UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[*] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1993
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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
$4.375 Series F Cumulative Convertible New York Stock Exchange
Preferred Stock, $1.00 par value
9% Series A First Mortgage
Bonds due March 15, 1997 New York 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.
* Yes No
The aggregate market value of the voting stock held by
non-affiliates of the registrant on February 28, 1994 based on
the closing price at which such stock was sold on the New York
Stock Exchange on such date was $1,080,780,919.
Registrant's Common Stock outstanding at February 28, 1994
was
32,262,117 shares.
Portions of registrant's definitive Proxy Statement relating
to its 1994 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. [ ]
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 5
Office Properties 6
Employees 6
Item 3. Legal Proceedings 6
Item 4. Submission of Matters
to a Vote of Security Holders 7
Item 5. Market for Registrant's
Common Equity and Related
Stockholder Matters 9
Item 6. Selected Financial Data 9
Item 7. Management's Discussion
and Analysis of Financial
Condition and Results of Operations 11
Item 8. Financial Statements and
Supplementary Data 15
Item 9. Changes in and Disagreements
with Accountants on
Accounting and Financial Disclosure 16
Item 10. Directors and Executive Officers
of the Registrant 16
Item 11. Executive Compensation 16
Item 12. Security Ownership of
Certain Beneficial Owners
and Management 16
Item 13. Certain Relationships and
Related Transactions 16
Item 14. Exhibits, Financial Statement
Schedules, and Reports on Form 8-K 17
Index to Consolidatedidated Financial Statements
and Financial Statement Schedules.. F-1
PART I
Items 1 and 2. Business and Properties
INTRODUCTION
Tosco Corporation ("Tosco"), through divisions and
subsidiaries, is a large independent refiner, wholesaler, and
retail marketer of petroleum products, principally on the East
and West Coasts of the United States. Tosco has extensive
distribution facilities and also engages in related commercial
activities throughout the United States and internationally.
During 1993, Tosco considerably expanded and focused its
efforts on its core businesses with the acquisition of the
Bayway Refinery from Exxon Corporation and the acquisition of
British Petroleum's petroleum refining and retail marketing
assets in the Pacific Northwest. Tosco broadened its
involvement in petroleum marketing with the purchase of an
extensive retail gasoline marketing system with the exclusive
right to market under the BP
(British Petroleum) brand in Washington and Oregon. Tosco also
exited the phosphate fertilizer business with the sale by its
subsidiary, Seminole Fertilizer Corporation, of the bulk of its
operating assets in 1993.
Tosco also has interests in oil shale properties in Colorado
and Utah.
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 three major facilities, currently processes
approximately 500,000 barrels per day of crude oil and other
feedstocks into various petroleum products, consisting chiefly
of
light transportation fuels (gasoline, diesel and jet fuel) and
heating oil.
Tosco Refining Company ("Tosco Refining"), a division
of Tosco, owns and operates the Avon Refinery, located in the
San
Francisco Bay Area. The Avon Refinery, the largest
independently
owned refinery on the West Coast of the United States, is
technologically
complex, with coking, catalytic cracking, hydrocracking and
hydrodesulfurizing units to accommodate comparatively lower
gravity, higher sulfur 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.
Bayway Refining Company ("BRC"), a subsidiary of Tosco,
owns and operates the Bayway Refinery ("Bayway") located in
Linden, New Jersey, which it acquired from Exxon Corporation in
April, 1993.
Bayway is the largest refinery (as measured by distillation
capacity) on the U.S. East Coast and can process approximately
250,000 barrels per day of crude oil and other feedstocks. Its
facilities include hydrodesulfurization units and the largest
fluid
catalytic cracking unit in the world. In addition to producing
transportation fuels, Bayway is a principal supplier of heating
oil
to the U. S. East Coast. It is strategically located on the New
York Harbor in a large market area, with ready access to marine,
rail, and truck transportation and product distribution
pipelines,
giving it considerable flexibility to change its raw material
input and product output to respond to changing market
conditions.
Tosco Northwest Company ("Tosco NW"), a division of Tosco,
owns and operates the Ferndale Refinery ("Ferndale"), located on
Puget Sound, 100 miles north of Seattle. It has crude oil
distillation
capacity of approximately 85,000 barrels per day and is equipped
with thermal catalytic cracking and hydrodearomatization units,
as well as modern marine facilities. The refinery, together
with
an extensive retail gasoline marketing and distribution system
(the "Pacific Northwest Assets") was acquired from BP
Exploration
& Oil Inc. on December 28, 1993.
The table below sets forth quantities of crude oil, and
additional refinery feeds and blending stocks processed and
refined products manufactured at the Avon Refinery during 1993,
1992 and 1991 and Bayway during the period April 8 to December
31, 1993. A barrel is 42 gallons.
Average Barrels Per Calendar Day<F1>
Avon Bayway
Refinery Refinery<F2> Consolidated
1993 1992 1991 1993 1993
Crude oil refined 158,160 145,250 132,840 196,150 354,310
Additional refinery feed
and blending
Stocks 8,150 7,260 7,140 63,100 71,250
Total Input. 166,310 152,510 139,980 259,250 425,560
Petroleum products produced:
Gasoline 98,640 92,230 80,200 130,140 228,780
Diesel 38,970 33,920 26,860 76,820 115,790
Jet fuel. 420 3,490 7,020 7,020
Residual 11,820 12,450 11,000 29,800 41,620
Petroleum coke
(fuel oil equivalents) 7,370 6,720 5,910 7,370
Propane 4,260 4,360 3,650 10,910 15,170
Other 3,050 1,030 6,040 9,800 12,850
Total petroleum
products produced 164,110 151,130 37,150 264,490 428,600
Purchased products. 48,320 59,100 42,840 70,290 118,610
Total petroleum
products available
for sale 212,430 210,230 179,990 334,780 547,210
Total Petroleum
products sold 206,540 209,960 178,060 324,940 531,480
<FN>
<F1> Operations of the Ferndale Refinery, which was acquired on
December 28, 1993,
were not material to the results for 1993 and are not included.
<F2> Operations of the Bayway Refinery for the period April 8,
1993 (date acquired)
to December 31, 1993.
Crude Oil Supply
During 1993, Tosco's crude oil and feedstock requirement
was approximately 425,000 barrels per day following the
acquisition of Bayway. A substantial portion was supplied by
third parties from
domestic sources, primarily California and Alaska. An average
of
approximately 142,000 barrels per day were purchased under term
contracts with Atlantic Richfield Co. ("ARCO"), Texaco Trading
and Transportation Inc. ("Texaco Trading"), Chevron USA, Exxon
Corporation
and Santa Fe Energy Products, a portion of which was resold.
Approximately 67,000 barrels per day of foreign, waterborne
crude
was obtained under contracts with Statoil (Norway) and
PetroEcuador. The balance of Tosco's crude oil requirement
during 1993 (approximately 145,000 barrels per day) was
purchased
on the spot market, where Tosco
purchased a total of approximately 188,000 barrels per day
(including 168,000 barrels per day from foreign sources) and
subsequently resold approximately 23% thereof.
In October 1986, Tosco entered into an agreement (the "ARCO
Exchange Agreement") with ARCO, under which ARCO delivers
an average of 50,000 barrels per day of crude oil to the Avon
Refinery in exchange for a variable quantity of gasoline based
upon the prices of certain crude
oils. The ARCO Exchange Agreement has a ten-year initial term,
with two five-year renewal options exercisable by ARCO. Under
the ARCO Exchange Agreement, Tosco has agreed that in the event
it desires to sell the Avon Refinery, Tosco will first offer it
for sale to ARCO.
If ARCO declines, Tosco will be free for a certain period of
time
to sell the Avon Refinery for consideration no less favorable
to
Tosco than was initially offered to ARCO, subject to the effect
of possible continuing Tosco obligations of exchange under the
ARCO Exchange Agreement. In addition, in any such subsequent
sale ARCO has the right
to participate in the bidding and to acquire the Avon Refinery
if
it is the high bidder. In the event conditions change to the
extent that one of the parties has sustained significant losses
for a substantial period of time, or structural changes make
substantial losses likely,
the ARCO Exchange Agreement is subject to renegotiation and
possible termination. Such possible termination could be
material to Tosco, depending on market conditions at the time.
In June 1986, Tosco and Texaco Refining & Marketing, Inc.
("Texaco") entered into a crude oil purchase, sale and exchange
agreement. This contract was extended in May 1988, in February
1990 and again in April 1992, with Texaco Trading on similar
terms. Pursuant to this agreement, Texaco Trading has agreed
to
supply, and Tosco has agreed to purchase, an average of 35,000
to 40,000 barrels per day of San Joaquin Valley heavy crude oil
(subject to certain volume rate
changes). Crude oil from the San Joaquin Valley is principally
moved to the Avon Refinery via pipelines owned by Texaco. To
the extent such pipelines are not available, Tosco's operating
results may be materially adversely affected.
BRC has several term contracts with foreign
suppliers
of crude oil and believes that in the event such contracts are
terminated, it would be able to replace them in the market
without material adverse effect.
In conjunction with the purchase of the Ferndale Refinery, Tosco
and BP Oil Supply Company entered into, effective as of December
28, 1993 for a term of five years, a crude oil supply agreement
under which Tosco has the right to purchase from BP Alaska North
Slope ("ANS") crude oil delivered to the Ferndale Refinery in an
amount approximately equivalent to the requirements of that
refinery on terms Tosco considers to be favorable.
Tosco believes its average crude oil inventory is
presently sufficient for normal refinery operations at Avon,
Bayway and Ferndale.
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 the production 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.
If 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 operation
could be adversely affected. In addition, the loss, or an
adverse change in the terms,
of certain of the crude oil supply contracts described above or
the loss of other sources or means of delivery of crude oil
could
have a material adverse effect on Tosco's operating results.
The
volatility of prices and quantities of crude oil that may be
purchased on the spot
market or pursuant to long and short-term contracts could
materially adversely affect Tosco's operating results. Tosco
participates in crude oil hedging and other commercial
activities
to manage and minimize its raw material costs. Under adverse
market conditions, such practices could increase raw material
costs.
Marketing and Distribution
Tosco sells unbranded refined petroleum products to
wholesale purchasers, and, with the acquisition on December 28,
1993 of its
Pacific Northwest system, markets approximately 40,000 barrels
per day of petroleum fuels under the BP brand through a system
of
approximately 500 retail gas stations. The assets acquired
included 129 company controlled stations and approximately 377
dealer owned and
operated stations, together with the exclusive right to use the
BP brand in Washington and Oregon for a period of at least five
years. The results of operations
for the Pacific Northwest assets were not material to Tosco's
consolidated 1993 results. Tosco's 1993 sales of gasoline and
distillates were made to independent
marketers and to major oil company jobbers who also serve
unbranded markets, including the industrial, commercial,
agricultural and governmental classes of trade. Sales are also
made to other refiners
and resellers, both major and independent. Tosco generally
sells
other petroleum products directly to the ultimate industrial
users of such
products. 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 1993,
1992 and 1991,
gasoline products accounted for approximately 57%, 68% and 67%,
respectively, of Tosco's revenues, while during the same periods
distillates accounted for approximately 31%, 25%, and 24%,
respectively, of Tosco's revenues. Tosco believes that its
average refined product inventory of 15 to 20 days of sales is
generally consistent with industry practice.
For 1993, approximately 10% of Tosco's consolidated
revenues were from product sales made pursuant to long-term
contracts (i.e., in excess of one year).
During 1993, 1992 and 1991, Tosco purchased for
resale an average of approximately 118,610; 59,100; and 42,840
barrels per day, respectively, of petroleum products from third
parties.
Tosco distributes refined petroleum products,
principally in the eastern and western
United States through an extensive distribution network
comprised
of 64 terminal locations in 16 states and by means of pipelines,
rail tank cars, trucks, ocean-going tankers and barges.
Effective October 1, 1993, a subsidiary of Tosco entered into a
long-term lease of a petroleum products (primarily heating oil)
distribution system located on Long Island, New York. In
addition, Tosco operates a petroleum
storage facility (the Riverhead Terminal) with deep water marine
facilities in Eastern Long Island. Tosco also engages in
commercial
activities related to its petroleum refining, distribution, and
marketing businesses throughout the United States and
internationally.
Tosco owns one product tanker of 38,000 D.W.T. (dead weight
tons).
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, and
analogous state and local laws and regulations. See "Legal
Proceedings".
Environmental compliance has required, and will
continue to require,
capital expenditures. Tosco spent approximately $13 million in
1993 and $12 million in 1992 for such capital expenditures.
Tosco currently
estimates that capital expenditures for environmental compliance
may approximate $13 million and $15 million for 1994 and 1995,
respectively. Such amounts do not include amounts that would be
necessary to produce gasoline to meet changing "clean fuels"
specifications.
During the fourth quarter of 1992, Tosco recorded a
$25 million
accrual for environmental costs based upon a determination that
investigative work and remedial actions, primarily related to
the
Avon Refinery, will be required in the future. In July 1993,
outstanding litigation concerning environmental issues with
respect to the Avon
Refinery was settled with certain former owners of the Avon
Refinery.
Under the settlement reached, the former owners agreed to pay up
to $18 million for one-half of the costs that may be incurred to
comply with certain environmental orders and to provide Tosco a
$6 million credit for past environmental expenses (which Tosco
will use to reduce its
one-half share of future expenses)(See "Legal Proceedings.")
Because anticipated remedial actions are subject to negotiation
with governmental agencies and, therefore, the amount and timing
of actual cash expenditures is uncertain and, in addition,
further investigative
work and negotiations with governmental agencies may result in
different or additional remedial actions which Tosco cannot
presently predict, the previously made accrual was not reduced.
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 16 to the Consolidated Financial Statements.
Competition
Many of Tosco's competitors are integrated companies
engaged, on a national and/or international basis, 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 business is not seasonal.
Tosco faces strong competition in its market for the
sale of refined petroleum products, including gasoline. Such
competitors, especially
major integrated oil companies, have in the past and may in the
future engage in marketing practices that result in profit
margin deterioration for Tosco for periods of time, causing an
adverse impact on Tosco. The Company does not believe that there
is any one or a
small number of dominant competitors in the petroleum refining
business. The Company does not know its precise competitive
position
therein. The principal method of competition is price. Tosco
believes it is able to compete effectively with respect to price
because of its facilities and their locations.
Tosco must purchase substantially all of its crude
oil and feedstock
supplies from others, while some of its competitors have
proprietary sources of crude oil available for their own
refineries. Tosco believes it has a crude oil cost disadvantage
to the extent major integrated oil companies have access to
proprietary sources of crude
oil. However, Tosco has agreements with ARCO, British
Petroleum, PetroEcuador, Statoil, Texaco Trading 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 - Crude Oil Supply".
Refinery-Related Properties
Tosco owns the 2,300 acre site on which the Avon Refinery is
located and the buildings, tanks, pipelines and related
facilities at that refinery. The Avon Refinery occupies
approximately l,400 acres of the site. Of the approximately 900
remaining acres, approximately
400 acres are not subject to encumbrances described below. The
Bayway Refining Company owns the 1,300 acre site on which the
Bayway Refinery
and its related facilities are located and Tosco also owns the
850 acre site on which the Ferndale Refinery is located.
Tosco also had available at December 31, 1993, through
ownership, lease agreement, exchange or other appropriate
arrangement, the use of storage tanks, loading racks, wharfs,
warehouses and other related
assets at approximately 64 terminal distribution locations in 16
states. Tosco believes its refinery-related properties are
well-maintained and are suitable and adequate for their
purposes.
Tosco owns or controls by lease approximately 129 retail
service stations located in the states of Washington and Oregon,
principally in the Seattle/Portland metropolitan areas. In
addition to marketing
transportation fuels (gasoline and diesel) many of the stations
also have a convenience store, car wash facility, and/or
automotive repair facilities.
Encumbrances
In March 1992, Tosco sold $300 million of First Mortgage
Bonds
(Bonds), comprised of $100 million of 9% Series A Bonds due
March
15, 1997 and $200 million of 9-5/8% Series B Bonds due March 15,
2002. Interest on the Bonds is payable each March 15th and
September 15th.
Each of the issues is non-callable and is collateralized by
Tosco's Avon Refinery and certain related assets. (See Note 10
to the Consolidated Financial Statements.)
In April 1993, Tosco sold $150 million of 8-1/4%
First Mortgage Bonds due May 15, 2003 which are guaranteed by
BRC
and collateralized by the Bayway Refinery and related assets and
a guarantee of Tosco.
Interest on the bonds is payable semi-annually commencing May
15,
1993.
(See Note 10 to the Consolidated Financial Statements.)
Patents
Tosco's patents relating to petroleum operations are not
material.
OTHER ACTIVITIES
Natural Gas
Natural gas from the Sacramento Valley in Northern
California is delivered to the Avon Refinery through a private
pipeline system.
While Tosco retains minor interests in natural gas production
from the Sacramento Valley and certain other non-California gas
fields, almost all of the natural gas delivered through the
pipeline is purchased from others. During 1993, approximately 4
billion cubic feet were delivered to the Avon Refinery through
the pipeline.
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.)
Other
During 1993, Tosco and Continental Grain Company, each held a
partnership interest of approximately 49% in
Continental-Tosco Limited Partnership, which was formed to trade
physical cargoes of crude oil and refined products, as well as
derivative products and futures contracts. The venture was
terminated as of December 31, 1993.
On May 4, 1993, Seminole Fertilizer Corporation, a
wholly-owned subsidiary of Tosco, completed the sale of its
principal operating assets to Cargill Fertilizer Inc.
("Cargill')
for approximately $127 million. The cash proceeds, net of
amounts utilized to extinguish
outstanding borrowings under a revolving credit agreement and
for
payment of certain liabilities of approximately $91.2 million
were applied to reduce outstanding intercompany debt to Tosco.
Under the terms of the sale agreement, Seminole executed
promissory notes to Cargill totaling $14.5 million payable in
two
equal installments on January 1, 1994 and 1995 for land
reclamation liabilities that Cargill
also assumed. Seminole's interest (written down to its
estimated
net realizable value in 1992) in Fort Meade Chemical Products
partnership ("FMCP") was not included in the transaction. An
agreement for the
sale of the interest in FMCP has been entered into and, while
subject to the satisfaction of certain conditions, is expected
to
be completed
during the first quarter of 1994. Such sale is not expected to
have a material effect on Tosco's financial condition.
OFFICE PROPERTIES
At December 31, 1993 Tosco occupied a total of
approximately
130,000 square feet of office space in Concord, California;
Linden, New Jersey; Seattle, Washington and Stamford,
Connecticut. The office space leased
by Tosco is generally suitable and adequate for its purposes.
EMPLOYEES
At December 3l, 1993 Tosco (including its subsidiaries) had
approximately 2,729 employees at various locations.
Approximately 44%
of Tosco's employees are represented by labor organizations.
The
compensation paid to the Company's sales force is based on the
same general components as the Company's compensation to its
other salaried
employees, which is salary plus a bonus under cash incentive
plans based on results of operations. The salespeople do not
receive commissions. The Company does not maintain key person
life insurance
coverage on its executive officers. Tosco believes that its
labor relations with its employees are good.
Item 3. Legal Proceedings
Tosco's Spokane, Washington terminal is located within a
site being
investigated by the United States Environmental Protection
Agency
(the "EPA") and the Washington Department of Ecology (the
"WDOE")
for suspected hydrocarbon and lead contamination. Tosco has
been
notified by the WDOE that it, and the major oil company from
which it purchased
the facility, are included in the list of 6 parties potentially
liable for cleanup of the site under state law. The area
identified by the
WDOE was included on the Superfund National Priorities List (the
"Superfund List"). The source, extent and nature of the
contamination
have not been determined but is the subject of investigations.
Tosco and other potentially liable parties are working with the
WDOE with regard to the investigation of the site. The extent
of
Tosco's liability, if
any, is unknown; however the estimated costs of investigation
have been included in Tosco's environmental cost accrual.
In 1990 the EPA and the California Regional Water Quality
Control Board ("RWQCB") issued Orders ("Orders") identifying
suspected releases
of hazardous constituents at a number of hazardous waste and
solid waste management units on the Avon Refinery property,
including several older
inactive units which were used by Phillips Petroleum Company
("Phillips"), a former owner, but not by Tosco, and directed
Tosco to investigate the identified releases and determine the
need for corrective action. In July 1992, the RWQCB issued
Water
Discharge Requirements which, among other things, ordered Tosco
to submit a plan of corrective action (Corrective Action Plan)
to
deal with the suspected
releases of hazardous waste at the Avon Refinery. The
Corrective
Action Plan was submitted on January 4, 1993. The RWQCB also
issued an Order
in June 1990 which required Tosco to expand programs monitoring
groundwater quality throughout the Avon Refinery and to
investigate the
presence of subsurface liquid hydrocarbons. In the third
quarter
of 1992, Tosco received a "Tentative Order" (later finalized)
from the RWQCB that among other things, set a date by which
significant amounts
of subsurface liquid hydrocarbons were to be removed. Tosco
notified Phillips of the Orders and other items and demanded
indemnification
under the January 9, 1976 Restated Purchase and Sale Agreement
("Agreement") between Tosco and Phillips pursuant to which Tosco
acquired the Avon Refinery. Phillips rejected the request for
indemnification and on August 31, 1990 filed a complaint for
declaratory
relief (Phillips Petroleum Company v. Tosco Corporation, United
States District Court, Central District of California, Case No.
904725) seeking an order that it is not responsible to indemnify
Tosco as discussed
above. Tosco filed an answer denying Phillips' position and
filed counterclaims for, among other things, contractual
indemnification under
the Agreement and for claims under the Comprehensive
Environmental
Response Compensation and Liability Act (CERCLA). Phillips also
demanded indemnification from the previous owners of the Avon
Refinery.
Tosco filed claims against said previous owners, including
claims
under CERCLA. Phillips filed a motion for summary judgment
which
requested the Court to find, among other things, that as a
matter
of law Phillips
has no contractual indemnity liability. In June 1992, the Court
denied Phillips' motion for summary judgment on the issue of
Phillips' contractual indemnity to Tosco. The lawsuit was
settled in July 1993.
The settlement provides that Phillips and Texaco, the former
owners of the refinery, will for the next four years or until
the
funds provided under the agreement are expended (whichever is
later), pay up to an aggregate of $18 million for one-half of
the
costs that may be incurred
for compliance with certain environmental orders, and in
addition, provide Tosco a $6 million credit for past expenses.
After the initial
term of the agreement, the parties would be free to reinstate
the
suit.
Tosco has not relinquished any of its rights to make claims for
reimbursement for costs incurred after the date of settlement
and
would not be required to reimburse amounts received under the
agreement.
The California Regional Water Quality Control Board
("RWQCB")
issued an order adopting individual limits for Tosco on the
amount of
selenium that can be discharged as part of Tosco's treated
wastewater under its National Pollution Discharge Eliminating
System permit (NPDES). On September 16, 1992, the State Water
Resources Control
Board dismissed without prejudice, the petition of Tosco and
other San Francisco Bay Area Refiners and a trade association
(Petitioners) which sought review of the Regional Board's
decision. On October 16, 1992, Petitioners filed a petition for
writ of mandate seeking the court to
order the Regional Board and the State Board to set aside and
vacate their orders establishing selenium limits for refiners
and
to enjoin them from taking any further action to implement an
EPA
requirement under which the Regional Board and State Board
acted.
(Western States Petroleum Association, et al. v. California
Regional Water Quality Control Board San Francisco Bay Region,
et
al., California Superior
Court, Solano County, Case No. 121078). In January 1994, a
settlement was reached in which the parties agreed to dismiss
the
matter.
On September 4, 1992, Tosco received a Report of Violation
(ROV) from the California Department of Toxic Substances Control
(DTSC), alleging violations of hazardous waste regulations
identified during
an inspection of a parcel of land owned by Tosco that was used
for petroleum coke storage in connection with operations of
Tosco's former
Bakersfield Refinery, which was sold in 1986. The ROV, without
specifying dates, orders Tosco to comply with various hazardous
waste handling practices in connection with the site. Tosco has
entered into discussions with DTSC concerning required actions.
On November 18, 1992, the RWQCB issued an order against
Tosco,
Phillips and Wickland Oil Company ("Wickland") as dischargers of
waste, including petroleum hydrocarbons, into the soil and
groundwater at an oil terminal owned by Wickland. The named
parties are required to investigate the site and submit reports
for the recovery of hydrocarbons and the remediation of
contaminated soil and groundwater.
The operator of a landfill to which it is alleged Tosco sent
hazardous waste has sued numerous alleged waste generators,
including Tosco, and municipalities under CERCLA (ACME Landfill
Corporation v. Althin CD Medical, Inc. et al., United States
District Court, Northern District of California, Case No.
C91444268 SBA) to recover the costs
for closure/post closure of the site. The source, extent and
nature of any contamination is the subject of ongoing discovery.
Tosco has sought indemnification from Phillips.
In November 1992, Mulberry Phosphates, Inc.
Debtor/Debtor-in-Possession and the Committee of Unsecured
Creditors of Mulberry Phosphates, Inc. filed a complaint against
Norsk Hydro USA, Seminole Fertilizer Corporation, et al.
alleging
interference with a court ordered bankruptcy sale of Mulberry's
ammonia terminal and tortious interference with contract. The
plaintiffs are seeking compensatory and punitive damages.
Seminole denied the allegations.
In March 1994 Seminole's involvement in the matter was settled
for $160,000. (In re Mulberry Phosphates, Inc. et al. vs. Norsk
Hydro Inc., USA, Seminole Fertilizer Corporation, et al., U.S.
Bankruptcy Court,
Middle District of Florida Adv. Proc. No. 92-855).
The costs of remedial actions are highly uncertain due to,
among other items, the complexity and evolving nature of
governmental laws and regulations and
their interpretations as well as the varying costs and
effectiveness of alternative cleanup technologies. However,
Tosco presently believes
that any cost in excess of the amounts already provided for in
the financial statements should not have a materially adverse
effect upon Tosco's operations or financial condition. Tosco
further believes, as
discussed with respect to the Phillips case above, that a
substantial 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.
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 which 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
Name Age Officer Since Principal Occupation and Positions Held
Thomas D. O'Malley 52 1989 Chairman of the Board and Chief Executive Officer of Tosco since January 1990;
President of Tosco since May 1993
and from October 1989 to May 1, 1990; Chairman and Chief Executive
Officer of Argus Investments, Inc. since July 1988 and Argus Energy
Corporation since December 1987; Chairman and Chief Executive Officer
of Comfed Banc Corp, Inc. from December 1988 to December 1989; Vice
Chairman of Salomon Inc. from 1983 to December 1986.
Jefferson F. Allen 48 1990 Executive Vice President, Chief Financial
Officer and Treasurer of Tosco Corporation since June 1990; various
positions including Chairman and CEO, with Comfed Bancorp, Inc. and
related entities from November 1988 to June 1990; Executive Vice
President, Argus Investments during 1988; Senior Vice President,
Exploration Management Corporation from 1985 to April 1988.
James M. Cleary 48 1987 Senior Vice President, Tosco Corporation
since July 1990; President of Tosco Refining Company (a division of
Tosco) since May 1990; Senior Vice President of Tosco Refining Company
from June 1989 to May 1990; Vice President-Refining of Tosco from
January 1987 to June 1989. Various other positions with Tosco since
1980.
Wilkes McClave III 46 1989 Vice President and General Counsel of
Tosco and Senior Vice President of Tosco Refining Company (a division
of Tosco) since May 1990; Secretary of Tosco since August 1989; Vice
President and Secretary of Bayway Refining Company since January 1993 and
Tosco Northwest since October 1993;
Assistant General Counsel of Tosco from January 1986 to May 1990.
Dwight L. Wiggins 53 1993 Vice President of Tosco Corporation and
President of Bayway Refining Company since January 1993; New Jersey
Area Manager for Exxon Company U.S.A. 1990 to 1993; Benicia Refinery
Manager for Exxon Company 1983 to 1990.
Robert J. Lavinia 46 1993 President of Tosco Northwest Company (a
division of Tosco) since October 1993; Vice President of Tosco
Corporation since 1993 and Executive Vice President of Bayway Refining
Company during 1993; President, Tosco Energy Corporation during 1992;
various positions with Phibro Energy for a period in excess of five
years; most recently as a Senior Vice President.
Peter A. Sutton 48 1992 Vice President, Tosco Corporation since
January 1992; Senior Vice President, Tosco Refining Company since May
1990, various other positions with Tosco for a period in excess of five
years.
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
1993 High Low 1992 High Low
1st Quarter $24 5/8 $18 7/8 1st Quarter $30 $25
5/8
2nd Quarter 26 22 3/8 2nd Quarter 30 3/8 22
1/2
3rd Quarter 26 5/8 21 3/8 3rd Quarter 23 3/4 18
3/8
4th Quarter 32 3/4 26 3/8 4th Quarter 21 1/8 16
1/2
The number of Tosco shareholders of record on February 28, 1994
was 11,872.
Dividend Policy
Tosco has paid a regular quarterly cash dividend of $.15 per
share on its Common Stock since the third quarter of 1989.
Pursuant to the terms of Tosco's working capital 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. During 1993, Tosco paid all scheduled
dividends on its outstanding preferred stock. See Note 11 of
the Notes to Consolidated Financial Statements.
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,
1993
are derived from the Consolidated Financial Statements of Tosco
audited by Coopers & Lybrand, independent accountants.
TOSCO CORPORATION AND SUBSIDIARIES
SELECTED FINANCIAL DATA (a)
(Millions of dollars except per share and ratio data)
Year Ended December 31,
1993 1992 1991 1990 1989
Results of Operations
Sales $3,559.2 $1,861.0 $1,608.7 $1,854.6 $ 1,308.7
Gross profit on sales 251.8 132.7 121.2 248.3 91.7
Inventory writedown 17.7
Environmental cost accrual 25.0 4.0 2.0
Operating contribution 234.1 107.7 117.2 246.3 91.7
Selling, general and administrative
expenses 58.2 38.7 30.2 48.1 23.9
Interest expense, net 44.1 18.0 16.5 24.3 26.4
Pre-tax income 131.8 51.0 70.5 173.9 41.4
Provision (credit) for income
taxes (b) 51.2 20.8 2.4 19.6 (7.8)
Income from continuing operations
before other items 80.6 30.2 68.1 154.3 49.2
Discontinued operations, net of
income taxes
income (loss) from operations (15.9) 7.3 (31.1) (8.7)
Estimated loss on disposal (105.0)
Cumulative effect of accounting changes 16.2
Net income (loss) $ 80.6 ($ 74.5) $75.4 $123.2 $ 40.5
Income (loss) per common and
common equivalent share
Primary
From continuing operations $ 2.38 $ .68 $ 2.15 $ 6.81 $ 2.36
From discontinued operations (4.08) .24 (1.44) (.65)
From cumulative effect of
accounting changes .55
Net income (loss) $ 2.38 ($ 2.85) $ 2.39 $ 5.37 $ 1.71
Fully-Diluted:
From continuing operations $ 2.33 $ .68 $ 2.12 $ 4.94 $ 1.51
From discontinued operations (4.08) .23 (1.00) (.27)
From cumulative effect of
accounting changes .55
Net income (loss) $ 2.33 ($ 2.85) $ 2.35 $ 3.94 $ 1.24
Capitalization (at end of period)
Total assets $1,492.9 $ 952.9 $871.0 $678.9 $691.4
Long-term debt $ 603.3 $ 356.8 $211.9 $202.7 $308.8
Preferred stock 111.2 111.2 111.2 153.8
Common shareholders' equity 410.4 270.2 385.6 333.3 115.8
Total capitalization $1,124.9 $ 738.2 $708.7 $536.0 $578.4
Other Information
Ratio of long-term debt to
total capitalization .54 .48 .30 .38 .53
Current ratio 2.2 2.6 1.6 1.6 1.9
Book value per share $ 12.60 $ 9.10 $ 12.78 $ 11.15 $ 7.00
Cash dividends per share $ .60 $ .60 $ .60 $ .60 $ .30
(a) Reflects Seminole Fertilizer Corporation, acquired on July
1, 1989, as a discontinued operation.
(b) Reflects the provision for income taxes for 1993 and 1992
at regular tax rates pursuant to the
provisions of SFAS No. 109 adopted January 1, 1992.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of
Operations.
Introduction
1993 was a year growth for Tosco. Tosco completed a major
expansion of its core petroleum refining and marketing business
through the purchase of the Bayway Refinery
and
related assets (Bayway) from Exxon Corporation in April 1993,
the
long-term lease of Northville Industries' oil products
distribution
facilities in Long Island, New York in the fourth quarter of
1993,
and the purchase of British Petroleum's (BP) Ferndale Refinery
and
retail marketing assets in the Pacific Northwest in December
1993
(PNW Properties). The profitable results of operations from
Bayway, along with record production levels and improved
refining
margins at Avon, enabled Tosco to increase income from
continuing
operations by $50.4 million to $80.6 million for 1993.
Tosco also exited the phosphate fertilizer business with
the
sale of the principal operating assets of Seminole Fertilizer
Corporation (Seminole) in May 1993, and has entered into an
agreement to sell the remainder in the first quarter of 1994.
The
Selected Financial Data, which summarizes Tosco's results of
operations and capitalization over the five year period 1989 -
1993, as well as the discussion which follows, reflects Seminole
as a discontinued operation.
Results of operations - 1993
Year Ended
December
31,
Year Ended December 31, 1993 1992
(Thousands of Dollars) (Thousands
of
Dollars)
Avon Bayway Consolidated
Consolidated
Sales $1,783,387 $1,775,830 $3,559,217 $1,860,969
Cost of sales 1,600,937 1,706,555 3,307,492 1,728,305
Inventory writedown 17,651 17,651
Environmental cost
accrual 25,000
Operating contribution $ 182,450 $ 51,624 234,072 107,664
Selling, general, and
administrative expense 58,174 38,728
Net interest expense 44,146 17,923
Pre-tax income 131,754 51,013
Provision for income taxes 51,175 20,766
Income from continuing
operations 80,579 30,247
Loss from discontinued
operations (120,905)
Cumulative effect of
accounting changes 16,203
Net income (loss) $80,579 ($74,455)
Tosco's continuing operations earned $80.6 million or $2.33
per fully-diluted share, on sales of $3.56 billion for 1993 as
compared to income from continuing operations of $30.2 million,
or
$.68 per fully-diluted share, on sales of $1.86 billion for
1992.
After discontinued operations and the cumulative effect of
accounting changes, a net loss of $74.5 million, or $2.85 per
fully-diluted share, was incurred in 1992.
Tosco's operating contribution (income before selling,
general and administrative expense, net interest expense, income
taxes, and the cumulative effect of accounting changes) of
$234.1
million for 1993
increased by $126.4 million over 1992 due to $74.8 million
increase in operating contribution from Avon and related
commercial
activities and an operating contribution of $51.6 million from
Bayway and related commercial activities. The financial results
of
Bayway are included in Tosco's results of operations beginning
April 8, 1993. The financial results of PNW Properties,
acquired
December 28, 1993, were not significant to 1993 consolidated
results of operations.
The $74.8 million improvement in operating contribution
from
Avon was primarily attributable to record production rates,
improved refining margins and lower environmental cost accruals,
which were partially offset by the higher refinery and product
distribution costs associated with the higher levels of
production. Raw material throughput rates averaged a record
166,310 barrels per day (B/D) for 1993 (versus 152,510 B/D for
1992 which was affected by major turnaround maintenance).
Production of clean transportation fuels (gasoline, diesel, and
jet fuel) also established a new record of 137,610 B/D (versus
126,570 B/D for 1992). Refining margins (the difference between
the price of refined products produced for sale and raw material
costs) improved by $.70 to $8.03 per barrel for 1993 as per
barrel costs of raw materials fell by $1.04 to $14.84 while the
sales value of refined products produced declined by $.34 to
$22.87 per barrel. The improved margins (achieved despite the
sluggish economy, especially in California) were assisted by the
completion and start up of facilities for the production of low-
sulfur, low aromatic diesel fuel meeting California Air
Resources
Board's (CARB) cleaner burning fuel standards effective October
1, 1993.
In 1992, Tosco recorded a $25 million environmental cost
accrual based upon a determination that investigative work and
remedial actions, primarily related to the Avon Refinery, would
be required in the future. In July 1993, outstanding litigation
with the predecessor owners concerning environmental issues was
settled (Settlement Agreement). Under the Settlement Agreement,
the former owners agreed to pay up to $18 million for one-half
of
the costs that may be incurred for compliance with environmental
cleanup orders and to provide Tosco with a $6 million credit for
past expenses. Based on a review of its environmental exposures
and the Settlement Agreement, no adjustment to Tosco's
environmental cost accrual ($29.4 million at December 31, 1992)
was required in 1993. See Note 16 to the Consolidated Financial
Statements.
Bayway achieved an operating contribution of $51.6 million,
net of an inventory writedown of $17.7 million, for the period
April 8, 1993 to December 31, 1993 due to strong refinery
performance in a period of lackluster margins. Raw material
throughput averaged 259,250 B/D while production of clean
transportation fuels and total production averaged 213,980 and
264,490 B/D, respectively. Refining margins, including net
realized gains on hedges designed to lock in a predetermined
level of margins on a varying percentage of Bayway's production,
averaged $3.47 per barrel while refinery and distribution
expenses together averaged approximately $2.55 per barrel.
Bayway's results of operations for 1993 were reduced by a non-
cash inventory writedown of $17.7 million as a result of
declining raw material and refined product prices in November
and
December 1993.
Consolidated selling, general and administrative expense of
$58.2 million for 1993 increased by $19.4 million over 1992
primarily due to the acquisition of Bayway (including
approximately $7.5 million of non-recurring costs incurred in
establishing commercial, accounting and general and
administrative functions at Bayway).
Consolidated net interest expense for 1993 increased by
$26.2 million over 1992. Net interest expense for 1992 includes
$12.8 million of intercompany interest income from Seminole and
the writeoff of approximately $3.6 million of deferred financing
costs related to previously outstanding indebtedness. Without
the effect of these two items, consolidated net interest expense
for 1993 would have increased by $17 million as the costs of
higher levels of debt (resulting from the purchase of Bayway and
its associated working capital requirements) more than offset
the
benefits of lower interest rates.
The provision for income taxes for 1993 includes the 1%
increase in federal income tax rates effective January 1, 1993
as
well as tax credits of approximately $2.5 million which were
finalized in tax returns filed in October 1993.
Results of operations - 1992
Tosco's continuing operations earned $30.2 million, or $.68
per fully-diluted share, on sales of $1.86 billion for 1992 as
compared to income from continuing operations of $68.1 million,
or $2.12 per fully-diluted share, on sales of $1.61 billion for
1991. After discontinued operations and the cumulative effect
of
accounting changes, a net loss of $74.5 million, or $2.85 per
fully-diluted share, was incurred for 1992.
Continuing operations realized an operating contribution of
$107.7 million for 1992, a decrease of $9.5 million from 1991.
The decrease was attributable to the $25 million environmental
cost accrual (an increase of $21 million over the $4 million
accrual of 1991) which more than offset the $11.5 million
improvement in operating margins.
The improvement in operating margins was achieved through
the then record production rates at the Avon Refinery. Raw
material throughput rates averaged 152,510 B/D in 1992 (versus
139,980 B/D in 1991), while production of petroleum products
increased to 151,130 B/D (versus 137,150 B/D in 1991).
Production of clean transportation fuels also achieved then
record levels, increasing from 110,550 B/D to 126,570 B/D for
1992. Despite these record production rates, refining margins
declined by $.33 per barrel to $7.33 for 1992. In view of the
poor margins, which averaged $6.23 for the fourth quarter,
scheduled 1993 maintenance of refinery processing units was
accelerated into 1992. Operating results for 1992 were also
negatively impacted by higher distribution costs associated with
expanded commercial activities and the use of additives and
oxygenates in gasoline.
Selling, general, and administrative expense for 1992
increased by $8.5 million over 1991 primarily because of higher
costs of professional services ($3.6 million) (primarily legal
costs related to litigation against the former owners of the
Avon
Refinery concerning environmental issues), workers compensation
and general liability insurance ($1.0 million), as well as the
full year costs of expanded commercial activities.
Net interest expense for 1992 includes the writeoff of
approximately $3.6 million of deferred financing costs related
to
the refinancing of previously outstanding Bank indebtedness in
March 1992 from the proceeds of the sale of $300 million of
First
Mortgage Bonds. Without the writeoff, net interest expense for
1992 would have been approximately $2.1 million less than 1991,
as the benefits of lower interest rates and higher levels of
invested cash more than offset the costs of higher levels of
outstanding debt.
Tosco recorded a loss of $105 million for the estimated
loss
on disposition of Seminole (including a provision for the
estimated future costs and operating results until the expected
disposition dates). Seminole sold its principal operating
assets
in April 1993 and entered into an agreement to sell the
remainder
in the first quarter of 1994. See Note 5 to the Consolidated
Financial Statements. Effective January 1, 1992, Tosco adopted
Statement of Financial Accounting Standards ("SFAS") No. 106,
"Employers' Accounting for Postretirement Benefits Other Than
Pensions," (electing to prospectively amortize its post-
retirement benefits obligation) and SFAS No. 109, "Accounting
for
Income Taxes," and changed its accounting policy for turnaround
costs. The cumulative effect of the changes in accounting for
income taxes and turnaround costs was $13 million or $.44 per
share, and $3.2 million or $.11 per share, respectively.
Results of operations - 1991
Tosco's continuing operations earned $68.1 million, or
$2.12
per fully-diluted share, on sales of $1.61 billion for 1991, as
compared to earnings from continuing operations of $154.3
million, or $4.94 per fully-diluted share, on sales of $1.85
billion for 1990.
Refining margins declined by $1.44 per barrel from 1990
levels due to lower margins and reduced production of clean
transportation fuels. Scheduled maintenance (52 days) on the
fluid coker, a major contributor to profitability, was the
primary reason for the fall in production as compared to 1990.
Operating results for 1991 also include a LIFO credit of
approximately $5.7 million and a $4.0 million charge for
environmental costs. Selling, general and administrative
expenses for 1991 decreased by $17.9 million from 1990. Results
of continuing operations for 1990 included a $10.8 million
relocation provision, a provision for incentive compensation and
other insurance benefits of $8.2 million ($4.0 million higher
than in 1991), and an accrual of $4.0 million for potential
losses on trade receivables.
Net interest expense for 1991 declined by approximately
$7.8
million from 1990 primarily due to the 1991 refinancing of debt
at lower interest rates. Convertible Subordinated Debentures
due
May 1992 of $10.6 million were also redeemed at par in November
1991.
Results of continuing operations for 1991 include federal
tax benefits from utilization of available net operating loss
("NOL") carryforwards. In addition, the provision for income
taxes for 1991 includes the net reversal of approximately $5.9
million of previously accrued federal and state income taxes for
1990.
Pacific Northwest Acquisition
In late December 1993, Tosco purchased the Ferndale,
Washington Refinery (with a current crude capacity of
approximately 85,000 B/D), two product distribution terminals
located in Washington, and retail marketing assets located in
Washington and Oregon for $124 million, not including
inventories. The retail marketing assets acquired included 129
company controlled gasoline stations and a marketing network of
377 independently owned and operated BP branded outlets. The
purchase price may be increased by BP's participation in a
percentage of incremental future profits from the refining and
retail marketing segments (after the achievement of certain
defined profit levels) of up to an additional $150 million over
the next five years. The participation agreement for the retail
marketing segment may be terminated at agreed upon liquidation
values at the option of either party. BP has also agreed to
supply the Ferndale Refinery, at Tosco's option, with crude oil
for a period of five years. Tosco partially financed the
purchase of the PNW Properties through the public offering of
2,990,000 shares of Common Stock with the balance of the
purchase price, including working capital for the operation of
the acquired assets, provided from available cash and cash
borrowings from Tosco's revolving credit agreement. Tosco is
operating the retail network, which markets in excess of 40,000
barrels per day of motor fuels, under the BP brand.
Outlook
With the acquisition of the Bayway and Ferndale Refineries
in April and December 1993, Tosco is one of the largest
independent refiners (as measured by crude oil distillation
capacity) in the United States. The acquisitions are expected
to more than triple Tosco's pre-acquisition production of
refined petroleum products and provide access to additional
major petroleum markets. Tosco has operated, and intends to
continue to operate, the Bayway Refinery at substantially higher
throughput rates than the previous owner, thereby lowering per
barrel refinery operating costs by spreading such operating
costs over the higher volumes of refined products produced. The
Ferndale Refinery is also expected to be operated at full
production rates to similarly minimize per barrel refinery
operating costs. Major maintenance of the processing units at
the Avon, Ferndale and Bayway Refineries may also be
coordinated. The acquired retail marketing assets are also
expected to provide additional earnings and cash flow as Tosco
diversifies downstream. Tosco, therefore, believes that the
acquisitions of Bayway and PNW Properties provide the
opportunity for increased and less volatile earnings.
Earnings continue to be determined principally by two
factors: the operating efficiency of the refineries and
refining margins. At the Avon Refinery, the new methyl tertiary
butyl either (MTBE) facility and a second hydrogen plant
commenced operations in November and December 1993,
respectively. However, certain gasoline production units were
temporarily idled for turnaround maintenance during January 1994
and other major processing units, including the fluid coker, are
scheduled for major turnaround maintenance later in 1994. Major
processing units at the Bayway Refinery, including the fluid
catalytic cracking unit, Bayway's principal gasoline production
unit, are currently scheduled for major turnaround
maintenance in 1994. Ray material processed and clean product
production are therefore not expected to reach 1993 levels at
either the Avon or Bayway Refinery on an annualized basis.
Major maintenance of refinery processing units at the Ferndale
Refinery is not anticipated until 1995.
Tosco is not able to predict the level or trend of refining
margins because of the uncertainties associated with oil
markets. However, Tosco believes its acquisitions as well as a
strengthening national economy will provide opportunities for
Tosco to enhance earnings and cash flows.
Cash flows and liquidity - 1993
Cash flows provided by operating activities were $154
million for 1993. Cash was generated from cash earnings from
operations (net income plus depreciation and amortization and
the non-cash inventory writedown) of $163 million and the
utilization of previously accrued income tax benefits from
discontinued operations of $42 million, partially offset by
increase in working capital of $44 million and other assets
(primarily deferred income tax assets) of $7 million. Net cash
used in investing activities was $477 million, primarily for the
acquisition of the Bayway Refinery, ($318 million, net of the
$17 million paid in 1992) and PNW Properties ($160 million),
both of which include initial levels of inventory, capital
additions ($74 million), and other assets ($21 million,
partially offset by net proceeds received from the sale of the
principal operating assets of Seminole ($91 million) and a $5
million return of Tosco's investment in Continental-Tosco
Limited Partnership, Tosco's joint venture petroleum enterprise
with Continental Grain Company. Tosco expects to recover its
remaining $10 million investment in 1994. Cash generated from
financing activities was $306 million, including $150 million of
proceeds from the issuance of long-term bonds (to finance the
Bayway acquisition), $88 million of net proceeds from the public
sale of Common Stock of Tosco (to finance the acquisition of the
PNW Properties), $147 million of net borrowings under the new
credit facility, less $50 million for the early retirement of
subordinated debt, $28 million of dividends on common and
preferred stock and other payments of $1 million.
Liquidity (as measured by cash, short-term investments and
unused credit facilities) decreased by $11 million during 1993
due to a decrease in cash and short-term investments of $19
million, partially offset by an increase in credit availability
of $8 million. Tosco entered into a new revolving credit
agreement (New Credit Agreement) to support the expanded working
capital requirements of Tosco due to the acquisition of Bayway.
However, Tosco may, depending upon market conditions, offer debt
securities(to raise funds to pay down cash borrowings under its
revolving credit agreement) or expand its revolving credit
availability. At December 31, 1993, liquidity totaled $146
million (an amount which Tosco believes is adequate to meet its
expected liquidity demands for at least the next twelve months).
Capital Expenditures and Capitalization
Tosco spent $74 million on budgeted capital projects at
Avon ($64 million) and Bayway ($10 million). Capital spending
programs continued to address compliance with environmental
regulations and permits, operating flexibility and reliability
and personnel/process safety, as well as to meet new federal and
California regulations, adopted in 1992, for fuels that reduce
emissions. Tosco's $30 million capital expenditure program to
meet the CARB's October 1, 1993 deadline for diesel with lower
sulfur and aromatic content was successfully completed on budget
and ahead of schedule in September 1993. In November 1993,
Tosco entered into a long-term lease of a new MTBE facility
capable of producing up to 2,600 B/D of this oxygenate from a
by-product of the Avon Refinery. In December 1993, operation of
a new $40 million hydrogen plant located at the Avon Refinery
also commenced. Tosco entered into a 15-year agreement to
purchase 25 million cubic feet per day of hydrogen and steam
from that plant.
Future levels of capital spending will vary depending upon
the extent to which the Avon Refinery is reconfigured to meet
the more stringent regulations requiring reformulated gasoline
to be sold in California (presently anticipated to be enforced
by CARB by 1996). Tosco is moving ahead to obtain the necessary
permits for construction of the new facilities (which are
anticipated to range in costs from $175 million to $300 million
during the period prior to the implementation of the CARB
regulations). However, timely completion of the new facilities
will continue to depend on a reasonable approval process for
these permits and market conditions. Tosco has advised CARB
that significant uncertainty exists concerning the
implementations of their gasoline regulations and has requested
that the timing and substance of the regulations be reevaluated
to avoid serious disruption in California in 1996.
At December 31, 1993, total shareholder's equity was $522
million, an increase from December 31, 1992 of $140 million due
to the net proceeds of sale of Common Stock ($88 million) and
net income ($81 million) less dividend and other payments ($29
million). Debt, including current maturities, increased by $247
million to $604 million at the end of 1993 primarily due to the
acquisitions of Bayway and PNW Properties and their associated
working capital requirements.
Impact of Inflation
The impact of inflation has been less significant during
recent years because of the relatively low rates of inflation
experienced in the United States. Raw material costs, energy
costs, and labor costs 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.
In addition, a rapid escalation of raw material and finished
products prices could result in credit restrictions if working
capital requirements exceed the maximum availability under
Tosco's working capital facilities.
Tosco's results of operations will also be impacted by the
trend of petroleum prices in 1994. Tosco recorded a $17.7
million non-cash inventory writedown as a result of declining
raw material and refined product process in November and
December 1993. In the event that prices at the end of 1994 are
lower than at the end of 1993, additional inventory writedowns
will be required.
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)(1)
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 the
registrant's
definitive Proxy Statement relating to its 1994 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" appearing 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 the
registrant's definitive Proxy Statement relating to its 1994
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
the
registrant's definitive Proxy Statement relating to its 1994
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 the
registrant's definitive Proxy Statement relating to its 1994
Annual Meeting of Shareholders to be filed with the Securities
and Exchange Commission.
PART IV
Item 14. Exhibits, Financial Statement Schedules
(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). Restated Articles of Incorporation of Registrant as
currently in effect, including Certificates of Voting Powers,
Designations, Preferences and Relative, Participating, Optional
or Other Special Rights of Preferred Stock. Incorporated by
reference to Exhibit 28.2
to Registrant's Current Report on Form 8-K dated July 29, 1991.
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 Schroeder
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 81/4% 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.
10(a). Amended and Restated Credit Agreement dated as of April
8, 1993 among Tosco Corporation, Seminole Fertilizer Corporation
and Bayway Refining Company, as Borrowers, and the Banks named
therein, as Banks, and The Chase Manhattan Bank (National
Association) as Co-Agent,
Bank of America National Trust and Savings Association, as
Co-Agent and Co-Arranger, and the First National Bank of Boston,
as Agent and Arranger. Incorporated by reference to Exhibit 28
to Registrant's Current Report on Form 8-K dated April 8, 1993.
10(b). Amendatory Agreement No. 1 dated as of June 7, 1993 to
Credit Agreement among Tosco Corporation, Seminole Fertilizer
Corporation and
Bayway Refining Company, as Borrowers, and the Banks named
therein, as Banks, and The Chase Manhattan Bank (National
Association) as Co-Agent, Bank of America National Trust and
Savings Association, as Co-Agent and
Co-Arranger, and the First National Bank of Boston, as Agent and
Arranger.
10(c). Amendatory Agreement No. 2 dated as of December 10, 1993
to Credit Agreement among Tosco Corporation, Seminole Fertilizer
Corporation and Bayway Refining Company, as Borrowers, and the
Banks named therein, as Banks, and The Chase Manhattan Bank
(National Association) as Co-Agent, Bank of America National
Trust and Savings
Association, as Co-Agent and Co-Arranger, and the First National
Bank of Boston, as Agent and Arranger.
10(d). Exchange Agreement dated October 2, 1986, between
Registrant and Atlantic Richfield Company. Incorporated by
reference to Exhibit 10(aa) to Registration Statement filed by
Registrant on Form S-1 under the Securities Act of 1933 (No.
33-9578).
10(e). Severance Agreement dated November 15, 1989, between
Registrant and James M. Cleary. Incorporated by reference to
Exhibit 10(i) to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1990. Schedule identifying
similar agreement
between Registrant, or its subsidiaries, and another employee.
Amendments, effective as of January 1 and February 1, 1993, to
said Agreements.
10(f). Severance Agreements dated May 31, 1990 between
Registrant and John J. Lee. Incorporated by reference to
Exhibit
10(j) to Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1990. Amendments, effective as of
January 1, 1993, to said Agreement. Incorporated by reference
to
Exhibit 10(f) to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1992.
10(g). Severance Agreement dated January 1, 1993 between
Registrant and Thomas D. O'Malley including schedule identifying
similar agreements between Registrant, or its subsidiaries, and
four of its employees.
10(h). Indemnification Agreement dated September 30, 1987,
between Registrant and James M. Cleary, including schedule
identifying similar
agreements between Registrant and its Directors and/or officers,
together with related Trust Agreement. Incorporated by reference
to Exhibit 10(aa) to Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1987.
10(i). Consulting Agreement dated January 1, 1990 between the
Registrant and Clarence G. Frame. Incorporated by reference to
Exhibit 10(p) to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1989.
10(j). Sale and Purchase Agreement for Bayway Refinery and
Related Facilities dated December 10, 1992 between Exxon
Corporation and Bayway Refining Company. Incorporated by
reference to Exhibit 10(l) to Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1992.
10(k). Asset Purchase Agreement dated March 1, 1993
between Seminole Fertilizer Corporation and Cargill Fertilizer,
Inc. Incorporated by reference to Exhibit 10(m) to Registrant's
Annual Report on Form 10-K for the fiscal year ended December
31,
1992.
10(l). Agreement for the Purchase and Sale of Assets between
BP Exploration & Oil Inc. and Tosco Corporation dated November
9,
1993. Incorporated by reference to Exhibit 1 to Registrant's
Current Report on Form 8-K dated November 9, 1993.
10(m). Lease Intended for Security dated June 24,
1992 among Tosco Corporation, as Lessee, Norwest Bank Minnesota,
National Association, as Agent, and certain financial
institutions, as Lessors. Incorporated by reference to Exhibit
10(n) to Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1992.
10(n). Facility Lease dated October 15, 1992
between 1992 MTBE Facility Trust, Lessor and Tosco Corporation,
Lessee. Incorporated by reference to Exhibit 10(o) to
Registrant's Annual Report on Form 10-K for the fiscal year
ended
December 31, 1992.
10(o). Hydrogen Supply Agreement dated August 19, 1992 between
Air Products and Chemicals, Inc. and Tosco Refining Company.
Incorporated by reference
to Exhibit 10(p) to Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1992.
10(p). Amendment, dated April 30, 1992, to TTTI Buy/Sell
Contract No. 35P73, dated February 22, 1990 between Texaco
Trading and Transportation Inc. and Tosco Refining Company.
Incorporated by reference to Exhibit 10(q) to Registrant's
Annual
Report on Form 10-K for the fiscal year ended December 31, 1992.
10(q). Amendment, dated April 30, 1992, to TTTI Buy/Sell
Contract No. 17P77, dated April 13, 1988 between Texaco Trading
and Transportation Inc. and Tosco Refining Company.
Incorporated
by reference to Exhibit 10(r) to Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1992.
10(r). Crude Oil Supply Agreement dated December 28, 1993
between BP Oil Supply Company and Tosco Corporation.
10(s). Trademark License Agreement dated December 28, 1993
between British Petroleum Company p.l.c. and Tosco Corporation.
11. Statement regarding computation of per share earnings.
See
Exhibit 11 to Financial Statements (page F-36), as required by
Item 8 and appearing in Item 14 hereof.
21. A list of all subsidiaries of the Registrant.
23. Consent of Coopers & Lybrand.
(b). Reports on Form 8-K
During the last quarter of the period covered by this
report, the Registrant filed a Current Report on Form 8-K, dated
November 9, 1993, reporting under Item 5, Other Events, an
agreement for the
purchase of certain assets from BP Exploration and Oil, Inc.
("BP"). The Registrant also filed a current Report on form 8-K,
dated December 28, 1993, reporting under Item 2, Acquisition or
Disposition of Assets,
the acquisition of certain of BP's retail marketing and refining
assets, and under Item 7, Financial Statements, Pro Forma
Financial Information and Exhibits, the omission of historical
financial statements of these assets from this Form 10-K.
(c). Financial Statement schedules required by Regulation
S-X are excluded from the Annual Report to Shareholders by Rule
14a-3(b)(1). See Schedules II, V, VI, and VIII to the
Financial
Statements, as required by Item 8, and appearing under Item 14
hereof.
TOSCO CORPORATION AND SUBSIDIARIES
Index to Consolidated Financial Statements and Financial
Statement Schedules
Filed with the Annual Report of the Company on Form 10-K
Year Ended December 31, 1993
Page
Report of Independent Accountants F-2
Consolidated Balance Sheets as of
December 31, 1993 and 1992 F-3
Consolidated Statements of Operations
for the Years Ended
December 31, 1993, 1992 and 1991 F-4
Consolidated Statements of
Cash Flows for the Years Ended
December 31, 1993, 1992 and 1991 F-5
Consolidated Statement of Common
Shareholders' Equity for the
Years Ended December 31, 1993, 1992 and 1991 F-7
Notes to Consolidated Financial Statements F-8 to F-31
Financial Statement Schedules:
II - Amounts Receivable From Related Parties and
Underwriters, Promoters and
Employees Other Than Related Parties F-32
V - Property, Plant and Equipment F-33
VI - Accumulated Depreciation, Depletion and
Amortization of Property, Plant and Equipment F-34
VIII - Valuation and Qualifying Accounts F-35
Exhibit 11 - Computation of Per Share Data F-36
Financial statement schedules other than those listed above
have been omitted since they are either not required, are not
applicable, or the required information is shown in the
financial statements and related notes.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Tosco Corporation
We have audited the consolidated financial statements and the
financial statement schedules of Tosco Corporation and
Subsidiaries listed in the index on page F-1 of this Form
10-K. These financial statements and financial statement
schedules are the responsibility of the Company's management.
Our responsibility is to express an opinion on these
financial statements and financial statement schedules based
on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and the significant estimates made
by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Tosco Corporation and Subsidiaries as
of December 31, 1993 and 1992, and the consolidated results
of their operations and their cash flows for each of the
three years in the period ended December 31, 1993, in
conformity with generally accepted accounting principles. In
addition, in our opinion, the financial statement schedules
referred to above, when considered in relation to the basic
financial statements taken as a whole, present fairly, in all
material respects, the information required to be included
therein.
As discussed in Note 1 to the consolidated financial statements,
in 1992 the Company changed its method of accounting for
turnarounds, income taxes and postretirement benefits other than
pensions.
COOPERS & LYBRAND
Oakland, California
February 4, 1994
TOSCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
December 31,
1993 1992
ASSETS
Current assets
Cash and cash equivalents $ 55,091 $ 71,673
Short-term investments and deposits 30,035 32,216
Trade accounts receivable,
less allowance for uncollectibles
of $5,091,000 (1993) and $5,164,000 (1992) 174,285 90,854
Inventories 363,348 93,160
Net assets of discontinued operations 121,275
Prepaid expenses and other current assets 36,180 20,160
Deferred income taxes 12,123 5,959
Total current assets 671,062 435,297
Property, plant and equipment, net 723,265 390,591
Deferred charges and turnarounds 43,661 50,536
Deferred income taxes 37,108 36,906
Other assets 17,763 39,611
Total assets $1,492,859 $952,941
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities $ 310,243 $167,273
Current installments of long-term debt 787 800
Total current liabilities 311,030 168,073
Long-term debt 603,306 356,761
Other liabilities 12,433 10,141
Environmental cost liability 29,440 29,440
Net liabilities of discontinued operations 11,733
Deferred income taxes 3,273 7,096
Shareholders' equity
$4.375 Series F Cumulative Convertible
Preferred Stock - $1.00 par value
- - Authorized 2,500,000 shares; issued and
outstanding 2,300,000 shares
(liquidation preference of $115,000,000) 111,197 111,197
Common shareholders' equity:
Common Stock $.75 par value, 50,000,000
shares authorized, 34,811,158 (1993)
and 31,821,158 (1992) shares issued 26,112 23,869
Capital in excess of par value 534,727 449,265
Retained earnings (deficit) ( 81,512) (
134,035)
Reductions from capital ( 68,880) (
68,866)
Total common shareholders' equity 410,447 270,233
Total shareholders' equity 521,644 381,430
Total liabilities and shareholders'equity $1,492,859 $952,941
The accompanying notes are an integral part of these
financial statements.
TOSCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Thousands of Dollars Except Per Share Data)
Year Ended December 31,
1993 1992 1991
Sales $ 3,559,217 $1,860,969 $1,608,665
Cost of sales 3,307,492 1,728,305 1,487,437
Inventory writedown 17,651
Environmental cost accrual 25,000 4,000
Selling, general and
administrative expenses 58,174 38,728 30,214
Interest expense 48,868 23,941 22,737
Interest income ( 4,722) ( 6,018) ( 6,188)
3,427,463 1,809,956 1,538,200
Income from continuing
operations before provision for
income taxes and
cumulative effect of accounting
changes 131,754 51,013 70,465
Provision for income taxes 51,175 20,766 2,363
Income from continuing
operations before
cumulative effect of
accounting changes 80,579 30,247 68,102
Discontinued operations,
net of income taxes:
Income (loss) from operations,
net of income taxes
of $10,625,000 (1992) and
(647,000) (1991) ( 15,905) 7,262
Estimated loss on disposal,
net of income taxes of $79,531,000 (105,000)
Income (loss) from discontinued
operations ( 120,905)
7,262
Income (loss) before cumulative
effect of accounting changes 80,579 ( 90,658)
75,364
Cumulative effect of changes
in accounting for:
Income taxes
Continuing operations 56,000
Discontinued operations ( 43,000)
Turnarounds, net of taxes 3,203
Net income (loss) 80,579 (74,455)
75,364
Preferred stock dividend
requirements ( 10,063) ( 10,063)
(3,771)
Income (loss) attributable to
common shareholders $ 70,516 ($ 84,518) $
71,593
Income (loss) per common and common
equivalent share:
Primary:
From continuing operations $ 2.38 $ .68 $ 2.15
From discontinued operations ( 4.08) .24
From cumulative effect of
accounting changes .55
Income (loss) per share $ 2.38 ($ 2.85) $ 2.39
Fully diluted:
From continuing operations $ 2.33 $ .68 $ 2.12
From discontinued operations ( 4.08) .23
From cumulative effect of
accounting changes .55
Income (loss) per share $ 2.33 ($ 2.85) $ 2.35
The accompanying notes are an integral part of these
financial statements.
TOSCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
Year Ended December 31,
1993 1992 1991
Cash flows from operating
activities:
Net income (loss) $ 80,579 ($ 74,455) $ 75,364
Adjustments to arrive at
net cash provided by operating
activities:
Depreciation and depletion 35,618 25,740 26,756
Write-off of deferred loan costs 3,645
Amortization of deferred items 29,473 29,323 16,843
Inventory writedown 17,651
Environmental cost accrual 25,000 4,000
(Income) loss from discontinued operations 120,905 (7,262)
Cumulative effect of accounting changes ( 16,203)
Deferred income taxes ( 10,189) 9,044 2,979
Utilization of income tax benefits of
discontinued operations 41,791
(Increase) decrease:
Trade accounts receivable ( 83,431) ( 26,438) 20,931
Inventories ( 95,389) ( 7,123) ( 34,836)
Prepaid expenses and other
current assets ( 16,020) ( 1,677) 383
Increase (decrease):
Accounts payable and accrued
liabilities 151,236 61,578 ( 2,127)
Non-current liabilities and
deferred gains 3,676 3,128 ( 626)
Other, net ( 532) 2,795 ( 5,211)
Net cash provided by operating
activities 154,463 155,262 97,194
Cash flows from investing activities:
Purchase of property, plant and
equipment, net ( 73,897) ( 69,133) ( 41,170)
Purchase of Bayway assets, including
acquired inventories ( 317,630) ( 17,500)
Purchase of PNW Properties, including
acquired inventories ( 159,981)
Increase in deferred turnarounds,
charges and other assets ( 23,655) ( 35,324) ( 45,628)
Net proceeds from sale of
discontinued operations 91,217
Investment in discontinued operations ( 33,306) (126,777)
Net change in short-term investments
and deposits 2,181 ( 20,174) ( 696)
Proceeds from (investment in)
Continental-Tosco Limited Partnership 4,880 ( 16,194)
Net cash used in investing activities ( 476,885) ( 191,631) (214,271)
Cash flows from financing activities:
Proceeds from Bayway Mortgage Bonds 150,000
First Mortgage Bond Offering
Proceeds 300,000
Debt payments (186,608)
Refinancing of debt
Proceeds 200,000
Debt payments (137,311)
Borrowings under revolver, net 147,000
Early retirement of debt ( 50,000) ( 10,600)
Principal payments under debt
agreements ( 795) ( 5,261) ( 27,860)
Issuance of long-term debt 1,500
Issuance of Preferred Stock, net of expenses 111,197
Issuance of Common Stock, net of expenses 88,418
Dividends paid on Preferred and Common Stock ( 28,056) ( 27,825) ( 20,430)
Purchase of equity securities ( 14) ( 13,875) ( 2,091)
Other, net ( 713) 742 923
Net cash provided by financing activities 305,840 68,673 113,828
Net increase (decrease) in cash and cash
equivalents ( 16,582) 32,304 ( 3,249)
Cash and cash equivalents at beginning of year 71,673 39,369 42,618
Cash and cash equivalents at end of year $ 55,091 $ 71,673 $ 39,369
The accompanying notes are an integral part of these
financial statements.
TOSCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Supplemental Disclosures of Cash Flow Information
(Thousands of Dollars)
Year Ended December 31,
1993 1992 1991
Cash paid during the year:
Interest $ 44,923 $ 24,878 $
25,229
Income taxes $ 2,576 $ 6,612 $
4,944
The accompanying notes are an integral part of these
financial statements.
TOSCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMMON SHAREHOLDERS' EQUITY
(Dollar Amounts in Thousands)
Reductions from Capital
Common Stock Capital in Retained Treasury Stock, Total Common
Issued Excess of Earnings at Cost
Shareholders'
Shares Amount 4% Notes ParValue (Deficit) Shares Amount Other Equity
Balance,
January 1, 1991 31,691,509 $ 23,769 $ 2,170 $ 447,103 ($85,408) 1,814,831 ($52,900) ($1,487) $333,247
Net income 75,364 75,364
Accrual of preferred
stock dividends (1,255) (1,255)
Dividends paid 20,430) (20,430)
Purchase of Common Stock 115,880 (2,091) (2,091)
ESOP note activity 687 687
Conversion of
4% Notes 97,444 73 (2,196) 1,834 (289)
Exercise of
stock options 31,240 23 406 429
Other 675) ______ 26 (16) (26) ( 16)
Balance,
December 31 1991 31,819,518 23,865 - 449,327 (31,755) 1,930,711 ( 54,991) ( 800) 385,646
Net loss (74,455) (74,455)
Preferred stock dividends (10,063) (10,063)
Common stock dividends (17,762) (17,762)
Purchase of Common Stock 617,733 (13,875) (13,875)
Payment of
fractional shares
in cash (4,231) (87) (87)
ESOP note payment 800 800
Exercise of stock
options 5,933 4 86 90
Other (62) (61) (61)
Balance,
December 31, 1992 31,821,158 23,869 449,265 (134,035) 2,548,444 (68,866) 270,233
.....
Net income 80,579 80,579
Preferred stock dividends
( 10,063) (10,063)
Common stock dividends (17,993) (17,993)
Issuance of
Common Stock` 2,990,000 2,243 86,175 88,418
Purchase of Common Stock 555 ( 14) ( 14)
Other (713) ( 713)
Balance,
December 31, 1993 34,811,158 $26,112 $ $534,727 ($ 81,512) 2,548,999 ($68,880) $ $410,447
The accompanying notes are an integral part of these financial
statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include
the accounts of Tosco Corporation and its wholly owned
subsidiaries (Tosco), including Seminole Fertilizer
Corporation (Seminole), a discontinued operation whose
principal operating assets were sold in 1993 (Note 5).
All significant intercompany accounts and transactions have
been eliminated.
Nature of Business
Tosco is one of the largest independent oil refiners (as
measured by crude distillation capacity) and wholesale
marketers of petroleum products in the United States. With
the acquisition of BP Exploration and Oil, Inc.'s (BP) assets
in Washington and Oregon, Tosco has partially integrated
downstream into retail gasoline marketing. Tosco also engages
in related commercial activities throughout the United States
and internationally, and has interests in oil shale properties
in Colorado and Utah.
Reclassifications
Certain previously reported amounts have been reclassified
to conform to classifications adopted in 1993.
Cash, Cash Equivalents, Short-term Investments and
Deposits
Tosco invests cash in excess of operating requirements in
cash equivalent short-term time deposits, money market
instruments, government securities and commercial paper.
Investments with original maturities of more than three months
are classified as short-term investments and carried at the
lower of cost or market.
The Loil Group Ltd. (Loil), a wholly-owned subsidiary of
Tosco, has issued director and officer liability insurance
policies to Tosco with limits of liability coverage of
$13,200,000 and $12,000,000 at December 31, 1993 and 1992,
respectively (an amount approximately equal to the amount of
cash, short-term investments and marketable securities
available to Loil). The portfolio is restricted to payment of
defense costs and claims made against the directors and
officers of Tosco.
Inventories
Inventories of raw materials and products are valued at
the lower of cost, determined on the last-in, first-out (LIFO)
basis, or market. The net realizable value of LIFO
inventories is measured by aggregating similar pools on a
consolidated basis.
Deferred Charges and Turnarounds
Financing charges related to the obtaining or refinancing
of debt are deferred and amortized over the expected life of
the related debt using the effective interest method.
Turnaround costs (which consist of complete shutdown and
inspection of major processing units at intervals of more than
one year for repairs and replacements) are deferred and
amortized over the period to the next scheduled unit
turnaround which generally ranges from 24 to 36 months. To
provide for a better matching of turnaround costs with
revenues, Tosco changed its accounting for turnaround costs,
effective January 1, 1992 to one that results in the deferral
and subsequent amortization of turnaround costs incurred on
all significant processing units. The cumulative effect of
this accounting change was an increase in earnings of
approximately $3,203,000 (net of income taxes of approximately
$2,138,000) or $.11 per share for 1992.
Property, Plant and Equipment
Property, plant and equipment, including capitalized
interest, are carried at cost less accumulated depreciation.
Depreciation and amortization are provided over the estimated
useful lives of the respective classes of assets utilizing the
straight-line method. Expenditures which materially increase
values, change capacities or extend useful lives are
capitalized. Routine maintenance, repairs, and replacement
costs are charged against income. Upon disposal of
facilities, cost, less proceeds, is charged against
accumulated depreciation unless extraordinary in nature or
amount.
Excise Taxes
Excise taxes collected on the sale of products are remitted
to governmental agencies and are not included in sales, cost
of sales or other expenses.
Environmental Costs
Environmental expenditures that relate to current
operations are expensed or capitalized as appropriate.
Expenditures that relate to an existing condition caused by
past operations, and which do not contribute to current or
future revenue generation, are expensed. Liabilities are
recorded when environmental assessments and/or remedial
efforts are probable and the costs can be reasonably
estimated. Generally, the timing of these accruals coincides
with completion of a feasibility study or Tosco's commitment
to a formal plan of action.
Postretirement Benefits
Effective January 1, 1992, Tosco adopted Statement of
Financial Accounting Standards (SFAS) No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions,"
electing to prospectively amortize its accumulated
post-retirement benefits liability.
Income Taxes
Effective January 1, 1992, Tosco adopted SFAS No. 109,
"Accounting for Income Taxes." Under SFAS No. 109, Tosco's
deferred income tax liabilities are adjusted for the estimated
future tax effects attributable to "temporary differences"
(differences between book and tax bases of assets and
liabilities) at enacted tax rates. The cumulative effect of
this change in accounting method as of January 1, 1992 was an
increase in net income of $13,000,000 or $.44 per share for
1992.
Earnings Per Share
Primary earnings per share are computed by dividing income
attributable to common shareholders (net income less preferred
stock dividend requirements) by the weighted average number of
common and common equivalent shares outstanding during the
year. Fully diluted earnings per share computations assume
(unless the effect is antidilutive) that all shares of $4.375
Series F Cumulative Convertible Preferred Stock (Series F
Stock) were converted to common stock of Tosco (Common Stock)
at the date of issue and that no preferred dividends were
paid.
The weighted average number of shares used in computing
earnings per share are as follows:
Year Ended December 31,
1993 1992 1991
(In Thousands)
Primary 29,679 29,618 29,965
Fully Diluted 34,641 29,618 32,074
2. Acquisition of Bayway Refinery
On April 8, 1993, Bayway Refining Company, a wholly-owned
subsidiary of Tosco, completed its acquisition of a refinery
and related facilities located in Linden, New Jersey (Bayway)
from Exxon Corporation (Exxon). The purchase price of
approximately $175,000,000, plus related acquisition costs of
approximately $4,056,000 was fully allocated to the acquired
assets, based upon their estimated fair values as of the date
of acquisition. Inventories in storage, with a negotiated
value of $164,630,000, were also purchased from Exxon at the
closing of the acquisition. The funds paid for the
acquisition, including the $17,500,000 deposit made in
December 1992, were received from a combination of sources,
including an equity contribution by Tosco (from the net
proceeds from the sale of bonds), intercompany loans and cash
borrowings under its revolving credit facility (Note 10).
3. Acquisition of Pacific Northwest Properties
On December 28, 1993, Tosco completed the acquisition of BP
Exploration & Oil, Inc.'s (BP), retail marketing and refining
assets located in the states of Washington and Oregon (PNW
Properties). The purchase price of the PNW Properties was
$123,895,000 plus the value of inventory, and a profit
participation of up to $150,000,000 over the five years
following the acquisition. Profit participation payments
relating to the refining operation's performance will be
limited to a cumulative total of $50,000,000, while such
payments relating to the performance of retail marketing will
be limited to a cumulative total of $100,000,000. Tosco or BP
may elect liquidation of the participation agreement for the
retail marketing segment on an annual basis beginning in
December 1994. The retail participation liquidation payment,
which if elected by Tosco is higher than if elected by BP,
decreases over the five year term of the agreement. There
were no amounts due to BP at December 31, 1993 under this
agreement. The assets acquired include the Ferndale Refinery
(located in Ferndale, Washington) with a current capacity of
approximately 85,000 barrels per day, two product distribution
terminals located in Washington, retail marketing assets
located in Washington and Oregon, and the right to market
under the BP brand for at least five years. BP has agreed to
supply the Ferndale Refinery, at Tosco's option, with crude oil
for a period of five years. The purchase price has been
preliminarily allocated to the refinery and terminal assets
($47,895,000) and the retail assets acquired ($76,000,000).
A final allocation of the purchase price, and disclosure of
future minimum lease obligations, will be determined in 1994
when appraisals and other studies are completed.
The funds for the acquisition were received from a
combination of sources, including net proceeds of $88,418,000
received from a public offering of Common Stock, available
cash and funds available under Tosco's revolving credit
agreement.
4. Financial Instruments
Tosco makes extensive use of futures and forward contracts
principally to hedge refining margins on a varying percentage
of Bayway's future production. Futures and forward contracts
are
used to lock in margins between the cost of raw materials
purchased and the selling value of refined products produced,
primarily gasoline and heating oil, generally for periods not
exceeding one year. Gains and losses relating to raw material
futures contracts are deferred until the related refined
products are produced. Unrecognized net gains at December 31,
1993, on futures and forward contracts were approximately
$11,000,000.
Pursuant to the requirements of the commodity exchanges,
margin deposits for a percentage of the value of the futures
contracts have been placed with commodity brokers. The margin
deposits are classified as short-term deposits on the
balance sheet.
Fair Values
Estimated fair values of financial instruments and their
method of determination, are as follows:
December 31, 1993
Carrying Value Fair Value
(Thousands of Dollars)
Cash and cash equivalents $ 55,091 $ 55,091 (a)
Short-term investments
and deposits 30,035 30,035 (a)
Current liabilities 311,030 311,030 (a)
Mortgage and Exchange Bonds 450,000 490,170 (b)
Revolving Credit Facilities 147,000 147,000 (c)
Note collateralized by oil
shale properties
and other long-term debt 6,306 (d)
Interest rate swaps, net (2,690) (e)
(a) Because of the short-term maturity of these instruments,
carrying value approximates fair value.
(b) The fair value of these instruments reflects quoted market
prices at December 31, 1993.
(c) Borrowings under the floating rate revolving credit
facilities approximate fair value.
(d) These instruments are not publicly traded; therefore the
fair value is not practicable to estimate.
(e) As required by a former loan agreement, Tosco entered into
a
five year interest rate swap agreement in 1991 which was
intended
to convert a predetermined percentage of floating rate bank term
debt to fixed rate term debt. At December 31, 1993, the
notional amount (the amount used to measure interest to be paid
or received) of the interest rate swap was $63,500,000.
Concurrent with the retirement of the floating rate bank
term debt, Tosco entered into a second interest rate swap
agreement in 1992 pursuant to which Tosco received fixed
rate interest and paid floating rate interest. In March 1993,
Tosco terminated the second interest rate swap and received
$3,200,000 which is being amortized over the term of the
agreement. The fair value indicated in the table represents the
cost of terminating the first swap, net of the
unamortized gain on the second swap.
Credit Risk
Financial instruments which potentially subject Tosco to
concentrations of credit risk consist principally of temporary
cash investments, trade receivables and commodity futures and
forward contracts. To reduce credit risk, temporary cash
investments are spread among several high quality financial
institutions and Tosco conducts ongoing evaluations of its
broad base of customers and contract parties and requires
letters of credit or other collateral arrangements as
appropriate.
5. Discontinued Operations
On May 4, 1993, Seminole completed its previously announced
sale of its principal operating assets to Cargill Fertilizer
Inc. (Cargill) for approximately $127,000,000. Under the
terms of the sale agreement, Seminole executed promissory
notes to Cargill totalling $14,500,000, payable in two equal
installments on January 1, 1994 and 1995, for land reclamation
liabilities that Cargill also assumed. The cash proceeds, net
of amounts utilized to extinguish outstanding borrowings under
a revolving credit agreement and for payment of certain
liabilities, of approximately $91,217,000 were paid to Tosco
as a reduction of outstanding intercompany debt. A fourth
quarter 1992 loss of $105,000,000 was recorded to reflect the
estimated loss on sale of Seminole's principal operating
assets, the estimated cost of disposing of its interest in the
Fort Meade Chemical Products partnership (FMCP), and a
provision for estimated operating losses during the phase-out
period.
Net assets (liabilities) of the discontinued segment are as
follows:
December 31,
1993 1992
(Thousands of Dollars)
Assets (a) $ 46,059 $ 389,854
Long-term debt (b) ( 32,982) ( 66,339)
Other liabilities ( 24,810) ( 97,240)(c)
Estimated loss on disposal(d) ( 105,000)
Net assets (liabilities)
of discontinued operations ($ 11,733) $121,275
(a) Other assets at December 31, 1993 include a receivable for
income taxes of $37,740,000 (related to tax benefits of
Seminole's losses from operations and sale of assets) which will
be utilized to reduce Tosco's consolidated tax liability
reflected on federal and state income tax returns.
(b) A subsidiary of Seminole
entered into an agreement for the sale of its partnership
interest in FMCP to U.S. Agri-Chemicals Corporation
effective January 1, 1994. Pursuant to the sale
agreement, the subsidiary remains obligated for its 50%
share of the debt of FMCP, which at December 31, 1993
consisted of $20,482,000 capital lease obligations and
$12,500,000 of bonds. The $12,500,000 of bonds were
called by the holder and paid in February 1994. At
December 31, 1992 long-term debt included $33,000,000 of
borrowings under the revolving credit facilities.
(c) $10,000,000 of estimated reclamation costs relating to
Seminole has been reclassified to discontinued operations.
(d) The estimated loss on disposal is presented net of related
income tax benefits of $79,531,000.
6. Inventories
December 31,
1993 1992
(Thousands of Dollars)
Raw materials $ 130,233 $ 37,941
Intermediates 26,723 17,187
Finished products 205,281 66,280
Retail 1,111
363,348 121,408
Less LIFO reserve 28,248
$ 363,348 $ 93,160
Results of operations for the year ended December 1993, include
a charge of $17,651,000 for the writedown
of inventory to estimated net realizable value as of December
31, 1993.
7. Other Assets
December 31,
1993 1992
(Thousands of Dollars)
Bayway Refinery acquisition deposit $ $17,500
Investment in Continental-Tosco
Limited Partnership (CT-LP) (a) 10,180 15,637
Other assets 7,583 6,474
$ 17,763 $ 39,611
(a)During the fourth quarter of 1993 Tosco withdrew its
participation in CT-LP, and received a portion of its
investment. Tosco anticipates recovering its remaining
investment in 1994.
8. Property, Plant and Equipment
December 31, Straight-Line
1993 1992 Annual Rate
Thousands of Dollars)
Land $ 51,287 $ 14,654
Refineries and
related assets 746,948 530,260 4% to 15%
Retail marketing and
related assets 76,000 5% to 20%
Office buildings,
furniture, fixtures
and improvements 30,070 9,993 3% to 33%
Transportation equipment 33,595 13,806 4% to 33%
Mineral properties,
principally oil shale
interests (a) 21,815 21,815
Natural gas properties 3,569 3,569
Construction in progress 45,726 66,918
1,009,010 661,015
Less accumulated
depreciation
and amortization 285,745 270,424
$ 723,265 $ 390,591
(a) At cost, net of impairments.
Expenditures for maintenance and repairs (excluding the
amortization of turnaround costs) were $74,596,000,
$53,480,000, and $54,243,000 for 1993, 1992 and 1991,
respectively.
9. Accounts Payable and Accrued Liabilities
December 31,
1993 1992
(Thousands of Dollars)
Accounts payable - trade $ 220,954 $ 133,100
Accrued taxes other than
taxes on income 36,250 18,908
Accrued compensation and
related benefits 7,365 3,014
Accrued interest 10,791 8,297
Income taxes payable (receivable) 14,106 ( 3,141)
Accrued dividends on preferred stock 1,253 1,253
Acquisition related liabilities 10,938
Other accrued costs 8,586 5,842
$ 310,243 $ 167,273
10.Long-Term Debt
December 31,
1993 1992
(Thousands of Dollars)
Collateralized
First Mortgage Bonds (a) (c) $ 300,000 $ 300,000
Exchange Bonds (b) (c) 150,000
Revolving Credit Facilities (c) 147,000
Note collateralized by oil shale
mining properties (d) 5,647 6,018
Uncollateralized
8% Convertible Subordinated
Debentures (e) 50,000
Other 1,446 1,543
604,093 357,561
Less: Current installments 787 800
$ 603,306 $ 356,761
(a)In March 1992, Tosco sold $300,000,000 of First Mortgage
Bonds (Bonds), comprised of $100,000,000 of 9% Series A
Bonds due March 15, 1997 and $200,000,000 of 9-5/8% Series
B Bonds due March 15, 2002. Interest on the Bonds is
payable each March 15th and September 15th. The Bonds are
non-callable and are collateralized by the Avon Refinery
and certain related assets.
(b)In connection with the acquisition of the Bayway Refinery,
Tosco sold in a private placement $150,000,000 of 8-1/4%
First Mortgage Bonds due May 15, 2003 (Bayway Mortgage
Bonds) which are guaranteed by Bayway. The Bayway
guarantee is collateralized by the Bayway Refinery and
related assets and a guarantee of Tosco. Proceeds from the
sale of the Bayway Mortgage Bonds, net of $2,325,000 of
costs, were contributed as an equity investment to Bayway.
Interest on the Bayway Mortgage Bonds, is payable
semi-annually commencing May 15, 1993. Tosco, pursuant to
a registration statement effective July 7, 1993, exchanged
the Bayway Mortgage Bonds for a new series of its 8-1/4%
First Mortgage Bonds due May 15, 2003 (Exchange Bonds) the
terms of which are substantially identical to the Bayway
Mortgage Bonds. The Exchange Bonds are publicly traded.
All of the Bayway Mortgage Bonds were exchanged for the
Exchange Bonds, and the exchange offer expired on August
20, 1993.
(c) In connection with the acquisition of the Bayway Refinery,
Tosco entered into a new credit agreement (New Credit
Agreement) with a group of bank lenders which provides up
to $350,000,000 of revolving credit availability (New
Revolving Credit Facilities) for working capital purposes
(based upon a borrowing base of eligible investments,
accounts receivable and inventory). Cash borrowings under
the New Revolving Credit Facilities bear interest at the
option of Tosco at either the prime rate plus a margin
ranging from zero to 1/4% or at the Eurodollar rate plus
a margin ranging from 1% to 1-1/2%. The incremental margin
is dependent on the credit rating of the First Mortgage
Bonds. A commitment fee of 3/8% per annum on the unused
portion of the commitment is also due. The New Credit
Agreement is collateralized by investments, accounts
receivable, and inventory of Tosco and Bayway. The New
Credit Agreement expires in April 1997.
The loan agreements for the Bonds, the Exchange Bonds, and
the New Credit Agreement contain covenants which limit
Tosco's ability to incur additional indebtedness, pay
dividends, acquire equity securities of Tosco, make
investments in certain subsidiaries and make discretionary
capital expenditures. In addition, the New Credit
Agreement requires the maintenance of specified ratios and
net worth. At December 31, 1993, Tosco was in compliance
with all debt covenants.
(d)On December 17, 1987, The Oil Shale Corporation, a
subsidiary of Tosco, exercised options to acquire certain
oil shale mining claims (Ertl and Paraho oil shale
properties in Rio Blanco County, Colorado) for a cash
payment of $1,150,000 and execution of a promissory note
of $11,562,000, payable in fifteen equal annual principal
installments beginning on December 17, 1990. The
promissory note, with a stated interest rate of 5%, was
discounted, based upon long-term market rates, to a value
of $6,356,000 at the date of issue.
(e)On October 15, 1980, Tosco International Finance, N. V.,
(TIFNV), a wholly-owned subsidiary of Tosco, sold
$50,000,000 of 8% Convertible Subordinated Debentures due
October 15, 1995 (Debentures) outside the United States.
The Debentures, which were guaranteed by Tosco, were
convertible into Common Stock at $186.875 per share. In
August, 1993, TIFNV completed the redemption of the
Debentures for approximately $53,311,000 (the principal
amount plus accrued interest).
Future Installments of Long-Term Debt
Maturities relating to long-term debt during the next five
years are as follows:
Years Ending Thousands
December 31, of Dollars
1994 $ 787
1995 771
1996 771
1997 247,771 (a)
1998 771
(a) Includes cash borrowings of $147,000,000 at December 31,
1993
under the revolving credit facility. The borrowings
will vary according to Tosco's working capital
requirements.
Utilization of Working Capital Facilities
December 31,
1993 1992
(Thousands of Dollars)
Revolving Credit Facilities
Cash borrowings $ 147,000 $
Letters of credit 142,177 17,443
Total utilization 289,177 17,443
Availability 60,823 52,557
Total credit line $ 350,000 $ 70,000
11.Capital Stock
Series F Preferred Stock
In August 1991, Tosco issued 2,300,000 shares of Series F
Stock for an aggregate value of $115,000,000 (net proceeds of
$111,197,000). The Series F Stock is convertible into 2.0833
shares of Common Stock, equivalent to a conversion price of
$24.00 per share of Common Stock, subject to adjustment in
certain events. The Series F Stock is not subject to any
mandatory redemption or sinking fund provision and is not
redeemable prior to August 15, 1994. The Series F Stock is
subsequently redeemable, in whole or in part, at the option of
Tosco at redemption prices beginning at $53.0625 per share and
declining to $50 per share plus accrued dividends on August
15, 2001. Dividends of $1.09375 per share are payable
quarterly. No cash dividends can be declared or paid on any
stock junior to the Series F Stock in the event of dividend
arrearages. If six quarterly dividends are in arrears, the
holders of the Series F Stock, voting as a separate class,
shall be entitled to elect two additional directors until all
cumulative dividends are paid.
Common Stock
In December 1993, Tosco received net proceeds of
$88,418,000 from a public offering of 2,990,000 shares of
Common Stock.
Common Stock Purchases
In October 1990, Tosco's Board of Directors authorized the
acquisition of up to 2,000,000 common share equivalents in the
open market or otherwise at prices Tosco considers opportune
(Common Stock Acquisition Program). In 1990 and 1991, Tosco
acquired a total of 154,580 shares of Common Stock pursuant to
the Common Stock Acquisition Program. In July 1992, Tosco's
Board of Directors renewed its previous authorization and
Tosco acquired 606,000 shares of Common Stock during the
remainder of 1992.
Tosco also purchased 12,288 shares of Common Stock from the
Tosco Employee Stock Ownership Plan (ESOP) during 1992 and
1993 pursuant to a program which allows employees who have
reached retirement age to transfer their vested investment in
Common Stock to the Tosco Corporation Capital Accumulation
Plan (Note 14).
12.Stock Options and Shares Reserved For Issuance
Tosco had three stock option plans in effect at December
31, 1993: the 1992 Stock Incentive Plan (1992 Plan), the 1989
Stock Incentive Plan (1989 Plan), and the Long Term Incentive
Plan of 1979 (as amended) (LTIP). Grants may no longer be
made under the LTIP; however, grants previously made may be
exercised until their expiration date or termination of
employment.
The 1989 and 1992 Stock Incentive Plans
The 1989 and 1992 Stock Incentive Plans provide for the
issuance to key employees, consultants, and non-employee
directors of a maximum of 1,280,000 and 1,200,000 shares of
Common Stock, respectively, in the form of stock options,
restricted stock awards and/or stock appreciation rights.
Stock options may be granted as "Incentive Stock Options" (as
defined by the Internal Revenue Code of 1986), or as
nonqualified options, including nonqualified stock options
whose purchase price or vesting requirements are based on the
employee's achievement of established performance objectives.
Options may be exercised as determined by the Compensation
Committee of the Board of Directors (Compensation Committee)
but in no event after ten years and one day from the date of
grant. The exercise price of nonqualified stock options is
determined by the Compensation Committee and may be less than
the fair market value of Common Stock on the date of grant.
No awards may be granted under the 1989 and 1992 Plan after
March 7, 1999 and March 13, 2002, respectively.
Nonqualified stock options (Stock Options) to acquire an
aggregate of 566,500 shares of Common Stock at prices ranging
from $21.69 to $31.37 per share (the adjusted average of the
high and low market prices of Common Stock on the respective
dates of grant) were granted to key employees and one
non-employee director during 1993. Subject to the severance
agreements with certain key employees (Note 16), each of the
grants is exercisable as to one-third of such shares at any
time following the first anniversary of the date of grant and
an additional one-third after each of the second and third
anniversaries. Stock appreciation rights with respect to
12,000 shares of Common Stock were also granted. The exercise
of Stock Options results in the cancellation of the same
number of stock appreciation rights as to which the Stock
Options are exercised.
Year Ended December 31,
1993 1992 1991
Option Price Option Price Option Price
Shares Per Share Shares Per Share Shares Per Share
tanding,
beginning of year 1,468,099 $11.90 to $28.56 1,003,032 $11.90 to $24.63 623,072 $11.90 to $21.88
Grants - 1992 Plan 542,500 $21.69 to $25.94 193,500 $28.56
Grants - 1989 Plan 24,000 $31.37 324,000 $27.75 to $28.56 449,000 $14.81 to $24.63
Exercised ( 221,633) $18.86 to $23.56 ( 21,933) $11.90 to $28.56 ( 31,240) $11.90 to $18.75
Expired or Cancelled ( 193,667) $28.44 to $28.56 ( 30,500) $18.75 to $23.56 ( 37,800) $18.88 to $21.88
Outstanding, end
of year <F1> 1,619,299 $14.38 to $31.37 1,468,099 $11.90 to $28.56 1,003,032 $11.90 to $24.63
Exercisable 722,799 550,766 289,365
Available for future grant 697,167 1,009,000 357,000
Shares reserved for:
Exercise of stock options 2,316,466 2,477,099 1,360,032
Conversion of 8% Debentures 267,558 267,558
Conversion of Series
F Stock 4,791,590 4,791,590 4,791,590
Total shares reserved 7,108,056 7,536,247 6,419,180
<FN>
<F1> As of December 31, 1993, the expiration dates of options
outstanding
range from May 25, 1994 to January 31, 2003.
On January 19, 1994, options to purchase 165,000 shares of
Common Stock were granted under the 1989 Plan at a price of
$29.25 per share.
13.Income Taxes
The provision for income taxes is summarized below:
Year Ended December 31,
1993 1992 1991
(Thousands of Dollars)
Current:
Federal $ 51,915 $ 9,293 $ 1,059
State 12,096 3,225 3,542
Foreign 218 336 532
Total current 64,229 12,854 5,133
Deferred:
Federal ( 6,366) 6,546 300
State ( 3,823) 1,366 2,800
Total deferred ( 10,189) 7,912 3,100
Adjustment to prior
year estimated
income taxes (a) ( 2,865) ( 5,870)
Provision for
income taxes $ 51,175 $ 20,766* $ 2,363
* Excluding effect of accounting changes.
(a) See footnote below following table.
A reconciliation of the provision for income taxes to income
taxes computed by applying the statutory federal income tax
rate to earnings before income taxes is as follows:
Year Ended December 31,
1993 1992 1991
(Thousands of Dollars)
Computed income taxes
at 35% for 1993
and 34% for 1992 and 1991 $ 46,114 $ 17,344 $ 23,958
State income taxes 11,858 4,591 6,342
Federal tax benefit of
state income taxes ( 4,150) (1,560) (127)
Foreign and other taxes 218 391 532
Tax benefit of NOL carryforwards (22,472)
Adjustment to prior
year estimated
income taxes (a) ( 2,865) ( 5,870)
$ 51,175 $ 20,766* $ 2,363
* Excluding effect of accounting changes.
(a) The provision for income taxes for 1993 includes tax
credits of approximately $2,500,000 which were finalized
in tax returns filed in October 1993. The adjustment to
the provision for income taxes for 1991 is primarily
attributable to the net reversal of previously accrued
federal and state income taxes for 1990. Income tax
accruals for 1990 were based upon estimates of book/tax
temporary differences, filing status and apportionment data
which were further reviewed and refined in tax returns
filed in September and October 1991.
Temporary differences and carryforwards which give rise to
deferred tax assets and liabilities are as follows:
Year Ended December 31, 1993
1993 1992
(Thousands of Dollars)
Deductible temporary differences:
Environmental cost liability ( $29,440) ($29,440)
Inventories ( 22,318) ( 4,618)
Postretirement benefit
obligations other than pensions ( 3,439) ( 3,111)
Accrued liabilities
deductible for tax when paid ( 12,200) ( 12,349)
Deferred state income taxes (a) ( 3,273) ( 7,096)
Other ( 14,180) ( 4,094)
Tax carryforwards:
Net operating losses (b) ( 176,718) (200,061)
Capital losses ( 18,056)
( 261,568) (278,825)
Taxable temporary differences:
Property, plant and equipment 178,320 186,683
Deferred turnarounds
expensed for tax 7,251 12,000
Other 3,872 5,709
189,443 204,392
Total temporary differences
and carryforwards, net ( 72,125) ( 74,433)
Valuation allowance (d) 18,056
Total temporary differences
and carryforwards
after valuation allowance ($ 72,125) ($56,377)
Federal income taxes
at 35.12% in 1993 and
34.12% in 1992 ($ 25,330) ($19,236)
Tax credit carryforwards (b) ( 14,659) ( 14,659)
Alternative minimum tax
(AMT) credit carryforwards (c) ( 9,242) ( 8,970)
Deferred federal income tax asset ($ 49,231) ($42,865)
Current deferred ($ 12,123) ($ 5,959)
Long-term deferred ( 37,108) ( 36,906)
($ 49,231) ($ 42,865)
(a)Deferred state income tax liabilities of $3,273,000 and
$7,096,000 in 1993 and 1992, respectively, were provided for
temporary differences primarily related to the excess of state
tax over book depreciation. There are no significant NOL or
tax credit carryforwards available for state tax
computations.
(b)The NOLs were generated during the four-year period 1983
through 1986 during which Tosco disposed of three refineries and
its investments in oil and gas ventures and restructured its
operations around the Avon Refinery. Approximately
$9,000,000 of NOL's expires in 2000 while the remainder
of $168,000,000 expires in 2001. Investment tax credit
carryforwards expire in 1997 ($4,334,000), 1998
($8,330,000), 1999 ($464,000), 2000 ($732,000), 2001
($337,000), 2002 ($462,000).
(c) Alternative minimum tax credit carryforwards may be
carried forward indefinitely.
(d) The change in the valuation allowance is due to the
expiration of the capital loss carryforwards (for which the
valuation allowance was originally provided) during 1993.
Tosco believes that it is more likely than not that the
federal deferred tax asset will be realized prior to the
expiration of the carryforward period based upon the expected
continuation of Tosco's profitable results of continuing
operations since 1986 and resultant taxable income.
14 Employee Benefit and Incentive Compensation Plans
Pension Plans
Tosco has non-contributory, defined benefit pension plans
covering substantially all of its employees located at the
Avon and Bayway Refineries and its union employees at the
Ferndale Refinery (collectively, the Plans). The benefits
under the Plans generally are 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. Contributions to the 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 Plans are managed by major financial
institutions and invested in high quality equity securities,
guaranteed investment contracts, corporate and government debt
securities and commingled real estate equity funds. The
funded status of the Plans and amounts recognized in Tosco's
balance sheet are as follows:
December 31,
1993 1992
(Thousands of Dollars)
Actuarial present value
of benefit obligations:
Vested benefits ($35,109) ($26,317)
Nonvested benefits ( 1,056) ( 695)
Accumulated benefit
obligations (ABO) ( 36,165) ( 27,012)
Plan assets at fair value 41,920 34,975
Plan assets in excess of ABO $ 5,755 $ 7,963
Projected benefit obligations
(PBO) for services
rendered to date ($65,036) ($35,593)
Plan assets at fair value 41,920 34,975
PBO in excess of plan assets ( 23,116) ( 618)
Prior service cost not yet
recognized in net periodic
pension cost 15,240 58
Unrecognized net loss 7,054 264
Unrecognized net obligation
at January 1, 1987
being amortized over 15 years 2,302 2,545
Prepaid pension cost $ 1,480 $ 2,249
Net pension cost included
the following components:
Service costs $ 3,668 $ 2,036
Interest cost 3,581 2,536
Actual return on plan assets ( 3,521) ( 2,180)
Net amortization and deferral 1,843 56
Net pension cost $ 5,571 $ 2,448
Major assumptions at year end (a)
Assumed discount rate (b) 7% 7-1/2%
Assumed rate of future compensation increase 5% 5%
Expected rate of return on plan assets 7-1/2% 7-1/2%
____________________
(a) Net pension cost is determined using the assumptions as of
the beginning of each respective year. The funded status of
the Plans is determined using the assumptions as of the
end of each respective year. Net pension cost for 1991
was $1,961,000.
(b) The discount rate assumption reflects annuity purchase
rates
at which pension obligations could be settled.
Effective January 1, 1993, certain employees who had been
participants in the Tosco Corporation Pension Plan (terminated
August 1985) were allowed a one-time election to either
continue to receive a 5% of compensation non-matching
contribution in lieu of pension or to rejoin the Plan. Thirty
nine employees elected to be covered by the Plan and account
for approximately $3,700,000 of the present value of projected
benefit obligation as of December 31, 1993.
In connection with Tosco's acquisition of the Bayway and
Ferndale refineries, Tosco granted coverage under its Plan to
certain acquired employees. The terms of the coverage
provided for recognition of past service subject to the offset
of any pension benefits accrued through April 7, 1993 and
December 27, 1993, respectively, and payable at age 65. As a
result the PBO as of December 31, 1993 was increased by
approximately $17,400,000.
In 1990, Tosco adopted a Senior Executive Retirement Plan
to provide retirement benefits to selected senior executives
of Tosco and their beneficiaries. A provision of $1,267,000,
$1,237,000 and $797,000 was recorded in 1993, 1992 and 1991,
respectively.
Employee and Retiree Benefit Plans
Tosco provides certain health care and life insurance
benefits for the majority of its Avon employees when they
reach retirement age. Beginning January 1, 1988, new
employees of Tosco not employed at the Avon Refinery are not
eligible for postretirement health care and life insurance
benefits. Benefits for eligible retired, as well as active,
employees are provided through insurance companies whose
premiums are based on the benefits paid during the year.
Tosco elected to prospectively recognize its accumulated
postretirement benefits obligation (APBO) other than pensions
of $32,661,000 as of January 1, 1992, the effective date of
Tosco's adoption of SFAS No. 106. In view of the escalating
costs of medical care, Tosco adopted several changes to its
employee benefit plans which, among other things, reduced
Tosco's APBO to $25,094,000 as of January 1, 1993. The total
cost of retiree benefits, including the amortization of the
transition obligation, was $2,541,000 for 1993, an increase of
$328,000 over the amount which would have been expensed under
the pay as you go approach.
The funded status of the postretirement plans and the amounts
recognized in Tosco's balance sheet are as follows:
December 31,
1993 1992
(Thousands of Dollars)
Accumulated postretirement
benefit obligation (APBO):
Retirees $18,787 $ 23,310
Fully eligible active plan participants 3,241 3,694
Other active plan participants 3,769 4,460
25,797 31,464
Plan assets at fair value
(Insurance assets) 5,580 5,436
APBO in excess of plan assets 20,217 26,028
Unrecognized net gain from past
experience different
from that assumed and from other changes 31 8,111
Unrecognized transition obligation (16,809) ( 31,028)
Accrued postretirement benefit liability $ 3,439 $ 3,111
Net periodic postretirement benefit cost for 1993 and 1992
includes the following components:
Amortization of transition
obligation over 20 years $ 934 $ 1,633
Interest cost on APBO 1,813 3,094
Service cost 189 589
Actual return on life insurance assets ( 411) ( 404)
Net amortization and deferral 16 7
Net postretirement benefit cost 2,541 4,919
Liability at beginning of year 3,111
Employer payments, net of employee
contributions ( 2,213) ( 1,808)
Accrued postretirement benefit liability $ 3,439 $ 3,111
The discount rate used in determining the APBO at December
31, 1993 was 7.0%. For measurement purposes, a 11% annual
rate of increase in the per capita cost of postretirement
medical benefits was assumed for 1993; the rate was assumed to
decrease (to 10% for 1994) gradually to 6% for 2002 and remain
at that level thereafter. Increasing the assumed health care
cost trend rates by one percentage point in each year would
have increased the APBO as of December 31, 1993 by $1,977,000
and net periodic postretirement benefit cost for 1993 by
$137,000. The assumed rate of return on life insurance assets
(composed of reserves held by the insurer) for 1993 was 7.5%.
Savings Plan
A savings plan has been established for all eligible
employees of Tosco (Tosco Corporation Capital Accumulation
Plan (CAP)) to encourage long-term savings and to provide
additional funds for retirement. Participants may make,
within certain limitations, voluntary contributions under
Section 401(k) of the Code based upon a percentage of their
compensation. Tosco makes matching contributions based upon
years of contributory participation (as defined under the CAP)
for employees who elect to make certain specified and minimum
contributions. In addition, eligible employees receive an
additional contribution equal to 5% of their compensation (up
to $235,840 in 1993 and $150,000 in 1994) which is intended to
replace
Tosco's contribution under a terminated pension plan.
Participants are fully vested in both their voluntary and
Tosco contributions at all times.
Contributions by Tosco to the savings plan for the years
ended December 31 were $5,524,000 (1993), $2,379,000 (1992),
and $1,957,000 (1991).
Management Incentive Plans
A Cash Incentive Plan (CIP) was established for members of
middle and senior management in 1987. The CIP sets forth
suggested awards which are computed as a percentage of a
participant's base salary, which percentage is dependent upon
Tosco's pretax income (as defined). Effective January 1,
1990, Tosco also adopted a bonus plan for senior executives
who are not participants in the CIP based on per share pretax
income (as defined).
Results of operations for the years ended December 31,
1993, 1992 and 1991 include provisions for incentive
compensation of $9,531,000, $5,616,000 and $4,100,000
respectively, of which $7,458,000, $4,393,000 and $3,398,000,
respectively, were included in selling, general and
administrative expenses. In addition, a special bonus of 2%
of annual base salary (totaling $1,623,000), made at the
discretion of the Board of Directors, was awarded to all
employees not covered by management incentive plans in light
of the strong operational and financial performance of Tosco
in 1993.
Employee Stock Ownership Plan
In 1992, Tosco's Board of Directors authorized the merger
of the ESOP into the CAP. Effective January 1, 1993,
contributions of 2% of eligible pay were made to the CAP for
those participants previously eligible for the ESOP. ESOP
expense for the years ended December 31 was $516,000 (1992)
and $883,000 (1991).
15. Lease Commitments
Tosco distributes transportation fuels throughout its
marketing areas through a combination of owned and leased
terminals. Two major West Coast terminal leases scheduled to
expire in 1991 were renegotiated for ten year terms.
Long-term leases for the Riverhead Terminal and Northville's
oil distribution system were acquired in 1992 and 1993,
respectively. The other terminal leases are generally for
short term periods of time and continue in effect until
cancelled by either party. The terminal leases are subject to
escalation, either based upon increases in annual average wage
rates or as allowed by the Public Utilities Commission (PUC).
A portion of the terminals' storage and handling facilities
are periodically subleased to others. Tosco also leases a
sulfuric acid manufacturing plant located at the Avon Refinery
(which lease expires in 1998 with an option to renew for an
additional period), transportation and computer equipment, and
office space primarily in Concord, California and Stamford,
Connecticut. Some of the terminal leases and substantially
all of Tosco's other leases require additional payments for
insurance, taxes and maintenance expenses related to the
leased assets.
In June 1992, Tosco entered into a 5-1/2 year operating
lease agreement for the Riverhead Terminal (a 5.1 million
barrel petroleum storage facility with deep water marine
facilities located on Eastern Long Island, New York). Under
the agreement, Tosco is responsible for all insurance, taxes
and maintenance costs and has the option to purchase the
terminal at the end of the lease for its fair market value.
Minimum annual rentals, a portion of which vary with a
reference interest rate (Eurodollar Rate), approximate
$2,400,000 (excluding a $11,550,000 payment due at the end of
the lease). A portion of the terminal storage capacity is
subleased under long-term contracts to third parties.
During the fourth quarter of 1993 Tosco entered into a nine
year operating lease agreement for Northville Industries
Corporation's oil distribution system on Long Island, New
York. The Northville system has storage capacity for more
than 775,000 barrels of gasoline, low sulfur diesel fuel and
home heating oil which are intended to be supplied from the
Bayway Refinery. Under the agreement, Tosco is responsible
for certain insurance, taxes, maintenance and operating costs.
Minimum annual rentals approximate $4,200,000 for the first
five years and $4,700,000 thereafter.
In December 1993, Tosco entered into a 16-1/2 year
operating lease of a methyl tertiary butyl ether (MTBE)
facility located at the Avon Refinery. The MTBE facility,
which cost approximately $43,300,000 to construct, including
transaction costs, has the capacity to produce 2,600 barrels
per day of MTBE, an oxygenate which can be used as an integral
component of "reformulated" gasoline. Minimum annual payments
for 1994 and 1995 total $2,162,000 and $2,518,000,
respectively, and commence in December 1994. Annual payments
of $4,680,000 and $5,720,000 commence in June 1996 and June
2002, respectively. Tosco has an option to purchase the
facility at the end of the lease for $15,900,000, its
approximate market value.
Future minimum obligations under non-cancellable operating
leases and warehousing agreements at December 31, 1993 were as
follows:
Years Ending Thousands
December 31, of Dollars
1994 $ 16,080
1995 16,017
1996 18,777
1997 20,525
1998 15,746
1999 and subsequent 98,764
Total minimum payments (a) $ 185,909
(a) Excludes lease commitments of PNW Properties (Note 3).
Rental expense was as follows:
Year Ended December 31,
1993 1992 1991
(Thousands of Dollars)
Minimum rental and
warehousing charges $25,428 $15,644 $13,447
Contingent rental and
warehousing charges
(based primarily on throughput) 4,203 3,494 3,532
29,631 19,138 16,979
Rental income on
properties sub-leased
to others (a) ( 3,025) ( 1,493) ( 2,141)
Net rental expense $26,606 $17,645 $14,838
(a) Excludes rental income from the Riverhead Terminal which
is recorded as sales.
16.Commitments and Contingencies
Tosco is subject to extensive federal, state and local
regulation of environmental and permitting matters relating to
its petroleum refining and marketing operations. These
regulations are complex and subject to differing
interpretations, and Tosco is currently involved in a number
of proceedings and discussions regarding the removal and
mitigation of the environmental effects of subsurface liquid
hydrocarbons and alleged levels of hazardous waste at the Avon
Refinery and other locations, including Tosco's Spokane,
Washington terminal which is located in a site which is
included on the Superfund National Priorities List. Tosco
recorded environmental cost accruals of $25,000,000 and
$4,000,000 for 1992 and 1991, respectively, based upon a
determination that investigative work and remedial actions
(primarily on-site remediation of waste management units and
perimeter control of groundwater contamination at the Avon
Refinery) would be required.
In July 1993, outstanding litigation concerning
environmental issues was settled with the predecessor owners
of the Avon Refinery (Settlement Agreement). Under the
Settlement Agreement, the former owners agreed to pay up to
$18 million for one-half of the costs that may be incurred for
compliance with certain environmental orders and to provide
Tosco a $6 million credit for past expenses (which Tosco will
use to reduce its one-half share of future costs). After the
initial term of the Settlement Agreement (the later of four
years or until the $36 million shared cost maximum is
expended), the parties may elect to continue the Settlement
Agreement or to reinstate litigation. Tosco and the former
owners have established a committee to review and approve
expenditures for environmental investigative and remedial
actions at the Avon Refinery. The remedial actions are
subject to negotiation with governmental agencies and
therefore the timing and amount of actual cash expenditures is
uncertain. In addition, further investigative work and
negotiations with the governmental agencies may result in
additional remedial actions which Tosco cannot presently
predict. Tosco has not relinquished its right to make claims
for reimbursement of future costs and is not required to
reimburse amounts received under the Settlement Agreement.
Tosco is pursuing reimbursement under insurance policies in
effect during the applicable periods of coverage.
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. Tosco
continues to evaluate its liability for environmental costs,
net of liabilities transferred pursuant to the Settlement
Agreement, on a quarterly basis. Based upon that evaluation,
Tosco did not revise its $29,440,000 accrual for environmental
costs in 1993. While Tosco believes that it has adequately
provided for environmental exposures, should these matters be
resolved unfavorably to Tosco, they could have a material
adverse effect on its long-term consolidated financial
position and results of operations.
Pursuant to its purchase agreement with Bayway, Exxon will
remain responsible for environmental obligations related to or
arising out of its ownership or operation of the Bayway
Refinery, as will be set forth in a list to be prepared under
administrative consent orders between Exxon and the State of
New Jersey. Bayway has the right, for a period of one year
following completion of such list (which is expected to take
approximately four years to compile), to add additional items
to such list. The responsibility for previously unidentified
clean-up projects thereafter discovered will be shared by
Exxon and Tosco based on their length of ownership of the
Bayway Refinery. Tosco has also received indemnifications
from BP, with respect to environmental obligations arising out
of or relating to the period prior to the acquisition date of
the PNW Properties. Surveys to identify existing
environmental exposures are continuing.
There are various other legal proceedings and claims
pending against Tosco which 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 which in the
aggregate would be material to the business or operations of
Tosco.
In October 1986, Tosco and Atlantic Richfield Co. (ARCO)
entered into an agreement pursuant to which ARCO has agreed
for ten years (with two five-year renewal options exercisable
by ARCO) to deliver to Tosco an average of 50,000 barrels per
day of Alaskan North Slope crude oil in exchange for a
quantity of gasoline that is a variable percentage of the
amount of crude oil delivered, based upon the prices of
certain crude oils (ARCO Exchange Agreement). Under the ARCO
Exchange Agreement, Tosco has agreed that in the event it
desires to sell the Avon Refinery, Tosco will first offer the
Avon Refinery for sale to ARCO. If ARCO declines, Tosco will
be free for a certain period of time to sell the Avon Refinery
for consideration no less favorable to Tosco than was
initially offered to ARCO, subject to the effect of possible
continuing Tosco obligations of exchange under the ARCO
Exchange Agreement. In addition, in any such subsequent sale
ARCO has the right to participate in the bidding and to
acquire the Avon Refinery as long as it agrees to pay a
specified sum more than any other bidder. The ARCO Exchange
Agreement is subject to renegotiation in the event conditions
change to the extent that one of the parties has sustained
significant losses for a substantial period of time, or
structural changes make substantial losses likely. In the
event such renegotiation is unsuccessful, the ARCO Exchange
Agreement is subject to arbitration and possible termination.
Sales to ARCO, primarily under the ARCO Exchange Agreement,
were approximately $279,000,000, $326,000,000 and $358,000,000
for 1993, 1992 and 1991, respectively. In conjunction with
the acquisition of the Bayway Refinery, Bayway entered into a
commercial supply agreement with Exxon under which Exxon
initially purchased a substantial portion of the refinery's
gasoline production. This arrangement converted progressively
to a product exchange agreement during 1993. The initial term
of the product exchange agreement is five years. Sales to
Exxon were approximately $359,650,000 in 1993.
During 1992, Tosco amended agreements with certain of its
executive officers which 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. Under the amended agreements, lump sum
severance payments now exclude incentive compensation from the
computation base. Tosco's obligation to its seven executive
officers was $5,280,000 at December 31, 1993.
Tosco carries insurance policies on insurable risks which
it believes to be appropriate at commercially reasonable
rates. While Tosco believes that it is adequately insured,
future losses could exceed insurance policy limits or, under
adverse interpretations, be excluded from coverage. Future
liability or costs, if any, incurred by Tosco under such
circumstances would have to be paid out of general corporate
funds, if available.
Tosco, in keeping with industry practice, schedules
periodic maintenance of major processing units for significant
non-routine repairs and replacements as the units reach the
end of their normal operating cycles (turnarounds).
Unscheduled turnarounds also occur because of operating
difficulties or external factors. Throughput and earnings are
lowered, and deferred turnaround expenditures increased,
during such periods.
Tosco's NOL, investment tax and AMT credit carryforwards
(Note 13) are subject to various complex tax rules and
regulations which may be subject to varying interpretations.
These carryforwards may be adversely affected by changes in
the rules and regulations or significant changes in the
ownership of Tosco or its trade or business. Therefore, the
future benefit of these carryforwards, although more likely
than not realizable under current rules and regulations, is
not assured.
In August 1992, Tosco entered into a 15 year agreement
(Hydrogen Supply Agreement) to purchase up to 25 million cubic
feet per day of hydrogen and steam from a facility (Hydrogen
Plant) to be built, owned, and operated by a third party.
Tosco entered into an agreement to provide utilities,
wastewater disposal and other services to the Hydrogen Plant.
The Hydrogen Plant, located at the Avon Refinery on property
leased from Tosco, began commercial operation in December
1993. The Hydrogen Supply Agreement may be modified to
provide for higher levels of hydrogen at prices to be
negotiated and can be terminated under certain circumstances
upon payment of a stipulated fee (which decreases over time).
The third party has undertaken specific performance guarantees
under operating and maintenance contracts.
17. Condensed Consolidating Financial Information
The following tables set forth the condensed consolidating
financial statements as of December 31, 1993 and for the
period then ended of Tosco, Bayway and Tosco's other
subsidiaries. They are provided to meet the reporting and
informational requirements of Bayway as a guarantor of
the Exchange Bonds.
Condensed Consolidating Balance Sheet
(Thousands of Dollars)
December 31, 1993
Tosco Bayway Minor Subs
(Issuer) (Guarantor) (Non-guarantors) Eliminations Consolidated
Assets
Cash and cash equivalents $ 29,066 $ 25,845 $ 180 $ 55,091
Short-term investments and deposits 5,437 6,614 17,984 30,035
Other current assets 250,502 335,316 118 585,936
Total current assets 285,005 367,775 18,282 671,062
Other assets 623,006 172,517 30,640 ($ 4,366) 821,797
Investment in Bayway and other
subsidiaries 205,624 (205,624)
Intercompany receivables 161,845 1,083 4,67 3 ( 167,601)
Total assets $1,275,480 $ 541,375 $ 53,595 ($377,591) $1,492,859
Liabilities and shareholders' equity
Current liabilities $ 161,904 $ 147,898 $ 1,228 $ 311,030
Long-term debt 524,931 72,000 6,375 603,306
Other liabilities 61,245 ($ 4,366) 56,879
Intercompany liabilities 5,756 150,000 11,845 ( 167,601)
Shareholders' equity 521,644 171,477 34,147 ( 205,624) 521,644
Total liabilities and
shareholders' equity $1,275,480 $ 541,375 $ 53,595 ($ 377,591) $1,492,859
Condensed Consolidating Statement of Income
(Thousands of Dollars)
For the Year Ended December 31, 1993
Sales $ 1,783,387 $ 1,775,830 $ $ $ 3,559,217
Cost of sales 1,600,937 1,724,206 3,325,143
Operating contribution 182,450 51,624 234,074
Selling, general, and
administrative expenses <F1> 43,015 15,226 ( 67) 58,174
Interest expense, net 32,612 12,011 ( 477) 44,146
Income before provision
for income taxes 106,823 24,387 544 131,754
Provision for income taxes 40,950 10,007 218 51,175
Net income $ 65,873 $ 14,380 $ 326 $ $ 80,579
<FN>
<F1> The condensed consolidating statement of income which
includes the operations of Bayway since April 8, 1993, does not reflect
an allocation of a portion of
aggregate corporate selling, general and administrative expenses
of $25,557,000 to Bayway and the Minor Subsidiaries.
Tosco may allocate such costs in the future.
17. Condensed Consolidating Financial Information (continued)
Condensed Consolidating Statement of Cash Flows
Thousands of Dollars)
For the Year Ended December 31, 1993
Tosco Bayway Minor Subs
(Issuer) (Guarantor) (Non-guarantors) Eliminations Consolidated
Cash flows from operating activities:
Net income $ 65,873 $14,380 $ 326 $ 80,579
Depreciation, depletion and amortization 57,023 7,668 400 65,091
Deferred income taxes and utilization
of tax benefits 31,602 31,602
Inventory writedown 17,651 17,651
Changes in working capital ( 11,376) (31,935) ( 293) ( 43,604)
Other 20,644 (17,500) 3,144
Net cash provided by (used in)
operating activities 163,766 (9,736) 433 154,463
Cash flows from investing activities:
Purchase of property, plant and equipment, net,
and acquired inventories (225,361) (326,147) ( 551,508)
Increase in deferred turnarounds, charges
and other assets ( 22,748) ( 907) ( 23,655)
Investment in Bayway Refinery (147,675) 147,675
Intercompany transfers (199,068) 149,574 49,494
Net proceeds from sale of assets of
discontinued operations 91,217 91,217
Proceeds from (investment in) Continental
Tosco Limited Partnership 4,880 4,880
Net change in short-term investments
and deposits 12,927 ( 6,614) ( 4,132) 2,181
Net cash provided by (used in)
investing activities ( 490,708) ( 36,419) 50,242 (476,885)
Cash flows from financing activities:
Bayway Exchange Bonds 150,000 150,000
Borrowings under revolver, net 75,000 72,000 147,000
Early retirement of debt (50,000) ( 50,000)
Principal payments under debt agreements ( 24) 771) ( 795)
Issuance of Common Stock, net of expenses 88,418 88,418
Dividends on Preferred and Common Stock ( 28,056) ( 28,056)
Other ( 727) ( 727)
Net cash provided by (used in)
financing activities 284,611 72,000 ( 50,771) 305,840
Net increase (decrease) in cash and cash
equivalents ( 42,331) 25,845 (96) ( 16,582)
Cash and cash equivalents at
beginning of period 71,397 276 71,673
Cash and cash equivalents at end of period $29,066 $25,845 $ 180 $ $ 55,091
18. Quarterly Financial Data (Unaudited)
Thousands of Dollars Except Per Share Data
First Second Third Fourth
Quarter Quarter Quarter Quarter
1993
Sales $ 416,136 $956,254 $1,043,673 $1,143,154
Gross profit
on sales 41,588 64,321 75,502 70,314
Inventory writedown 17,651
Operating
contribution $ 41,588 $ 64,321 $ 75,502 $ 52,663
Income from
continuing
operations before
income taxes $ 24,789 $ 37,220 $ 47,348 $22,397
Provision for
income taxes 9,987 15,079 19,423 6,686
Net income $ 14,802 $ 22,141 $ 27,925 $ 15,711
Earnings per share:
Primary $ .42 $ .67 $ .86 $ .43
Fully diluted $ .42 $ .65 $ .81 $ .43
18.Quarterly Financial Data (Unaudited) (continued)
Thousands of
Dollars Except Per Share Data
First
Second Third Fourth
Quarter
Quarter Quarter (Quarter
1992
Sales $ 332,014
$477,132 $ 516,396 $ 535,427
Gross profit on sales 10,467
72,031 30,391 19,775
Environmental cost accrual
25,000
Operating contribution (loss) $ 10,467 $
72,031 $ 30,391 $ 5,225)
Income (loss) from continuing operations
before income taxes and cumulative
effect of accounting changes ($ 1,998) $
57,738 $ 16,699 ($ 21,426)
Provision (credit) for income taxes ( 718)
23,207 6,778 ( 8,501)
Income (loss) from continuing operations
before cumulative effect of accounting
changes ( 1,280)
34,531 9,921 ( 12,925)
Loss from discontinued operations ( 1,620) (
3,037) ( 5,319) ( 5,929)
Loss on sale of Seminole
( 105,000)
Loss from discontinued operations ( 1,620) (
3,037) ( 5,319) ( 110,929)
Cumulative effect of accounting changes 16,203
Net income (loss) $ 13,303 $
31,494 $ 4,602 ($123,854)
Earnings (loss) per share:
From continuing operations ($ .13) $
1.06 $ .25 ($ .53)
From discontinued operations ( .05)
( .10) ( .18) ( 3.78)
From cumulative effect of accounting
changes .54
Earnings (loss) per share - primary $ .36 $
.96 $ .07 ($ 4.31)
Earnings (loss) per share
- fully diluted $ .36 $
.90 $ .07 ($ 4.31)
SCHEDULE II
TOSCO CORPORATION AND SUBSIDIARIES
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND
UNDERWRITERS, PROMOTERS AND EMPLOYEES OTHER THAN RELATED
PARTIES
Years Ended December 31, 1993, 1992 and 1991
(Thousands of Dollars)
Column A Column B Column C Column D Column E
Balance at Balance
Beginning Amounts at End of
Name of Debtor of Period Additions Collected Period
1993
Aurilia, J. (a) $ 325 $ 6 319
Lavinia, R. (b) $ 200 200
$ 525 $ 206 $ 319
1992
1991
McClave, W. (c) $ 300 $ 300 $
Sutton, P. (d) $ 170 170
Total $ 300 $ 170 $ 470 $
(a) Note bearing interest at 7% per annum ( payable in monthly
installments of $2,000 with the balance due no later than
September 1998) and collateralized by residential property.
(b) Short-term note bearing interest at 3.85% per annum.
(c) Note bearing interest at 10% per annumdue June 1991 and
collateralized by
residential property.
(d) Non-interest bearing two-month bridge loan collateralized
by residential property.
SCHEDULE V
TOSCO CORPORATION AND SUBSIDIARIES
PROPERTY, PLANT AND EQUIPMENT
Years Ended December 31, 1993, 1992 and 1991
(Thousands of Dollars)
Column A Column B Column C Column D Column E Column F
Balance at Balance
Beginning Additions Other at End of
Classification of Period at Cost<F1> Retirements Changes<F2> Period
1993
Land $ 14,654 $ 36,633 $ 51,287
Refineries and related assets 530,260 ($20,297) $ 236,985 746,948
Retail marketing and related
assets 76,000 76,000
Office buildings, furniture,
fixtures and improvements 9,993 20,077 30,070
Transportation equipment 13,806 19,789 33,595
Mineral properties, principally
oil shale interests 21,815 21,815
Natural gas properties 3,569 3,569
Construction in progress 66,918 73,897 ( 95,089) 45,726
$ 661,015 $ 73,897 ($ 20,297) $294,395 $1,009,010
1992
Land $ 12,768 $ 1,886 $ 14,654
Refinery and related assets 494,956 ($ 323) $ 35,627 530,260
Office buildings, furniture,
fixtures and improvements 9,032 ( 100) 1,061 9,993
Transportation equipment 8,663 5,143 13,806
Mineral properties, principally
oil shale interests 21,815 21,815
Natural gas properties 3,391 178 3,569
Construction in progress 41,680 67,069 ( 41,831) 66,918
$592,305 $ 69,133 ($ 423) $ - $ 661,015
1991
Land $ 12,768 12,768
Refinery and related assets 472,907 ($ 96) $ 22,145 494,956
Office buildings, furniture,
fixtures and improvements 7,719 ( 98) 1,411 9,032
Transportation equipment 8,449 214 8,663
Mineral properties, principally
oil shale interests 21,815 21,815
Natural gas properties 3,319 $ 72 3,391
Construction in progress 24,351 41,099 ( 23,770) 41,680
$551,328 $ 41,171 ($ 194) $ - $592,305
<FN>
<F1> Primarily projects at the Avon and Bayway Refineries
required to comply with applicable safety and environmental
regulations.
<F2> Primarily the acquisition of Bayway and PNW Properties and
transfers from construction in progress.
The purchase price for PNW Properties has been preliminarily
allocated to the refinery and terminal
assets ($47,895,000) and retail assets acquired ($76,000,000).
A final allocation of the purchase
price will be determined in 1994 when appraisals and other
studies are completed.
SCHEDULE VI
TOSCO CORPORATION AND SUBSIDIARIES
ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION
OF PROPERTY, PLANT AND EQUIPMENT
Years Ended December 31, 1993, 1992 and 1991
(Thousands of Dollars)
Column A Column B Column C Column D Column E Column F
Additions
Balance at charged to Balance
Beginning Costs and Other at End of
Description of Period Expenses Retirements Changes Period
1993
Refineries and related assets $ 250,552 $31,127 ($ 20,297) $261,382
Office buildings, furniture,
fixtures and improvements 7,353 1,981 9,334
Transportation equipment 9,364 2,434 11,798
Natural gas properties 3,155 76 3,231
$ 270,424 $ 35,618 ($ 20,297) $ 285,745
1992
Refinery and related assets $ 227,095 $ 23,733 ($ 276) $ 250,552
Office buildings, furniture,
fixtures and improvements 6,593 786 ( 26) 7,353
Transportation equipment 8,257 1,107 9,364
Natural gas properties 3,041 114 3,155
$ 244,986 $ 25,740 ($ 302) $ 270,424
1991
Refinery and related assets $ 201,474 $ 25,737 ($ 116) $ 227,095
Office buildings, furniture,
fixtures and improvements 6,049 621 ( 77) 6,593
Transportation equipment 8,037 220 8,257
Natural gas properties 2,863 178 3,041
$ 218,423 $26,756 ($ 193) $ 244,986
SCHEDULE VIII
TOSCO CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1993, 1992 and 1991
(Thousands 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
Description of Period Expenses Accounts Deductions Period
1993
Allowance for
Uncollectible Trade
Accounts Receivable $5,164 $ $ 73 $ 5,091
1992
Allowance for
Uncollectible
Trade Accounts
Receivable $5,148 $ 26 $ 10 $ 5,164
1991
Allowance for
Uncollectible Trade
Accounts Receivable $5,268 $ $ 120 $ 5,148
TOSCO CORPORATION AND SUBSIDIARIES
COMPUTATION OF PER SHARE DATA
Thousands of Dollars Except Per Share Data
Exhibit 11
Year Ended December 31,
1993 1992 1991
Net income (loss) $ 80,579 ($ 74,455) $ 75,364
Preferred stock dividends ( 10,063) ( 10,063) ( 3,771)
Net income (loss)
attributable to common
shareholders for primary
earnings per share computations 70,516 ( 84,518) 71,593
Addback of dividends on
preferred stock
for assumed conversion 10,063 10,063 3,771
Net income (loss)
attributable to common
shareholders for fully
diluted earnings per
share computations $ 80,579 ($ 74,455) $ 75,364
Weighted average number of
shares outstanding
during the period 29,522 29,618 29,857
Stock option equivalents 157 78
Weighted average common stock
equivalents related to
the 4% Notes 30
Shares and equivalents used
for computation of primary
earnings per share 29,679 29,618 29,965
Additional stock option equivalents 170 112
Weighted average potentially
dilutive securities for the
assumed conversion of
preferred stock 4,792 1,997
Shares and equivalents used
for computation of
fully diluted earnings per share 34,641 29,618 32,074
Earnings (loss) per share:
Primary $ 2.38 ($ 2.85) $2.39
Fully diluted $ 2.33 ($ 2.85)<F1> $2.35
<FN>
<F1> Fully diluted earnings per share computations for 1992 did
not assume the conversion of
stock options or Series F Stock because the effect would have
resulted in a lower loss per share.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized in the City of San Francisco, and the
State of California on March 17, 1994.
TOSCO CORPORATION
(Registrant)
BY /s/ Thomas D. O'Malley
(Thomas D. O'Malley)
Chairman of the Board of Directors,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates indicated.
Signature Title
/s/Thomas D. O'Malley Chairman of the Board of March 17, 1994
(Thomas D. O'Malley) Directors, President and
Chief Executive Officer
/s/Jefferson F. Allen Principal Financial Officer,March 17, 1994
(Jefferson F. Allen) Executive Vice President
and Director
/s/Robert I. Santo Principal Accounting Officer March 17, 1994
(Robert I. Santo)
/s/Joseph B. Carr Director March 17, 1994
(Joseph B. Carr)
/s/Houston I. Flounroy Director March 17, 1994
(Houston I. Flounroy)
/s/Clarence g. Frame Director March 17, 1994
(Clarence G. Frame)
/s/Edmund A. Hajim Director March 17, 1994
(Edmund A. Hajim)
/s/Joseph P. Ingrassia Director March 17, 1994
(Joseph P. Ingrassia)
/s/Charles J. Luellen Director March 17, 1994
(Charles J. Luellen)