FORM 10-Q
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, 1995
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, 1995 was 37,064,909
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 Three and Nine Months Ended September 30, 1995
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 - 9
Management's Discussion and Analysis of Financial
Condition and Results of Operations 10 - 15
Exhibit I - Computation of Earnings Per Share 16
Part II. Other Information 17
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 1994 Annual Report on Form 10-K.
TOSCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Thousands of Dollars
September 30, December 31,
ASSETS 1995 1994
(Unaudited)
Current assets
Cash and cash equivalents $ 9,701 $ 23,793
Short-term investments and deposits 29,283 30,829
Trade accounts receivable, less allowance for uncollectibles
of $8,768,000 (1995) and $8,392,000 (1994) 181,688 291,772
Inventories 539,719 463,637
Prepaid expenses and other current assets 40,011 41,923
Deferred income taxes 1,710 6,160
Total current assets 802,112 858,114
Property, plant and equipment, net 909,965 822,057
Deferred turnarounds and charges 117,027 95,558
Deferred income taxes 2,547 6,998
Other assets 16,547 14,479
Total assets $ 1,848,198 $1,797,206
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 459,656 $ 328,572
Accrued expenses and other liabilities 94,988 151,561
Total current liabilities 554,644 480,133
Revolver debt 54,000 233,000
Long-term debt 579,708 454,429
Other liabilities 15,465 14,338
Environmental cost liability 35,022 35,382
Net liabilities of discontinued operations 7,968 2,526
Deferred income taxes 1,934 1,934
Shareholders' equity:
Common shareholders' equity:
Common Stock - $.75 par value, 50,000,000 shares authorized,
39,613,950 (1995), 39,598,900 (1994) shares issued 29,714 29,702
Capital in excess of par value 638,553 640,078
Retained earnings (deficit) 70 (25,436)
Reductions from capital (68,880) (68,880)
Total common shareholders' equity 599,457 575,464
Total liabilities and shareholders' equity $ 1,848,198 $1,797,206
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,
1995 1994 1995 1994
Sales $ 1,816,846 $ 1,671,557 $5,417,203 $ 4,567,006
Cost of sales 1,734,096 1,623,382 5,233,009 4,368,285
Selling, general and administrative expense 24,879 18,430 69,775 60,015
Interest expense 14,586 14,864 45,525 42,753
Interest income (903) (1,218) (2,641) (3,573)
1,772,658 1,655,458 5,345,668 4,467,480
Income before provision for income taxes 44,188 16,099 71,535 99,526
Provision for income taxes 17,344 6,423 28,240 36,531
Net income 26,844 9,676 43,295 62,995
Preferred stock dividend requirements (1,261) (6,293)
Income attributable to common shareholders $ 26,844 $ 8,415 $ 43,295 $ 56,702
Income per common and common
equivalent share:
Primary $ 0.72 $ 0.25 $ 1.16 $ 1.71
Fully diluted $ 0.71 $ 0.25 $ 1.15 $ 1.68
Dividends per common share $ 0.16 $ 0.16 $ 0.48 $ 0.46
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,
1995 1994
Cash flows from operating activities:
Net income $ 43,295 $ 62,995
Adjustments to arrive at net cash provided by operating activities:
Depreciation 45,415 38,830
Amortization of deferred items 34,735 22,815
Deferred income taxes 8,901
(Increase) decrease:
Trade accounts receivable (Note 2) 110,084 (133,136)
Inventories (76,082) (76,361)
Prepaid expenses and other current assets 1,912 (2,942)
Increase (decrease):
Accounts payable and accrued liabilities 74,511 247,941
Other 6,755 4,976
Net cash provided by operating activities 249,526 165,118
Cash flows from investing activities:
Purchase of property, plant and equipment, net (133,323) (78,883)
Increase in deferred turnarounds, charges and other assets (58,539) (91,736)
Net change in short-term investments and deposits 1,546 5,373
Proceeds from termination of partnership 9,194
Net cash used in investing activities (190,316) (156,052)
Cash flows from financing activities:
Proceeds from bond offering 125,000
Repayments under revolver, net (179,000) (7,000)
Principal payments under debt agreements (1,504)
Dividends on Preferred and Common Stock (17,789) (21,844)
Other (1,513) (2,190)
Net cash used in financing activities (73,302) (32,538)
Net decrease in cash and cash equivalents (14,092) (23,472)
Cash and cash equivalents at beginning of period 23,793) 55,091
Cash and cash equivalents at end of period $ 9,701 $ 31,619
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, 1995 and 1994 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 an independent oil refiner and marketer of
petroleum products with related distribution
facilities and domestic and international commercial activities.
Reclassifications
Certain previously reported amounts have been reclassified
to conform to classifications adopted in 1995.
Cash, Cash Equivalents, Short-term Investments and Deposits
Tosco purchased director and officer liability insurance
coverage from its wholly owned subsidiary Loil Group Ltd.
(Loil), with limits of liability coverage of $14,100,000 at
September 30, 1995 (an amount approximately equal to the amount
of cash and investments of Loil). The assets of Loil are
restricted to payment of defense costs and claims made against
the directors and officers of Tosco. At September 30, 1995, the
portfolio's carrying value of marketable investments, considered
"available for sale" in accordance with SFAS No. 115 -
"Accounting for Certain Investments in Debt and Equity
Securities", approximated fair value.
Margin Deposits
Pursuant to the requirements of the commodity exchanges,
margin deposits based on a percentage of the value of the
futures contracts have been placed with commodity brokers.
Margin deposits are classified as short-term deposits on the
balance sheet.
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.
Turnarounds
Refinery processing units are periodically shut down for
major maintenance (turnarounds). Turnaround costs are deferred
and amortized on a straight-line basis over the expected period
of benefit (the period ,which generally ranges from 24 to 48
months, to the next scheduled shutdown of the unit).
2. Accounts Receivable
In June 1995, as part of its ongoing program to reduce
interest costs, Tosco entered into a three year agreement with a
financial institution to sell on a revolving basis up to
$100,000,000 of an undivided percentage ownership interest in a
designated pool of accounts receivable (Receivable
Transfer Agreement). Under the Receivable Transfer Agreement,
Tosco retains substantially the same risk of credit loss as if
the receivables had not been sold. Tosco also retains
collection and administrative responsibilities on the
participating interest
sold as agent for the financial institution. At
September 30, 1995, approximately $99,000,000 of receivables had
been sold under the Receivable Transfer Agreement and the sale
is reflected as a reduction of accounts receivable. Proceeds
were used to reduce indebtedness under Tosco's revolving credit
facilities (Note 5).
3. Inventories
September 30, December 31,
1995 1994
(Thousands of Dollars)
Raw materials $286,280 $163,866
Intermediates 23,231 24,603
Finished products 226,195 272,462
Retail 4,013 2,706
$539,719 $463,637
The excess of replacement cost over the carrying value of
inventories based upon the LIFO method was $10,557,000 and
$5,821,000 at September 30, 1995 and December 31, 1994,
respectively.
4. Accrued Expenses and Other Liabilities
September 30, December 31,
1995 1994
(Thousands of Dollars)
Accrued taxes other than taxes on income $ 54,916 $ 71,964
Accrued compensation and related benefits 18,131 11,570
Accrued interest 8,076 11,958
Income taxes receivable ( 1,905) ( 9,546)
Acquisition related liabilities 3,485 15,856
Other accrued costs 9,863 7,476
Restructuring costs (a) 1,639
Short term borrowings 41,500
Current installments of long-term debt 783 783
$ 94,988 $151,561
(a) During the first quarter of 1995, Tosco announced a
restructuring program designed to reduce costs and improve
operating efficiencies. The total estimated cost of $5,200,000,
of which $2,200,000 and $3,000,000 were recorded in the first
and second quarters of 1995, respectively, was primarily for the
then-anticipated severance cost of approximately 175
people at the Avon Refinery and related support locations.
5. Credit Facility and Long-Term Debt
In July 1995, Tosco filed a registration statement for the
issuance, from time to time, of up to $250,000,000 of unsecured
debt securities on terms determined by market conditions at the
time of issuance. On July 12, $125,000,000 of authorized debt
securities were issued under the registration
statement as 7% unsecured, non-callable notes due July 15, 2000
(7% Notes). The proceeds from
the public offering, net of costs, were used to
repay indebtedness under the Amended Revolving Credit
Facilities. Interest on the 7% Notes is payable each January 15
and July 15, beginning January 15, 1996.
Utilization of Revolving Credit Facilities
September 30, December 31,
1995 1994
(Thousands of Dollars)
Revolving Credit Facilities
Cash borrowings $ 54,000 $ 233,000
Letters of credit 72,753 58,517
Total utilization 126,753 291,517
Availability 323,247 158,483
Total credit line $ 450,000 $ 450,000
Interest paid was $ 50,075,000 and $44,430,000 for the first nine
months of 1995 and 1994, respectively.
6. Capital Stock
Quarterly dividends of $.16 per share of Common Stock were
paid on September 29, 1995 to shareholders of record on
September 19, 1995.
7. Income Taxes
Three Months Nine Months
Ended Sept. 30, Ended Sept. 30,
1995 1994 1995 1994
(Thousands of Dollars)
Federal $ 15,039 $ 5,242 $23,230 $ 30,049
State 3,093 1,181 5,007 6,482
Foreign ( 788) 3
Provision for income taxes $ 17,344 $ 6,423 $28,240 $ 36,531
Cash payments (refunds) of income
taxes, net $ 1,523 $ 53 ($ 928) $ 9,722
8. Contingencies
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
transferred pursuant to the settlement of outstanding litigation
concerning environmental issues with the predecessor owners of
the Avon Refinery. While Tosco believes that its environmental
cost accrual is adequate, 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.
In December 1993, Tosco acquired the Ferndale Refinery,
retail marketing assets in the Pacific Northwest, and the right
to market under the BP brand from BP. The purchase price
included annual
contingent participation payments over the five years following
the acquisition of up to $50,000,000 and $100,000,000 based on
the performance of the refining and retail marketing segments,
respectively. Participation payments of approximately
$11,000,000 were paid in April 1995 based upon Tosco's
interpretation of the agreement. Discussions with BP over
participation payments are continuing.
9. Subsequent Events
During October 1995, Tosco entered into a long-term agreement
with Car Wash Enterprises, doing business as Brown Bear Car
Wash, to lease Brown Bear's 27 car wash facilities in Washington
State.
Following completion of the transaction, which is expected by
year-end, Tosco plans to operate the car wash system and rebrand
the system's 16 gas stations to the BP brand.
On November 2, 1995, Tosco announced that it had entered
into a letter of intent with BP Oil Company concerning the
purchase of BP Oil's Northeast marketing and refining assets.
Under the proposed transaction Tosco would obtain an
exclusive license valid for 15 years, with various renewal
options, to market retail gasoline and diesel fuels under the BP
brand. The license covers Delaware, Maryland, the Washington
D.C. metro area, Pennsylvania, New Jersey, New York,
Connecticut, Rhode Island, Massachusetts, Vermont, New Hampshire
and Maine. Portions of
western Pennsylvania and Maryland are excluded. The term of
Tosco's existing exclusive license in nine Western states
would also be extended to 15 years from the closing date of this
transaction. The purchase also includes the 190,000
barrels per day Marcus Hook refinery near Philadelphia, nine
petroleum product terminals and associated pipeline interests.
The purchase price of $75 million plus the value of inventories
at closing may be increased by up to $50 million if annual
refining margins in the Northeast exceed certain escalating
levels for a period of five years. Completion of the
transaction is subject to the satisfaction of certain conditions
and is presently scheduled to close around year-end.
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 1994. 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 1990-1994. This
Management's Discussion and Analysis updates that data.
Results of Operations - Three months ended September 30, 1995
Three Months Ended September 30,
1995 1994
(Thousands of Dollars)
Sales (a) $1,816,846 $1,671,557
Cost of sales 1,734,096 1,623,382
Operating contribution 82,750 48,175
Selling, general, and administrative expense 24,879 18,430
Net interest expense 13,683 13,646
Pre-tax income 44,188 16,099
Provision for income taxes 17,344 6,423
Net income $ 26,844 $ 9,676
(a) The increase in sales for the third quarter of 1995 is primarily
due to the acquisition of additional retail marketing assets and
higher sales prices.
Refining Data Summary
Three months ended September 30, 1995 and 1994
(In thousands of barrels per day (B/D) except for refining margins)
Avon (a) Bayway (b) Ferndale Consolidated
1995 1994 1995 1994 1995 1994 1995 1994
Crude and other
raw materials 174.6 163.5 286.7 184.5 91.5 88.1 552.8 436.1
Petroleum products
produced:
Clean Products 150.0 141.4 227.3 149.2 62.4 61.4 439.7 352.0
Other finished products 23.1 20.6 63.3 34.7 27.8 24.6 114.2 79.9
Total finished
products produced 173.1 162.0 290.6 183.9 90.2 86.0 553.9 431.9
Refining margin
per charge barrel (c) $ 6.36 $ 6.12 $ 3.00 N/A $4.34 $4.66 $ 4.28 N/A
(a) Avon's 1994 refining margin and raw materials processed were
restated to include the production costs of MTBE.
(b) Bayway's production results for the third quarter of 1995
reflect the benefit of the expanded crude distillation capacity
completed in the third quarter of 1994.
Refining margins include the net results of hedges on a varying
percentage of Bayway's production.
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 variance 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.
Tosco earned $26.8 million, or $.71 per fully diluted share, on
sales of $1.8 billion for the third quarter of 1995, compared
to net income of $9.7 million, or $.25 per fully diluted share,
on sales of $1.7 billion for the third quarter of 1994.
Tosco generated an operating contribution (income before
selling, general and administrative expense, net
interest expense, and income taxes) for the third quarter of
1995 of $82.8 million, an increase of $34.6
million from 1994. The increase was primarily attributable to
the lack of major scheduled turnaround
maintenance at the three refineries and expanded retail
operations. Consolidated raw material throughput
for the third quarter of 1995 increased by 116,700 barrels per
day (B/D) to 552,800 B/D and production of
clean transportation fuels, increased by 87,700 B/D to 439,700
B/D over the comparable 1994 period. The
Bayway Refinery underwent major scheduled turnaround maintenance
of the fluid catalytic cracking unit
during the third quarter of 1994 which severely restricted
production for five weeks.
Refining margins for the third quarter of 1995 varied widely by
refinery, increasing $.24 per barrel for Avon
and decreasing $.32 per barrel for Ferndale over the comparable
1994 period to $6.36 and $4.34 per barrel,
respectively. Bayway's margin of $3.00 per barrel was
satisfactory given industry available margins. Retail
marketing fuel margins continued to be strong, averaging $.12
per gallon during the third quarter of 1995
compared to $.11 for the third quarter of 1994. Retail volumes
sold also increased by 14,500 B/D to 71,500
B/D over the third quarter of 1994 primarily because of the
August and December 1994 acquisitions of the
retail marketing operations in Northern California and Arizona
from British Petroleum (BP) and Exxon, respectively.
The increase in selling, general, and administrative expense for
the third quarter of 1995 is due to expanded
retail operations and higher accruals for incentive compensation
(due to higher levels of operating income).
Selling, general and administrative expense for the third
quarter of 1994 included insurance recoveries of
$3.5 million (related to now-settled litigation with the
predecessor owners of the Avon Refinery over
environmental matters) and $1.0 million (related to a
retroactive adjustment of prior year medical costs
based on favorable claim experience). Interest
expense for the third quarter of 1995 reflects the
effect of Tosco's Receivable Transfer Agreement, the cost of
which are not included in interest expense.
See Note 2 to the Consolidated Financial Statements.
Nine Months Ended Sept. 30,
1995 1994
(Thousands of Dollars)
Sales $5,417,203 $4,567,006
Cost of sales 5,227,809 4,368,285
Operating contribution 189,394 198,721
Restructuring charge 5,200
Selling, general, and administrative expense 69,775 60,015
Net interest expense 42,884 39,180
Pre-tax income 71,535 99,526
Provision for income taxes 28,240 36,531
Net income $ 43,295 $ 62,995
Refining Data Summary
Nine months ended Sept. 30, 1995 and 1994
(In thousands of B/D except for refining margins)
Avon(a) Bayway(b) Ferndale(c) Consolidated
1995 1994 1995 1994 1995 1994 1995 1994
Crude and other
raw materials 168.3 157.6 291.7 237.6 77.4 89.9 537.4 485.1
Petroleum products
produced:
Clean Products 132.4 132.7 239.7 192.5 51.3 61.6 423.4 386.8
Other finished products 32.8 27.9 57.1 48.3 24.0 26.1 113.9 102.3
Total finished
products produced 165.2 160.6 296.8 240.8 75.3 87.7 537.3 489.1
Refining margin
per charge barrel $ 5.77 $ 6.56 $ 3.16 N/A $ 4.04 $ 4.66 $ 4.10 N/A
(a) Avon's production results were negatively impacted by the scheduled
turnaround of the catalytic cracker in the first quarter of 1995 and the
fluid coker in the second quarter of 1994.
(b) Bayway's throughput and production for 1995 significantly increased
due to the scheduled shutdown of its fluid catalytic cracking unit for
turnaround maintenance and the expansion of crude distillation capacity
both performed during the third quarter of 1994.
(c) The processing units at the Ferndale Refinery were shutdown in the
first quarter of 1995 for major scheduled turnaround maintenance.
Tosco earned $43.3 million, or $1.15 per fully diluted share, on
sales of $5.4 billion for the first nine months
of 1995, compared to $63.0 million, or $1.68 per fully diluted
share, on sales of $4.6 billion for the first nine
months of 1994. Results of operations for the first nine months
of 1995 include an after-tax restructuring
charge of $3.1 million ($.08 per share).
Tosco generated an operating contribution for the nine months of
1995 of $189.4 million, a decrease of $9.3
million from 1994. The decrease was primarily due to the poor
refining margins and extensive scheduled
turnaround maintenance at the Ferndale Refinery during the first
quarter of 1995. These negative factors
more than offset the strong production results of the Bayway
Refinery due to the completion of scheduled
turnaround maintenance of the fluid catalytic cracking unit and
expanded crude distillation capacity in the
third quarter of 1994. The exceptionally weak market
conditions in the first quarter of 1995 resulted from
the combined impact of a surplus of heating oil due to the mild
winter on the East Coast of the United
States and poor gasoline markets due to the industry's inability
to recover the higher production costs of
reformulated gasolines in highly competitive markets. Retail
marketing fuel margins averaged $.10 per gallon
for the nine months of 1995 compared to $.09 for the comparable
1994 period. Retail volumes sold also
increased by 23,300 B/D to 69,100 B/D due to acquisitions of
retail assets in Northern California and Arizona.
During the first quarter of 1995, Tosco announced a
restructuring program designed to reduce costs and
improve operating efficiencies in response to continuing poor
refining margins. The total estimated cost of
$5,200,000, of which $2,200,000 and $3,000,000 were recorded in
the first and second quarters of 1995, respectively, was
primarily for the then-anticipated severance cost of
approximately 175 people at the Avon Refinery and related
support locations.
The increase in selling, general, and administrative expense for
the first nine months of 1995 versus the
comparable period of 1994 was due to Tosco's expanded
operations. Selling, general and administrative
expense for the first nine months of 1994 included insurance
recoveries of $4.5 million. The increase in net
interest expense for 1995 is primarily due to higher average
debt levels and higher short-term interest rates.
Outlook
Results of operations continue to be determined by two factors:
the operating efficiency of the refineries
and refining and retail marketing margins. The second and third
quarters of 1995 had no major turnaround
activity. Significant turnaround activity is not currently
planned for the balance of 1995 and, assuming
reasonable margins, Tosco presently expects to operate the
refineries at high production levels for the
remaining period of 1995. Tosco is not able to predict the
level or trend of refining and retail margins
because of uncertainties associated with oil markets. To reduce
Tosco's exposure to fluctuations in refining
margins, Tosco has at times used futures contracts to lock in
what it considered to be acceptable refining
margins on a varying percentage of future production. At
September 30, 1995, Tosco had hedged
approximately 4% of Bayway's fourth quarter production at
acceptable historical margins.
Recently passed legislation would lift the ban on the export of
Alaskan North Slope (ANS) crude oil, a primary
source of raw materials for West Coast refineries, which may
lead to higher costs for ANS and other
domestic crude oils which may not be recovered in higher sales
prices. The exchange agreement with
Atlantic Richfield Company (ARCO) under which ARCO delivers
50,000 B/D of ANS crude oil to the Avon
Refinery in exchange for a variable quantity of gasoline is
scheduled to terminate on December 31, 1996
unless extended at Arco's option by December 31, 1995.
Discussions with ARCO are continuing but the
renewal of the exchange agreement, and the effects therefrom,
are uncertain.
In view of uncertain refining margins and the competitive
refining environment, Tosco implemented a
restructuring program to reduce operating costs and increase
efficiencies. The estimated $5.2 million cost
of the restructuring program is being paid from operating cash
flow and will be offset by the anticipated
annual savings of approximately $10 million. Tosco expanded its
restructuring program with the late June
announcement of the consolidation of operating and
administrative functions of its West Coast operations,
including the closing of the Concord, California administrative
office. The expanded restructuring program
will be completed within one year. Additional cost savings and
a more efficient organizational structure are expected.
Tosco's expansion into retail marketing has been successful in
providing earnings in a period of poor refining
margins and Tosco continues to seek opportunities to acquire
additional retail marketing assets that allow
an attractive rate of return and complement its existing
refining and retail systems.
Acquisitions
During October 1995, Tosco entered into a long-term agreement
with Car Wash Enterprises, doing business as Brown Bear Car
Wash, to lease Brown Bear's 27 car wash facilities in
Washington State.
Following completion of the transaction, which is expected by
year-end, Tosco plans to operate the
car wash system and rebrand the system's 16 gas stations to the
BP brand.
On November 2, 1995, Tosco announced that it had entered into a
letter of intent with BP Oil Company, concerning the purchase of
BP Oil's Northeast
marketing and refining assets. Under the proposed transaction,
Tosco would obtain an exclusive license valid for 15 years, with
various renewal options, to market retail gasoline and diesel
fuels under the BP brand. The license covers Delaware,
Maryland, the Washington, D.C. metro area, Pennsylvania, New
Jersey, New York, Connecticut, Rhode Island, Massachusetts,
Vermont, New Hampshire and Maine. Portions of western
Pennsylvania and Maryland are excluded. The term of Tosco's
existing exclusive license in nine Western
states would also be extended to 15 years from the closing date
of this transaction. The purchase also
includes the 190,000 barrels per day Marcus Hook refinery near
Philadelphia, nine petroleum
product terminals and associated pipeline interests. The
purchase price of $75 million plus the
value of inventories at closing may be increased by up to $50
million if annual refining margins in
the Northeast exceed certain escalating levels for a period of
five
years. Tosco intends to operate the
Marcus Hook Refinery as an adjunct to the Bayway Refinery,
reconfiguring certain operations at
Marcus Hook with minimal investment. Tosco expects to finance
the acquisition from BP from available cash and credit
resources. Completion of the transaction is subject to the
satisfaction of certain conditions and is presently scheduled to
close around year-end.
Cash flows and liquidity
As summarized in the Statement of Cash Flows, cash decreased by
$14 million during the first nine months
of 1995 as cash used in investing and financing activities of
$190 million and $73 million, respectively,
exceeded cash provided by operating activities of $249 million.
Cash provided by operating activities of $249 million was from
cash earnings from operations of $132 million
(net income plus depreciation, amortization and deferred income
taxes), a decrease in working capital of
$110 million, and an increase from other sources $7 million.
Net cash used in investing activities totaled $190 million,
primarily for capital additions and deferred
turnaround expenditures of $133 million and $58 million,
respectively partially offset by a decrease in short-
term investments and deposits of $2 million. Cash used in
financing activities totaled $73 million, consisting
of net repayments of cash borrowings under Tosco's revolving
credit facility of $179 million, dividends of $18
million and other payments of $2 million, partially offset by
the proceeds from Tosco's $125 million bond
offering. See Note 5 to the September 30, 1995 Consolidated
Financial Statements.
Liquidity (as measured by cash, short-term investments and
deposits and unused credit facilities) increased
by $149 million during 1995 due to an increase of $165 million
in unused credit facilities, partially offset by a
decrease in cash and cash equivalents of $14 million and
short-term investments of $2 million. At September
30, 1995, liquidity totaled $362 million (an amount which Tosco
believes is adequate to meet its expected
liquidity demands for at least the next twelve months).
To increase financial flexibility and reduce interest costs,
Tosco amended its working capital agreement in
April 1995, entered into a Receivable Transfer Agreement in June
1995, and issued $125 million of unsecured 7% notes in July
1995. See Notes 2 and 5 to the September 30,
1995 Consolidated Financial Statements.
Capital Expenditures and Capitalization
During the first nine months of 1995, Tosco spent $133 million
on budgeted capital projects, primarily at the
Avon Refinery and retail outlets. Capital spending programs
continue to address reformulated fuel
specifications, compliance with environmental regulations and
permits, operating flexibility and reliability,
personnel/process safety, and retail expansion and
modernization. In May 1995, Tosco announced a three-year $200
million program to
expand retail marketing operations on the West Coast of the
United States. The expansion program is being used to develop
new retail sites in existing markets, enhance existing retail
facilities and enter new markets through new construction,
purchases and leases of existing stations or
systems and new jobber business. The long-term agreement to
lease and operate Brown Bear's 27 car wash
facilities in Washington is a part of this expansion program.
During the third quarter of 1995 construction of
a $48 million Solvent Deasphalter began at Bayway. This unit
will convert approximately 20,000 B/D of low-
value residual fuel into feedstock for the refinery's fluid
catalytic cracker, Bayway's principal gasoline
manufacturing unit. This project which is scheduled for
completion in the third quarter of 1996, will reduce
the amount of high-cost, partially refined feedstocks that
Bayway currently purchases from third parties.
Tosco expects to fund its capital expenditures from cash
provided by operations, available credit and other resources.
At September 30, 1995, total shareholders' equity was $599
million, an increase from December 31, 1994 of
$24 million due to net income of $43 million less dividend and
other payments of $19 million. Debt, including current
maturities and short-term bank borrowings, decreased by $96
million to $634 million at September 30, 1995.
TOSCO CORPORATION AND SUBSIDIARIES
PART I - EXHIBIT I
COMPUTATION OF EARNINGS PER SHARE
(Unaudited)
In Thousands Except Per Share Data
Three Months Nine Months
Ended September 30, Ended September 30,
1995 1994 1995 1994
Net income $ 26,844 $ 9,676 $ 43,295 $ 62,995
Preferred stock dividends (1,261) (6,293)
Net income attributable to common shareholders
for primary income per share computations 26,844 8,415 43,295 56,702
Addback of dividends on preferred stock for
assumed conversion 1,261 6,293
Net income attributable to common shareholders
for fully diluted income per share $ 26,844 $ 9,676 $43,295 $ 62,995
Weighted average number of shares
outstanding during the period 37,065 33,861 37,058 32,795
Stock option equivalents 413 346 371 375
Shares used for computation of primary
earnings per share 37,478 34,207 37,429 33,170
Weighted average potentially dilutive securities
for the assumed conversion of preferred stock 3,194 4,259
Weighted average common stock equivalents 101 143
Shares and equivalents used for computation of
fully diluted earnings per share 37,579 37,401 37,572 37,429
Earnings per share:
Primary $0.72 $ 0.25 $ 1.16 $ 1.71 (a)
Fully diluted $0.71 $ 0.25 $ 1.15 $ 1.68
(a) Primary earnings per share would have been $1.68 for the nine
months ended September 30, 1994 if the conversion of the Series F
Stock pursuant to Tosco's call for redemption had occurred on January
1, 1994.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
On August 10, 1995, the District Court granted Tosco's Motion
for Judgment on the Pleadings and dismissed Lion Oil Company's
Complaint with prejudice in the case of Lion Oil Company v.
Tosco Corporation (United States District Court. Western
District of Arkansas, Case No. 94-1072). The Court held that
Tosco was not liable to Lion Oil for investigation and
remediation of alleged environmental contamination of a
refinery located in El Dorado, Arkansas formerly owned by Tosco
and sold to Lion Oil. On September 6, 1995, Lion Oil filed an
appeal of the District Court's decision in the case of Lion Oil
Company v. Tosco Corporation (United States Court of Appeals for
the Eight Circuit, Case No. 95-3270).
On September 29, 1995, the Oklahoma Department of Environmental
Quality and Tosco entered into a Consent Agreement and Final
Order concerning the environmental investigation of a refinery
in Duncan, Oklahoma previously owned
by Tosco and others and the interim remediation of a portion of
the site which are currently estimated to cost less than $2
million. Tosco is seeking contribution from responsible third
parties for its response costs. (See First Quarter 10-Q/A-1)
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits.
11. Computation of Earnings Per Share (See Part I. Exhibit I).
99. Condensed Consolidation Financial Information.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
TOSCO CORPORATION
(Registrant)
Date: November 14, 1995 By: /s/ JEFFERSON F. ALLEN
(Jefferson F. Allen)
Executive Vice President
and Chief Financial Officer
By: /s/ ROBERT I. SANTO
(Robert I. Santo)
Chief Accounting Officer
Exhibit 99
Condensed Consolidating Financial Information
The following tables set forth the condensed consolidating financial
statements as of
September 30, 1995 and for the nine months then ended of Tosco, Bayway and
Tosco's other subsidiaries. They are provided to meet the reporting and
informational requirements of Bayway as guarantor of the 8 1/4% First Mortgage Bonds.
Condensed Consolidated Balances Sheet
(Thousands of Dollars)
As of September 30, 1995
Tosco Bayway Minor Subs
(Issuer) (Guarantor) (Non-guarantors) Eliminations Consolidated
Assets
Cash and cash equivalents $ 2,735 $ 3,555 $ 3,411 $ 9,701
Short-term investments and deposits 1,777 3,241 24,265 29,283
Other current assets (a) 211,332 460,118 91,678 763,128
Total current assets 215,844 466,914 119,354 802,112
Other assets 741,916 245,457 63,079 (4,366) 1,046,086
Investment in Bayway and other subsidiaries 247,316 - - (247,316)
Intercompany receivables 283,071 (283,071)
Total assets $1,488,147 $712,371 $182,433 $(534,753) $1,848,198
Liabilities and shareholders' equity
Current liabilites $ 249,524 $262,882 $ 42,238 $ 554,644
Revolver and long-term debt 574,944 54,000 4,764 633,708
Other liabilities 64,222 533 (4,366) 60,389
Intercompany liabilities 176,978 106,093 (283,071)
Shareholderss equity 599,457 217,978 29,338 (247,316) 599,457
Total liabilities and shareholders' equity $1,488,147 $712,371 $182,433 $(534,753) $1,848,198
Condensed Consolidating Statement of Income
(Thousands of Dollars)
For the Nine Months Ended September 30, 1995
Sales $2,385,177 $2,544,318 $547,420 $ (59,712) $5,417,203
Cost of sales 2,281,877 2,463,505 547,339 (59,712) 5,233,009
Operating contribution 103,300 80,813 81 184,194
Selling, general and administrative expense(b) 50,922 20,351 ( 1,498) 69,775
Interest expense, net 27,611 16,008 ( 735) 42,884
Income before provision for income taxes 24,767 44,454 2,314 71,535
Provision for income taxes 9,769 17,558 913 28,240
Net income $ 14,998 $ 26,896 $1,401 $ $ 43,295
(a) Inventories are valued at the lower of LIFO cost or market value,
which is measured on a consolidated basis.
(b) The condensed consolidating statement of income does not reflect
an allocation of a portion of aggregate corporate selling, general
and administrative expense of $13,485,000 to Bayway and the Minor
Subsidiaries. Tosco may allocate such costs in the future.
Condensed Consolidated Statement of Cash Flows
(Thousands of Dollars)
For the Nine Months Ended September 30, 1995
Tosco Bayway Minor-Subs
(Issuer) (Guarantor) (Non-guarantors) Eliminations Consolidated
Cash flows from operating activities:
Net income $ 14,998 $ 26,896 $ 1,401 $ 43,295
Depreciation, amortization, and deferred taxes 53,853 33,680 1,518 89,051
Changes in working capital 109,102 73,698 (72,375) 110,425
Other 6,092 533 130 6,755
Net cash provided by (used in) operating activities 184,045 134,807 (69,326) 249,526
Cash flows from investing activities:
Increase in long-term assets (148,531) (19,421) (23,910) (191,862)
Intercompany transfers (111,405) 14,413 96,992
Intercompany dividend ( 297) 297
Net change in short-term investments and deposits ( 307) 4,926 (3,073) 1,546
Net cash provided by (used in) investing
activities (260,540) 215 70,009 - (190,316)
Cash flows from financing activities:
Proceeds from bond offering 125,000 125,000
Repayments under revolver, net (28,000) (151,000) (179,000)
Dividends on Common Stock (17,789) (17,789)
Other (1,513) ( 1,513)
Net cash provided by (used in) financing activities 77,698 (151,000) (73,302)
Net increase (decrease) in cash and cash equivalents 1,203 (15,978) 683 (14,092)
Cash and cash equivalents at beginning of period 1,532 19,533 2,728 23,793
Cash and cash equivalents at end of period $ 2,735 $3,555 $ 3,411 $ $ 9,701