FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 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
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE
ON WHICH REGISTERED
Common Stock, $.75 par value New York Stock Exchange
Pacific Stock Exchange
9 5/8% Series B First Mortgage Bonds due March 15, 2002 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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
The aggregate market value of the voting stock held by non-affiliates of the
registrant on February 28, 1998 based on the closing price at which such stock
was sold on the New York Stock Exchange on such date was $5,774,000,077.
Registrant's Common Stock outstanding at February 28, 1998 was 156,318,107
shares.
Portions of registrant's definitive Proxy Statement relating to its 1998
Annual Meeting of Shareholders are incorporated by reference into Part III, as
set forth herein.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
<PAGE>
TOSCO CORPORATION
INDEX TO ANNUAL REPORT ON FORM 10-K
Items 1 and 2. Business and Properties 1
Introduction 1
Petroleum Refining, Supply, Distribution, and
Marketing 3
Other Activities 11
Office Properties 11
Employees 11
Item 3. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 15
Item 6. Selected Financial Data 16
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 17
Item 8. Financial Statements and Supplementary Data 25
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 25
Item 10. Directors and Executive Officers of the Registrant 26
Item 11. Executive Compensation 26
Item 12. Security Ownership of Certain Beneficial Owners
and Management 26
Item 13. Certain Relationships and Related Transactions 26
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 27
Index to Consolidated Financial Statements
and Financial Statement Schedules F-1
<PAGE>
PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
INTRODUCTION
Tosco Corporation ("Tosco") is the largest independent refiner and marketer
of petroleum products in the United States, operating principally on the East
and West Coasts of the United States. Following the March 31, 1997 refining and
marketing asset acquisition from Union Oil Company of California ("Unocal"),
Tosco operates eight refineries with the capacity to process approximately
950,000 barrels per day of crude oil, feedstocks, and blendstocks into various
petroleum products. Trainer Refinery near Philadelphia, purchased in a shutdown
state in February 1996, began full operations in May 1997 after undergoing an
approximately $100 million modernization and upgrading program. Through its
retail distribution network, Tosco sells over 4.6 billion gallons of fuel
annually. As part of the Unocal asset acquisition, Tosco purchased the "76"
products terminal and pipeline distribution system, expanding upon Tosco's May
1996 acquisition of The Circle K Corporation ("Circle K"), by which Tosco had
become the nation's largest operator of company-controlled convenience stores.
Tosco also engages in related commercial activities throughout the United States
and internationally. Tosco's refining and marketing business is managed and
operated by its two divisions, Tosco Refining Company and Tosco Marketing
Company.
Tosco was incorporated under the laws of the State of Nevada in 1955. Its
principal executive offices are located at 72 Cummings Point Road, Stamford,
Connecticut 06902 and its telephone number is (203) 977-1000.
ACQUISITION OF UNOCAL REFINING AND MARKETING ASSETS
On March 31, 1997, Tosco acquired petroleum refining, marketing, and
related supply and transportation assets from Unocal (the "1997 Acquisition"),
located primarily on the West Coast, for a purchase price (including liabilities
assumed) of approximately $1,541,000,000 plus inventories valued at $361,000,000
and credit card receivables valued at approximately $131,000,000. 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 and/or California
Air Resources Board ("CARB") gasoline margins improve above certain levels. For
a period of 25 years, Unocal will be responsible for all environmental
liabilities arising out of or relating to the period prior to the date of
Tosco's purchase, except that Tosco 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 Tosco may have to pay in total for the 25 years
for such environmental liabilities is limited to $200,000,000.
The assets which were acquired from Unocal included two petroleum refining
complexes, comprised of four sites in California with an aggregate throughput
capacity of approximately 260,000 barrels per day; a retail gasoline system,
consisting of 76-branded gasoline stations (most 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;
rights with respect to approximately 1,300 miles of crude oil and product
pipelines; 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 by Tosco to Unocal for this 1997 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 leases the service stations to Tosco. 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 March 31,
1997 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 9), and proceeds
from the sale of $600,000,000 of unsecured debt securities (Note 10). In May
1997, Tosco repurchased the Unocal Shares for approximately $393,708,000.
Tosco indicated at the time it completed the 1997 Acquisition that it
intended to sell certain non-strategic assets. Approximately $73,000,000 of such
assets have been sold, principally oil tankers, a heating oil distributorship
and certain retail sites.
In 1997, Tosco began integrating the newly acquired 76 products assets into
Tosco's existing refining and marketing system. During the summer, the
operations of Rodeo-Santa Maria Refining Complex and the Avon Refinery were
combined and renamed the San Francisco Area Refinery System. In addition,
Rodeo's lubricants base stock manufacturing facilities were shutdown in October
1997 to optimize and simplify operations at the facility. Lube stock is now
purchased from third parties.
<PAGE>
PETROLEUM REFINING, SUPPLY, DISTRIBUTION, AND MARKETING
REFINING
Tosco, through five major facilities consisting of eight refineries,
processed in 1997 approximately 793,000 barrels per day of crude oil,
feedstocks, and blendstocks into various petroleum products, chiefly light
transportation fuels (gasoline, diesel, and jet fuel) and heating oil. This 1997
processing volume included only the partial year operations from the Trainer
Refinery, which started up in May 1997, and from the two California complexes
acquired on March 31, 1997 from Unocal. Tosco's refining facilities are located
on the East and West Coasts of the United States.
Avon Refinery ("Avon"), Rodeo Refinery ("Rodeo"), both located in the San
Francisco Bay area, and Santa Maria Refinery ("Santa Maria"), located on the
mid-California coast (collectively, the San Francisco Area Refinery ("SFAR")
System), are operated on an integrated basis. Avon has in excess of 160,000
barrels per day of crude oil distillation capacity. Rodeo and Santa Maria, both
acquired on March 31, 1997 from Unocal, together have approximately 120,000
barrels per day of crude oil distillation capacity. SFAR is technologically
complex with coking, catalytic cracking, hydrocracking and hydrodesulfurizing
units to accommodate comparatively lower gravity crude oils. Coke calcining
plants, acquired from Unocal in March 1997, are located near Rodeo and Santa
Maria and are operated as part of SFAR. The calcining facilities process green
petroleum coke, a by-product of refining operations, for use in the production
of aluminum and other industrial applications. Rodeo also had a
lubricants base stock manufacturing operation which was closed by Tosco in
October 1997. Tosco's lubricants manufacturing, marketing and distribution
business is known as 76 Lubricants Company and is based in Costa Mesa,
California.
The Los Angeles Refinery ("LAR") System, consisting of two linked
refineries located in Carson and Wilmington, California, acquired from Unocal in
March 1997, has approximately 140,000 barrels per day of crude oil and other
feedstock processing capacity. LAR is a technologically complex facility with
coking, catalytic cracking, hydrocracking and hydrodesulfurizing units to
accommodate comparatively lower gravity crude oils. It is capable of processing
a broad range of crude oils and other feedstocks into a high percentage of light
refined petroleum products, consisting chiefly of transportation fuels.
Pipelines and marine facilities link LAR to various crude supply and product
distribution systems in the large southern California market area.
In the Northwest, Ferndale Refinery ("Ferndale") is located on Puget Sound,
100 miles north of Seattle. It is connected by the Olympic pipeline to its major
retail markets, has crude oil distillation capacity of approximately 95,000
barrels per day, and is equipped with thermal catalytic cracking and
hydrodesulfurization units, as well as modern marine facilities.
Bayway Refinery ("Bayway"), located in Linden, New Jersey, on the New York
Harbor and Trainer Refinery ("Trainer") located in Trainer, Pennsylvania, near
Philadelphia, are operated in coordination with each other. Bayway can process
in excess of 275,000 barrels per day of crude oil and other feedstocks. Bayway's
facilities include hydrodesulfurization units and the largest fluid catalytic
cracking unit in the world. Bayway produces transportation fuels and is a
principal supplier of heating oil to the U.S. East Coast.
Trainer, which was acquired in a shut-down mode in February 1996, was
started up by Tosco in May 1997 after an approximately $100 million
modernization and upgrading program. With approximately 170,000 barrels per day
of crude oil distillation capacity, Trainer's fluid catalytic cracking unit,
hydrocracking unit and hydrodesulfurization units enable it to produce a high
percentage of light refined petroleum products. The two East Coast refineries
have ready access to marine, rail, and truck transportation and product
distribution pipelines, giving them considerable flexibility to change their raw
material input and product output to respond to changing market conditions.
The federal Clean Air Act Amendments of 1990 and the laws and regulations
of state and local agencies impose certain air quality requirements that have a
significant impact on Tosco. These regulations require the sale of reformulated
and oxygenated gasoline in areas that do not meet certain air quality standards.
Effective January 1, 1995, federal regulations required the sale of reformulated
gasoline in the nine U.S. cities with the highest levels of ozone in their air
quality, including areas in which Tosco sells its gasoline. Effective March 1,
1996, the California Air Resources Board required the sale of reformulated
gasoline in California which meets specifications that are stricter than the
federal requirement ("CARB Phase II"). Tosco made modifications necessary to
meet these requirements.
The following table sets forth certain significant refining operating data
for the years ended December 31, 1997, 1996, and 1995. A barrel is equal to 42
gallons.
<TABLE>
<CAPTION>
REFINING DATA SUMMARY (a)
1997 1996 1995
------------- -------------- ---------
Average charge barrels input per day:
<S> <C> <C> <C>
Crude oil 703,400 468,900 466,000
Other feed and blending stocks 90,000 66,100 74,900
------------- -------------- ----------
793,400 535,000 540,900
============= ============== ==========
Average barrels of petroleum products produced per day:
Gasoline 415,800 269,900 272,800
Distillates 196,400 151,100 143,100
Jet fuel 49,800 12,900 16,900
Residuals 77,700 71,200 68,900
Propane 15,800 16,900 17,400
Petroleum coke 21,300 7,200 6,900
Other 11,000 9,300 17,300
------------- -------------- ---------
787,800 538,500 543,300
============= ============== ==========
Operating margin per charge barrel (b) $ 4.89 $ 4.89 $ 3.77
============= ============== ============
(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
- Los Angeles Refinery System, comprised of two refineries in
Los Angeles (for the period beginning April 1, 1997)
- San Francisco Area Refinery System, comprised of the
Rodeo-Santa Maria Complex (for the period beginning April 1,
1997) and the Avon Refinery
- Trainer Refinery, located near Philadelphia (for the period beginning
May 8, 1997).
(b) Operating margin per charge barrel is calculated as operating contribution,
excluding refinery operating costs and inventory writedowns, divided by
total refinery charge barrels.
</TABLE>
RAW MATERIAL SUPPLY
During 1997, Tosco's crude oil, feedstock, and blendstock requirements of
approximately 793,000 barrels per day were supplied by third parties. Tosco's
1997 West Coast requirements of approximately 416,000 barrels per day were
supplied primarily through domestic production, mainly Californian and
Alaskan crudes, and to a lesser extent foreign imports. Approximately 75% of
Tosco's West Coast requirements were met by long term contracts, with
suppliers such as Atlantic Richfield Company ("ARCO"), BP Oil Supply Company
("BP Oil"), Chevron U.S.A. ("Chevron"), Exxon Corporation ("Exxon"), and Texaco
Trading and Transportation, Inc. ("Texaco"). In connection with the 1997
Acquisition, several additional long term contracts were entered into to further
increase Tosco's secure supply of West Coast domestic crude oil and feedstocks.
These barrels are delivered to Tosco's West Coast refineries primarily through
the major crude oil pipelines in California. To the extent these pipelines are
not available, Tosco's future operating results may be adversely affected.
Tosco's 1997 East Coast requirements of approximately 377,000 barrels per day
were met primarily from foreign imports. Approximately 35% of Tosco's East
Coast requirements were met by long term contracts, with suppliers such as
Statoil (Norway), a consortium of producers in Argentina, and other foreign
sources. The balance of Tosco's 1997 West and East Coast crude oil and feedstock
requirements were purchased on the spot market. During 1997, Tosco resold less
than 5% of its raw material purchases.
Additionally, in February 1998, Tosco entered into a fifteen (15) year
contract with Occidental Petroleum Company ("Occidental") to buy a substantial
portion of Occidental's crude oil production from the Elk Hills oil field in
California. Tosco plans to build a 14-mile pipeline from the Elk Hills field to
existing lines that serve Tosco's SFAR System, reducing Tosco's delivered raw
material cost and better utilizing Tosco's existing pipeline assets. This
domestic supply of light crude oil will significantly reduce the need for Tosco
to purchase waterborne crude oil. Tosco anticipates it will also purchase
additional Elk Hills production as it becomes available.
For the supply of Bayway and Trainer on the East Coast, Tosco has several
term contracts with foreign suppliers of crude oil and feedstocks and believes
that in the event such contracts are terminated, it would be able to replace
them in the market without material adverse effect. In connection with the two
East Coast refineries' reliance on European sources as their primary suppliers
of crude oil, Tosco's U.K. subsidiary (established in 1994 for the purpose of
obtaining better information and access to the European markets) continues to
act as a resource. In addition, Tosco's long term lease agreement with Statia
Terminals for 3,600,000 barrels of crude oil storage in Nova Scotia, Canada,
entered into in 1994, remains in place.
In 1994, Tosco, through a subsidiary, entered into a twelve-year agreement
with Neptune Orient Lines, Ltd. of Singapore for the charter of four 100,000
deadweight tons ("DWT") crude oil tankers. The tankers were built to maximize
the use of Bayway's dock receiving facilities as well as to meet the
requirements of the U.S. Oil Pollution Act of 1990. The tankers are being
utilized to move crude oil to Bayway and Trainer, or other locations, from the
Nova Scotia storage location or for direct shipments from suppliers. The fourth
tanker was delivered in January 1997, the first three tankers having been
delivered in 1996.
Tosco believes its average crude oil inventory is presently sufficient for
normal refinery operations at its refineries. Tosco's crude oil inventory level
is managed in light of market risk, carrying costs, and delivery method.
The cost to Tosco of crude oil and other feedstocks depends on many
factors, including the terms of purchase, credit, and delivery. In general,
heavy crude oils are less expensive than lighter crude oils. Thus, if Tosco's
West Coast refineries' supply of San Joaquin Valley heavy crude oil is reduced
or curtailed, or if its price relative to lighter crude oils increases, Tosco's
operations could be adversely affected. In 1995, Congress and the President
deregulated the Alaska North Slope ("ANS") crude oil market by permitting ANS to
be exported, which may cause an increase in its price from time to time. With
respect to Tosco's East Coast refineries, Bayway and Trainer, if their foreign
sources of crude oil or the marine system for delivering crude oil (including
required marine insurance for possible marine environmental liabilities) were
curtailed, Tosco's operations could be adversely affected. In addition, the
loss, or an adverse change in the terms, of certain of the crude oil supply
contracts described above or the loss of other sources or means of delivery of
crude oil could have a material adverse effect on Tosco's operating results. The
volatility of prices and quantities of crude oil that may be purchased on the
spot market or pursuant to long and short term contracts could materially
adversely affect Tosco's operating results.
WHOLESALE MARKETING AND DISTRIBUTION
Tosco sells unbranded refined petroleum products to wholesale purchasers.
Tosco's wholesale sales of gasoline and distillates are made to large end users,
retailers, independent marketers, and jobbers who serve unbranded markets,
including the retail, industrial, commercial, agricultural, and governmental
classes of trade. Sales are also made to other refiners and resellers, both
major and independent. Tosco generally sells its other industrial petroleum
products directly to the end users and resellers of such industrial products.
Tosco's costs associated with meeting the recent federal and state environmental
requirements, particularly the CARB Phase II requirements in California, were
significant. Tosco cannot be certain that its costs will be fully recovered.
Tosco's ability to sell its products on economical terms is dependent, in part,
on the competitive position of its customers in changing and often turbulent
markets. During 1997 and 1996, wholesale gasoline products (including product
transfers to retail marketing) accounted for approximately 55% and 35%,
respectively, of Tosco's wholesale petroleum revenues, while distillates
(including product transfers to retail marketing) accounted for approximately
25% and 25% of Tosco's wholesale petroleum revenues in 1997 and 1996
respectively. Tosco's average inventory of gasoline and distillates is 10 to 15
days of wholesale sales.
There were no long term sales contracts (i.e., in excess of one year) that
accounted for more than 10% of Tosco's consolidated revenues.
During 1997 and 1996, Tosco purchased for resale an average of
approximately 364,628 and 284,700 barrels per day, respectively, of petroleum
products from third parties.
In 1997, Tosco distributed refined petroleum products, principally in the
eastern and western United States, through an extensive distribution network
comprised of 176 proprietary and third-party terminal locations in 28 states and
by means of pipelines, rail tank cars, trucks, ocean-going tankers, and barges.
See Note 17 to the Consolidated Financial Statements. Tosco's proprietary
petroleum trucking operations, located primarily on the West Coast, deliver
approximately 4,000,000 gallons per day of products.
Tosco also engages in commercial activities related to its petroleum
refining, distribution, and marketing businesses throughout the United States
and internationally.
LUBRICANTS
In 1997, Tosco entered the lubricants market with its acquisition of a
lubricants manufacturing, distribution and marketing business from Unocal.
Tosco's 76 Lubricants Company markets lubricating oils and greases
internationally and is based in Costa Mesa, California. Tosco's four lubricant
blending and packaging facilities are located in Los Angeles, California, in
Richmond, California, approximately 30 miles east of San Francisco, in Portland,
Oregon, and in Savannah, Georgia. From these plants over 55 million gallons
annually of automotive and commercial motor oils, industrial oils, gear oils,
and greases are sold directly to large end users, retail discount chains, and to
over 200 petroleum jobbers in the United States and in 70 countries
internationally. In 1997, jobbers accounted for approximately 80% of all sales.
Tosco entered into long term supply agreements with base stock refiners to
ensure a supply of the high quality base stocks needed for its lubricants
operations. The lubricants base stock manufacturing operation located at Rodeo
Refinery that was acquired by Tosco in the 1997 Acquisition from Unocal was
closed in October 1997. Supply agreements entered into by Tosco in 1997 replace
the requirements satisfied in the past by this operation. These contracts
provide base stocks on terms which Tosco considers favorable. Tosco does not
anticipate difficulty obtaining necessary supplies in the event these suppliers
could not meet their commitments.
RETAIL MARKETING
Tosco greatly expanded its presence in the U.S. retail gasoline marketing
business with the completion of its acquisition of refining and marketing
assets from Unocal (located primarily on the West Coast) on March 31, 1997,
following the May 1996 acquisition of Circle K which had combined Tosco's then
existing retail operations with the Circle K stores. Tosco's retail system
currently includes over 5,000 retail marketing locations operating under the BP,
Exxon, 76 and Circle K names, approximately 2,490 of which are
company-controlled and operated, approximately 1,190 are company-controlled and
dealer-operated, and approximately 350 are merchandise only locations. Tosco
also franchises the use of the Circle K name in additional locations.
Tosco entered the retail marketing business with the acquisition of BP's
retail marketing system in the Pacific Northwest in December 1993, in a
transaction that gave Tosco an exclusive license to market under the BP brand in
two states. In August 1994, Tosco acquired BP's Northern California retail
marketing system, while extending the existing license and expanding it to
include a total of nine Western states. The retail marketing system was further
expanded with the acquisition of Exxon's Arizona retail assets in December 1994,
including the right to market under the Exxon brand in Arizona for seven years.
The Northern California and Arizona retail assets are leased from special
purpose entities that purchased the assets from BP and Exxon.
In February 1996, Tosco acquired BP's Northeast retail marketing system
including a jobber network of approximately 500 service stations. The
acquisition gave Tosco a license to market under the BP brand in
eleven Northeastern states and the Washington, D.C. metropolitan area for a
period of at least 15 years.
The portion of Tosco's retail gasoline system acquired from Unocal in 1997
consists of approximately 1,325 76-branded gasoline stations, approximately
1,100 of which are company-controlled. Approximately 320 of the gasoline
stations in California are leased from a special purpose entity that purchased
these assets from Unocal. In addition, as of December 31, 1997, Tosco had
approximately 3,620 other gasoline service stations and/or Circle K convenience
stores, in 28 states, many of which were company-controlled. Circle K stores are
primarily located in the "sunbelt region" of the United States, which provides
attractive opportunities for convenience retailing due to its relatively high
population growth and warm climate. With the May 1996 acquisition of Circle K,
Tosco became the nation's largest operator of company-controlled convenience
stores and had the second largest convenience store system in the United States.
The following table sets forth certain significant retail operating data
for the years ended December 31, 1997, 1996, and 1995. A barrel is equal to 42
gallons.
<TABLE>
<CAPTION>
RETAIL DATA SUMMARY (a)
1997 1996 1995
------------- -------------- -----------
<S> <C> <C> <C>
Volume of fuel sold (thousands of gallons) 4,159,360 2,060,590 1,046,610
Blended fuel margin (cents per gallon) (b) 12.8 11.6 10.0
Number of gasoline stations at year end 4,652 3,270 1,015
Merchandise sales (thousands of dollars) $ 2,003,417 $ 1,173,370 $ 28,710
Merchandise margin (percentage of sales) 29.4% 29.7% 28.8%
Number of merchandise stores at year end 2,395 2,400 115
Other retail gross profit (thousands of dollars) $ 116,162 $ 53,000 $ 15,690
(a) The Retail Data Summary includes the operations of The Circle K Corporation
subsequent to May 30, 1996 (date acquired) and the 76 Products gasoline
service stations subsequent to March 31, 1997 (date acquired).
(b) Blended fuel margin is calculated as fuel sales minus fuel cost of sales,
divided by fuel gallon sold.
</TABLE>
GASOLINE DISTRIBUTION AND SUPPLY
In 1997, the retail operations of Tosco sold over 4.1 billion gallons of
gasoline including the operations of the convenience store system. The
convenience stores provide an important advantage in the sale of gasoline in the
competitive retail gasoline markets, as do the presence of such amenities as car
washes. All Tosco gasoline stations accept major credit cards.
MERCHANDISING
In 1997, the retail operations of Tosco, including Circle K and from March
31, 1997, 76 Products, had $2 billion of merchandise sales. Offering gasoline is
an important competitive advantage in the convenience store retailing industry.
The convenience stores benefit not only from the sale of gasoline but also from
increased customer traffic in the stores occasioned by gasoline purchases.
<PAGE>
COMPLIANCE WITH ENVIRONMENTAL REQUIREMENTS
Tosco is subject to extensive federal, state, and local laws and
regulations governing releases into the environment and the storage,
transportation, disposal, and clean-up of hazardous materials, including, but
not limited to, the federal Clean Water Act, the Clean Air Act, the Resource
Conservation and Recovery Act, laws relating to underground storage tanks
("USTs"), and analogous state and local laws and regulations. See "Legal
Proceedings."
Environmental compliance at the refineries and terminals has required, and
will continue to require, capital expenditures. Tosco spent approximately $21.3
million in 1997 and $6 million in 1996 for such capital expenditures. Tosco
currently estimates that capital expenditures for environmental compliance may
approximate $42 million and $40 million for 1998 and 1999, respectively. Such
amounts do not include amounts that may be necessary to produce gasoline to meet
changing "clean fuels" specifications.
Because anticipated remedial actions are subject to negotiation with
governmental agencies, the amount and timing of actual cash expenditures are
uncertain. In addition, further investigative work and negotiations with
governmental agencies may result in different or additional remedial actions
that Tosco cannot presently predict.
The U.S. Environmental Protection Agency (the "EPA") has established
standards for UST owners and operators relating to, among other things: (i)
maintaining leak detection systems; (ii) upgrading UST systems; (iii)
implementing corrective action in response to releases; (iv) closing out-of-use
USTs to prevent future releases; (v) maintaining appropriate records; and (vi)
maintaining evidence of financial responsibility for corrective action and
compensating third parties for bodily injury and property damage resulting from
UST releases. All states in which Tosco operates also have adopted UST
regulatory programs.
Under current federal and certain state regulatory programs, Tosco is
obligated to upgrade or replace by December 22, 1998, those USTs it owns or
operates which do not meet new corrosion protection and overfill/spill
containment standards. In some states, this upgrading or replacement must be
accomplished by an earlier date. Tosco has evaluated each of its sites that
sells gasoline to determine the type of expenditures required to comply with
these and other requirements under the federal and state UST regulatory
programs.
Capital expenditures in Tosco's retail system, including those relating to
upgrading or replacing existing USTs, were approximately $22 million in 1997 and
are estimated to be approximately $55 million in 1998 and $8 million in 1999.
Tosco's estimated capital expenditures to comply with these UST regulations may
increase if certain upgrade alternatives at particular sites cannot be
implemented, thus requiring the replacement of USTs at these sites.
Governmental regulations are complex and subject to different
interpretations. Therefore, future action and regulatory initiatives could
result in changes to expected operating permits, additional remedial actions, or
increased capital expenditures and operating costs that Tosco cannot presently
assess with certainty. See Note 11 to the Consolidated Financial Statements.
COMPETITION
Many of Tosco's competitors in the petroleum industry are fully integrated
companies engaged, on a national or international basis or both, in many
segments of the petroleum business, including exploration, production,
transportation, refining, and marketing, on scales much larger than Tosco. Such
competitors may have greater flexibility than Tosco in responding to or
absorbing market changes occurring in one or more of such segments. Tosco's
petroleum refining and marketing business is not seasonal.
Tosco faces strong competition in its market for the sale of refined
petroleum products, including gasoline. Such competitors, especially major
integrated oil companies, have in the past and may in the future engage in
marketing practices that result in profit margin deterioration for Tosco for
periods of time, causing an adverse impact on Tosco. Tosco does not believe that
there is any one or a small number of dominant competitors in the petroleum
refining and marketing business. Tosco does not know its precise competitive
position therein. Tosco's principal methods of competing are low unit cost of
production achieved by running facilities at high rates, price, or service.
Tosco believes it is able to compete with these methods because of its
facilities, their locations, and direction of management.
Tosco must purchase all of its crude oil and substantially all of its
feedstock supplies from others, while some of its competitors have proprietary
sources of crude oil available for their own refineries. Tosco has agreements
with British Petroleum, Exxon, Statoil, Texaco, ARCO, Shell, and others to
provide Tosco certain amounts of crude oil. Under present market conditions,
Tosco does not anticipate difficulty in obtaining necessary crude oil supplies.
See "Petroleum Refining, Supply, Distribution, and Marketing - Raw Material
Supply."
Tosco faces similarly strong competition in the sale of petroleum
lubricants. The lubricants market is fragmented. Major integrated oil company
brands are the main competitors in the engine oil segment. These same companies
as well as specialty oil marketers are active in the industrial oil market.
Tosco must purchase all of its lubricants stock from its competitors. See
"Petroleum Refining Supply, Distribution and Marketing - LUBRICANTS."
Tosco also faces strong competition in the market for the sale of retail
gasoline. The competitors include service stations of large integrated gasoline
companies, independent gasoline service stations, other convenience stores
owners and operators, fast food stores, supermarkets, neighborhood grocery
stores and other similar retail outlets, some of which are well-recognized
national or regional retail systems. Tosco believes that among the key
competitive factors in the retail gasoline markets are site location, name
recognition, customer loyalty, ease of access, store management, product
selection, pricing, hours of operation, store safety, cleanliness, product
promotions, and marketing. Retail gasoline similar or identical to that sold by
Tosco is generally available to its competitors. Tosco competes against its
competitors by pricing gasoline competitively, combining its retail gasoline
business with convenience stores which provide a wide variety of branded
products at reasonable prices, and using promotional campaigns.
OPERATING PROPERTIES
Tosco, itself or through its wholly owned subsidiaries, owns the sites at
which its refineries are located (2,300-acre site at Avon, 1,300-acre site at
Bayway, 850-acre site at Ferndale, 650-acre site at LAR, 1,210-acre site at
Rodeo, 1,790-acre site at Santa Maria and a 500-acre site at Trainer) and the
buildings, tanks, pipelines, and related facilities.
Tosco had available at December 31, 1997, through ownership, lease
agreement, exchange, or other appropriate arrangement, the use of storage tanks,
loading racks, wharves, and other related assets at approximately 176 terminal
distribution locations in 28 states. Tosco believes its refinery-related
properties are well-maintained and are suitable and adequate for their present
purposes.
Tosco or its wholly owned subsidiaries own or control by lease over 3,670
retail service stations located in 28 states. In addition to marketing
transportation fuels (gasoline and diesel), many of the stations have
convenience store, car wash, and/or automotive repair facilities.
PATENTS AND TRADEMARKS
Tosco's patents relating to petroleum and lubricants operations are not
material to Tosco as a whole. The license rights to the BP and Exxon tradenames,
as well as ownership of the 76, Union 76 and Circle K tradenames and other
trademarks employed in the marketing of petroleum products are important to
Tosco's operations.
<PAGE>
OTHER ACTIVITIES
OIL SHALE
Tosco and its wholly owned subsidiary, The Oil Shale Corporation ("Oil
Shale"), have interests in oil shale properties aggregating approximately 23,100
net mineral acres in Colorado and 20,525 net mineral acres in Utah. Tracts vary
in size from l60 to l7,570 mineral acres. Tosco is also the owner of water
rights and certain oil shale processes and technologies. In addition, Oil Shale
controls approximately l,900 acres of oil shale properties through unpatented
mining claims. (Unpatented properties are those in which the United States
Government has not conveyed to others all of its right, title, and interest.)
OFFICE PROPERTIES
At December 31, 1997, Tosco occupied a total of approximately 812,000
square feet of office space principally in Linden, New Jersey, Phoenix, Arizona,
and Stamford, Connecticut, and at various office locations for the refining and
retail systems. The office space occupied by Tosco is generally suitable and
adequate for its purposes.
EMPLOYEES
At December 3l, 1997, Tosco had approximately 26,200 employees at various
locations, including approximately 19,700 store personnel, of which
approximately 4,600 are part-time. Approximately 8% of Tosco's employees,
primarily those employed at the refining facilities, are represented by labor
organizations. Tosco believes that its labor relations with its employees are
good.
ITEM 3. LEGAL PROCEEDINGS
On July 19, 1995, the Washington Department of Ecology ("WDOE") issued an
Enforcement Order identifying Tosco, along with approximately seventeen other
parties, as a potentially liable party ("PLP") under state law for the
investigation and remediation of a site known as the Yakima Railroad Area, to
which the parties allegedly sent carbon containing chlorinated solvents for
regeneration. Ninety-five PLPs, including the companies in the Cameron-Yakima
Working Group of which Tosco is a member, have settled with the WDOE, pursuant
to four separate consent decrees in connection with this site. Court approval of
the Cameron-Yakima Working Group decree was obtained in May 1997. Under that
decree, the Working Group will perform additional investigation of the site
under an agreed-upon work plan, and make a cash contribution to a trust fund for
future work at the site.
A refinery in Duncan, Oklahoma, formerly owned by Tosco, is subject to
investigation by the Oklahoma Department of Environmental Quality ("ODEQ"). The
ODEQ has requested that Tosco participate with the former owner, Sun Company,
Inc. (R&M) ("Sun"), from whom Tosco purchased the site, and the subsequent
owners, including those to whom Tosco sold the site, in the investigation and
potential remediation of alleged environmental contamination. On September 29,
1995, Tosco entered into a Consent Agreement and Final Order with ODEQ to
investigate the extent of contamination at the refinery, conduct certain interim
remedial actions, and prepare a remedial action plan. On April 10, 1995, Tosco
filed a complaint for declaratory relief against Sun (TOSCO CORPORATION V. SUN
COMPANY, INC. (R&M)), U.S. District Court, Western District of Oklahoma, Case
No. Civ. 95 556M) to recover the costs of complying with the ODEQ order, and
seeking an order determining Tosco's and Sun's rights and legal relations under
various environmental laws, including the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"), the Resource Conservation and
Recovery Act ("RCRA") and the Oil Pollution Act ("OPA"), and under the Purchase
Agreement through which Tosco purchased the Duncan Refinery, relating to the
costs of environmental investigation and potential remediation at the site. The
complaint was subsequently amended to name Koch Industries ("Koch"), another
former owner, as another defendant. On February 14, 1996, Tosco obtained default
judgments against some of the current owners of the refinery. In January 1998,
Tosco entered into a Settlement Agreement with Sun, pursuant to which Sun agreed
to pay $7 million in exchange for a release from liability with respect to the
site. In early 1998, a trial was held on Tosco's claim against Koch. In March
1998, the court ruled that Koch was responsible for 19% of past and future
investigation and remediation costs at the site.
Circle K entered into Consent Orders with the Arizona Department of
Environmental Quality on September 20, 1994, and September 23, 1994, for sites
in Springerville and Phoenix, Arizona, respectively. The sites had releases of
petroleum products from USTs or lines. Tosco is subject to these Orders as a
result of its 1996 acquisition of the Circle K Corporation. Remediation on the
sites is ongoing. Expenses for the remediation are eligible for reimbursement
under the Arizona UST Trust Fund.
In a case filed in 1996 by private litigants against all major petroleum
refiners, distributors and retailers in California, including Tosco, alleging
that the defendants have restrained 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), the court granted the Defendants' Motions for Summary
Judgment in October 1997; however, on January 29, 1998, the court reversed
itself and ordered a new trial. This ruling is in the process of being appealed.
On January 28, 1998, a plaintiff allegedly representing a class of all wholesale
purchasers of gasoline in the State of California sued nine petroleum
refineries, including Tosco, making essentially the same allegations as those
made in the AGUILAR case, GILLEY V. ATLANTIC RICHFIELD CORP., ET AL., (U.S.
District Court, Southern District of California, Case No. 93-CVU132BTM).
The costs of remedial actions are highly uncertain due to, among other
items, the complexity and evolving nature of governmental laws and regulations
and their interpretations as well as the varying costs and effectiveness of
alternative cleanup technologies. However, Tosco presently believes that any
cost in excess of the amounts already provided for in the financial statements
should not have a materially adverse effect upon Tosco's operations or financial
condition. Tosco further believes that a portion of future environmental costs,
as well as environmental expenditures previously made, will be recovered from
other responsible parties under contractual agreements and existing laws and
regulations. See Notes 11 and 18 to the Consolidated Financial Statements.
There are various other suits and claims pending against Tosco and its
subsidiaries, which in the opinion of Tosco are not material or meritorious or
are substantially covered by insurance. While it is impossible to estimate with
certainty the ultimate legal and financial liability with respect to these suits
and claims, Tosco believes the aggregate amount of such liabilities will not
result in monetary damages that in the aggregate would be material to the
business or operations of Tosco.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
Served
Name Age as an Principal Occupation and
Officer Positions Held
Since
Thomas D. O'Malley 56 1989 Chairman of the Board and Chief
Executive Officer of Tosco since
January 1990; President of Tosco
from May 1993 to May 1997
and from October 1989 to May 1,
1990.
Jefferson F. Allen 52 1990 President of Tosco since
May 1997 and Chief
Financial Officer since June
1990; Executive Vice President
from June 1990 to May 1997;
Treasurer of Tosco from June
1990 to October 1995; various
positions, including Chairman
and CEO, with Comfed Bancorp,
Inc. and related entities from
November 1988 to June 1990.
Robert J. Lavinia 51 1993 Executive Vice President of
Tosco and President of Tosco
Marketing Company (a division of
Tosco) since February 1996;
Senior Vice President of Tosco
from May 1994 to February 1996;
Vice President of Tosco from
1993 to May 1994; President,
Tosco Energy Corporation during
1992; prior to 1992, various
positions with Phibro Energy for
a period in excess of five
years.
Dwight L. Wiggins 57 1993 Executive Vice President of
Tosco and President of Tosco
Refining Company (a division of
Tosco) since February 1996;
Senior Vice President of Tosco
from May 1994 to February 1996;
Vice President of Tosco from
January 1993 to May 1994;
President of Bayway Refining
Company since January 1993; New
Jersey Area Manager for Exxon
Company U.S.A. 1990 to 1993.
Wilkes McClave III 50 1989 Senior Vice President of Tosco
since May 1996 and General
Counsel of Tosco since May 1990;
Vice President of Tosco from May
1990 to May 1996; Secretary of
Tosco since August 1989;
Assistant General Counsel of
Tosco from January 1986 to May
1990.
Duane B. Bordvick 52 1997 Vice President of Tosco for
environmental and external
affairs since February 1997;
Vice President of Tosco Refining
Company for a period in excess
of five years.
Craig R. Deasy 53 1986 Vice President and Treasurer of
Tosco since October 1995; Vice
President and Treasurer of
Bayway Refining Company since
April 1993; various other
positions with Tosco for a
period in excess of five years.
Ann Farner Miller 46 1996 Vice President of Tosco for
governmental relations since May
1996; director of governmental
relations of Tosco Refining
Company for a period in excess
of five years.
George E. Ogden 55 1994 Senior Vice President of Tosco
since December 1997; Vice
President for Tosco from May
1994 to December 1997;
President of Tosco Distribution
Company (a division of Tosco)
from August 1996 to December
1997; Vice President of Tosco
Refining Company from March 1992
to March 1994; Independent
Petroleum Consultant from 1984
to 1992.
Richard W. Reinken 41 1994 Vice President and Chief
Information Officer of Tosco
since November 1994; Senior Vice
President of Tosco Marketing
Company since June 1996;
Consultant, Andersen Consulting
from 1985 to 1994.
Peter A. Sutton 52 1992 Vice President of Tosco since
January 1992; Senior Vice
President of Tosco Refining
Company since May 1990; various
other positions with Tosco for a
period in excess of five years.
Wanda Williams 51 1996 Vice President of Tosco for
human resources since May 1996;
Vice President of Tosco
Marketing Company since May
1996; Vice President of Circle K
for human resources from June
1993 to May 1996; various other
positions with Circle K from
July 1992 to May 1996; various
human resources positions in the
oil industry and convenience
store industry from 1971 to 1992.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Tosco's Common Stock is traded on the New York Stock Exchange ("NYSE") and
the Pacific Stock Exchange. Set forth below are the high and low sales prices as
reported on the NYSE Composite Tape. All share and per-share data have been
adjusted to reflect the 3-for-1 stock split distributed on February 25, 1997 to
shareholders of record on February 13, 1997 and have been rounded to the nearest
sixteenth.
<TABLE>
<CAPTION>
PRICE RANGE OF COMMON STOCK
1997 High Low 1996 High Low
<S> <C> <C> <C> <C> <C>
1st Quarter $31 1/2 $25 13/16 1st Quarter $16 1/4 $12 3/8
2nd Quarter 34 1/4 26 1/4 2nd Quarter 18 15 1/4
3rd Quarter 35 1/4 27 1/8 3rd Quarter 18 1/2 15 1/2
4th Quarter 38 1/4 28 4th Quarter 27 18 1/8
The number of Tosco shareholders of record on February 27, 1998 was 13,283.
</TABLE>
<PAGE>
DIVIDEND POLICY
Tosco has paid a regular quarterly cash dividend on its Common Stock since
the third quarter of 1989. Pursuant to the terms of Tosco's Revolving Credit
Facility and its bond indentures, dividends on Tosco's Common Stock are
permitted to the extent Tosco satisfies certain defined criteria. Continued
payment of such quarterly dividend is also subject to profitable results of
operations, which are primarily dependent on the continued favorable performance
of Tosco's operating facilities and favorable operating margins. There can be no
assurance that Tosco will be able to continue payment of such quarterly
dividend.
ITEM 6. SELECTED FINANCIAL DATA
The following Selected Financial Data are qualified in their entirety by
the more detailed Consolidated Financial Statements and related Notes at the end
of this report. The Selected Financial Data for each of the five years ended
December 31, 1997, are derived from the Consolidated Financial Statements of
Tosco audited by Coopers & Lybrand L.L.P., independent accountants.
TOSCO CORPORATION AND SUBSIDIARIES
SELECTED FINANCIAL DATA
(Thousands of Dollars, Except Per Share Data)
<TABLE>
<CAPTION>
Year Ended December 31,
Statement of Income Information 1997 (a) 1996 (b) 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Sales $13,281,620 $9,922,611 $7,284,051 $6,365,757 $3,559,217
Operating contribution (c) 880,442 551,393 284,750 260,464 251,725
Net income 212,675 146,286 77,058 83,843 80,579
Diluted earnings per share (d) $1.37 $1.16 $0.69 $0.75 $0.78
Cash dividends per common share 0.24 0.22 0.21 0.21 0.20
December 31,
Balance Sheet Information 1997 1996 1995 1994 1993
Total assets $5,974,852 $3,554,825 $2,003,171 $1,797,206 $1,492,859
Total capitalization:
Revolving credit facility $166,000 $- $ 45,000 $ 233,000 $ 147,000
Long-term debt 1,415,257 826,832 579,036 454,429 456,306
Company-obligated, mandatorily redeemable,
convertible preferred securities 300,000 300,000
Preferred stock 111,197
Common shareholders' equity 1,944,055 1,070,323 627,110 575,464 410,447
--------- --------- ------- ------- -------
$3,825,312 $2,197,155 $1,251,146 $1,262,893 $1,124,950
========== ========== ========== ========== ==========
Long-term debt to total capitalization ratio 0.41 0.38 0.50 0.54 0.54
Book value per common share $ 12.44 $ 8.17 $ 5.64 $ 5.18 $ 4.20
(a) Includes the operations of 76 Products for the period subsequent to March
31, 1997.
(b) Includes the operations of The Circle K Corporation for the period
subsequent to May 30, 1996.
(c) Operating contribution is calculated as sales minus cost of sales.
(d) Diluted earnings per share for all years reflect the December 1997
adoption of Statement of Financial Accounting Standards No. 128 "Earnings
per Share" and the 3-for-1 stock split declared and distributed in
February 1997.
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
1997 was another year of growth for Tosco and its most successful year
in terms of revenues, operating contribution, and net income. On March 31, 1997,
Tosco acquired Union Oil Company of California's ("Unocal") West Coast petroleum
refining, marketing, and related supply and transportation assets (the "76
Products Acquisition"). During the balance of 1997, this acquisition, Tosco's
largest to date, was successfully integrated into Tosco's organization.
ACQUISITIONS
76 PRODUCTS - The 76 Products Acquisition purchase price (including
environmental and other liabilities assumed) was approximately $1.541 billion,
plus inventories valued at $361 million and credit card receivables valued at
$131 million. In addition, Unocal is entitled to receive contingent
participation payments over the next seven years if gasoline margins increase
above specified levels. The assets acquired from Unocal are comprised of two
petroleum refining systems, a retail gasoline system consisting of 76-branded
gasoline service stations, a distribution system comprised of 13 company-owned
oil storage terminals, rights with respect to 1,300 miles of crude oil and
product pipelines, the world-wide rights to the "76" and "Union" brands, and
Unocal's lubricants manufacturing, distribution, and marketing business. Tosco
is now the largest independent refiner and marketer of petroleum products in the
United States. See Notes 3, 11, and 18 to the Consolidated Financial Statements.
CIRCLE K - Tosco completed its acquisition of The Circle K Corporation
("Circle K") on May 30, 1996 (the "Circle K Acquisition") for total
consideration of $444 million in cash and approximately 19.5 million shares of
Tosco Common Stock. Circle K has approximately 2,300 company-controlled
convenience stores, of which some 1,900 sell gasoline. Tosco is now the largest
operator of company-controlled convenience stores in the United States.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA) 1997 1996 1995
-------------- ---------- ---------
<S> <C> <C> <C>
Sales (a) $ 13,281,620 $ 9,922,611 $ 7,284,051
Cost of sales 12,401,178 9,371,218 6,999,301
Inventory writedown 53,000
Consolidation accrual 13,500 5,200
Selling, general, and administrative expenses 306,904 202,855 95,858
Interest expense, net 139,742 87,189 56,253
------------- -------------- ------------
Income before income taxes and distributions on Trust Preferred
Securities 380,796 247,849 127,439
Income taxes 158,030 101,099 50,381
------------- -------------- -------------
Income before distributions on Trust Preferred Securities 222,766 146,750 77,058
Distributions on Trust Preferred Securities, net of income tax benefit 10,091 464
----------- --------------
Net income $ 212,675 $ 146,286 $ 77,058
============= ============== ============
Earnings per share (b) $ 1.37 $ 1.16 $ 0.69
============= ============== =============
(a) Increase in sales is due to the 76 Products and Circle K Acquisitions,
partially offset by lower production at the Avon Refinery (due to an
accident at the hydrocracker in January 1997) and Bayway Refinery (due to
an unscheduled shutdown of the cat cracker) and lower product prices in
1997. The Bayway cat cracker returned to full operation in the first
quarter of 1997 and the Avon hydrocracker returned to service in July 1997.
(b) Earnings per share for all years reflect the December 1997 adoption of
Statement of Financial Accounting Standards ("SFAS") No. 128 "Earnings per
Share" and the 3-for-1 stock split declared and distributed in February
1997. Earnings per share in this document are expressed on a diluted rather
than basic basis.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
REFINING DATA SUMMARY (a):
FOR THE YEAR ENDED DECEMBER 31,
1997 1996 1995
------------- -------------- ---------
Average charge barrels input per day (b):
<S> <C> <C> <C>
Crude oil 703,400 468,900 466,000
Other feed and blending stocks 90,000 66,100 74,900
------------- -------------- -------------
793,400 535,000 540,900
============= ============== =============
Average barrels of petroleum products produced per day (b):
Clean products (c) 662,000 433,900 432,800
Other finished products 125,800 104,600 110,500
------------- -------------- -------------
787,800 538,500 543,300
============= ============== =============
Operating margin per charge barrel (d) $ 4.89 $ 4.89 $ 3.77
============= ============== =============
(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
- Los Angeles Refinery System, comprised of two refineries in Los
Angeles (for the period beginning April 1, 1997)
- San Francisco Area Refinery System, comprised of the Rodeo-Santa
Maria complex (for the period beginning April 1, 1997) and the
Avon Refinery
- Trainer Refinery, located near Philadelphia (for the period beginning
May 8, 1997).
(b) A barrel is equal to 42 gallons.
(c) Clean products are defined as clean transportation fuels (gasoline, diesel,
distillates, and jet fuel) and heating oil.
(d) Operating margin per charge barrel is calculated as operating contribution,
excluding refinery operating costs and inventory writedowns, divided by
total refinery charge barrels.
</TABLE>
<TABLE>
<CAPTION>
RETAIL DATA SUMMARY (a):
FOR THE YEAR ENDED DECEMBER 31,
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Volume of fuel sold (thousands of gallons) 4,159,360 2,060,590 1,046,610
Blended fuel margin (cents per gallon) (b) 12.8 11.6 10.0
Number of gasoline stations at year end 4,652 3,270 1,015
Merchandise sales (thousands of dollars) $ 2,003,417 $ 1,173,370 $ 28,710
Merchandise margin (percentage of sales) 29.4% 29.7% 28.8%
Number of merchandise stores at year end 2,395 2,400 115
Other retail gross profit (thousands of dollars) $ 116,162 $ 53,000 $ 15,690
(a) The Retail Data Summary includes the operations of The Circle K Corporation
subsequent to May 30, 1996 (date acquired) and the 76 Products gasoline
service stations subsequent to March 31, 1997 (date acquired).
(b) Blended fuel margin is calculated as fuel sales minus fuel cost of sales
divided by fuel gallons sold.
</TABLE>
<PAGE>
1997 COMPARED TO 1996
Tosco earned record net income of $213 million ($1.37 per share) in
1997 compared to $146 million ($1.16 per share) in 1996. Results of operations
for 1997 include a $53 million ($31 million after tax, $0.19 per share) non-cash
inventory writedown as a result of higher levels of inventories from the 76
Products Acquisition and the start-up of the Trainer Refinery combined with
declining raw material and product prices in late 1997. Results of operations
for 1996 include a pre-tax charge of $13 million ($8 million after-tax, $0.06
per share) for the consolidation of the retail marketing division following the
acquisition of Circle K.
Operating contribution (sales less cost of sales) was $880 million in
1997 compared to $551 million in 1996, an increase of $329 million, $92 million
for refining and $237 million for marketing.
Refining operating contribution for 1997 increased by $92 million to
$457 million due primarily to increased production (793,400 barrels per day
("B/D") in 1997 compared to 535,000 B/D in 1996). This increase was due to the
acquisition of the 76 Product refineries and the start-up of the Trainer
Refinery, partially offset by reduced production at the Avon Refinery during the
1997 first and second quarters and an unscheduled shutdown of the Bayway
Refinery cat cracker in the 1997 first quarter. Lower production at the Avon
Refinery was due to the scheduled turnaround of the coker unit and the
unscheduled hydrocracker shutdown. The 1997 refining operating contribution per
barrel, which fluctuated significantly during the year, averaged $4.89,
consistent with the 1996 average. Refinery operating contribution for 1997
includes insurance recovery accruals related to the Avon hydrocracker and the
Bayway cat cracker.
Retail operating contribution for 1997 increased by $237 million to
$423 million primarily due to the 76 Products and Circle K Acquisitions and
higher blended fuel margins. The volume of fuel sales approximately doubled to
4.16 billion gallons and the blended fuel margin increased by 1.2 cents per
gallon, despite a higher proportion of dealer/jobber sales resulting from the 76
Products Acquisition. Fuel margins at dealer/jobber sites are typically lower
than company-operated sites. The increase in blended fuel margins occurred in
the fourth quarter due to declining wholesale product prices without a
corresponding decline in retail prices. The retail operating contribution also
increased in 1997 due to increased merchandise sales ($2.003 billion in 1997
compared to $1.173 billion in 1996) with reasonably consistent margins.
Selling, general, and administrative expenses were $307 million in
1997 compared to $203 million in 1996. The increase of $104 million was
primarily attributable to the 76 Products and Circle K Acquisitions, including
nonrecurring transition expenses of $18 million related to the integration of 76
Products into Tosco's operations. Incentive compensation also increased in 1997
due to higher levels of operating income.
Net interest expense for 1997 increased by $53 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
("Trust Preferred Securities"), were $151 million for 1997 compared to $101
million in 1996. The increase was due to higher taxable income in 1997. The
effective income tax rate also reflects the effect of the nondeductibility of
amortization of certain intangible assets acquired in the Circle K Acquisition.
1996 COMPARED TO 1995
Tosco earned $146 million in 1996 ($1.16 per share) compared to $77
million in 1995 ($0.69 per share). Results of operations for 1996 include a
pre-tax charge of $13 million ($8 million after-tax, $0.06 per share) for the
consolidation of the retail marketing division following the acquisition of
Circle K. Results of operations for 1995 include a restructuring charge of $5
million.
Operating contribution (sales less cost of sales) was $551 million in
1996 compared to $285 million in 1995, an increase of $266 million due to
improved refinery operations ($155 million) and expanded retail operations ($111
million).
Refinery operating contribution increased by $155 million to $365
million for 1996 due to improved refining margins, partially offset by higher
refinery operating costs and lower production volumes. Refining operating
contribution per barrel, which fluctuated significantly during the year,
averaged $4.89 for the year, an improvement of $1.12 from 1995. Operating
contribution for 1996 benefited from the strong East Coast refining margins due
to cold weather in the first quarter of 1996, while operating contribution for
1995 was negatively impacted by extremely weak refining margins and extensive
scheduled refinery turnaround maintenance at the Avon and Ferndale Refineries.
The improved operating contribution of 1996 was partially offset by higher
refinery operating costs and declines in 1996 production levels. Higher refinery
operating costs were primarily due to the Trainer Refinery (acquired in a
shutdown state in February 1996), increased energy costs, and higher
depreciation costs. Although raw material throughput for 1996 declined by 5,900
B/D to 535,000 B/D, production of clean products increased by 1,100 B/D to
433,900 B/D. Production of clean products was aided by the completion of the
solvent deasphalting unit ("SDA") at the Bayway Refinery in August 1996. The SDA
processes low-value residual fuel to produce feedstock for the cat cracker, the
refinery's principal gasoline manufacturing unit, and reduces the amount of
high-cost, partially refined feedstocks that Bayway purchases from third
parties.
Operating contribution from Tosco's retail operations increased by
$111 million to $186 million for 1996, primarily because of the acquisition of
Circle K. Retail volume of fuel sales approximately doubled to 2.06 billion
gallons, and the blended fuel margin increased by 1.6 cents per gallon to 11.6
cents per gallon. The fuel margin improvement was primarily attributable to the
higher proportion of sales from company-operated stores. Operating contribution
from retail operations also improved due to expanded merchandise sales of
approximately $1.173 billion for 1996 (with margins of 29.7%). These improved
margins were reduced by station operating and other costs of the approximately
2,400 convenience stores acquired in the Circle K acquisition.
Selling, general, and administrative expenses were $203 million in
1996 compared to $96 million in 1995. This increase of $107 million was due to
Tosco's expanded operations and higher levels of incentive compensation due to
improved operating results.
Interest expense increased in 1996, despite the reduction in interest
costs resulting from the Receivable Transfer Agreement, due to higher debt
levels related to Tosco's expanded operations and higher price levels of raw
materials and products. See Note 5 to the Consolidated Financial Statements.
Income taxes in 1996 increased by $51 million to $101 million due to
improved pre-tax income and a higher effective tax rate primarily due to the
Circle K Acquisition.
OUTLOOK
Results of operations are primarily determined by the operating
efficiency of the refineries, and refining and retail fuel margins. Normal
levels of maintenance are scheduled for 1998 and Tosco expects, given reasonable
margins, to operate its refineries at high levels during 1998. Refining and
retail fuel margins in early 1998 are weak. While margins are expected to
improve during the balance of 1998, Tosco is not able to predict the level or
timing of refinery and retail fuel operating margins for the year because of the
uncertainties associated with oil markets. In view of uncertain operating
margins and highly competitive markets, Tosco is committed to improving its
results by lowering costs in all areas of operation without compromising safety,
reliability, or environmental compliance.
In February 1998, Tosco entered into a long-term contract with
Occidental Petroleum Company ("Occidental") to buy a substantial portion of
Occidental's crude oil production from the Elk Hills oil and gas field in
California at market-related pricing. Tosco plans to build a 14 mile pipeline
from the Elk Hills field to existing lines that serve the San Francisco Area
Refinery System. This domestic supply of light crude oil will reduce the need
for Tosco to purchase waterborne crude oil.
<PAGE>
CASH FLOWS
During 1997, cash and cash equivalents decreased by $60 million, as
cash used in investing activities of $1.632 billion exceeded cash provided by
operating and financing activities of $686 million and $886 million,
respectively.
Net cash provided by operating activities of $686 million was from
cash earnings of $609 million (net income plus depreciation, amortization,
deferred income taxes, and inventory writedown) and an increase in working
capital of $80 million less $3 million for other expenditures. The increase in
working capital, net of the acquired 76 Products assets, is primarily due to the
opening of the Trainer Refinery.
Net cash used in investing activities of $1.632 billion included the
acquisition of 76 Products assets ($1.189 billion), capital additions ($404
million), and a net increase in deferred turnarounds, deferred charges and other
assets ($118 million), partially offset by net proceeds from the sale of 76
Products assets ($73 million) and other items ($6 million).
Net cash provided by financing activities totaled $886 million as
proceeds from a notes and debentures offering of $600 million, a Common Stock
offering of $697 million, and net borrowings under the Revolving Credit Facility
of $166 million exceeded the repayments under long-term debt agreements and
Circle K pre-acquisition debt of $137 million, funds used to repurchase Common
Stock issued to Unocal of $394 million, dividend payments of $36 million, and
other items of $10 million.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity (as measured by cash, cash equivalents, marketable
securities, deposits, and availability under the Revolving Credit Facility)
increased by $237 million during 1997, to $855 million at December 31, 1997.
Increases in availability under the Revolving Credit Facility of $289 million
and marketable securities and deposits of $8 million were partially offset by a
decrease in cash and cash equivalents of $60 million.
At December 31, 1997, total shareholders' equity was $1.944 billion, a
$874 million increase from the December 31, 1996 balance of $1.070 billion. This
increase was due to the issuance of 25.3 million shares of Common Stock for $697
million and net income of $213 million less dividends and other items of $36
million. Debt, including current maturities, increased by $654 million to $1.593
billion at December 31, 1997 as cash flows from operating activities were used
to reduce the higher levels of debt resulting from the 76 Products Acquisition.
The ratio of long-term debt (Revolving Credit Facility and non-current portion
of long-term debt) to total capitalization (long-term debt, Trust Preferred
Securities, and Shareholders' Equity) increased from 38% at December 31, 1996 to
41% at December 31, 1997.
In January 1997, Tosco filed a shelf registration statement providing
for the issuance of up to $1.5 billion aggregate principal amount of debt and
equity securities. 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 30, 1997, Tosco issued 25.3 million
shares of Common Stock pursuant to this shelf registration statement for gross
proceeds of $721 million. At December 31, 1997, Tosco may issue up to $779
million of securities pursuant to this shelf registration statement.
The Revolving Credit Facility, as well as funds potentially available
from the issuance of securities, provides Tosco with adequate resources to meet
its expected liquidity demands for at least the next twelve months.
CAPITAL EXPENDITURES
On March 31, 1997, Tosco completed the 76 Products Acquisition.
Additionally, Tosco spent $404 million primarily on budgeted capital projects in
1997. The Trainer Refinery, acquired in a shut-down mode in February 1996, was
started up in May 1997 after an approximate $100 million modernization and
upgrading program. Other refinery capital spending programs were for compliance
with environmental regulations and permits, personnel/process safety programs,
and operating flexibility and reliability projects. Retail capital spending was
focused on rationalizing and rebranding of the retail system, integrating
operations, enhancing existing sites, and underground storage tank upgrades and
replacements.
<PAGE>
During January 1998, Tosco completed the purchase of approximately 200
convenience stores by paying off the outstanding balance on a real estate
installment purchase note, including the settlement of contingent payments, for
$64 million. See Note 10 to the Consolidated Financial Statements.
Tosco expects to fund its 1998 refinery and retail capital
expenditures from cash provided by operations, available credit, and other
resources. Capital spending for retail operations in 1998 will be focused on
enhancing existing retail sites, integrating operations, and the completion of
Tosco's program to upgrade or replace underground storage tanks to meet federal
and state regulatory deadlines. The rebranding of BP service stations in
Northern California to the 76 tradename is expected to be completed in the first
quarter of 1998.
RISK MANAGEMENT
Tosco uses a variety of strategies to reduce commodity price,
interest, and operational risks. Tosco, at times and when able, uses futures and
forward contracts to lock in what it believes to be favorable margins on a
varying portion of refinery production by taking offsetting long (obligation to
buy at a fixed price) positions in crude oil and short (obligation to deliver at
a fixed price) positions in gasoline and heating oil. This strategy hedges
Tosco's exposure to fluctuations in refining margins and therefore tends to
reduce the volatility of operating results. In addition, Tosco enters into swap
contracts with counterparties to hedge sales prices of residual fuels
production. Futures and forward contracts are also used to a lesser extent to
hedge inventories stored for future sale and to hedge against adverse price
movements between the cost of domestic and foreign crude oil.
Tosco uses a value-at-risk ("VAR") model to assess the market risk of
its derivative instruments. VAR represents the potential losses for an
instrument or portfolio from adverse changes in market factors, for a specified
time period and confidence level. Tosco estimates VAR across its derivative
instruments using a model with historical volatilities and correlations
calculated using a one day interval. Tosco's measured VAR from holding such
derivative instruments, using a VAR model with a 95% confidence level and
assuming normal market conditions at December 31, 1997, was immaterial.
Tosco's calculated VAR exposure represents an estimate of reasonably
possible net losses that would be recognized on its derivative instruments
assuming hypothetical movements in future market rates and is not necessarily
indicative of actual results which may occur. The calculated VAR does not
represent the maximum possible loss nor any expected loss that may occur, since
actual future gains and losses will differ from those estimated, based upon
actual fluctuations in market rates, operating exposures, and the timing
thereof, and changes in Tosco's holdings of derivative instruments during the
year.
Tosco manages its interest rate risk by maintaining a mix of fixed
rate and floating rate debt. Floating rate debt, primarily borrowings under the
Revolving Credit Facility, which currently provides up to $1 billion of
uncollateralized revolving credit availability, is used to finance Tosco's
working capital requirements. Tosco issued $600 million of notes and debentures
in connection with the 76 Products Acquisition at fixed interest rates. Other
fixed rate debt consists of $125 million uncollateralized noncallable notes
issued in July 1995 to repay indebtedness under the previously outstanding
Collateralized Revolving Credit Facility, $350 million of mortgage bonds issued
in 1992 and 1993 to refinance previously outstanding floating rate bank debt and
to finance the acquisition of capital assets including the acquisition of the
Bayway Refinery, and $240 million uncollateralized noncallable notes issued in
May 1996 to finance a portion of the Circle K purchase price.
Tosco carries insurance policies on insurable risks, which it believes
to be appropriate at commercially reasonable rates. While Tosco believes that it
is adequately insured, future losses could exceed insurance policy limits or,
under adverse interpretations, be excluded from coverage. Future liability or
costs, if any, incurred under such circumstances would have to be paid out of
general corporate funds, if available. See Note 4 to the Consolidated Financial
Statements for a discussion of Tosco's strategy to reduce credit risk.
IMPACT OF INFLATION
The impact of inflation has been less significant during recent years
because of the relatively low rates experienced in the United States. Raw
material, energy, and labor are important components of Tosco's costs. Any or
all of these components could be increased by inflation, with a possible adverse
effect on profitability, especially in high inflation periods when raw material
and energy cost increases generally lead finished product prices.
<PAGE>
IMPACT OF THE YEAR 2000 ISSUE
Tosco recognizes the need to ensure that its computer operations and
operating systems will not be adversely affected by the Year 2000 Issue and is
cognizant of the time-sensitive nature of the problem. Since 1996, Tosco has
been proactively upgrading and replacing its business systems while integrating
the Circle K and 76 Products acquisitions. Tosco has assessed how its critical
business systems may be affected by the Year 2000 Issue and has formulated and
is implementing plans to address the known Year 2000 Issues. That plan, as it
relates to business systems, involves a combination of additional software
upgrades, replacements, and modifications. Tosco believes the cost of Year 2000
compliance for its business systems will not have a material adverse effect on
Tosco's future operating results. Tosco is currently assessing the impact of the
Year 2000 Issue on its field systems and software suppliers. Accordingly, Tosco
is unable to estimate the costs related to these Year 2000 Issues. However,
Tosco does not believe its Year 2000 costs related to its field systems and
software suppliers will have a material adverse effect on Tosco's future
operating results.
NEW ACCOUNTING STANDARDS
During June 1997, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 130 "Reporting Comprehensive Income" ("SFAS No. 130") and SFAS
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.
During February 1998, the FASB issued SFAS No. 132 "Employers' Disclosures about
Pensions and Other Postretirement Benefits" (SFAS No. 132"). SFAS No. 132
changes the disclosure requirements for pension and other postretirement
benefits but does not change any existing measurement or recognition provisions.
The Company will comply with the expanded disclosure requirements of these
accounting standards with its 1998 financial statements.
FORWARD LOOKING STATEMENTS
TOSCO HAS MADE, AND MAY CONTINUE TO MAKE, VARIOUS FORWARD-LOOKING
STATEMENTS WITH RESPECT TO ITS FINANCIAL POSITION, BUSINESS STRATEGY, PROJECTED
COSTS, PROJECTED SAVINGS, AND PLANS AND OBJECTIVES OF MANAGEMENT. SUCH FORWARD-
LOOKING STATEMENTS ARE IDENTIFIED BY THE USE OF FORWARD-LOOKING WORDS OR PHRASES
SUCH AS "ANTICIPATES," "INTENDS," "EXPECTS," "PLANS," "BELIEVES," "ESTIMATES,"
OR WORDS OR PHRASES OF SIMILAR IMPORT. THESE FORWARD-LOOKING STATEMENTS ARE
SUBJECT TO NUMEROUS ASSUMPTIONS, RISKS, AND UNCERTAINTIES, AND THE STATEMENTS
LOOKING FORWARD BEYOND 1998 ARE SUBJECT TO GREATER UNCERTAINTY BECAUSE OF THE
INCREASED LIKELIHOOD OF CHANGES IN UNDERLYING FACTORS AND ASSUMPTIONS. ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED BY THE FORWARD-LOOKING
STATEMENTS.
IN ADDITION TO FACTORS PREVIOUSLY DISCLOSED BY TOSCO AND FACTORS
IDENTIFIED ELSEWHERE HEREIN, CERTAIN OTHER FACTORS COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM SUCH FORWARD-LOOKING STATEMENTS. ALL SUBSEQUENT WRITTEN
AND ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO TOSCO, OR PERSONS ACTING ON
BEHALF OF TOSCO, ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO SUCH
FACTORS.
TOSCO'S FORWARD-LOOKING STATEMENTS REPRESENT ITS JUDGMENT ONLY ON THE
DATES SUCH STATEMENTS ARE MADE. BY MAKING ANY FORWARD-LOOKING STATEMENTS, TOSCO
ASSUMES NO DUTY TO UPDATE THEM TO REFLECT NEW, CHANGED, OR UNANTICIPATED EVENTS
OR CIRCUMSTANCES.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required by Part II, Item
8, are included in Part IV, as indexed at Item 14(a) and (a)(2).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
There is hereby incorporated by reference the information appearing under
the caption "Nominees for Election" in Tosco's definitive Proxy Statement
relating to its 1998 Annual Meeting of Shareholders to be filed with the
Securities and Exchange Commission. See also the information appearing under the
caption "Executive Officers of the Registrant" in Part I.
Tosco is not aware of any family relationship between any Director or
executive officer. Each officer is generally elected to hold office until the
next Annual Meeting of the Board of Directors.
ITEM 11. EXECUTIVE COMPENSATION
There is hereby incorporated by reference the information appearing under
the caption "Executive Compensation" in Tosco's definitive Proxy Statement
relating to its 1998 Annual Meeting of Shareholders to be filed with the
Securities and Exchange Commission.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
There is hereby incorporated by reference the information appearing under
the caption "Stock Ownership of Officers and Directors" and "Other Matters -
Certain Security Holdings" in Tosco's definitive Proxy Statement relating to its
1998 Annual Meeting of Shareholders to be filed with the Securities and Exchange
Commission.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There is hereby incorporated by reference the information appearing under
the caption "Executive Compensation" in Tosco's definitive Proxy Statement
relating to its 1998 Annual Meeting of Shareholders to be filed with the
Securities and Exchange Commission.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A)(1) AND (A)(2). FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES.
The consolidated financial statements and financial statement schedules of Tosco
Corporation and subsidiaries, required by Part II, Item 8, are included in Part
IV of this report. See Index to Consolidated Financial Statements and Financial
Statement Schedules on page F-1.
(A)(3). EXHIBITS
3(a) Amended and Restated Articles of Incorporation of Registrant.
Incorporated by reference to Exhibit 3(a) to Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996.
3(b) By-laws of Registrant as currently in effect. Incorporated by
reference to Exhibit 3(b) to Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1992.
4(a) Form of Indenture between Registrant and IBJ Schroder and Trust
Company, as Trustee, relating to 9% Series A First Mortgage Bonds
due March 15, 1997, and 9 5/8% Series B First Mortgage Bonds due
March 15, 2002. Incorporated by reference to Exhibit 4.1 to
Registration Statement filed by Registrant on Form S-3 dated
March 4, 1992.
4(b) Form of Indenture among Registrant, Bayway Refining Company, and
the First National Bank of Boston, as Trustee, relating to 8 1/4%
First Mortgage Bonds due 2003. Incorporated by reference to
Exhibit 4.1 to Registration Statement filed by Registrant on Form
S-4 dated April 29, 1993.
4(c) Form of Indenture dated as of July 7, 1995, between Registrant
and The First National Bank of Boston, as Trustee, relating to 7%
Notes due 2000. Incorporated by reference to Exhibit 4.1 to
Registration Statement filed by Registrant on Form S-3 dated May
18, 1995 (No. 33-59423).
4(d) Form of Indenture dated as of May 1, 1996, between Registrant and
State Street Bank and Trust Company. Incorporated by reference to
Exhibit 4.1 to Registration Statement filed by Registrant on Form
S-3 dated April 15, 1996 (No. 333-521).
10(a) Fourth Amended and Restated Credit Agreement dated as of January
14, 1997, among Tosco Corporation, as Borrower, and the Banks
named therein, as Banks, and The Chase Manhattan Bank as
Co-Agent, Bank of America National Trust and Savings Association,
as Co-Agent, and the First National Bank of Boston, as Agent.
Incorporated by reference to Exhibit 10(a) to Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996.
10(b) Severance Agreement dated May 8, 1996, between Registrant and
Thomas D. O'Malley, including schedule identifying similar
agreements between Registrant, or its subsidiaries, and two of
its employees.
10(c) Indemnification Agreement dated September 30, 1987, between
Registrant and Thomas D. O'Malley, including schedule identifying
similar agreements between Registrant and its Directors and/or
officers, together with related Trust Agreement. Incorporated by
reference to Exhibit 10(aa) to Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1987.
10(d) Trademark License Agreement dated December 28, 1993, between
British Petroleum Company p.l.c. and Tosco Corporation.
Incorporated by reference to Exhibit 10(s) to Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1993.
Schedule identifying (i) Amended and Restated Trademark License
Agreement between British Petroleum Company p.l.c. and Tosco
Corporation dated as of August 1, 1994, and (ii) Trademark
License Agreement (California) between BP Oil Marketing, Inc. and
Tosco Corporation dated as of August 1, 1994. These agreements
extended the term of the original agreement and expanded the
territory of the original agreement.
10(e) Stock Sale Agreement dated February 16, 1996, by and among Tosco
and various stockholders of The Circle K Corporation.
Incorporated by reference to Exhibit 1 to Registrant's Schedule
13D dated February 23, 1996, filed with respect to The Circle K
Corporation.
10(f) Agreement and Plan of Merger dated as of February 16, 1996, by
and among Tosco, Tosco Acquisition Sub, Inc., and The Circle K
Corporation. Incorporated by reference to Exhibit 2 to
Registrant's Schedule 13D dated February 23, 1996, filed with
respect to the Circle K Corporation.
10(g) Sale and Purchase Agreement for 76 Products Company between Union
Oil Company of California and Registrant, dated December 14,
1996. Incorporated by reference to Exhibit 10(k) to Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1996.
10(h) 1996 Long Term Incentive Plan, as amended.
10(i) Tosco Corporation Senior Executive Retirement Plan of 1990, as
amended and restated as of May 15, 1996.
10(j) Tosco Corporation Senior Executive Retirement Plan of 1990, as
amended and restated as of September 23, 1993.
10(k) Severance Agreements dated January 1, 1993, as amended, between
Registrant and Robert J. Lavinia and Dwight L. Wiggins.
Incorporated by reference to Exxhibit 10(g) to Registrant's
Annual Report on Form 10-K for the fiscal year ended December
31, 1993.
11. Statement regarding computation of per-share earnings. See
Exhibit 11 to Financial Statements, as required by Item 8 and
appearing in Item 14 hereof.
21. A list of all subsidiaries of the Registrant.
23. Consent of Coopers & Lybrand L.L.P.
27. Financial Data Schedule.
99. Condensed Consolidating Financial Information and Report of
Independent Accountants.
(B). REPORTS ON FORM 8-K
Report dated October 16, 1997, reporting pursuant to Item 5 on recent
publicity concerning patent litigation between Unocal Corporation and certain
petroleum refineries.
(C). Financial Statement schedules required by Regulation S-X are
excluded from the Annual Report to Shareholders by Rule 14a-3(b)(1). See
Schedule II to the Financial Statements, as required by Item 8, and appearing
under Item 14 hereof.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Stamford, and the State of Connecticut, on March 19, 1998.
TOSCO CORPORATION
(Registrant)
BY /S/ THOMAS D. O'MALLEY
(Thomas D. O'Malley)
Chairman of the Board of Directors,
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE
/s/ Thomas D. O'Malley Chairman of the Board and March 19, 1998
- ----------------------- Chief Executive Officer
(Thomas D. O'Malley)
/s/ Jefferson F. Allen President, Principal March 19, 1998
- ------------------------- Financial Officer,
(Jefferson F. Allen) and Director
/s/ Robert I. Santo Principal Accounting March 19, 1998
- ------------------------- Officer
(Robert I. Santo)
/s/ Patrick M. de Barros Director March 19, 1998
- --------------------------
(Patrick M. de Barros)
/s/ Wayne A. Budd Director March 19, 1998
- ----------------------
(Wayne A. Budd)
/s/ Houston I. Flournoy Director March 19, 1998
- -------------------------
(Houston I. Flournoy)
/s/ Edmund A. Hajim Director March 19, 1998
- -------------------------
(Edmund A. Hajim)
/s/ Joseph P. Ingrassia Director March 19, 1998
- -------------------------
(Joseph P. Ingrassia)
/s/ Charles J. Luellen Director March 19, 1998
- -------------------------
(Charles J. Luellen)
/s/ Eija Malmivirta Director March 19, 1998
- -------------------------
(Eija Malmivirta)
/s/ Mark R. Mulvoy Director March 19, 1998
- -------------------------
(Mark R. Mulvoy)
<PAGE>
<PAGE>
TOSCO CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS,
FINANCIAL STATEMENT SCHEDULE AND FINANCIAL EXHIBITS
FILED WITH THE COMPANY'S ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1997
PAGE(S)
Report of Independent Accountants F-2
Financial Statements:
Consolidated Balance Sheets as of December 31, 1997 and 1996 F-3
Consolidated Statements of Income for the years ended
December 31, 1997, 1996, and 1995 F-4
Consolidated Statements of Common Shareholders' Equity for the
years ended December 31, 1997, 1996, and 1995 F-5
Consolidated Statements of Cash Flows for the years ended December
31, 1997, 1996, and 1995 F-6
Notes to Consolidated Financial Statements F-7-F-23
Financial Statement Schedule (a):
Schedule II - Valuation and Qualifying Accounts for the years ended
December 31, 1997, 1996, and 1995 F-24
Financial Exhibits:
Exhibit 11 - Computation of Earnings Per Share for the years ended
December 31, 1997, 1996, and 1995 F-25
Exhibit 12 - Ratio of Earnings to Fixed Charges for the years ended
December 31, 1997, 1996, and 1995 F-26
Exhibit 23 - Consent of Independent Accountants F-27
Report of Independent Accountants on Exhibit 99 F-28
Exhibit 99 - Condensed Consolidating Financial Information as of
December 31, 1997 and for the year then ended (b) F-29
Exhibit 99 - Condensed Consolidating Financial Information as of
December 31, 1996 and for the year then ended (b) F-30
Exhibit 99 - Condensed Consolidating Financial Information for the
year ended December 31, 1995 (b) F-31
(a) Financial statement schedules, other than Schedule II, have been omitted
since they are either not required, are not applicable, or the required
information is presented in the consolidated financial statements and
related notes.
(b) The condensed consolidating financial information presents the financial
position, operating results, and cash flows of Tosco, Bayway and Tosco's
Nonguaranteeing Subsidiaries. This information is provided to meet the
reporting and informational requirements of Bayway as guarantor of the
8.25% Bayway Bonds. See Note 10 to the Consolidated Financial Statements.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Tosco Corporation
We have audited the consolidated financial statements and the financial
statement schedule of Tosco Corporation and Subsidiaries listed in the index on
page F-1 of this Form 10-K. These financial statements and the financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and the
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and the significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Tosco
Corporation and Subsidiaries as of December 31, 1997, and 1996 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedule referred to above, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material respects
the information required to be included therein.
COOPERS & LYBRAND L.L.P.
Phoenix, Arizona
February 26, 1998
<PAGE>
TOSCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars, Except Par Value)
<TABLE>
<CAPTION>
December 31,
1997 1996
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 34,482 $ 94,418
Marketable securities and deposits 43,687 35,238
Trade accounts receivable, less allowance for uncollectibles of $19,018
(1997) and $8,291 (1996) 315,123 189,654
Inventories 1,253,692 639,760
Prepaid expenses and other current assets 107,632 55,304
Deferred income taxes 57,646 28,121
------ ------
Total current assets 1,812,262 1,042,495
Property, plant, and equipment, net 3,170,955 1,681,877
Deferred turnarounds, net 123,330 63,160
Intangible assets (primarily tradenames), less accumulated amortization of $34,546
(1997) and $12,696 (1996) 699,559 621,226
Other deferred charges and assets 168,746 146,067
------- -------
$5,974,852 $3,554,825
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 920,437 $ 553,122
Accrued expenses and other current liabilities 620,430 366,184
Current maturities of long-term debt 11,908 113,200
------ -------
Total current liabilities 1,552,775 1,032,506
Revolving credit facility 166,000 -
Long-term debt 1,415,257 826,832
Accrued environmental costs 252,964 87,363
Deferred income taxes 140,435 80,302
Other liabilities 203,366 157,499
------- -------
Total liabilities 3,730,797 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, 177,706,038 (1997) and
138,486,201 (1996) shares issued 133,507 103,865
Additional paid-in capital 2,028,985 963,667
Retained earnings 254,351 77,594
Treasury stock, at cost (472,788) (74,803)
-------- -------
Total shareholders' equity 1,944,055 1,070,323
--------- ---------
$5,974,852 $3,554,825
========== ==========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
TOSCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Thousands of Dollars, Except Per Share Data)
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Sales $13,281,620 $9,922,611 $7,284,051
Cost of sales 12,401,178 9,371,218 6,999,301
Inventory writedown 53,000
Consolidation charge 13,500 5,200
Selling, general, and administrative expenses 306,904 202,855 95,858
Interest expense 144,881 91,061 59,815
Interest income (5,139) (3,872) (3,562)
------ ------ ------
Income before income taxes and distributions on company-obligated, mandatorily
redeemable, convertible preferred securities (Trust Preferred Securities) 380,796 247,849 127,439
Income taxes 158,030 101,099 50,381
------- ------- ------
Income before distributions on Trust Preferred Securities 222,766 146,750 77,058
Distributions on Trust Preferred Securities, net of income tax benefit of
$7,159 (1997) and $303 (1996) 10,091 464
------- ------- ------
Net income $212,675 $146,286 $77,058
======== ======== =======
Basic earnings per share $1.43 $1.19 $0.69
===== ===== =====
Diluted earnings per share $1.37 $1.16 $0.69
===== ===== =====
Weighted average shares outstanding used for computation of basic
earnings per share 149,024,176 122,857,830 111,179,676
Assumed conversion of dilutive stock options 4,335,971 2,984,610 1,262,499
Assumed conversion of Trust Preferred Securities 9,113,940 405,064
--------- ------- -----------
Weighted average shares outstanding used for computation of diluted
earnings per share 162,474,087 126,247,504 112,442,175
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
TOSCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Thousands of Dollars)
<TABLE>
<CAPTION>
Common Stock (a) Additional Retained Treasury Stock
Shares (b) Amount Paid-in Capital Earnings Shares (b) Amount Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 118,796,700 $29,702 $640,078 $(25,436) 7,647,123 $(68,880) $575,464
Net income 77,058 77,058
Dividends - common stock (23,719) (23,719)
Exercise of stock options 45,150 12 228 (565,647) 4,467 4,707
Acquisition of common stock 565,647 (6,400) (6,400)
----------- ------- -------- -------- -------- ------ --------
Balance, December 31, 1995 118,841,850 29,714 640,306 27,903 7,647,123 (70,813) 627,110
Net income 146,286 146,286
Dividends - common stock (27,356) (27,356)
Exercise of stock options 168,096 43 1,191 (877,350) 4,703 5,937
Acquisition of common stock 701,223 (8,693) (8,693)
Issuance of common stock 19,476,255 4,869 322,170 327,039
3-for-1 stock split (c) 69,239 (69,239)
------------ ------ ------- -------- -------- ------ --------
Balance, December 31, 1996 138,486,201 103,865 963,667 77,594 7,470,996 (74,803) 1,070,323
Net income 212,675 212,675
Dividends - common stock (35,918) (35,918)
Exercise of stock options 128,902 97 936 (423,057) 4,492 5,525
Acquisition of common stock 300,009 (8,769) (8,769)
Issuance of common stock 25,300,000 18,976 678,420 697,396
Issuance of Unocal shares (Note 3) 14,092,482 10,569 386,311 396,880
Repurchase of Unocal shares (Note 3) 14,092,482 (393,708) (393,708)
Other (301,547) (349) (349)
---------- ------ ------- --------- ---------- --------- ---------
Balance, December 31, 1997 177,706,038 $133,507 $2,028,985 $254,351 21,440,430 $(472,788) $1,944,055
=========== ======== ========== ========= =========== ========== ==========
(a) The authorized number of Common Stock shares is 250 million, reflecting
the amendment to the Company's Articles of Incorporation approved in
February 1997.
(b) The Common Stock and treasury stock share amounts for all periods reflect
the 3-for-1 stock dividend declared and distributed in February 1997
(Note 13).
(c) The Company transferred $69,239 from Retained Earnings to Common Stock
for the impact of the 3-for-1 stock split (Note 13).
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
TOSCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
Cash flows from operating activities:
<S> <C> <C> <C>
Net income $212,675 $146,286 $77,058
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of property, plant, and equipment 224,917 124,309 63,345
Amortization of deferred turnarounds, intangible assets, and other deferred charges 78,622 60,196 48,104
Deferred income taxes 39,390 32,871 37,105
Inventory writedown 53,000
Changes in operating assets and liabilities, net:
Trade accounts receivable 5,575 156,935 (4,996)
Inventories (304,683) 3,308 (25,842)
Prepaid expenses and other current assets (25,958) 11,560 (440)
Accounts payable, accrued expenses and other current liabilities 411,908 (87,955) 211,670
Accrued environmental costs and other liabilities (6,470) 19,572 1,514
Other, net (2,978) 3,617 (377)
--------- -------- --------
Net cash provided by operating activities 685,998 470,699 407,141
--------- -------- --------
Cash flows from investing activities:
Purchase of property, plant, and equipment, net (404,006) (193,691) (202,686)
Increase in deferred turnarounds (104,511) (21,665) (48,254)
Increase in deferred charges and other assets (4,806) (10,744) (50,585)
Net change in marketable securities and deposits (8,449) (14,138) 1,704
Acquisition of BP Northeast refining and marketing assets (64,428)
Acquisition of Circle K, net of cash acquired (412,096)
Acquisition of 76 Products assets, net of cash acquired (Note 19) (1,189,149)
Proceeds on sale of 76 Products assets 72,689
Other, net 6,022 (560) (1,270)
----- ---- ------
Net cash used in investing activities (1,632,210) (717,322) (301,091)
---------- -------- --------
Cash flows from financing activities:
Proceeds from note, bond, and debenture offerings 600,000 240,000 125,000
Proceeds from common stock offering, net 697,396
Proceeds from Trust Preferred Securities offering 300,000
Net borrowings (repayments) under revolving credit facilities 166,000 (45,000) (188,000)
Net short-term bank repayments (20,000) (21,500)
Payments under long-term debt agreements (113,699) (8,157) (783)
Payments under Circle K pre-acquisition debt (23,807) (102,504)
Repurchase of Unocal Shares (393,708)
Dividends paid on common stock (35,918) (27,356) (23,719)
Other, net (9,988) (15,090) (1,693)
------ ------- ------
Net cash provided by (used in) financing activities 886,276 321,893 (110,695)
------- ------- --------
Net (decrease) increase in cash and cash equivalents (59,936) 75,270 (4,645)
Cash and cash equivalents at beginning of year 94,418 19,148 23,793
------ ------ ------
Cash and cash equivalents at end of year $34,482 $94,418 $19,148
======= ======= =======
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
TOSCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
1. NATURE OF BUSINESS
Tosco Corporation ("Tosco" or the "Company") through divisions and
subsidiaries is the largest independent refiner and marketer of petroleum
products and the largest operator of company-controlled convenience stores in
the United States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the
accounts of Tosco and its wholly-owned subsidiaries, including The Circle K
Corporation ("Circle K"). 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, the reported results
of operations, and the disclosure of contingent assets and liabilities.
CASH, CASH EQUIVALENTS, MARKETABLE SECURITIES, AND DEPOSITS
Cash in excess of operating requirements is used to pay down cash
borrowings under the Company's Revolving Credit Facility or invested in highly
liquid cash equivalents. Margin deposits, based on a percentage of the value of
the futures contracts, are maintained with commodity brokers in accordance with
the requirements of commodity exchanges. Margin deposits are included in
marketable securities and deposits on the balance sheet.
At December 31, 1997 and 1996, the Company had approximately
$15,000,000 of director and officer liability insurance coverage with a
wholly-owned subsidiary (amounts approximately equal to the fair value of
marketable securities held in trust by the subsidiary). The subsidiary's trust
assets are restricted to payment of directors and officers liability defense
costs and claims. Marketable securities held by the subsidiary, classified as
available for sale, consist of highly liquid debt and equity securities. The
cost of the marketable securities approximates fair value. Accordingly,
unrealized gains and losses, net of the related tax effect, are not significant.
Debt securities with original maturities of three months or less at the date of
purchase are classified as cash equivalents, while debt securities with
maturities of twelve months or less from the balance sheet date are included in
marketable securities and deposits on the balance sheet.
INVENTORIES
Inventories are stated at the lower of cost or market. The cost of
refinery inventories is determined on the last-in, first-out ("LIFO") basis. The
net realizable value of LIFO inventories is measured by aggregating similar
pools on a consolidated basis. The cost of retail fuel inventories is determined
on the first-in, first-out ("FIFO") basis. The cost of retail merchandise
inventories is determined under the retail method.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment, including capitalized interest, are
carried at cost less accumulated depreciation and amortization. Depreciation and
amortization are provided over the estimated useful lives of the respective
classes of assets utilizing the straight-line method. Expenditures that
materially increase values, change capacities, or extend useful lives are
capitalized. Routine maintenance and repairs are expensed. Gains and losses on
disposition of assets are reflected in results of operations.
<PAGE>
DEFERRED TURNAROUNDS
Refinery processing units are periodically shut down for major
scheduled maintenance (turnarounds). Turnaround costs are deferred and amortized
on a straight-line basis over the expected period of benefit, which generally
ranges from 24 to 48 months.
INTANGIBLE ASSETS (PRIMARILY TRADENAMES)
Tradenames acquired in the 76 Products and Circle K acquisitions are
amortized on a straight-line basis over 40 years. Other tradenames and
intangible assets are amortized on a straight-line basis over periods of up to
15 years.
OTHER DEFERRED CHARGES AND ASSETS
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. Direct third party costs of computer software developed for
internal use are deferred and amortized over their useful lives, not to exceed
five years. Production costs of future media advertising are deferred until the
advertising occurs.
SELF-INSURANCE
The Company is self-insured up to certain limits for workers'
compensation (in certain states), property damage, and general liability claims.
Accruals for loss incidences are made based on the Company's claims experience
and actuarial assumptions followed in the insurance industry. Actual losses
could differ from accrued amounts.
EXCISE TAXES
Excise taxes collected on behalf of governmental agencies are excluded
from sales, cost of sales, and other expenses. Excise taxes totaled
$1,768,078,000, $1,382,020,000, and $1,167,477,000 for 1997, 1996, and 1995,
respectively.
ENVIRONMENTAL COSTS
Liabilities for future remediation costs are recorded when
environmental assessments and/or remedial efforts are probable and the costs can
be reasonably estimated. Other than for assessments, the timing and magnitude of
these accruals are generally based on the completion of investigations or other
studies or a commitment to a formal plan of action. The gross amount of the
liability is based on the Company's best estimate of undiscounted future costs
using currently available technology, and applying current regulations, as well
as the Company's own internal environmental policies. Estimated reimbursements
of remediation costs of petroleum releases from underground storage tanks are
recorded as assets when reimbursements from state trust fund programs are
probable.
DEFERRED REVENUE
Advances received in connection with long-term supplier marketing or
display allowances are amortized to income over the terms of the respective
arrangements based on projected purchase levels.
EARNINGS PER SHARE
In December 1997, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 128 "Earnings per Share" ("SFAS No. 128"). Under the
provisions of SFAS No. 128, basic earnings per share is computed by dividing net
income by the weighted average number of common shares outstanding during the
year. Diluted earnings per share is computed by dividing income before
distributions on company-obligated, mandatorily redeemable, convertible
preferred securities by the weighted average number of common shares and
dilutive potential common shares outstanding during the year. Earnings per share
for all periods have been restated to conform with the provisions of SFAS No.
128.
3. 76 PRODUCTS 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 "76 Products Acquisition"). The purchase
price (including environmental and other liabilities assumed) was approximately
$1,541,000,000, plus inventories valued at $361,249,000, and credit card
receivables valued at $131,044,000. In addition, Unocal is entitled to receive
contingent participation payments if gasoline margins increase above specified
levels (Note 18).
The acquired assets include two petroleum refining systems with an
aggregate throughput capacity of approximately 250,000 barrels per day; a retail
gasoline system consisting of 76-branded gasoline service stations (most of
which are company-controlled); a distribution system comprised of 13
company-owned oil storage terminals; three 40,000 deadweight-ton tankers;
rights with respect to approximately 1,300 miles of crude oil and product
pipelines; the worldwide rights to the "76" and "Union" tradenames, together
with the distinctive orange ball logo, (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 consisted of cash and 14,092,482 shares of
Tosco common stock ("Common Stock") (Note 13). The cash portion was paid on
April 1, 1997 from a combination of available cash, borrowings under the
Revolving Credit Facilities (Note 9), and proceeds from the sale of $600,000,000
of unsecured debt securities (Note 10). In addition, certain gasoline service
stations were purchased directly from Unocal for $235,000,000 by a special
purpose entity which has leased the service stations to the Company pursuant to
a long-term lease (Note 17).
The Company intends to sell certain non-strategic assets acquired from
Unocal. Through December 31, 1997, the tankers, a heating oil distributorship,
and certain retail and distribution sites were sold for $72,689,000 (an amount
equal to their allocated purchase cost).
The 76 Products Acquisition has been accounted for as a purchase.
Accordingly, the acquired assets and liabilities are included in the
accompanying balance sheet at values based on a preliminary purchase price
allocation. The purchase price allocation will be finalized by March 31, 1998
based upon appraisals and other evaluations currently in process. The
preliminary purchase price allocation is summarized below:
(Thousands of Dollars)
Cash and cash equivalents $ 2,952
Credit card receivables 131,044
Inventories 361,249
Prepaid expenses and other current assets 11,373
Property, plant, and equipment 1,414,816
Intangible assets 88,611
Other deferred charges and assets 23,033
Accrued expenses and other current liabilities (196,822)
Accrued environmental costs (190,000)
Other liabilities (57,275)
-------------
$ 1,588,981
================
Consolidated operating results include the operations of the 76
Products Acquisition subsequent to March 31, 1997. Unaudited pro-forma results
of operations for the years ended December 31, 1997 and 1996, assuming the 76
Products Acquisition had occurred at the beginning of each year, are as follows:
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA) 1997 1996
----------- -----------
(UNAUDITED)
Sales $ 14,236,220 $ 13,780,111
Net income 174,308 164,708
Basic earnings per share $ 1.11 $ 1.11
Diluted earnings per share 1.08 1.09
<PAGE>
The unaudited pro-forma results of operations are presented for
informational purposes only and do not fully reflect the improvement in
operating contribution anticipated from the 76 Products 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.
4. FINANCIAL INSTRUMENTS
DERIVATIVES
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
physical transaction occurs.
At December 31, 1997 and 1996, the Company had open long (obligation
to purchase) and short (obligation to deliver) futures, swap and forward
contracts for crude oil and products with a notional value (number of barrels
under contract multiplied by the per-barrel contract value) as follows:
(THOUSANDS OF DOLLARS) 1997 1996
------------- ---------
Open long contracts $ 142,376 $ 258,648
Open short contracts 95,442 352,226
The unrecognized net gain on such open contracts, as well as deferred
gains and losses on closed futures and swap contracts totaled $3,648,000 and
$1,306,000 at December 31, 1997 and 1996, respectively, and will be recognized
or reversed in the following year as an offset to realized margins on refined
products sold.
FAIR VALUES
The carrying value of cash, cash equivalents, marketable securities,
short-term deposits, trade accounts receivable, accounts payable, and other
current liabilities approximates their fair value due to the relatively short
maturity of these financial instruments. The carrying value of the revolving
credit facility approximates fair value due to its variable interest rate.
Estimated fair values of other financial instruments at December 31, 1997 and
1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------------- ------------------
CARRYING FAIR CARRYING FAIR
(THOUSANDS OF DOLLARS) VALUE VALUE VALUE VALUE
-------------- ------------- -------------- ----------
<S> <C> <C> <C> <C>
First Mortgage Bonds (a) $ 200,000 $ 222,120 $ 300,000 $ 325,940
Exchange Bonds (a) 150,000 161,550 150,000 161,537
Real estate installment purchase note (b) 52,563 52,563 54,821 54,821
7% Notes (a) 125,000 126,975 125,000 126,781
7.625% Notes (a) 240,000 252,600 240,000 248,642
7.25% Notes (a) 200,000 204,420
7.8% Debentures (a) 300,000 330,720
7.9% Debentures (a) 100,000 109,400
Trust Preferred Securities (a) 300,000 389,250 300,000 326,250
(a) The fair value of these instruments reflects quoted market prices.
(b) The fair value of this financial instrument was estimated by
discounting future cash flows.
</TABLE>
<PAGE>
CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash equivalents,
marketable securities, short-term deposits, trade receivables, and derivative
instruments. The Company places its cash equivalents, marketable securities, and
short-term deposits with several high-quality financial institutions. The
Company's customer base consists of a large number of diverse customers. The
Company conducts ongoing evaluations of its customers and requires letters of
credit or other collateral arrangements as appropriate. Accordingly, trade
receivable credit losses have not been significant. The Company does not believe
that it has a significant credit risk on its derivative instruments which are
transacted through the New York Mercantile Exchange, or with counterparties
meeting established collateral and credit criteria.
5. ACCOUNTS RECEIVABLE
In June 1995, the Company 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 (the "Receivable Transfer Agreement"). The Receivable Transfer
Agreement was amended in May 1996, December 1996, and May 1997 to increase the
program to $175,000,000, $200,000,000, and $300,000,000, respectively. In
October 1997, the Company 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 credit card accounts
receivable (the "Credit Card Receivable Transfer Agreement"). Under the
Receivable Transfer Agreement and Credit Card Receivable Transfer Agreement, the
Company retains substantially the same risk of credit loss as if the receivables
had not been sold. The Company also retains collection and administrative
responsibilities on the participating interest sold as agent for the financial
institution. At December 31, 1997 and 1996, accounts receivable were reduced by
$400,000,000 and $199,600,000, respectively, for receivables sold under these
programs. Sales of accounts receivables under these programs averaged
$984,216,000, $506,455,000, and $432,000,000 per month in 1997, 1996, and 1995,
respectively.
6. INVENTORIES
(THOUSANDS OF DOLLARS) 1997 1996
------------- ---------
Refineries (LIFO):
Raw materials $ 468,515 $ 227,211
Intermediates 181,414 79,831
Finished products 440,525 174,277
Retail (FIFO):
Merchandise 121,082 116,618
Gasoline and diesel 39,901 39,681
Other 2,255 2,142
------------- -----------
$ 1,253,692 $ 639,760
============= =============
The 1997 results of operations and LIFO inventories at December 31,
1997 are reduced by a $53,000,000 non-cash inventory valuation reserve recorded
in December 1997. At December 31, 1996, the excess of replacement cost over the
carrying value of LIFO inventories was $177,653,000.
<PAGE>
7. PROPERTY, PLANT, AND EQUIPMENT
<TABLE>
<CAPTION>
STRAIGHT-LINE
(THOUSANDS OF DOLLARS) 1997 1996 ANNUAL RATE
------------- -------------- -------------
<S> <C> <C> <C>
Land $ 907,370 $ 273,994
Refineries and related assets 1,953,088 1,104,180 4% to 15%
Retail marketing and related assets 715,629 627,952 5% to 20%
Furniture, fixtures, and improvements 82,822 57,306 3% to 33%
Transportation equipment 30,040 14,942 4% to 33%
Natural gas properties 4,537 4,507
------------- --------------
3,693,486 2,082,881
Less accumulated depreciation and amortization (a) 687,963 496,677
------------- --------------
3,005,523 1,586,204
Construction in progress 165,432 95,673
------------- -------------
$ 3,170,955 $1,681,877
============= ==============
(a) Includes accumulated amortization related to assets under capital
leases of $13,027,000 and $5,051,000 at December 31, 1997 and 1996,
respectively.
</TABLE>
Expenditures for maintenance and repairs (excluding the amortization
of turnaround costs) during 1997, 1996, and 1995 were $210,443,000,
$135,006,000, and $102,552,000, respectively.
8. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
(THOUSANDS OF DOLLARS) 1997 1996
------------- ---------
Accrued taxes, other than income taxes $ 173,115 $106,852
Accrued compensation and related benefits 120,221 67,382
Acquisition-related liabilities 37,326
Dividends payable 9,375 7,424
Other 280,393 184,526
------------- ------------
$ 620,430 $ 366,184
============= ============
9. REVOLVING CREDIT FACILITY
On April 8, 1996, the Company entered into a new revolving credit
agreement (the "Revolving Credit Facility"). The Revolving Credit Facility was
amended and restated on January 14, 1997 to provide the Company with a
$1,000,000,000 ($900,000,000 expiring on January 14, 2002 and $100,000,000
expiring on January 12, 1999) uncollateralized revolving credit facility that is
available for working capital and general corporate purposes, including
acquisitions. The Revolving Credit Facility bears interest at the option of the
Company at one of three alternative rates (a federal funds rate, a Eurodollar
rate, or a base rate related to prime) plus an incremental margin for each rate
option. A commitment fee on the unused portion of the facility is also due. The
incremental margin and commitment fee are dependent on the credit rating of the
First Mortgage Bonds (Note 10). Prior to January 14, 1997, the Revolving Credit
Facility was a $600,000,000 uncollateralized facility and prior to April 8, 1996
the Revolving Credit Facility was a $450,000,000 collateralized facility.
Utilization of the Revolving Credit Facility as of December 31, 1997 and 1996
was as follows:
(THOUSANDS OF DOLLARS) 1997 1996
------------- ---------
Cash borrowings outstanding $ 166,000 $
Letters of credit 57,241 112,113
------------- --------------
Total utilization 223,241 112,113
Availability 776,759 487,887
------------- --------------
$ 1,000,000 $ 600,000
============= ==============
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.
<PAGE>
10. LONG-TERM DEBT
(THOUSANDS OF DOLLARS) 1997 1996
------------- ---------
Collateralized debt:
First Mortgage Bonds (a) $ 200,000 $ 300,000
Bayway Bonds (b) 150,000 150,000
Real estate installment purchase note (c) 52,563 54,821
Other 3,949 4,378
Uncollateralized debt:
7% Notes (d) 125,000 125,000
7.625% Notes (e) 240,000 240,000
Notes and Debentures (f) 600,000
Other 319 522
Capital leases (g) 55,334 65,311
------------ -------------
1,427,165 940,032
Less current installments 11,908 113,200
-------------- -------------
$ 1,415,257 $ 826,832
============= ==============
(a) In March 1992, the Company issued $300,000,000 of mortgage bonds (the
"First Mortgage Bonds"), comprised of $100,000,000 of 9% Series A
Bonds due March 15, 1997 and $200,000,000 of 9.625% Series B Bonds due
March 15, 2002. Interest on the First Mortgage Bonds is payable each
March 15 and September 15. The First Mortgage Bonds are noncallable
and are collateralized by the Avon Refinery and certain related
assets. On March 15, 1997, the Company repaid the $100,000,000 9%
Series A Bonds
(b) In connection with the April 1993 acquisition of the Bayway Refinery,
the Company issued in a private placement $150,000,000 of 8.25%
mortgage bonds (the "Bayway Bonds") due May 15, 2003, guaranteed by
the Bayway Refining Company ("Bayway"), a wholly-owned subsidiary of
Tosco, with interest payable semi-annually on May 15 and November 15.
The Bayway guarantee is collateralized by the Bayway Refinery and
related assets and a guarantee of Tosco. Effective July 7, 1993, the
Bayway Bonds were exchanged for a new series of publicly traded bonds
having substantially identical terms, including the same interest rate
and maturity dates.
(c) Real estate installment purchase note pursuant to which the Company
will receive title to approximately 200 convenience stores that it
currently operates in various states. Future payments through 2007
totaling $82,401,000, at December 31, 1997, excluding contingent
amounts based on a percentage of sales over specified minimums, have
been discounted at 9%.
(d) On July 12, 1995, $125,000,000 of registered debt securities were
issued as 7% uncollateralized, noncallable notes due July 15, 2000
(the "7% Notes"). Semi-annual interest payments on the 7% Notes began
January 15, 1996. The proceeds from the public offering, net of costs,
were used to repay debt.
(e) In May 1996, the Company issued $240,000,000 of 7.625%
uncollateralized notes due May 15, 2006 (the "7.625% Notes") in
connection with the acquisition of Circle K. Semi-annual interest
payments on the 7.625% Notes began November 15, 1996.
(f) On January 14, 1997, the Company issued $200,000,000 of 7.25% Notes
due on January 1, 2007, $300,000,000 of 7.8% Debentures due on January
1, 2027, and $100,000,000 of 7.9% Debentures due on January 1, 2047
(collectively the "Notes and Debentures"). Interest on the
unregistered Notes and Debentures was payable each January 1 and July
1, commencing on July 1, 1997. The proceeds from the unregistered
Notes and Debentures were used to finance a portion of the 76 Products
Acquisition. In August 1997, the Company exchanged the unregistered
Notes and Debentures for fully registered and freely salable notes and
debentures having identical terms, including the same interest rates
and maturity dates. The Notes and Debentures are non-redeemable and
uncollateralized.
(g) The Company's capital lease obligations are collateralized primarily
by retail marketing and related assets and mature at varying dates
through 2019. The carrying value of the assets under capital lease
arrangements approximates the capital lease obligation.
<PAGE>
The debt agreements, including the Revolving Credit Facility (Note 9),
contain covenants that limit the Company's ability to incur additional
indebtedness, pay dividends, acquire its own equity securities, make investments
in certain subsidiaries, and make discretionary capital expenditures. They also
require the maintenance of minimum financial ratios and net worth levels. At
December 31, 1997, the Company was in compliance with all debt covenants.
At December 31, 1997 future maturities relating to long-term debt were
as follows:
<TABLE>
<CAPTION>
CAPITAL
(THOUSANDS OF DOLLARS) DEBT LEASES TOTAL
------------- -------------- ----------
<S> <C> <C> <C>
1998 (a) $ 2,999 $ 13,895 $ 16,894
1999 3,513 8,277 11,790
2000 128,428 5,254 133,682
2001 3,678 5,395 9,073
2002 204,731 5,427 210,158
Thereafter 1,028,482 73,620 1,102,102
------------- -------------- -------------
Total future maturities 1,371,831 111,868 1,483,699
Less imputed interest 56,534 56,534
------------ -------------- -------------
Present value of future maturities $ 1,371,831 $ 55,334 $ 1,427,165
============= ============== =============
(a) Current maturities of long-term obligations, excluding imputed
interest, are $11,908,000 at December 31, 1997.
</TABLE>
11. ACCRUED ENVIRONMENTAL COSTS
The Company is subject to extensive federal, state, and local
environmental laws and regulations relating to its petroleum refining,
distribution, and marketing operations. These laws and regulations (which are
complex, change frequently, and are subject to differing interpretations)
regulate the discharge of materials into the environment. The Company is
currently involved in a number of environmental proceedings and discussions
regarding the removal and mitigation of the environmental effects of subsurface
liquid hydrocarbons and alleged levels of hazardous waste at certain of its
refineries and other locations, including a site on the Superfund National
Priorities List.
In July 1993, outstanding litigation concerning environmental issues
was settled with the predecessor owners of the Avon Refinery (the "Settlement
Agreement"). Under the Settlement Agreement, the former owners agreed to pay up
to $18,000,000 for one-half of the costs that may be incurred for compliance
with certain environmental orders and to provide the Company with a $6,000,000
credit for past expenses (which the Company uses to reduce its one-half share of
costs). After the $36,000,000 shared cost maximum is expended, the parties may
elect to continue the Settlement Agreement or to reinstate litigation. The
Company and the former owners have established a committee to review and approve
expenditures for environmental investigative and remediation actions at the Avon
Refinery. Through December 31, 1997, the committee has spent $4,192,000 on such
matters.
By agreement, Exxon is responsible for environmental obligations
related to or arising out of its ownership and operation of the Bayway Refinery,
purchased by the Company in April 1993. The Company has also received
indemnifications with respect to environmental obligations arising out of or
relating to the period prior to the respective acquisition dates of the Ferndale
Refinery, the Trainer Refinery, and retail assets in the Pacific Northwest and
Northern California from BP, and the Arizona retail properties from Exxon.
Through March 31, 2022, Unocal will be responsible for all
environmental liabilities at the acquired refineries, gasoline stations, oil
storage terminals, and pipelines 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.
During the nine months ended December 31, 1997, the Company incurred
environmental costs at the 76 Products sites of $9,497,000, of which $2,438,000
is reimbursable by Unocal and $7,059,000 was charged to the environmental
accrual.
<PAGE>
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. The Company believes that it has adequately
provided for environmental exposures. However, should these matters be resolved
unfavorably to the Company, they could have a material adverse effect on its
long-term consolidated financial position and results of operations.
12. COMPANY-OBLIGATED, MANDATORILY REDEEMABLE, CONVERTIBLE PREFERRED SECURITIES
In December 1996, Tosco Financing Trust (the "Trust"), a Delaware
business trust, all of whose common securities are owned by Tosco, issued, in a
private placement, 6,000,000 shares of 5.75% company-obligated, mandatorily
redeemable, convertible preferred securities (the "Trust Preferred Securities").
The net proceeds from the Trust Preferred Securities of approximately
$291,000,000 were used to purchase an equal amount of 5.75% convertible junior
subordinated debentures of Tosco due on December 15, 2026 (the "Convertible
Debentures"). The sole assets of the Trust are the Convertible Debentures,
guaranteed by Tosco. The Trust Preferred Securities represent preferred
undivided interests in the Trust's assets, with a liquidation preference of $50
per security, for a total liquidation preference of $300,000,000.
Distributions on the Trust Preferred Securities, cumulative and
payable quarterly in arrears at the annual rate of 5.75% of the liquidation
amount, commenced on March 15, 1997. The Company has the option to defer payment
of the distributions for an extension period of up to five years if it is in
compliance with the terms of the Trust Preferred Securities. Interest at 5.75%
will accrue on such deferred distribution throughout the extension period. The
Trust Preferred Securities are convertible, at the option of the holder, at any
time after March 15, 1997 into 1.51899 shares of Common Stock, equivalent to a
conversion price of approximately $32.92 per share of Common Stock, subject to
adjustment in certain events. The Trust Preferred Securities do not have a
stated maturity date, although they are mandatorily redeemable upon the
repayment of the Convertible Debentures to the Trust, but not before December
18, 1999. The redemption price decreases from 104.025% of the liquidation
preference in 1999 to 100% of the liquidation preference in 2006 and thereafter.
13. CAPITAL STOCK
The Company is presently authorized to issue 12,000,000 shares of
preferred stock, par value $1.00 per share, ("Preferred Stock"). No shares of
Preferred Stock are issued or outstanding. At a special meeting of the Company's
Shareholders on February 12, 1997, an amendment to increase the number of
authorized shares of Common Stock from 50,000,000 to 250,000,000 was approved.
The Company subsequently declared and distributed a 3-for-1 Common Stock split,
in the form of a 200 percent stock dividend. The number of shares, per share
prices, and earnings per share amounts for all periods reflect this 3-for-1
stock split.
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 may consist of (1) one or more series of
debentures, notes or other uncollateralized forms of indebtedness, (2) Common
Stock, (3) Preferred Stock, and (4) preferred stock represented by depository
shares. The 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. At December 31, 1997, the Company may issue up to
$778,950,000 of securities pursuant to this shelf registration statement.
On March 31, 1997, the Company issued 14,092,482 shares of Common
Stock to Unocal (the "Unocal Shares"). The Unocal Shares had an aggregate value
of $396,880,000, based on a per-share value of $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. 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 $697,396,000,
based on an offering price of $28.50 per share. The net proceeds were used to
repurchase, as treasury shares, the Unocal Shares for approximately $393,708,000
and to repay borrowings under the Revolving Credit Facility and Additional
Credit Facility (Note 9).
The Company has paid a regular quarterly cash dividend on its Common
Stock since the third quarter of 1989. Effective with the first quarter of 1997,
the Company increased its quarterly cash dividend from $0.0567 per share to
$0.06 per share.
14. STOCK OPTION PLANS
The Company has two stock option plans, the 1989 Stock Incentive Plan
(the "1989 Plan") and the 1992 Stock Incentive Plan (the "1992 Plan"), that
reserve shares of Common Stock for issuance to key employees, consultants, and
non- employee directors. The 1989 Plan and 1992 Plan (collectively the "Option
Plans") provide for the grant of a maximum of 3,840,000 and 6,600,000 shares of
Common Stock, respectively, in the form of stock options, restricted stock
awards, and/or stock appreciation rights. Stock options may be granted as
"Incentive Stock Options" (as defined by the Internal Revenue Code of 1986), or
as nonqualified options, including nonqualified stock options whose purchase
price or vesting requirements are based on the employee's achievement of
established performance objectives. Options may be exercised only within ten
years from the date of grant. The exercise price of nonqualified stock options
is determined by the Compensation Committee of the Board of Directors and may be
less than the fair value of Common Stock on the date of grant. Awards under the
1989 Plan and 1992 Plan may be granted until March 7, 1999 and March 13, 2002,
respectively. Subject to severance agreements with certain employees (Note 18),
one-third of the options may be exercised at any time following the first
anniversary of the date of grant and an additional one-third after each of the
second and third anniversaries.
<TABLE>
<CAPTION>
Information regarding the Option Plans as of December 31, 1997, 1996,
and 1995 is as follows:
1997 1996 1995
------------------------- ------------------------- ---------------
SHARES PRICE(a) SHARES PRICE(a) SHARES PRICE(a)
<S> <C> <C> <C> <C> <C> <C>
Options outstanding , beginning of year 7,034,649 $ 10.14 7,149,498 $ 9.09 5,925,798 $ 8.33
Granted - 1989 Plan (b) 56,001 11.96
Granted - 1992 Plan (b) 812,750 30.24 949,500 16.58 1,898,748 10.97
Exercised (551,459) 10.02 (1,045,446) 8.79 (610,797) 7.71
Expired or canceled (120,405) 16.56 (18,903) 11.41 (120,252) 9.59
-------------- ------------- -------------
Options outstanding, end of year 7,175,535 12.31 7,034,649 10.14 7,149,498 9.09
============== ============== =============
Options exercisable, end of year 5,237,362 9.25 4,467,837 8.54 3,904,749 8.09
=============== ============== ==============
Shares available for future grant 297,562 989,907 1,920,504
=============== ============== ==============
(a) Weighted average price per share.
(b) All options were granted with an exercise price equal to the average
market price of Common Stock on the grant date.
</TABLE>
Additional information regarding the Option Plans as of December 31,
1997 is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
SHARES PRICE (a) LIFE(b) SHARES PRICE(a)
Exercise price range:
<S> <C> <C> <C> <C> <C>
$4.94 per share to $10.00 per share 3,893,598 $ 8.23 53 months 3,750,261 $ 8.17
$10.01 per share to $15.00 per share 1,947,187 11.29 88 months 1,311,107 11.05
$15.01 per share to $32.97 per share 1,334,750 25.71 109 months 175,994 18.80
----------- ----------
7,175,535 12.31 73 months 5,237,362 9.25
=========== ===========
(a) Weighted average price per share.
(b) Weighted average remaining contractual life.
</TABLE>
The Company has adopted the disclosure-only provisions of SFAS No.
123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). Accordingly, no
compensation cost has been recognized for the Option Plans. Had the Company
elected to adopt the recognition provisions of SFAS No. 123, net income and
earnings per share would have been reduced by $2,968,000 ($0.02 per share),
$1,622,000 ($0.01 per share), and $626,000 ($0.01 per share) for 1997, 1996, and
1995, respectively.
<PAGE>
The fair value of options granted in 1997, 1996, and 1995 was
estimated using the Black-Scholes option pricing model with the following
weighted-average assumptions:
1997 1996 1995
---------- ----------- ---------
Assumed risk-free interest rate 6.5 % 6.2 % 6.6 %
Expected life 7.2 years 8.3 years 7.5 years
Expected volatility 28.7 % 26.3 % 27.7 %
Assumed dividend yield 0.8 % 1.5 % 2.2 %
In late 1996, the Company adopted the Tosco Corporation 1996 Long-Term
Incentive Plan ("LTIP") which replaced the granting of incentive awards under
the 1992 Plan to participants in the LTIP. Under the LTIP, the Compensation
Committee of the Board of Directors may grant performance units to participants,
the payment of which is contingent on the meeting of performance goals as
defined and continued employment by the participant. Under certain
circumstances, payments to any participant in a calendar year may not exceed
400% of such participant's total annual compensation for the year of the award.
At December 31, 1997, based on performance goals achieved to date, the
participants will be entitled to receive approximately $29,000,000 on January 1,
1999, and payment of approximately one- half of such amount on January 1, 2000
and January 1, 2001. If a participant, prior to scheduled payment dates of the
award, voluntarily terminates employment with the Company or retires prior to
age 65 all unpaid amounts will be forfeited. The Company accrues for such
amounts on a ratable basis over the required service period.
15. EMPLOYEE BENEFIT AND INCENTIVE COMPENSATION PLANS
PENSION PLANS
The Company has non-contributory, defined benefit pension plans
covering substantially all employees located at the Bayway Refinery, Los Angeles
Area Refinery System, and the San Francisco Area Refinery System and its union
employees at the Ferndale Refinery (collectively, the "Pension Plans"). Benefits
under the Pension Plans are generally based on the employee's years of service
and average earnings for the three highest consecutive calendar years of
compensation during the ten years immediately preceding retirement. Benefits are
payable at the normal retirement age of 65, with reduced benefits for early
retirement (as defined). Contributions to the Pension Plans are at least
sufficient to meet the minimum funding requirements of applicable laws and
regulations but no more than the amount deductible for federal income tax
purposes. The Pension Plans' assets are held by a major financial institution
and invested in a stock index fund, a treasury bond index fund, short-term
investment funds, and a real estate equity fund.
The Company's funded status and pension (liability) asset, using end
of year actuarial assumptions, consist of the following at December 31, 1997 and
1996:
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS) 1997 1996
------------- ---------
<S> <C> <C>
Net assets at fair value $ 106,842 $ 78,115
Less actuarial present value of accumulated benefit obligation:
Vested benefits (a) (81,584) (63,420)
Nonvested benefits (3,410) (2,665)
------------- ------------
Assets in excess of accumulated benefit obligation $ 21,848 $ 12,030
============= ===========
Net assets at fair value $ 106,842 $ 78,115
Projected benefit obligation for services rendered to date (a) (137,040) (90,849)
------------- -----------
Projected benefit obligation in excess of net assets (30,198) (12,734)
Unrecognized prior service costs 8,373 9,132
Unrecognized net loss 3,340 2,434
Unrecognized net transition cost, amortized over 15 years 1,149 1,438
-------------- -----------
Pension (liability) asset $ (17,336) $ 270
============= ==============
(a) In connection with the 76 Products Acquisition, pension benefits and
recognition of prior service were extended to substantially all
employees located at the acquired refineries. Benefits accrued for
these employees through March 31, 1997 are the obligation of Unocal.
</TABLE>
<PAGE>
Net pension cost, using beginning of the year actuarial assumptions,
for the years ended December 31, 1997, 1996, and 1995 consists of the following:
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS) 1997 1996 1995
------------- -------------- ---------
<S> <C> <C> <C>
Service cost $ 9,669 $ 6,336 $ 4,475
Interest cost 8,067 5,625 4,568
Actual return on plan assets (19,576) (9,980) (11,617)
Net amortization and deferral 14,446 6,096 8,924
------------- -------------- -------------
Net pension cost $ 12,606 $ 8,077 $ 6,350
============= ============== =============
The major assumptions used to calculate the Company's pension
obligations and pension costs for the years ended December 31, 1997, 1996, and
1995 are as follows:
1997 1996 1995
------------- -------------- ---------
Assumed discount rate 7.0 % 7.5 % 7.0 %
Assumed rate of future compensation increase 5.0 % 5.0 % 5.0 %
Expected rate of return on plan assets 7.5 % 7.5 % 7.5 %
</TABLE>
The Company has a Senior Executive Retirement Plan ("SERP") that
provides retirement benefits to selected senior executives and their
beneficiaries. SERP provisions of $1,908,000, $2,079,000, and $1,265,000, were
included in selling, general, and administrative expenses in 1997, 1996, and
1995, respectively.
EMPLOYEE AND RETIREE BENEFIT PLANS
The Company provides health care and life insurance benefits for all
employees, and postretirement health care and life insurance benefits for
certain employees (primarily employees at the Avon Refinery and, effective
January 1, 1997 and April 1, 1997, at the Bayway Refinery and the acquired 76
Products refineries, respectively). Health care benefits for eligible employees
and retirees are provided through insurance companies whose premiums are based
on the benefits paid during the year. The health care plans are contributory
(with employee/retiree contributions adjusted periodically) and contain other
cost-sharing features such as deductibles and coinsurance. The life insurance
plans are noncontributory.
The Company's accrued postretirement benefit liability, using end of
year actuarial assumptions, consists of the following at December 31, 1997 and
1996:
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS) 1997 1996
------------- ---------
<S> <C> <C>
Net assets (insurance contracts) at fair value $ 4,888 $ 5,039
Less accumulated postretirement benefit obligation ("APBO"):
Retirees 11,064 11,364
Fully eligible active plan participants 1,700 1,949
Other active plan participants (a) 13,899 2,380
------------- --------------
APBO in excess of net assets 21,775 10,654
Unrecognized net gain 7,452 8,556
Prior service cost not yet recognized in net periodic
postretirement benefit cost (3,812)
Unrecognized net transition obligation, amortized over 20 years (13,073) (14,007)
---------------- --------------
Accrued postretirement benefit liability $ 12,342 $ 5,203
================ ==============
(a) In connection with the 76 Products Acquisition, postretirement benefits
were extended to substantially all employees located at the acquired
refineries. Benefits accrued through March 31, 1997 are the obligation
of Unocal.
</TABLE>
<PAGE>
Net postretirement benefit cost, using beginning of the year actuarial
assumptions, for the years ended December 31, 1997, 1996, and 1995 consists of
the following:
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS) 1997 1996 1995
------------- -------------- ---------
<S> <C> <C> <C>
Service cost $ 952 $ 202 $ 165
Interest cost 1,634 1,085 1,077
Actual return on plan assets (329) (251) (463)
Amortization of transition obligation over 20 years 934 934 934
Net amortization and deferral (729) (955) (1,131)
------------- -------------- -------------
Net postretirement benefit cost $ 2,432 $ 1,015 $ 582
============= ============== =============
The major assumptions used to calculate the APBO and net
postretirement benefit cost for the years ended December 31, 1997, 1996, and
1995 are as follows:
1997 1996 1995
------------- -------------- ---------
Assumed discount rate 7.0% 7.5% 7.0%
Current year health care cost trend rate 6.8% 7.8% 7.8%
Ultimate health care cost trend rate 5.5% 5.5% 5.5%
Year ultimate trend rate is achieved 2002 2002 2002
Expected rate of return on plan assets 5.5% 5.5% 5.5%
</TABLE>
A 1% increase in the health care cost trend rate would increase the
APBO at December 31, 1997 and 1996 by $1,511,000 and $907,000, respectively, and
increase the aggregate of service and interest cost for 1997, 1996, and 1995 by
$183,000, $88,000, and $80,000, respectively.
SAVINGS PLANS
The Tosco Corporation Capital Accumulation Plan (the "CAP") and the
Circle K Kash Plus Plan (the "Kash Plus Plan") have been established for all
eligible employees of Tosco and Circle K, respectively. Participants may make,
within certain limitations, voluntary contributions under Section 401(k) of the
Internal Revenue Code of a percentage of their compensation. The Company makes
matching contributions based upon years of contributory participation, as
defined under the CAP and Kash Plus Plan (collectively the "Savings Plans"), for
employees who elect to make certain specified and minimum contributions. In
addition, eligible employees of the CAP receive an additional contribution equal
to 5% of their compensation, up to $150,000 in 1997, 1996, and 1995, in lieu of
pension plan benefits. Participants of the CAP are immediately vested in both
their voluntary and the Company contributions. Participants of the Kash Plus
Plan are immediately vested in their voluntary contributions and, effective
December 31, 1997, the Company's contribution. Contributions by the Company to
the Savings Plans for the years ended December 31, 1997, 1996, and 1995 were
$17,766,000, $9,517,000, and $7,837,000, respectively.
Effective January 1, 1998, all non-store employee participants in the
Kash Plus Plan were made eligible for the CAP. Participants electing to transfer
to the CAP were given a one time option to transfer not less than 100% of their
Kash Plus Plan balances to the CAP. Additionally, certain store employees
formerly participating in the CAP were transferred to the Kash Plus Plan
(renamed the Tosco Store Savings Plan).
MANAGEMENT INCENTIVE PLAN
The Tosco Corporation Cash Incentive Plan (the "CIP") has been
established for members of middle and senior management. The CIP sets forth
discretionary and other awards computed as a variable percentage of a
participant's base salary, which percentage is dependent upon pre-tax income, as
defined, of the respective participant's operating division. The Company also
has a bonus plan for senior executives, who are not participants in the CIP,
based on the Company's per share pre-tax income, as defined. Results of
operations for the years ended December 31, 1997, 1996, and 1995 include
incentive compensation of $55,800,000, $33,028,000, and $13,175,000,
respectively, of which $4,641,000, $3,102,000 and $2,200,000 were special
bonuses awarded to union and other employees not covered by management incentive
plans.
<PAGE>
16. INCOME TAXES
<TABLE>
<CAPTION>
The provision for income taxes for the years ended December 31, 1997,
1996, and 1995 is summarized below:
(THOUSANDS OF DOLLARS) 1997 1996 1995
------------- -------------- ---------
Current:
<S> <C> <C> <C>
Federal $ 87,463 $ 50,720 $ 9,005
State 23,785 16,959 3,669
Foreign 233 246 602
------------- -------------- -------------
111,481 67,925 13,276
------------- -------------- -------------
Deferred:
Federal 37,200 29,577 32,171
State 2,190 3,294 4,934
------------- -------------- -------------
39,390 32,871 37,105
------------- -------------- -------------
$ 150,871 $ 100,796 $ 50,381
============= ============== =============
</TABLE>
A reconciliation of the provision for income taxes to income taxes
computed by applying the statutory federal income tax rate to earnings before
income taxes is as follows:
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS) 1997 1996 1995
------------- -------------- ---------
<S> <C> <C> <C>
Income taxes at the statutory rate $ 127,241 $ 86,479 $ 44,604
State income taxes, net of Federal benefit 16,884 13,164 5,799
Amortization of intangible assets 4,245 2,339
Adjustments and other 2,501 (1,186) (22)
------------- -------------- -------------
$ 150,871 $ 100,796 $ 50,381
============= ============== =============
</TABLE>
Temporary differences between financial and income tax reporting and
tax credit carryforwards that give rise to deferred income tax assets and
liabilities as of December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS) 1997 1996
------------- ---------
Deductible temporary differences:
<S> <C> <C>
Accounts receivable $ (13,354) $ (11,208)
Accrued expenses and other current liabilities (114,527) (88,576)
Capital leases (44,038) (41,190)
Accrued environmental costs (236,219) (49,852)
Accrued postretirement benefit liability (6,339) (5,739)
Noncurrent liabilities (129,931) (74,917)
Other (50,016) (23,065)
Deferred state income taxes (a) (11,600) (10,737)
-------------- --------------
(606,024) (305,284)
-------------- --------------
Taxable temporary differences:
Inventories 633 67,542
Property, plant, and equipment 572,528 297,167
Deferred turnarounds 70,841 22,915
Intangible assets (primarily tradenames) 123,267 89,343
Other 52,840 32,025
------------- --------------
820,109 508,992
------------- --------------
Net temporary differences $ 214,085 $ 203,708
============= ==============
Federal income taxes at 35% $ 74,930 $ 71,298
Investment tax credit carryforwards (299)
Alternative minimum tax credit carryforward (b) (3,741) (29,555)
------------- ---------------
Net Federal deferred tax liability 71,189 41,444
Net state deferred tax liability (a) 11,600 10,737
------------- --------------
Total net deferred tax liability 82,789 52,181
Current portion (deferred tax asset) (c) 57,646 28,121
------------- -------------
Noncurrent portion (deferred tax liability) $ 140,435 $ 80,302
============ =============
(a) Deferred state income tax liabilities are provided for temporary
differences, primarily differences between the book and tax bases of
property, plant, and equipment.
(b) The alternative minimum tax credit (AMT) carryforwards may be carried
forward indefinitely.
(c) The Company believes that it is more likely than not that the deferred
tax asset will be realized based upon future reversals of existing
taxable temporary differences and the expected continuation of
profitable operating results.
</TABLE>
17. LEASES
The Company distributes petroleum products throughout its marketing
areas through a combination of owned and leased terminals. Leases for product
distribution terminals are generally for short periods of time and continue in
effect until canceled by either party with contracted days of notice, generally
30 to 60 days. Most product distribution terminal leases are subject to
escalations based on various factors. The Company subleases a portion of its
leased product distribution terminals. During December 1997, the Company
purchased the Riverhead Terminal pursuant to a purchase option in the lease.
Additionally, the Company leases two of its refining processing units pursuant
to long-term operating leases.
The Company has long-term leases with special purpose entities for
land and equipment at the Company's BP California, Exxon Arizona, and certain 76
Products sites. These leases provide the Company the option to purchase, at
agreed-upon contracted prices, (a) not less than all of the leased assets at
annual anniversary dates, and (b) a portion of the leased assets for resale to
unaffiliated parties at quarterly lease payment dates. The Company may cancel
the leases provided that lessors receive minimum sales values for the assets.
The contracted purchase option price and minimum guaranteed sales values decline
over the term of the leases. Minimum annual rentals vary with a reference
interest rate (LIBOR).
The Company leases the majority of its stores and certain other
property and equipment. The store leases generally have primary terms of up to
25 years with varying renewal provisions. Under certain of these leases, the
Company is subject to additional rentals based on store sales as well as
escalations in the minimum future lease amount. The leases for other property
and equipment are for terms of up to 15 years. Most of the Company's lease
arrangements provide the Company an option to purchase the assets at the end of
the lease term. The Company may also cancel certain of its leases provided that
the lessor receives minimum sales values for the leased assets. Most of the
leases require that the Company provide for the payment of real estate taxes,
repairs and maintenance, and insurance.
At December 31, 1997, future minimum obligations under non-cancelable
operating leases and warehousing agreements are as follows:
(THOUSANDS OF DOLLARS)
1998 $ 159,441
1999 147,674
2000 134,432
2001 (a) 107,610
2002 (a) 44,023
Thereafter 390,376
-------------
983,556
Less future minimum sublease income 110,855
---------------
$ 872,701
==============
(a) Excludes guaranteed residual payments, totaling $123,221,000 (2001) and
$191,522,000 (2002) due at the end of the lease term, which will be
reduced by the fair market value of the leased assets.
<PAGE>
Net rental expense for the years ended December 31, 1997, 1996, and
1995 consists of the following:
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS) 1997 1996 1995
------------- -------------- ---------
<S> <C> <C> <C>
Minimum rental and warehousing charges $ 153,775 $ 98,863 $ 65,672
Contingent rental and warehousing charges 11,803 25,746 15,022
------------- -------------- ----------
165,578 124,609 80,694
Less sublease rental income 39,183 35,001 27,269
------------- -------------- -------------
$ 126,395 $ 89,608 $ 53,425
============= ============== =============
</TABLE>
18. COMMITMENTS AND CONTINGENCIES
There are various legal proceedings and claims pending against the
Company 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 the Company.
As a condition of the 76 Products Acquisition, 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 increase above specified levels. The
contingent participation payments will be capitalized, when incurred, as an
additional cost of the 76 Products Acquisition. For the nine month period ended
December 31, 1997, the Company's contingent participation payment is not
material to its consolidated financial position.
The Company has employment agreements with certain of its executive
officers that provide for lump sum severance payments and accelerated vesting of
options upon termination of employment under certain circumstances or a change
of control, as defined. The Company's potential minimum obligation to eight
officers was $6,225,000 at December 31, 1997.
Litigation between Unocal Corp. and certain petroleum refiners has
contested the validity of patents held by Unocal covering certain formulations
for clean burning fuels meeting California fuel specifications and, in turn,
alleged infringement of those patents by certain refiners. The Company is not a
party to the patent litigation. Under the terms of the 76 Product Acquisition,
the Company has no liability to Unocal for any possible past infringement of the
patents, including to the date of final resolution of the matter, which,
considering appeals, could take several years.
The Company, in keeping with industry practice, schedules periodic
maintenance of major processing units for significant non-routine repairs and
replacements (turnarounds) as the units reach the end of their normal operating
cycles. Unscheduled turnarounds also occur because of operating difficulties or
external factors. Throughput and earnings are lowered, and deferred turnaround
expenditures increased, during such periods.
The Company carries insurance policies on insurable risks which it
believes to be appropriate at commercially reasonable rates. While management
believes the Company is adequately insured, future losses could exceed insurance
policy limits or, under adverse interpretations, be excluded from coverage.
Future liability or costs, if any, incurred under such circumstances would have
to be paid out of general corporate funds. Cost of sales for 1997 was reduced by
insurance coverage accruals for property damage and business interruption
claims, net of insurance policy deductibles and asset write- offs, related to
the unscheduled shutdown of the Bayway Refinery cat cracker and an accident at
the Avon Refinery hydrocracker in January 1997. During 1997, the Company settled
the Bayway insurance claim for approximately the accrued amount.
In the normal course of business, the Company has entered into
numerous purchase contracts and transportation agreements. The majority of these
contracts and agreements are short term and none are expected to negatively
impact the Company's future results of operations.
<PAGE>
19. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
t
(THOUSANDS OF DOLLARS) 1997 1996 1995
------------- -------------- ---------
Cash paid during the year for:
<S> <C> <C> <C>
Interest, net of amounts capitalized $ 113,240 $ 87,349 $ 58,263
Income taxes, net of refunds received 105,182 72,213 5,777
Detail of acquisitions:
Fair value of assets acquired $2,030,126 $ 1,598,108
Liabilities assumed (444,097) (794,545)
Common Stock issued (396,880) (327,039)
-------------- --------------
Net cash paid for acquisitions 1,189,149 476,524
Cash acquired in acquisitions 2,952 32,466
----------------- --------------
Cash paid for acquisitions $ 1,192,101 $ 508,990
================= ================
</TABLE>
20. NEW ACCOUNTING STANDARDS
During June 1997, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 130 "Reporting Comprehensive Income" ("SFAS No. 130") and SFAS
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.
During February 1998, the FASB issued SFAS No. 132 "Employers' Disclosures about
Pensions and Other Postretirement Benefits" (SFAS No. 132"). SFAS No. 132
changes the disclosure requirements for pension and other postretirement
benefits but does not change any existing measurement or recognition provisions.
The Company will comply with the expanded disclosure requirements of these
accounting standards with its 1998 financial statements.
21. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
First Second Third Fourth
QUARTER QUARTER QUARTER QUARTER TOTAL
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
1997 (a)
<S> <C> <C> <C> <C> <C>
Sales $ 2,410,273 $ 3,196,431 $ 3,758,589 $ 3,916,327 $ 13,281,620
Operating contribution 85,788 248,378 300,698 245,578 880,442
Net income 3,563 67,112 100,933 41,067 212,675
Earnings per share (c):
Basic $ 0.03 $ 0.44 $ 0.65 $ 0.26 $ 1.43
Diluted 0.03 0.42 0.61 0.26 1.37
1996 (b)
Sales $ 2,020,023 $ 2,430,740 $ 2,709,388 $ 2,762,460 $ 9,922,611
Operating contribution 82,611 165,245 170,690 132,847 551,393
Net income 23,966 49,638 42,493 30,189 146,286
Earnings per share (c):
Basic $ 0.22 $ 0.42 $ 0.32 $ 0.23 $ 1.19
Diluted 0.21 0.41 0.32 0.22 1.16
(a) Results of operations for the fourth quarter of 1997 include a non-cash
inventory writedown of $53,000,000 ($31,001,000 after tax, $0.18 per
share) as a result of declining raw material and product prices in late
1997.
(b) Results of operations for the second quarter of 1996 include a charge
of $13,500,000 ($8,168,000 after tax, $0.06 per share) for the
consolidation of the retail marketing division following the
acquisition of Circle K.
(c) Earnings per share calculations are based on the weighted average
number of shares outstanding for each quarter. The sum of the quarters
may not be equal to the full year amount.
</TABLE>
<PAGE>
TOSCO CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
(Thousands of Dollars)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
CHARGED
BALANCE AT (CREDITED) TO CHARGED BALANCE
BEGINNING COSTS AND TO OTHER AT END OF
OF YEAR EXPENSES ACCOUNTS DEDUCTIONS YEAR
Allowance for uncollectible receivables:
<S> <C> <C> <C> <C> <C>
1997 (a) $8,291 $5,981 $7,238 $2,492 $19,018
1996 8,523 (265) (33) 8,291
1995 8,392 404 273 8,523
Inventory net realizable value reserve:
1997 $- $53,000 $- $- $53,000
(a) The 1997 Charged to Other Accounts amount represents the allowance for
uncollectible credit card receivables acquired in the 76 Products
Acquisition. See Note 3 to the Consolidated Financial Statements.
</TABLE>
<PAGE>
EXHIBIT 11
TOSCO CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE (a)
(Thousands of Dollars, Except Per Share Data)
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
Income before distributions on company-obligated, mandatorily redeemable,
<S> <C> <C> <C>
convertible preferred securities (Trust Preferred Securities) $222,766 $146,750 $77,058
Distributions on Trust Preferred Securities, net of income tax benefit 10,091 464 -
------ --- --------
Net income $212,675 $146,286 $77,058
======== ======== =======
BASIC EARNINGS PER SHARE
Earnings used for computation of basic earnings per share $212,675 $146,286 $77,058
Weighted average shares outstanding during the period 149,024,176 122,857,830 111,179,676
----------- ----------- -----------
Basic earnings per share $1.43 $1.19 $0.69
===== ===== =====
DILUTED EARNINGS PER SHARE
Earning used for computation of diluted earnings per share $222,766 $146,750 $77,058
-------- -------- -------
Weighted average shares outstanding during the period 149,024,176 122,857,830 111,179,676
Assumed conversion of dilutive stock options 4,335,971 2,984,610 1,262,499
Assumed conversion of Trust Preferred Securities 9,113,940 405,064
--------- -------
Weighted average shares outstaning used for computation of diluted earnings
per share 162,474,087 126,247,504 112,442,175
----------- ----------- -----------
Diluted earnings per share $1.37 $1.16 $0.69
===== ===== =====
(a) Earnings per share and weighted average shares outstanding reflect the
3-for-1 stock split declared and distributed in February 1997.
</TABLE>
<PAGE>
EXHIBIT 12
TOSCO CORPORATION AND SUBSIDIARIES
RATIO OF EARNINGS TO FIXED CHARGES
(Thousands of Dollars, Except Ratio Data)
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Income before income taxes $363,546 $247,082 $127,439
Fixed charges to be added to income before income taxes:
Interest expense, including amortization of debt expenses 144,881 91,061 59,815
Distributions on Trust Preferred Securities 17,250 767
Interest factor of rental expense 42,132 29,869 17,808
------ ------ ------
Earnings $567,809 $368,779 $205,062
======== ======== ========
Fixed charges:
Interest expense, including amortization of debt costs $144,881 $91,061 $59,815
Interest capitalized 1,628 1,429 4,730
Distributions on Trust Preferred Securities 17,250 767
Interest factor of rental expense 42,132 29,869 17,808
------ ------ ------
Total fixed charges $205,891 $123,126 $82,353
-------- -------- -------
Ratio of earnings to fixed charges 2.76 3.00 2.49
==== ==== ====
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Tosco Corporation
Our report on the consolidated financial statements and financial statement
schedule of Tosco Corporation and Subsidiaries is included on page F-2 of this
Form 10-K. In connection with our audits of such financial statements and
financial statement schedule, we have also audited Exhibit 99 presentd on pages
F-29 through F-31 of this Form 10-K.
In our opinion, the Exhibit 99 referred to above, when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material respects, the information required to be included herein.
COOPERS & LYBRAND L.L.P.
Phoenix, Arizona
February 26, 1998
<PAGE>
TOSCO CORPORATION AND SUBSIDIARIES
EXHIBIT 99 - CONDENSED CONSOLIDATING FINANCIAL INFORMATION
(Thousands of Dollars)
<TABLE>
<CAPTION>
Tosco Bayway Nonguaranteeing
(Issuer) (Guarantor) Subsidiaries Eliminations Consolidated
BALANCE SHEET - DECEMBER 31, 1997
Assets:
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 5,695 $- $ 28,787 $- $ 34,482
Marketable securities and deposits 2,498 8,679 32,510 43,687
Other current assets (a) 677,554 505,137 551,402 1,734,093
-------- --------- ------- --------- ---------
Total current assets 685,747 513,816 612,699 1,812,262
Other assets 2,363,955 296,213 1,506,788 (4,366) 4,162,590
Investment in Bayway and other subsidiaries 1,216,601 (1,216,601)
--------- --------- ---------- ----------- ---------
Total assets $4,266,303 $ 810,029 $2,119,487 $(1,220,967) $5,974,852
========== ========== ========== =========== ==========
Liabilities and Shareholders' Equity:
Current liabilities $685,039 $469,812 $397,924 $- $1,552,775
Revolving credit facility and long-term debt 1,480,961 100,296 1,581,257
Other liabilities 418,375 182,756 (4,366) 596,765
Intercompany liabilities (assets) (262,127) (20,968) 283,095
Trust Preferred Securities 300,000 300,000
Total shareholders' equity 1,944,055 361,185 855,416 (1,216,601) 1,944,055
--------- ------- ------- ---------- ---------
Total liabilities and shareholders' equity $4,266,303 $ 810,029 $2,119,487 $(1,220,967) $5,974,852
========== ========== ========== =========== ==========
STATEMENT OF INCOME - YEAR ENDED DECEMBER 31, 1997
Sales $4,856,693 $4,748,344 $3,676,583 $- $13,281,620
Cost of sales 4,404,427 4,544,370 3,453,681 (1,300) 12,401,178
Inventory writedown 17,000 36,000 53,000
Selling, general, and administrative expenses (b) 139,705 33,585 132,314 1,300 306,904
Interest expense, net 97,705 29,209 12,828 139,742
---------- --------- ---------- ---------- -----------
Income before income taxes and distributions on
Trust Preferred Securities 197,856 105,180 77,760 380,796
Income taxes 82,110 43,650 32,270 158,030
Distributions on Trust Preferred Securities,
net of income tax benefit 10,091 10,091
---------- --------- ---------- ---------- -----------
Net income $115,746 $61,530 $35,399 $- $212,675
========== ========== ========== =========== ==========
STATEMENT OF CASH FLOWS - YEAR ENDED DECEMBER 31, 1997
Cash flows from operating activities:
Net income $115,746 $61,530 $35,399 $- $212,675
Depreciation, amortization, and deferred
income taxes 205,222 32,231 105,476 342,929
Inventory writedown 17,000 36,000 53,000
Changes in operating assets and liabilities, net 402,417 (176,095) (145,950) 80,372
Other, net 920 (3,898) (2,978)
---------- --------- ---------- ---------- -----------
Net cash provided by (used in)
operating activities 741,305 (46,334) (8,973) 685,998
---------- --------- ---------- ---------- -----------
Cash flows from investing activities:
Purchase of property, plant, equipment, net (177,765) (28,489) (197,752) (404,006)
Increase in deferred turnarounds, charges, and
other assets, net (64,003) (42,491) (2,823) (109,317)
Acquisition of 76 Products, net of cash acquired
and assets sold (1,116,460) (1,116,460)
Intercompany transfers (30,504) 105,054 (74,550)
Intercompany dividend (309,766) (3,819) 313,584
Net change in marketable securities,
deposits, and other 7,722 (331) (9,818) (2,427)
---------- --------- ---------- ---------- -----------
Net cash provided by (used in) investing
activities (1,690,775) 29,924 28,641 (1,632,210)
---------- --------- ---------- ---------- -----------
Cash flows from financing activities:
Proceeds from note, bond, and debenture offerings 600,000 600,000
Proceeds from common stock offering, net 697,396 697,396
Net borrowings under revolving credit facilities 166,000 166,000
Payments under long-term debt agreements (100,000) (13,699) (113,699)
Payments under Circle K pre-acquisition debt (23,807) (23,807)
Repurchase of Unocal shares (393,708) (393,708)
Dividends paid on common stock (35,918) (35,918)
Other, net (9,988) (9,988)
---------- --------- ---------- ---------- -----------
Net cash provided by (used in)
financing activities 923,782 (37,506) 886,276
---------- --------- ---------- ---------- -----------
Net (decrease) increase in cash and cash equivalents (25,688) (16,410) (17,838) (59,936)
Cash and cash equivalents at beginning of year 31,383 16,410 46,625 94,418
---------- --------- ---------- ---------- -----------
Cash and cash equivalents at end of year $5,695 $- $28,787 $- $34,482
========== ========== ========== =========== ==========
(a) Inventories are valued at the lower of 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 expenses to
Bayway and the Nonguarranteeing Subsidiaries. Tosco may revise its
allocation method in the future.
</TABLE>
<PAGE>
TOSCO CORPORATION AND SUBSIDIARIES
EXHIBIT 99 - CONDENSED CONSOLIDATING FINANCIAL INFORMATION
(Thousands of Dollars)
<TABLE>
<CAPTION>
Tosco Bayway Nonguaranteeing
(Issuer) (Guarantor) Subsidiaries Eliminations Consolidated
BALANCE SHEET - DECEMBER 31, 1996
Assets:
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $31,383 $ 16,410 $ 46,625 $- $ 94,418
Marketable securities and deposits 4,198 8,348 22,692 35,238
Other current assets (a) 268,970 310,878 334,068 (1,077) 912,839
Total current assets 304,551 335,636 403,385 (1,077) 1,042,495
Other assets 851,960 257,788 1,406,948 (4,366) 2,512,330
Investment in Bayway and other subsidiaries 1,109,906 (1,109,906) -
---------- --------- ---------- ---------- -----------
Total assets $2,266,417 $593,424 $1,810,333 $(1,115,349) $3,554,825
========== ========== ========== =========== ==========
Liabilities and Shareholders' Equity:
Current liabilities $291,561 $415,648 $325,297 $- $1,032,506
Revolving credit facility and long-term debt 714,953 111,879 826,832
Other liabilities 121,203 324 209,080 (5,443) 325,164
Intercompany liabilities (assets) (231,623) (126,022) 357,645 -
Trust Preferred Securities 300,000 300,000
Total shareholders' equity 1,070,323 303,474 806,432 (1,109,906) 1,070,323
----------- --------- ---------- ---------- ---------
Total liabilities and shareholders' equity $2,266,417 $593,424 $1,810,333 $(1,115,349) $3,554,825
========== ========= ========== =========== =========
STATEMENT OF INCOME - YEAR ENDED DECEMBER 31, 1996
Sales $3,689,395 $4,185,271 $2,047,945 $- $9,922,611
Cost of sales 3,426,998 4,009,999 1,932,357 1,864 9,371,218
Selling, general, and administrative expenses (b) 98,953 39,857 65,909 (1,864) 202,855
Consolidation accrual 13,500 13,500
Interest expense, net 36,702 18,176 32,311 87,189
---------- ---------- ---------- ----------- ---------
Income before income taxes and distributions on
Trust Preferred Securities 113,242 117,239 17,368 247,849
Income taxes 44,814 46,309 9,976 101,099
Distributions on Trust Preferred Securities, net of
income tax benefit 464 464
---------- ---------- ---------- ----------- ---------
Net income $67,964 $70,930 $7,392 $- $146,286
========== ========== ========== =========== ==========
STATEMENT OF CASH FLOWS - YEAR ENDED DECEMBER 31, 1996
Cash flows from operating activities:
Net income $67,964 $70,930 $7,392 $- $146,286
Depreciation, amortization, and deferred
income taxes 122,209 25,954 69,213 217,376
Changes in operating assets and liabilities, net (49,886) 255,334 (102,028) 103,420
Other, net 410 3,207 3,617
---------- ---------- ---------- ----------- ---------
Net cash provided by (used in)
operating activities 140,697 352,218 (22,216) 470,699
---------- ---------- ---------- ----------- ---------
Cash flows from investing activities:
Purchase of property, plant, equipment, net (95,213) (28,329) (70,149) (193,691)
Increase in deferred turnarounds, charges, and
other assets, net (33,776) (9,633) 11,000 (32,409)
Acquisition of Circle K and BP, net of cash acquired (431,096) (45,428) (476,524)
Intercompany transfers (5,537) (255,613) 261,150
Intercompany dividend 2,915 (2,915)
Net change in marketable securities, deposits,
and other (10,802) (8,348) 4,452 (14,698)
---------- ---------- ---------- ----------- ---------
Net cash provided by (used in)
investing activities (576,424) (299,008) 158,110 (717,322)
---------- ---------- ---------- ----------- ---------
Cash flows from financing activities:
Proceeds from bond offering 240,000 240,000
Proceeds from Trust Preferred Securities offering 300,000 300,000
Net borrowings (repayments) under short-term
bank borrowings -
and revolving credit facilities (20,000) (45,000) (65,000)
Payments under long-term debt agreements (8,157) (8,157)
Payment of preacquisition Circle K debt (102,504) (102,504)
Dividends paid on common stock (27,356) (27,356)
Other, net (3,256) (11,834) (15,090)
---------- ---------- ---------- ----------- ---------
Net cash provided by (used in) financing
activities 489,388 (45,000) (122,495) 321,893
---------- ---------- ---------- ----------- ---------
Net increase in cash and cash equivalents 53,661 8,210 13,399 75,270
Cash and cash equivalents at beginning of year 10,188 8,200 760 19,148
Circle K acquired cash (32,466) 32,466 -
---------- ---------- ---------- ----------- ---------
Cash and cash equivalents at end of year $31,383 $16,410 $46,625 $- $94,418
========== ========== ========== =========== ==========
(a) Inventories are valued at the lower of 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 expenses to
Bayway and the Nonguarranteeing Subsidiaries. Tosco may revise its
allocation method in the future.
</TABLE>
<PAGE>
TOSCO CORPORATION AND SUBSIDIARIES
EXHIBIT 99 - CONDENSED CONSOLIDATING FINANCIAL INFORMATION
(Thousands of Dollars)
<TABLE>
<CAPTION>
Tosco Bayway Nonguaranteeing
(Issuer) (Guarantor) Subsidiaries Eliminations Consolidated
STATEMENT OF INCOME - YEAR ENDED DECEMBER 31, 1995
<S> <C> <C> <C> <C> <C>
Sales $3,220,625 $3,487,844 $652,179 $(76,597) $7,284,051
Cost of sales 3,047,242 3,374,421 652,088 (74,450) 6,999,301
Consolidation accrual 5,200 5,200
Selling, general, and administrative expenses (a) 72,790 28,000 (2,785) (2,147) 95,858
Interest expense, net 35,662 21,709 (1,118) 56,253
---------- ---------- --------- --------- -----------
Income before income taxes 59,731 63,714 3,994 127,439
Income taxes 23,637 25,166 1,578 50,381
---------- ---------- --------- --------- -----------
Net income $36,094 $38,548 $2,416 $- $77,058
========== ========== ========= ========= ===========
STATEMENT OF CASH FLOWS - YEAR ENDED DECEMBER 31, 1995
Cash flows from operating activities:
Net income $36,094 $38,548 $2,416 $- $77,058
Depreciation, amortization, and deferred
income taxes 118,843 27,265 2,446 148,554
Changes in working capital, net 108,873 120,369 (48,850) 180,392
Other, net 359 648 130 1,137
---------- ---------- --------- --------- -----------
Net cash provided by (used in)
operating activities 264,169 186,830 (43,858) 407,141
---------- ---------- --------- --------- -----------
Cash flows from investing activities:
Purchase of property, plant, equipment, net (138,877) (25,028) (38,781) (202,686)
Increase in deferred turnarounds, charges,
and other assets, net (96,657) (2,182) (98,839)
Intercompany transfers and dividends (68,274) (19,120) 87,394
Transfers to discontinued operations (1,270) (1,270)
Net change in short-term investments and deposits (511) 8,167 (5,952) 1,704
---------- ---------- --------- --------- -----------
Net cash provided by (used in)
investing activities (305,589) (38,163) 42,661 (301,091)
---------- ---------- --------- --------- -----------
Cash flows from financing activities:
Proceeds from bond offering 125,000 125,000
Net borrowings (repayments) under short-term
bank borrowings and revolving credit facility (49,500) (160,000) (209,500)
Dividends paid on common stock (23,719) (23,719)
Other, net (1,705) (771) (2,476)
---------- ---------- --------- --------- -----------
Net cash provided by (used in)
financing activities 50,076 (160,000) (771) (110,695)
---------- ---------- --------- --------- -----------
Net increase (decrease) in cash and cash equivalents 8,656 (11,333) (1,968) (4,645)
Cash and cash equivalents at beginning of year 1,532 19,533 2,728 23,793
---------- ---------- --------- --------- -----------
Cash and cash equivalents at end of year $10,188 $8,200 $760 $- $19,148
========== ========== ========= ========= ===========
(a) The condensed consolidating statement of income does not reflect an
allocation of a portion of aggregate corporate selling, general, and
administrative expense of $18,871,000 to Bayway and the Nonguaranteeing
Subsidiaries. Tosco may allocate such costs in the future.
</TABLE>
Exhibit 10(b)
THIS AGREEMENT made as of this 8th day of May, 1996, by and between Tosco
Corporation, a Nevada corporation ("Tosco"), and Thomas D. O'Malley (the
"Executive").
W I T N E S S E T H :
WHEREAS, the Executive is a key employee of Tosco; and
WHEREAS, Tosco deems it important and appropriate to assure to itself
the continued availability of certain services and assistance of Executive; and
WHEREAS, Executive is willing to perform certain services for, and to
make certain information available to, Tosco as Tosco may request, provided
Executive is appropriately compensated, in the event his employment by Tosco
terminates.
NOW, THEREFORE, in consideration of the mutual convenants and
agreements herein contained, Tosco and the Executive agree as follows:
1. If during the term of this Agreement:
(a) Executive's employment with Tosco is terminated,
the Executive shall be entitled to the benefits provided in Section 3(a) hereof,
unless such termination is (i) due to Executive's death or Disability (as
hereinafter defined), (ii) by Tosco for Cause (as hereinafter defined) or (iii)
by the Executive other than for Good Reason (as hereinafter defined);
(b) a Change of Control takes place, the provisions of
Paragraph 3(b) shall control in lieu of the provisions of Section 1(a) above.
2. When used in this Agreement:
(a) "Cause" shall mean the material and intentional failure by
the Executive to substantially perform his duties as an employee of Tosco (other
than by reason of Disability or for Good Reason) after a written demand for
substantial performance is delivered to the Executive by the Board of Directors,
which demand specifically identifies such failure and a reasonable time in which
to perform; actual (as distinguished from statutory) fraud; intentional
misappropriation of material property of Tosco to the Executive's own use;
embezzlement from Tosco; or substantial damage to property of Tosco which
property is material to Tosco's operations and which damage results form an
action by the Executive which intentionally causes such damage. The burden of
proving Cause shall be on Tosco. It is specifically agreed that Cause shall not
include any act of commission or omission by the Executive in the exercise of
the Executive's business judgment as an employee of Tosco or as a member of the
Board of Directors of Tosco.
(b) "Disability" shall mean Executive's incapacity due to
physical or mental illness resulting in his absence from full-time performance
of his functions for a period in excess of six (6) consecutive months.
(c) "Good Reason" shall mean, without Executive's express
written consent, any of the following:
(i) the assignment of Executive of duties
inconsistent with and of a lesser nature than
his present position or a significant reduction
in the nature of Executive's responsibility;
(ii) a reduction in the fixed elements, or
change in the method of calculation of the
variable elements that would reduce the amount
receivable, of the Executive's annual compensation;
(iii) the relocation of Executive's office to a
location more than 50 miles from the area where such offices
are presently located; or
(iv) Tosco shall have given notice pursuant to
Section 6 hereof that it does not wish to extend the term of
this Agreement.
In the event Executive has attained the age of 55 years and terminates his
employment with Tosco, such voluntary termination of employment by Employee
shall be deemed, for purposes of this Agreement, to be termination for "Good
Reason," provided Executive agrees in writing to provide to Tosco at no further
expense to Tosco, as Tosco may request from time-to-time, information with
respect to or of a similar nature to Executive's duties at Tosco.
3. (a) Following the termination of the Executive's employment as
provided in Section 1(a) hereof, Tosco shall pay to the Executive a lump sum
severance payment (the "Lump Sum Severance Payment"), no later than five (5)
days after such termination, in an amount equal to thirty (30) months multiplied
by his monthly base salary then in effect, exclusive of any bonuses.
(b) In the event Executive's employment with Tosco terminates in
conjunction with or following a change of control, Tosco shall pay to the
Executive a lump sum severance payment (the "Lump Sum Severance Payment"), no
later than five (5) days after such termination, in an amount equal to two and
one half (2.5) times the average of Executive's bonuses attributable to the two
calendar years preceding termination.
(c) In the event that the employment of the Executive by Tosco is
terminated by reason of the provisions of paragraph 1(a) hereof, or if there has
been a Change of Control, all options or shares of stock which have been granted
or issued to the Executive by Tosco which are not vested or are subject to
restrictions at the time of termination shall vest immediately upon such
termination in the event of a termination pursuant to paragraph 1(a) hereof, or
upon the date of Change of Control in the event of a Change in Control, and such
restrictions shall lapse. The amounts to be received by the Executive pursuant
to clauses (a) or (b) of this Section 3 and options and shares which become
vested pursuant to the provisions of this Section 3(c) are collectively referred
to herein as the "Total Severance Payments."
(d) If the Executive shall resort to any action or proceeding to
recover any amount from Tosco which Tosco has failed to pay as provided in this
Section 3 and the Executive shall be awarded any amounts in any such action or
proceeding, Tosco shall promptly pay and reimburse to the Executive all or the
costs and expenses (including attorneys' fees) incurred by the Executive in and
with respect to such action or proceeding.
(e) For the purposes of this Agreement, "Change of Control" shall be
deemed to have occurred if:
(i) any "person" or "group" (as defined in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of more than fifty percent (50%) of
Common Stock of Tosco. Common Stock of Tosco shall be computed
on a fully diluted basis and shall include the outstanding
common stock par value of $.75 per share of Tosco and all
shares of common stock of Tosco underlying outstanding
convertible securities and warrants of Tosco; or
(ii) the stockholders of Tosco approve (a) a merger
or consolidation except a merger or consolidation (an
"Acquisition Transaction") which would result in the voting
securities of Tosco outstanding immediately prior thereto
continuing to represent fifty percent (50%) or more of the
combined voting power of the voting securities of Tosco or
such surviving entity outstanding immediately after such
merger or consolidation, or (B) a plan of complete liquidation
of Tosco, directly or indirectly, or the Avon Refinery or a
substantial portion of its assets; or
(iii) there is a change in the composition of the
Board of Directors of Tosco by other than the individuals who
constitute the Board of Directors on the date hereof (the
"Incumbent Board") and individuals elected or nominated by a
vote of the Board constituting at least one person more than
one-half of the Incumbent Board (which individuals shall then
be considered the Incumbent Board) so that the Incumbent Board
shall not constitute a majority of the Board of Directors of
Tosco after such transaction.
4. Notwithstanding anything to the contrary, in the event that any
payment or benefit received or to be received by the Executive in connection
with the termination of his employment whether pursuant to the terms of this
Agreement or any other plan, arrangement or agreement with Tosco (collectively
with his Total Severance Payments herein called "Total Payments"), would not be
deductible, in whole or part, as a result of Section 280G of the Internal
Revenue Code of 1986, as hereafter amended (the "Code"), by Tosco, the Total
Severance Payments or Total Payments shall not be reduced. In the event
Executive is subject to an excise tax or penalty tax as a result of the receipt
of Total Severance Payments or Total Payments ("Excise Tax"), Tosco shall pay an
additional amount to Executive such that the net amount realized by Executive
after payment of any Excise Tax shall be equal to the amount Executive would
have realized, after tax, in the absence of such Excise Tax.
5. The Executive shall not be required to mitigate the amount of any
payment provided for in Section 3 by seeking other employment or otherwise, nor
shall the amount of any payment or benefit provided for in Section 3 be reduced
by any compensation earned by the Executive as the result of the employment by
another employer, by retirement benefits, by offset against any amount claimed
to be owed by Executive to Tosco or otherwise.
6. This Agreement shall commence on the date hereof and shall continue
in effect for one (1) year from the date hereof; provided, however, that
commencing on the anniversary of this Agreement and each anniversary thereafter,
this Agreement shall automatically be extended for one additional year, unless
not later than six months prior to any anniversary, Tosco shall have give notice
to the Executive that it does not wish to extend this Agreement.
7. The terms of this Agreement shall supersede and replace any
employment or severance agreement which the Executive may have with Tosco or any
subsidiary and upon execution of this Agreement any such other employment
agreement shall be terminated and of no further force or effect. Nothing in this
Agreement shall be construed to be a commitment or guarantee of future
employment with Tosco.
8. (i) Tosco will require any successor
(whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or
substantially all of the business and/or assets
of Tosco to expressly assume and agree to
perform this Agreement in the same manner and
to the same extent that Tosco would be
required to perform it if no such succession
had taken place. Failure of Tosco to obtain
such assumption and agreement prior to the
effectiveness of any such succession shall be
a breach of this Agreement and shall entitle
the Executive to compensation from Tosco in
the same amount and on the amount same terms
to which the Executive would be entitled
hereunder if the Executive terminates his
employment for Good Reason upon a Change of
Control.
(ii) This Agreement shall inure to the benefit of
and be enforceable by Executive's personal or legal
representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Executive should
die while any amount would still be payable to him hereunder
if he had continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to the Executive's devisee,
legatee or other designee or, if there is no such designee, to
his estate.
9. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when personally delivered or when mailed by
United States certified or registered mail, return receipt requested, postage
prepaid, addressed to the respective addresses set forth below, or to such other
address as either party may have furnished to the other in writing in accordance
herewith, except that notice of change of address shall be effective only upon
receipt:
To the Corporation: Tosco Corporation
72 Cummings Point Road
Stamford, CT 06902
To the Executive: Thomas D. O'Malley
Horse Island
Mead Point
Greenwhich, CT 06830
10. No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in writing
and signed by the Executive and such officer as may be specifically designated
by the Board. No waiver by either party hereto at any time of any breach by the
other party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. The validity, interpretation, construction and performance of
this Agreement shall be governed by the laws of the State of California without
regard to its conflicts of law principles. All references to sections of the
code shall be deemed also to refer to any successor provisions to such sections.
Any payments provided for hereunder shall be paid net of any applicable
withholding required under federal, state or local law. The obligations of Tosco
under Section 3 shall survive the expiration of the term of this Agreement.
11. Subject to the last sentence of this Section 11, after the date
hereof the Executive shall not become a member of the board of directors of or
perform a similar function with any other entity without the prior approval of
the Tosco Committee on Audit, Ethics, and Conflicts of Interest, which approval
shall not be unreasonably withheld. In the event that such approval is given,
the Executive confirms that the performance of his duties and obligations as an
employee of Tosco shall not be interfered with by his obligations to such other
board of directors or entity. In no case shall the Executive assume any position
with any entity which shall violate the Conflicts of Interest policy of Tosco (a
copy of which has been received) or cause the Executive to divulge any
confidential information relating to Tosco or any affiliated entity. Approval of
the Committee on Audit, Ethics, and Conflicts of Interest shall not be required
for the Executive to become a member of the board of directors of, or perform a
similar function with, family, non- profit, civic, or charitable entities.
12. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
13. This Agreement may be executed in several counterparts, each of
which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
14. This Agreement sets forth the entire agreement of the parties
hereto in respect of the subject matter contained herein and supersedes all
prior agreements, promises, covenants, arrangements, communications,
representations or warranties, whether oral or written, by any officers,
employee or representative of any party hereof; and any prior agreement of the
parties hereto in respect of the subject matter contained herein is hereby
terminated and canceled.
15. Any controversy or claim arising out of or relating to this
Agreement, the interpretation thereof, or the breach therefor, shall be
submitted to arbitration and such arbitration shall comply with and be governed
by the provisions of the California Arbitration Act, Sections 12280 through
1294.2 of the California Code of Civil Procedure.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the day and year first above written.
TOSCO CORPORATION
By: .................... ........................
.......................
Thomas D. O'Malley
Executive
<PAGE>
SCHEDULE OF SIMILAR AGREEMENTS
Jefferson F. Allen
Wilkes McClave
Exhibit 10(h)
TOSCO CORPORATION
1996 LONG TERM INCENTIVE PLAN
1. PURPOSE
The purpose of this Tosco Corporation 1996 Long Term Incentive Plan
(the "Plan") is to further the long-term profitable growth of Tosco by offering
a long-term incentive in addition to current compensation to eligible employees
who will be largely responsible for such growth, to the benefit of the Tosco
shareholders. This Plan will replace the granting of Incentive Awards under the
Corporation's 1992 Stock Incentive Plan to Participants in this Plan during any
Performance Period applicable to them. It is expected that this Plan will
encourage such employees to remain with Tosco and will also encourage qualified
persons to seek and accept employment with Tosco.
2. DEFINITIONS
Terms not otherwise defined herein shall have the following meanings:
(a) "Tosco" or the "Corporation" means Tosco Corporation, its
divisions and subsidiaries.
(b) "Board" means the Board of directors of Tosco Corporation.
(c) "Change in Control" shall be deemed to occur (1) upon the approval
of the shareholders of Tosco (or if such approval is not required, upon the
approval of the Board) of (A) any consolidation or merger of Tosco in which
Tosco is not the continuing or surviving corporation or pursuant to which shares
of Common Stock would be converted into cash, securities or other property,
other than a merger in which the holders of Common Stock immediately prior to
the merger will have the same proportional ownership of Common Stock of the
surviving corporation immediately after the merger, (B) any sale, lease,
exchange, or other transfer (in one transaction or a series of related
transactions) of all or substantially all the assets of Tosco or (C) adoption of
any plan or proposal for the liquidation or dissolution of Tosco (2) when any
"person" (as defined in Section 3(a)(9) or 13(d) of the Exchange Act), shall
become the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of more than 20% of the combined voting power of the
Corporation's then outstanding securities without the unanimous approval of the
Board, or (3) if at any time during a period of two consecutive years,
individuals who at the beginning of such period constituted the Board shall
cease for any reason to constitute at least a majority thereof, unless the
election or the nomination for election by Tosco's shareholders of each new
director during such two-year period was approved by a vote of at least
three-quarters of the directors then still in office who were directors at the
beginning of such two-year period.
(d) "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
(e) "Committee" means the Compensation Committee of the Board of
Directors, which shall consist of at least three members, which members shall
serve at the pleasure of the Board. Each member of the Committee (a) shall not
be eligible to participate in the Plan, (b) shall be a "non-employee director"
as defined in Rule 16b-3 under the Exchange Act, and (c) from and after the 1996
Annual Meeting, shall be an "outside director" as defined in the regulations
under Section 162(m) of the Code.
(f) "Common Stock" means the common stock, $0.75 par value, of Tosco
Corporation.
(g) "Employee" means an employee selected for participation in the
Plan as set forth in Section 5.
(h) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(i) "Fair Market Value" means the average of the high and low prices
of Common Stock as quoted on the Composite Tape on the date as of which fair
market value is to be determined or, if a weekend or holiday, the next preceding
business day.
(j) "Participant" means any Employee who receives a Performance Unit
Award under the Plan for a Performance Period.
(k) "Performance Goals" mean performance goals as may be established
in writing by the Committee and shall be based on the stock price of Common
Stock. Such goals may be absolute in their terms or measured against or in
relationship to a baseline Common Stock price.
(l) "Performance Period" means the period of time designated by the
Committee applicable to a Performance Unit Award during which the Performance
Goals shall be measured and shall not be longer than five (5) years.
(m) "Performance Unit Award" means an award made pursuant to the
provisions of this Plan, the payment of which is contingent upon attainment of
Performance Goals.
3. ADJUSTMENTS IN THE EVENT OF CHANGES IN CAPITALIZATION.
(a) Adjustments in Certain Events. In the event of any change in the
outstanding Common Stock by reason of any stock split, share dividend, or
exchange or reclassification of shares, split-up, split-off, spin-off,
liquidation or other similar change in capitalization, or any distribution to
common stockholders other than cash dividends, the Common Stock price and the
number of units awards previously used for Plan purposes shall be computed so as
to be on a basis equitable (to both Participants and the Corporation) and
equivalent to that before the occurrence of such event.
4. ADMINISTRATION
The Committee shall have the authority, consistent with the Plan, to
determine the provisions of the performance units to be granted, to interpret
the Plan and the performance units granted under the Plan, to adopt, amend and
rescind rules and regulations for the administration of the Plan and the
performance units, and generally to conduct and administer the Plan and to make
all determinations in connection therewith which may be necessary or advisable,
and all such actions of the Committee shall be binding upon all Participants. No
amendment shall be made without the Participant's consent which would impair the
rights of a Participant under any Performance Unit Award theretofore granted.
5. ELIGIBILITY
Performance Unit Awards may be made only to regular, salaried
employees of Tosco (but not members of the Committee or any person who serves
only as a Director) as selected by the Committee. Any Employee may receive one
or more Performance Unit Awards as the Committee shall from time to time
determine, and such determinations may be different as to different Employees
and may vary as to different awards. Nothing contained in this Plan shall be
construed to limit the right of Tosco to grant other forms of incentive
compensation otherwise than under this Plan. The Plan or the receipt of a
Performance Unit Award shall not confer on any individual any right to continue
in the employ of Tosco or interfere in any way with the right of Tosco to
terminate his or her employment at any time, with or without cause.
6. PERFORMANCE UNIT AWARDS
(a) PERFORMANCE PERIOD. The Performance Period applicable to a
Performance Unit Award shall be set forth in writing by the committee no later
than 90 days after the commencement of the Performance Period and shall be
communicated to each Participant.
(b) PERFORMANCE GOALS. The Performance Goals applicable to a
Performance Unit Award shall be set forth in writing by the Committee no later
than 90 days after the commencement of the Performance Period and shall be
communicated to each Participant. Performance Goals shall be measured as the
difference between a baseline Common Stock price (anticipated to be Fair Market
Value as of the beginning of a Performance Period) and the Common Stock price
above a target level achieved during each measurement period of a Performance
Period.
(c) In making a Performance Unit Award, the Committee may take into
account an Employee's responsibility level, performance, cash compensation
level, incentive compensation awards and such other considerations as it deems
appropriate. The total amount of all payments made to any Participant under this
Plan in any calendar year, except in the event of a Change of Control, as
provided in Section 8, or except with respect to the originally scheduled final
payment of any Performance Unit Award, shall not exceed 400% of such
Participant's total annual compensation (excluding any amount attributable to
this Plan) attributable to the calendar year in which an applicable Performance
Period commences and the total of all Performance Unit Awards granted for a
specific Performance Period shall not exceed one million five hundred thousand
units.
(d) When a Performance Goal is achieved during any measurement period,
a participant shall be deemed vested in an amount equal to the Performance Goal
achieved multiplied by the number of Performance Units in his or her Performance
Unit Award ("Deemed Vested Amount"). Payment with respect to a Performance Unit
Award will be made to Participants on the date or dates fixed by the Committee
at the time of grant of such Performance Unit Award.
(e) If a Participant voluntarily terminates his or her employment with
the Corporation or retires prior to age 65 (all other than for reason of
disability, death, illness, or injury) prior to the scheduled payment date for a
Performance Unit Award, all unpaid award amounts shall be forfeited. If a
Participant's employment with the Corporation terminates for disability,
illness, injury, or non-voluntary reason which would provide for payment under
any applicable severance agreement, or termination of employment by the
Corporation other than for cause, amounts deemed vested as of the date of
termination shall be paid in accordance with the payment schedule applicable to
such Performance Award, but no additional amounts will accrue as deemed vested
after the date of such termination. For purposes of the Plan, (a) a transfer of
an employee from the Corporation to a subsidiary shall not constitute
termination of employment and, (b) a leave of absence for compulsory military
service, illness, disability, injury, or for any purpose approved by the
Corporation, shall not constitute voluntary termination of employment. The
beneficiaries or estate of a Participant whose employment terminates because of
death will receive a payment equal to the Deemed Vested Amount within 30 days
following the death of the Participant.
(f) In order to be eligible to receive payment for a particular
Performance Unit Award, a Participant must be an Employee of Tosco for the
90-day period immediately following the date of grant of that particular
Performance Unit Award. This Section 6(f) shall not apply if termination of
employment is caused by death, disability, illness, or injury.
(g) A Participant (or his beneficiaries or estate) may be offered the
opportunity to defer the receipt of payment of a Performance Unit Award or any
part thereof. All payments shall be subject to withholding for applicable taxes.
7. NON TRANSFERABILITY AND NO SHAREHOLDER RIGHTS
The right to receive payment of a Performance Unit Award shall not be
assigned or transferred in whole or in part, either directly or by operation of
law or otherwise (except by will or the laws of descent and distribution)
including but not by way of limitation, execution, levy, garnishment,
attachment, pledge, bankruptcy or any other manner.
8. CHANGE IN CONTROL
Notwithstanding any limitation set forth in this Plan, at or just
prior to the occurrence of a Change in Control, in order to maintain a
Participant's rights under the Plan, payment of all unpaid Deemed Vested Amounts
shall be made in cash. The amount of cash to be paid to an Employee with respect
to the Performance Unit Award in such event shall be the higher of (i) the
aggregate of all unpaid Deemed Vested Amounts or (ii) the amount determined by
multiplying (x) the number of shares of Common Stock relating to such
Performance Unit Award, by (y) the difference between Fair Market Value on the
date of Change in control and the Initial Baseline, and (z) subtracting the sum
of Deemed Vested Amounts plus previously paid Deemed Vested Amounts. Further,
Tosco's obligation with respect to such Performance Unit Award shall be assumed,
or equivalent new obligations substituted therefor, by the acquiring or
surviving corporation after such Change in Control.
9. GOVERNING LAW
The provisions of this Plan shall be interpreted and construed in
accordance with the laws of the State of New York.
10. TERMINATION
Termination of the Plan shall not affect any awards made hereunder
which are outstanding on the date of termination and such awards made hereunder
continue to be subject to the terms of the Plan notwithstanding its termination.
If the Plan has been previously approved by the stockholders, the Corporation
may not, without subsequent approval by the shareholders, materially modify (i)
the performance measures in Paragraph 6 with respect to covered employees, (ii)
the requirements as to eligibility for participation in the Plan, or (iii)
otherwise materially increase the benefits accruing to the Employees under the
Plan.
<PAGE>
Exhibit 10(i)
TOSCO CORPORATION
SENIOR EXECUTIVE RETIREMENT PLAN OF 1990
AS AMENDED AND RESTATED AS OF MAY 15, 1996. APPLICABLE TO
PARTICIPANTS WHO ARE EMPLOYEES ON OR AFTER THAT DATE
<PAGE>
TOSCO CORPORATION
SENIOR EXECUTIVE RETIREMENT PLAN
TABLE OF CONTENTS
SECTION PAGE
PREAMBLE........................................................1
1 DEFINITIONS............................................2
2 ELIGIBILITY FOR BENEFITS...............................5
3 AMOUNT OF RETIREMENT BENEFIT...........................7
4 PAYMENT OF RETIREMENT BENEFITS.........................9
5 DEATH BENEFITS PAYABLE................................11
6 DISABILITY BENEFITS PAYABLE...........................12
7 MISCELLANEOUS.........................................14
<PAGE>
PREAMBLE
The principal objective of the Tosco Corporation Senior Executive Retirement
Plan of 1990 is to ensure the payment of a competitive level of benefits in
order to attract, retain, and motivate selected senior executives. The Plan is
designed to provide a benefit which will meet the objective described above.
Eligibility for participation in the Plan shall be limited to senior executives
selected by a Committee of the Board of Directors. This Plan will be effective
as of January 1, 1990.
<PAGE>
SECTION 1
DEFINITIONS
1.1 "Average Earnings" means the average (not to exceed $600,000, or such
higher amount as may be designated by the Committee) of the
Participant's Earnings during the highest three consecutive calendar
years; or one or two consecutive calendar years, if the Participant
has less than three consecutive calendar years in the averaging
period. The averaging period of this definition shall be full calendar
years subsequent to 1989. (Note: Commencing as of January 1, 1993, the
$600,000 limit set forth above is to be cumulatively escalated for
each of 1993, 1994, 1995, and 1996 by the annual urban CPI. The issue
of escalation was also reviewed by the Committee prior to the end of
1996. At that time the Committee extended the cumulative escalation to
include each of the years 1997, 1998, and 1999, with the matter to be
reviewed prior to the end of 1999.)
1.2 "Board of Directors" means the board of directors of Tosco
Corporation.
1.3 "Committee" means the compensation committee of the Board of Directors
of the Company, or any other committee which has been given authority
by the Board of Directors to administer this Plan.
1.4 "Company" means Tosco Corporation including its subsidiaries.
1.5 "Dependent Child" means any natural child, legally adopted child,
stepchild, foster child, or child under guardianship who resides in
the household of the Participant (prior to the death of the
Participant or except to attend school) and depends on the Participant
(prior to the death of Participant) for principal support and
maintenance.
1.6 "Earnings" means base compensation for a calendar year, plus incentive
compensation attributable to that calendar year even if paid during
the subsequent calendar year, plus deferred compensation that could
have been received in cash during the year earned.
1.7 "Participant" means a senior executive of the Company designated as a
Participant by the Committee. A senior executive shall become a
Participant in the Plan as of the date he is individually selected by,
and specifically named in the resolutions of, the Committee for
inclusion in the Plan. The initial Participants are set forth in
Exhibit A hereto.
1.8 "Plan" means the Tosco Corporation Senior Executive Retirement Plan of
1990, as amended.
1.9 "Retirement" means the termination of a Participant's employment with
the Company in accordance with one of the retirement dates specified
in Section 2.1.
1.10 "Service" means a Participant's credited years of service under the
Plan. Service shall include all full years and partial years of a
Participant's employment with the Company on or after January 1, 1990,
for all initial participants shall commence on that date, and does not
include the measurement period used in computation of amounts paid in
respect of a severance or employment contract with the Company.
1.11 "Surviving Spouse" means the individual who is married to the
Participant on the earlier of the Participant's Retirement or death.
Where appearing in the Plan, the masculine gender will be deemed to include the
feminine gender, and the singular may include the plural, unless the context
clearly indicates the contrary.
<PAGE>
SECTION 2
ELIGIBILITY FOR BENEFITS
2.1 Each Participant is eligible to retire and receive a benefit under
this Plan beginning on one of the following dates:
(a) "Normal Retirement Date," which is the first day of the month
following the month in which the Participant reaches age 65
and 3 years of Service.
(b) "Early Retirement Date," which is the first day of any month
following the month in which the Participant ceases employment
with the Company, having reached at least age 55 and 3 years
of Service.
(c) "Postponed Retirement Date," which is the first day of the
month following the Participant's Normal Retirement Date in
which the Participant terminates employment with the Company.
Prior approval of the Board of Directors is required for all
Service subsequent to a Participant's Normal Retirement Date.
(d) "Disability Retirement Date," which is the first day of the
month following the date the Participant's disability
commenced, as reasonably determined by the
Committee or as designated by a Social Security
Administration award, but not later than the Participant's
Normal Retirement Date.
(e) "Vested Retirement Date," which is the first day of any month
following the month in which the Participant's employment with
the Company terminates, provided he has 3 years of Service as
of the date of termination. Payment shall not commence prior
to the date set forth in Section 3.4.
<PAGE>
SECTION 3
AMOUNT OF RETIREMENT BENEFIT
3.1 The annual retirement benefit payable under the Plan at a Normal
Retirement Date shall equal the sum of 6% of Average Earnings times
years of Service less than or equal to five, plus 3% of Average
Earnings times years of Service greater than five. The maximum annual
benefit payable at Normal Retirement Date to any Participant shall be
equal to 60% of Average Earnings.
3.2 The annual benefit payable under the Plan at an Early Retirement Date
shall be equal to the benefit determined in Section 3.1 reduced by
1.0% for each year his benefit commencement precedes age 65. There is
no reduction applied if his age plus years of employment equal or
exceed 75.
3.3 The annual benefit payable at a Postponed Retirement Date shall be
equal to the benefit determined in accordance with Section 3.1 based
on Service and Average Earnings as of the Participant's actual
Retirement Date, provided the Board of Directors has given prior
approval to the Postponed Retirement.
3.4 The annual benefit payable under a Vested Retirement shall be equal to
the benefit determined in Section 3.1, and shall commence no earlier
than the first day of the month following the month in which he
reaches age 55. This benefit shall be reduced 1.0% for each year his
benefit commencement precedes age 65. There is no reduction applied if
his age plus years of employment equal or exceed 75 at the time of his
termination.
3.5 Any benefit payable under this Section 3 shall be offset by (i) any
amounts payable under the Tosco Pension Plan (a defined benefit plan)
and (ii) any amounts that are offsets to the benefit payable under
said Tosco Pension Plan. [Note: If a participant is granted years of
service in excess of his actual employment by Tosco for the purpose of
calculating his benefit under the Tosco Pension Plan, which in turn is
offset by amounts payable under a predecessor employer's pension plan,
his benefit under the SERP shall likewise be offset by the aggregate
of such other benefit payments.]
<PAGE>
SECTION 4
PAYMENT OF RETIREMENT BENEFITS
4.1 Benefits payable in accordance with Section 3 of the Plan will
normally commence on the Participant's date of Retirement except in
the case of Vested Retirement, when benefits will be payable the first
day of the month following the month in which he reaches age 55.
Benefits will normally be paid monthly on the first day of each month
in the form of a life annuity.
A Participant may elect to receive benefits at a specified date later
than the normal date described above. Further, a Participant may also
elect to receive his benefits as an actuarially equivalent lump sum
(or, with prior Committee approval, any other actuarially equivalent
form). In the computation of any such actuarially equivalent lump sum,
the discount rate to be used shall be the average yield on state and
local government bonds rated AAA, as published in the Federal Reserve
Statistical Release H 15 (519), or its equivalent, for the three (3)
month period prior to the payment date. To be effective for payment as
of retirement date, such optional payment commencement and/or payment
form election must be made prior to January 31, 1991 or at least 12
months before the Participant's termination; further, any change in
such election (including revocation of a prior election) must also be
made prior to January 31, 1991 or at least 12 months before the
Participant's termination, to be effective, PROVIDED HOWEVER, that
following retirement, a participant who had previously elected to
receive his benefit in the form of a stream of payments may elect to
receive his remaining benefit as an actuarially equivalent lump sum,
determined as set forth above, PROVIDED FURTHER, such lump sum
representing the remaining benefit shall be reduced by a penalty of
10%, unless a change of control has occurred or is expected to occur
shortly, in which case the penalty shall be reduced to 5%.
<PAGE>
SECTION 5
DEATH BENEFITS PAYABLE
5.1 If a Participant should die before Retirement, the Surviving Spouse
will receive a benefit equal to 50% of the amount of the Participant's
Average Earnings for the lifetime of the Surviving Spouse. Each
Dependent Child will receive $1,000 per month ($5,000 per month if
both the Participant and Surviving Spouse are deceased) until age 18
or, if a full-time student, age 23. If a Participant has more than
three children, a maximum of three times the above benefit shall be
divided among the children.
5.2 If a Participant should die after Retirement, the Surviving Spouse
will receive a benefit equal to 50% of the Participant's benefit for
the lifetime of the Surviving Spouse. Each Dependent Child will
receive $1,000 per month ($5,000 per month if both the Participant and
Surviving Spouse are deceased) until age 18 or, if a full-time
student, age 23. If a Participant has more than three children, a
maximum of three times the above benefit shall be divided among the
children.
5.3 A Surviving Spouse's benefits will be payable monthly, and will
commence on the first day of the month following the month in which
the Participant dies. The last payment will be on the first day of the
month in which the Surviving Spouse dies.
<PAGE>
SECTION 6
DISABILITY BENEFITS PAYABLE
6.1 In the event the Committee, or the Social Security Administration by
granting a disability award, reasonably determines that a Participant
has become totally disabled, the Participant shall be entitled to
retire on his Disability Retirement Date. A Participant who becomes
beset by a physical or mental condition rendering him substantially
unable to perform his duties shall be deemed totally disabled.
6.2 The annual disability benefit will be equal to 60% of the
Participant's Average Earnings.
6.3 The disability benefit determined in accordance with Section 6.2 will
be reduced by any benefit payable under the Company-sponsored
long-term disability plan, as well as any Social Security benefits
actually being awarded.
6.4 Disability benefits will be payable monthly and will commence on the
Participant's Disability Retirement Date. The last payment will be as
of the first of the month during which the disabled Participant either
recovers, or dies.
6.5 In the event a disabled Participant dies, a benefit equal to 50% of
the amount determined in Section 6.2 will be paid to the Surviving
Spouse.
6.6 The Committee may require, no more frequently than once in any
calendar year, that a disabled Participant submit medical evidence of
disability reasonably satisfactory to the Committee.
<PAGE>
SECTION 7
MISCELLANEOUS
7.1 The Committee may, in its sole discretion, terminate, suspend, or
amend this Plan at any time or from time to time, in whole or in part;
provided, however, no amendment, termination, or suspension of the
Plan may adversely affect a Participant's right or the right of a
Surviving Spouse or Dependent Child to any benefit as set forth in
this Plan as of the day prior to such amendment, termination, or
suspension of the Plan.
7.2 Nothing contained herein will confer upon any Participant the right to
be retained in the service of the Company, nor will it interfere with
the right of the Company to discharge or otherwise deal with
Participants without regard to the existence of this Plan.
7.3 This Plan shall be funded by a trust named the Tosco Corporation
Senior Executive Retirement Trust.
7.4 Each vested Participant, his spouse, and each Dependent Child until
age 18 or, if a full-time student, age 23, shall be entitled to
receive medical benefits generally commensurate with those presently
(1993) received during the Participant's employment. Said benefits
will be made available commencing with termination of Participant's
employment with the Company (and shall continue following retirement),
provided a monthly amount generally equivalent to the amount of the
medical payroll deduction presently (1993) applicable to Participant
during his employment by the Company is paid. Benefits so provided
shall not be less than those provided as of May 15, 1996.
7.5 To the maximum extent permitted by law, no benefit under this Plan
shall be assignable or subject in any manner to alienation, sale,
transfer, claims of creditors, pledge, attachment, or encumbrances of
any kind.
7.6 The Committee may adopt rules and regulations to assist it in the
administration of the Plan.
7.7 Each Participant shall receive a copy of this Plan and the Committee
will make available for inspection by any Participant a copy of the
rules and regulations used by the Committee in administering the Plan.
7.8 This Plan is established under and will be construed according to the
laws of the State of Connecticut.
<PAGE>
Exhibit 10(j)
TOSCO CORPORATION
SENIOR EXECUTIVE RETIREMENT PLAN OF 1990
AS AMENDED AND RESTATED SEPTEMBER 23, 1993. APPLICABLE TO
PARTICIPANTS WHO ARE EMPLOYEES ON OR AFTER THAT DATE
<PAGE>
TOSCO CORPORATION
SENIOR EXECUTIVE RETIREMENT PLAN
TABLE OF CONTENTS
SECTION PAGE
PREAMBLE........................................................3
1 DEFINITIONS................................................4
2 ELIGIBILITY FOR BENEFITS...................................6
3 AMOUNT OF RETIREMENT BENEFIT...............................8
4 PAYMENT OF RETIREMENT BENEFITS............................10
5 DEATH BENEFITS PAYABLE....................................12
6 DISABILITY BENEFITS PAYABLE...............................13
7 MISCELLANEOUS.............................................14
<PAGE>
PREAMBLE
The principal objective of the Tosco Corporation Senior Executive Retirement
Plan of 1990 is to ensure the payment of a competitive level of benefits in
order to attract, retain, and motivate selected senior executives. The Plan is
designed to provide a benefit which will meet the objective described above.
Eligibility for participation in the Plan shall be limited to senior executives
selected by a Committee of the Board of Directors. This Plan will be effective
as of January 1, 1990.
<PAGE>
SECTION 1
DEFINITIONS
1.1 "Average Earnings" means the average (not to exceed $600,000, or such
higher amount as may be designated by the Committee) of the
Participant's Earnings during the highest three consecutive calendar
years; or one or two consecutive calendar years, if the Participant
has less than three consecutive calendar years in the averaging
period. The averaging period of this definition shall be full calendar
years subsequent to 1989. (Note: Commencing as of January 1, 1993, the
$600,000 limit set forth above is to be cumulatively escalated for
each of 1993, 1994, 1995, and 1996 by the annual urban CPI. The issue
of escalation will be reviewed by the Committee prior to the end of
1996.)
1.2 "Board of Directors" means the board of directors of Tosco
Corporation.
1.3 "Committee" means the compensation committee of the Board of Directors
of the Company, or any other committee which has been given authority
by the Board of Directors to administer this Plan.
1.4 "Company" means Tosco Corporation including its subsidiaries.
1.5 "Dependent Child" means any natural child, legally adopted child,
stepchild, foster child, or child under guardianship who resides in
the household of the Participant (prior to the death of the
Participant or except to attend school) and depends on the Participant
(prior to the death of Participant) for principal support and
maintenance.
1.6 "Earnings" means base compensation for a calendar year, plus incentive
compensation attributable to that calendar year even if paid during
the subsequent calendar year, plus deferred compensation that could
have been received in cash during the year earned.
1.7 "Participant" means a senior executive of the Company designated as a
Participant by the Committee. A senior executive shall become a
Participant in the Plan as of the date he is individually selected by,
and specifically named in the resolutions of, the Committee for
inclusion in the Plan. The initial Participants are set forth in
Exhibit A hereto.
1.8 "Plan" means the Tosco Corporation Senior Executive Retirement Plan of
1990, as amended.
1.9 "Retirement" means the termination of a Participant's employment with
the Company in accordance with one of the retirement dates specified
in Section 2.1.
1.10 "Service" means a Participant's credited years of service under the
Plan. Service shall include all full years and partial years of a
Participant's employment with the Company on or after January 1, 1990,
for all initial participants shall commence on that date, and does not
include the measurement period used in computation of amounts paid in
respect of a severance or employment contract with the Company.
1.11 "Surviving Spouse" means the individual who is married to the
Participant on the earlier of the Participant's Retirement or death.
Where appearing in the Plan, the masculine gender will be deemed to
include the feminine gender, and the singular may include the plural,
unless the context clearly indicates the contrary.
<PAGE>
SECTION 2
ELIGIBILITY FOR BENEFITS
2.1 Each Participant is eligible to retire and receive a benefit under
this Plan beginning on one of the following dates:
(a) "Normal Retirement Date," which is the first day of
the month following the month in which the
Participant reaches age 65 and 3 years of Service.
(b) "Early Retirement Date," which is the first day of
any month following the month in which the
Participant ceases employment with the Company,
having reached at least age 55 and 3 years of
Service.
(c) "Postponed Retirement Date," which is the first day
of the month following the Participant's Normal
Retirement Date in which the Participant terminates
employment with the Company. Prior approval of the
Board of Directors is required for all Service
subsequent to a Participant's Normal Retirement Date.
(d) "Disability Retirement Date," which is the first day
of the month following the date the Participant's
total disability commenced, as reasonably determined
by the Committee or as designated by a Social
Security Administration award, but not later than the
Participant's Normal Retirement Date.
(e) "Vested Retirement Date," which is the first day of
any month following the month in which the
Participant's employment with the Company terminates,
provided he has 3 years of Service as of the date of
termination. Payment shall not commence prior to the
date set forth in Section 3.4.
<PAGE>
SECTION 3
AMOUNT OF RETIREMENT BENEFIT
3.1 The annual retirement benefit payable under the Plan at a Normal
Retirement Date shall equal the sum of 6% of Average Earnings times
years of Service less than or equal to five, plus 3% of Average
Earnings times years of Service greater than five. The maximum annual
benefit payable at Normal Retirement Date to any Participant shall be
equal to 60% of Average Earnings.
3.2 The annual benefit payable under the Plan at an Early Retirement Date
shall be equal to the benefit determined in Section 3.1 reduced by
1.0% for each year his benefit commencement precedes age 65. There is
no reduction applied if his age plus years of employment equal or
exceed 75.
3.3 The annual benefit payable at a Postponed Retirement Date shall be
equal to the benefit determined in accordance with Section 3.1 based
on Service and Average Earnings as of the Participant's actual
Retirement Date, provided the Board of Directors has given prior
approval to the Postponed Retirement.
3.4 The annual benefit payable under a Vested Retirement shall be equal to
the benefit determined in Section 3.1, and shall commence no earlier
than the first day of the month following the month in which he
reaches age 55. This benefit shall be reduced 1.0% for each year his
benefit commencement precedes age 65. There is no reduction applied if
his age plus years of employment equal or exceed 75 at the time of his
termination.
3.5 Any benefit payable under this Section 3 shall be offset by (i) any
amounts payable under the Tosco Pension Plan (a defined benefit plan)
and (ii) any amounts that are offsets to the benefit payable under
said Tosco Pension Plan. [Note: If a participant is granted years of
service in excess of his actual employment by Tosco for the purpose of
calculating his benefit under the Tosco Pension Plan, which in turn is
offset by amounts payable under a predecessor employer's pension plan,
his benefit under the SERP shall likewise be offset by the aggregate
of such other benefit payments.]
<PAGE>
SECTION 4
PAYMENT OF RETIREMENT BENEFITS
4.1 Benefits payable in accordance with Section 3 of the Plan will
normally commence on the Participant's date of Retirement except in
the case of Vested Retirement, when benefits will be payable the first
day of the month following the month in which he reaches age 55.
Benefits will normally be paid monthly on the first day of each month
in the form of a life annuity. A Participant may elect to receive
benefits at a specified date later than the normal date described
above. Further, a Participant may also elect to receive his benefits
as an actuarially equivalent lump sum (or, with prior Committee
approval, any other actuarially equivalent form). In the computation
of any such actuarially equivalent lump sum, the discount rate to be
used shall be the average yield on state and local government bonds
rated AAA, as published in the Federal Reserve Statistical Release H
15 (519), or its equivalent, for the three (3) month period prior to
the payment date. To be effective for payment as of retirement date,
such optional payment commencement and/or payment form election must
be made prior to January 31, 1991 or at least 12 months before the
Participant's termination; further, any change in such election
(including revocation of a prior election) must also be made prior to
January 31, 1991 or at least 12 months before the Participant's
termination, to be effective, PROVIDED HOWEVER, that following
retirement, a participant who had previously elected to receive his
benefit in the form of a stream of payments may elect to receive his
remaining benefit as an actuarially equivalent lump sum, determined as
set forth above, PROVIDED FURTHER, such lump sum representing the
remaining benefit shall be reduced by a penalty of 10%, unless a
change of control has occurred or is expected to occur shortly, in
which case the penalty shall be reduced to 5%.
<PAGE>
SECTION 5
DEATH BENEFITS PAYABLE
5.1 If a Participant should die before Retirement, the Surviving Spouse
will receive a benefit equal to 50% of the amount of the Participant's
Average Earnings for the lifetime of the Surviving Spouse. Each
Dependent Child will receive $1,000 per month ($5,000 per month if
both the Participant and Surviving Spouse are deceased) until age 18
or, if a full time student, age 23. If a Participant has more than
three children, a maximum of three times the above benefit shall be
divided among the children.
5.2 If a Participant should die after Retirement, the Surviving Spouse
will receive a benefit equal to 50% of the Participant's benefit for
the lifetime of the Surviving Spouse. Each Dependent Child will
receive $1,000 per month ($5,000 per month if both the Participant and
Surviving Spouse are deceased) until age 18 or, if a full-time
student, age 23. If a Participant has more than three children, a
maximum of three times the above benefit shall be divided among the
children.
5.3 A Surviving Spouse's benefits will be payable monthly, and will
commence on the first day of the month following the month in which
the Participant dies. The last payment will be on the first day of the
month in which the Surviving Spouse dies.
<PAGE>
SECTION 6
DISABILITY BENEFITS PAYABLE
6.1 In the event the Committee, or the Social Security Administration by
granting a disability award, reasonably determines that a Participant
has become totally disabled, the Participant shall be entitled to
retire on his Disability Retirement Date.
6.2 The annual disability benefit will be equal to 60% of the
Participant's Average Earnings.
6.3 The disability benefit determined in accordance with Section 6.2 will
be reduced by any benefit payable under the Company-sponsored
long-term disability plan, as well as any Social Security benefits
actually being awarded.
6.4 Disability benefits will be payable monthly and will commence on the
Participant's Disability Retirement Date. The last payment will be as
of the first of the month during which the disabled Participant either
recovers, or dies.
6.5 In the event a disabled Participant dies, a benefit equal to 50% of
the amount determined in Section 6.2 will be paid to the Surviving
Spouse.
6.6 The Committee may require, no more frequently than once in any
calendar year, that a disabled Participant submit medical evidence of
disability reasonably satisfactory to the Committee.
<PAGE>
SECTION 7
MISCELLANEOUS
7.1 The Committee may, in its sole discretion, terminate, suspend, or
amend this Plan at any time or from time to time, in whole or in part;
provided, however, no amendment, termination, or suspension of the
Plan may adversely affect a Participant's right or the right of a
Surviving Spouse or Dependent Child to any benefit as set forth in
this Plan as of the day prior to such amendment, termination, or
suspension of the Plan.
7.2 Nothing contained herein will confer upon any Participant the right to
be retained in the service of the Company, nor will it interfere with
the right of the Company to discharge or otherwise deal with
Participants without regard to the existence of this Plan.
7.3 This Plan shall be funded by a trust named the Tosco Corporation
Senior Executive Retirement Trust.
7.4 Each vested Participant, his spouse, and each Dependent Child until
age 18 or, if a full-time student, age 23, shall be entitled to
receive medical benefits generally commensurate with those presently
(1993) received during the Participant's employment. Said benefits
will be made available commencing with termination of Participant's
employment with the Company, provided the recipients of such medical
benefits shall pay a monthly amount generally equivalent to the amount
of the payroll deduction presently (1993) applicable to Participant
during his employment by the Company.
7.5 To the maximum extent permitted by law, no benefit under this Plan
shall be assignable or subject in any manner to alienation, sale,
transfer, claims of creditors, pledge, attachment, or encumbrances of
any kind.
7.6 The Committee may adopt rules and regulations to assist it in the
administration of the Plan.
7.7 Each Participant shall receive a copy of this Plan and the Committee
will make available for inspection by any Participant a copy of the
rules and regulations used by the Committee in administering the Plan.
7.8 This Plan is established under and will be construed according to the
laws of the State of Connecticut.
Exhibit 21
SUBSIDIARIES OF TOSCO CORPORATION
AZL Resources, Inc.
Arizona-Florida Land & Cattle Company
AZCO Properties, Inc.
AZL Engineering, Inc.
Breckenridge Nordic Village Corporation
C. S. Land, Inc.
Davis Point Pipeline Company
Diablo Service Corporation
Emerald Shipping Corporation
Golden Valley Pipeline Company
International Energy Insurance Limited
Marcus Hook Refining Company
O. S. Land Services, Inc.
Pacific Northwest Energy Company
Royal Triton Company
Seminole Fertilizer Corporation
Ridgewood Chemical Corporation
Soundview Fitness Center, Inc.
Spirit Enterprises, Inc.
T Northwest Properties I, Inc.
T Northwest Properties II, Inc.
The Circle K Corporation
Circle K Stores Inc.
CKC, Inc.
Charter Marketing (Connecticut)
Circle K Money Orders Corp.
Circle K International, Inc. (US)
Circle K Franchise Corporation
CKST Corporation
Circle K Arizona Limited Partners, Inc.
The Oil Shale Corporation
Tosco (C-TI), Inc.
Tosco (C-TLP), Inc.
Tosco (U.K.) Ltd.
Tosco Capital Corp.
Tosco Europe Limited
Tosco Funding Corporation
Tosco Marketing, Inc.
Tosco Northwest, Inc. (formerly Western Hemisphere
Corporation)
Avon Marine Corp.
Riverhead Marine Corp.
Tosco Northwest Properties III, Inc.
Tosco Power, Inc.
Tosco Processing & Marketing, Inc.
Bayway Refining Company
Tosco Pipeline Company
Tosco Refining Company, Inc.
Tosco Terminal Company
Tosco Trading, Transportation and Supply, Inc.
Toscopetro Corporation
TPC Pipe Line Company
Unocal 76 Mexico
Unocal Expresslube, Inc. As of 12/31/97
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statements of Tosco Corporation on Forms S-3 (File No. 333-20153 and File No.
333-23303) and Forms S-8 (File No. 333-41771, File No. 333-43357, File No.
33-51243, and File No. 33-39303) of our report dated February 26, 1998, on our
audits of the consolidated financial statements and financial statement schedule
of Tosco Corporation and subsidiaries as of December 31, 1997 and 1996, and for
the years ended December 31, 1997, 1996, and 1995, which report is included in
this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Phoenix, Arizona
March 26, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 34,482
<SECURITIES> 43,687
<RECEIVABLES> 334,141
<ALLOWANCES> 19,018
<INVENTORY> 1,253,692
<CURRENT-ASSETS> 1,812,262
<PP&E> 3,858,918
<DEPRECIATION> 687,963
<TOTAL-ASSETS> 5,974,852
<CURRENT-LIABILITIES> 1,552,775
<BONDS> 350,000
300,000
0
<COMMON> 133,507
<OTHER-SE> 1,810,548
<TOTAL-LIABILITY-AND-EQUITY> 5,974,852
<SALES> 13,281,620
<TOTAL-REVENUES> 13,281,620
<CGS> 12,401,178
<TOTAL-COSTS> 12,401,178
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 139,742
<INCOME-PRETAX> 380,796
<INCOME-TAX> 158,030
<INCOME-CONTINUING> 222,766
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 212,675
<EPS-PRIMARY> 1.43
<EPS-DILUTED> 1.37
</TABLE>
<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> .50
<EPS-DILUTED> .49
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 52,704
<SECURITIES> 37,822
<RECEIVABLES> 302,646
<ALLOWANCES> 13,220
<INVENTORY> 1,140,994
<CURRENT-ASSETS> 1,624,442
<PP&E> 3,668,640
<DEPRECIATION> 531,380
<TOTAL-ASSETS> 5,633,316
<CURRENT-LIABILITIES> 1,613,028
<BONDS> 350,000
300,000
0
<COMMON> 114,434
<OTHER-SE> 1,347,332
<TOTAL-LIABILITY-AND-EQUITY> 5,633,316
<SALES> 2,410,273
<TOTAL-REVENUES> 2,410,273
<CGS> 2,324,485
<TOTAL-COSTS> 2,324,485
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,143
<INCOME-PRETAX> 10,505
<INCOME-TAX> 4,420
<INCOME-CONTINUING> 6,085
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,563
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 94,418
<SECURITIES> 35,238
<RECEIVABLES> 198,928
<ALLOWANCES> 9,274
<INVENTORY> 639,760
<CURRENT-ASSETS> 1,042,495
<PP&E> 2,178,544
<DEPRECIATION> 496,677
<TOTAL-ASSETS> 3,554,825
<CURRENT-LIABILITIES> 1,032,506
<BONDS> 826,832
300,000
0
<COMMON> 103,865
<OTHER-SE> 966,458
<TOTAL-LIABILITY-AND-EQUITY> 3,554,825
<SALES> 9,922,611
<TOTAL-REVENUES> 9,922,611
<CGS> 9,371,218
<TOTAL-COSTS> 9,371,218
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 91,061
<INCOME-PRETAX> 247,849
<INCOME-TAX> 101,099
<INCOME-CONTINUING> 146,750
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 146,286
<EPS-PRIMARY> 1.19
<EPS-DILUTED> 1.16
</TABLE>
<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> .97
<EPS-DILUTED> .95
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 44,178
<SECURITIES> 33,416
<RECEIVABLES> 213,620
<ALLOWANCES> 8,487
<INVENTORY> 672,487
<CURRENT-ASSETS> 1,035,230
<PP&E> 2,105,671
<DEPRECIATION> 422,547
<TOTAL-ASSETS> 3,539,218
<CURRENT-LIABILITIES> 888,622
<BONDS> 450,000
0
0
<COMMON> 34,626
<OTHER-SE> 963,667
<TOTAL-LIABILITY-AND-EQUITY> 3,539,218
<SALES> 4,450,763
<TOTAL-REVENUES> 4,450,763
<CGS> 4,202,907
<TOTAL-COSTS> 4,202,907
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 37,587
<INCOME-PRETAX> 123,519
<INCOME-TAX> 49,915
<INCOME-CONTINUING> 73,604
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 73,604
<EPS-PRIMARY> .64
<EPS-DILUTED> .63
</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> .22
<EPS-DILUTED> .21
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 19,148
<SECURITIES> 29,125
<RECEIVABLES> 305,291
<ALLOWANCES> 8,523
<INVENTORY> 489,479
<CURRENT-ASSETS> 881,441
<PP&E> 1,341,159
<DEPRECIATION> 379,741
<TOTAL-ASSETS> 2,003,171
<CURRENT-LIABILITIES> 670,291
<BONDS> 450,000
0
0
<COMMON> 29,714
<OTHER-SE> 597,396
<TOTAL-LIABILITY-AND-EQUITY> 2,003,171
<SALES> 7,284,051
<TOTAL-REVENUES> 7,284,051
<CGS> 6,999,301
<TOTAL-COSTS> 6,999,301
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 59,815
<INCOME-PRETAX> 127,439
<INCOME-TAX> 50,381
<INCOME-CONTINUING> 77,058
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 77,058
<EPS-PRIMARY> .69
<EPS-DILUTED> .69
</TABLE>
