FORM 10-Q/A
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[*] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period
from_____________________________to_____________________________
Commission file number 1-7910
TOSCO CORPORATION
(Exact name of registrant as specified in its charter)
Nevada 95-1865716
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
72 Cummings Point Road
Stamford, Connecticut 06902
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(203) 977-1000
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
* Yes No
Registrant's Common Stock outstanding at October 31, 1994 was
37,049,859 shares.
TOSCO CORPORATION AND SUBSIDIARIES
Index to Financial Statements and Exhibits
Filed with the Quarterly Report of the Company on Form 10-Q
For the Nine Months Ended September 30, 1994
Page(s)
Part I. Financial Information
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6 - 11
Management's Discussion and Analysis of Financial
Condition and Results of Operations 12 - 17
Exhibit I - Computation of Earnings Per Share 18
Part II. Other Information 19
The financial statements listed in Part I above reflect all
adjustments (consisting only of normal recurring accruals) which
are, in the opinion of Management, necessary to a fair
presentation of financial position and results of operations.
Such financial statements are presented in accordance with the
Securities and Exchange Commission's disclosure requirements for
Form 10-Q. These unaudited interim consolidated financial
statements should be read in conjunction with the audited
Consolidated Financial Statements (from which the year-end
balance sheet presented herein was derived) and the Notes to
Consolidated Financial Statements filed with the Commission in
Tosco's 1993 Annual Report on Form 10-K and amended by Forms
10-K/A and 10-K/A-1.
TOSCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Thousands of Dollars
September 30, December 31,
ASSETS 1994 1993
(Unaudited)
Current assets
Cash and cash equivalents $ 31,619 $ 55,091
Short-term investments and deposits 24,662 30,035
Trade accounts receivable,
less allowance for uncollectibles
of $8,092,000 (1994) and $5,091,000 (1993) 307,421 174,285
Inventories 439,709 363,348
Prepaid expenses and other current assets 47,044 36,180
Deferred income taxes 12,123 12,123
Total current assets 862,578 671,062
Property, plant and equipment, net 752,735 723,265
Deferred turnarounds and charges 100,116 43,661
Deferred income taxes 37,108 37,108
Other assets 19,447 17,763
Total assets $ 1,771,984 $1,492,859
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities $ 558,184 $ 310,243
Current installments of long-term debt 783 787
Total current liabilities 558,967 311,030
Long-term debt 595,096 603,306
Other liabilities 14,581 12,433
Environmental cost liability 29,440 29,440
Net liabilities of discontinued operations 10,022 11,733
Deferred income taxes 3,273 3,273
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
Common shareholders' equity:
Common Stock - $.75 par value,
shares authorized,
39,598,900 (1994)
34,811,158 (1993)shares issued 29,702 26,112
Capital in excess of par value 640,144 534,727
Retained earnings (deficit) (40,361) (81,512)
Reductions from capital ( 68,880) ( 68,880)
Total common shareholders' equity 560,605 410,447
Total shareholders' equity 560,605 521,644
Total liabilities and
shareholders' equity $ 1,771,984 $1,492,859
The accompanying notes are an integral part of these financial
statements.
TOSCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Thousands of Dollars Except Per Share Data
Three Months Nine Months
Ended September 30, Ended September 30,
1994 1993 1994 1993
Sales $1,671,557 $ 1,043,673 $4,567,006 $2,416,063
Cost of sales 1,623,382 968,171 4,368,285 2,234,652
Selling, general and
administrative expense 18,430 16,092 60,015 39,777
Interest expense 14,864 13,352 42,753 35,830
Interest income ( 1,218) ( 1,290) ( 3,573) ( 3,553)
1,655,458 996,325 4,467,480 2,306,706
Income before provision
for income taxes 16,099 47,348 99,526 109,357
Provision for income taxes 6,423 19,423 36,531 44,489
Net income 9,676 27,925 62,995 64,868
Preferred stock dividend
requirements ( 1,261) ( 2,516) ( 6,293) ( 7,548)
Income attributable
to common shareholders $ 8,415 $ 25,409 $ 56,702 $ 57,320
Income per common and common
equivalent share:
Primary .25 $ .86 $ 1.71 $ 1.95
Fully diluted .25 $ .81 $ 1.68 $ 1.89
Dividends per common share .16 $ .15 $ .46 $ .45
The accompanying notes are an integral part of these financial
statements.
TOSCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Thousands of Dollars
Nine Months
Ended September 30,
1994 1993
Cash flows from operating activities:
Net income $ 62,995 $ 64,868
Adjustments to arrive
at net cash provided by
operating activities:
Depreciation 38,830 26,701
Amortization of deferred items 22,815 22,645
Deferred income taxes 27,864
Net proceeds from sale of assets
of discontinued operations 103,000
(Increase) decrease:
Short-term deposits 1,505 (25,706)
Trade accounts receivable ( 133,136) ( 64,592)
Inventories ( 76,361) (273,383)
Prepaid expenses and other current assets ( 2,942) ( 19,149)
Increase (decrease):
Accounts payable and accrued liabilities 247,941 138,205
Other 4,976 ( 801)
Net cash provided by (used in)
operating activities 166,623 ( 348)
Cash flows from investing activities:
Purchase of property, plant
and equipment, net ( 78,883) ( 50,187)
Purchase of Bayway assets ( 140,150)
Increase in deferred turnarounds,
charges and other assets ( 91,736) ( 20,472)
Proceeds from termination of CTLP 9,194
Net change in short-term investments 3,868 8,796
Net cash used in investing activities ( 157,557) ( 202,013)
Cash flows from financing activities:
Proceeds from Bayway Mortgage Bonds 150,000
Borrowings (repayments) under revolver, net ( 7,000) 87,000
Early retirement of debt ( 50,000)
Principal payments of debt ( 1,504) ( 23)
Dividends on Preferred and Common Stock ( 21,844) ( 20,701)
Other ( 2,190) ( 700)
Net cash provided by (used in) financing activities ( 32,538) 165,576
Net decrease in
cash and cash equivalents ( 23,472) ( 36,785)
Cash and cash equivalents at beginning of period 55,091 71,673
Cash and cash equivalents at end of period $ 31,619 $ 34,888
The accompanying notes are an integral part of these
financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information with respect to the three and nine months ended
September 30, 1994 and 1993 is unaudited.
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.
All significant intercompany accounts and transactions have
been eliminated.
Nature of Business
Tosco is one of the largest independent oil refiners and
wholesale marketers of petroleum products in the United
States. Tosco has extensive distribution facilities and
engages in domestic and international commercial activities.
Tosco also markets petroleum products at retail outlets on
the West Coast of the United States 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 1994.
Cash, Cash Equivalents, Short-term Investments and Deposits
Cash in excess of operating requirements is invested 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.
Tosco purchased director and officer liability insurance
coverage from the Loil Group Ltd. (Loil), a wholly-owned
subsidiary of Tosco, with limits of liability coverage of
$13,200,000 at September 30, 1994 and December 31, 1993 (an
amount approximately equal to the amount of cash, short-term
investments and marketable securities available to Loil).
The assets of Loil are restricted to payment of defense
costs and claims made against the directors and officers of
Tosco. The cost of investments and marketable securities of
Loil approximate fair value.
From time to time, Tosco makes use of futures and forward
contracts principally to hedge refining margins (when such
hedged margins are at acceptable levels) on a varying
percentage of the future production of the Bayway Refinery.
Futures and forward contracts are used to lock in margins
between the sales value of refined products produced,
primarily gasoline and heating oil, and the cost of raw
materials purchased generally for periods not exceeding one
year. Realized gains and losses on liquidated raw material
futures contracts are generally deferred in inventory until
the related refined products are produced.
Pursuant to the requirements of the commodity exchanges,
margin deposits for a percentage of the value of futures
contracts have been placed with commodity brokers. The
margin deposits are classified as short-term deposits .
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.
2. Acquisitions
On April 8, 1993, Bayway Refining Company (Bayway), a
wholly-owned subsidiary of Tosco, completed its acquisition
of a refinery and related facilities located in Linden, New
Jersey (Bayway Refinery) from Exxon Corporation. In
December 1993, Tosco acquired the Ferndale Refinery and
retail marketing assets in the Pacific Northwest (Tosco
Northwest) from BP Oil Company. The purchase price of Tosco
Northwest was $123,895,000, plus the value of inventory, and
an annual contingent participation payment of up to $150,000,000
over the five years following the acquisition based on the
performance of the refining and retail marketing segments
acquired. Tosco or BP may elect to liquidate the contingent
participation payment related to the performance of the retail
segment on an annual basis beginning in December
1994. Any contingent participation payments made will be
recorded as an additional cost of the acquired assets and
amortized over the remaining useful life of such assets. The
purchase price has been
preliminarily allocated to the refinery, wharf, and terminal
assets ($47,895,000) and the retail assets acquired
($76,000,000). A final allocation of the purchase price
will be made in 1994 when appraisals and other studies are
completed. The funds for the Tosco Northwest 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 facility.
On August 1, 1994 Tosco completed its previously announced
acquisition of BP America's California retail gasoline
marketing system (BP California retail system). The BP
California retail system includes approximately 370 retail
locations, 130 of which are company controlled, a
distribution terminal, and related assets. Pursuant to the
acquisition and related agreements, Tosco purchased
improvements at the retail service station locations and
received noncompetition and expanded trademark licensing
agreements. The balance of the BP California retail assets,
primarily land and equipment at retail service station
locations, were leased from a special purpose entity which
acquired such assets from BP America. The trademark
licensing agreement extends Tosco's exclusive license to
market under the British Petroleum BP brand to seven western
states for at least twelve years adding to its existing
license in Washington and Oregon. The previous five year
trademark license agreement for the states of Washington and
Oregon was also extended to a term of at least twelve years.
3. Inventories
September 30, December 31,
1994 1993
(Thousands of Dollars)
Raw materials $ 191,741 $ 130,233
Intermediates 12,636 26,723
Finished products 233,827 205,281
Retail sundries 1,505 1,111
$ 439,709 $ 363,348
The excess of replacement cost over the value of inventories
based upon the LIFO method was $32,795,000 at September 30, 1994.
Inventories were written down by $17,651,000 at December 31, 1993
to net realizable value as of that date.
4. Long-Term Debt
New Credit Agreement
In connection with the acquisition of Tosco Northwest, Tosco
amended its existing credit facility to increase credit
availability from $350,000,000 to $450,000,000 (New
Revolving Credit Agreement). Cash borrowings under the New
Revolving Credit Agreement 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 Revolving Credit Agreement,
which expires in April 1997, is collateralized by
investments, accounts receivable and inventory.
Utilization of Revolving Credit Facilities
September 30 December 31,
1994 1993
(Thousands of Dollars)
Cash borrowings $ 140,000 $ 147,000
Letters of credit 155,259 142,177
Total utilization 295,259 289,177
Availability 154,741 60,823
Total credit line $ 450,000 $ 350,000
Interest paid was $44,430,000 and $36,533,000 for the first
nine months of 1994 and 1993, respectively.
5. Capital Stock
During the nine months of 1994, options to purchase 447,000
shares of common stock of Tosco (Common Stock) were granted
at prices ranging from $29.25 to $30.94 per share.
In August 1994, Tosco called for redemption on September 26,
1994 (the Redemption Date) its shares of $4.375 Series F
Cumulative Convertible Preferred Stock (Series F Stock).
The redemption price was $53.0625 per share, plus $.486 per
share in accumulated and unpaid dividends from August 16,
1994 up to the Redemption Date. Of the 2,300,000 shares of
Series F Stock outstanding, 2,296,644 shares were converted
to shares of Common Stock prior to or on the Redemption Date and
3,356 were redeemed.
Quarterly dividends of $1.09375 per share of Series F Stock
and $.16 per share of Common Stock were paid on August 15,
1994 and September 30, 1994 to shareholders of record on
August 5, 1994 and September 20, 1994, respectively.
6. Income Taxes
The provision for income taxes is summarized below:
Three Months Nine months
Ended Sept. 30, Ended Sept. 30,
1994 1993 1994 1993
(Thousands of Dollars)
Federal $ 5,242 $ 15,108 $ 30,049 $34,433
State 1,181 4,261 6,482 9,842
Foreign 54 214
Provision for income taxes (a) $ 6,423 $19,423 $ 36,531 $44,489
Cash payments of income taxes $ 53 $ 759 $ 9,722 $ 1,698
(a) The income tax rate for 1994 was lower than 1993 because
of a 1.5% reduction in the expected annual effective income
tax rate and recognition of $2,900,000 in certain revised
income tax benefits from prior years. The effective rate
reduction is attributable to revised state income tax
allocation factors and estimated California investment tax
credits.
7. Commitments and Contingencies
On June 28, 1994, Bayway entered into a twelve-year
tanker agreement with Neptune Orient Lines, Ltd. of Singapore
(Neptune) for the charter of three 100,000 DWT crude oil
tankers. The tankers will be built to meet the
specifications of the Bayway Refinery's dock receiving
facilities as well as the requirements of the U.S. Oil
Pollution Act of 1990. The first tanker is expected to be
delivered in the second half of 1996. Bayway also entered
into a long-term lease agreement with Statia Terminals for
3,600,000 barrels of crude oil storage in Nova Scotia,
Canada. The three tankers will be used to move crude oil
from the Nova Scotia storage location to the Bayway Refinery
or in direct shipments to other locations.
In September 1994, Bayway announced that it had entered
into a letter of intent pursuant to which the Huntsman
Chemical Corporation (Huntsman) will build a 475 million
pound-per-year ethylbenzene plant at the Bayway Refinery.
Huntsman will purchase feedstocks produced by the Bayway
Refinery to make ethylbenzene, a base component for
manufacturing plastics.
In September 1994, Tosco announced that it had entered into a
long-term exchange agreement with Chevron USA Products Company
(Chevron). The exchange agreement provides for Tosco,
commencing in 1996, to receive 30,000 barrels per day (B/D) of
the new
California clean gasoline mandated by the California Air
Resources Board (CARB) (CARB Phase II
gasoline) in exchange for 30,000 B/D of conventional gasoline
plus differentials (a portion of which will vary depending
upon the prices of the two types of gasoline). The product
exchange agreement extends to 2003.
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, on a quarterly basis, its liability for
environmental costs, net of liabilities's transferred pursuant to
the settlement of outstanding litigation concerning environmental
issues with the predecessor owners of the Avon
Refinery. While Tosco continues to believe that its $29,400,000
environmental cost accrual is adequate, should matters be
resolved
unfavorably, Tosco's long-term consolidated financial position
and results of operations could be materially adversely affected.
Tosco has also been notified of
environmental exposures at previously owned refineries and other
locations which the current owners allege Tosco and others have
partial responsibility. Tosco is currently investigating and
evaluating these allegations. During the third quarter of 1994,
Tosco recovered approximately $3,475,000 of litigations costs
from Tosco's insurance carriers.
Tosco continues to pursue additional reimbursement of
environmental and
defense costs under insurance policies in effect during the
applicable periods of coverage.
8. Subsequent Event
During November 1994 Tosco announced that it had reached
agreement with Exxon U.S.A. to purchase Exxon's retail marketing
assets in Arizona. Included in the purchase price of $60 million
are 88 service station properties and related assets which are in
an area which can be supplied on exchange or by Tosco's Avon
Refinery. Tosco will market Exxon branded motor fuels through a
distributor agreement for a minimum of seven years. The
completion of this transaction is expected by year end and is
subject to the satisfaction of certain conditions.
9. Condensed Consolidating Financial Information
The following tables set forth the unaudited condensed
consolidating financial statements as of September 30, 1994
and for the nine month 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)
For the Nine Months Ended September 30, 1994
Tosco Bayway Minor Subs
(Issuer) (Guarantor) (Non-guarantors) Eliminations Consolidated
Assets
Cash and cash equivalents $ 8,774 $ 21,877 $ 968 $ 31,619
Short-term investments and deposits 1,311 5,114 18,237 24,662
Other current assets 371,162 369,399 65,736 806,297
Total current assets 381,247 396,390 84,941 862,578
Other assets 657,731 234,696 21,345 ($ 4,366) 909,406
Investment in Bayway and other subsidiaries 190,473 ( 190,473)
Intercompany receivables 115,254 ( 115,254)
Total assets $ 1,344,705 $ 631,086 $ 106,286 ($ 310,093) $ 1,771,984
Liabilities and shareholders' equity
Current liabilities $ 238,457 $ 253,816 $ 66,694 $ 558,967
Long-term debt 484,936 105,000 5,160 595,096
Other liabilities 60,707 975 ($ 4,366) 57,316
Intercompany liabilities 94,278 20,976 ( 115,254)
Shareholders' equity 560,605 177,992 12,481 ( 190,473) 560,605
Total liabilities and shareholders' equity $ 1,344,705 $ 631,086 $ 106,286 ($ 310,093) $ 1,771,984
Condensed Consolidating Statement of Income
(Thousands of Dollars)
For the Nine Months Ended September 30, 1994
Sales $ 2,004,878 $ 2,492,715 $ 152,335 ($ 82,922) $ 4,567,006
Cost of sales 1,853,759 2,445,422 152,026 ( 82,922) 4,368,285
Selling, general, and administrative expenses (a) 38,167 22,683 ( 835) 60,015
Interest expense, net 25,440 13,843 ( 103) 39,180
Income before provision for income taxes 87,512 10,767 1,247 99,526
Provision for income tax 32,279 4,252 36,531
Net income $ 55,233 $ 6,515 $ 1,247 $ - $ 62,995
(a) The condensed consolidating statement of income does not reflect an allocation of a portion of aggregate corporate
selling, general and administrative expenses of approximately $12,816,000 to Bayway and the Minor Subsidiaries. Tosco may
allocate such costs in the future.
8. Condensed Consolidating Financial Information (continued)
Condensed Consolidating Statement of Cash Flows
(Thousands of Dollars)
For the Nine Months Ended September 30, 1994
Tosco Bayway Minor Subs
(Issuer) (Guarantor) (Non-guarantors) Eliminations Consolidated
Cash flows from operating activities:
Net income $ 55,233 $ 6,515 $ 1,247 $ 62,995
Depreciation and amortization 52,415 8,945 285 61,645
Changes in working capital and short-term deposits ( 44,144) 81,303 (152) 37,007
Other 4,614 (650) 1,012 4,976
Net cash provided by operating activities 68,118 96,113 2,392 166,623
Cash flows from investing activities:
Purchase of property, plant and equipment, net ( 59,217) ( 19,666) ( 78,883)
Increase in deferred turnarounds, charges
and other assets ( 40,278) ( 51,458) ( 91,736)
Intercompany transfers 63,308 ( 61,957) ( 1,351)
Proceeds from termination of CTLP 9,194 9,194
Inter-company dividend 7,694 ( 7,694)
Net change in short-term investments 4,121 ( 253) 3,868
Net cash used in investing activities ( 24,372) ( 133,081) ( 104) ( 157,557)
Cash flows from financing activities:
Borrowings (repayments) under revolver, net ( 40,000) 33,000 ( 7,000)
Principal payments of debt ( 4) ( 1,500) ( 1,504)
Dividends on Preferred and Common Stock (21,844) ( 21,844)
Other ( 2,190) ( 2,190)
Net cash provided by (used in)
financing activities ( 64,038) 33,000 ( 1,500) ( 32,538)
Net increase (decrease) in cash and cash
equivalents ( 20,292) ( 3,968) 788 ( 23,472)
Cash and cash equivalents at beginning of period 29,066 25,845 180 55,091
Cash and cash equivalents
at end of period $ 8,774 $ 21,877 $ 968 $ - $ 31,619
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Introduction
Management's Discussion and Analysis should be read in
conjunction with Management's Discussion and Analysis included
in Tosco's Annual Report on Form 10-K for 1993. Reference
should also be made to the Financial Statements included in
this Form 10-Q for comparative Balance Sheet and Statement of
Income data.
Tosco's Annual Report sets forth Selected Financial Data
which, in summary form, reviewed Tosco's results of operations
and capitalization over the five year period 1989-1993. This
Management's Discussion and Analysis updates that data.
Results of Operations - For the three months ended September
30, 1994
Consolidated
Three Months Ended Sept. 30, Increase
1994 1993 (Decrease)
(Thousands of Dollars)
Sales $ 1,671,557 $ 1,043,673 $627,884
Cost of sales 1,623,382 968,171 655,211
Operating contribution 48,175 75,502 ( 27,327)
Selling, general, and
administrative expense 18,430 16,092 2,338
Net interest expense 13,646 12,062 1,584
Pre-tax income 16,099 47,348 ( 31,249)
Provision for income taxes 6,423 19,423 ( 13,000)
Net income $ 9,676 $ 27,925 ( $18,249)
Tosco earned $9.7 million, or $.25 per fully diluted share, on
sales of $1.7 billion for the third quarter of 1994, compared
to $27.9 million, or $.81 per fully diluted share, on sales of
$1.0 billion for the third quarter of 1993.
Operating contribution (income before selling, general and
administrative expense, net interest expense, and income
taxes) of $48.2 million for the third quarter of 1994 declined
by $27.3 million from the comparable quarter of 1993. The
decline was primarily due to lower refining margins and
reduced production from the Bayway Refinery because of
scheduled major maintenance on its fluid catalytic cracking
unit. These negative factors more than offset the operating
contribution from the Tosco Northwest assets and the BP
California retail system acquired on December 28, 1993 and
August 1, 1994, respectively. The acquisitions, as well as
expanded
wholesale operations, were the principal reasons for the increase
in
sales and cost of sales for the third quarter of 1994 as
compared to the comparable quarter of 1993. See Note 2 to
the September 30, 1994 Consolidated Financial Statements.
Selling, general and administrative expense for the third
quarter of 1994 includes a recovery of $3.5 million of
litigation costs from Tosco's insurance carriers. The partial
recovery of costs was incurred in now settled litigation with
the predecessor owners of the Avon Refinery over environmental
matters. Tosco continues to pursue additional recoveries of
costs from the insurance carriers. Tosco also received a $1.0
million retroactive adjustment of prior year medical costs
based on favorable claim experience. Excluding these items,
consolidated selling, general, and administrative expense for
the third quarter of 1994 increased by $6.8 million from the
comparable quarter of 1993. The increase was primarily
attributable to the December 1993 and August 1994
acquisitions.
The income tax rate for the third quarter of 1994 was lower
than 1993 because of a 1.5% reduction in the expected annual
effective income tax rate. The effective rate reduction is
attributable to revised state income tax allocation factors
and estimated California investment tax credits.
Comparative operating contribution for the third quarter of
1994 and 1993 is summarized below:
Avon Bayway Northwest* Consolidated
(Thousands of Dollars)
Three Months Ended
September 30, 1994
Sales $ 488,985 $ 856,459 $ 326,113 $ 1,671,557
Cost of sales 465,225 866,014 292,143 1,623,382
Operating 23,760 ( 9,555) 33,970 48,175
Three Months Ended
September 30, 1993
Sales $ 464,871 $ 578,802 $ 1,043,673
Cost of sales 414,959 553,212 968,171
Operating contribution 49,912 25,590 75,502
Increase (decrease) in
operating contribution ($ 26,152) ($ 35,145) $ 33,970 ($ 27,327)
*Includes retail operations
Operating income for the third quarter of 1994 from the Avon
Refinery declined by $26.2 million from the comparable
quarter of 1993. The decline was primarily attributable to
a $1.77 per barrel decline in refining margins (the
difference between the sales value of refined products
produced for sale and raw material costs) as sales prices
lagged increases in raw material costs.
Operating income for the third quarter of 1994 from the
Bayway Refinery was a negative $9.6 million, a $35.1 million
decline from the comparable quarter of 1993. The decline
was primarily due to the scheduled major turnaround maintenance
of the fluid catalytic cracking unit beginning in late August
which severely restricted refinery production
for approximately five weeks. Raw materials processed averaged
184,500 B/D, a 70,000 B/D decline from the third
quarter of 1993.
Tosco Northwest, which includes Tosco's retail operations,
had an operating contribution of $34.0 million for the third
quarter of 1994. The Ferndale Refinery processed 88,100 B/D
of raw materials and refining margins averaged $4.66 per
barrel. Retail margins continued to be strong, averaging
approximately $.11 per gallon on sales of almost 2.4 million
gallons per day. Tosco acquired the Tosco Northwest assets
in December 1993 and the BP California retail system in
August 1994.
Refining Data Summary for the three months ended Sept. 30, 1994 and 1993
(In thousands of barrels per day except for refining margins)
Avon Bayway (a) (b) Ferndale Consolidated (b)
1994 1993 1994 1993 1994 1994 1993
Crude and other raw materials 163.5 166.5 184.5 254.5 88.1 436.1 421.0
Petroleum products produced:
Clean products 141.4 130.9 149.2 199.5 61.4 352.0 330.4
Other finished products 20.6 34.1 34.7 60.3 24.6 79.9 94.4
Total finished products
produced 162.0 165.0 183.9 259.8 86.0 431.9 424.8
Refining margin per charge
barrel (c) $ 6.50 $ 8.27 N/A $3.50 $4.66 N/A $5.38
(a) Bayway's refining margins include the net result of hedges
designed to lock in predetermined margins (when such hedged
margins are at acceptable levels) on a varying percentage of
Bayway's production.
(b) Refining margins for the Bayway Refinery, and on a
consolidated basis, are not meaningful for 1994 because of the
scheduled shutdown of the fluid catalytic cracking unit. During
the shutdown period, the volume and mix of finished products
produced is
not representative of yields of finished products produced during
normal operations.
(c) As illustrated by the table, refining margins vary
significantly by refinery. This is due to a number of reasons
including marketing conditions in the principal areas served
by the refineries, their configuration and complexity (ability
to convert raw materials into clean products), and maintenance
schedules.
Results of Operations - For the nine months ended September 30,
1994
Consolidated
Nine months Ended Sept.30, Increase
1994 1993 (Decrease)
(Thousands of Dollars)
Sales $ 4,567,006 $ 2,416,063 $2,150,943
Cost of sales 4,368,285 2,234,652 2,133,633
Operating contribution 198,721 181,411 17,310
Selling, general, and
administrative expense 60,015 39,777 20,238
Net interest expense 39,180 32,277 6,903
Pre-tax income 99,526 109,357 ( 9,831)
Provision for income taxes 36,531 44,489 ( 7,958)
Net income $ 62,995 $ 64,868 ($ 1,873)
Tosco earned $63.0 million, or $1.68 per fully diluted
share, on sales of $4.6 billion for the first nine months of
1994, compared to $64.9 million, or $ 1.89 per fully diluted
share, on sales of $2.4 billion for the comparable 1993
period.
Tosco's acquisitions and expanded wholesale operations were the
principal reasons for the increase in consolidated sales and cost
of sales for the nine months ended September 30, 1994 as compared
to the comparable period of 1993.
The increase in consolidated selling, general, and
administrative expense, as well as consolidated net interest
expense, were
also primarily attributable to Tosco's acquisitions.
See Note 2 to the September 30, 1994 Consolidated Financial
Statements.
The provision for income taxes for the nine months ended
September 30, 1994 reflects a 1.5%
reduction in the expected annual effective income tax rate and
recognition of $2.9 million of revised income tax benefits
related to Tosco's former fertilizer operations previously
recognized in the quarter ended June 30, 1994. The effective
rate reduction is attributable to revised state income tax
allocation factors and estimated California investment tax
credits.
Comparative operating contribution for the nine months ended
September 30, 1994 and 1993 is summarized below:
Avon Bayway Northwest * Consolidated
(Thousands of Dollars)
Nine Months Ended
September 30, 1994
Sales $ 1,301,074 $ 2,492,715 $ 773,217 $ 4,567,006
Cost of sales 1,236,016 2,445,422 686,847 4,368,285
Operating contribution 65,058 47,293 86,370 198,721
Nine Months Ended
September 30, 1993
Sales $ 1,323,078 $ 1,092,985 $ 2,416,063
Cost of sales 1,188,534 1,046,118 2,234,652
Operating contribution 134,544 46,867 181,411
Increase (decrease) in
operating contribution ($ 69,486) $ 426 $ 86,370 $ 17,310
* Includes retail operations
Refining Data Summary for the nine months ended Sept. 30, 1994 and 1993
(In thousands of barrels per day except for refining margins )
Avon Bayway Ferndale Consolidated
1994 1993 1994 1993 1994 1994 1993
Crude and other raw materials 156.7 165.4 237.6 253.5 89.9 484.2 418.9
Petroleum products
produced:
Clean products 132.4 136.0 192.5 206.1 61.6 386.5 342.1
Other finished products 22.7 27.7 48.3 52.3 26.1 97.1 80.0
Total finished products produced 155.1 163.7 240.8 258.4 87.7 483.6 422.1
Refining margin per charge barrel $ 6.97 $ 7.94 N/A $3.46 $4.66 N/A $ 5.71
The increase in operating contribution for the nine months
ended September 30, 1994 over the comparable 1993 period was
primarily attributable to operating contribution of $86.4
million from Tosco Northwest offset by a $69.5 million decline
in operating contribution from the Avon Refinery. The decline
in operating contribution from the Avon Refinery is
attributable to reduced refining margins and the turnaround of
the fluid coker during the second quarter of 1994. In
addition, Bayway's operating contribution for the full nine
month period of operations for 1994 improved by $.4 million
over the approximate six month operating period of 1993. Tosco
acquired the Bayway Refinery on April 8, 1993. Bayway's
operating contribution for 1994 was negatively impacted by the
turnaround of the fluid cayalytic cracking unit.
Outlook
With the acquisitions of Bayway, the Tosco Northwest
assets, and the BP California retail system, Tosco is one of
the largest independent oil companies in the United States,
with annual revenue of over $6 billion. Operating three
refineries on the East and West Coasts of the United States,
Tosco now refines and markets over 500,000 B/D
of petroleum products, a three-fold increase over Tosco's
pre-acquisition production. Earnings related to the
increased levels of capacity continue to be determined
principally by two factors: the operating efficiency of the
refineries and refining and retail marketing margins. Tosco
schedules periodic maintenance of major processing units for
significant non-routine repairs and maintenance as the units
reach the end of their normal operating cycles. Refining
operating performance and earnings are lowered, and deferred
maintenance expenditures increased, during such periods.
The scheduled turnarounds of Avon's fluid coker and Bayway's
fluid catalytic cracking unit, which occur every three and
four years, respectively, were completed on time and at
expected cost in the second and third quarters of 1994,
respectively. The processing units at the Ferndale Refinery
(which are shutdown for maintenance at the same time), as well
as the Avon Refinery's fluid catalytic cracker, are the only
major processing units currently scheduled to be shutdown for
maintenance in 1995. Operating levels at the
three refineries are currently at normal levels and are expected
to continue at such rates for the balance of 1994. Tosco is not
able to predict the level or trend of refining and retail
marketing margins, despite a strengthening national economy,
because of the uncertainties associated with oil markets.
However, Tosco believes its acquisitions and extension into
retail marketing will provide opportunities for increased and
less volatile earnings and cash flow. With the acquisition of
the BP California retail system, Tosco's retail network now
markets in excess of 60,000 B/D of motor fuel.
Inventories were written down by $17.7 million at December 31,
1993 to net realizable value as of that date. Prices have
subsequently increased and, depending upon price levels at the
end of 1994, Tosco may recover all or a portion of the writedown
in the fourth quarter of 1994. See Note 3 to the September 30,
1994 Consolidated Financial Statements.
Cash flows and liquidity - Nine months ended September 30, 1994.
Cash generated from operations (net income plus
depreciation and amortization) of $125 million and a net
decrease in working capital and other items of $42 million
provided cash flow from operating activities of $167
million. Net cash used in investing activities of $158
million was primarily for capital expenditures, turnarounds
and other assets totalling $171 million partially offset by
a $9 million return of Tosco's investment in
Continental-Tosco Limited Partnership, and other short-term
investments ($4 million). Cash used in financing activities
was $33 million, consisting principally of dividends on
common and preferred stock ($22 million) net repayments
of cash borrowings under its revolving credit agreement of
$7 million, and other items ($4 million)
Liquidity (as measured by cash, short-term investments
and deposits and unused credit facilities) increased by $65
million during 1994 due to an increase of $94 million in
unused credit facilities, partially offset by a decrease in
cash and short-term investments of $29 million. Tosco
amended the revolving credit agreement to support its
expanded working capital requirements due to the
acquisitions of Bayway, Tosco Northwest and the BP California
retail system. At September 30, 1994, liquidity totaled
$211 million (an amount which Tosco believes is adequate to
meet its expected liquidity demands for at least the next
twelve months). See Note 4 to the September 30, 1994
Consolidated Financial Statements.
Capital Expenditures and Capitalization
During the first nine months of 1994, Tosco spent $79
million on budgeted capital projects and certain improvements
associated with the BP California retail system. 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. During the second quarter of
1994, Tosco's Board of Directors approved a $25 million
project for the refurbishment and improvement of the Avon
Refinery's 65,000 B/D fluid catalytic cracker. This
expansion project, which is expected to produce a five
percent volume increase in clean transportation fuels, will
be completed during the scheduled turnaround of the
unit in the first quarter of 1995.
Bayway also entered into a twelve-year tanker charter with
Nepture Orient Lines, Ltd. for the charter of three 100,000
DWT crude oil tankers. The first tanker is expected to be
delivered in the second half of 1996. The three tankers
will be used to move crude oil from the Nova Scotia storage
location to the Bayway Refinery or in direct shipments to
its refineries. In addition, Bayway entered into a letter
of intent with Huntsman Chemical Corporation for Huntsman
to build a 475 million pound-per-year ethylbenzene plant at
the Bayway Refinery. Huntsman will purchase
feedstocks produced by the Bayway Refinery to make
ethylbenzene, a base component for manufacturing plastics.
The agreement is expected to increase the value of the
Bayway Refinery's petrochemical feedstocks and facilitate
the production of the next generation of clean fuels
gasoline. See Note 7 to the September 30, 1994
Consolidated Financial Statements.
Future levels of capital spending will depend significantly
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 the CARB in 1996). Tosco has filed
applications for
the necessary permits for construction of the new
facilities which are anticipated to range in costs from
$100 to $300 million depending upon the targeted percentage
of gasoline production meeting CARB's 1996 specifications.
The anticipated level of capital expenditures is now
expected to be significantly less than the $300 million that
would have
converted all of Avon's gasoline production to CARB Phase
II gasoline. Tosco entered into a long-term exchange
agreement with Chevron USA Products Company which will
provide Tosco, commencing in 1996, with 30,000 B/D of the new
California clean gasoline mandated by the
CARB (CARB Phase II gasoline) in exchange for 30,000
B/D of conventional grade gasoline. The
product exchange agreement extends to 2003. Tosco expects
that the supply of CARB Phase II gasoline from this
exchange, and from Tosco's own planned production, will
equal approximately 80% of current gasoline production from
the Avon Refinery. However, timely completion of the new
facilities necessary to meet Tosco's own targeted level of
supply of CARB Phase II gasoline will continue to depend on
a reasonable approval process for permits and on
market conditions. While Tosco expects to be well
positioned to meet the future California reformulated
gasoline supply needs of its customers as well as its newly
acquired California retail system, Tosco continues to
believe that significant uncertainty exists concerning the
implementation of CARB's gasoline regulations. The timing
and substance of the regulations should therefore be
reevaluated to avoid serious disruptions in the California
gasoline market in 1996.
At September 30, 1994, total shareholder's equity was
$561 million, an increase from December 31, 1993 of $39
million due to net income ($63 million) less dividend and
other payments ($24 million). Substantially all of the
previously outstanding Series F Cumulative Convertible
Preferred Stock (Series F Stock) was converted in September
1994 pursuant to Tosco's call for redemption. See Note 5 to
the September 30, 1994 Consolidated Financial Statements. Debt,
including current maturities, decreased by $9 million during
1994 to $595 million at September 30, 1994.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this amendment to this
report to be signed on its behalf by the undersigned thereunto
duly authorized.
TOSCO CORPORATION
(Registrant)
Date: November 17, 1994 By:/s/ Jefferson F. Allen
Jefferson F. Allen
Executive Vice President
and Chief Financial Officer