FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from________________to______________
COMMISSION FILE NUMBER 1-7910
TOSCO CORPORATION
(Exact name of registrant as specified in its charter)
NEVADA 95-1865716
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
72 CUMMINGS POINT ROAD
STAMFORD, CONNECTICUT 06902
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 977-1000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes [ ] No
Registrant's Common Stock outstanding at July 31, 1998 was 156,362,669 shares.
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TOSCO CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL AND OTHER INFORMATION
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
PAGE(S)
PART I FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of June 30, 1998 and
December 31, 1997 2
Consolidated Statements of Income for the three and six
month periods ended June 30, 1998 and 1997 3
Consolidated Statements of Cash Flows for the six month
periods ended June 30, 1998 and 1997 4
Notes to Consolidated Financial Statements 5 - 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7 - 11
PART II OTHER INFORMATION
Item 4. Submission of Matters to Vote of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K: 13
Exhibit 11 - Computation of Earnings per Share for the
three and six month periods ended June 30, 1998 and 1997 14
Exhibit 12 - Ratio of Earnings to Fixed Charges for the
three and six month periods ended June 30, 1998 and 1997 15
Signatures 16
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<CAPTION>
TOSCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Thousands of Dollars, Except Par Value)
June 30, December 31,
1998 1997
---------- ------------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 38,961 $ 34,482
Marketable securities and deposits 53,426 43,687
Trade accounts receivable, less allowance for
uncollectibles of $19,049 (1998) and $19,018 (1997) 264,183 315,123
Inventories 1,308,956 1,253,692
Prepaid expenses and other current assets 86,501 107,632
Deferred income taxes 57,646 57,646
----------- ------------
Total current assets 1,809,673 1,812,262
Property, plant, and equipment, net 3,258,098 3,170,955
Deferred turnarounds, net 121,887 123,330
Intangible assets (primarily tradenames), less
accumulated amortization of $45,717 (1998)
and $34,546 (1997) 688,333 699,559
Other deferred charges and assets 154,616 168,746
------------ -------------
$6,032,607 $5,974,852
============ =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable, accrued expenses, and other liabilities $1,411,272 $1,540,867
Current maturities of long-term debt 2,557 11,908
------------ -------------
Total current liabilities 1,413,829 1,552,775
Revolving credit facility 309,000 166,000
Long-term debt 1,359,773 1,415,257
Accrued environmental costs 257,593 252,964
Deferred income taxes 137,288 140,435
Other liabilities 187,498 203,366
------------- ------------
Total liabilities 3,664,981 3,730,797
------------- ------------
Company-obligated, mandatorily redeemable, convertible
preferred securities of Tosco
Financing Trust, holding solely 5.75% convertible
junior subordinated debentures of
Tosco Corporation (Trust Preferred Securities) 300,000 300,000
------------- -------------
Shareholders' equity:
Common stock, $.75 par value, 250,000,000 shares
authorized, 177,800,107 (1998) and
177,706,038 (1997) shares issued 133,579 133,507
Additional paid-in capital 2,029,709 2,028,985
Retained earnings 377,420 254,351
Treasury stock, at cost (473,082) (472,788)
------------- -------------
Total shareholders' equity 2,067,626 1,944,055
------------- -------------
$6,032,607 $5,974,852
============= =============
The accompanying notes are an integral part of these financial statements.
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<CAPTION>
TOSCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Thousands of Dollars, Except Per Share Data)
Three Months Ended June 30, Six Months Ended June 30,
1998 1997 1998 1997
------------ ---------- ----------- -----------
<S> <C> <C> <C> <C>
Sales $ 3,168,389 $ 3,196,431 $ 6,215,444 $ 5,606,704
Cost of sales 2,882,523 2,948,053 5,743,378 5,272,538
Selling, general, and administrative expenses 77,624 85,019 152,471 136,928
Interest expense 33,472 45,801 70,922 69,944
Interest income (1,002) (1,372) (2,422) (2,141)
-------------- ------------- -------------- --------------
Income before income taxes and distributions on Trust
Preferred Securities 175,772 118,930 251,095 129,435
Income taxes 72,945 49,295 104,204 53,715
-------------- ------------- -------------- --------------
Income before distributions on Trust Preferred Securities 102,827 69,635 146,891 75,720
Distributions on Trust Preferred Securities, net of income tax
benefit of $1,789 (three month periods) and $3,579 (six
month periods) 2,523 2,523 5,046 5,046
-------------- ------------- -------------- --------------
Net income $100,304 $67,112 $141,845 $70,674
============== ============= ============== ==============
Basic earnings per share $0.64 $0.44 $0.91 $0.50
============== ============= ============== ==============
Diluted earnings per share $0.61 $0.42 $0.86 $0.49
============== ============= ============== ==============
Dividends per share $0.06 $0.06 $0.06 $0.06
============== ============= ============== ==============
Weighted average common and common equivalent shares
used for computation of basic earnings per share 156,348,509 152,491,892 156,337,022 141,833,861
Assumed conversion of dilutive stock options 4,402,193 4,393,690 4,482,601 4,323,624
Assumed conversion of Trust Preferred Securities 9,113,940 9,113,940 9,113,940 9,113,940
-------------- ------------- -------------- --------------
Weighted average common and common equivalent shares
used for computation of diluted earnings per share 169,864,642 165,999,522 169,933,563 155,271,425
============== ============= ============== ==============
The accompanying notes are an integral part of these financial statements.
</TABLE>
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<CAPTION>
TOSCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Thousands of Dollars)
Six Months Ended June 30,
1998 1997
------------ ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $141,845 $70,674
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 157,689 137,481
Changes in operating assets and liabilities, net (131,175) (116,881)
Other, net 5,963 (2,141)
------------- ------------
Net cash provided by operating activities 174,322 89,133
------------- ------------
Cash flows from investing activities:
Net change in marketable securities and deposits (9,739) 2,905
Purchase of property, plant, and equipment, net (184,719) (183,896)
Net increase in deferred turnarounds, deferred charges, and other assets (32,308) (110,690)
Acquisition of 76 Products assets - (1,138,464)
Other, net 9,262 -
------------- ------------
Net cash used in investing activities (217,504) (1,430,145)
------------- ------------
Cash flows from financing activities:
Net borrowings under revolving credit facility 143,000 515,000
Proceeds from note and debenture offering - 600,000
Payments under long-term debt agreements (12,724) (106,898)
Early payoff of real estate installment purchase note (64,622) -
Proceeds from common stock offering, net - 697,395
Repurchase of Unocal Shares - (393,708)
Dividends paid on common stock (18,776) (17,178)
Other, net 783 (7,537)
------------- ------------
Net cash provided by financing activities 47,661 1,287,074
------------- ------------
Net increase (decrease) in cash and cash equivalents 4,479 (53,938)
Cash and cash equivalents at beginning of period 34,482 94,418
------------- ------------
Cash and cash equivalents at end of period $ 38,961 $40,480
============= ============
The accompanying notes are an integral part of these financial statements.
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TOSCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1997
(ALL INFORMATION IS UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements of Tosco Corporation and subsidiaries
("Tosco" or the "Company") reflect all adjustments, consisting of normal
recurring accruals, which are, in the opinion of management, necessary for a
fair presentation of the Company's consolidated financial position, results of
operations, and cash flows. Such financial statements are presented in
accordance with the disclosure requirements for Form 10-Q. These unaudited,
interim, consolidated financial statements should be read in conjunction with
the Company's audited Consolidated Financial Statements and notes thereto
included in the Company's 1997 Annual Report on Form 10-K.
2. ACCOUNTING CHANGES
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 130 "Reporting Comprehensive Income" ("SFAS No. 130") and
Statement of Position No. 98-1 "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" ("SOP No. 98-1"). SFAS No. 130
establishes standards for reporting and display of comprehensive income and its
components (net income plus all other non-owner changes in equity). SOP No 98-1
provides guidance on accounting for the costs of computer software developed or
obtained for internal use. The adoption of these accounting pronouncements did
not have a material impact on the Company's financial statements for the three
and six month periods ended June 30, 1998.
3. INVENTORIES
JUNE 30, DECEMBER 31,
(THOUSANDS OF DOLLARS) 1998 1997
------------- -------------
Refineries (LIFO):
Raw materials $ 468,463 $ 468,515
Intermediates 268,594 181,414
Finished products 411,913 440,525
Retail (FIFO):
Merchandise 123,486 121,082
Gasoline and diesel 35,171 39,901
Other 1,329 2,255
------------- --------------
$ 1,308,956 $ 1,253,692
============= ==============
Inventories accounted for under the LIFO method at June 30, 1998 and December
31, 1997, are reduced by a $53,000,000 non-cash inventory valuation reserve
recorded in 1997. At June 30, 1998, the fair value of Tosco's LIFO inventories
was less than their carrying value. The price decline is believed to be
temporary.
4. REVOLVING CREDIT FACILITY
JUNE 30, DECEMBER 31,
(THOUSANDS OF DOLLARS) 1998 1997
------------- ------------
Cash borrowings outstanding $ 309,000 $ 166,000
Letters of credit 30,240 57,241
------------- ------------
Total utilization 339,240 223,241
Availability 660,760 776,759
------------- ------------
$ 1,000,000 $ 1,000,000
============= ==============
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5. LONG-TERM DEBT
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 for $64,622,000, including the settlement of
contingent payments.
6. CAPITAL STOCK
During May 1998, the Company's stockholders approved the adoption of the 1998
Stock Incentive Plan (the "1988 Plan"). The 1998 Plan provides for the grant of
a maximum of 1,500,000 shares of Tosco Common Stock 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 as
determined by the Compensation Committee of the Board of Directors but in no
event after ten years from the date of grant. The exercise price of nonqualified
stock options is determined by the Compensation Committee and may be less than
the fair value of Common Stock on the date of grant. Awards under the 1998 Plan
may be granted until March 18, 2008.
7. SUPPLEMENTAL CASH FLOW INFORMATION
SIX MONTHS ENDED JUNE 30,
(THOUSANDS OF DOLLARS) 1998 1997
------------- ---------
Cash paid during the period for:
Interest, net of amounts capitalized $ 71,111 $ 49,590
Income taxes, net of refunds received 27,559 43,997
8. NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board issued SFAS No. 131 "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS No. 131") during June
1997, SFAS No. 132 "Employers' Disclosures about Pensions and Other
Postretirement Benefits" ("SFAS No. 132") during February 1998, and SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133")
during June, 1998. SFAS No. 131 establishes disclosure standards regarding
information about operating segments. SFAS No. 132 changes the disclosure
requirements for pension and other postretirement benefits, but does not change
any existing measurement or recognition provisions. SFAS No. 133 establishes
accounting and reporting standards for derivative instruments and for hedging
activities. The Company will comply with the expanded disclosure requirements of
SFAS No. 131 and SFAS No. 132 with its 1998 annual financial statements. The
Company plans to adopt SFAS No. 133 on January 1, 2000. Adoption of SFAS No. 133
is not expected to have a material impact on the Company's results of operations
or financial position.
9. SUBSEQUENT EVENT
During July 1998, the Company extended its long-term operating leases for the BP
Northern California and Exxon Arizona service stations. The modified leases
continue to be accounted for as operating leases and extend through July 2001
with renewal options through July 2003. Minimum annual rental expense varies
with a commercial paper rate.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
INTRODUCTION
Management's Discussion and Analysis of Financial Condition and Results of
Operations for the three and six month periods ended June 30, 1998 should be
read in conjunction with Management's Discussion and Analysis included in the
Company's 1997 Annual Report on Form 10-K. The Annual Report sets forth Selected
Financial Data that, in summary form, reviewed Tosco's results of operations and
capitalization over the five year period 1993 through 1997. This Management's
Discussion and Analysis updates that data.
Tosco completed its acquisition of Union Oil Company of California's ("Unocal")
West Coast petroleum refining, marketing, and related supply and transportation
assets on March 31, 1997 (the "76 Products Acquisition"). The assets are
comprised of two petroleum refining systems, a retail gasoline system consisting
of 76-branded gasoline service stations, a distribution system comprised of
company-owned oil storage terminals, crude oil and product pipelines, the
world-wide rights to the "76" and "Union" brands, and a lubricants business.
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<CAPTION>
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
(THOUSANDS OF DOLLARS) 1998 1997 1998 1997
------------- ------------- ------------- ---------
<S> <C> <C> <C> <C>
Sales $ 3,168,389 $ 3,196,431 $ 6,215,444 $ 5,606,704
Cost of sales 2,882,523 2,948,053 5,743,378 5,272,538
Selling, general, and administrative expenses 77,624 85,019 152,471 136,928
Interest expense, net 32,470 44,429 68,500 67,803
------------- ------------- ------------- -------------
Income before income taxes and distributions on
Trust Preferred Securities 175,772 118,930 251,095 129,435
Income taxes 72,945 49,295 104,204 53,715
------------- ------------- ------------- -------------
Income before distributions on Trust Preferred Securities 102,827 69,635 146,891 75,720
Distributions on Trust Preferred Securities, net of
income tax benefit 2,523 2,523 5046 5,046
------------- ------------- ------------- -------------
Net income $ 100,304 $ 67,112 $ 141,845 $ 70,674
============= ============= ============= =============
Earnings per share (a) $ 0.61 $ 0.42 $ 0.86 $ 0.49
============= ============= ============= =============
(a) Earnings per share throughout Management's Discussion and Analysis of Financial Condition and Results of
Operations are expressed on a diluted basis.
REFINING DATA SUMMARY (A)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1998 1997 1998 1997
------------- ------------- ------------- ---------
Average charge barrels input per day (b):
Crude oil 879,900 761,600 868,900 573,400
Other feed and blending stocks 109,800 94,600 100,500 71,500
----------- ----------- ----------- --------
989,700 856,200 969,400 644,900
============= ============= ============= =============
Average production barrels produced per day (b):
Clean products (c) 822,000 692,300 803,600 516,900
Other finished products 159,000 150,800 162,800 121,000
------------- ------------- ------------- -------------
981,000 843,100 966,400 637,900
============= ============= ============= =============
Operating margin per charge barrel (d) $ 5.30 $ 4.62 $ 4.86 $ 4.75
========= ========== ========= =============
(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 (acquired on March 31, 1997)
- San Francisco Area Refinery System, comprised of the Rodeo-Santa
Maria complex (acquired on March 31, 1997) and the
Avon Refinery
- Trainer Refinery, located near Philadelphia (opened on 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, divided by total refinery charge
barrels. Operating contribution for 1997 includes insurance recoveries
related to the unscheduled shutdowns of the Bayway Refinery cat cracker and
the Avon Refinery hydrocracker.
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<CAPTION>
RETAIL DATA SUMMARY (A)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1998 1997 1998 1997
------------- ------------- ------------- ---------
<S> <C> <C> <C> <C>
Volume of fuel sold (thousands of gallons) 1,136,128 1,181,479 2,204,766 1,807,424
Blended fuel margin (cents per gallon) (b) 9.9 14.7 10.5 12.5
Number of gasoline stations at period end 4,529 4,708 4,529 4,708
Merchandise sales (thousands of dollars) $ 541,391 $ 520,963 $ 1,017,248 $ 983,559
Merchandise margin (percentage of sales) 29.3% 29.3% 29.2% 29.5%
Number of merchandise stores at period end 2,337 2,522 2,337 2,522
Other retail gross profit (thousands of dollars) $ 28,303 $ 33,540 $ 57,710 $ 53,174
(a) The Retail Data Summary includes the operations of 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>
1998 SECOND QUARTER COMPARED TO 1997 SECOND QUARTER
Tosco earned net income of $100.3 million ($0.61 per share) on sales of $3.2
billion during the second quarter of 1998, compared to earnings of $67.1 million
($0.42 per share) on sales of $3.2 billion in the corresponding period of 1997.
The sales decrease of approximately $28.0 million was primarily due to lower
product prices partially offset by increased refinery production levels,
principally as a result of the Trainer Refinery opening on May 8, 1997.
Tosco generated an operating contribution (sales less cost of sales) of $285.9
million for the second quarter of 1998 compared to $248.4 million in the
corresponding period in 1997. The improvement of $37.5 million was attributable
to refining (improvement of $105.8 million) and retail (reduction of $68.3
million) operations.
Refining operating contribution was $204.3 million for the 1998 second quarter
compared to $98.4 million in the 1997 second quarter. This increase was
primarily due to higher production volumes and higher West Coast operating
margins per charge barrel. Production volumes were higher in 1998 due to the
opening of the Trainer Refinery (on May 8, 1997) and scheduled and unscheduled
shutdowns of certain units at the refineries during 1997. Improved West Coast
margins resulted from a strong overall demand for gasoline.
Retail operating contribution was $81.6 million for the quarter ended March 31,
1998 compared to $149.9 million in the comparable period in 1997. The 1998
decline was primarily attributable to lower blended fuel margins due to highly
competitive conditions.
Selling, general, and administrative expenses for the quarter ended June 30,
1998 decreased by $7.4 million compared to the corresponding period in 1997
primarily because of the absence of transition costs incurred in 1997 related to
the 76 Products Acquisition.
Net interest expense for the quarter ended June 30, 1998 decreased by $12.0
million compared to the 1997 period. This decrease was primarily due to lower
borrowings under Tosco's revolving credit facility.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
Tosco earned net income of $141.8 million ($0.86 per share) on sales of $6.2
billion during the six months ended June 30, 1998, compared to earnings of $70.7
million ($0.49 per share) on sales of $5.6 billion in the corresponding period
of 1997. The increase in sales is attributable to higher refinery production and
retail fuel volumes resulting from the 76 Products Acquisition (on March 31,
1997) and the opening of the Trainer Refinery (on May 8, 1997), which more than
offset a reduction in refinery product and retail fuel prices.
Tosco generated an operating contribution of $472.1 million for the six month
period ended June 30, 1998 compared to $334.2 million in the corresponding
period in 1997. The improvement of $137.9 million was attributable to refining
(improvement of $169.3 million) and retail (reduction of $31.4 million)
operations.
Refining operating contribution was $317.1 million for the six month period
ended June 30, 1998 compared to $147.8 million in the 1997 first six months. The
increase of $169.3 million was primarily due to higher production volumes and
higher West Coast operating margin per charge barrel. Production volumes were
higher in 1998 due to the 76 Products Acquisition, the opening of the Trainer
Refinery (on May 8, 1997), and scheduled and unscheduled shutdowns of certain
refinery units during 1997. Refining operating contribution for the six month
period ended June 30, 1997 includes insurance recovery accruals related to the
unscheduled shutdowns of the Bayway Refinery cat cracker and the Avon Refinery
hydrocracker.
Retail operating contribution was $155.0 million for the six month period ended
June 30, 1998 compared to $186.4 million in the comparable period in 1997. The
1998 decrease was due to lower blended fuel margins in the 1998 second quarter
partially offset by higher fuel volumes from the 76 Products Acquisition.
Selling, general, and administrative expenses for the first six months of 1998
increased by $15.5 million compared to the corresponding period in 1997
primarily due to the 76 Products Acquisition on March 31, 1997 and higher
incentive compensation costs.
OUTLOOK
Results of operations are primarily determined by the operating efficiency of
the refineries, and by refining and retail fuel margins. Normal levels of
maintenance, including certain turnaround activity, are scheduled for the
remainder of 1998 and Tosco expects, given reasonable margins, to operate its
refineries at high levels during the remainder of 1998. Refining margins at the
beginning of the 1998 third quarter initially improved over the second quarter
due to stronger demand for gasoline. More recently, refining margins have
declined as large amounts of product have entered the markets. Retail fuel
margins generally work in reverse of refining margins but competitive markets in
California and Arizona may weaken this historical trend. Tosco is not able to
predict the level of refinery and retail fuel operating margins for the balance
of 1998 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 without compromising safety,
reliability, or environmental compliance.
Tosco's policy is to defer the recognition of non-cash writedowns of inventories
due to price declines at interim reporting dates, unless the decline is not
expected to be restored by year-end. At June 30, 1998, the fair value of Tosco's
LIFO inventories was approximately $150 million less than their carrying value.
This writedown was not recorded because the price decline is believed to be
temporary. Tosco estimates that a future $1.00 per barrel change in raw material
and finished product prices will have an aproximate $50 million impact on the
net realizable value of inventories. However, because raw material and finished
product prices do not move in unison, the net realizable value will vary
depending on actual price changes and the mix and level of inventories. The
expectation of price recoveries by year-end will be reevaluated at September 30,
1998.
<PAGE>
CASH FLOWS
As summarized in the Consolidated Statement of Cash Flows, cash and cash
equivalents increased by $4.5 million during the six month period ended June 30,
1998 as cash provided by operating activities of $174.3 and financing activities
of $47.7 million exceeded cash used in investing activities of $217.5 million.
Net cash provided by operating activities of $174.3 million was from cash
earnings (net income plus depreciation and amortization) of $299.5 million and
$6.0 million from other uses, net of an increase in net operating assets and
liabilities of $131.2 million.
Net cash used in investing activities totaled $217.5 million, due to capital
additions ($184.7 million), spending for turnarounds, deferred charges, and
other assets ($32.3 million), and other items ($0.5 million).
Net cash provided by financing activities totaled $47.7 million, as net
borrowings under the revolving credit facility of $143.0 million and other items
of $0.8 million exceeded scheduled and early principal payments on long-term
debt of $77.3 million and dividend payments of $18.8 million.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, liquidity (cash and cash equivalents, marketable securities
and deposits, and availability under the revolving credit facility) totaled
$753.1 million, a $101.8 million decrease from the December 31, 1997 balance of
$854.9 million. Cash and cash equivalents increased by $4.5 million, marketable
securities and deposits increased by $9.7 million, and availability under the
revolving credit facility decreased by $116.0 million.
At June 30, 1998, total shareholders' equity was $2.1 billion, a $123.6 million
increase from the December 31, 1997 balance. This increase was due to net income
of $141.8 million and other items of $0.6 million, less Common Stock dividends
of $18.8 million. Debt (short-term bank borrowings, current and non-current
maturities of long-term debt, and revolving credit facility) increased by $78.2
million during the six month period ended June 30, 1998 to $1.7 billion due to
cash borrowings under the revolving credit facility, net of early and scheduled
principal payments under long-term debt agreements.
The ratio of long-term debt (revolving credit facility and non-current portion
of long-term debt) to total capitalization (revolving credit facility,
non-current portion of long-term debt, Trust Preferred Securities, and total
shareholders' equity) was 41%, consistent with the ratio 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. At June 30, 1998, Tosco had available for issue $779
million of securities pursuant to this shelf registration statement.
Tosco's Board of Directors previously approved the repurchase of up to $300
million of Tosco Common Stock. Purchases, if any, will be made from time to time
in the open market or otherwise at prevailing prices which Tosco considers
opportune and as permitted by applicable securities laws.
The Revolving Credit Facilities, as well as funds potentially available from the
issuance of securities, provide Tosco with adequate resources to meet its
expected liquidity demands for at least the next twelve months.
CAPITAL EXPENDITURES
Tosco spent $184.7 million on budgeted capital projects during the first six
months of 1998, primarily at its retail sites (enhancing existing sites and
upgrading underground storage tanks) and at the San Francisco Area Refinery
System. Refinery capital spending programs were primarily for the completion of
projects related to compliance with environmental regulations and permits,
personnel/process safety programs, and operating flexibility and reliability
projects. Tosco continues its efforts to rationalize its marketing system and
plans to shed selected marginal properties throughout the balance of 1998.
<PAGE>
IMPACT OF THE YEAR 2000 ISSUE
Historically, certain computer programs have had two digits rather than four
digits to define a given calendar year. Any computer programs that use two
digits to define the year may recognize a date using "00" as the year 1900
rather than 2000. This is generally referred to as the "Year 2000 Issue." The
Year 2000 Issue could result in business and field system failures or
miscalculations causing disruptions of operations.
Tosco recognizes the need to review its computer operations and operating
systems with respect to 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 business systems may be
affected by the Year 2000 Issue and is currently implementing plans to address
the known Year 2000 problems. These plans involve a combination of additional
software upgrades, replacements, and modifications. Tosco has completed an
assessment and is currently implementing plans related to the Year 2000 Issue on
its refinery field systems. The impact of the Year 2000 Issue on its marketing
and distribution field systems is currently being assessed. Additionally, Tosco
is currently communicating with and evaluating the systems of its customers,
suppliers, financial institutions, and others with which it does business to
identify any potential Year 2000 problems. Tosco does not believe its Year 2000
costs related to its business and field systems, and its customers and suppliers
will have a material adverse effect on Tosco's future operating results or
financial position. However, if Tosco or its significant customers and suppliers
are unable to make the necessary computer system changes on a timely basis, such
inability could negatively impact Tosco's results of operations.
NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board issued SFAS No. 131 "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS No. 131") during June
1997, SFAS No. 132 "Employers' Disclosures about Pensions and Other
Postretirement Benefits" ("SFAS No. 132") during February 1998, and SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133")
during June, 1998. SFAS No. 131 establishes disclosure standards regarding
information about operating segments. SFAS No. 132 changes the disclosure
requirements for pension and other postretirement benefits, but does not change
any existing measurement or recognition provisions. SFAS No. 133 establishes
accounting and reporting standards for derivative instruments and for hedging
activities. The Company will comply with the expanded disclosure requirements of
SFAS No. 131 and SFAS No. 132 with its 1998 annual financial statements. The
Company plans to adopt SFAS No. 133 on January 1, 2000. Adoption of SFAS No. 133
is not expected to have a material impact on the Company's results of operations
or financial position.
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>
PART II OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
On May 21, 1998, an Annual Meeting of Tosco Corporation Stockholders was held.
The table below briefly describes the proposals and the results of the
shareholder vote:
I. Election of Directors
WITHHOLD
VOTES FOR AUTHORITY
Jefferson F. Allen 132,421,965 190,052
Patrick M. de Barros 132,420,746 191,271
Wayne A. Budd 132,390,355 221,662
Houston I. Flournoy 132,368,263 243,754
Edmund A. Hajim 132,412,297 199,720
Joseph P. Ingrassia 132,398,967 213,050
Charles J. Luellen 132,417,949 194,068
Eija Malmivirta 132,380,634 231,383
Mark R. Mulvoy 132,385,028 226,989
Thomas D. O'Malley 132,420,106 191,911
II. Ratification of Independent Accountants
VOTES FOR VOTES AGAINST ABSTAIN
Ratification and approval of appointment
of Coopers & Lybrand L.L.P. as
independent accountants 132,437,166 60,314 114,537
III. Approval of a Stock Incentive Plan
VOTES FOR VOTES AGAINST ABSTAIN
Approval of the 1998 Stock Incentive
Plan of Tosco Corporation 107,983,469 24,127,368 501,180
IV. Stockholder Proposal - Pollution Policy
BROKER
VOTES FOR VOTES AGAINST ABSTAIN NON-VOTE
Adoption of policy requiring
each of Tosco's major
facilities to
conduct an annual review
of available pollution
prevention options and
provide a summary report
to shareholders 4,405,157 117,420,833 2,374,733 8,411,294
<PAGE>
PART II OTHER INFORMATION, CONTINUED
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits:
11 - Computation of Earnings Per Share (see page 14)
12 - Ratio of Earnings to Fixed Charges (see page 15)
27 - Financial Data Schedule (filed electronically only)
b. Reports on Form 8-K:
None.
EXHIBIT 11
<TABLE>
<CAPTION>
TOSCO CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(Unaudited)
(Thousands of Dollars, Except Per Share Data)
Three Months Ended June 30, Six Months Ended June 30,
1998 1997 1998 1997
----------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
Income before distributions on Trust Preferred Securities $102,827 $69,635 $146,891 $75,720
Distributions on Trust Preferred Securities, net of income
tax benefit 2,523 2,523 5,046 5,046
------------- ------------- ------------ -------------
Net income $100,304 $67,112 $141,845 $70,674
============= ============= ============ =============
BASIC EARNINGS PER SHARE
Earnings used for computation of basic earnings per share $100,304 $67,112 $141,845 $70,674
------------- ------------- ------------ --------------
Weighted average shares outstanding during the period 156,348,509 152,491,892 156,337,022 141,833,861
------------- ------------- ------------ --------------
Basic earnings per share $0.64 $0.44 $0.91 $0.50
============= ============= ============ =============
DILUTED EARNINGS PER SHARE
Earnings used for computation of diluted earnings per share $102,827 $69,635 $146,891 $75,720
------------- ------------- ------------ --------------
Weighted average shares outstanding during the period 156,348,509 152,491,892 156,337,022 141,833,861
Assumed conversion of dilutive stock options 4,402,193 4,393,690 4,482,601 4,323,624
Assumed conversion of Trust Preferred Securities 9,113,940 9,113,940 9,113,940 9,113,940
------------- ------------- ------------ --------------
Weighted average shares outstanding used for computation
of diluted earnings per share 169,864,642 165,999,522 169,933,563 155,271,425
------------- ------------- ------------ --------------
Diluted earnings per share $0.61 $0.42 $0.86 $0.49
============= ============= ============ =============
</TABLE>
EXHIBIT 12
<TABLE>
<CAPTION>
TOSCO CORPORATION AND SUBSIDIARIES
RATIO OF EARNINGS TO FIXED CHARGES
(Thousands of Dollars)
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
1998 1997 1998 1997
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Income before income taxes and distributions on Trust
Preferred Securities $175,772 $ 118,930 $ 251,095 $ 129,435
Fixed charges to be added to income before income taxes
and distributions on Trust Preferred Securities:
Interest expense, including amortization of financing costs 33,472 45,801 70,922 69,944
Interest factor of rental expense 15,199 12,919 29,928 20,094
------------ ------------- ------------ -----------
Earnings $224,443 $177,650 $351,945 $219,473
------------ ------------- ------------ -----------
Interest expense, including amortization of financing costs $33,472 $45,801 $70,922 $69,944
Interest capitalized 1,379 458 1,528 707
Interest factor of rental expense 15,199 12,919 29,928 20,094
Distributions on Trust Preferred Securities 4,312 4,312 8,625 8,625
------------ ------------- ------------ -----------
Fixed charges $54,362 $63,490 $111,003 $99,370
------------ ------------- ------------ -----------
Ratio of earnings to fixed charges 4.13 2.80 3.17 2.21
============ ============= ============ ===========
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TOSCO CORPORATION
(Registrant)
Date: August __, 1998 By: /S/ ROBERT I. SANTO
----------------------
(Robert I. Santo)
Vice President and
Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 38,961
<SECURITIES> 53,426
<RECEIVABLES> 283,232
<ALLOWANCES> 19,049
<INVENTORY> 1,308,956
<CURRENT-ASSETS> 1,809,673
<PP&E> 4,050,469
<DEPRECIATION> 792,371
<TOTAL-ASSETS> 6,032,607
<CURRENT-LIABILITIES> 1,413,829
<BONDS> 350,000
300,000
0
<COMMON> 133,579
<OTHER-SE> 1,934,047
<TOTAL-LIABILITY-AND-EQUITY> 6,032,607
<SALES> 6,215,444
<TOTAL-REVENUES> 6,215,444
<CGS> 5,743,378
<TOTAL-COSTS> 5,743,378
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 70,922
<INCOME-PRETAX> 251,095
<INCOME-TAX> 104,204
<INCOME-CONTINUING> 146,891
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 141,845
<EPS-PRIMARY> .91
<EPS-DILUTED> .86
</TABLE>
