
associated with oil markets. Operating margins at the beginning of the second
quarter of 1996 have improved over first quarter levels because higher wholesale
gasoline prices have outpaced increasing raw material costs, especially in
California. The better margins are due to a variety of factors including the
completion of destocking of conventional gasoline to meet CARB Phase II
standards and reduced supplies resulting from unscheduled industry shutdowns of
processing units. These higher margins have allowed a partial recovery of costs
of capital investments completed to meet the cleaner burning fuel standards.
Higher wholesale gasoline prices have negatively impacted retail gasoline
margins, as Tosco as well as other marketers, have not been able to recover such
higher costs in the retail market.
ACQUISITIONS
The acquisition of The Circle K Corporation (Circle K) is expected to be
completed at the end of May 1996. See Note 2 to the Consolidated Financial
Statements. The acquisition will be financed by the issuance of common stock of
Tosco (Common Stock), the planned sale of $200 million of unsecured term debt
due 2006, borrowings under Tosco's expanded $600 million credit facility, and
from cash and other credit resources.
The Circle K acquisition will make Tosco the largest operator of
company-owned convenience stores in the United States and more than double
present retail gasoline sales volume. Where appropriate, Circle K's sites will
be rebranded to carry the BP brand. Many of Tosco's approximate 140 convenience
store chain will also be converted to Circle K stores with the BP gasoline
brand. Tosco intends to further expand the Circle K convenience store chain by
exploring opportunities to convert certain Tosco owned but dealer operated sites
to company operated Circle K convenience stores and licensing existing jobbers
with the Circle K brand for their convenience stores.
Tosco expects to achieve significant economies of scale from the Circle K
acquisition. The management of Tosco's current retail operations, presently
located in Seattle, will be combined with Circle K's operation in Phoenix. The
costs of consolidation will be recorded in the second and third quarters as
appropriate. In addition, Tosco's oil industry background and supply system for
gasoline should result in improved purchasing of fuel for the Circle K stores,
while Circle K's marketing expertise and convenience store supply and
distribution system should improve Tosco's convenience store system. After
completion of the integration of Circle K's and Tosco's operations, Tosco
expects the Circle K acquisition to be additive to per share earnings.
CASH FLOWS AND LIQUIDITY
As summarized in the Statement of Cash Flows, cash decreased by $13
million during the first three months of 1996 as cash used in investing
activities of $158 million exceeded cash provided by operations and financing
activities of $7 million and $138 million, respectively.
Cash provided by operating activities of $7 million was from cash
earnings from operations of $68 million (net income plus depreciation,
amortization and deferred income taxes) and other sources of $3 million, offset
by a decrease in working capital of $64 million.
Net cash used in investing activities totaled $158 million, primarily for
capital additions of $93 million (including $40 million, for the BP Northeast
refining and marketing assets),increases in deferred charges and other assets of
$39 million and increases in short-term investments and deposits of $26 million.
Cash provided by financing activities totaled $138 million, consisting of net
borrowings under short-term bank loans and Tosco's revolving credit facility of
$144 million, partially offset by dividends of $6 million.
Liquidity (as measured by cash, short-term investments and deposits and
unused credit facilities) decreased by $97 million during 1996 due to a decrease
of $110 million in unused credit facilities, a decrease in cash and cash
equivalents of $13 million, partially offset by an increase in short-term
investments and deposits of $26 million. At March 31, 1996, liquidity totaled
$266 million.
Effective April 8, 1996 Tosco entered into an amended and restated
revolving credit agreement expiring in April 2000 (New Credit Agreement). The
New Credit Agreement provides Tosco with an unsecured $600 million revolving
credit facility that is available to Tosco for working capital and general
corporate purposes including the acquisition of Circle K. Tosco's former $450
million revolving credit agreement was a collateralized loan agreement, expiring
in April, 1998, which restricted borrowings to a percentage of a borrowing base.
The New Credit Agreement is a major step in moving Tosco's capital structure to
a fully unsecured basis. The New Credit Agreement and the planned sale of $200
million of unsecured term debt provides the liquidity needed to complete the
acquisition of Circle K. Tosco believes its cash and credit resources are
adequate to meet its expected liquidity demands for the next twelve months.
CAPITAL EXPENDITURES AND CAPITALIZATION
On February 2, 1996, Tosco completed the purchase of the U.S. Northeast
marketing and refining assets from British Petroleum (BP) for $40 million,
excluding inventories and trademark licenses. See Note 2 to the Consolidated
Financial Statements. Tosco's other capital expenditures for the first quarter
of 1996 of $53 million were for budgeted capital projects, primarily at the Avon
Refinery and retail outlets. Capital spending programs continue to address
reformulated fuel specifications, compliance with environmental regulations and
permits, operating flexibility and reliability, personnel/process safety, and
retail expansion and modernization. The pending acquisition of Circle K has
curtailed Tosco's retail expansion plans. Capital spending on retail properties
will now be focused on improving present sites that can be financed from
internal cash flows.
At March 31, 1996, total shareholders' equity was $645 million, an
increase from December 31, 1995 of $18 million due to net income of $24 million
less dividend and other payments of $6 million. Debt, including current
maturities and short-term bank borrowings, increased by $143 million to $788
million at March 31, 1996.
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Two lawsuits and several unfair labor practice charges have 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 purchased by a subsidiary of Tosco from BP on February 2, 1996. STEFANO
V. MARCUS HOOK REFINING, ET. AL. (Court of Common Pleas for Delaware County,
Case No. 96-1187); OIL, CHEMICAL & ATOMIC WORKERS INTERNATIONAL UNION, ET. AL.
V. TOSCO (United States District Court, Eastern district of Pennsylvania, Case
No. 96-CV- 1712); TOSCO CORPORATION (NLRB Case Nos. 4-CA-24570, 4-CA-24755 and
4-CA-24771-2). BP suspended operation of the refinery and terminated the
employment of most employees prior to the sale.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits.
11. Computation of Earnings Per Share (see Part I, Exhibit I).
99. Condensed Consolidating Financial Information.
b. Reports on Form 8-K
None
<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: May 15, 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 11
TOSCO CORPORATION AND SUBSIDIARIES
COMPUTATION OF PER SHARE DATA
In Thousands of Dollars Except Share and Per Share Data
Three Months Ended March 31,
1996 1995
---------- ----------
Net income (loss) $ 23,966 $ (4,273)
Weighed average number of shares
outstanding during the period 37,106 37,050
Stock option equivalents 824
--------- --------
Shares used for computation of primary
earnings per share 37,930 37,050
Additional stock option equivalents 126
--------- --------
Shares and equivalents used for computation of
fully diluted earnings per share 38,056 37,050
========= ========
Earnings (loss) per share:
Primary $ 0.63 $ (0.12)
========= ========
Fully diluted $ 0.63 $ (0.12)
========= ========
<PAGE>
Exhibit 99
CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The following tables set forth the condensed consolidating financial
inforrmation as of March 31, 1996 and for the three months then ended of Tosco,
Bayway and Tosco's other subsidiaries. They are provided to meet the reporting
and informational requirements of Bayway as guarantor of the 8 1/4% First
Mortgage Bonds.
<TABLE>
<CAPTION>
Condensed Consolidated Balance Sheet
(Thousands of Dollars)
As of March 31, 1996
Tosco Bayway Minor Subs
(Issuer) (Guarantor) (Non-guarantors) Eliminations Consolidated
<S> <C> <C> <C> <C> <C>
Assets
Cash and cash equivalents $ 1,284 $ 3,504 $ 952 $ 5,740
Short-term investments and deposits 8,658 19,230 27,345 55,233
Other current assets (a) 265,605 525,585 63,310 854,500
------- -------- ------- -------- ---------
Total current assets 275,547 548,319 91,607 915,473
Other assets 844,587 287,228 93,495 (4,366) 1,220,944
Investment in Bayway and other subsidiaries 285,951 - - (285,951)
Intercompany receivables 340,171 (340,171)
---------- -------- ------- --------- ---------
Total assets $1,746,256 $835,547 $185,102 $(630,488) $2,136,417
Liabilities and shareholders' equity
Current liabilites $ 267,070 $353,185 $ 36,520 $ 656,775
Revolver and long-term debt 733,948 - 4,174 - 738,122
Other liabilities 100,158 648 - (4,366) 96,440
Intercompany liabilities 226,123 114,048 (340,171) -
Shareholderss equity 645,080 255,591 30,360 (285,951) 645,080
---------- -------- -------- ---------- ---------
Total liabilities and shareholders' equity $1,746,256 $835,547 $185,102 $(630,488) $2,136,417
Condensed Consolidating Statement of Income
(Thousands of Dollars)
For the Three Months Ended March 31, 1996
Sales $ 766,736 $1,488,830 $181,864 $(417,407) $2,020,023
Cost of sales 739,418 1,432,814 182,587 (417,407) 1,937,412
Operating contribution (loss) 27,318 56,016 (723) - 82,611
Selling, general and administrative expense(b) 20,161 7,433 (524) - 27,070
Interest expense, net 10,493 5,670 ( 240) - 15,923
------ ------- -------- ---------- --------
Income before provision for income taxes (3,336) 42,913 41 39,618
Provision (credit) for income taxes (1,315 16,951 16 - 15,652
------- -------- ------- ---------- --------
Net income (loss) (2,021) $ 25,962 $ 25 $ - $ 23,966
(a) Inventories are valued at the lower of LIFO cost or market value,
which is measured on a consolidated basis.
(b) The condensed consolidating statement of income reflects a partial
allocation of corporate selling, general and administrative expense of to
Bayway. Tosco may revise such allocation in the future.
</TABLE>
<TABLE>
<CAPTION>
Condensed Consolidated Statement of Cash Flows
(Thousands of Dollars)
For the Three Months Ended March 31, 1996
Tosco Bayway Minor-Subs
(Issuer) (Guarantor) (Non-guarantors) Consolidated
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) (2,021) 25,962 $ 25 $ 23,966
Depreciation, amortization,and deferred income taxes 36,367 7,328 982 44,677
Changes in working capital (41,949) (21,835) (875) (64,659)
Other 2,923 - - 2,923
------- -------- ---------- ---------
Net cash provided by (used in) operating activities (4,680) 11,455 132) 6,907
Cash flows from investing activities:
Purchase of property, plant and equipment (29,123) (46,920) (17,274) (93,317)
Increase in deferred turnarounds, charges and
other assets ( 37,361) ( 1,533) ( 38,894)
Intercompany transfers (114,067) 96,532 17,535
Net change in short-term investments and deposits (6,677) (19,230) (201) (26,108)
-------- -------- ---------- ---------
Net cash provided by (used in) investing
activities (187,228) 28,849 60 (158,319)
Cash flows from financing activities:
Borrowings (repayment) under short-term borrowings
and revolver 189,000 (45,000) 144,000
Dividends on Common Stock (5,940) - - (5,940)
Other (56) - - (56)
-------- --------- ------ ---------
Net cash provided by (used in) financing activities 183,004 ( 45,000) - 138,004
Net increase (decrease) in cash and cash equivalents (8,904) ( 4,696) 192 (13,408)
Cash and cash equivalents at beginning of period 10,188 8,200 760 19,148
Cash and cash equivalents at end of period $ 1,284 $3,504 $ 952 $ 5,740
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 5,740
<SECURITIES> 55,233
<RECEIVABLES> 307,182
<ALLOWANCES> 8,555
<INVENTORY> 510,845
<CURRENT-ASSETS> 915,473
<PP&E> 1,436,031
<DEPRECIATION> 399,149
<TOTAL-ASSETS> 2,136,417
<CURRENT-LIABILITIES> 656,755
<BONDS> 450,000
0
0
<COMMON> 29,757
<OTHER-SE> 615,323
<TOTAL-LIABILITY-AND-EQUITY> 2,136,417
<SALES> 2,020,023
<TOTAL-REVENUES> 2,020,023
<CGS> 1,937,412
<TOTAL-COSTS> 1,937,412
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,723
<INCOME-PRETAX> 39,618
<INCOME-TAX> 15,652
<INCOME-CONTINUING> 23,966
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,966
<EPS-PRIMARY> .63
<EPS-DILUTED> .63
</TABLE>
