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 June 30, 1997
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 July 31, 1997 was 156,136,527 shares.
<PAGE>
TOSCO CORPORATION AND SUBSIDIARIES
Index to Financial Statements and Exhibits
Filed with the Quarterly Report of Tosco Corporation on Form 10-Q
For the Three and Six Month Periods Ended June 30, 1997
Page(s)
PART I FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of June 30, 1997 and December
31, 1996 2
Consolidated Statements of Income for the three and six month
periods ended June 30, 1997 and 1996 3
Consolidated Statements of Cash Flows for the six month
periods ended June 30, 1997 and 1996 4
Notes to Consolidated Financial Statements 5 - 9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10- 14
PART II OTHER INFORMATION
Item 4. Submission of Matters to Vote of Security Holders 15
Item 6. Exhibits and Reports on Form 8-K 15
Exhibit 11 - Computation of Earnings per Share for the three
and six month periods ended June 30, 1997 and 1996 16
Exhibit 12 - Ratio of Earnings to Fixed Charges for the three
and six month periods ended June 30, 1997 and 1996 17
<PAGE>
<TABLE>
<CAPTION>
TOSCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars, Except Par Value)
June 30, December 31,
1997 1996
(Unaudited)
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $40,480 $94,418
Marketable securities and deposits 19,104 35,238
Trade accounts receivable, less allowance for
uncollectibles of $15,007 (1997) and $8,291 (1996) 459,644 189,654
Inventories 1,272,475 639,760
Prepaid expenses and other current assets 129,361 55,304
Deferred income taxes 28,121 28,121
----------- -----------
Total current assets 1,949,185 1,042,495
Property, plant and equipment, net 3,147,420 1,681,877
Deferred turnarounds, net 132,243 63,160
Intangible assets (primarily tradenames),
less accumulated amortization of $21,986 (1997) and
$12,696 (1996) 623,552 621,226
Other deferred charges and assets 194,156 146,067
------------ -----------
$6,046,556 $3,554,825
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable, accrued expenses, and
other liabilities $1,441,166 $ 919,306
Current maturities of long-term debt 13,096 113,200
------------ ------------
Total current liabilities 1,454,262 1,032,506
Revolving credit facilities 515,000 -
Long-term debt 1,420,209 826,832
Accrued environmental costs 276,545 87,363
Deferred income taxes 73,418 80,302
Other liabilities 186,525 157,499
------------ ------------
Total liabilities 3,925,959 2,184,502
============= =============
Company-obligated, mandatorily redeemable,
convertible preferred securities of Tosco Financing
Trust, holding solely 5.75% convertible junior
subordinated debentures of Tosco Corporation 300,000 300,000
------------- -------------
Shareholders' equity:
Common stock, $.75 par value, 250,000,000
shares authorized, 177,576,957 (1997) and
138,486,201 (1996) shares issued 133,410 103,865
Additional paid-in capital 2,028,405 963,667
Retained earnings 131,090 77,594
Treasury stock, at cost (472,308) (74,803)
------------- ------------
Total shareholders' equity 1,820,597 1,070,323
------------- -------------
$6,046,556 $3,554,825
============= ==============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
TOSCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Thousands of Dollars, Except Per Share Data)
Three Months Ended June 30, Six Months Ended June 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Sales $3,196,431 $2,430,740 $5,606,704 $4,450,763
Cost of sales 2,948,053 2,265,495 5,272,538 4,202,907
Consolidation charge 13,500 13,500
Selling, general and administrative expenses 85,019 47,867 136,928 74,937
Interest expense 45,801 20,864 69,944 37,587
Interest income (1,372) (887) (2,141) (1,687)
----------- ------------ ------------ -----------
Income before income taxes and distributions on company-obligated,
mandatorily redeemable, convertible preferred securities 118,930 83,901 129,435 123,519
Income taxes 49,295 34,263 53,715 49,915
------------- ------------- ------------ -----------
Income before distributions on company-obligated, mandatorily
redeemable, convertible preferred securities 69,635 49,638 75,720 73,604
Distributions company-obligated, mandatorily redeemable,
convertible preferred securities, net of income tax benefit of
$1,790 (1997 three months) and $3,579 (1997 six months) 2,523 - 5,046 -
------------- ------------- ------------- -----------
Net income $67,112 $49,638 $70,674 $73,604
============= ============= ============= ============
Earnings per common and common equivalent share (a):
Primary $0.43 $0.41 $0.48 $0.63
============= ============= ============= ============
Fully diluted $0.43 $0.41 $0.48 $0.62
============= ============= ============= ============
Weighted average common and common equivalent shares
used for computation of earnings per share (a):
Primary 156,885,582 120,916,206 146,157,485 117,571,635
=============== ============== ============= =============
Fully diluted 156,885,582 120,967,662 146,189,287 117,900,384
=============== =============== ============= ==============
(a) Earnings per share and weighted average shares outstanding reflect the 3-for-1 stock split declared and distributed in
February 1997.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
TOSCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Thousands of Dollars)
Six Months Ended June 30,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income $70,674 $73,604
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization of property, plant, and equipment 102,451 44,170
Amortization of deferred turnarounds, intangible
assets, and other deferred charges 35,030 31,262
Deferred income taxes 22,458
Insurance recoveries (73,000)
Changes in operating assets and liabilities, net (43,881) (85,789)
Other, net (2,141) 12,821
------------ ---------
Net cash provided by operating activities 89,133 98,526
------------ ---------
Cash flows from investing activities:
Purchase of property, plant, and equipment, net (183,896) (78,188)
Increase in deferred turnarounds, deferred charges, and other assets (110,690) (51,424)
Net change in marketable securities and deposits 2,905 (4,291)
Acquisition of BP Northeast refining and marketing assets (55,928)
Acquisition of Circle K, net of cash acquired (413,229)
Acquisition of Unocal refining, marketing, and related supply
and transportation assets, net of cash acquired (1,138,464)
------------- -----------
Net cash used in investing activities (1,430,145) (603,060)
------------- -----------
Cash flows from financing activities:
Proceeds from note and debenture offering 600,000 240,000
Proceeds from common stock offering 697,395
Net borrowings under revolving credit facilities 515,000 323,000
Net short-term bank repayments (20,000)
Payments under long-term debt agreements (106,898)
Repurchase of Unocal Shares (393,708)
Dividends paid on common stock (17,178) (12,921)
Other, net (7,537) (515)
-------------- ------------
Net cash provided by financing activities 1,287,074 529,564
-------------- ------------
Net (decrease) increase in cash and cash equivalents (53,938) 25,030
Cash and cash equivalents at beginning of period 94,418 19,148
-------------- ------------
Cash and cash equivalents at end of period $40,480 $44,178
============== ============
The accompanying notes are an integral part of these financial statements.
</TABLE>
TOSCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 1997 AND 1996
(All Information is Unaudited)
1. Basis of Presentation
The consolidated financial statements of Tosco Corporation and subsidiaries
("Tosco" or the "Company") reflect all adjustments, consisting of normal
recurring accruals, which are, in the opinion of management, necessary for a
fair presentation of the Company's consolidated financial position, results of
operations, and cash flows. Such financial statements are presented in
accordance with disclosure requirements established by the Securities and
Exchange Commission for Form 10-Q. These unaudited, interim, consolidated
financial statements should be read in conjunction with the Company's audited
Consolidated Financial Statements and notes thereto included in the Company's
1996 Annual Report on Form 10-K.
Certain reclassifications have been made to conform prior-period amounts with
the current-period presentation.
2. Derivative Accounting Policy
The Company utilizes commodity-based derivative instruments, at times and when
able, to reduce a portion of its exposure to price volatility. Commodity futures
are used to lock in what the Company considers to be acceptable margins between
the sales value of refined products produced and the cost of raw materials
purchased on a varying percentage of production, generally for periods not
exceeding one year. In addition, the Company enters into swap contracts with
counterparties (typically agreeing to sell at fixed forward prices, and to buy
at future variable market prices, stated volumes of residual fuels) to hedge
sales prices of residual fuels production. Futures and forward contracts are
also used to hedge inventories stored for future sale and to hedge against
adverse price movements between the cost of foreign and domestic crude oil.
Gains and losses related to qualifying hedges are deferred and recognized in
cost of sales or as adjustments of the carrying amounts when the underlying
transaction occurs.
3. Acquisition
On March 31, 1997, the Company acquired Union Oil Company of California's
("Unocal") West Coast petroleum refining, marketing, and related supply and
transportation assets (the "Unocal Acquisition") for a purchase price (including
liabilities assumed) of approximately $1,400,000,000, plus inventories valued at
approximately $400,000,000 and credit card receivables valued at approximately
$133,000,000. In addition, Unocal is entitled to receive contingent
participation payments over the next seven years, up to a maximum of
$250,000,000, if retail market conditions and/or California Air Resources Board
("CARB") gasoline margins improve. For a period of 25 years, Unocal will be
responsible for all environmental liabilities arising out of or relating to the
period prior to closing, except that the Company will pay the first $7,000,000
of such environmental liabilities each year, plus 40% of any amount in excess of
$7,000,000 per year, with Unocal paying the remaining 60% each year. The
aggregate maximum amount that the Company may have to pay in total for the 25
year period for such environmental liabilities is limited to $200,000,000.
The assets which were acquired from Unocal include two petroleum refining
systems, comprised of four sites in California with an aggregate throughput
capacity of approximately 250,000 barrels per day; a retail gasoline system,
consisting of approximately 1,325 76-branded gasoline stations (approximately
1,100 of which are company-controlled); a distribution system comprised of 13
company-owned oil storage terminals; three modern American-flagged 40,000
deadweight-ton tankers; 1,500 miles of crude oil and product pipeline; the
worldwide rights to the "76" and "Union" brands (together with the distinctive
orange ball logo) in the petroleum refining and marketing businesses (except for
pre-existing license grants relating to 76 Truckstops and to Uno-Ven); and
Unocal's lubricants manufacturing, distribution, and marketing business.
The purchase price paid pursuant to the Unocal Acquisition consisted of cash and
14,092,482 shares of Tosco Common Stock (the "Unocal Shares") having an
aggregate value of $396,880,000. In addition, certain gasoline service stations
were purchased directly from Unocal for $235,000,000 by a special purpose entity
which leased the service stations to the Company pursuant to a long-term lease.
The Unocal Shares were valued at $28.1625 per share, which was the average of
the high and low Tosco stock prices for the ten trading days preceding the
closing date. The cash portion of Tosco's purchase price, including working
capital, was paid to Unocal on April 1, 1997 from a combination of available
cash, borrowings under the Revolving Credit Facilities (Note 6), and proceeds
from the sale of $600,000,000 of unsecured debt securities (Note 7).
In connection with the Unocal Acquisition, the Company and Unocal entered into a
Stock Purchase and Shareholder Agreement related to Unocal's disposition of the
Unocal Shares. In May 1997, the Company repurchased the Unocal Shares for
approximately $393,708,000.
The Company indicated, at the time it completed the Unocal Acquisition, that it
intended to sell certain non-strategic assets. Through June 30, 1997,
approximately $60,000,000 of such assets have been sold, principally oil tankers
and a heating oil distributorship. These assets were allocated a purchase cost
equal to the net proceeds from the sales.
The Unocal Acquisition has been accounted for as a purchase and, accordingly,
the acquired assets and liabilities are included in the accompanying June 30,
1997 balance sheet at values based on a preliminary allocation of the purchase
price. The purchase price allocation is expected to be finalized by the end of
1997 based upon appraisals and other evaluations currently in process. The
preliminary purchase price allocation is summarized below:
Thousands of Dollars)
Cash and cash equivalents $ 499
Credit card receivables, less allowance for
uncollectibles of $4,941 132,959
Inventories 401,394
Prepaid expenses and other current assets 2,530
Property, plant, and equipment 1,397,784
Other deferred charges 23,351
Accrued expenses and other current liabilities (197,674)
Accrued environmental costs (190,000)
Other liabilities (35,000)
------------
$ 1,535,843
=============
Pro forma results of operations for the six month periods ended June 30, 1997
and 1996, assuming the Unocal Acquisition had occurred at the beginning of each
period, are as follows:
Six Months Ended June 30,
(Thousands of Dollars, Except Share Amounts) 1997 1996
----- ------
Sales $ 6,561,000 $ 6,320,000
Net income 33,200 105,800
Earnings per common and common equivalent share:
Primary 0.20 0.74
Fully diluted 0.20 0.74
The pro forma results of operations are presented for informational purposes
only and do not reflect the improvement in operating contribution anticipated
from the Unocal Acquisition or the 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 nor of
future operating results.
<PAGE>
4. Accounts Receivable
During May 1997, the Company amended its existing agreement with a financial
institution for the sale, on a revolving basis, of an undivided percentage
ownership interest in a designated pool of accounts receivable (the "Receivable
Transfer Agreement"). This amendment increased the program to $300,000,000
without significantly changing any other provisions.
5. Inventories
June 30, December 31,
(Thousands of Dollars) 1997 1996
Refineries (LIFO):
Raw materials $ 518,655 $ 227,211
Intermediates 173,707 79,831
Finished products 420,484 174,277
Retail (FIFO):
Merchandise 117,865 116,618
Gasoline and diesel 39,236 39,681
Other 2,528 2,142
------------ ------------
$ 1,272,475 $ 639,760
============= ============
At June 30, 1997, the carrying value of inventories accounted for under the
LIFO method exceeded replacement cost. Management believes this decline in
replacement cost of inventories is temporary. At December 31, 1996, the
replacement cost of such inventories exceeded carrying cost by approximately
$177,653,000.
6. Revolving Credit Facilities
On January 14, 1997, the Company amended and restated its existing revolving
credit agreement (the "Revolving Credit Facility") to increase the maximum
borrowing capacity from $600,000,000 to $1,000,000,000.
On March 31, 1997, the Company entered into a second revolving credit agreement
(the "Additional Credit Facility"). The Additional Credit Facility was scheduled
to mature on January 14, 2002 and provided the Company with a $250,000,000
uncollateralized revolving credit facility for working capital and general
corporate purposes. On May 15, 1997, the Company terminated the Additional
Credit Facility.
Utilization of the Revolving Credit Facility was as follows:
June 30, December 31,
(Thousands of Dollars) 1997 1996
---------- -------------
Cash borrowings outstanding $ 515,000 $
Letters of credit 68,006 112,113
----------- ------------
Total utilization 583,006 112,113
Availability 416,994 487,887
----------- ------------
$ 1,000,000 $ 600,000
7. Long-Term Debt
On January 14, 1997, the Company issued $200,000,000 of 7.25% Notes due on
January 1, 2007, $300,000,000 of 7.80% Debentures due on January 1, 2027, and
$100,000,000 of 7.90% Debentures due on January 1, 2047 (collectively the "Notes
and Debentures"). Interest on the unregistered Notes and Debentures is payable
each January 1 and July 1, commencing on July 1, 1997. The Notes and Debentures
are non-redeemable and uncollateralized. The proceeds from the Notes and
Debentures were used to finance a portion of the Unocal Acquisition purchase
price. In May 1997, the Company offered to exchange the unregistered Notes and
Debentures for fully registered and freely saleable Notes and Debentures having
the identical terms, including the same interest rates and maturity dates. The
offer is scheduled to expire on August 15, 1997.
8. Capital Stock
In January 1997, the Company filed a shelf registration statement providing for
the issuance of up to $1,500,000,000 aggregate principal amount of its
securities. The securities issued may consist of (1) one or more series of
debentures, notes or other uncollateralized forms of indebtedness ("Debt
Securities"), (2) shares of its Common Stock, (3) shares of its Preferred Stock,
and (4) shares of preferred stock represented by depository shares ("Depository
Shares"). The Debt Securities, Common Stock, Preferred Stock, and Depository
Shares may be offered, separately or together, in amounts and at prices and
terms to be set forth in one or more supplements to the shelf registration
statement.
On May 1, 1997, the Company issued 25,300,000 shares of Common Stock pursuant to
a prospectus supplement to the shelf registration statement. The net proceeds
from this Common Stock offering were $697,395,000, based on an offering price of
$28.50 per share. The net proceeds were used to repurchase the Unocal Shares
($393,708,000) and repay borrowings under the Revolving Credit Facility and
Additional Credit Facility ($303,687,000).
At a special meeting of the Company's Shareholders on February 12, 1997, an
amendment to the Company's Articles of Incorporation increasing the number of
authorized shares of Common Stock from 50,000,000 to 250,000,000 was approved.
In February 1997, the Company declared and distributed a 3-for-1 Common Stock
split. The number of shares, per share prices, earnings per share, and dividend
per share amounts have been restated to reflect the 3-for-1 stock split.
The Company's quarterly Common Stock dividend was increased to $.06 per
post-split share effective with the first quarter of 1997.
9. Cost of Sales
Cost of sales for the three and six month periods ended June 30, 1997 have been
reduced by $20,000,000 and $73,000,000, respectively, of insurance coverage
accruals related to the unscheduled shutdown of the Bayway Refinery cat cracker
and the January 1997 accident at the Avon Refinery hydrocracker. The insurance
accruals for damages and business interruption claims are net of deductible
amounts and asset write-offs. The Bayway Refinery cat cracker resumed full
production in the 1997 first quarter and the Avon Refinery hydrocracker resumed
full production in July 1997.
10. Supplemental Cash Flow Information
Six Months Ended June 30,
(Thousands of Dollars) 1997 1996
---------- ---------
Cash paid during the period for:
Interest, net of amounts capitalized $ 49,590 $ 34,645
Income taxes, net of refunds received $ 43,997 $ 16,968
Detail of acquisitions:
Fair value of assets acquired $ 1,958,018 $ 1,578,796
Liabilities assumed (422,674) (782,600)
Common Stock issued (396,880) (327,039)
------------ ----------
Net cash paid for acquisitions 1,138,464 469,157
Cash acquired in acquisitions 499 41,465
------------ -------------
Cash paid for acquisitions 1,138,963 $ 510,622
============ =============
11. New Accounting Standards
During February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 128 "Earnings Per Share"
("SFAS No. 128"). SFAS No. 128 modifies the computation, presentation, and
disclosure requirements for earnings per share amounts. The adoption of SFAS No.
128, in the fourth quarter of 1997, is not expected to have a significant impact
on Tosco's reported earnings per share.
During June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130 "Reporting Comprehensive Income" ("SFAS No. 130") and Statement of
Financial Accounting Standards No. 131 established standards for reporting and
display of comprehensive income and its components (net income plus all other
nonowner changes in equity). SFAS No. 131 established disclosure standards
regarding information about operations segments in interim and annual financial
statements. Tosco will comply with the expanded disclosure requirements of SFAS
No. 130 and SFAS No. 131 with its 1997 annual financial statements.
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Introduction
Management's Discussion and Analysis of Financial Condition and Results of
Operations for the three and six month periods ended June 30, 1997 should be
read in conjunction with Management's Discussion and Analysis included in
Tosco's 1996 Annual Report on Form 10-K. 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 1992 through 1996. This Management's
Discussion and Analysis updates that data.
Acquisitions
On March 31, 1997, Tosco completed its acquisition of Union Oil Company of
California's ("Unocal") West Coast petroleum refining, marketing, and related
supply and transportation assets (the "Unocal Acquisition"). The assets acquired
from Unocal are comprised of two petroleum refining systems, a retail gasoline
system consisting of approximately 1,325 76-branded gasoline service stations, a
distribution system comprised of 13 company-owned oil storage terminals, 1,500
miles of crude oil and product pipeline, the world-wide rights to the "76" and
"Union" brands, and Unocal's lubricants manufacturing, distribution, and
marketing business. Tosco completed its acquisition of The Circle K Corporation
("Circle K") on May 30, 1996 (the "Circle K Acquisition"). Tosco is now the
largest independent refiner and marketer of petroleum products in the United
States, and is also the nation's largest operator of company-controlled
convenience stores.
<TABLE>
<CAPTION>
Results of Operations
Three Months Ended June 30, Six Months Ended June 30,
(Thousands of Dollars, Except Per Share Data) 1997 1996 1997 1996
---------- ------- ------- --------
<S> <C> <C> <C> <C>
Sales $ 3,196,431 $ 2,430,740 $ 5,606,704 $ 4,450,763
Cost of sales 2,948,053 2,265,495 5,272,538 4,202,907
Consolidation charge 13,500 13,500
Selling, general, and administrative expenses 85,019 47,867 136,928 74,937
Interest expense, net 44,429 19,977 67,803 35,900
-------------- ------------ ------------ -----------
Income before income taxes and distributions on Trust
Preferred Securities 118,930 83,901 129,435 123,519
Income taxes 49,295 34,263 53,715 49,915
------------ ----------- ------------ ----------
Income before disributions on Trust Preferred Securities 69,635 49,638 75,720 73,604
Distributions on Trust Preferred Securities, net of income
taxes 2,523 5,046
-------------- ----------- ------------ ----------
Net income $ 67,112 $ 49,638 $ 70,674 $ 73,604
============== ============ ============ ============
Fully diluted earnings per share (a) $ 0.43 $ 0.41 $ 0.48 $ 0.62
============== ============ ============ ============
(a) Earnings per share reflect the 3-for-1 stock split declared and
distributed in February 1997.
Three Months Ended June 30, Six Months Ended June 30,
Refining Data Summary (a): 1997 1996 1997 1996
--------- ------- ---------- --------
Average charge barrels input per day (b):
Crude oil 761,600 477,200 573,400 474,000
Other feed and blending stocks 94,600 68,400 71,500 67,700
--------- ----------- --------- ---------
856,200 545,600 644,900 541,700
========== =========== ========== ===========
Average barrels of petroleum products produced per day:
Clean products (c) 692,300 439,200 516,900 435,900
Other finished products 150,800 100,400 121,000 103,900
---------- ----------- ---------- -----------
843,100 539,600 637,900 539,800
=========== ============= =========== ============
Operating margin per charge barrel (d) $ 4.62 $ 5.48 $ 4.75 $ 4.87
=========== ============= =========== ============
(a) The refining data summary presents the operating results of the
following refineries:
- Bayway Refinery, located on the New York Harbor;
- Ferndale Refinery, located on Washington's Puget Sound
- Trainer Refinery, located near Philadelphia.
- San Francisco Area Refinery System, comprised of the Avon Refinery and
the acquired Rodeo-Santa Maria Complex
- Los Angeles Refinery System, comprised of the two acquired
refineries in Los Angeles
The refinery data summary includes the operations of the Rodeo-Santa Maria
Complex and the Los Angeles Refinery System subsequent to March 31, 1997
(date acquired) and the Trainer Refinery subsequent to May 8, 1997 (date
reopened).
(b) A charge barrel is equal to 42 gallons.
(c) Clean products are defined as clean transportation fuels
(gasoline, diesel, distillates, and jet fuel) and heating oil.
Clean product production for the first quarter of 1997 was
reduced due to scheduled turnaround maintenance at the Avon
Refinery coker unit and the unscheduled shutdowns of the Bayway
Refinery cat cracker and Avon Refinery hydrocracker. Clean
product production for the second quarter of 1997 was increased
due to the refinery acquisitions and the reopening of the Trainer
Refinery partially offset by the unscheduled shutdowns.
(d) Operating margin per charge barrel is calculated as operating contribution,
including insurance recoveries and excluding refinery operating costs,
divided by total refinery charge barrels.
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
Retail Data Summary (a): 1997 1996 1997 1996
-------- -------- ------ -------
<S> <C> <C> <C> <C>
Volume of fuel sold (thousands of gallons) 1,181,479 435,587 1,807,424 715,691
Blended fuel margin (cents per gallon) 14.7 11.8 12.5 10.1
Number of gasoline stations at period end 4,708 3,395 4,708 3,395
Merchandise sales (thousands of dollars) $ 520,963 $ 179,105 $ 983,559 $ 187,082
Merchandise margin (percentage of sales) 29.3% 29.2% 29.5% 29.3%
Number of merchandise stores at period end 2,522 2,390 2,522 2,390
Other retail gross profit (thousands of dollars) $ 33,540 $ 10,110 $ 53,174 $ 16,397
(a) The retail data summary includes the operations of The Circle K Corporation
subsequent to May 30, 1996 and the Unocal gasoline stations subsequent to
March 31, 1997.
</TABLE>
1997 SECOND QUARTER COMPARED TO 1996 SECOND QUARTER
Tosco earned $67.1 million ($0.43 per fully diluted share) on sales of $3.2
billion for the second quarter of 1997, compared to earnings of $49.6 million
($0.41 per fully diluted share) on sales of $2.4 billion in the corresponding
period of 1996. The increase in sales is attributable to the Unocal and Circle K
Acquisitions and the reopening of the Trainer Refinery, partially offset by
reduced production at the Avon Refinery and lower West Coast product prices.
Tosco generated an operating contribution of $248.4 million for the second
quarter of 1997 compared to $165.2 million in the corresponding period in 1996.
Refining operating contribution decreased by $25 million due to a number of
factors (primarily reduced production at the Avon Refinery, lower West Coast
refining margins, and start-up costs associated with the Trainer reopening),
partially offset by operating contribution from the Unocal assets. The 1997
second quarter refinery operating contribution includes $20 million of insurance
recovery accruals related to the Avon hydrocracker. See Note 9 to the
Consolidated Financial Statements. Retail operating contribution for the three
month period ended June 30, 1997 increased by approximately $108 million
compared to the same period in 1996, due to the Circle K and Unocal Acquisitions
and improved blended fuel margins.
During the second quarter of 1996, Tosco recorded a $13.5 million ($8.1 million
after-tax) charge for the consolidation of its marketing division following the
Circle K Acquisition. There were no special items in the 1997 second quarter.
Selling, general, and administrative expenses for the quarter ended June 30,
1997 increased by $37.2 million compared to the corresponding period in 1996,
primarily due to the Unocal and Circle K Acquisitions.
Net interest expense for the quarter ended June 30, 1997 increased by $24.5
million compared to 1996. This increase is primarily due to higher debt levels
incurred to finance Tosco's expanded operations and acquisitions.
Income taxes, including the benefit associated with the distributions on
company-obligated, mandatorily redeemable, convertible preferred securities, for
the 1997 second quarter were $47.5 million compared to the 1996 second quarter
of $34.3 million. Tosco's effective income tax rate increased due to the
nondeductibility of the amortization of certain intangible assets acquired in
the Circle K Acquisition and a higher effective state income tax rate due to the
Unocal Acquisition.
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
Tosco earned $70.7 million ($0.48 per fully diluted share) on sales of $5.6
billion during the six month period ended June 30, 1997, compared to earnings of
$73.6 million ($0.62 per fully diluted share) on sales of $4.5 billion in the
corresponding period of 1996. The increase in sales is attributable to the
Unocal and Circle K Acquisitions and the reopening of the Trainer Refinery,
partially offset by reduced production at the Avon and Bayway Refineries and
lower West Coast product prices during the second quarter of 1997.
Tosco generated an operating contribution of $334.2 million for the six month
period ended June 30, 1997 compared to $247.9 million in the corresponding
period in 1996. Refining operating contribution decreased by $46 million due to
a number of factors (primarily reduced production at the Avon Refinery, the
unscheduled shutdown of the Bayway Refinery cat cracker, unusually mild winter
weather on the East Coast during the first quarter of 1997, lower West Coast
refining margins, and start-up costs associated with the Trainer reopening),
partially offset by operating contribution from the Unocal assets. Lower
production at the Avon Refinery was due to the scheduled turnaround of the coker
unit and the unscheduled refinery shutdown. Refinery operating contribution for
the six month period ended June 30, 1997 includes $73 million of insurance
recovery accruals. See Note 9 to the Consolidated Financial Statements. Retail
operating contribution for the six month period ended June 30, 1997 increased by
approximately $132 million compared to the same period in 1996, due to the
Circle K and Unocal Acquisitions and the improved blended fuel margins of the
1997 second quarter.
Selling, general, and administrative expenses for the six month period ended
June 30, 1997 increased by $62.0 million compared to the corresponding period in
1996, primarily attributable to the Unocal and Circle K Acquisitions.
Net interest expense for the six month period ended June 30, 1997 increased by
$31.9 million compared to 1996. This increase is primarily due to higher debt
levels incurred to finance Tosco's expanded operations and acquisitions.
Income taxes, including the benefit associated with the distributions on
company-obligated, mandatorily redeemable, convertible preferred securities, for
the six month period ended June 30, 1997 were $50.1 million compared to $49.9
million in the corresponding period of 1996. Tosco's effective income tax rate
increased due to the nondeductibility of the amortization of certain intangible
assets acquired in the Circle K Acquisition and a higher effective state income
tax rate due to the Unocal and Circle K Acquisitions.
Outlook
Results of operations for the balance of 1997 will be primarily determined by
the operating efficiency of the refineries, and refining and retail fuel
margins. The Avon hydrocracker unit returned to normal operation in July 1997.
Accordingly, Tosco's expanded consolidated refining production is expected to be
at higher levels for the balance of 1997.
Refining and retail fuel margins at the beginning of the third quarter are
at satisfactory levels. Merchandise margins also remained consistent. Tosco is
not able to predict whether such margins will continue due to the uncertainties
associated with the oil markets.
Cash Flows
As summarized in the Consolidated Statement of Cash Flows, cash and cash
equivalents decreased by $54 million during the first six months of 1997 as cash
used in investing activities of $1.4 billion exceeded cash provided by operating
and financing activities of $89 million and $1.3 billion, respectively.
Net cash provided by operating activities of $89 million was from cash earnings
of $135 million (net income plus depreciation and amortization less insurance
recoveries), net of an increase in net operating assets and liabilities of $44
million, and $2 million from other operating uses.
Net cash used in investing activities totaled $1.4 billion due to the Unocal
Acquisition ($1.1 billion), capital additions ($184 million), and spending for
turnarounds, deferred charges and other assets ($111 million), net of other
investing sources of $3 million.
Net cash provided by financing activities totaled $1.3 billion as proceeds from
the Common Stock offering of $697 million, proceeds from notes and debentures of
$600 million, and net borrowings under the Revolving Credit Facilities of $515
million exceeded the repurchase of the Unocal Shares of $394 million, principal
payments on long-term debt of $107 million, dividend payments of $17 million,
and other financing uses of $8 million.
Liquidity
At June 30, 1997, liquidity (cash and cash equivalents, current portion of
marketable securities, deposits, and unused credit facilities) totaled $477
million, a $140 million decrease from the December 31, 1996 balance of $617
million. Cash and cash equivalents decreased by $54 million, current portion of
marketable securities and deposits decreased by $16 million, and unused credit
facilities decreased by $71 million. See Note 6 to the Consolidated Financial
Statements.
In January 1997, Tosco filed a shelf registration statement providing for the
issuance of up to $1.5 billion aggregate principal amount of its securities. The
securities to be issued may consist of one or more series of debentures, notes
or other uncollateralized forms of indebtedness, Common Stock, Preferred Stock,
and Preferred Stock represented by depository shares. Such securities may be
offered, separately or together, in amounts and at prices and terms to be set
forth in one or more supplements to the shelf registration statement. On May 1,
1997, Tosco issued 25,300,000 shares of Common Stock pursuant to a prospectus
supplement to the shelf registration statement. The net proceeds from this
Common Stock offering were $697 million, based on an offering price of $28.50
per share. The net proceeds were used to repurchase and retire the common stock
issued to Unocal ($394 million) and repay borrowings under the Revolving Credit
Facilities used to finance the Unocal Acquisition ($304 million).
The Revolving Credit Facility, together with funds potentially available from
the issuance of securities, provide Tosco with adequate resources to meet its
expected liquidity demands, including required debt payments and liquidity
requirements associated with the Unocal Acquisition, for at least the next
twelve months. See Note 8 to the Consolidated Financial Statements.
Capital Expenditures
On March 31, 1997, Tosco completed the Unocal Acquisition. In addition, Tosco
spent $184 million on budgeted capital projects during the first six months of
1997, primarily at the Avon, Bayway, and Trainer Refineries and for retail
assets. Refinery capital spending programs were for the completion of projects
to meet reformulated fuel specifications, compliance with environmental
regulations and permits, personnel/process safety programs, and operating
flexibility and reliability projects. Retail capital spending was focused on
integrating operations, enhancing existing sites, and upgrading underground
storage tanks.
Capitalization
At June 30, 1997, total shareholders' equity was $1.8 billion, a $750 million
increase from the December 31, 1996 balance of $1.1 billion. This increase was
primarily due to the issuance of 25,300,000 shares of Common Stock for $697
million, and net income of $71 million less Common Stock dividends of $17
million. Debt (short-term bank borrowings, current and non-current maturities of
long-term debt, and revolving credit facilities) at June 30, 1997 totaled $1.9
billion, an increase of $1 billion from the December 31, 1996 balance of $940
million. This increase was due to Tosco's borrowings to fund the Unocal
Acquisition, net of principal payments.
The ratio of long-term debt (revolving credit facilities and non-current portion
of long-term debt) to total capitalization (revolving credit facilities,
non-current portion of long-term debt, Trust Preferred Securities, and total
shareholders' equity) increased from 38% at December 31, 1996 to 48% at June 30,
1997. This increase was primarily due to the issuance of $600 million of
long-term debt in January 1997 and net borrowings of $515 million under the
Revolving Credit Facilities, net of long-term debt payments of $107 million and
net proceeds from a Common Stock offering of $697 million.
New Accounting Standards
During February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128 "Earnings Per Share" ("SFAS
No. 128"). SFAS No. 128 modifies the computation, presentation, and disclosure
requirements for earnings per share amounts. The adoption of SFAS No. 128, in
the fourth quarter of 1997, is not expected to have a significant impact on
Tosco's reported earnings per share.
During June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130 "Reporting Comprehensive Income" ("SFAS No. 130") and Statement of
Financial Accounting Standards No. 131 "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS No. 131"). SFAS No. 130 establishes
standards for reporting and display of comprehensive income and its components
(net income plus all other nonowner changes in equity). SFAS No. 131 establishes
disclosure standards regarding information about operating segments in interim
and annual financial statements. Tosco will comply with the expanded disclosure
requirements of SFAS No. 130 and SFAS No. 131 with its 1997 annual financial
statements.
<PAGE>
PART II OTHER INFORMATION
Item 4. Submission of Matters to Vote of Security Holders
On May 15, 1997, an Annual Meeting of Stockholders was held. The table below
briefly describes the proposals and the results of the shareholder vote:
I. Election of Directors
Withhold
Names Votes For Authority
Jefferson F. Allen 133,835,112 229,184
Patrick M. de Barros 133,837,368 226,928
Wayne A. Budd 133,768,455 295,841
Houston I. Flournoy 133,819,924 244,372
Edmund A. Hajim 133,836,364 227,932
Joseph P. Ingrassia 133,820,769 243,527
Charles J. Luellen 133,826,226 238,070
Eija Malmivirta 133,771,097 293,199
Mark R. Mulvoy 133,823,769 240,527
Thomas D. O'Malley 133,820,853 243,443
II. Ratification of Independent Accountants
Votes For Votes Against Abstain
Ratification and approval of appointment
of Coopers & Lybrand L.L.P. as
independent accountants 133,876,019 70,230 118,047
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits:
11 - Computation of Earnings Per Share (see page 16)
12 - Ratio of Earnings to Fixed Charges (see page 17)
27 - Financial Data Schedule
b. Report on Form 8-K
A Report on Form 8-K/A dated June 10, 1997 was filed relating to the acquisition
of Union Oil Company of California's West Coast petroleum refining, marketing
and related supply and transportation assets on March 31, 1997. This Form 8-K/A
reported on Item 2., Acquisition or Disposition of Assets, and on the following
financial information under Item 7., Financial Statements, Pro Forma Financial
Information and Exhibits:
1. Pro-forma financial information of Tosco Corporation consisting of
an unaudited pro-forma combined balance sheet as of March 31, 1997
and an unaudited pro-forma combined income statements for the year
ended December 31, 1996 and the three month period ended March 31,
1997
EXHIBIT 11
<TABLE>
<CAPTION>
TOSCO CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE (a)
(Unaudited)
(Thousands of Dollars, Except Per Share Data)
Three Months Ended June 30, Six Months Ended June 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Income before distributions on company-obligated, mandatorily
redeemable, convertible preferred securities $69,635 $49,638 $75,720 $73,604
Distributions company-obligated, mandatorily redeemable,
convertible preferred securities, net of income tax benefit 2,523 - 5,046 -
-------- ------- -------- --------
Net income $67,112 $49,638 $70,674 $73,604
PRIMARY EARNINGS PER SHARE
Earnings used for computation of primary earnings per share $67,112 $49,638 $70,674 $73,604
Weighted average number of shares outstanding during the period 152,491,892 117,870,768 141,833,861 114,803,490
Assumed conversion of common share equivalents 4,393,690 3,045,438 4,323,624 2,768,145
-------------- ------------ ------------ ------------
Weighted average common and common equivalent shares used
for computation of primary earnings per share 156,885,582 120,916,206 146,157,485 117,571,635
-------------- ------------- ------------ ------------
Primary earnings per common and common equivalent share $0.43 $0.41 $0.48 $0.63
============= ============= ============ ============
FULLY DILUTED EARNINGS PER SHARE (b)
Earning used for computation of fully diluted earnings per share $67,112 $49,638 $70,674 $73,604
-------------- ------------- ----------- -------------
Weighted average number of shares outstanding during the period 152,491,892 117,870,768 141,833,861 114,803,490
Assumed conversion of common share equivalents 4,393,690 3,096,894 4,355,426 3,096,894
Weighted average common and common equivalent shares used
for computation of fully diluted earnings per share 156,885,582 120,967,662 146,189,287 117,900,384
-------------- ------------- ------------ ------------
Fully diluted earnings per common and common equivalent share $0.43 $0.41 $0.48 $0.62
(a) Earnings per share and weighted average shares outstanding
reflect the 3-for-1 stock split declared and distributed in February 1997.
(b) Conversion of the company-obligated, mandatorily redeemable,
convertible preferred securities is not assumed at June 30, 1997 because
its effect on earnings per share is not significant and because
the conversion rate, equivalent to a conversion price of approximately
$32.92 per Common Stock share, was higher than the average
market price of the Common Stock for the three and six month periods
ended June 30, 1997.
</TABLE>
EXHIBIT 12
<TABLE>
<CAPTION>
TOSCO CORPORATION AND SUBSIDIARIES
RATIO OF EARNINGS TO FIXED CHARGES
(Thousands of Dollars, Except Ratio Data)
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Income before income taxes $114,618 $83,901 $120,810 $123,519
Fixed charges to be added to income before income taxes:
Interest expense, including amortization of debt expenses 45,801 20,864 69,944 37,587
Distributions on company-obligated, mandatorily redeemable,
convertible preferred securities 4,312 8,625
Interest factor of rental expense 8,516 6,289 15,691 11,007
--------- --------- --------- ---------
Earnings $173,247 $111,054 $215,070 $172,113
---------- ---------- --------- ---------
Fixed charges:
Interest expense, including amortization of debt expenses $45,801 $20,864 $69,944 $37,587
Interest capitalized 458 309 707 649
Distributions on company-obligated, mandatorily redeemable, - -
convertible preferred securities 4,312 8,625
Interest factor of rental expense 8,516 6,289 15,691 11,007
----------- ---------- ----------- ----------
Total fixed charges $59,087 $27,462 $94,967 $49,243
---------- ---------- ----------- ---------
Ratio of earnings to fixed charges 2.93 4.04 2.26 3.50
========== ========= =========== ==========
</TABLE>
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
Date: August 14, 1997 By: /s/ JEFFERSON F. ALLEN
----------------------
(Jefferson F. Allen)
President and Chief Financial Officer
By: /s/ ROBERT I. SANTO
----------------------
(Robert I. Santo)
Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 40,480
<SECURITIES> 19,104
<RECEIVABLES> 474,651
<ALLOWANCES> 15,007
<INVENTORY> 1,272,475
<CURRENT-ASSETS> 1,949,185
<PP&E> 3,732,050
<DEPRECIATION> 584,638
<TOTAL-ASSETS> 6,046,556
<CURRENT-LIABILITIES> 1,454,262
<BONDS> 350,000
300,000
0
<COMMON> 133,410
<OTHER-SE> 1,687,187
<TOTAL-LIABILITY-AND-EQUITY> 6,046,556
<SALES> 5,606,704
<TOTAL-REVENUES> 5,606,704
<CGS> 5,272,538
<TOTAL-COSTS> 5,272,538
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 69,944
<INCOME-PRETAX> 129,435
<INCOME-TAX> 53,715
<INCOME-CONTINUING> 75,720
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 70,674
<EPS-PRIMARY> .48
<EPS-DILUTED> .48
</TABLE>
