FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from_______________to____________
COMMISSION FILE NUMBER 1-7910
TOSCO CORPORATION
(Exact name of registrant as specified in its charter)
NEVADA 95-1865716
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
72 CUMMINGS POINT ROAD
STAMFORD, CONNECTICUT 06902
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 977-1000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, $.75 par value New York Stock Exchange
Pacific Stock Exchange
9 5/8% Series B First Mortgage Bonds due March 15, 2002 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
X Yes __ No
The aggregate market value of the voting stock held by non-affiliates of
the registrant on February 29, 2000 based on the closing price at which such
stock was sold on the New York Stock Exchange on such date was $3,858,786,422.
Registrant's Common Stock outstanding at February 29, 2000 was 144,253,698
shares.
Portions of registrant's definitive Proxy Statement relating to its 2000
Annual Meeting of Shareholders are incorporated by reference into Part III, as
set forth herein.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
TOSCO CORPORATION
INDEX TO ANNUAL REPORT ON FORM 10-K
Items 1 and 2. Business and Properties 1
Introduction 1
Petroleum Refining, Supply, Distribution, and Marketing 1
Other Activities 9
Office Properties 9
Employees 9
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 13
Item 6. Selected Financial Data 13
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
Item 8. Financial Statements and Supplementary Data 23
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 23
Item 10. Directors and Executive Officers of the Registrant 23
Item 11. Executive Compensation 23
Item 12. Security Ownership of Certain Beneficial Owners
and Management 23
Item 13. Certain Relationships and Related Transactions 23
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 23
Index to Consolidated Financial Statements
and Financial Statement Schedules F-1
PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
INTRODUCTION
Tosco Corporation ("Tosco") is one of the largest independent refiners
and marketers of petroleum products in the United States, operating principally
on the East and West Coasts of the United States. Tosco operates eight
refineries with the capacity to process approximately 950,000 barrels per day of
crude oil, feedstocks, and blendstocks into various petroleum products. Through
its retail distribution network, Tosco sells approximately 4.5 billion gallons
of fuel annually. Tosco has owned the "76" products terminal and pipeline
distribution system since 1997, expanding upon Tosco's 1996 purchase of The
Circle K Corporation ("Circle K"), by which Tosco became one of the nation's
largest operators of company-controlled convenience stores. On February 29,
2000, Tosco acquired and began operating an additional system of 1,740 gasoline
and convenience outlets from Exxon Corporation and Mobil Oil Corporation
(together, "ExxonMobil"), further expanding Tosco's retail distribution network.
These ExxonMobil marketing assets consist of Mobil-branded stations from
Virginia through New Jersey and Exxon-branded stations from New York through
Maine. Tosco also engages in related commercial activities throughout the United
States and internationally. Tosco's refining and marketing business is managed
and operated through two divisions, Tosco Refining Company, based in Linden, New
Jersey, and Tosco Marketing Company, based in Tempe, Arizona.
Tosco was incorporated under the laws of the State of Nevada in 1955.
Its principal executive offices are located at 72 Cummings Point Road, Stamford,
Connecticut 06902 and its telephone number is (203) 977-1000.
PETROLEUM REFINING, SUPPLY, DISTRIBUTION, AND MARKETING
REFINING
Tosco, through five major facilities consisting of eight refineries,
processed in 1999 approximately 850,000 barrels per day of crude oil,
feedstocks, and blendstocks into various petroleum products, chiefly light
transportation fuels (gasoline, diesel, and jet fuel) and heating oil. Tosco's
refining facilities are located on the East and West Coasts of the United
States.
Bayway Refinery ("Bayway"), located in Linden, New Jersey, on the New
York Harbor and Trainer Refinery ("Trainer"), located in Trainer, Pennsylvania,
near Philadelphia, are operated in coordination with each other. Bayway can
process in excess of 275,000 barrels per day of crude oil and other feedstocks.
Bayway's facilities include hydrodesulfurization units and the largest fluid
catalytic cracking unit in the world. Bayway produces transportation fuels and
is a principal supplier of heating oil to the U.S. East Coast. In addition,
Bayway currently produces approximately 4.7 million barrels per year of light
petroleum products, including propylene used in the manufacture of
polypropylene. In late 1999, Tosco began the two-year construction of a 775
million pound per year polypropylene plant at Bayway. Tosco will use Union
Carbide's UNIPOL(TM) PPProcess for the plant. When completed, Tosco's production
from the new plant, will comprise a full range of homopolymers and random and
impact copolymers. Polypropylene is used to make a wide range of film, fiber,
and molded consumer and industrial products.
Trainer, acquired in a shutdown mode in February 1996 and started up
by Tosco in May 1997 after an approximately $100 million modernization and
upgrading program, can process approximately 180,000 barrels per day of crude
oil. Trainer's fluid catalytic cracking unit, hydrocracking unit and
hydrodesulfurization units enable it to produce a high percentage of light
refined petroleum products. Bayway and Trainer, Tosco's two East Coast
refineries, have ready access to marine, rail, and truck transportation and
product distribution pipelines, giving them considerable flexibility to change
their raw material input and product output to respond to changing market
conditions.
Avon Refinery ("Avon"), Rodeo Refinery ("Rodeo"), both located in the
San Francisco Bay area, and Santa Maria Refinery ("Santa Maria"), located on the
mid-California coast (collectively, the San Francisco Area Refinery ("SFAR")
System), are operated on an integrated basis. Avon, shutdown for a portion of
1999, has approximately 140,000 barrels per day of crude oil processing
capacity. Rodeo and Santa Maria, both acquired in 1997 from Union Oil Company of
California ("Unocal"), together have approximately 120,000 barrels per day of
crude oil distillation capacity. SFAR is technologically complex with coking,
catalytic cracking, hydrocracking, and hydrodesulfurizing units to accommodate
comparatively lower gravity crude oils. Coke calcining plants, acquired from
Unocal in 1997, are located near Rodeo and Santa Maria and are operated as part
of SFAR. The calcining facilities process green petroleum coke, a by-product of
refining operations, for use in the production of aluminum and other industrial
applications.
The Los Angeles Refinery ("LAR") System, consisting of two linked
refineries located in Carson and Wilmington, California, acquired from Unocal in
1997, has approximately 140,000 barrels per day of crude oil and other feedstock
processing capacity. LAR is a technologically complex facility with coking,
catalytic cracking, hydrocracking, and hydrodesulfurizing units to accommodate
comparatively lower gravity crude oils. It is capable of processing a broad
range of crude oils and other feedstocks into a high percentage of light refined
petroleum products, consisting chiefly of transportation fuels. Pipelines and
marine facilities link LAR to various crude supply and product distribution
systems in the large southern California market area.
In the Northwest, Ferndale Refinery ("Ferndale") is located on Puget
Sound, 100 miles north of Seattle. It is connected by the Olympic pipeline to
its major retail markets, has crude oil distillation capacity of approximately
95,000 barrels per day, and is equipped with thermal catalytic cracking and
hydrodesulfurization units, as well as modern marine facilities.
The following table sets forth certain significant refining operating
data for the years ended December 31, 1999, 1998, and 1997. A barrel is equal to
42 gallons.
REFINING DATA SUMMARY (A):
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------
1999 1998 1997
------------- -------------- ---------
Average charge barrels input per day:
Crude oil 762,600 837,200 703,400
Other feed and blending stocks 88,300 107,600 90,000
------------- -------------- -------------
850,900 944,800 793,400
============= ============== =============
Average barrels of petroleum products produced per day:
Gasoline 456,800 507,200 415,800
Distillates 186,900 217,100 196,400
Jet fuel 68,500 62,600 49,800
Residuals 82,800 93,200 77,700
Propane 17,800 20,800 15,800
Petroleum coke 24,900 29,800 21,300
Other finished products 7,900 11,600 11,000
------------- -------------- -------------
845,600 942,300 787,800
============= ============== =============
(a) The Refining Data Summary presents the operating results of the following refineries:
- Bayway Refinery, located on the New York Harbor.
- Ferndale Refinery, located on Washington's Puget Sound.
- Los Angeles Refinery System, comprised of two refineries in Los Angeles
(for the period beginning April 1, 1997).
- San Francisco Area Refinery System, comprised of the Rodeo-Santa Maria
complex (for the period beginning April 1, 1997) and the Avon Refinery
(shut down in March 1999 for a safety review and safety training for
employees following a fire at a crude unit on February 23, 1999, was
restarted by the end of July 1999).
- Trainer Refinery, located near Philadelphia (for the period beginning
May 8, 1997).
RAW MATERIAL SUPPLY
During 1999, Tosco's crude oil, feedstock, and blendstock requirements
of approximately 850,000 barrels per day were supplied by third parties. Tosco's
East Coast requirements of approximately 435,000 barrels per day were met from
foreign imports. Approximately 17% of Tosco's East Coast supply requirements
were met by a long-term contract with Statoil (Norway). Tosco's West Coast
requirements of approximately 415,000 barrels per day were supplied primarily
through domestic production, mainly Californian and Alaskan crudes, and to a
lesser extent foreign imports. Approximately 70% of Tosco's West Coast
requirements were met by long-term contracts, with suppliers such as BP Oil
Supply Company ("BP Oil"), Chevron U.S.A. ("Chevron"), Exxon Corporation
("Exxon"), Equiva Trading Company ("Equiva"), and Occidental Petroleum Company
("Occidental"). These barrels are delivered to Tosco's West Coast refineries
primarily through the major crude oil pipelines in California. To the extent
these pipelines are not available, Tosco's future operating results may be
adversely affected. The balance of Tosco's 1999 West and East Coast crude oil
and feedstock requirements were purchased on the spot market. During 1999, Tosco
resold less than 5% of its raw material purchases.
In connection with the two East Coast refineries' reliance on
European, as well as Middle East and West African sources, as their primary
suppliers of crude oil, Tosco's U.K. subsidiary (established in 1994 for the
purpose of obtaining better information and access to the European markets)
continues to act as a resource. Tosco's long-term lease agreement with Statia
Terminals for 3,600,000 barrels of crude oil storage in Nova Scotia, Canada,
entered into in 1994, remains in place. Similarly, Tosco's twelve-year
agreement, through a subsidiary, also entered into in 1994 with Neptune Orient
Lines, Ltd. of Singapore for the charter of four 100,000 deadweight ton ("DWT")
crude oil tankers, remains in place. The double hulled tankers were built to
maximize the use of Bayway's dock receiving facilities as well as to meet the
requirements of the U.S. Oil Pollution Act of 1990. The tankers are being
utilized to move crude oil to Bayway and Trainer, or other locations, from the
Nova Scotia storage location and for direct shipments from suppliers.
In February 1998, Tosco entered into a fifteen year contract with
Occidental to buy a substantial portion of Occidental's crude oil production
from the Elk Hills oil field in California. In 1999, Tosco completed the
building of a 15-mile pipeline from the Elk Hills field to existing lines that
serve Tosco's SFAR System, reducing Tosco's delivered raw material cost and
better utilizing Tosco's existing pipeline assets. This domestic supply of light
crude oil significantly reduces the need for Tosco to purchase waterborne crude
oil for Tosco's West Coast operations. Tosco anticipates it will purchase
additional Elk Hills production as it becomes available.
Tosco believes its average crude oil inventory is presently sufficient
for normal refinery operations at its refineries. Tosco's crude oil inventory
level is managed in light of market risk, carrying costs, and delivery method.
The cost to Tosco of crude oil and other feedstocks depends on many
factors, including the terms of purchase, credit, and delivery. In general,
heavy crude oils are less expensive than lighter crude oils. Thus, if Tosco's
West Coast refineries' supply of San Joaquin Valley heavy crude oil is reduced
or curtailed, or if its price relative to lighter crude oils increases, Tosco's
operations could be adversely affected. Similarly, since Congress and the
President deregulated the Alaska North Slope ("ANS") crude oil market by
permitting ANS to be exported in 1995, the deregulation may result in increases
in ANS crude prices from time to time. With respect to Tosco's East Coast
refineries, Bayway and Trainer, if their foreign sources of crude oil or the
marine system for delivering crude oil (including required marine insurance for
possible marine environmental liabilities) were curtailed, Tosco's operations
could be adversely affected. In addition, the loss, or an adverse change in the
terms, of the crude oil supply contracts or the loss of other sources or means
of delivery of crude oil could have a material adverse effect on Tosco's
operating results. The volatility of prices and quantities of crude oil that may
be purchased on the spot market or pursuant to long- and short-term contracts
could materially adversely affect Tosco's operating results.
WHOLESALE MARKETING AND DISTRIBUTION
Tosco sells unbranded refined petroleum products to wholesale
purchasers. Tosco's wholesale sales of gasoline and distillates are made to
large end users, retailers, independent marketers, and jobbers who serve
unbranded markets, including the retail, industrial, commercial, agricultural,
and governmental classes of trade. Sales are also made to other refiners and
resellers, both major and independent. Tosco generally sells its other
industrial petroleum products directly to the end users and resellers of such
industrial products. Tosco's costs associated with meeting the federal and state
environmental requirements, particularly the CARB Phase II requirements in
California, were significant. Tosco cannot be certain that its costs will be
fully recovered. Tosco's ability to sell its products on economical terms is
dependent, in part, on the competitive position of its customers in changing and
often turbulent markets. During 1999 and 1998, wholesale gasoline products
(including product transfers to retail marketing) accounted for approximately
55% and 53%, respectively, of Tosco's wholesale petroleum revenues, while
distillates (including product transfers to retail marketing) accounted for
approximately 25% of Tosco's wholesale petroleum revenues in both 1999 and 1998.
Tosco's average inventory of gasoline and distillates is approximately 10 to 15
days of wholesale sales.
There were no long-term sales contracts (i.e., in excess of one year)
that accounted for more than 10% of Tosco's consolidated revenues.
During 1999 and 1998, Tosco purchased for resale an average of
approximately 340,000 and 268,000 barrels per day, respectively, of petroleum
products from third parties.
In 1999, Tosco distributed refined petroleum products, principally in
the Eastern and Western United States, through an extensive distribution network
comprised of 173 proprietary and third-party terminal locations in 27 states and
by means of pipelines, rail tank cars, trucks, ocean-going tankers, and barges.
See Note 18 to the Consolidated Financial Statements. Tosco's proprietary
petroleum trucking operations, located primarily on the West Coast, deliver
approximately 4,000,000 gallons per day of products.
Tosco also engages in commercial activities related to its petroleum
refining, distribution, and marketing businesses throughout the United States
and internationally. These commercial operations are based in Tempe, Arizona.
LUBRICANTS
Tosco's 76 Lubricants Company markets lubricating oils, gear
lubricants, and greases domestically and internationally. Tosco entered the
lubricants market with its acquisition of a lubricants manufacturing,
distribution, and marketing business from Unocal in 1997. Tosco's four lubricant
blending and packaging facilities are located in Los Angeles, California,
Richmond, California, Portland, Oregon, and Savannah, Georgia. In 1999, almost
65 million gallons of automotive and commercial motor oils, industrial oils,
gear oils, and greases were sold from these plants directly to large end users,
retail discount chains, and to over 200 petroleum jobbers in the United States
and in 70 countries internationally. In 1999, jobbers accounted for
approximately 80% of all sales.
Tosco entered into long-term supply agreements with base stock
refiners to ensure a supply of the high quality base stocks needed for its
lubricants operations. Tosco does not anticipate difficulty obtaining necessary
supplies in the event these suppliers could not meet their commitments.
RETAIL MARKETING
At December 31, 1999, Tosco's retail system included approximately
4,790 retail marketing locations operating under the BP, Exxon, 76, and Circle K
tradenames. Of these, approximately 2,070 are company-controlled and operated,
approximately 1,240 are company-controlled and dealer-operated, approximately
1,190 are owned and operated by third parties, and approximately 290 are
franchise locations. Approximately 350 of the company-controlled and operated
sites do not sell gasoline. On February 29, 2000, Tosco acquired and began
operating an additional 1,740 retail marketing locations from ExxonMobil in the
Eastern United States of which approximately 685 are company-controlled and
1,055 are owned and operated by third parties. This system of former ExxonMobil
marketing assets consists of Mobil-branded stations from Virginia through New
Jersey and Exxon-branded stations from New York through Maine. In addition to
associated supply arrangements and undeveloped properties, Tosco also acquired
the exclusive right to use the Exxon and Mobil brands in each of the respective
states for at least 10 years.
Tosco's U.S. retail marketing business grew significantly during the
last five years. Prior to 1996, Tosco's retail system consisted of approximately
1,000 independently owned retail gasoline stations and approximately 115
company-operated convenience outlets. With the acquisition of Circle K in May
1996, Tosco's total retail marketing system grew to nearly 4,000 convenience and
gasoline outlets in 36 states and its company-operated sites grew to nearly
2,400. Tosco's marketing system was further expanded with the March 1997
acquisition of Unocal's West Coast retail gasoline system which added
approximately 1,800 gasoline and convenience locations. During 1999, Tosco
acquired approximately 230 gasoline service station and convenience stores in
major Southeastern urban areas and Pittsburgh, Pennsylvania, from BPAmoco p.l.c.
and Boardman Petroleum, Inc. In connection with the asset acquisition from
BPAmoco, Tosco entered into an agreement with BPAmoco to return Tosco's license
to use the BP trade name at the end of an approximate two year period. Tosco
also completed the divestiture of approximately 370 convenience stores in
non-core markets during 1999.
As of December 31, 1999, approximately 2,540 of Tosco's gasoline
stations were 76-branded. As a result of Tosco's agreement to return the BP
trade name to BPAmoco, Tosco is in the process of rebranding its Northwest BP
stations, Southeast BP and Amoco stations, and Southeast Smile stations to the
76 brand. The land, buildings, and/or equipment at approximately 1,850 of
Tosco's company-controlled (company-operated and dealer-operated) gasoline
station and convenience locations are being leased from third parties pursuant
to long-term leases. Additionally, approximately 1,480 of Tosco's gasoline
stations are operated by third parties pursuant to contracts which expire at
varying terms over the next 14 years. Since 1999, Tosco has been the largest
operator of company-controlled convenience stores.
The following table sets forth certain significant retail operating
data for the years ended December 31, 1999, 1998, and 1997.
RETAIL DATA SUMMARY:
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------
1999 1998 1997 (A)
------------- -------------- -----------
Volume of fuel sold (millions of gallons) 4,451.6 4,490.4 4,159.4
Blended fuel margin (cents per gallon) (b) 11.4 12.1 12.8
Number of gasoline stations at year end 4,143 4,476 4,652
Merchandise sales (millions of dollars) $ 2,039.7 $ 2,097.8 $ 2,003.4
Merchandise margin (percentage of sales) 28.7% 29.6% 29.4%
Number of merchandise stores at year end 2,070 2,313 2,395
Other retail gross profit (millions of dollars) $ 115.9 $ 112.9 $ 116.2
(a) The Retail Data Summary includes the operations of gasoline service
stations acquired subsequent to the March 31, 1997 acquisition from Unocal.
(b) Blended fuel margin is calculated as fuel sales minus fuel cost of sales
divided by fuel gallons sold.
GASOLINE DISTRIBUTION AND SUPPLY
In 1999, the retail operations of Tosco sold over 4.4 billion gallons
of gasoline including the operations of the convenience store system. The
convenience stores provide an important advantage in the sale of gasoline in the
competitive retail gasoline markets, as do the presence of such amenities as car
washes. All Tosco gasoline stations accept major credit cards.
MERCHANDISING
In 1999, the retail operations of Tosco, including Circle K and 76
products, had over $2 billion of merchandise sales. Offering gasoline is an
important competitive advantage in the convenience store retailing industry. The
convenience stores benefit not only from the sale of gasoline but also from
increased customer traffic in the stores occasioned by gasoline purchases.
COMPLIANCE WITH ENVIRONMENTAL REQUIREMENTS
Tosco is subject to extensive federal, state, and local laws and
regulations governing releases into the environment and the storage,
transportation, disposal, and clean-up of hazardous materials, including, but
not limited to, the federal Clean Water Act, the Clean Air Act, the Resource
Conservation and Recovery Act, laws relating to underground storage tanks
("USTs"), and analogous state and local laws and regulations. See "Legal
Proceedings."
Environmental compliance for Tosco's refining and marketing business
has required, and will continue to require, capital expenditures. Tosco spent
approximately $54 million in 1999 and $88 million in 1998 for all such capital
expenditures by the two operating systems, of which $27 million and $30 million
related to the refining division for 1999 and 1998, respectively. Tosco
currently estimates that capital expenditures for environmental compliance for
the refining division may approximate $48 million and $53 million for 2000 and
2001, respectively. Such amounts do not include amounts that may be necessary to
produce gasoline to meet changing "clean fuels" specifications.
Environmental capital expenditures for Tosco's retail division,
including those relating to upgrading or replacing existing USTs, were
approximately $27 million in 1999 and $58 million in 1998. Tosco's current
estimates for 2000 and 2001 retail division capital expenditures are
approximately $10 million and $13 million, respectively.
Because anticipated remedial actions are subject to negotiation with
governmental agencies, the amount and timing of actual cash expenditures are
uncertain. In addition, further investigative work and negotiations with
governmental agencies may result in different or additional remedial actions
that Tosco cannot presently predict.
The U.S. Environmental Protection Agency (the "EPA") has established
standards for UST owners and operators relating to, among other things: (i)
maintaining leak detection systems; (ii) upgrading UST systems; (iii)
implementing corrective action in response to releases; (iv) closing out-of-use
USTs to prevent future releases; (v) maintaining appropriate records; and (vi)
maintaining evidence of financial responsibility for corrective action and
compensating third parties for bodily injury and property damage resulting from
UST releases. All states in which Tosco operates also have adopted UST
regulatory programs.
Under applicable federal and certain state regulatory programs, Tosco
was obligated to upgrade or replace by December 22, 1998, those USTs it owned or
operated which did not meet new corrosion protection and overfill/spill
containment standards. In some states, this upgrading or replacement was
required to be accomplished by earlier dates. Tosco evaluated each of its sites
selling gasoline to determine the type of expenditures required to comply with
these and other requirements under the federal and state UST regulatory
programs. In certain instances where Tosco believed it would be unable to meet
the December 22, 1998 or other applicable deadline, Tosco took sites out of
service until they could be brought up to the applicable standards or took them
out of service permanently.
Tosco is also advocating two important initiatives for clean fuels,
which are also believed to be beneficial to the environment. First, Tosco
believes that MTBE, which poses a potential water pollution threat, should be
reduced or eliminated as an additive in gasoline. Secondly, Tosco vigorously
supports a dramatic reduction in the amount of sulfur allowed in gasoline - from
the current national average of approximately 350 ppm down to 80 ppm or less.
Automobile manufacturers have indicated that a nationwide low-sulfur, clean fuel
specification is important for the design of new cars to achieve the low
tailpipe emission levels mandated in 2004.
Governmental regulations are complex and subject to different
interpretations. Therefore, future action and regulatory initiatives could
result in changes to expected operating permits, additional remedial actions, or
increased capital expenditures and operating costs that Tosco cannot presently
assess with certainty. See Note 11 to the Consolidated Financial Statements.
COMPETITION
Many of Tosco's competitors in the petroleum industry are fully
integrated companies engaged, on a national or international basis or both, in
many segments of the petroleum business, including exploration, production,
transportation, refining, and marketing, on scales much larger than Tosco. Such
competitors may have greater flexibility than Tosco in responding to or
absorbing market changes occurring in one or more of such segments. Tosco's
petroleum refining and marketing business is not seasonal.
Tosco faces strong competition in its market for the sale of refined
petroleum products, including gasoline. Such competitors, especially major
integrated oil companies, have in the past and may in the future engage in
marketing practices that result in profit margin deterioration for Tosco for
periods of time, causing an adverse effect on Tosco. Tosco does not believe that
there is any one or a small number of dominant competitors in the petroleum
refining and marketing business. Tosco does not know its precise competitive
position therein. Tosco's principal methods of competing are low unit cost of
production, price, or service. Tosco believes it is able to compete with these
methods because of its facilities, their locations, and direction of management.
Tosco must purchase all of its crude oil and substantially all of its
feedstock supplies from others, while some of its competitors have proprietary
sources of crude oil available for their own refineries. Tosco has agreements
with British Petroleum, Statoil, Equiva, Shell, and others to provide Tosco
certain amounts of crude oil. Under present market conditions, Tosco does not
anticipate difficulty in obtaining necessary crude oil supplies. See "Petroleum
Refining, Supply, Distribution, and Marketing - Raw Material Supply."
Tosco faces similarly strong competition in the sale of petroleum
lubricants. Recent large consolidations through mergers and acquisitions in the
previously fragmented lubricants market are making this market even more
competitive. Major integrated oil company brands are the main competitors in the
engine oil segment. These same companies as well as specialty oil marketers are
active in the industrial oil market. Tosco must purchase all of its lubricants
base stock from its competitors. See "Petroleum Refining Supply, Distribution,
and Marketing - LUBRICANTS."
Tosco also faces strong competition in the market for the sale of
retail gasoline and merchandise. The competitors include service stations of
large integrated gasoline companies, independent gasoline service stations,
other convenience stores owners and operators, fast food stores, supermarkets,
warehouse retailers, neighborhood grocery stores, and other similar retail
outlets, some of which are well-recognized national or regional retail systems.
Tosco believes that among the key competitive factors in the retail gasoline
markets are site location, name recognition, customer loyalty, ease of access,
store management, product selection, pricing, hours of operation, store safety,
cleanliness, product promotions, and marketing. Retail gasoline similar or
identical to that sold by Tosco is generally available to its competitors. Tosco
competes by pricing gasoline competitively, combining its retail gasoline
business with convenience stores which provide a wide variety of branded
products at reasonable prices, and using effective advertising and promotional
campaigns.
OPERATING PROPERTIES
Tosco, itself or through its wholly owned subsidiaries, owns the sites
at which its refineries are located (2,300-acre site at Avon, 1,300-acre site at
Bayway, 850-acre site at Ferndale, 650-acre site at LAR, 1,210-acre site at
Rodeo, 1,790-acre site at Santa Maria and a 500-acre site at Trainer) and the
buildings, tanks, pipelines, and related facilities.
Tosco had available at December 31, 1999, through ownership, lease
agreement, exchange, or other appropriate arrangement, the use of storage tanks,
loading racks, wharves, and other related assets at approximately 173 terminal
distribution locations in 27 states. Tosco believes its refinery-related
properties are well-maintained and are suitable and adequate for their present
purposes.
At December 31, 1999, Tosco or its wholly owned subsidiaries owned or
controlled by lease over 3,300 retail service stations located in 19 states.
After Tosco's February 29, 2000 ExxonMobil Asset Acquisition, Tosco owns or
controls by lease over 3,900 such stations in 26 states. In addition to
marketing transportation fuels (gasoline and diesel), many of the stations have
convenience store, car wash, and/or automotive repair facilities.
PATENTS AND TRADEMARKS
Tosco's patents relating to petroleum and lubricants operations are
not material to Tosco as a whole. The ownership of the 76, Union 76, and Circle
K tradenames and other trademarks employed in the marketing of petroleum
products are important to Tosco's operations.
OTHER ACTIVITIES
OIL SHALE
Tosco and its wholly owned subsidiary, The Oil Shale Corporation ("Oil
Shale"), have interests in oil shale properties aggregating approximately 23,100
net mineral acres in Colorado and 20,525 net mineral acres in Utah. Tracts vary
in size from l60 to l7,570 mineral acres. Tosco is also the owner of water
rights and certain oil shale processes and technologies. In addition, Oil Shale
controls approximately l,900 acres of oil shale properties through unpatented
mining claims. (Unpatented properties are those in which the United States
Government has not conveyed to others all of its right, title, and interest.)
OFFICE PROPERTIES
At December 31, 1999, Tosco occupied a total of approximately 800,000
square feet of office space principally in Linden, New Jersey, Tempe, Arizona,
and Stamford, Connecticut, and at various office locations for the refining and
retail systems. The office space occupied by Tosco is generally suitable and
adequate for its purposes.
EMPLOYEES
At December 3l, 1999, Tosco had approximately 24,600 employees at
various locations, including approximately 18,200 store personnel, of which
approximately 4,900 are part-time. Approximately 11% of Tosco's employees,
primarily those employed at the refining facilities, are represented by labor
organizations. Tosco believes that its labor relations with its employees are
good.
ITEM 3. LEGAL PROCEEDINGS
A refinery in Duncan, Oklahoma, formerly owned by Tosco, is subject to
investigation by the Oklahoma Department of Environmental Quality ("ODEQ"). The
ODEQ requested that Tosco participate with the former owner, Sun Company, Inc.
(R&M) ("Sun"), from whom Tosco purchased the site, and the subsequent owners,
including those to whom Tosco sold the site, in the investigation and potential
remediation of alleged environmental contamination. On September 29, 1995, Tosco
entered into a Consent Agreement and Final Order with ODEQ to investigate the
extent of contamination at the refinery, conduct certain interim remedial
actions, and prepare a remedial action plan. On April 10, 1995, Tosco filed a
complaint for declaratory relief against Sun (TOSCO CORPORATION V. SUN COMPANY,
INC. (R&M)), U.S. District Court, Western District of Oklahoma, Case No. Civ. 95
556M) to recover the costs of complying with the ODEQ order, and seeking an
order determining Tosco's and Sun's rights and legal relations under various
environmental laws, including the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"), the Resource Conservation and
Recovery Act ("RCRA") and the Oil Pollution Act ("OPA"), and under the Purchase
Agreement through which Tosco purchased the Duncan Refinery, relating to the
costs of environmental investigation and potential remediation at the site. The
complaint was subsequently amended to name Koch Industries, Inc. ("Koch"),
another former owner, as another defendant. On February 14, 1996, Tosco obtained
default judgments against some of the current owners of the refinery. In January
1998, Tosco entered into a Settlement Agreement with Sun, pursuant to which Sun
agreed to pay $7 million in exchange for a release from liability with respect
to the site. In early 1998, a trial was held on Tosco's claim against Koch. The
court ruled in Tosco's favor that Koch was responsible for effectively 15% of
past and future investigation and remediation costs at the site. In November
1999, Koch's May 4, 1998 appeal to the 10th Circuit Court of Appeals, seeking
review of the trial court decision, was argued.
In a case filed in 1996 by private litigants against all major
petroleum refiners, distributors, and retailers in California, including Tosco,
alleging that the defendants restrained trade and restricted the supply of a
certain type of cleaner burning gasoline sold in California, AGUILAR, ET AL. V.
ATLANTIC RICHFIELD CORPORATION, ET AL. (Superior Court of California, County of
San Diego, Case No. 00700810), the court granted the Defendants' Motions for
Summary Judgment in October 1997. In late January 2000, the California Court of
Appeals affirmed the lower court's summary judgment in favor of the defendants,
including Tosco (reversing the lower court's January 29, 1998, ruling in which
the lower court had reversed itself and ordered a new trial.) On January 28,
1998, a plaintiff allegedly representing a class of all wholesale purchasers of
gasoline in the State of California sued nine petroleum refineries, including
Tosco, making essentially the same allegations as those made in the Aguilar
case, GILLEY V. ATLANTIC RICHFIELD CORP., ET AL., (U.S. District Court, Southern
District of California, Case No. 93-CVU132BTM). The court has stayed all
proceedings in this matter pending the decision of the Court of Appeals in the
AGUILAR case.
On October 22, 1998, a complaint was filed by a private litigant,
purportedly on behalf of a class of all direct or indirect purchasers of
California diesel fuel between March 19, 1996 and December 31, 1997, against all
California refiners of California diesel fuel (CAL-TEX CITRUS JUICE, ET AL. V.
ATLANTIC RICHFIELD COMPANY, ET AL. Superior Court of California, County of
Sacramento, Case No. 98AS05227). The complaint alleges violations of various
state statutes by the defendants' alleged conspiracy to fix prices of California
diesel fuel. Tosco has filed an Answer.
In October 1998, a complaint was filed against gasoline refiners and
wholesalers in Hawaii, including Tosco, by the State of Hawaii alleging that
defendants fixed the price of gasoline and allocated market share and seeking
damages and injunctive relief (BRONSTER V. CHEVRON CORPORATION, ET AL., U.S.
District Court, District of Hawaii, Case No. CV9800792SPK). Tosco filed a Motion
to Dismiss. In 1999, in response to Tosco's Motion to Dismiss, which was granted
in part and denied in part, the State amended its complaint to make essentially
the same allegations.
In four cases, complaints were filed by private litigants, a water
company, and a municipality against numerous defendants, including Tosco,
alleging violation of state law in the production and sale of gasoline which
included an additive, methyl tertiary butyl ether, (KUBAS, ET AL. V. UNOCAL
CORPORATION, ET AL., Superior Court of California, County of Los Angeles, Case
No. BC191876, COMMUNITIES FOR A BETTER ENVIRONMENT V. UNOCAL CORPORATION, ET
AL., Superior Court of California, County of San Francisco, Case No. 997013,
SOUTH TAHOE PUBLIC UTILITY DISTRICT V. ATLANTIC RICHFIELD COMPANY, ET AL., U.S.
District Court, District of Delaware, Civil Action No. 98-336; THE CITY OF
DINUBA V. UNOCAL CORPORATION, ET AL., Superior Court of California, County of
San Francisco, Case No. 305450). It is alleged that the additive contaminated
water supplies. Tosco has filed Answers in all cases.
The costs of remedial actions in environmental cases are highly
uncertain due to, among other items, the complexity and evolving nature of
governmental laws and regulations and their interpretations as well as the
varying costs and effectiveness of alternative cleanup technologies. However,
Tosco presently believes that any cost in excess of the amounts already provided
for in the financial statements should not have a materially adverse effect upon
Tosco's operations or financial condition. Tosco further believes that a portion
of future environmental costs, as well as environmental expenditures previously
made, will be recovered from other responsible parties under contractual
agreements and existing laws and regulations. See Notes 11 and 20 to the
Consolidated Financial Statements.
There are various other suits and claims pending against Tosco, and
its subsidiaries, which in the opinion of Tosco are not material or meritorious
or are substantially covered by insurance. While it is impossible to estimate
with certainty the ultimate legal and financial liability with respect to these
suits and claims, Tosco believes the aggregate amount of such liabilities will
not result in monetary damages that in the aggregate would be material to the
business or operations of Tosco.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
EXECUTIVE OFFICERS OF THE REGISTRANT
Served as an Principal Occupation
Name Age Officer Since and Positions Held
---- --- ------------- --------------------
Thomas D. O'Malley 58 1989 Chairman of the Board and Chief
Executive Officer of Tosco since
January 1990; President of Tosco
from May 1993 to May 1997 and
from October 1989 to May 1, 1990.
Jefferson F. Allen 54 1990 President of Tosco since May 1997
and Chief Financial Officer since
June 1990; Executive Vice
President from June 1990 to May
1997; Treasurer of Tosco from
June 1990 to October 1995;
various positions, including
Chairman and CEO, with Comfed
Bancorp, Inc., and related
entities from November 1988 to
June 1990.
Robert J. Lavinia 53 1993 Executive Vice President of Tosco
and President of Tosco Marketing
Company (a division of Tosco)
since February 1996; Senior Vice
President of Tosco from May 1994
to February 1996; Vice President
of Tosco from 1993 to May 1994;
President, Tosco Energy
Corporation during 1992; prior to
1992, various positions with
Phibro Energy for a period in
excess of five years.
Dwight L. Wiggins 59 1993 Executive Vice President of Tosco
and President of Tosco Refining
Company (a division of Tosco)
since February 1996; Senior Vice
President of Tosco from May 1994
to February 1996; Vice President
of Tosco from January 1993 to May
1994; President of Bayway
Refining Company since January
1993; New Jersey Area Manager for
Exxon Company U.S.A. 1990 to
1993.
Wilkes McClave III 52 1989 Senior Vice President of Tosco
since May 1996 and General
Counsel of Tosco since May 1990;
Vice President of Tosco from May
1990 to May 1996; Secretary of
Tosco since August 1989;
Assistant General Counsel of
Tosco from January 1986 to May
1990.
Peter A. Sutton 54 1992 Senior Vice President of Tosco
since August 1998; Vice President
of Tosco from January 1992 to
August 1998; Senior Vice
President of Tosco Refining
Company since May 1990; various
other positions with Tosco for a
period in excess of five years.
Duane B. Bordvick 54 1997 Senior Vice President of Tosco
for safety, health, and the
environment since February 2000;
Vice President of Tosco for
environmental and external
affairs from February 1997 to
February 2000; Vice President of
Tosco Refining Company for a
period in excess of five years.
Craig R. Deasy 55 1986 Vice President and Treasurer of
Tosco since October 1995; Vice
President and Treasurer of Bayway
Refining Company since April
1993; various other positions
with Tosco for a period in excess
of five years.
William E. Hantke 52 1999 Vice President of Tosco for
development since May 1999;
various other positions with
Tosco since 1990; various finance
and accounting positions in oil
and other commodity industries
since 1975.
Ann Farner Miller 48 1996 Vice President of Tosco for
governmental relations since May
1996; director of governmental
relations of Tosco Refining
Company for a period in excess of
five years.
Richard W. Reinken 43 1994 Vice President and Chief
Information Officer of Tosco
since November 1994; Senior Vice
President of Tosco Marketing
Company since June 1996;
Consultant, Andersen Consulting
from 1985 to 1994.
Robert I. Santo 56 1992 Vice President of Tosco since
January 1998; Chief Accounting
Officer of Tosco since January
1992; various other positions
with Tosco for a period in excess
of five years.
Wanda Williams 53 1996 Vice President of Tosco for human
resources since May 1996; Vice
President of Tosco Marketing
Company since May 1996; Vice
President of Circle K for human
resources from June 1993 to May
1996; various other positions
with Circle K from July 1992 to
May 1996; various human resources
positions in the oil industry and
convenience store industry from
1971 to 1992.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Tosco's Common Stock is traded on the New York Stock Exchange ("NYSE")
and the Pacific Stock Exchange. Set forth below are the high and low sales
prices as reported on the NYSE Composite Tape.
PRICE RANGE OF COMMON STOCK
1999 High Low Dividend 1998 High Low Dividend
1st Quarter $26 5/16 $19 5/16 $0.06 1st Quarter $37 7/8 $31 5/8 $0.06
2nd Quarter 28 23 $0.07 2nd Quarter 36 5/8 26 3/8 $0.06
3rd Quarter 28 13/16 24 5/8 $0.07 3rd Quarter 30 7/8 20 7/8 $0.06
4th Quarter 30 5/16 23 15/16 $0.07 4th Quarter 29 19 3/4 $0.06
The number of Tosco shareholders of record on February 29, 2000 was 8,595.
DIVIDEND POLICY
Tosco has paid a regular quarterly cash dividend on its Common Stock
since the third quarter of 1989. Pursuant to the terms of Tosco's Revolving
Credit Facility and its bond indentures, dividends on Tosco's Common Stock are
permitted to the extent Tosco satisfies certain defined criteria. Continued
payment of such quarterly dividend is also subject to profitable results of
operations, which are primarily dependent on the continued favorable performance
of Tosco's operating facilities and favorable operating margins. There can be no
assurance that Tosco will be able to continue payment of such quarterly
dividend.
ITEM 6. SELECTED FINANCIAL DATA
The following Selected Financial Data are qualified in their entirety
by the more detailed Consolidated Financial Statements and related Notes at the
end of this report. The Selected Financial Data for each of the five years ended
December 31, 1999, are derived from the Consolidated Financial Statements of
Tosco audited by PricewaterhouseCoopers LLP, independent accountants.
TOSCO CORPORATION AND SUBSIDIARIES
SELECTED FINANCIAL DATA
(Millions of Dollars, Except Per Share and Ratio Data)
YEAR ENDED DECEMBER 31,
STATEMENT OF INCOME INFORMATION 1999 1998 1997 (A) 1996 (B) 1995
---- ---- -------- -------- ----
Sales $14,362.1 $12,021.5 $13,281.6 $9,922.6 $7,284.1
Operating contribution (c) $1,258.8 $1,215.7 $1,168.1 $725.6 $389.4
Depreciation and amortization (308.4) (313.9) (303.5) (184.5) (111.4)
Special items:
Inventory (writedown) recovery 240.0 (240.0) (53.0)
Restructuring (charge) recovery 2.1 (40.0) (13.5) (5.2)
Avon Refinery start-up costs (43.1)
Gain on sale of retail assets in non-core markets 40.5
Interest expense, net (118.8) (122.7) (134.5) (83.4) (52.8)
Net income $441.7 $106.2 $212.7 $146.3 $77.1
Diluted earnings per share $2.83 $0.67 $1.37 $1.16 $0.69
Cash dividends per common share 0.27 0.24 0.24 0.22 0.21
December 31,
BALANCE SHEET INFORMATION 1999 1998 1997 1996 1995
----- ---- ---- ---- ------
Total assets $6,212.4 $5,842.8 $5,974.9 $3,554.8 $2,003.2
Revolving credit facility $106.0 $196.0 $166.0 $- $45.0
Long-term debt 1,352.9 1,358.6 1,415.3 826.8 579.0
--------- --------- -------- --------- --------
Debt 1,458.9 1,554.6 1,581.3 826.8 624.0
Trust Preferred Securities (d) 300.0 300.0 300.0 300.0
Shareholders' equity 2,108.3 1,913.0 1,944.1 1,070.3 627.1
--------- --------- -------- --------- --------
Total capitalization $3,867.2 $3,767.6 $3,825.4 $2,197.1 $1,251.1
========= ========= ======== ========= ========
Debt to total capitalization ratio 0.38 0.41 0.41 0.38 0.50
Book value per common share $14.65 $12.57 $12.44 $8.17 $5.64
(a) Includes the operations of 76 Products for the period commencing March 31, 1997 (date acquired).
(b) Includes the operations of The Circle K Corporation for the period commencing May 30, 1996 (date acquired).
(c) Operating contribution is calculated as sales minus cost of sales.
(d) Trust Preferred Securities consist of company-obligated, mandatorily redeemable, convertible preferred securities of
Tosco Financing Trust, holding solely 5.75% convertible junior subordinated debentures of Tosco.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
Tosco's mix of refining and marketing businesses allowed it to post
good results for 1999 in a weak market. Income from operations (before special
items) for 1999 increased over 1998, despite the volatility in product prices
throughout 1999. Special items for 1999 include a $240 million inventory
write-up, a $40 million gain on the sale of retail sites, an $8 million LIFO
inventory liquidation gain, and non-recurring costs of $43 million related to
the restart of the Avon Refinery. Tosco upgraded its marketing division during
1999 through the acquisition of over 200 quality sites from BP/Amoco and
Boardman Petroleum in the Southeast. In addition, Tosco sold 372 convenience
stores in non-core markets during 1999. On February 29, 2000, Tosco acquired and
began operating retail systems consisting of 1,740 gasoline and convenience
outlets from Exxon Corporation and Mobil Oil Corporation (collectively
"ExxonMobil"). These outlets comprise Exxon's Northeast and Mobil's Middle
Atlantic systems. During 1999, Tosco was added to the S&P 500 Index and its
credit rating was further upgraded within the investment grade category by S&P
Rating Service. The S&P 500 Index is one of the most widely used benchmarks for
U.S. equity performance.
RESULTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31,
(MILLIONS OF DOLLARS, EXCEPT PER SHARE DATA) 1999 1998 1997 (A)
------------- -------------- ------------
Sales $ 14,362.1 $ 12,021.5 $ 13,281.6
Cost of sales (13,103.3) (10,805.8) (12,113.5)
------------- -------------- -------------
Operating contribution 1,258.8 1,215.7 1,168.1
Depreciation and amortization (308.4) (313.9) (303.5)
Special items:
Inventory (writedown) recovery 240.0 (240.0) (53.0)
Restructuring (charge) recovery 2.1 (40.0)
Avon Refinery start-up costs (43.1)
Gain on sale of retail assets in non-core markets 40.5
Selling, general, and administrative expenses (305.2) (300.3) (296.3)
Interest expense, net (118.8) (122.7) (134.5)
------------- ------------- -------------
Income before income taxes and distributions on Trust Preferred
Securities 765.9 198.8 380.8
Income taxes (314.0) (82.5) (158.0)
------------- ------------- -------------
Income before distributions on Trust Preferred Securities 451.9 116.3 222.8
Distributions on Trust Preferred Securities, net of income tax benefit (10.2) (10.1) (10.1)
------------- ------------- -------------
Net income $ 441.7 $ 106.2 $ 212.7
============= ============= =============
Earnings per share (b) $ 2.83 $ 0.67 $ 1.37
============= ============== =============
(a) Results of operations include the West Coast petroleum refining, marketing,
and related supply and transportation operations acquired from Union Oil
Company of California ("Unocal") on March 31, 1997 (the "76 Products
Acquisition").
(b) 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):
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------
1999 1998 1997
------------- -------------- ---------
Average charge barrels input per day (b):
Crude oil 762,600 837,200 703,400
Other feed and blending stocks 88,300 107,600 90,000
------------- -------------- -------------
850,900 944,800 793,400
============= ============== =============
Average barrels of petroleum products produced per day (b):
Clean products (c) 712,200 786,900 662,000
Other finished products 133,400 155,400 125,800
------------- -------------- -------------
845,600 942,300 787,800
============= ============== =============
Operating margin per charge barrel (d) $ 5.11 $ 4.61 $ 4.89
============= ============== =============
(a) The Refining Data Summary presents the operating results of the following refining facilities:
- Bayway Refinery, located on the New York Harbor.
- Ferndale Refinery, located on Washington's Puget Sound.
- Los Angeles Refinery System, comprised of two refineries in Los Angeles
(for the period beginning April 1, 1997)
- San Francisco Area Refinery System, comprised of the Rodeo-Santa Maria
complex (for the period beginning April 1, 1997) and the Avon Refinery.
(The Avon Refinery was shutdown in March 1999 for a safety review
following a fire at a crude unit on February 23, 1999. All major
processing units had been restarted by the end of July 1999.)
- Trainer Refinery, located near Philadelphia (for the period beginning
May 8, 1997).
(b) A barrel is equal to 42 gallons.
(c) Clean products are defined as clean transportation fuels (gasoline, diesel,
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 includes insurance recoveries.
RETAIL DATA SUMMARY:
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------
1999 1998 1997 (A)
------------- -------------- -----------
Volume of fuel sold (millions of gallons) 4,451.6 4,490.4 4,159.4
Blended fuel margin (cents per gallon) (b) 11.4 12.1 12.8
Number of gasoline stations at year end 4,143 4,476 4,652
Merchandise sales (millions of dollars) $ 2,039.7 $ 2,097.8 $ 2,003.4
Merchandise margin (percentage of sales) 28.7% 29.6% 29.4%
Number of merchandise stores at year end 2,070 2,313 2,395
Other retail gross profit (millions of dollars) $ 115.9 $ 112.9 $ 116.2
(a) The Retail Data Summary includes the operations of gasoline service stations
acquired in the 76 Products Acquisition.
(b) Blended fuel margin is calculated as fuel sales minus fuel cost of sales
divided by fuel gallons sold.
1999 COMPARED TO 1998
Tosco earned net income before special items of $297 million ($1.92
per share) during 1999. These results, which include insurance recoveries
related to the Avon Refinery incident which replaced otherwise lost operational
profit, represent a 10% increase in net income before special items of $270
million ($1.66 per share) for 1998. Special items for 1999 include a $240
million ($142 million after-tax and $0.89 per share) write-up of LIFO
inventories previously written-down to their net realizable value, a $40 million
($24 million after-tax and $0.15 per share) gain on the sale of 372 retail sites
in non-core markets, an $8 million ($5 million after-tax and $0.03 per share)
LIFO inventory liquidation gain, and non-recurring costs of $43 million ($25
million after-tax and $0.16 per share) related to the restart of the Avon
Refinery following its stand-down for a safety review. After special items,
Tosco earned net income of $442 million ($2.83 per share) in 1999 compared to
$106 million ($0.67 per share) in 1998. Results of operations for 1998 included
a $240 million ($140 million after tax, $0.88 per share) non-cash inventory
writedown and a $40 million ($23 million after tax, $0.15 per share)
restructuring charge. Sales in 1999 were $14.4 billion compared to $12.0 billion
in 1998. This increase of $2.4 billion was attributable to increased product
prices partially offset by lower refinery production and retail merchandise
sales. Production declines were primarily due to the stand-down of the Avon
Refinery and the turnaround of the Bayway Refinery cat cracker in March and
April 1999.
On February 23, 1999, a fire occurred at a crude unit at the San
Francisco Area Refinery, Avon facility. The fire was quickly isolated and
extinguished with no offsite effects or health risks to the community. In March,
the Avon Refinery was shutdown while a thorough safety review and extensive
employee safety training were conducted. In May, Tosco began the process of
restarting the refinery and all major processing units were restarted by the end
of July. See Note 16 to the Consolidated Financial Statements.
Operating contribution of $1.3 billion for 1999 increased by $43
million compared to 1998. The increase was from refining ($45 million) partially
offset by a decrease from marketing ($2 million).
The increase in refining operating contribution of $45 million for the
1999 year compared to 1998 was primarily due to increased operating margins per
charge barrel ($5.11 in 1999 compared to $4.61 in 1998). This was partially
offset by lower production rates in 1999 (850,900 barrels per day ("B/D") in
1999 compared to 944,800 B/D in 1998). The improvement in consolidated operating
margins during 1999 were the result of improved West Coast margins, due to
increased demand coupled with reduced production, partially offset by lower East
Coast margins. West Coast throughputs were reduced at several California
refineries, including Tosco's Avon Refinery, during 1999 due to unscheduled
outages of major processing units. East Coast operating margins were among the
lowest levels in recent history. Cost of sales for 1999 was reduced by $42
million ($25 million after-tax and $0.16 per diluted share) for insurance
recoveries related to the Avon Refinery incident and an $8 million LIFO
inventory liquidation gain.
Marketing operating contribution for 1999 was $531 million compared to
$533 million in 1998. The decrease of $2 million was primarily due to lower
blended fuel margins for 1999. As a result of reduced store counts, fuel volumes
and merchandise sales for 1999 were lower than 1998, but both amounts increased
in 1999 compared to 1998 on a per store basis.
Depreciation and amortization for 1999 was $308 million compared to
$314 million in 1998. The decrease of $6 million was due to a $24 million
reduction in depreciation attributable to Tosco's January 1, 1999 extension of
its refinery and distribution assets' useful lives. This was partially offset by
1999 depreciation on assets placed in service throughout 1999. See Note 6 to the
Consolidated Financial Statements.
In December 1999, Tosco reversed (based on December 31, 1999 price
levels) $240 million of net realizable value write-downs of its raw material and
product inventories. These inventories had been written-down to their net
realizable value at December 31, 1998. The 1998 writedown was the result of the
steep market decline in crude oil and product prices in 1998 lowering the value
of inventories acquired in connection with Tosco's acquisitions since 1993.
During 1999, Tosco incurred non-recurring expenses of $43 million
related primarily to the restart of the Avon Refinery. These start-up costs did
not include any normal recurring expenses for maintaining the refinery or
training employees during the stand-down period. See Note 16 to the Consolidated
Financial Statements.
During 1998, Tosco recorded a $40 million charge primarily related to
the restructuring of its San Francisco Area Refinery System. In April 1999,
management announced that layoffs and consolidation of functions planned for
1999 would not occur as originally contemplated. Accordingly, remaining employee
termination cost accruals totaling $2 million were reversed in 1999. See Note 8
to the Consolidated Financial Statements.
Tosco has completed its present program of divestiture of convenience
stores in non-core markets. In 1999, Tosco realized a gain of $40 million from
the sale of 372 convenience stores. Operations from these convenience stores did
not significantly impact operating contribution during 1999.
Net interest expense during 1999 was $4 million less than 1998 due
primarily to lower levels of borrowings partially offset by increases in
interest rates under the Revolving Credit Facility.
Income taxes, including the benefit associated with the distributions
on company-obligated, mandatorily redeemable, convertible preferred securities
("Trust Preferred Securities"), were $307 million for 1999 compared to $75
million in 1998. The increase was due to higher taxable income in 1999. During
1999, Tosco reduced its effective income tax rate to 41.0% from 41.5% used in
1998 based on an evaluation of state income taxes given Tosco's current mix of
profits.
1998 COMPARED TO 1997
Tosco earned net income of $106 million ($0.67 per share) in 1998
compared to $213 million ($1.37 per share) in 1997. Results of operations for
1998 include a $240 million ($140 million after tax, $0.88 per share) non-cash
inventory writedown and a $40 million ($23 million after tax, $0.15 per share)
restructuring charge. Results of operations for 1997 include a $53 million ($31
million after tax, $0.19 per share) non-cash inventory writedown. Sales in 1998
were $12.0 billion compared to $13.3 billion in 1997. This decrease of $1.3
billion was attributable to lower product prices partially offset by higher
refinery throughput and retail fuel sales volumes. The higher throughput and
sales volumes resulted from the 76 Products Acquisition (twelve months in 1998
versus nine months in 1997) and the full year operation of the previously
shutdown Trainer Refinery, which was reopened on May 8, 1997.
Operating contribution of $1.2 billion for 1998 increased by $47
million over 1997. The increase was from refining ($54 million) partially offset
by a decrease from marketing ($7 million).
Refining operating contribution for 1998 increased by $54 million to
$682 million due primarily to increased throughput (944,800 barrels per day
("B/D") in 1998 compared to 793,400 B/D in 1997) partially offset by lower
operating margin per charge barrel ($4.61 in 1998 compared to $4.89 in 1997).
The increase in throughput volumes was primarily due to the acquisition of
refineries from Unocal, the start-up of the Trainer Refinery, and to a lesser
degree to increases at the Avon and Bayway refineries, both of which experienced
no unscheduled shutdowns in 1998. The decrease in operating margin per charge
barrel was primarily due to lower product prices experienced throughout 1998.
Refining operating contribution includes insurance recoveries related to the
unscheduled shutdowns in 1997 of the Bayway Refinery cat cracker and Avon
Refinery hydrocracker.
Marketing operating contribution for 1998 was $533 million compared to
$540 million in 1997. The decrease of $7 million was due to lower blended fuel
margins (12.1 cents per gallon in 1998 versus 12.8 in 1997) partially offset by
higher fuel sales volumes from the 76 Products Acquisition and higher
merchandise sales volumes and profit margins.
Tosco recorded a $240 million charge for the write-down of raw
material and product inventories to their fair value at December 31, 1998. The
inventory writedown was the result of the steep market decline in crude oil and
product prices in 1998 lowering the value of inventories acquired in connection
with Tosco's acquisitions since 1993. During 1997, Tosco recorded a $53 million
inventory write-down also as a result of declining prices.
During 1998, Tosco recorded a $40 million charge primarily related to
the restructuring of its San Francisco Area Refinery System. The key component
of the restructuring plan revolves around the continued integration of the Avon
Refinery and the Rodeo-Santa Maria complex acquired in 1997.
Selling, general, and administrative ("SG&A") expenses for 1998
include the recognition of a $10 million gain on the sale of the Revere
distribution terminal in Massachusetts, and approximately $3 million of
non-recurring costs related to the consolidation of Tosco's offices. SG&A
expenses for 1997 include non-recurring transition expenses of $18 million
related to the integration of the 76 Products assets into Tosco's operations.
Excluding these 1998 and 1997 non-recurring items, SG&A expenses increased by
$29 million in 1998, due primarily to the 76 Products Acquisition.
Net interest expense, as restated, for 1998 was $12 million less than
1997 due to lower levels of borrowings and interest rates under the Revolving
Credit Facility.
Income taxes, including the benefit associated with the Trust
Preferred Securities, were $75 million for 1998 compared to $151 million in
1997. The decrease was due to lower taxable income in 1998.
OUTLOOK
On February 29, 2000, Tosco acquired and began operating retail
systems consisting of approximately 1,740 retail gasoline and convenience
outlets from ExxonMobil for $860 million (the "ExxonMobil Acquisition"). Tosco
is also acquiring certain undeveloped sites and distribution terminals, all of
which ExxonMobil is divesting under a Federal Trade Commission consent decree.
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 acquisition is
expected to be accretive to earnings. See Note 23 to the Consolidated Financial
Statements. Tosco continues to review acquisition opportunities. However, Tosco
plans to continue its disciplined approach to acquisitions, which requires an
acquisition to be accretive to earnings.
Results of operations are primarily determined by the operating
efficiency of the refineries and by refining and retail fuel margins. Tosco
expects, given reasonable margins, to operate its refineries at high levels
through the balance of 2000. Tosco is not able to predict the level or timing of
operating margins for 2000 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 becoming more efficient in all
areas of operation without compromising safety, reliability, or environmental
compliance.
Tosco estimates that its effective income tax rate for 2000 will
decrease to 40.5% based on an evaluation of Tosco's projected state income taxes
after factoring in the ExxonMobil Acquisition.
CASH FLOWS
As summarized in the Consolidated Statement of Cash Flows, cash and
cash equivalents decreased by $3 million during 1999. Cash used in investing
activities of $473 million and financing activities of $346 million exceeded
cash provided by operating activities of $816 million.
Net cash provided by operating activities of $816 million was from
cash earnings (net income plus depreciation and amortization, and other non-cash
operating gains and losses) of $632 million, a net decrease in operating assets
and liabilities (primarily working capital) of $176 million, and other items of
$8 million. The change in working capital reflects the increase in crude and
product prices that occurred in 1999 and Tosco's liquidation of LIFO
inventories.
Net cash used in investing activities totaled $473 million due to
capital additions of $451 million, spending for turnarounds of $85 million, and
acquisitions of retail systems of $118 million less proceeds on asset sales of
$156 million and a net decrease in deferred charges and other assets of $25
million.
Net cash used in financing activities totaled $346 million due to net
repayments under the Revolving Credit Facility totaling $90 million, Common
Stock repurchases of $216 million, and dividend payments of $40 million.
Tosco completed its previously announced Common Stock repurchase
program in August 1999. In September 1999, Tosco's Board of Directors approved
an additional $300 million for the repurchase of Tosco Common Stock as
opportunities arise and financial ability permits. Through February 29, 2000, no
repurchases had been made pursuant to this program. See Note 13 to the
Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity (as measured by cash, cash equivalents, marketable
securities, deposits, and availability under the Revolving Credit Facility)
totaled $813 million at December 31, 1999, a $42 million decrease from the
December 31, 1998 balance of $855 million. Cash and cash equivalents, marketable
securities, and deposits increased by $1 million, and availability under the
Revolving Credit Facility decreased by $43 million. The decrease in availability
under the Revolving Credit Facility reflects Tosco's election not to renew its
$100 million Facility B under the Revolving Credit Facility when it expired on
January 12, 1999.
At December 31, 1999, total shareholders' equity was $2.1 billion; a
$195 million increase compared to the December 31, 1998 balance. This increase
was due to net income of $442 million and other items of $10 million exceeding
Common Stock repurchases of $217 million and dividends of $40 million. Debt
(current and long-term debt and the Revolving Credit Facility) decreased by $96
million to approximately $1.5 billion at December 31, 1999 due primarily to net
Revolving Credit Facility repayments. The ratio of 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 Shareholders' Equity) was 38% at December 31, 1999,
compared to the December 31, 1998 ratio of 41%.
In January 1997, Tosco filed a shelf registration statement providing
for the issuance of up to $1.5 billion aggregate principal amount of debt and
equity securities. Such securities may be offered, separately or together, in
amounts and at prices and terms to be set forth in one or more supplements to
the shelf registration statement. On February 8, 2000, Tosco issued $400 million
of 8.125% Notes due in 2030 in a public offering pursuant to the shelf
registration statement. At February 29, 2000, Tosco has $379 million remaining
and available pursuant to this shelf registration statement.
In February 2000, Tosco amended and restated its Revolving Credit
Facility (the "Amended Revolving Credit Facility"). See Note 9 to the
Consolidated Financial Statements.
The Amended Revolving Credit Facility, as well as funds potentially
available from the issuance of securities, provides Tosco with adequate
resources to meet its expected liquidity demands for at least the next twelve
months, including repayment of the $125 million notes payable on July 15, 2000.
CAPITAL EXPENDITURES
During 1999, Tosco spent $451 million on property, plant, and
equipment additions and $85 million for turnarounds. With the exception of
certain turnarounds at the Avon Refinery during the stand-down period, these
additions were budgeted for 1999. Refining additions of $309 million were
primarily for turnarounds at the Avon and Bayway Refineries and projects related
to compliance with environmental regulations and permits, personnel/process
safety programs, and operating flexibility and reliability projects.
Marketing capital additions of $227 million were primarily for
improvements at existing sites. Tosco's marketing division also acquired 174
retail gasoline and convenience store sites and 20 raw land parcels in the
Southeast and 27 gasoline service stations in Pittsburgh, Pennsylvania during
1999. Tosco divested 372 non-core convenience store properties during 1999. See
Notes 3, 6, and 18 to the Consolidated Financial Statements.
Construction of a 775 million pounds per year polypropylene plant at
the Bayway Refinery, currently in progress, is expected to be completed in two
years.
Tosco intends to finance its 2000 capital additions, including
construction of the polypropylene plant, through cash flows from operations and,
if needed, by borrowings under the Amended Revolving Credit Facility. Tosco
financed the ExxonMobil Acquisition, including working capital, through a
combination of available cash, borrowings under the Amended Revolving Credit
Facility, operating lease financing, and the sale of debt securities.
RISK MANAGEMENT
Tosco uses a variety of strategies to reduce commodity price,
interest, and operational risks. Tosco, at times and when able, uses futures and
forward contracts to lock in what it believes to be favorable margins on a
varying portion of refinery production by taking offsetting long (obligation to
buy at a certain price) positions in crude oil and short (obligation to deliver
at a certain price) positions in gasoline and heating oil. This strategy is
intended to hedge Tosco's exposure to fluctuations in refining margins and
therefore should tend to reduce the volatility of operating results. In
addition, Tosco enters into swap contracts with counterparties to hedge sales
prices of residual fuels production. To a lesser extent, future and forward
contracts may also be used to hedge inventories stored for future sale and to
hedge against adverse price movements between the cost of domestic and foreign
crude oil.
Tosco uses a value-at-risk ("VAR") model to assess the market risk of
its derivative instruments. VAR represents the potential losses for an
instrument or portfolio from adverse changes in market factors, for a specified
time period and confidence level. Tosco estimates VAR across its derivative
instruments using a model with historical volatilities and correlations
calculated using a one-day interval. Tosco's measured VAR, using a VAR model
with a 95% confidence level and assuming normal market conditions at December
31, 1999 and 1998, was not material.
Tosco's calculated VAR exposure represents an estimate of reasonably
possible net losses assuming hypothetical movements in future market rates and
is not necessarily indicative of actual results that may occur. The calculated
VAR does not represent the maximum possible loss nor any expected loss that may
occur, since actual future gains and losses will differ from those estimated,
based upon actual fluctuations in market rates, operating exposures, and the
timing thereof, and changes in Tosco's holdings of derivative instruments during
the year.
Tosco manages its interest rate risk by maintaining a mix of fixed
rate and floating rate debt. Floating rate debt, primarily borrowings under the
Amended Revolving Credit Facility that currently provides up to $750 million of
uncollateralized revolving credit availability, is used to finance Tosco's
working capital requirements. The balance of Tosco's debt is at acceptable fixed
rates. See Notes 9 and 10 to the Consolidated Financial Statements.
Tosco carries insurance policies on insurable risks, which it believes
to be appropriate at commercially reasonable rates. While Tosco believes that it
is adequately insured, future losses could exceed insurance policy limits or,
under adverse interpretations, be excluded from coverage. Future costs, if any,
incurred under such circumstances would have to be paid out of general corporate
funds, if available. See Note 19 to the Consolidated Financial Statements for a
discussion of Tosco's strategy to reduce credit risk.
IMPACT OF INFLATION
The impact of inflation has been less significant during recent years
because of the relatively low rates experienced in the United States. Raw
material, energy, and labor are important components of Tosco's costs. Any or
all of these components could be increased by inflation, with a possible adverse
effect on profitability, especially in high inflation periods when raw material
and energy cost increases generally lead finished product prices.
IMPACT OF THE YEAR 2000 ISSUE
Historically, certain computer programs used two rather than four
digits to define a given calendar year. Computer programs that used two digits
to define the year could recognize a date using "00" as the year 1900 rather
than 2000. This practice could have resulted in business and field system
failures or miscalculations that could have caused serious disruptions of
operations. This was generally referred to as the "Year 2000 Issue." For several
years, Tosco has been proactively upgrading and replacing its information
systems. In early 1998, Tosco formed a Year 2000 Program Office to coordinate
the efforts of Tosco's operating units and administrative departments. During
1998 and 1999, Tosco committed significant resources to address its Year 2000
Issues. Tosco has not experienced any meaningful disruptions related to the Year
2000 Issue.
Tosco's Year 2000 compliance costs included external consultants and
contractors, compensation costs of internal employees working directly on Year
2000 Issues, purchases of software and hardware, and system upgrades and
modifications which were accelerated to address the Year 2000 Issue. Tosco's
Year 2000 compliance costs did not have a material effect on its 1999 or 1998
operating results or financial position.
NEW ACCOUNTING STANDARD
During June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 133 "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes
accounting and reporting standards for derivative instruments and for hedging
activities. The Company plans to adopt SFAS No. 133 on January 1, 2001. Tosco is
currently evaluating the effect SFAS No. 133 will have on its financial position
and results of operations.
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 2000 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required by Part II,
Item 8, are included in Part IV, as indexed at Item 14(a) and (a)(2).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
There is hereby incorporated by reference the information appearing
under the caption "Nominees for Election" in Tosco's definitive Proxy Statement
relating to its 2000 Annual Meeting of Shareholders to be filed with the
Securities and Exchange Commission. See also the information appearing under the
caption "Executive Officers of the Registrant" in Part I.
Tosco is not aware of any family relationship between any Director or
executive officer. Each officer is generally elected to hold office until the
next Annual Meeting of the Board of Directors.
ITEM 11. EXECUTIVE COMPENSATION
There is hereby incorporated by reference the information appearing
under the caption "Executive Compensation" in Tosco's definitive Proxy Statement
relating to its 2000 Annual Meeting of Shareholders to be filed with the
Securities and Exchange Commission.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
There is hereby incorporated by reference the information appearing
under the caption "Stock Ownership of Officers and Directors" and "Other Matters
- - Certain Security Holdings" in Tosco's definitive Proxy Statement relating to
its 2000 Annual Meeting of Shareholders to be filed with the Securities and
Exchange Commission.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There is hereby incorporated by reference the information appearing
under the caption "Executive Compensation" in Tosco's definitive Proxy Statement
relating to its 2000 Annual Meeting of Shareholders to be filed with the
Securities and Exchange Commission.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A)(1) AND (A)(2). FINANCIAL STATEMENTS AND FINANCIAL STATEMENT
SCHEDULES. The consolidated financial statements and financial statement
schedules of Tosco Corporation and subsidiaries, required by Part II, Item 8,
are included in Part IV of this report. See Index to Consolidated Financial
Statements and Financial Statement Schedules on page F-1.
(A)(3). EXHIBITS
3(a) Amended and Restated Articles of Incorporation of
Registrant. Incorporated by reference to Exhibit 3(a) to
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996.
3(b) By-laws of Registrant as currently in effect. Incorporated
by reference to Exhibit 3(b) to Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1992.
4(a) Form of Indenture between Registrant and IBJ Schroder and
Trust Company, as Trustee, relating to 9% Series A First
Mortgage Bonds due March 15, 1997, and 9 5/8% Series B First
Mortgage Bonds due March 15, 2002. Incorporated by reference
to Exhibit 4.1 to Registration Statement filed by Registrant
on Form S-3 dated March 4, 1992.
4(b) Form of Indenture among Registrant, Bayway Refining Company,
and the First National Bank of Boston, as Trustee, relating
to 8 1/4% First Mortgage Bonds due 2003. Incorporated by
reference to Exhibit 4.1 to Registration Statement filed by
Registrant on Form S-4 dated April 29, 1993.
4(c) Form of Indenture dated as of July 7, 1995, between
Registrant and The First National Bank of Boston, as
Trustee, relating to 7% Notes due 2000. Incorporated by
reference to Exhibit 4.1 to Registration Statement filed by
Registrant on Form S-3 dated May 18, 1995 (No. 33-59423).
4(d) Form of Indenture dated as of May 1, 1996, between
Registrant and State Street Bank and Trust Company.
Incorporated by reference to Exhibit 4.1 to Registration
Statement filed by Registrant on Form S-3 dated April 15,
1996 (No. 333-521).
4(e) Rights agreement dated as of November 19, 1998, between
Registrant and Bank of Boston, N.A., as Rights Agent.
Incorporated by reference to Exhibit 4 to Registrant's
current report on Form 8-K dated November 30, 1998.
10(a) Fifth Amended and Restated Credit Agreement dated as of
February 8, 2000, among Tosco Corporation, as Borrower, and
the Banks named therein, as Banks, and BankBoston, N.A.,
Administrative Agent, Royal Bank of Canada, as Syndication
Agent, and PNC Bank, National Association, as Documentation
Agent.
10(b) Severance Agreement dated January 26, 2000, between
Registrant and Thomas D. O'Malley, including schedule
identifying similar agreements between Registrant and two of
its employees.
10(c) Indemnification Agreement dated September 30, 1987, between
Registrant and Thomas D. O'Malley, including schedule
identifying similar agreements between Registrant and its
Directors and/or officers, together with related Trust
Agreement. Incorporated by reference to Exhibit 10(b) to
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1987.
10(d) 1996 Long-term Incentive Plan, as amended. Incorporated by
reference to Exhibit 10(h) to Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1997.
10(e) Tosco Corporation Senior Executive Retirement Plan of 1990,
as amended and restated as of May 15, 1996. Incorporated by
reference to Exhibit 10(i) to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1997.
10(f) Tosco Corporation Senior Executive Retirement Plan of 1990,
as amended and restated as of September 23, 1993.
Incorporated by reference to Exhibit 10(j) to Registrant's
Annual Report on Form 10-K for the year ended December 31,
1997.
10(g) Severance Agreements dated January 1, 1993, as amended,
between Registrant and Robert J. Lavinia and Dwight L.
Wiggins. Incorporated by reference to Exhibit 10(g) to
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993.
10(h) Agreement of Purchase, Sale and Assignment of Marketing
Assets between Exxon Corporation and Tosco Corporation,
dated as of December 1, 1999.
10(i) Agreement of Purchase, Sale and Assignment of Marketing
Assets between Mobil Oil Corporation and Tosco Corporation,
dated as of December 1, 1999.
21. A list of all subsidiaries of the Registrant.
23. Consent of PricewaterhouseCoopers LLP.
27. Financial Data Schedule.
99. Condensed Consolidating Financial Information and Report of
Independent Accountants.
(B). REPORTS ON FORM 8-K
None
(C). Financial Statement schedules required by Regulation S-X are
excluded from the Annual Report to Shareholders by Rule 14a-3(b)(1). See
Schedule II to the Financial Statements, as required by Item 8, and appearing
under Item 14 hereof.
TOSCO CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS, FINANCIAL STATEMENT
SCHEDULE AND FINANCIAL EXHIBITS FILED WITH THE COMPANY'S ANNUAL
REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1999
PAGE(S)
Report of Independent Accountants F-2
Financial Statements:
Consolidated Balance Sheets as of December 31, 1999 and 1998 F-3
Consolidated Statements of Income for the years ended December
31, 1999, 1998, and 1997 F-4
Consolidated Statements of Shareholders' Equity for the years
ended December 31, 1999, 1998, and 1997 F-5
Consolidated Statements of Cash Flows for the years ended December
31, 1999, 1998, and 1997 F-6
Notes to Consolidated Financial Statements F-7 - F-26
Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts for the years ended
December 31, 1999, 1998, and 1997 (a) F-27
Financial Exhibits:
Exhibit 23 - Consent of Independent Accountants F-28
Exhibit 99 - Condensed Consolidating Financial Information (b):
Report of Independent Accountants on Exhibit 99 F-29
Condensed Consolidating Financial Information as of December
31, 1999 and for the year then ended F-30
Condensed Consolidating Financial Information as of December
31, 1998 and for the year then ended F-31
Condensed Consolidating Financial Information for the year
ended December 31, 1997 F-32
(a) Financial statement schedules, other than Schedule II, have been omitted
since they are either not required or applicable, or the required
information is presented in the consolidated financial statements and
related notes.
(b) The condensed consolidating financial information presents the financial
position, operating results, and cash flows of Tosco Corporation ("Tosco"),
Bayway Refining Company ("Bayway"), and Tosco's Nonguaranteeing
Subsidiaries. This information is provided to meet the reporting and
informational requirements of Bayway as guarantor of the 8.25% Bayway
Bonds. See Note 10 to the Consolidated Financial Statements.
Report of Independent Accountants
To the Board of Directors and
Shareholders of Tosco Corporation:
In our opinion, the consolidated financial statements listed in the
accompanying index on page F-1 of this Form 10-K present fairly, in all material
respects, the financial position of Tosco Corporation and its subsidiaries at
December 31, 1999 and 1998, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
In addition, in our opinion, the financial statement schedule also listed in the
accompanying index presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements. These financial statements and financial statement
schedule 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, 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 the opinion expressed
above.
PricewaterhouseCoopers LLP
Phoenix, Arizona
March 1, 2000
TOSCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Millions, Except Par Value)
December 31,
1999 1998
---- ----
ASSETS
Current assets:
Cash and cash equivalents $28.3 $31.3
Marketable securities and deposits 53.8 49.6
Trade accounts receivable, less allowance for uncollectibles
of $17.9 (1999) and $16.8 (1998) 273.5 265.4
Inventories, net 1,173.4 1,077.3
Prepaid expenses and other current assets 115.5 95.4
--------- ---------
Total current assets 1,644.5 1,519.0
Property, plant, and equipment, net 3,675.2 3,379.4
Deferred turnarounds, net 176.7 156.3
Intangible assets (primarily tradenames), less accumulated amortization of
$56.9 (1999) and $51.9 (1998) 582.3 638.5
Other deferred charges and assets 133.7 149.6
---------- ---------
$6,212.4 $5,842.8
LIABILITIES AND SHAREHOLDERS' EQUITY ========== =========
Current liabilities:
Accounts payable $857.7 $651.4
Accrued expenses and other current liabilities 673.6 728.4
Current maturities of long-term debt 1.4 1.6
Deferred income taxes 74.4 23.3
-------- ---------
Total current liabilities 1,607.1 1,404.7
Revolving credit facility 106.0 196.0
Long-term debt 1,352.9 1,358.6
Accrued environmental costs 239.3 253.7
Deferred income taxes 283.6 179.4
Other liabilities 215.2 237.4
-------- ---------
Total liabilities 3,804.1 3,629.8
-------- ---------
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 2,033.4 2,030.0
Retained earnings 725.2 323.5
Treasury stock, at cost (783.9) (574.1)
--------- ---------
Total shareholders' equity 2,108.3 1,913.0
--------- ---------
$6,212.4 $5,842.8
========= =========
The accompanying notes are an integral part of these financial statements.
TOSCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Millions, Except Per Share Data)
Year Ended December 31,
1999 1998 1997
---- ---- ----
Sales $14,362.1 $12,021.5 $13,281.6
Cost of sales (13,103.3) (10,805.8) (12,113.5)
Depreciation and amortization (308.4) (313.9) (303.5)
Special items:
Inventory (writedown) recovery 240.0 (240.0) (53.0)
Restructuring (charge) recovery 2.1 (40.0)
Avon Refinery start-up costs (43.1)
Gain on sale of retail assets in non-core markets 40.5
Selling, general, and administrative expenses (305.2) (300.3) (296.3)
Interest expense (123.8) (127.0) (139.6)
Interest income 5.0 4.3 5.1
----------- --------- ----------
Income before income taxes and distributions on Trust Preferred
Securities 765.9 198.8 380.8
Income taxes (314.0) (82.5) (158.0)
----------- ---------- ----------
Income before distributions on Trust Preferred Securities 451.9 116.3 222.8
Distributions on Trust Preferred Securities, net of income tax
benefit of $7.1 (1999) and $7.2 (1998 and 1997) (10.2) (10.1) (10.1)
----------- ---------- ----------
Net income $441.7 $106.2 $212.7
=========== ========== ==========
BASIC EARNINGS PER SHARE
Earnings used for computation of basic earnings per share $441.7 $106.2 $212.7
Weighted average common shares outstanding 148.9 155.0 149.0
----------- ---------- ----------
Basic earnings per share $2.97 $0.69 $1.43
=========== ========== ==========
DILUTED EARNINGS PER SHARE
Earnings used for computation of diluted earnings per share (a) $451.9 $106.2 $222.8
----------- ---------- ----------
Weighted average common shares outstanding 148.9 155.0 149.0
Assumed conversion of dilutive stock options 1.9 4.1 4.4
Assumed conversion of Trust Preferred Securities (a) 9.1 9.1
----------- ---------- ----------
Weighted average common and common equivalent shares used for
computation of diluted earnings per share 159.9 159.1 162.5
----------- ---------- ----------
Diluted earnings per share $2.83 $0.67 $1.37
=========== ========== ==========
(a) Conversion of the Trust Preferred Securities was not assumed in 1998 due to the anti-dilutive impact of the conversion.
The accompanying notes are an integral part of these financial statements.
TOSCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In Millions)
Common Stock Treasury Stock
---------------------- Additional Retained --------------------
Shares Amount Paid-in Capital Earnings Shares Amount Total
------ ------ --------------- --------- ------- ------ ------
Balance, December 31, 1996 138.5 $103.8 $ 963.7 $ 77.6 7.5 $(74.8) $1,070.3
Net income 212.7 212.7
Dividends - common stock (35.9) (35.9)
Exercise of stock options 0.1 0.1 0.9 (0.5) 4.5 5.5
Acquisition of common stock 0.3 (8.8) (8.8)
Issuance of common stock 25.3 19.0 678.4 697.4
Issuance of Unocal shares 14.1 10.6 386.3 396.9
Repurchase of Unocal shares 14.1 (393.7) (393.7)
Other (0.3) (0.3) (0.3)
------- -------- -------- -------- ------- -------- ---------
Balance, December 31, 1997 177.7 133.5 2,029.0 254.4 21.4 (472.8) 1,944.1
Net income 106.2 106.2
Dividends - common stock (37.1) (37.1)
Exercise of stock options 0.1 0.1 1.0 0.4 1.5
Repurchase of common stock (Note 13) 4.3 (101.1) (101.1)
Other (0.6) (0.6)
------- -------- -------- -------- ------- -------- ---------
Balance, December 31, 1998 177.8 133.6 2,030.0 323.5 25.7 (574.1) 1,913.0
Net income 441.7 441.7
Dividends - common stock (40.0) (40.0)
Exercise of stock options (0.1) (0.7) 6.7 6.6
Repurchase of common stock (Note 13) 8.9 (216.5) (216.5)
Other 3.5 3.5
------- -------- --------- -------- ------- --------- ---------
Balance, December 31, 1999 177.8 $133.6 $2,033.4 $725.2 33.9 $(783.9) $2,108.3
======= ======== ========= ======== ======= ========= =========
The accompanying notes are an integral part of these financial statements.
TOSCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Millions)
Year Ended December 31,
1999 1998 1997
---- ---- ----
Cash flows from operating activities:
Net income $441.7 $106.2 $212.7
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization of property, plant, and equipment 217.2 228.5 224.9
Amortization of deferred turnarounds, intangible assets, and other
deferred charges 91.2 85.4 78.6
Provision for bad debts 9.3 10.4 8.2
Inventory writedown (recovery) (240.0) 240.0 53.0
Restructuring charge (recovery) (2.1) 40.0
Gain on sale of retail assets in non-core markets (40.5)
Deferred income taxes 155.3 125.4 39.4
Changes in operating assets and liabilities, net:
Trade accounts receivable (17.4) 40.3 (2.7)
Inventories 150.5 (63.0) (304.7)
Prepaid expenses and other current assets (15.6) 30.2 (25.9)
Accounts payable, accrued expenses, and other
current liabilities 106.8 (191.2) 411.9
Accrued environmental costs and other liabilities (48.8) 32.7 (6.5)
Other, net 8.1 (12.7) (2.9)
--------- --------- --------
Net cash provided by operating activities 815.7 672.2 686.0
--------- --------- ----------
Cash flows from investing activities:
Net increase in marketable securities and deposits (4.2) (5.9) (8.4)
Purchase of property, plant, and equipment (451.0) (458.5) (417.6)
Proceeds on sale of property, plant, and equipment 156.2 65.2 13.5
Deferred turnaround spending (85.1) (95.2) (104.5)
Decrease (increase) in deferred charges and other assets, net 34.3 9.0 (4.8)
Acquisition of retail systems, net of cash acquired (118.1)
Acquisition of 76 Products assets, net of cash acquired (1,189.1)
Proceeds on sale of 76 Products assets 72.7
Other, net (4.7) 0.2 6.0
--------- --------- ----------
Net cash used in investing activities (472.6) (485.2) (1,632.2)
--------- --------- ----------
Cash flows from financing activities:
Net borrowings (repayments) under revolving credit facilities (90.0) 30.0 166.0
Proceeds from note and debenture offerings 600.0
Payments under long-term debt agreements (6.0) (79.0) (113.7)
Proceeds from common stock offering, net 697.4
Repurchase of Common Stock and Unocal Shares (1997) (216.5) (101.1) (393.7)
Dividends paid on common stock (40.0) (37.1) (35.9)
Other, net 6.4 (3.0) (33.8)
--------- --------- ----------
Net cash (used in) provided by financing activities (346.1) (190.2) 886.3
--------- --------- ----------
Net decrease in cash and cash equivalents (3.0) (3.2) (59.9)
Cash and cash equivalents at beginning of year 31.3 34.5 94.4
--------- --------- ----------
Cash and cash equivalents at end of year $28.3 $31.3 $34.5
========= ========= ==========
The accompanying notes are an integral part of these financial statements.
TOSCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
1. Nature of Business
Tosco Corporation ("Tosco") is one of the nation's largest independent
refiners and marketers of petroleum products operating principally on the East
and West Coasts of the United States. 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, 1999 and 1998, 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.
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 Company's "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 over periods of up to 15 years.
Other Deferred Charges and Assets
Financing charges related to the acquisition or refinancing of debt
are deferred and amortized over the term of the related debt using the effective
interest method. Production costs of media advertising are deferred until the
advertising occurs. Advertising expense for 1999, 1998, and 1997 was $51.3
million, $48.3 million, and $43.9 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.
Deferred Revenue
Advances received in connection with long-term supplier marketing or
display allowances are amortized to income over the terms of the respective
arrangements based on projected purchase levels.
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 $2.628
billion, $2.316 billion, and $1.768 billion for 1999, 1998, and 1997,
respectively.
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 19 and 24). 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.
3. Acquisitions
Boardman Petroleum Service Stations
On October 1, 1999, the Company completed the purchase of 43 "Smile"
retail gasoline service stations and convenience stores plus 20 vacant lots from
Boardman Petroleum, Inc for $69.5 million, including inventories and other
current assets (the "Boardman Acquisition"). An additional 24 service station
sites were purchased by a special purpose entity that leased the sites to the
Company (Note 18). These sites are located principally in five Southeastern
states and will be operated under the Company's "76" gasoline and "Circle K"
convenience store brands.
BP/Amoco Service Stations
During June and July 1999, the Company completed the purchase of 48
retail gasoline and convenience store sites (21 located principally in seven
major Southeastern urban areas and 27 located in Pittsburgh, Pennsylvania) from
BP Amoco for $48.9 million, including inventories and other current assets (the
"BP Amoco Acquisition"). An additional 89 service station sites were acquired by
a special purpose entity that leased the sites to the Company (Note 18). These
sites will also be rebranded and operated under the Company's "76" gasoline and
"Circle K" convenience store brands.
4. Accounts Receivable
In March 1998, the Company entered into a three-year agreement with a
financial institution to sell on a revolving basis up to $300.0 million of an
undivided percentage ownership interest in a designated pool of accounts
receivable (the "Receivable Transfer Agreement"). The Receivable Transfer
Agreement replaced a similar agreement with another financial institution. In
December 1999, the Receivable Transfer Agreement was amended to allow for
receivable sales of up to $400.0 million. In October 1997, the Company entered
into a three-year agreement with a financial institution to sell on a revolving
basis 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, 1999 and 1998,
accounts receivable were reduced by $485.0 million and $375.0 million,
respectively, for receivables sold under these programs. Sales of accounts
receivables under these programs averaged $1.112 billion, $903.2 million, and
$984.2 million per month in 1999, 1998, and 1997, respectively.
5. Inventories
(Millions of Dollars) 1999 1998
Refinery (LIFO at December 31, 1999 and market value at
December 31, 1998):
Raw materials $ 419.7 $ 418.8
Intermediates 231.9 191.6
Finished products 348.8 302.2
Retail (FIFO):
Merchandise 125.3 129.2
Gasoline and diesel 47.3 35.4
Other 0.4 0.1
--------- --------
$1,173.4 $1,077.3
========= ========
Cost of sales for 1999 has been reduced by $8.0 million due to the
liquidation of LIFO inventories. At December 31, 1999, the excess of replacement
cost (FIFO) over the carrying value (LIFO) of refinery inventories was $304.7
million. At December 31, 1998, the excess of cost (LIFO) over market value for
these inventories was $293.0 million.
6. Property, Plant, and Equipment
Straight-Line
(Millions of Dollars) 1999 1998 Annual Rate
---- ---- --------------
Land $ 910.6 $ 888.4
Refineries and related assets 2,114.9 2,009.0 4% to 15%
Retail marketing and related assets 954.2 852.8 5% to 20%
Furniture, fixtures, and improvements 155.1 96.3 3% to 33%
Transportation equipment 138.5 124.0 4% to 33%
Natural gas properties 5.6 5.4
---------- ----------
4,278.9 3,975.9
Less accumulated depreciation and amortization (a) 1,061.7 892.7
---------- ----------
3,217.2 3,083.2
Construction in progress 458.0 296.2
---------- ----------
$ 3,675.2 $ 3,379.4
========== ==========
(a) Includes accumulated amortization related to assets under capital
leases of $6.8 million and $6.6 million at December 31, 1999 and 1998,
respectively.
During 1999, the Company realized a gain of $40.5 million from the
sale of 372 convenience stores in markets the Company is exiting. Operations
from these convenience stores did not significantly impact operating
contribution for 1999.
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. The impact of this change in accounting estimate, which
was partially offset by additional depreciation of assets placed in service in
late 1998 and early 1999, was an increase in net income during 1999 of $14.2
million ($0.09 per diluted share).
Expenditures for maintenance and repairs (excluding the amortization
of Turnarounds) during 1999, 1998, and 1997 were $271.9 million, $257.8 million,
and $210.4 million, respectively.
7. Intangible Assets
In connection with the BP Amoco Acquisition (Note 3), the Company
entered into an agreement with BP Amoco for the return of the Company's license
to use the "BP" tradename at the end of an approximate two-year period. The
consideration received approximated the expected unamortized value of the "BP"
tradename at the end of the two-year period.
In conjunction with the sale of convenience stores (Note 6), the
Company wrote-off the unamortized balance of its "Stax" tradename, which was
used only in markets which the Company exited.
8. Accrued Expenses and Other Current Liabilities
(Millions of Dollars) 1999 1998
---- ----
Accrued taxes, other than income taxes $ 222.2 $ 192.0
Accrued compensation and related benefits 113.9 130.0
Restructuring accrual (a) 16.7 24.6
Dividends payable 10.8 9.9
Other 310.0 371.9
-------- -------
$ 673.6 $ 728.4
======== =======
(a) During 1998, Tosco recorded a $40.0 million charge primarily related to
the restructuring of its San Francisco Area Refinery System.
Restructuring accrual activity for 1999 and 1998 is summarized below:
Balance at
Original 1999 Cumulative December 31,
(Millions of Dollars) Charge Adjustment Spending 1999 (a)
--------- ---------- ---------- -----------
Impairment of assets $ 15.2 $ - $ (15.2) $ -
Exit costs 18.9 (2.2) 16.7
Employee termination costs (b) 5.9 (2.1) (3.8)
------- ------- --------- ------
$ 40.0 $ (2.1) $ (21.2) $ 16.7
======= ======= ========= ======
(a) As a result of the Avon Refinery Incident (Note 16), certain exit
activities have been delayed.
(b) During April 1999, management announced that layoffs and consolidation
of functions planned for 1999 would not occur as originally
contemplated. Accordingly, remaining employee termination cost accruals
totaling $2.1 million were reversed.
9. Revolving Credit Facility
The Company's revolving credit agreement (the "Revolving Credit
Facility") provides a $900.0 million uncollateralized revolving credit facility
that is available for working capital and general corporate purposes, including
acquisitions. The Revolving Credit Facility bears interest at the option of the
Company at one of three alternative rates (a federal funds rate, a Eurodollar
rate, or a base rate related to prime) plus an incremental margin for each rate
option. A commitment fee on the unused portion of the facility is also due. The
incremental margin and commitment fee are dependent on the credit rating of the
Company's First Mortgage Bonds (Note 10). Prior to January 1999, the Revolving
Credit Facility was a $1.000 billion uncollateralized facility.
Utilization of the Revolving Credit Facility as of December 31, 1999
and 1998 was as follows:
(Millions of Dollars) 1999 1998
---- ----
Cash borrowings $ 106.0 $ 196.0
Letters of credit 63.3 30.2
--------- ---------
Total utilization 169.3 226.2
Availability 730.7 773.8
--------- ---------
$ 900.0 $ 1,000.0
========= =========
On February 8, 2000, the Company amended and restated the Revolving
Credit Facility (Note 23).
10. Long-Term Debt
(Millions of Dollars) 1999 1998
---- ----
Collateralized debt:
First Mortgage Bonds (a) $ 200.0 $ 200.0
Bayway Bonds (b) 150.0 150.0
Other 3.1 3.5
Uncollateralized debt:
7% Notes (c) 125.0 125.0
7.625% Notes (d) 240.0 240.0
Notes and Debentures (e) 600.0 600.0
Other 0.2
Capital leases (f) 36.2 41.5
--------- ----------
1,354.3 1,360.2
Less current installments 1.4 1.6
--------- ----------
$ 1,352.9 $ 1,358.6
========= =========
(a) 9.625% first mortgage bonds due March 15, 2002 (the "First Mortgage
Bonds"), issued in March 1992. Interest on the First Mortgage Bonds is
payable each March 15 and September 15. The First Mortgage Bonds are
noncallable and are collateralized by the Avon Refinery and certain
related assets.
(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 12, 1995, $125.0 million of registered debt securities were
issued as 7% uncollateralized, noncallable notes due July 15, 2000 (the
"7% Notes"). Semi-annual interest payments on the 7% Notes began
January 15, 1996. The net proceeds from the public offering were used
to repay debt.
(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"). Interest on the
unregistered Notes and Debentures was payable each January 1 and July
1, commencing on July 1, 1997. The proceeds from the unregistered Notes
and Debentures were used to finance a portion of the 1997 purchase of
assets from Union Oil Company of California ("Unocal"). In August 1997,
the Company exchanged the unregistered Notes and Debentures for fully
registered and freely salable notes and debentures having identical
terms, including the same interest rates and maturity dates. The Notes
and Debentures are non-redeemable and uncollateralized.
(f) The Company's capital lease obligations are collateralized primarily by
retail marketing and related assets and mature at varying dates through
2019. The carrying value of the assets under capital lease arrangements
approximates the capital lease obligation.
At December 31, 1999 future maturities relating to long-term debt were
as follows:
Capital
(Millions of Dollars) Debt Leases Total
-------- ------- -------
2000 (a) $ 125.8 $ 4.2 $ 130.0
2001 0.8 4.2 5.0
2002 200.8 4.1 204.9
2003 150.8 4.1 154.9
2004 4.0 4.0
Thereafter 839.9 66.2 906.1
--------- ------ ---------
Total future maturities 1,318.1 86.8 1,404.9
Less imputed interest 50.6 50.6
--------- ------ ---------
Present value of future maturities $ 1,318.1 $ 36.2 $ 1,354.3
========= ====== =========
(a) The $125.0 million 7% Notes are expected to be repaid in July 2000 from
the Revolving Credit Facility. Accordingly, the 7% Notes are classified
as noncurrent at December 31, 1999. Current maturities of long-term
obligations, excluding imputed interest on capital leases, are $1.4
million at December 31, 1999.
The debt agreements, including the Revolving Credit Facility (Note 9),
contain covenants that limit the Company's ability to incur additional
indebtedness, pay dividends, acquire its own equity securities, make investments
in certain subsidiaries, and make discretionary capital expenditures. They also
require the maintenance of minimum financial ratios and net worth levels. At
December 31, 1999, the Company was in compliance with all debt covenants.
11. Accrued Environmental Costs
The Company is subject to extensive federal, state, and local
environmental laws and regulations relating to its petroleum refining,
distribution, and marketing operations. These laws and regulations (which are
complex, change frequently, and are subject to differing interpretations)
regulate the discharge of materials into the environment. The Company is
currently involved in a number of environmental proceedings and discussions
regarding the removal and mitigation of the environmental effects of subsurface
liquid hydrocarbons and alleged levels of hazardous waste at certain of its
refineries and other locations, including a site on the Superfund National
Priorities List.
In July 1993, outstanding litigation concerning environmental issues
was settled with the predecessor owners of the Avon Refinery (the "Settlement
Agreement"). Under the Settlement Agreement, the former owners agreed to pay up
to $18.0 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). 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
expenditures for environmental investigative and remediation actions at the Avon
Refinery. Through December 31, 1999, the committee has spent $6.4 million on
such matters.
By agreement, Exxon Corporation ("Exxon") is responsible for
environmental obligations related to or arising out of its ownership and
operation of the Bayway Refinery, purchased by the Company in April 1993. The
Company has also received similar environmental indemnifications for periods
prior to the respective acquisition dates of the Ferndale Refinery, the Trainer
Refinery, retail assets in the Pacific Northwest and Northern California from BP
Exploration & Oil, Inc., and Arizona retail properties from Exxon.
On March 31, 1997, the Company acquired Unocal's West Coast petroleum
refining, marketing, and related supply and transportation assets (the "76
Products Acquisition"). Through March 31, 2022, Unocal is responsible 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 the 25-year period is $200.0
million. During 1999, 1998, and the nine-month period ended December 31, 1997
the Company incurred environmental costs at the acquired sites as follows:
(Millions of Dollars) 1999 1998 1997
---- ---- ----
Total costs incurred $ 19.2 $ 18.0 $ 7.5
Less costs reimbursed by Unocal 8.9 5.1 0.3
------ ------ -----
Costs charged to the environmental accrual $ 10.3 $ 12.9 $ 7.2
====== ====== =====
Environmental exposures are difficult to assess and estimate for
numerous reasons including the complexity and differing interpretations of
governmental regulations, the lack of reliable data, the number of potentially
responsible parties and their financial capabilities, the multiplicity of
possible solutions, the years of remedial and monitoring activity required, and
the identification of new sites. The Company believes that it has adequately
provided for environmental exposures. However, should these matters be resolved
unfavorably to the Company, they could have a material adverse effect on its
long-term consolidated financial position and results of operations.
12. Company-Obligated, Mandatorily Redeemable, Convertible Preferred Securities
In December 1996, Tosco Financing Trust (the "Trust"), a Delaware
business trust, 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 Company has the option to defer payment
of distributions for an extension period of up to five years if it is in
compliance with the terms of the Trust Preferred Securities. The Trust Preferred
Securities are convertible, at the option of the holder, into 1.51899 shares of
Common Stock, equivalent to a conversion price of approximately $32.92 per share
of Common Stock, subject to adjustment in certain events. The Trust Preferred
Securities do not have a stated maturity date, although they are mandatorily
redeemable upon the repayment of the Convertible Debentures. The redemption
price decreases from 104.025% in 1999 to 100% of the liquidation preference in
2006 and thereafter.
13. Capital Stock
The Company is authorized to issue 12,000,000 shares of preferred
stock, par value $1.00 per share, ("Preferred Stock"). No shares of Preferred
Stock are issued or outstanding. At a special stockholder meeting on February
12, 1997, an amendment to increase authorized shares of Common Stock from
50,000,000 to 250,000,000 was approved. In 1997, the Company declared and
distributed a 3-for-1 Common Stock split, in the form of a 200 percent stock
dividend. The number of shares, per share prices, and earnings per share amounts
for all periods reflect this 3-for-1 stock split.
In January 1997, the Company filed a shelf registration statement
providing for the issuance of up to $1.5 billion aggregate principal amount of
its securities. The securities may consist of (1) one or more series of
debentures, notes or other uncollateralized forms of indebtedness, (2) Common
Stock, (3) Preferred Stock, and (4) preferred stock represented by depository
shares. The securities may be offered, separately or together, in amounts and at
prices and terms to be set forth in one or more supplements to the shelf
registration statement. At December 31, 1999, the Company had available for
issue $778.9 million of securities pursuant to this shelf registration statement
(Note 23).
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, 1999, 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 only if a person or group
acquires beneficial ownership of 15% or more of Common Stock, a person 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.
The Company has paid a regular quarterly cash dividend on Common Stock
since the third quarter of 1989. Effective with the second quarter of 1999, the
Company increased its quarterly cash dividend from $0.06 per share to $0.07 per
share.
14. Stock Option Plans
The Company has three stock option plans, 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 1998
Plan, 1992 Plan, and 1989 Plan (collectively the "Option Plans") provide for the
grant of a maximum of 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 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 1998 Plan and 1992 Plan may be
granted until March 18, 2009 and March 13, 2002, respectively. Awards under the
1989 Plan may no longer be granted. Subject to severance agreements with certain
employees (Note 20), options may be exercised at any time after vesting,
currently one to five years.
Information regarding the Option Plans as of December 31, 1999, 1998,
and 1997 is as follows:
1999 1998 1997
------------------- -------------------- --------------------
(Millions of Shares) Shares Price (a) Shares Price (a) Shares Price (a)
------ --------- ------ --------- ------ ---------
Options outstanding, beginning
of year 7.6 $ 13.93 7.2 $ 12.31 7.0 $ 10.14
Granted - 1992 Plan (b) 0.2 33.72 0.8 30.24
Granted - 1998 Plan (b) 0.7 23.72 0.4 33.11
Exercised (0.7) 9.50 (0.2) 9.51 (0.5) 10.02
Expired or canceled (0.1) 29.93 24.34 (0.1) 16.56
------ ------ ------
Options outstanding, end of year 7.5 15.09 7.6 13.93 7.2 12.31
====== ====== ======
Options exercisable, end of year 6.0 $ 12.00 6.1 $ 10.50 5.2 $ 9.25
====== ====== ======
Shares available for future grant 0.6 1.3 0.3
====== ====== ======
(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,
1999 is as follows:
Options Outstanding Options Exercisable
--------------------------------- ------------------------
(Millions of Shares) Shares Price (a) Life (b) Shares Price (a)
Exercise price range: ------- --------- --------- ---------- ---------
$4.94 per share to $10.00 per share 3.3 $ 8.19 29 months 3.3 $ 8.19
$10.01 per share to $15.00 per share 1.7 11.28 64 months 1.7 11.28
$15.01 per share to $33.94 per share 2.5 26.79 95 months 1.0 24.97
------ ------
7.5 15.09 59 months 6.0 12.00
====== ======
(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 $3.4 million ($0.02 per share), $3.6 million, ($0.02 per share), and
$3.0 million ($0.02 per share) for 1999, 1998, and 1997, respectively.
The fair value of options granted was estimated using the
Black-Scholes option-pricing model with the following weighted-average
assumptions:
1999 1998 1997
---- ---- ----
Assumed risk-free interest rate 5.25% 5.60% 6.50%
Expected life 5.9 years 5.7 years 7.2 years
Expected volatility 30.99% 30.60% 28.70%
Assumed dividend yield 1.12% 0.80% 0.80%
In late 1996, the Company adopted the Tosco Corporation 1996 Long-Term
Incentive Plan (the "LTIP") which replaced the granting of incentive awards
under the Option Plans to participants in the LTIP. Under the LTIP, the
Compensation Committee may grant performance units to participants, the payment
of which is contingent on the meeting of performance goals as defined and
continued employment by the participant. Under certain circumstances, payments
in a calendar year may not exceed 400% of the participant's total annual
compensation for the year of the award. The participants received $14.0 million
on January 4, 2000 and $30.5 million on January 4, 1999. In addition, the
participants are scheduled to receive a total of $18.0 million on various dates
through July 2003 based on performance goals achieved to date. If a participant
voluntarily terminates employment with the Company or retires prior to age 65,
all unpaid amounts are forfeited. The Company accrues for such amounts on a
ratable basis over the required service period.
15. Employee Benefit, Savings, and Incentive Compensation Plans
Pension Plans
The Company has non-contributory, defined benefit pension plans
covering substantially all employees located at the Bayway Refinery, the Los
Angeles Area Refinery System, and the San Francisco Area Refinery System, and
its union employees at the Ferndale Refinery (the "Refinery Pension Plan"), and
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, 1999 and 1998:
(Millions of Dollars) 1999 1998
---- ----
Benefit obligation at beginning of year $ 164.2 $ 137.0
Service cost (without load for expenses) 16.9 15.3
Interest cost 12.4 9.9
Actuarial (gain) loss (10.8) 5.0
Benefits paid (4.3) (3.0)
--------- --------
Benefit obligation at end of year 178.4 164.2
--------- --------
Fair value of plan assets at beginning of year 144.4 106.8
Actual return on plan assets (a) 22.7 26.4
Employer contributions 15.9 14.5
Benefits paid (4.3) (3.0)
Administrative expenses (0.3) (0.3)
--------- --------
Fair value of plan assets at end of year 178.4 144.4
--------- --------
Funded status at end of year - (19.8)
Unrecognized transition obligation 0.6 0.9
Unrecognized net investment and non-investment gain (a) (30.5) (9.6)
Unrecognized prior service cost 6.9 7.6
--------- --------
Accrued benefit liability at end of year $ (23.0) $ (20.9)
========= ========
(a) Only a portion of the investment gain on plan assets is available to
reduce the accrued benefit liability.
Net pension cost, using beginning of year actuarial assumptions, for
the years ended December 31, 1999, 1998, and 1997 consists of the following:
(Millions of Dollars) 1999 1998 1997
---- ---- ----
Service cost $ 17.3 $ 15.5 $ 9.7
Interest cost 12.4 9.9 8.1
Expected return on plan assets (12.7) (8.4) (6.2)
Amortization of transition obligation 0.3 0.3 0.3
Amortization of prior service cost 0.7 0.7 0.7
------- ------- -------
$ 18.0 $ 18.0 $ 12.6
======= ======= =======
Major assumptions used to calculate pension obligations and pension
costs for the years ended December 31, 1999, 1998, and 1997 are as follows:
1999 1998 1997
---- ----- -----
Assumed discount rate 7.75% 6.75% 7.00%
Assumed rate of future compensation increase 5.00% 5.00% 5.00%
Expected rate of return on plan assets 8.50% 7.50% 7.50%
The Company has a Senior Executive Retirement Plan ("SERP") that
provides retirement benefits to selected senior executives. SERP provisions of
$1.9 million, $2.2 million, and $1.9 million are included in selling, general,
and administrative expenses in 1999, 1998, and 1997, 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 refinery employees). 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.
The change in benefit obligation, plan assets, and funded status,
using end of year actuarial assumptions, consists of the following at December
31, 1999 and 1998:
(Millions of Dollars) 1999 1998
---- ----
Benefit obligation at beginning of year $ 33.8 $ 26.7
Service cost 1.5 1.2
Interest cost 2.2 1.9
Amendment 1.5 3.2
Actuarial (gain) loss (3.9) 2.0
Benefits paid (1.2) (1.2)
------- ------
Benefit obligation at end of year 33.9 33.8
-------- --------
Fair value of plan assets at beginning of year 4.8 4.9
Actual return on plan assets 0.1 0.3
Benefits paid (0.4) (0.4)
-------- --------
Fair value of plan assets at end of year 4.5 4.8
-------- --------
Funded status at end of year (29.4) (29.0)
Unrecognized transition obligation 11.2 12.1
Unrecognized net actuarial gain (7.2) (4.3)
Unrecognized prior service cost 7.4 6.6
-------- --------
Accrued benefit liability at end of year $ (18.0) $ (14.6)
======== ========
Net postretirement benefit cost, using beginning of year actuarial
assumptions, for the years ended December 31, 1999, 1998, and 1997 consists of
the following:
(Millions of Dollars) 1999 1998 1997
---- ---- ----
Service cost $ 1.5 $ 1.2 $ 1.0
Interest cost 2.2 1.9 1.6
Expected return on plan assets (0.3) (0.3) (0.3)
Amortization of transition obligation over 20 years 0.9 0.9 0.9
Net amortization and deferral (0.2) (0.7) (0.8)
------ ------- ------
$ 4.1 $ 3.0 $ 2.4
====== ======= ======
Major assumptions used to calculate the benefit obligation and net
postretirement benefit cost for the years ended December 31, 1999, 1998, and
1997 are as follows:
1999 1998 1997
---- ---- ----
Assumed discount rate 7.75% 6.75% 7.00%
Current year health care cost trend rate 9.00% 9.00% 6.80%
Ultimate health care cost trend rate 5.75% 4.75% 5.50%
Year ultimate trend rate is achieved 2007 2008 2002
Expected rate of return on plan assets 7.00% 7.00% 5.50%
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:
(Millions of Dollars) 1% Increase 1% Decrease
Benefit obligation at December 31, 1999 $ 1.8 $ (2.1)
Benefit obligation at December 31, 1998 1.5 (1.8)
Aggregate interest and service cost for 1999 0.2 (0.3)
Aggregate interest and service cost for 1998 0.2 (0.2)
Aggregate interest and service cost for 1997 0.2 (0.2)
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 Plan") are immediately vested in
their voluntary contributions. Participants in the CAP are immediately vested in
the Company contributions. Contributions by the Company to the Savings Plans for
the years ended December 31, 1999, 1998, and 1997 were $21.0 million, $20.4
million, and $17.8 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 pre-tax income per share, as defined. Results of operations for the
years ended December 31, 1999, 1998, and 1997 include incentive compensation of
$56.3 million, $54.3 million, and $56.1 million, respectively, of which $6.2
million, $5.9 million, and $5.8 million were special bonuses awarded to union
and other employees not covered by management incentive plans.
16. Avon Refinery Start-up Costs
On February 23, 1999, a fire at a crude unit at the San Francisco Area
Refinery, Avon facility resulted in four fatalities. The fire was quickly
isolated and extinguished with no offsite impacts or health risks to the
community. In March 1999, the Avon Refinery was shutdown while a thorough safety
review and extensive employee safety training were conducted. In May 1999, the
Company began the process of restarting the refinery and all major processing
units were restarted by the end of July 1999. The Company incurred non-recurring
expenses of $43.1 million primarily related to the restart of the Avon Refinery.
The start-up and related expenses consist primarily of safety and maintenance
projects, implementation of regulatory and independent safety consultant
recommendations, and the early write-off of Turnarounds. These start-up costs do
not include any normal recurring expenses for maintaining the refinery or
training employees during the stand-down period.
17. Income Taxes
The provision (benefit) for income taxes for the years ended December
31, 1999, 1998, and 1997 is as follows:
(Millions of Dollars) 1999 1998 (a) 1997
Current:
Federal $ 115.3 $ (45.5) $ 87.5
State 36.2 (5.0) 23.8
Foreign 0.2 0.4 0.2
-------- -------- -------
151.7 (50.1) 111.5
-------- -------- -------
Deferred:
Federal 140.8 108.1 37.2
State 14.4 17.3 2.2
-------- ------- --------
155.2 125.4 39.4
-------- ------- --------
$ 306.9 $ 75.3 $ 150.9
======== ======= ========
(a) Current federal and state income tax benefits for 1998 relate primarily
to the inventory writedown.
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:
(Millions of Dollars) 1999 1998 1997
---- ---- ----
Income taxes at the statutory rate $ 262.0 $ 63.5 $ 127.2
State income taxes, net of credits and federal benefit 32.9 8.1 16.9
Permanent differences 10.8 10.8 11.3
Federal credits, adjustments, and other 1.2 (7.1) (4.5)
------- -------- --------
$ 306.9 $ 75.3 $ 150.9
======= ======== ========
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, 1999 and 1998 are as follows:
(Millions of Dollars) 1999 1998 (a)
---- -------
Deductible temporary differences:
Accounts receivable $ 18.5 $ 17.7
Accrued expenses and other current liabilities 132.2 144.3
Accrued environmental costs 251.6 251.7
Accrued postretirement benefit liability 40.8 35.7
Noncurrent liabilities 112.7 110.1
Other 3.8 9.1
Deferred state income taxes (b) 58.6 44.2
-------- ------
618.2 612.8
-------- ------
Taxable temporary differences:
Inventories (380.7) (136.6)
Property, plant, and equipment (335.6) (435.7)
Deferred Turnarounds (112.4) (123.7)
Intangible assets (primarily tradenames) (32.4) (32.4)
Capital leases (518.7) (364.1)
Other deferred charges and assets (16.6) (16.6)
Other (77.2) (39.0)
---------- ----------
(1,473.6) (1,148.1)
---------- ----------
Net temporary differences $ (855.4) $ (535.3)
========== ==========
(Millions of Dollars) 1999 1998 (a)
---- --------
Federal income taxes at 35% $ (299.4) $ (187.3)
Alternative minimum tax ("AMT") credit carryforward 22.7
Research and experimentation and other tax credit carryforwards 6.0
---------- ----------
Federal deferred tax liability, net (299.4) (158.6)
State deferred tax liability, net (b) (58.6) (44.2)
---------- ----------
Total deferred tax liability, net (358.0) (202.8)
Current portion (74.4) (23.3)
---------- ----------
Noncurrent portion $ (283.6) $ (179.5)
========== ==========
(a) Certain amounts have been reclassified to conform with the 1999 grouping.
(b) Deferred state income tax liabilities are provided for temporary
differences, primarily differences between the book and tax bases of
property, plant, and equipment.
18. 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 equipment 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 receiving certain guaranteed minimum sales values
for the assets. Minimum annual rentals vary with commercial paper interest rates
and the reference interest rate (LIBOR). These leases are accounted for as
operating leases and extend, with renewal options, through 2004.
The Company leases certain of its stores and other property and
equipment. The store leases generally have primary terms of up to 25 years with
varying renewal provisions. Under certain of these leases, the Company is
subject to additional rentals based on store sales as well as escalations in the
minimum future lease amount. The leases for other property and equipment are for
terms of up to 15 years. Most of the Company's lease arrangements provide the
Company an option to purchase the assets at the end of the lease term. The
Company may also cancel certain of its leases provided 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, 1999, 1998, and
1997 consists of the following:
(Millions of Dollars) 1999 1998 1997
---- ---- ----
Minimum rental and warehousing charges $ 152.2 $ 188.2 $ 153.8
Contingent rental and warehousing charges 15.4 7.1 11.8
-------- ------- -------
167.6 195.3 165.6
Less sublease rental income 75.0 55.6 39.2
-------- ------- -------
$ 92.6 $ 139.7 $ 126.4
======== ======= =======
At December 31, 1999, future minimum obligations under non-cancelable
operating leases and warehousing agreements are as follows:
(Millions of Dollars)
2000 $ 159.8
2001 144.5
2002 (a) 126.5
2003 (a) 100.8
2004 (a) 108.1
Thereafter 369.1
--------
1,008.8
Less future minimum sublease income 134.2
--------
$ 874.6 (b)
========
(a) Excludes guaranteed residual payments totaling $180.6 million (2002),
$189.8 million (2003), and $155.5 million (2004) due at the end of the
lease term, which would be reduced by the fair market value of the
leased assets.
(b) The Company has contingent obligations for certain lease payments
totaling $10.9 million for convenience stores previously sold. The
Company believes it is unlikely that it will be required to perform
under these contingent obligations.
19. 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 approximates fair value due to its variable interest rate. The
fair value (based on quoted market prices and estimates) of long (obligation to
purchase) and short (obligation to deliver) derivative financial instruments
were $473.6 million and $381.0 million, respectively at December 31, 1999.
Estimated fair values of other financial instruments at December 31, 1999 and
1998 are as follows:
1999 1998
--------------------------- ---------------------------
Carrying Fair Carrying Fair
(Millions of Dollars) Value Value (a) Value Value (a)
--------- --------- ---------- ---------
First Mortgage Bonds $ 200.0 $ 207.8 $ 200.0 $ 219.9
Bayway Bonds 150.0 152.3 150.0 161.6
7% Notes 125.0 125.2 125.0 126.9
7.625% Notes 240.0 235.6 240.0 250.7
7.25% Notes 200.0 191.1 200.0 208.6
7.8% Debentures 300.0 282.6 300.0 316.3
7.9% Debentures 100.0 92.1 100.0 106.0
Trust Preferred Securities 300.0 285.0 300.0 299.2
(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 hedge sales prices of residual fuels production. Futures and forward
contracts are also used to hedge inventories stored for future sale and to hedge
against adverse price movements between the cost of foreign and domestic crude
oil.
At December 31, 1999 and 1998, 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:
1999 1998
-------------------------- --------------------------
Contract Contract Contract Contract
(Millions of Dollars) Volume Value Volume Value
--------- -------- --------- --------
Open long positions 24,902 $ 444.8 4,937 $ 61.6
Open short positions 22,621 340.1 7,679 97.2
The net deferred gain / (loss) on futures and swap contracts totaled
$1.2 million and $(7.3) million at December 31, 1999 and 1998, respectively.
These amounts will be recognized in the following year as an offset to realized
margins on refined products sold (Note 24).
Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash equivalents,
marketable securities, short-term deposits, trade receivables, and derivative
instruments. The Company places its cash equivalents, marketable securities, and
short-term deposits with several high-quality financial institutions. The
Company's customer base consists of a large number of diverse customers. The
Company conducts ongoing evaluations of its customers and requires letters of
credit or other collateral arrangements as appropriate. Accordingly, trade
receivable losses have not been significant. The Company does not believe that
it has a significant credit risk on its derivative instruments, which are
transacted through the New York Mercantile Exchange, or with counterparties
meeting established collateral and credit criteria.
20. 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. For completed participation periods, the Company's obligation
was not material to its consolidated financial position. In December 1999, Tosco
agreed to pay Unocal $50.0 million 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, paid in
December 1999 and January 2000, was capitalized and will be depreciated and
amortized over the remaining useful lives of the acquired assets.
Litigation between Unocal and certain petroleum refiners has contested
the validity of patents held by Unocal covering certain formulations for clean
burning fuels meeting California fuel specifications and, in turn, alleged
infringement of those patents by certain refiners. The Company is not a party to
the patent litigation. Under the terms of the 76 Product Acquisition, the
Company has no liability to Unocal for any possible past infringement of the
patents, including to the date of final resolution of the matter, which,
considering appeals, could take several years.
The Company has employment agreements with certain of its executive
officers that provide for lump sum severance payments and accelerated vesting of
options upon termination of employment under certain circumstances or a change
of control, as defined. The Company's potential minimum obligation to seven
officers was $6.3 million at December 31, 1999.
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 (Note 16). 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 the Company's future operating results.
21. 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 nonoperating
subsidiaries. Summarized financial information by segment for 1999, 1998, and
1997 is as follows:
Operating Segments
---------------------------- Nonoperating Consolidated
1999 (Millions of Dollars) Refining Marketing Segment Total
---------- ---------- ------------- ------------
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
Operating Segments
--------------------------- Nonoperating Consolidated
1998 (Millions of Dollars) Refining Marketing Segment Total
---------- --------- ------------- ------------
Total sales $ 8,608.4 $ 5,234.7 $ - $ 13,843.1
Intersegment sales (1,812.6) (9.0) (1,821.6)
----------- ----------- --------- -----------
Third party sales $ 6,795.8 $ 5,225.7 $ - $ 12,021.5
=========== =========== ========= ===========
Operating contribution (a) $ 682.3 $ 533.4 $ - $ 1,215.7
Depreciation and amortization (180.2) (132.0) (1.7) (313.9)
Special items:
Inventory writedown (240.0) (240.0)
Restructuring charge (40.0) (40.0)
Net interest expense (income) (79.3) (46.1) 2.7 (122.7)
Income (loss) before income taxes and
distributions on Trust Preferred Securities 60.2 153.9 (15.3) 198.8
Capital and Turnaround expenditures $ 337.2 $ 216.4 $ 0.1 $ 553.7
Total assets at year-end $ 3,436.0 $ 2,319.3 $ 87.5 $ 5,842.8
Operating Segments
--------------------------- Nonoperating Consolidated
1997 (Millions of Dollars) Refining Marketing Segment Total
---------- ---------- ------------- ------------
Total sales $ 9,707.3 $ 5,643.5 $ - $ 15,350.8
Intersegment sales (2,053.4) (15.8) (2,069.2)
----------- ----------- --------- -----------
Third party sales $ 7,653.9 $ 5,627.7 $ - $ 13,281.6
=========== =========== ========= ===========
Operating contribution (a) $ 628.2 $ 539.9 $ - $ 1,168.1
Depreciation and amortization (175.5) (126.5) (1.5) (303.5)
Special item:
Inventory writedown (53.0) (53.0)
Net interest expense (income) (80.2) (55.8) 1.5 (134.5)
Income (loss) before income taxes and
distributions on Trust Preferred Securities 233.1 163.2 (15.5) 380.8
Capital and Turnaround expenditures $ 384.9 $ 131.3 $ 5.9 $ 522.1
Total assets at year-end $ 3,567.9 $ 2,263.9 $ 143.1 $ 5,974.9
(a) Operating contribution is calculated as sales minus cost of sales.
22. Supplemental Cash Flow Information
(Millions of Dollars) 1999 1998 1997
---- ----- ----
Cash paid during the year for:
Interest, net of amounts capitalized $ 130.9 $ 134.4 $ 113.2
Income taxes, net of refunds received (a) 139.9 (27.1) 105.2
Detail of cash paid for acquisitions:
Fair value of assets acquired $ 118.1 $ 2,035.4
Liabilities assumed (441.0)
Common Stock issued (396.9)
------- ----------
Net cash paid for acquisitions 118.1 1,197.5
Cash acquired in acquisitions 0.3 3.0
------- ----------
$ 118.4 $ 1,200.5
======= ==========
(a) A $51.7 million refund of federal income taxes was received in
September 1998.
23. Subsequent Events
Exxon Mobil Acquisition
On February 29, 2000, the Company acquired and began operating retail
systems consisting of approximately 1,740 retail gasoline and convenience
outlets from Exxon Corporation and Mobil Oil Corporation (collectively
"ExxonMobil") for $860.0 million, plus transaction costs. Tosco is also
acquiring certain undeveloped sites and distribution terminals, all of which
ExxonMobil is divesting 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.
Certain of the acquired gasoline and convenience outlets were
purchased directly from ExxonMobil by a special purpose entity that leased the
sites to the Company pursuant to a long-term operating lease. The lease provides
the Company the option to purchase, at agreed-upon contracted prices, (a) a
portion of the leased assets for resale to unaffiliated parties during the term
of the lease and (b) not less than all of the leased assets at the end of the
lease. The Company may cancel the lease subject to the lessor receiving certain
guaranteed minimum sales values for the assets. A portion of minimum annual
rentals vary with commercial paper interest rates. This lease extends through
February 2010.
Revolving Credit Facility
On February 8, 2000, the Company amended and restated its Revolving
Credit Facility (the "Amended Revolving Credit Facility"). The Amended Revolving
Credit Facility provides the Company with a $750.0 million uncollateralized
revolving credit facility that is available for working capital and general
corporate purposes, including acquisitions. Facility A (for $375.0 million)
matures on February 8, 2005 and Facility B (for $375.0 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.
Long-Term Debt
On February 8, 2000, the Company issued $400.0 million of 8.125% Notes
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 of $392.3 million were used to finance a portion
of the ExxonMobil Acquisition. After this debt offering, the Company may issue
up to $378.9 million of securities pursuant to its shelf registration statement
(Note 13).
24. New Accounting Standard
During June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133 "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes
accounting and reporting standards for derivative instruments and for hedging
activities. The Company plans to adopt SFAS No. 133 on January 1, 2001. The
Company is currently evaluating the effect SFAS No. 133 will have on its
financial position and results of operations.
25. Quarterly Financial Data (Unaudited)
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
-------- -------- ------- -------- -------
(Millions of Dollars, Except Per Share Data)
1999
Sales $ 2,637.7 $ 3,678.4 $ 3,860.4 $ 4,185.6 $ 14,362.1
Operating contribution (a) 242.7 331.6 376.8 307.7 1,258.8
Special items:
Inventory recovery 240.0 240.0
Restructuring recovery 2.1 2.1
Avon Refinery start-up costs (39.3) (3.8) (43.1)
Gain on sale of retail assets
in non-core markets 40.5 40.5
Net income 27.9 84.6 113.9 215.3 441.7
Earnings per share (b):
Basic $ 0.18 $ 0.56 $ 0.78 $ 1.50 $ 2.97
Diluted (c) 0.18 0.53 0.74 1.40 2.83
1998
Sales $ 3,047.0 $ 3,168.4 $ 2,964.5 $ 2,841.6 $ 12,021.5
Operating contribution (a) 258.7 362.8 315.0 279.2 1,215.7
Special items:
Inventory writedown (240.0) (240.0)
Restructuring charge (40.0) (40.0)
Net income (loss) 41.5 100.3 80.3 (115.9) 106.2
Earnings (loss) per share (b):
Basic $ 0.27 $ 0.64 $ 0.52 $ (0.76) $ 0.69
Diluted (d) 0.26 0.61 0.49 (0.76) 0.67
(a) Operating contribution is calculated as sales minus cost of sales.
(b) Earnings per share calculations are based on the weighted average
number of shares outstanding for each quarter. The sum of the quarters
may not be equal to the full year amount.
(c) For the three-month period ended March 31, 1999, conversion of Trust
Preferred Securities was not assumed due to the anti-dilutive impact of
the conversion.
(d) For the three-month period ended December 31, 1998, conversion of stock
options and Trust Preferred Securities was not assumed due to the
anti-dilutive impact of the conversion. For the year ended December 31,
1998, conversion of Trust Preferred Securities was not assumed due to
the anti-dilutive impact of the conversion.
TOSCO CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
(Millions of Dollars)
Column A Column B Column C Column D Column E
- ---------------------------------------- ------------ -------------------------- ----------- ----------
Charged
Balance at (Credited) to Charged Balance
Beginning Costs and to Other at End of
of Year Expenses Accounts Deductions Year
---------- -------------- -------- ----------- ------------
Allowance for uncollectible receivables:
1999 $16.8 $9.3 $- $8.2 $17.9
1998 19.0 10.3 12.5 16.8
1997 (a) 8.3 8.2 7.2 4.7 19.0
Inventory net realizable value reserve:
1999 $293.0 $(293.0) $- $- $-
1998 53.0 240.0 - - 293.0
1997 - 53.0 - - 53.0
(a) The 1997 amount "Charged to Other Accounts" represents the allowance for uncollectible
credit card receivables acquired in the 76 Products Acquisition.