Exhibit 99.1
TOSCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
WITH REPORT OF INDEPENDENT ACCOUNTANTS
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of Tosco Corporation:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, shareholders' equity and
cash flows present fairly, in all material respects, the financial
position of Tosco Corporation and its subsidiaries (the "Company")
at December 31, 2000 and 1999, and the results of their operations
and their cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of
America. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which 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, assessing the accounting principles used and significant
estimates made by management and evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Phoenix, Arizona
March 9, 2001
TOSCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Millions, Except Per Share Data)
Year Ended December 31,
---------------------------
2000 1999
---------- ----------
Sales $ 24,545.2 $ 14,362.1
Cost of sales (22,797.5) (13,103.3)
Depreciation and amortization (354.2) (308.4)
Special items:
Gain on disposition of Avon Refinery, net 20.0
Inventory recovery (writedown) 240.0
Restructuring recovery (charge) 2.1
Avon Refinery start-up costs (43.1)
Gain on sale of retail assets in non-core
markets 40.5
Selling, general, and administrative expenses (351.4) (305.2)
Interest expense (164.7) (123.8)
Interest income 9.6 5.0
---------- ----------
Income before income taxes and distributions
on Trust Preferred Securities 907.0 765.9
Income taxes (367.3) (314.0)
---------- ----------
Income before distributions on Trust
Preferred Securities 539.7 451.9
Distributions on Trust Preferred Securities,
net of income tax benefit of $7.0 (2000)
and $7.1 (1999) (10.3) (10.2)
---------- ----------
Net income $ 529.4 $ 441.7
========== ==========
BASIC EARNINGS PER SHARE
Earnings used for computation of basic
earnings per share $ 529.4 $ 441.7
Weighted average common shares outstanding 144.5 148.9
---------- ----------
Basic earnings per share $ 3.66 $ 2.97
========== ==========
DILUTED EARNINGS PER SHARE
Earnings used for computation of diluted
earnings per share $ 539.7 $ 451.9
---------- ----------
Weighted average common shares outstanding 144.5 148.9
Assumed conversion of dilutive stock options 1.8 1.9
Assumed conversion of Trust Preferred Securities 9.1 9.1
---------- ----------
Weighted average common and common equivalent
shares used for computation of diluted
earnings per share 155.4 159.9
---------- ----------
Diluted earnings per share $ 3.47 $ 2.83
========== ==========
The accompanying notes are an integral part of these financial statements.
1
TOSCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Millions, Except Par Value)
December 31,
---------------------------
2000 1999
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents $ 23.8 $ 28.3
Marketable securities and deposits 74.0 53.8
Trade accounts receivable, less allowance
for uncollectibles of $18.0 (2000) and
$17.9 (1999) 976.6 273.5
Inventories 1,902.7 1,173.4
Prepaid expenses and other current assets 109.4 115.5
---------- ----------
Total current assets 3,086.5 1,644.5
Property, plant, and equipment, net 4,994.8 3,675.2
Deferred turnarounds, net 154.9 176.7
Intangible assets (primarily tradenames),
less accumulated amortization of $74.7 (2000)
and $56.9 (1999) 596.6 582.3
Other deferred charges and assets 171.0 133.7
---------- ----------
$ 9,003.8 $ 6,212.4
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,023.4 $ 857.7
Accrued expenses and other current
liabilities 906.0 673.6
Current maturities of long-term debt 1.4 1.4
Deferred income taxes 97.6 74.4
---------- ----------
Total current liabilities 3,028.4 1,607.1
Revolving credit facility 116.0 106.0
Long-term debt 1,776.6 1,352.9
Accrued environmental costs 251.2 239.3
Deferred income taxes 417.7 283.6
Deferred revenue 278.8 38.7
Other liabilities 225.4 176.5
---------- ----------
Total liabilities 6,094.1 3,804.1
---------- ----------
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") 300.0 300.0
---------- ----------
Shareholders' equity:
Common stock, $.75 par value, 250.0
shares authorized, 177.8 shares issued 133.6 133.6
Additional paid-in capital 2,041.4 2,033.4
Retained earnings 1,212.7 725.2
Treasury stock, at cost (778.0) (783.9)
---------- ----------
Total shareholders' equity 2,609.7 2,108.3
---------- ----------
$ 9,003.8 $ 6,212.4
========== ==========
The accompanying notes are an integral part of these financial statements.
2
TOSCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Millions)
Year Ended December 31,
---------------------------
2000 1999
---------- ----------
Cash flows from operating activities:
Net income $ 529.4 $ 441.7
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization of property,
plant, and equipment 263.4 217.2
Amortization of deferred turnarounds,
intangible assets, and other deferred
charges 90.8 91.2
Provision for bad debts 10.1 9.3
Gain on disposition of Avon Refinery, net (20.0) -
Inventory (recovery) write-down - (240.0)
Restructuring (recovery) charge, net (3.8) (2.1)
Gain on sale of retail assets in non-core
markets - (40.5)
Deferred income taxes 157.3 155.3
Changes in operating assets and liabilities,
net of acquisitions and disposals:
Trade accounts receivable (717.5) (17.4)
Inventories (290.4) 150.5
Prepaid expenses and other current assets 20.3 (15.6)
Accounts payable, accrued expenses, and
other current liabilities 1,312.4 106.8
Deferred revenue 195.3 38.7
Accrued environmental costs and other
liabilities 21.6 (87.5)
Other, net 10.4 8.1
---------- ----------
Net cash provided by operating activities 1,579.3 815.7
---------- ----------
Cash flows from investing activities:
Net increase in marketable securities and
deposits (20.2) (4.2)
Purchase of property, plant, and equipment (654.2) (451.0)
Acquisition of ExxonMobil retail systems (367.9) -
Acquisition of retail systems, net of cash
acquired - (118.1)
Acquisition of Wood River Refinery (746.7) -
Acquisition of Alliance Refinery (908.2) -
Proceeds on sale of property, plant, and
equipment 32.7 156.2
Proceeds on sale of Avon Refinery 797.5 -
Deferred turnaround spending (81.1) (85.1)
Decrease (increase) in deferred charges and
other assets, net (21.5) 34.3
Other, net (0.3) (4.7)
---------- ----------
Net cash used in investing activities (1,969.9) (472.6)
---------- ----------
Cash flows from financing activities:
Net borrowings (repayments) under revolving
credit facilities 10.0 (90.0)
Issuance of 8.125% Notes 600.0 -
Issuance of Floating Rate Notes 300.0 -
Payments under long-term debt agreements (276.7) (6.0)
Retirement / defeasement of First Mortgage Bonds (211.3) -
Repurchase of common stock - (216.5)
Dividends paid on common stock (41.9) (40.0)
Other, net 6.0 6.4
---------- ----------
Net cash provided by (used in) financing
activities 386.1 (346.1)
---------- ----------
Net decrease in cash and cash equivalents (4.5) (3.0)
Cash and cash equivalents at beginning of year 28.3 31.3
---------- ----------
Cash and cash equivalents at end of year $ 23.8 $ 28.3
========== ==========
The accompanying notes are an integral part of these financial statements.
3
TOSCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In Millions)
Common Stock
---------------------- Additional Retained
Shares Amount Paid-in Earnings
Capital
---------- ---------- ---------- ----------
Balance, December 31, 1998 177.8 $ 133.6 $ 2,030.0 $ 323.5
Net income 441.7
Dividends - common stock (40.0)
Exercise of stock options (0.1)
Repurchase of common stock
(Note 12)
Other 3.5
---------- ---------- ---------- ----------
Balance, December 31, 1999 177.8 133.6 2,033.4 725.2
Net income 529.4
Dividends - common stock (41.9)
Exercise of stock options
Other 8.0
---------- ---------- ---------- ----------
Balance, December 31, 2000 177.8 $ 133.6 $ 2,041.4 $ 1,212.7
========== ========== ========== ==========
Treasury Stock
----------------------
Shares Amount Total
---------- ---------- ----------
Balance, December 31, 1998 25.7 $ (574.1) $ 1,913.0
Net income 441.7
Dividends - common stock (40.0)
Exercise of stock options (0.7) 6.7 6.6
Repurchase of common stock
(Note 12) 8.9 (216.5) (216.5)
Other 3.5
---------- ---------- ----------
Balance, December 31, 1999 33.9 (783.9) 2,108.3
Net income 529.4
Dividends - common stock (41.9)
Exercise of stock options (1.0) 5.9 5.9
Other 8.0
---------- ---------- ----------
Balance, December 31, 2000 32.9 $ (778.0) $ 2,609.7
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
4
TOSCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
1. Nature of Business
Tosco Corporation ("Tosco") is one of the nation's largest
independent refiners and marketers of petroleum products. Tosco is
also one of the largest operators 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 and affiliates
(collectively the "Company"). 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, 2000 and 1999, the Company had approximately
$17.5 million of director and officer liability insurance coverage
with a 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. Their cost approximates
fair value. Accordingly, unrealized gains and losses 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 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.
Computer software costs are deferred and amortized over their
useful lives, generally not to exceed five years. Certain enterprise-
wide information systems are amortized over periods of up to ten
years.
5
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)
The "76" and "Circle K" tradenames are amortized on a straight-
line basis over 40 years. Other tradenames and intangible assets are
amortized on a straight-line basis predominantly over 15 years.
Asset Impairments
The Company reviews long-lived assets for impairment whenever
events or changes in circumstances indicate that the book value of the
asset may not be recoverable. Any impairment charge recorded is
measured by the difference between the carrying value and the
estimated fair value of the assets. The Company estimates fair values
based on market prices for comparable assets or discounted future cash
flows.
Other Deferred Charges and Assets
Financing costs related to the acquisition or refinancing of debt
are deferred and amortized over the term of the related debt using the
effective interest method. Production costs of media advertising are
deferred until the advertising occurs. Advertising expense for 2000
and 1999 was $72.0 million and $51.3 million, respectively.
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.
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. Environmental liabilities are based on best
estimates of probable 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.
Advances
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 purchase levels.
Revenue Recognition
Revenue is recognized upon transfer of title to products sold,
based on the terms of delivery.
Excise Taxes
Excise taxes collected on behalf of governmental agencies are
excluded from sales, cost of sales, and other expenses. Excise taxes
totaled $3.557 billion and $2.628 billion for 2000 and 1999,
respectively.
6
Derivatives
In the normal course of business, the Company, to reduce its
exposure to fluctuations in the price of crude oil and other petroleum
products, is party to commodity-based derivative financial instruments
with off-balance sheet risk (Notes 18 and 23). Such contracts, which
are designated as hedges, are recorded using hedge accounting. Gains
and losses on these financial instruments are deferred until the
underlying physical transaction occurs. The gains and losses are then
recognized and reported as a component of the related transaction.
Any cash flow recognition resulting from holding these financial
instruments is treated in the same manner as the underlying physical
transaction.
Reclassification Entries
Certain reclassifications, primarily the separate disclosure of
deferred revenue, have been made to the 1999 financial statements to
conform to the presentation in the 2000 financial statements.
3. Acquisitions
Alliance Refinery
On September 8, 2000, the Company completed the acquisition of
the Alliance Refinery, located south of New Orleans from BP Amoco for
$658.0 million plus $248.9 million for inventories and transaction
costs (the "Alliance Acquisition"). The Alliance Refinery, one of the
newest in the United States, is a 250,000 barrels per day clean fuels
and petrochemical complex. The acquisition price was paid in cash
from a combination of the proceeds from the disposition of the Avon
Refinery, available cash, and borrowings under the Revolving Credit
Facilities (Note 8).
The Alliance Acquisition has been accounted for as a purchase for
book purposes and a like-kind exchange for tax purposes. Accordingly,
the acquisition price was allocated to the fair market values of the
assets and liabilities acquired based upon appraisals and other
studies as follows:
(Millions of Dollars)
Inventories $ 248.9
Prepaid expenses and other
current assets 8.7
Property, plant, and equipment 667.6
Current liabilities (3.0)
Noncurrent liabilities (14.0)
--------
$ 908.2
========
Wood River Refinery
On June 1, 2000, the Company purchased the Wood River Refinery,
located in Roxana, Illinois, from Equilon Enterprises LLC ("Equilon")
for $420.0 million plus $339.8 million for inventories and transaction
costs (the "Wood River Acquisition"). The Wood River Refinery has a
refining capacity of 295,000 barrels per day. As part of the Wood
River Acquisition, the Company entered into a product off-take
agreement with an affiliate of Equilon for a substantial portion of
Wood River's gasoline and diesel production. The initial term of this
agreement is fifteen years with mutual options to extend thereafter.
The purchase price was paid from a combination of available cash,
borrowings under the Revolving Credit Facilities (Note 8), and
proceeds from the issuance of long-term debt (Note 9).
The Wood River Acquisition has been accounted for as a purchase.
Accordingly, the purchase price was allocated to the fair market
values of assets and liabilities acquired based upon appraisals and
other studies as follows:
(Millions of Dollars)
Inventories $ 339.8
Prepaid expenses and other
current assets 9.1
Property, plant, and equipment 457.2
Intangible assets 8.6
Current liabilities (36.9)
Noncurrent liabilities (31.1)
--------
$ 746.7
========
7
Pro-forma information
Consolidated operating results include the operations of the Wood
River Refinery for the period commencing June 1, 2000 and the Alliance
Refinery for the period commencing September 8, 2000. Pro-forma
results of operations are not presented for the Alliance and Wood
River Acquisitions as these refineries were operated as part of larger
refinery, chemical, and pipeline systems and meaningful historical
information is not available for the refineries. In addition,
historical financial information even if available would not be
meaningful due to fundamental differences in regard to refinery
operations, personnel, marketing, management, and commercial
activities.
ExxonMobil Service Stations and Distribution Terminals
On February 29, 2000, the Company acquired approximately 1,740
retail gasoline and convenience outlets from Exxon Corporation and
Mobil Oil Corporation (collectively "ExxonMobil"). Tosco also
acquired certain undeveloped sites and distribution terminals that
ExxonMobil divested under a Federal Trade Commission consent decree
(collectively the "ExxonMobil Acquisition"). The acquired outlets
comprise the Exxon system from New York through Maine (the "Northeast
Territory") and the Mobil system from New Jersey through Virginia (the
"Middle Atlantic Territory"). The outlets include approximately 685
owned or leased sites and 1,055 open dealer and branded distributor
sites. Tosco has exclusive rights to the "Exxon" brand in the
Northeast Territory and the "Mobil" brand in the Middle Atlantic
Territory for ten years. The purchase price was paid in cash from a
combination of available cash, borrowings under the Revolving Credit
Facilities (Note 8), and proceeds from the issuance of long-term debt
(Note 9).
The ExxonMobil Acquisition has been accounted for as a purchase.
Accordingly, the purchase price was allocated to the fair market
values of the assets and liabilities acquired based upon appraisals
and other studies as follows:
(Millions of Dollars)
Inventories $ 4.2
Prepaid expenses and other
current assets 4.4
Property, plant, and equipment 327.7
Intangible assets 6.5
Other deferred charges and assets 27.1
Current liabilities (2.0)
--------
$ 367.9
========
In addition, certain retail gasoline and convenience outlets were
purchased directly from ExxonMobil for $600 million by a special
purpose entity, which leased the outlets to the Company pursuant to a
long-term operating lease (Note 17).
4. Accounts Receivable
The Company has agreements with financial institutions to sell on
a revolving basis up to $500.0 million of an undivided percentage
ownership interest in a designated pool of accounts receivable (the
"Receivable Transfer Agreement") and up to $100.0 million 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, 2000 and 1999, accounts receivable were
reduced by $600.0 million and $485.0 million, respectively, for
receivables sold under these programs. The costs associated with the
sale of receivables were $33.3 million and $21.2 million in 2000 and
1999, respectively.
8
5. Inventories
2000 1999
(Millions of Dollars) -------- --------
Refinery inventory (LIFO):
Raw materials $ 768.7 $ 419.7
Intermediates 307.9 231.9
Finished products 657.5 348.8
Retail inventory (FIFO):
Merchandise 114.8 125.3
Gasoline and diesel 53.8 47.3
Other - 0.4
-------- --------
$1,902.7 $1,173.4
======== ========
At December 31, 2000 and 1999, the excess of replacement cost
(FIFO) over the carrying value (LIFO) of refinery inventories was
$369.0 and $304.7 million, respectively. Cost of sales for 1999 was
reduced by $8.0 million due to the liquidation of LIFO inventories.
6. Property, Plant, and Equipment
Straight-Line
2000 1999 Annual Rate
(Millions of Dollars) -------- -------- -------------
Land $1,045.7 $ 910.6
Refineries and related assets 2,436.9 2,114.9 4% to 15%
Retail marketing and related
assets 1,341.9 954.2 5% to 20%
Furniture, fixtures, and
improvements 163.3 155.1 3% to 33%
Transportation equipment 171.4 138.5 4% to 33%
Natural gas properties 5.6 5.6
-------- --------
5,164.8 4,278.9
Less accumulated depreciation
and amortization (a) 829.6 1,061.7
-------- --------
4,335.2 3,217.2
Construction in progress 659.6 458.0
-------- --------
$4,994.8 $3,675.2
======== ========
(a) Includes accumulated amortization related to assets under
capital leases of $7.6 million and $6.8 million at
December 31, 2000 and 1999, respectively.
Effective January 1, 1999, the Company prospectively extended the
useful lives of its refinery and distribution assets. This change was
made to better represent the remaining useful lives of the assets, as
determined by a third party appraisal. This change in accounting
estimate increased net income in 1999 by $24.1 million ($14.2 million
after-tax and $0.09 per diluted share).
Expenditures for maintenance and repairs (excluding the
amortization of Turnarounds) during 2000 and 1999 were $298.4 million
and $271.9 million, respectively.
7. Accrued Expenses and Other Current Liabilities
2000 1999
(Millions of Dollars) -------- --------
Accrued taxes, other than
income taxes $ 284.1 $ 222.2
Accrued compensation and related
benefits 161.7 113.9
Restructuring accrual 1.1 16.7
Dividends payable 12.4 10.8
Other 446.7 310.0
-------- --------
$ 906.0 $ 673.6
======== ========
9
Activity related to the restructuring accrual is summarized
below:
December 31, Charges Utilization December 31,
1999 (Recoveries) and Spending 2000
(Millions of Dollars) ------------ ------------ ------------ ------------
San Francisco Area
Refinery exit costs (a) $ 16.7 $ (12.4)$ (4.3)$ -
Lubricant manufacturing
operations (b):
Impairment of assets 4.6 (4.6) -
Exit costs 1.3 (0.3) 1.0
Employee termination
costs 2.7 (2.6) 0.1
------------ ------------ ------------ ------------
$ 16.7 $ (3.8)$ (11.8)$ 1.1
============ ============ ============ ============
(a) Restructuring cost accruals totaling $12.4 million were
reversed to cost of sales in June 2000 based on a management
decision that certain restructuring activities would not occur as
originally contemplated.
(b) An $8.6 million charge to cost of sales related to the
restructuring of the lubricant manufacturing operations was
recorded in June 2000. The restructuring plan includes targeted
employee downsizing, streamlined changes in operations, and
redistribution of some product channels.
8. Revolving Credit Facility
The Company has a revolving credit agreement that provides a $1.0
billion uncollateralized revolving credit facility that is available
for working capital and general corporate purposes, including
acquisitions (the "Revolving Credit Facility"). Facility A (for
$500.0 million) matures on February 8, 2005 and Facility B (for $500.0
million) matures on February 7, 2001. At the Company's option and the
lenders' consent, Facility B may be renewed annually until February 7,
2005. At the Company's option, any outstanding balance under Facility
B can be converted into a two-year non-amortizing term note. 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
both the federal funds rate and the Eurodollar rate options. A
commitment fee on the unused portion of the facility is also due. The
incremental margin and commitment fee are dependent on the Company's
debt rating.
Utilization of the Revolving Credit Facility as of December 31,
2000 and 1999 was as follows:
2000 1999
(Millions of Dollars) -------- --------
Cash borrowings $ 116.0 $ 106.0
Letters of credit 180.6 63.3
-------- --------
Total utilization 296.6 169.3
Availability 703.4 730.7
-------- --------
$1,000.0 $ 900.0
======== ========
On January 25, 2001, the Company renewed Facility B to
February 5, 2002.
9. Long-Term Debt
2000 1999
(Millions of Dollars) -------- --------
Collateralized debt:
First Mortgage Bonds (a) $ - $ 200.0
Bayway Bonds (b) 150.0 150.0
Other 2.7 3.1
Uncollateralized debt:
7% Notes (c) - 125.0
7.625% Notes (d) 240.0 240.0
Notes and Debentures (e) 600.0 600.0
8.125% Notes (f) 600.0 -
Floating Rate Notes (g) 150.0 -
Capital leases (h) 35.3 36.2
-------- --------
1,778.0 1,354.3
Less current installments 1.4 1.4
-------- --------
$1,776.6 $1,352.9
======== ========
10
(a) 9.625% first mortgage bonds due March 15, 2002 (the "First
Mortgage Bonds") were collateralized by the Avon Refinery. On
August 31, 2000, Tosco completed the purchase of $162.4 million
of First Mortgage Bonds, plus accrued interest, pursuant to an
offer to purchase dated August 15, 2000. First Mortgage Bonds
not purchased of $37.6 million were defeased by the irrevocable
deposit of governmental securities with a trustee sufficient to
pay the principal at maturity, plus interest. The loss of $11.3
million on this purchase/defeasement was recorded as a reduction
of the gain on the disposition of the Avon Refinery (Note 15).
(b) In connection with the April 1993 acquisition of the Bayway
Refinery, the Company issued $150.0 million of 8.25% mortgage
bonds (the "Bayway Bonds") due May 15, 2003. The Bayway Bonds
are guaranteed by Bayway Refining Company ("Bayway"), a wholly
owned subsidiary of Tosco. Interest is 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.
(c) On July 17, 2000, the Company repaid the $125.0 million
principal balance on its 7% Notes Payable from borrowings under
the Revolving Credit Facility (Note 8).
(d) In May 1996, the Company issued $240.0 million 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.
(e) On January 14, 1997, the Company issued $200.0 million of
7.25% Notes due on January 1, 2007, $300.0 million of 7.8%
Debentures due on January 1, 2027, and $100.0 million of 7.9%
Debentures due on January 1, 2047 (collectively the "Notes and
Debentures"). The Notes and Debentures with interest payable
each January 1 and July 1, were issued in connection with the
purchase of assets from Union Oil Company of California
("Unocal"). The Notes and Debentures are non-redeemable and
uncollateralized.
(f) The Company issued, on February 15, 2000, $400.0 million of
8.125% Notes and on April 28, 2000, issued $200.0 million of
8.125% Notes, both due on February 15, 2030 (the "8.125% Notes").
Interest on the 8.125% Notes is payable each February 15 and
August 15, commencing on August 15, 2000. The proceeds from the
8.125% Notes were used to finance a portion of the ExxonMobil and
Wood River Acquisitions.
(g) On May 16, 2000, the Company issued $150.0 million of Series A
floating rate notes due November 16, 2001 (the "Series A
Notes") and $150.0 million of Series B floating rate notes due
May 16, 2001 (the "Series B Notes") (collectively the "Floating
Rate Notes"). Interest on the Floating Rate Notes is payable
quarterly on August 16, November 16, February 16, and May 16.
The net proceeds from the Floating Rate Notes were used to
finance a portion of the Wood River Acquisition. The Series A
Notes were redeemed on November 16, 2000. The Series B Notes are
not redeemable prior to maturity.
(h) Capital lease obligations are collateralized primarily by
retail marketing and related assets and mature at varying dates
through 2021. The carrying value of the assets under capital
lease arrangements approximates the capital lease obligation.
11
At December 31, 2000 future maturities relating to long-term debt
were as follows:
Capital
Debt Leases Total
(Millions of Dollars) -------- -------- --------
2001 (a) $ 150.8 $ 4.2 $ 155.0
2002 0.8 4.1 4.9
2003 150.8 4.1 154.9
2004 0.8 3.9 4.7
2005 - 3.8 3.8
Thereafter 1,439.5 54.3 1,493.8
-------- -------- --------
Total future maturities 1,742.7 74.4 1,817.1
Less imputed interest 39.1 39.1
-------- -------- --------
Present value of future maturities $1,742.7 $ 35.3 $1,778.0
======== ======== ========
(a) The Series B Notes are classified as noncurrent at December 31,
2000 as they are expected to be repaid in May 2001 from
borrowings under the Revolving Credit Facility. Current
maturities of long-term obligations, excluding imputed interest
on capital leases, are $1.4 million at December 31, 2000.
The debt agreements, including the Revolving Credit Facility
(Note 8), 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,
2000, the Company was in compliance with all debt covenants.
10. 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.
Under an agreement that settled outstanding litigation, the
predecessor owners of the Avon Refinery agreed to pay up to $18.0
million for one-half of the costs that may be incurred for compliance
with certain environmental orders and to provide the Company with a
$6.0 million credit for past expenses (which the Company uses to
reduce its one-half share of costs) (the "Settlement Agreement").
After the $36.0 million 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 environmental investigative and
remediation plans and expenditures. Through December 31, 2000, the
committee has spent $7.4 million on such matters. The obligations of
the Company and the predecessor owners were not affected by the
disposition of the Avon Refinery (Note 15).
Beginning with its acquisition of the Bayway Refinery in 1993 and
except for the Alliance Acquisition (Note 3), Tosco has negotiated as
part of its acquisitions, environmental indemnification for periods
prior to the respective acquisition dates from the former owners.
Some of the environmental indemnifications are subject to caps and
time limits.
As part of the Company's acquisition of Unocal's West Coast
petroleum refining, marketing, and related supply and transportation
assets in March 1997 (the "76 Products Acquisition"), Unocal retains
responsibility for all environmental liabilities at the acquired sites
arising out of or relating to the period prior to closing, except that
the Company will pay the first $7.0 million of such environmental
liabilities each year, plus 40% of any amount in excess of $7.0
million per year, with Unocal paying the remaining 60% each year. The
Company's aggregate maximum obligation for 25 years is $200.0 million.
During 2000 and 1999 environmental costs at the acquired sites were
incurred as follows:
2000 1999
(Millions of Dollars) -------- --------
Total costs incurred $ 16.5 $ 19.2
Less costs reimbursed by Unocal 5.7 8.9
-------- --------
Costs charged to the environmental
accrual $ 10.8 $ 10.3
======== ========
12
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.
11. Company-Obligated, Mandatorily Redeemable, Convertible Preferred
Securities
Tosco Financing Trust (the "Trust"), a Delaware business trust
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 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 $300.0 million.
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 Trust Preferred
Securities are convertible at the option of the holder into 1.51899
shares of Tosco common stock ("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. The redemption price decreases from 103.45% in 2000 to
100% of the liquidation preference in 2006 and thereafter.
On January 12, 2001, Tosco Financing Trust called for redemption
of all of the outstanding Trust Preferred Securities (Note 22).
12. Capital Stock
The Company is authorized to issue 12,000,000 shares of preferred
stock ("Preferred Stock") and 250,000,000 shares of Common Stock. No
shares of Preferred Stock are issued or outstanding.
In September 2000, Tosco filed a shelf registration statement
providing for the issuance of up to $3.0 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 August 5, 1999, the Company announced the completion of its
previously authorized Common Stock repurchase program. Pursuant to
this program, the Company repurchased 13,157,862 shares of Common
Stock for $317.6 million (8,899,862 shares in 1999 for $216.5 million
and 4,258,000 shares in 1998 for $101.1 million). On September 10,
1999, an additional $300,000,000 for the repurchase of Tosco Common
Stock was authorized. Through December 31, 2000, no shares had been
repurchased pursuant to this program.
Under the terms of a Shareholders' Rights Plan, adopted in 1998,
shareholders received rights to purchase shares of a new preferred
stock. The rights expire on December 6, 2008 and are exercisable if a
person or group acquires or commences a tender or exchange offer for
more than 15% of Common Stock, or if an adverse person (as defined by
Tosco's Board of Directors) acquires beneficial ownership of 10% or
more of Common Stock (Note 22).
A regular quarterly cash dividend on Common Stock has been paid
since the third quarter of 1989. Effective with the fourth quarter of
2000, the quarterly cash dividend was increased from $0.07 per share
to $0.08 per share.
13. Stock Option Plans
The Company has four stock option plans, the 2000 Stock Incentive
Plan (the "2000 Plan"), the 1998 Stock Incentive Plan (the "1998
Plan"), the 1992 Stock Incentive Plan (the "1992 Plan"), and the 1989
Stock Incentive Plan (the "1989 Plan"), that reserve Common Stock for
issuance to key employees, consultants, and non-employee directors.
The 2000 Plan, 1998 Plan, 1992 Plan, and 1989 Plan (collectively the
"Option Plans") provide for the grant of a maximum of 2.0 million, 1.5
million, 6.6 million, and 3.8 million 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) or
as nonqualified options. Options may be exercised as determined by
the
13
Compensation Committee of the Board of Directors (the
"Compensation Committee") but in no event after ten years from the
date of grant. The exercise price of stock options is determined by
the Compensation Committee. Awards under the 2000 Plan, 1998 Plan and
1992 Plan may be granted until March 16, 2010, March 18, 2009 and
March 13, 2002, respectively. Awards under the 1989 Plan may no
longer be granted. Subject to change of control provisions and
severance agreements with certain employees (Notes 19 and 22), options
may be exercised at any time after vesting, currently one to five
years.
Information regarding the Option Plans as of December 31, 2000
and 1999 is as follows:
2000 1999
------------------- -------------------
Shares Price (a) Shares Price (a)
(Millions of Shares) -------- --------- -------- ---------
Options outstanding, beginning
of year 7.5 $ 15.09 7.6 $ 13.93
Granted - 1992 Plan (b) 0.2 32.59
Granted - 1998 Plan (b) 0.5 28.92 0.7 23.72
Granted - 2000 Plan (b) 0.1 29.92
Exercised (1.0) 8.41 (0.7) 9.50
Expired or canceled (0.1) 29.47 (0.1) 29.93
-------- --------
Options outstanding, end of year 7.2 17.55 7.5 15.09
======== ========
Options exercisable, end of year 5.4 $ 14.05 6.0 $ 12.00
======== ========
Shares available for future grant 1.9 0.6
======== ========
(a) Weighted average price per share.
(b) All options granted had exercise prices equal to the average
market price of Common Stock on the grant date.
Additional information regarding the Option Plans as of December
31, 2000 is as follows:
Options Outstanding Options Exercisable
------------------------------ -------------------
Shares Price (a) Life (b) Shares Price (a)
(Millions of Shares -------- --------- --------- -------- ---------
Exercise price range:
$7.23 per share to
$10.00 per share 2.5 $ 8.65 23 months 2.5 $ 8.65
$10.01 per share to
$15.00 per share 1.5 11.31 53 months 1.5 11.31
$15.01 per share to
$33.94 per share 3.2 27.75 90 months 1.4 26.58
-------- --------
7.2 17.55 59 months 5.4 14.05
======== ========
(a) Weighted average price per share.
(b) Weighted average remaining contractual life.
The Company has adopted the disclosure-only provisions of
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS No. 123"). Had the Company elected
to adopt the recognition provisions of SFAS No. 123, net income and
earnings per share would have been reduced by $2.9 million ($0.02 per
share) and $3.4 million ($0.02 per share) for 2000 and 1999,
respectively.
The fair value of options granted was estimated using the Black-
Scholes option-pricing model with the following weighted-average
assumptions:
2000 1999
---------- ----------
Assumed risk-free interest rate 6.52% 5.25%
Expected life 6.3 years 5.9 years
Expected volatility 31.71% 30.99%
Assumed dividend yield 1.09% 1.12%
The Company adopted the Tosco Corporation 1996 Long-Term
Incentive Plan (the "LTIP") to replace the granting of incentive
awards under the Option Plans to participants in the LTIP. Under the
LTIP, the Compensation Committee grants performance units to
participants, the payment of which is contingent on the meeting of
performance goals and continued employment. Under certain
circumstances, payments in a calendar year may not exceed 400% of the
participant's total annual
14
compensation for the year of the award. The participants received
$14.0 million on January 4, 2001, $17.3 million during 2000, and
$30.5 million during 1999. In addition, the participants are scheduled
to receive $7.6 million on various dates through March 2004,
subject to acceleration under certain circumstances, based on
performance goals achieved to date. If a participant voluntarily
terminates employment or retires prior to age 65, unpaid amounts are
forfeited under certain circumstances. The Company accrues for such
amounts on a ratable basis over the required service period.
14. Employee Benefit, Savings, and Incentive Compensation Plans
Pension Plans
The Company has non-contributory, defined benefit pension plans
covering most of its employees located at its refinery and
distribution sites (the "Refinery Pension Plan") and retail store
employees (the "Marketing Pension Plan") meeting minimum service
periods (collectively, the "Pension Plans"). Benefits under the
Refinery Pension Plan 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).
Benefits under the Marketing Pension Plan are generally based upon a
percentage of the employee's covered earnings for each year of service
and interest credits on these amounts. Benefits are payable at the
normal retirement age of 65, or upon earlier termination of employment
after five years of service. 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 assets of the Pension Plans 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 change in benefit obligation, plan
assets, and funded status, using end of year actuarial assumptions,
consist of the following at December 31, 2000 and 1999:
2000 1999
-------- --------
(Millions of Dollars)
Benefit obligation at beginning of year $ 178.4 $ 164.2
Service cost (without load for expenses) 15.4 16.9
Interest cost 14.4 12.4
Actuarial (gain) loss 13.5 (10.8)
Benefits paid (4.7) (4.3)
Acquisition (a) 25.1 -
Curtailment gain (b) (14.2) -
-------- --------
Benefit obligation at end of year 227.9 178.4
-------- --------
Fair value of plan assets at
beginning of year 178.4 144.4
Actual return on plan assets (c) (6.2) 22.7
Employer contributions 16.2 15.9
Benefits paid (4.7) (4.3)
Administrative expenses (0.5) (0.3)
-------- --------
Fair value of plan assets at end of year 183.2 178.4
-------- --------
Funded status at end of year (44.7) -
Unrecognized transition obligation 0.3 0.6
Unrecognized loss (gain) (c) 6.1 (30.5)
Unrecognized prior service cost 6.1 6.9
-------- --------
Accrued benefit liability at end of year $ (32.2) $ (23.0)
======== ========
(a) The acquisition benefit obligation resulted from the Wood
River Acquisition (Note 3).
(b) The 2000 curtailment gain resulted from the disposition of
the Avon Refinery (Note 15).
(c) Only a portion of the investment loss (gain) on plan assets
is available to reduce the accrued benefit liability.
15
Net pension cost, using beginning of year actuarial assumptions,
for the years ended December 31, 2000 and 1999 consists of the
following:
2000 1999
(Millions of Dollars) -------- --------
Service cost $ 15.9 $ 17.3
Interest cost 14.4 12.4
Expected return on plan assets (15.6) (12.7)
Amortization of transition obligation 0.3 0.3
Recognized net actuarial gain (1.2) -
Amortization of prior service cost 0.7 0.7
-------- --------
$ 14.5 $ 18.0
======== ========
Major assumptions used to calculate pension obligations and
pension costs for the years ended December 31, 2000 and 1999 are as
follows:
2000 1999
-------- --------
Assumed discount rate 7.25% 7.75%
Assumed rate of future compensation
increase 5.00% 5.00%
Expected rate of return on plan assets 8.50% 8.50%
The Company has a Senior Executive Retirement Plan ("SERP") that
provides retirement benefits to selected senior executives. SERP
provisions of $1.7 million and $1.9 million are included in selling,
general, and administrative expenses in 2000 and 1999, respectively.
Employee and Retiree Benefit Plans
The Company provides health care and life insurance benefits for
its employees. The Company also provides postretirement health care
and life insurance benefits for certain employees (primarily employees
located at its refinery and distribution sites). Health care benefits
for eligible employees and retirees are provided through insurance
companies and health maintenance organizations 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.
16
The change in benefit obligation, plan assets, and funded status,
using end of year actuarial assumptions, consists of the following at
December 31, 2000 and 1999:
2000 1999
(Millions of Dollars) -------- --------
Benefit obligation at beginning of year $ 33.9 $ 33.8
Service cost 1.5 1.5
Interest cost 3.0 2.2
Amendment 5.3 1.5
Acquisitions (a) 12.4 -
Settlement (b) (2.9) -
Curtailment 0.3 -
Actuarial loss (gain) 3.8 (3.9)
Benefits paid (1.5) (1.2)
-------- --------
Benefit obligation at end of year 55.8 33.9
-------- --------
Fair value of plan assets at
beginning of year 4.5 4.8
Actual return on plan assets 0.1 0.1
Benefits paid (0.4) (0.4)
-------- --------
Fair value of plan assets at end of year 4.2 4.5
-------- --------
Funded status at end of year (51.6) (29.4)
Unrecognized transition obligation (b) - 11.2
Unrecognized net actuarial gain (0.5) (7.2)
Unrecognized prior service cost 11.8 7.4
-------- --------
Accrued benefit liability at end of year $ (40.3) $ (18.0)
======== ========
(a) The acquisition benefit obligation resulted from the Wood
River and Alliance Acquisitions (Note 3).
(b) The changes resulted from the disposition of the Avon
Refinery (Note 15).
Net postretirement benefit cost, using beginning of year
actuarial assumptions, for the years ended December 31, 2000 and 1999
consists of the following:
2000 1999
(Millions of Dollars) -------- --------
Service cost $ 1.5 $ 1.5
Interest cost 3.0 2.2
Expected return on plan assets (0.3) (0.3)
Amortization of transition
obligation over 20 years 0.6 0.9
Net amortization and deferral 0.1 (0.2)
-------- --------
$ 4.9 $ 4.1
======== ========
Major assumptions used to calculate the benefit obligation and
net postretirement benefit cost for the years ended December 31, 2000
and 1999 are as follows:
2000 1999
-------- --------
Assumed discount rate 7.50% 7.75%
Current year health care cost trend rate 12.00% 9.00%
Ultimate health care cost trend rate 5.75% 5.75%
Year ultimate trend rate is achieved 2009 2007
Expected rate of return on plan assets 7.00% 7.00%
17
A 1% change in the health care cost trend rates would have had
the following effect on benefit obligations and aggregate of service
and interest costs:
1% Increase 1%Decrease
(Millions of Dollars) ----------- ----------
Benefit obligation at December 31, 2000 $ 1.7 $ (1.9)
Benefit obligation at December 31, 1999 1.8 (2.1)
Aggregate interest and service cost
for 2000 0.2 (0.2)
Aggregate interest and service cost
for 1999 0.2 (0.3)
Savings Plans
The Tosco Corporation Capital Accumulation Plan (the "CAP") and
the Tosco Store Savings Plan (the "TSSP") have been established for
eligible employees. 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 to the CAP based upon years of
contributory participation, as defined, 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 lieu of pension plan
benefits. Participants of the CAP and TSSP (collectively the "Savings
Plans") are immediately vested in their voluntary contributions.
Participants in the CAP are immediately vested in the Company
contributions. Company contributions to the Savings Plans for the
years ended December 31, 2000 and 1999 were $25.9 million and $21.0
million, respectively.
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 operating income per
share, as defined. Results of operations for the years ended December
31, 2000 and 1999 include incentive compensation of $86.8 million and
$56.3 million, respectively, including special bonuses awarded to
union and other employees not covered by management incentive plans.
15. Disposition of the Avon Refinery
On August 31, 2000, Tosco completed the disposition of its Avon
Refinery to Ultramar Diamond Shamrock Corporation ("UDS") for $650.0
million plus $147.5 million for crude oil and other hydrocarbon
inventories (the "Avon Disposition"). Tosco recorded a net gain on
the Avon Disposition of $20.0 million ($0.08 per diluted share).
Tosco is entitled to contingent payments of up to $150.0 million
during the next eight years in the event that refining margins exceed
certain defined levels. No contingent payments were included in
Tosco's results of operations for 2000.
16. Income Taxes
The provision (benefit) for income taxes for the years ended
December 31, 2000 and 1999 is as follows:
2000 1999
(Millions of Dollars) -------- --------
Current:
Federal $ 177.3 $ 115.3
State 25.6 36.2
Foreign 0.1 0.2
-------- --------
203.0 151.7
-------- --------
Deferred:
Federal 127.1 140.8
State 30.2 14.4
-------- --------
157.3 155.2
-------- --------
$ 360.3 $ 306.9
======== ========
18
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:
2000 1999
(Millions of Dollars) -------- --------
Income taxes at the statutory rate $ 311.4 $ 262.0
State income taxes, net of credits
and federal benefit 36.3 32.9
Permanent differences 10.9 10.8
Federal credits, adjustments, and other 1.7 1.2
-------- --------
$ 360.3 $ 306.9
======== ========
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, 2000 and 1999 are as
follows:
2000 1999
(Millions of Dollars) --------- ---------
Deductible temporary differences:
Accounts receivable $ 18.5 $ 18.5
Accrued expenses and other
current liabilities 70.8 132.2
Accrued environmental costs 239.1 251.6
Accrued postretirement benefit
liability 78.9 40.8
Noncurrent liabilities 117.2 112.7
Intangible assets 102.7 -
Other 4.2 3.8
Deferred state income taxes (a) 88.8 58.6
--------- ---------
720.2 618.2
--------- ---------
Taxable temporary differences:
Inventories (368.1) (380.7)
Property, plant, and equipment (291.4) (335.6)
Deferred Turnarounds (141.5) (112.4)
Intangible assets (primarily
tradenames) - (32.4)
Lease obligations (1,082.8) (518.7)
Other deferred charges and assets (15.7) (16.6)
Other (88.7) (77.2)
--------- ---------
(1,988.2) (1,473.6)
--------- ---------
Net temporary differences $(1,268.0) $ (855.4)
========= =========
Federal income taxes at 35% $ (443.8) $ (299.4)
Alternative minimum tax ("AMT")
credit carryforward 17.3 -
--------- ---------
Federal deferred tax liability, net (426.5) (299.4)
State deferred tax liability, net (a) (88.8) (58.6)
--------- ---------
Total deferred tax liability, net (515.3) (358.0)
Current portion (97.6) (74.4)
--------- ---------
Noncurrent portion $ (417.7) $ (283.6)
========= =========
(a) Deferred state income tax liabilities are provided for
temporary differences, primarily differences between the book
and tax bases of property, plant, and equipment.
17. Operating 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 portions of its owned and
leased product distribution terminals.
The Company has long-term leases with special purpose entities
for land and improvements at certain of the Company's service
stations, refining processing units, and an office building. These
leases provide the Company the option to purchase, at agreed-upon
prices, (a) a portion of the leased assets for resale to unaffiliated
parties during the lease terms and (b) not less than all of the leased
assets at the end of the leases. The Company may cancel the leases
subject to the lessors
19
receiving certain guaranteed minimum sales values for the assets.
Minimum annual rentals vary with commercial paper interest rates and
the reference interest rate (LIBOR).
In 2000, Tosco entered into long-term operating leases for a
portion of the retail outlets acquired in the ExxonMobil Acquisition
(Note 3) and entered into a new operating lease for an office building
and certain retail outlets previously acquired under an operating
lease. The offset to the cash and fair value of properties received
in the renegotiated lease was recorded as deferred revenue on the
balance sheet.
The leases with special purpose entities, including those entered
into in 2000, extend with renewal options through March 2010.
The Company has other leases for certain of its stores and for
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 17 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 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.
Net rental expense for the years ended December 31, 2000 and 1999
consists of the following:
2000 1999
(Millions of Dollars) -------- --------
Minimum rental and warehousing charges $ 227.5 $ 152.2
Contingent rental and warehousing
charges 19.2 15.4
-------- --------
246.7 167.6
Less sublease rental income 114.5 75.0
-------- --------
$ 132.2 $ 92.6
======== ========
At December 31, 2000, future minimum obligations under non-
cancelable operating leases and warehousing agreements are as follows:
(Millions of Dollars)
2001 $ 269.5
2002 264.1
2003 (a) 243.2
2004 (a) 218.7
2005 (a) 408.3
Thereafter (a) 757.9
--------
2,161.7
Less future minimum sublease income 287.3
--------
$1,874.4 (b)
========
(a) Excludes guaranteed residual payments totaling $158.4
million (2003), $155.5 million (2004), $450.2 million (2005), and
$285.8 (thereafter) due at the end of the lease term, that would
be reduced by the fair market value of the leased assets
returned.
(b) The Company has contingent obligations for certain lease
payments totaling $9.9 million for convenience stores previously
sold. The Company does not believe it has a significant
financial exposure, over amounts already recorded, if required to
perform under these contingent obligations.
18. Financial Instruments
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 and the Floating
Rate Notes approximate fair value due to their variable interest
rates. The fair value (based on quoted market prices and estimates)
of long (obligation to purchase) and short (obligation to deliver)
derivative financial instruments were $254.1 million and $203.1
million,
20
respectively at December 31, 2000. Estimated fair values of
other financial instruments at December 31, 2000 and 1999 are as
follows:
2000 1999
-------------------- --------------------
Carrying Fair Carrying Fair
Value Value (a) Value Value (a)
(Millions of Dollars) -------- --------- -------- ---------
First Mortgage Bonds $ - $ - $ 200.0 $ 207.8
Bayway Bonds 150.0 156.0 150.0 152.3
7% Notes - - 125.0 125.2
7.625% Notes 240.0 250.7 240.0 235.6
7.25% Notes 200.0 203.2 200.0 191.1
7.8% Debentures 300.0 308.2 300.0 282.6
7.9% Debentures 100.0 101.1 100.0 92.1
8.125% Notes 600.0 643.5 - -
Trust Preferred Securities 300.0 335.6 300.0 285.0
(a) The fair value of these instruments reflects quoted market prices.
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 reduce exposure to sales price volatility of
residual fuels production. Futures and forward contracts are also
used to protect against price volatility of inventories stored for
future sale and to protect against adverse price movements between the
cost of foreign and domestic crude oil.
At December 31, 2000 and 1999, the Company had open long and
short futures, swap and forward contracts for crude oil and products
with a notional volume (number of barrels under contract) and value
(number of barrels under contract multiplied by the per-barrel
contract value) as follows:
2000 1999
------------------- -------------------
Contract Contract Contract Contract
Volume Value Volume Value
(Millions of Dollars) -------- -------- -------- --------
Open long positions 9,825 $ 261.0 24,902 $ 444.8
Open short positions 9,283 $ 206.5 22,621 $ 340.1
Deferred gains / (losses) on futures and swap contracts were not
significant at December 31, 2000 and 1999. Deferred gains and losses
were recognized as an offset to realized margins on refined products
sold (Note 23).
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 also conducts
ongoing evaluations of its customers and requires letters of credit or
other collateral arrangements as appropriate. In addition, the
Company enters into master netting agreements with significant
counterparties to further limit its credit risk should any
counterparty fail to perform as contracted. Amounts due from/to
counterparties resulting from netting agreements are settled monthly.
Accordingly, trade receivable losses have not been significant. The
Company does not believe that it has a significant credit risk on its
derivative instruments, as they are transacted through the New York
Mercantile Exchange, or with counterparties meeting established
collateral and credit criteria.
21
19. 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 not covered by insurance that in the
aggregate would be material to the business or operations of the
Company.
Under the terms of the 76 Products Acquisition, Unocal could have
received up to $250.0 million of contingent participation payments
over the seven year period following the acquisition if retail market
conditions and/or California Air Resources Board ("CARB") gasoline
margins increased above specified levels. Tosco paid Unocal $50.0
million in December 1999 and January 2000 in settlement of retail
participation obligations for prior and future periods. In addition,
the remaining maximum contingent payment, related to improvements in
CARB gasoline margins, was reduced to $100.0 million. The $50.0
million participation payment was capitalized as an additional cost of
the 76 Products Acquisition. At December 31, 2000, the participation
obligation relating to improvements in CARB gasoline, payable in March
2001, was not material.
Litigation between Unocal and certain petroleum refiners is
contesting 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 Products 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 (Note 22).
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, including a change of control, as defined (Note
22). For such terminations, the Company's potential minimum
obligation to its executive officers was $11.3 million at December 31,
2000, and $58.6 million upon a change of control (Note 22).
The Company, in keeping with industry practice, schedules
Turnarounds as the units reach the end of their normal operating
cycles. Unscheduled Turnarounds or unit shutdowns also occur because
of operating difficulties or external factors. Throughput and
earnings are lowered, and 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 was reduced by
insurance coverage recoveries of $42.4 million in 1999 for property
damage and business interruption claims, net of insurance policy
deductibles and asset write-offs, related to the Avon Refinery
incident. The Company is pursuing additional claims for insurance
recoveries from its carriers.
In the normal course of business, the Company has entered into
numerous crude oil and feedstock supply contracts, finished product
sale and exchange agreements, and transportation contracts. Because
of the market related pricing structure and/or generally short-term
nature of these contracts, they are not expected to negatively impact
future operating results.
In July 2000, the Company announced its intention to purchase
substantially all of the assets of the Irish National Petroleum
Corporation Limited. The principal assets to be acquired would be a
75,000 barrel per day refinery located in Cork, Ireland and an 8.5
million barrel deep water crude oil and oil products storage complex
in Bantry Bay, Ireland. The purchase price would be $100.0 million
plus the value of crude oil and products inventory at closing.
Tosco's Board of Directors has approved the purchase. Completion of
the purchase is subject to negotiation of definitive agreements and
the satisfaction of certain conditions, including regulatory
approvals.
On August 9, 2000, the Company announced that it had entered into
a contract with East Coast Power ("ECP"), in which ECP will build new
facilities to supply electricity and additional steam to the Bayway
Refinery. The new facilities will also supply electricity to New
Jersey residents and businesses during peak demand hours.
In December 2000, the Company entered into a contract to build
four tankers that will be used to transport crude and other products
to the Company's refineries. Construction is expected to begin in
late 2001 and the tankers should be completed in late 2003. In
January 2001, the Company entered into a contract to build a fifth
tanker that should be completed in early 2004.
22
As part of the February 1996 agreement to purchase the Trainer
Refinery, the seller is entitled to receive contingent participation
payments for five years from the date of acquisition if refining
margins increase above specified margins. Based on margins achieved
for the year ended February 1, 2001, a payment may be due in May 2001
to BP Amoco. Any payment made would be capitalized as an additional
cost of the Trainer Refinery.
20. Business Segments
The Company has two operating business segments: refining and
marketing. The refining segment includes the acquisition of crude oil
and other feedstocks, the production of petroleum products, and the
distribution and sale of petroleum products to wholesale customers.
The marketing segment includes the sale of petroleum products and
merchandise through company-owned gasoline stations and convenience
stores and branded dealers and jobbers. The nonoperating segment
consists of corporate activities and certain non-operating
subsidiaries. Summarized financial information by segment for 2000
and 1999 is as follows:
Operating Segments
-------------------- Non-operating Consolidated
Refining Marketing Segment Total
2000 (Millions of Dollars) --------- --------- ------------- ------------
Total sales $20,891.6 $ 9,256.8 $ - $ 30,148.4
Intersegment sales (5,588.1) (15.1) (5,603.2)
--------- --------- ------------- ------------
Third party sales $15,303.5 $ 9,241.7 $ - $ 24,545.2
========= ========= ============= ============
Operating contribution (a) $ 1,343.0 $ 404.7 $ - $ 1,747.7
Depreciation and
amortization (201.0) (152.0) (1.2) (354.2)
Special item:
Gain on the Avon
Disposition 20.0 20.0
Net interest (expense)
income (109.8) (49.2) 3.9 (155.1)
Income (loss) before income
taxes and distributions
on Trust Preferred
Securities 959.2 (34.8) (17.4) 907.0
Capital and Turnaround
expenditures $ 468.0 $ 263.8 $ 3.5 $ 735.3
Total assets at year-end $ 5,915.7 $ 2,989.7 $ 98.4 $ 9,003.8
Operating Segments
-------------------- Non-operating Consolidated
Refining Marketing Segment Total
1999 (Millins of Dollars) --------- --------- ------------- ------------
Total sales $11,003.3 $ 5,826.8 $ - $ 16,830.1
Intersegment sales (2,453.2) (14.8) (2,468.0)
--------- --------- ------------- ------------
Third party sales $ 8,550.1 $ 5,812.0 $ - $ 14,362.1
========= ========= ============= ============
Operating contribution (a) $ 727.6 $ 531.2 $ - $ 1,258.8
Depreciation and
amortization (176.1) (131.0) (1.3) (308.4)
Special items:
Inventory recovery 240.0 240.0
Restructuring recovery 2.1 2.1
Avon Refinery start-up
costs (43.1) (43.1)
Gain on sale of retail
assets in non-core
markets 40.5 40.5
Net interest (expense)
income (73.8) (48.1) 3.1 (118.8)
Income (loss) before income
taxes and distributions
on Trust Preferred
Securities 565.6 216.4 (16.1) 765.9
Capital and Turnaround
expenditures $ 309.1 $ 227.0 $ - $ 536.1
Total assets at year-end $ 3,677.3 $ 2,442.2 $ 92.9 $ 6,212.4
(a) Operating contribution is calculated as sales minus cost of sales.
23
21. Supplemental Cash Flow Information
2000 1999
(Millions of Dollars) -------- --------
Cash paid during the year for:
Interest, net of amounts capitalized $ 163.5 $ 130.9
Income taxes, net of refunds received 177.6 139.9
Supplemental Noncash Investing and
Financing Activities:
Fair value of properties received
in lease refinancing $ 44.8
Detail of cash paid for acquisitions:
Fair value of assets acquired $2,109.8 $ 118.1
Liabilities assumed (87.0)
-------- --------
Net cash paid for acquisitions 2,022.8 118.1
Cash acquired in acquisitions - 0.3
-------- --------
$2,022.8 $ 118.4
======== ========
22. Subsequent Events
Acquisition by Phillips Petroleum Company
On February 4, 2001, the Board of Directors of the Company
adopted an agreement and plan of merger with Phillips Petroleum
Company ("Phillips"). As a result of the merger, Tosco will become a
wholly-owned subsidiary of Phillips and Tosco shareholders will
receive 0.8 of a share of Phillips common stock for each share of
Tosco Common Stock they own. The transaction is expected to close by
the end of the third quarter of 2001. The combined company's
Refining, Marketing, and Transportation ("RM&T") headquarters will be
located in Tempe, Arizona. The transaction has been approved by the
Boards of Directors of both companies and is subject to regulatory
reviews and the approval of both companies' shareholders. Tosco has
agreed to take all necessary steps to render the Shareholders' Rights
Plan inapplicable to the merger (Note 12).
Redemption of Trust Preferred Securities
On January 12, 2001, Tosco Financing Trust called for the
redemption of its Trust Preferred Securities on February 15, 2001.
The redemption price offered was $51.725 per share (which included a
premium of 3.45% as required by the terms of the Trust Preferred
Securities) plus $.495 per share in accumulated and unpaid
distributions up to the date of redemption, or a total of $52.22 per
share. Substantially all holders elected to exercise their conversion
rights instead of receiving the redemption cash value. As a result,
all but 1,185 shares of the Trust Preferred Securities were converted
into approximately 9,112,089 shares of Tosco Common Stock (Note 11).
Unocal Patent Litigation
In February 2001, the U.S. Supreme Court refused to consider an
appeal of certain major oil companies contesting a lower court
decision that upheld the validity of Unocal's patent for blending
formulations for clean burning gasoline meeting California fuel
specifications. The impact of the Supreme Court's decision as to the
effect on Tosco's future results of operations is unknown in view of,
among other things, potential further litigation, Tosco's revised
blending formulas that substitute ethanol for MTBE in California, and
the licensing arrangement that Tosco may enter into with Unocal that
by prior agreement can be no less favorable than that negotiated
between Unocal and other refiners (Note 19).
Revolving Credit Facility
On January 25, 2001, the Company renewed Facility B of the
Revolving Credit Facility thereby extending its maturity date to
February 5, 2002.
24
23. New Accounting Standards
SFAS No. 133
Statement of Financial Accounting Standard ("SFAS") No. 133
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS
No. 133") as amended by SFAS No. 138 "Accounting for Certain
Derivative Instruments and Certain Hedging Activities" ("SFAS No.
138") (collectively "SFAS No. 133") was adopted by the Company
effective January 1, 2001. SFAS No. 133 requires that all derivatives
be recognized at fair value as either assets or liabilities. Changes
in the fair value of derivatives are to be recorded in current
earnings or other comprehensive income, depending on whether the
derivative is part of a hedge transaction and, if it is, on the type
of hedge transaction. To qualify as a hedge, SFAS No. 133 requires
that the derivative be formally documented and designated, and the
effectiveness of the hedge assessed on a regular basis.
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 reduce exposure to sales price volatility of
residual fuels production. Futures and forward contracts are also
used to protect against price volatility of inventories stored for
future sale, to protect against adverse price movements of crude oils,
and as a means to obtain physical volumes for its mid-continent
refineries. In accordance with SFAS No. 133 all derivatives will be
recognized on the balance sheet at their fair value at January 1,
2001. On the date a derivative contract is entered into, the Company
will designate the derivative as (1) a hedge of the fair value of a
recognized asset or liability or of an unrecognized firm commitment
("fair value" hedge), (2) a hedge of a forecasted transaction or of
the variability of cash flows to be received or paid related to a
recognized asset or liability ("cash flow" hedge), or (3) a derivative
instrument that does not qualify for hedge accounting. For fair-value
hedges, the change in fair value of the effective portion of the hedge
will be recorded in current-period earnings along with the loss or
gain on the hedged asset or liability. For cash-flow hedges, the
change in fair value of the effective portion will be recorded in
other comprehensive income. Changes in the fair value of derivatives
not qualifying for hedge accounting and the ineffective portion of all
fair-value and cash-flow hedges will be recognized in current-period
earnings. Accordingly, the adoption of SFAS No. 133 could increase
volatility in the Company's earnings.
The cumulative effect of this accounting change on January 1,
2001 is not material. The effect of SFAS No. 133 in future results of
operations will depend upon the number and type of derivative
positions and the volatility of crude and product prices.
SFAS No. 140
In September 2000, the FASB issued SFAS No. 140 "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities" ("SFAS No. 140"). The collateral recognition and
disclosure provisions in SFAS No. 140, effective for fiscal years
ending after December 15, 2000, were adopted in 2000. The Company
anticipates that the adoption of the remaining provisions of SFAS No.
140, effective March 31, 2001, will not have a material impact on the
Company's results of operations.
25
24. Condensed Consolidating Financial Information
Tosco Bayway Nonguaranteeing
(Issuer) (Guarantor) Subsidiaries Eliminations Consolidated
(Millions of Dollars) ---------------------------------------------------------------------
BALANCE SHEET - DECEMBER 31, 2000
Assets:
Cash and cash equivalents $ (58.7) $ $ 82.5 $ $ 23.8
Marketable securities and deposits 21.9 52.1 74.0
Other current assets (a) 2,362.2 626.5 2,988.7
----------- ----------- --------------- ------------ ------------
Total current assets 2,325.4 - 761.1 - 3,086.5
Other assets 3,680.7 501.8 1,739.2 (4.4) 5,917.3
Investment in Bayway and other subsidiaries 1,337.6 (1,337.6) -
----------- ----------- --------------- ------------ ------------
$ 7,343.7 $ 501.8 $ 2,500.3 $ (1,342.0) $ 9,003.8
=========== =========== =============== ============ ============
Liabilities and Shareholders' Equity:
Current liabilities $ 2,784.9 $ $ 243.5 $ $ 3,028.4
Revolving credit facility and long-term debt 1,856.0 36.6 1,892.6
Other liabilities 990.2 187.3 (4.4) 1,173.1
Intercompany liabilities (assets) (897.1) 123.8 773.3 -
Trust Preferred Securities - 300.0 300.0
Total shareholders' equity 2,609.7 378.0 959.6 (1,337.6) 2,609.7
----------- ----------- --------------- ------------ ------------
$ 7,343.7 $ 501.8 $ 2,500.3 $ (1,342.0) $ 9,003.8
=========== =========== =============== ============ ============
STATEMENT OF INCOME - YEAR ENDED DECEMBER 31, 2000
Sales $ 20,100.4 $ $ 4,444.8 $ $ 24,545.2
Cost of sales (18,622.3) 15.1 (4,190.3) (22,797.5)
Depreciation and amortization (230.1) (15.1) (109.0) (354.2)
Special items:
Gain on sale of Avon Refinery 20.0 20.0
Selling, general, and administrative expenses (b) (217.7) (133.7) (351.4)
Interest expense, net (162.6) 7.5 (155.1)
----------- ----------- --------------- ------------ ------------
Income before income taxes and distributions on
Trust Preferred Securities 887.7 - 19.3 - 907.0
Income taxes (359.5) (7.8) (367.3)
Distributions on Trust Preferred Securities,
net of income tax benefit - (10.3) (10.3)
----------- ----------- --------------- ------------ ------------
Net income $ 528.2 $ - $ 1.2 $ - $ 529.4
=========== =========== =============== ============ ============
STATEMENT OF CASH FLOWS - YEAR ENDED DECEMBER 31, 2000
Cash flows from operating activities:
Net income $ 528.2 $ - $ 1.2 $ - $ 529.4
Depreciation and amortization, provision for
bad debts, and deferred income taxes 397.5 15.1 109.0 521.6
Restructuring recovery (3.8) (3.8)
Gain on sale of Avon Refinery (20.0) (20.0)
Changes in operating assets and liabilities, net 650.6 (108.9) 541.7
Other, net 11.4 (1.0) 10.4
----------- ----------- --------------- ------------ ------------
Net cash provided by operating activities 1,563.9 15.1 0.3 - 1,579.3
----------- ----------- --------------- ------------ ------------
Cash flows from investing activities:
Purchase of property, plant, equipment, net (238.3) (189.5) (193.7) (621.5)
Acquisition of ExxonMobil retail system (248.0) (119.9) (367.9)
Acquisition of Wood River Refinery (746.7) (746.7)
Acquisition of Alliance Refinery (908.2) (908.2)
Increase in deferred turnarounds, charges,
and other assets, net (105.8) 3.2 (102.6)
Proceeds on sale of Avon Refinery 797.5 797.5
Intercompany transfers (517.5) 174.4 343.1 -
Net change in marketable securities, deposits,
and other (14.6) (5.9) (20.5)
----------- ----------- --------------- ----------- ------------
Net cash (used in) provided by investing
activities (1,981.6) (15.1) 26.8 - (1,969.9)
----------- ----------- --------------- ------------ ------------
Cash flows from financing activities:
Net repayments under revolving credit facilities 10.0 10.0
Payments under long-term debt agreements (275.4) (1.3) (276.7)
Proceeds from issuance of 8.125% Notes 600.0 600.0
Proceeds from issuance of Floating Rate Notes 300.0 300.0
Payment for purchase / defeasement of First
Mortgage Bonds (211.3) (211.3)
Dividends paid on common stock (41.9) (41.9)
Other, net 6.0 6.0
----------- ----------- --------------- ------------ ------------
Net cash provided by (used in) financing
activities 387.4 - (1.3) - 386.1
----------- ----------- --------------- ------------ ------------
Net (decrease) increase in cash and cash equivalents (30.3) - 25.8 - (4.5)
Cash and cash equivalents at beginning of year (28.4) - 56.7 28.3
----------- ----------- --------------- ------------ ------------
Cash and cash equivalents at end of year $ (58.7) $ - $ 82.5 $ - $ 23.8
=========== =========== =============== ============ ============
(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 Nonguaranteeing Subsidiaries. Tosco may revise its
allocation method in the future.
26
Tosco Bayway Nonguaranteeing
(Issuer) (Guarantor) Subsidiaries Eliminations Consolidated
(Millions of Dollars) ---------------------------------------------------------------------
BALANCE SHEET - DECEMBER 31, 1999
Assets:
Cash and cash equivalents $ (28.4) $ $ 56.7 $ $ 28.3
Marketable securities and deposits 7.5 46.3 53.8
Other current assets (a) 1,122.9 439.5 1,562.4
----------- ----------- --------------- ------------ ------------
Total current assets 1,102.0 542.5 1,644.5
Other assets 2,704.0 325.0 1,543.3 (4.4) 4,567.9
Investment in Bayway and other subsidiaries 1,336.4 (1,336.4)
----------- ----------- --------------- ------------ ------------
$ 5,142.4 $ 325.0 $ 2,085.8 $ (1,340.8) $ 6,212.4
=========== =========== =============== ============ ============
Liabilities and Shareholders' Equity:
Current liabilities $ 1,405.4 $ $ 201.7 $ $ 1,607.1
Revolving credit facility and long-term debt 1,420.9 38.0 1,458.9
Other liabilities 585.0 157.5 (4.4) 738.1
Intercompany liabilities (assets) (377.2) (53.0) 430.2
Trust Preferred Securities 300.0 300.0
Total shareholders' equity 2,108.3 378.0 958.4 (1,336.4) 2,108.3
----------- ----------- --------------- ------------ ------------
$ 5,142.4 $ 325.0 $ 2,085.8 $ (1,340.8) $ 6,212.4
=========== =========== =============== ============ ============
STATEMENT OF INCOME - YEAR ENDED DECEMBER 31, 1999
Sales $ 10,805.2 $ $ 3,556.9 $ $ 14,362.1
Cost of sales (9,873.6) 15.2 (3,244.9) (13,103.3)
Depreciation and amortization (196.0) (15.2) (97.2) (308.4)
Special items:
Inventory recovery 240.0 240.0
Restructuring recovery 2.1 2.1
Avon Refinery start-up costs (43.1) (43.1)
Gain on sale of retail assets in non-core markets 40.5 40.5
Selling, general, and administrative expenses (b) (179.4) (125.8) (305.2)
Interest expense, net (123.0) 4.2 (118.8)
----------- ----------- --------------- ------------ ------------
Income before income taxes and distributions on
Trust Preferred Securities 632.2 133.7 765.9
Income taxes (259.2) (54.8) (314.0)
Distributions on Trust Preferred Securities, net of
income tax benefit - (10.2) (10.2)
----------- ----------- --------------- ------------ ------------
Net income $ 373.0 $ - $ 68.7 $ - $ 441.7
=========== =========== =============== ============ ============
STATEMENT OF CASH FLOWS - YEAR ENDED DECEMBER 31, 1999
Cash flows from operating activities:
Net income $ 373.0 $ - $ 68.7 $ - $ 441.7
Depreciation and amortization, provision for bad
debts, and deferred income taxes 360.6 15.2 97.2 473.0
Inventory recovery (240.0) (240.0)
Restructuring recovery (2.1) (2.1)
Gain on sale of retail assets in non-core markets (40.5) (40.5)
Changes in operating assets and liabilities, net 349.5 (174.0) 175.5
Other, net 8.1 8.1
----------- ----------- --------------- ------------ ------------
Net cash provided by (used in) operating
activities 849.1 15.2 (48.6) 815.7
=========== =========== =============== ============ ============
Cash flows from investing activities:
Purchase of property, plant, equipment, net (211.3) (70.3) (13.2) (294.8)
Increase in deferred turnarounds, charges, and
other assets, net (65.5) 14.7 (50.8)
Acquisition of retail systems, net of cash acquired (22.8) (95.3) (118.1)
Intercompany transfers (225.8) 55.1 170.7
Intercompany dividend 15.7 (15.7)
Net change in marketable securities, deposits, and
other (2.1) (6.8) (8.9)
----------- ----------- --------------- ------------ ------------
Net cash (used in) provided by investing
activities (511.8) (15.2) 54.4 (472.6)
=========== =========== =============== ============ ============
Cash flows from financing activities:
Net repayments under revolving credit facilities (90.0) (90.0)
Payments under long-term debt agreements (6.0) (6.0)
Repurchase of common stock (216.5) (216.5)
Dividends paid on common stock (40.0) (40.0)
Other, net 6.4 6.4
----------- ----------- --------------- ------------ ------------
Net cash used in financing activities (340.1) (6.0) (346.1)
----------- ----------- --------------- ------------ ------------
Net decrease in cash and cash equivalents (2.8) (0.2) (3.0)
Cash and cash equivalents at beginning of year (25.6) 56.9 31.3
----------- ----------- --------------- ------------ ------------
Cash and cash equivalents at end of year $ (28.4) $ - $ 56.7 $ - $ 28.3
=========== =========== =============== ============ ============
(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 Nonguaranteeing Subsidiaries. Tosco
may revise its allocation method in the future.
27