FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
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.
[X] Yes No [ ]
Registrant's Common Stock outstanding at April 30, 1997 was 145,204,428
shares.
TOSCO CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND EXHIBITS
FILED WITH THE QUARTERLY REPORT OF TOSCO ON FORM 10-Q
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1997
PAGE(S)
PART I FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of March 31, 1997 and
December 31, 1996 2
Consolidated Statements of Income for the three month periods
ended March 31, 1997 and 1996 3
Consolidated Statements of Cash Flows for the three month
periods ended March 31, 1997 and 1996 4
Notes to Consolidated Financial Statements 5-8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9-12
PART II OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 4. Submission of Matters to Vote of Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 13
Exhibit 11 - Computation of Earnings per Share for the
three month periods ended March 31, 1997 and 1996 14
Exhibit 12 - Ratio of Earnings to Fixed Charges for the
three month periods ended March 31, 1997 and 1996 15
TOSCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars, Except Par Value)
March 31, December 31,
1997 1996
----------- ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $52,704 $94,418
Marketable securities and deposits 37,822 35,238
Trade accounts receivable, less allowance for
uncollectibles of $13,220 (1997) and $8,291 (1996) 289,426 189,654
Inventories 1,140,994 639,760
Prepaid expenses and other current assets 75,375 55,304
Deferred income taxes 28,121 28,121
----------- -----------
Total current assets 1,624,442 1,042,495
Property, plant and equipment, net 3,137,260 1,681,877
Deferred turnarounds, net 99,425 63,160
Intangible assets (primarily tradenames),
less accumulated amortization of $17,300 (1997) and
$12,696 (1996) 616,622 621,226
Other deferred charges and assets 155,567 146,067
------------ ------------
$5,633,316 $3,554,825
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable, accrued expenses,
and other liabilities $901,918 $ 919,306
Acquisition payable to Unocal,
net of funds held in escrow of $600,000 697,969 -
Current maturities of long-term debt 13,141 113,200
------------- -------------
Total current liabilities 1,613,028 1,032,506
Revolving credit facilities 276,000 -
Long-term debt 1,424,009 826,832
Accrued environmental costs 276,111 87,363
Deferred income taxes 80,302 80,302
Other liabilities 202,100 157,499
------------- --------------
Total liabilities 3,871,550 2,184,502
------------- --------------
Company-obligated, mandatorily redeemable, convertible
preferred securities of Tosco Financing Trust,
holding solely 5.75% convertible junior subordinated
debentures of Tosco Corporation 300,000 300,000
-------------- --------------
Shareholders' equity:
Common stock, $.75 par value, 250,000,000
shares authorized, 152,578,683 (1997) and
138,486,201 (1996) shares issued 114,434 103,865
Additional paid-in capital 1,349,978 963,667
Retained earnings 73,315 77,594
Treasury stock, at cost (75,961) (74,803)
--------------- --------------
Total shareholders' equity 1,461,766 1,070,323
--------------- --------------
$5,633,316 $3,554,825
=============== ==============
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 Ended March 31,
---------------------------
1997 1996
----------- -----------
Sales $2,410,273 $2,020,023
Cost of sales 2,324,485 1,937,412
Selling, general and administrative expenses 51,909 27,070
Interest expense 24,143 16,723
Interest income (769) (800)
------------- -------------
Income before income taxes and dividends on company-obligated,
mandatorily redeemable, convertible preferred securities 10,505 39,618
Income taxes 4,420 15,652
------------- --------------
Income before dividends on company-obligated, mandatorily redeemable,
convertible preferred securities 6,085 23,966
Dividends on company-obligated, mandatorily redeemable, convertible
preferred securities, net of income tax benefit of $1,790 (1997) 2,522 -
-------------- --------------
Net income $3,563 $23,966
============== ==============
Earnings per common and common equivalent share (a):
Primary $0.03 $0.21
============== ===============
Fully diluted $0.03 $0.21
============== ================
Weighted average common and common equivalent shares used for
computation of earnings per share (a):
Primary 135,832,843 113,852,412
================ ================
Fully diluted 135,832,843 114,229,266
================ ================
(a) Earnings per share and weighted average shares outstanding reflect the
3-for-1 stock split declared and distributed in February 1997.
The accompanying notes are an integral part of these financial statements.
TOSCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Thousands of Dollars)
Three Months Ended March 31,
-----------------------------
1997 1996
------ ---------
Cash flows from operating activities:
Net income $3,563 $23,966
Adjustments to reconcile net income to net cash (used in) provided by
operating activities:
Depreciation and amortization of property, plant, and equipment 42,210 17,833
Amortization of deferred turnarounds, intangible assets,
and other deferred charges 13,718 14,996
Deferred income taxes 11,848
Insurance recoveries (53,000)
Changes in operating assets and liabilities, net (69,274) (63,789)
Other, net (1,147) 2,053
------------- -------------
Net cash (used in) provided by operating activities (63,930) 6,907
------------- -------------
Cash flows from investing activities:
Purchase of property, plant, and equipment, net (72,174) (31,317)
Increase in deferred turnarounds, deferred charges, and other assets (55,191) (38,894)
Unocal escrow deposit (600,000)
Net change in marketable securities and deposits (2,584) (26,108)
Acquisition of BP Northeast refining and marketing assets (62,000)
Acquisition of Unocal refining, marketing, and related supply and
transportation assets (4,382)
Other, net (2,376)
------------- --------------
Net cash used in investing activities (736,707) (158,319)
------------- --------------
Cash flows from financing activities:
Proceeds from note and debenture offering 600,000
Net borrowings under revolving credit facilities 276,000 114,000
Net short-term bank borrowings 30,000
Payments under long-term debt agreements (102,939)
Dividends paid on common stock (7,842) (5,940)
Other, net (6,296) (56)
------------- ------------
Net cash provided by financing activities 758,923 138,004
Net decrease in cash and cash equivalents (41,714) (13,408)
Cash and cash equivalents at beginning of period 94,418 19,148
-------------- -------------
Cash and cash equivalents at end of period $52,704 $5,740
============== =============
The accompanying notes are an integral part of these financial statements.
TOSCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1997 AND 1996
(ALL INFORMATION IS UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements of Tosco Corporation and subsidiaries
("Tosco" or the "Company") reflect all adjustments, consisting of normal
recurring accruals, which are, in the opinion of management, necessary for a
fair presentation of the Company's consolidated financial position, results of
operations, and cash flows. Such financial statements are presented in
accordance with disclosure requirements established by the Securities and
Exchange Commission for Form 10-Q. These unaudited, interim, consolidated
financial statements should be read in conjunction with the Company's audited
Consolidated Financial Statements and notes thereto included in the Company's
1996 Annual Report on Form 10-K.
Certain reclassifications have been made to conform prior-period amounts with
the current-period presentation.
2. ACQUISITION
On March 31, 1997, the Company acquired Union Oil Company of California's
("Unocal") West Coast petroleum refining, marketing, and related supply and
transportation assets (the "Unocal Acquisition") for a purchase price (including
liabilities assumed) of approximately $1,400,000,000, plus inventories valued at
approximately $380,000,000 and credit card receivables valued at approximately
$133,000,000. In addition, Unocal is entitled to receive contingent
participation payments over the next seven years, up to a maximum of
$250,000,000, if retail market conditions and/or California Air Resources Board
("CARB") gasoline margins improve. For a period of 25 years, Unocal will be
responsible for all environmental liabilities arising out of or relating to the
period prior to closing, except that the Company will pay the first $7,000,000
of such environmental liabilities each year, plus 40% of any amount in excess of
$7,000,000 per year, with Unocal paying the remaining 60% each year. The
aggregate maximum amount that the Company may have to pay in total for the 25
year period for such environmental liabilities is limited to $200,000,000.
The assets which were acquired from Unocal include two petroleum refining
systems, comprised of four sites in California with an aggregate throughput
capacity of approximately 250,000 barrels per day; a retail gasoline system,
consisting of approximately 1,325 76-branded gasoline stations (approximately
1,100 of which are company-controlled); a distribution system comprised of 13
company-owned oil storage terminals; three modern American-flagged 40,000
deadweight-ton tankers; 1,500 miles of crude oil and product pipeline; the
worldwide rights to the "76" and "Union" brands (together with the distinctive
orange ball logo) in the petroleum refining and marketing businesses (except for
pre-existing license grants relating to 76 Truckstops and to Uno-Ven); and
Unocal's lubricants manufacturing, distribution, and marketing business.
The purchase price paid pursuant to the Unocal Acquisition consisted of cash and
14,092,482 shares of Tosco Common Stock (the "Unocal Shares") having an
aggregate value of $396,880,000. In addition, certain gasoline service stations
were purchased directly from Unocal for $235,000,000 by a special purpose entity
which leased the service stations to the Company pursuant to a long-term lease.
The Unocal Shares were valued at $28.1625 per share, which was the average of
the high and low Tosco stock prices for the ten trading days preceding the
closing date. The cash portion of Tosco's purchase price, including working
capital, was paid to Unocal on April 1, 1997 from a combination of available
cash, borrowings under the Revolving Credit Facilities (Note 4), and proceeds
from the sale of $600,000,000 of unsecured debt securities (Note 5).
In connection with the Unocal Acquisition, the Company and Unocal entered into a
Stock Purchase and Shareholder Agreement related to Unocal's disposition and
voting of the Unocal Shares (Note 9).
The Unocal Acquisition has been accounted for as a purchase and, accordingly,
the acquired assets and liabilities are included in the accompanying March 31,
1997 balance sheet at values based on a preliminary allocation of the purchase
price. The purchase price allocation is expected to be finalized by the end of
1997 based upon appraisals and other evaluations currently in process. The
preliminary purchase price allocation is summarized below:
MARCH 31,
(THOUSANDS OF DOLLARS) 1997
-------
Cash and cash equivalents $ 711
Credit card receivables, less allowance for
uncollectibles of $4,941 132,959
Inventories 379,133
Prepaid expenses and other current assets 23,098
Property, plant, and equipment 1,429,734
Accrued expenses and other current liabilities (21,600)
Accrued environmental costs (190,000)
Other liabilities (50,000)
-------------
$ 1,704,035
=============
Pro forma results of operations, assuming the Unocal Acquisition had occurred at
the beginning of each period, are as follows:
THREE MONTHS ENDED MARCH 31,
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS) 1997 1996
-------- ----------
Sales $ 3,364,873 $ 2,861,723
Net income (loss) (36,454) 13,089
Earnings (loss) per common and common
equivalent share:
Primary (0.24) 0.10
Fully diluted (0.24) 0.10
The pro forma results of operations are presented for informational purposes
only and do not reflect the improvement in operating contribution anticipated
from the Unocal Acquisition or the reduction in operating and administrative
costs expected from the consolidation of operations. Accordingly, it is not
necessarily indicative of the operating results that would have occurred nor of
future operating results.
3. INVENTORIES
MARCH 31, DECEMBER 31,
(THOUSANDS OF DOLLARS) 1997 1996
------------ -------------
Refineries (LIFO):
Raw materials $ 424,166 $ 227,211
Intermediates 233,585 79,831
Finished products 333,086 174,277
Retail (FIFO):
Merchandise 110,530 116,618
Gasoline and diesel 37,290 39,681
Other 2,337 2,142
-------------- --------------
$ 1,140,994 $ 639,760
=============== ==============
The excess of replacement cost over the carrying value of inventories accounted
for under the LIFO method was $87,443,000 and $177,653,000 at March 31, 1997 and
December 31, 1996, respectively.
4. REVOLVING CREDIT FACILITIES
On January 14, 1997, the Company amended and restated its existing revolving
credit agreement (the "Revolving Credit Facility") to increase the maximum
borrowing capacity from $600,000,000 to $1,000,000,000.
On March 31, 1997, the Company entered into a second revolving credit agreement
(the "Additional Credit Facility"). The Additional Credit Facility matures on
January 14, 2002 and provides the Company with a $250,000,000 uncollateralized
revolving credit facility for working capital and general corporate purposes.
The Additional Credit Facility bears interest at the option of the Company at
one of three alternative rates (a federal funds rate, a Eurodollar rate, or a
base rate related to prime) plus an incremental margin for each rate option. A
commitment fee on the unused portion of the facility is also due (Note 9).
Utilization of the Revolving Credit Facility and Additional Credit Facility
(collectively the "Revolving Credit Facilities") was as follows:
MARCH 31, DECEMBER 31,
(THOUSANDS OF DOLLARS) 1997 1996
------------- ------------
Cash borrowings outstanding $ 276,000 $
Letters of credit 467,165 112,113
------------- --------------
Total utilization 743,165 112,113
Availability 506,835 487,887
------------- --------------
$ 1,250,000 $ 600,000
============= ==============
5. LONG-TERM DEBT
On January 14, 1997, the Company issued $200,000,000 of 7.25% Notes due on
January 1, 2007, $300,000,000 of 7.80% Debentures due on January 1, 2027, and
$100,000,000 of 7.90% Debentures due on January 1, 2047 (collectively the "Notes
and Debentures"). Interest on the Notes and Debentures is payable each January 1
and July 1, commencing on July 1, 1997. The Notes and Debentures are
non-redeemable and uncollateralized. The proceeds from the Notes and Debentures
were placed in escrow pursuant to the Unocal Acquisition agreement.
6. CAPITAL STOCK
In January 1997, the Company filed a shelf registration statement providing for
the issuance of up to $1,500,000,000 aggregate principal amount of its
securities. The securities issued may consist of (1) one or more series of
debentures, notes or other uncollateralized forms of indebtedness ("Debt
Securities"), (2) shares of its Common Stock, (3) shares of its Preferred Stock,
and (4) shares of preferred stock represented by depository shares ("Depository
Shares"). The Debt Securities, Common Stock, Preferred Stock, and Depository
Shares may be offered, separately or together, in amounts and at prices and
terms to be set forth in one or more supplements to the shelf registration
statement (Note 9).
The Company's quarterly Common Stock dividend was increased to $.06 per
post-split share for the first quarter of 1997.
At a special meeting of the Company's Shareholders on February 12, 1997, an
amendment to the Company's Articles of Incorporation increasing the number of
authorized shares of Common Stock from 50,000,000 to 250,000,000 was approved.
In February 1997, the Company declared and distributed a 3-for-1 Common Stock
split. The number of shares, per share prices, earnings per share, and dividend
per share amounts have been restated to reflect the 3-for-1 stock split.
7. COST OF SALES
Cost of sales for the three month period ended March 31, 1997 includes
$53,000,000 of insurance recoveries, net of deductible amounts and asset
write-offs, for damages and business interruption claims at the Bayway Refinery
cat cracker and the Avon Refinery hydrocracker. The Bayway Refinery cat cracker
commenced full production in the 1997 first quarter. The Avon Refinery
hydrocracker is expected to resume full production in July 1997.
8. SUPPLEMENTAL CASH FLOW INFORMATION
THREE MONTHS ENDED MARCH 31,
(THOUSANDS OF DOLLARS) 1997 1996
------------- ---------
Cash paid during the period for:
Interest, net of amounts capitalized $ 23,862 $ 21,973
Income taxes, net of refunds received $ 5,386 $ (796)
Detail of acquisitions:
Fair value of assets acquired $ 1,964,924 $ 62,000
Liabilities assumed (265,693)
Common Stock issued (396,880)
------------- ----------
Net cash paid or payable for acquisitions 1,302,351 62,000
Cash acquired in acquisitions 711
------------- -----------
Cash paid or payable for acquisitions $ 1,303,062 $ 62,000
============= ===========
9. SUBSEQUENT EVENTS
In April 1997, the Company sold three tankers acquired from Unocal for
$48,699,000 in cash, an amount equal to their allocated purchase price.
On May 1, 1997, the Company issued 25,300,000 shares of Common Stock pursuant to
a prospectus supplement to the shelf registration statement. The net proceeds
from this Common Stock offering were $696,897,000, based on an offering price of
$28.50 per share. The net proceeds were used to repurchase and retire the Unocal
Shares ($393,708,000) and repay borrowings under the Revolving Credit Facility
and Additional Credit Facility ($303,189,000).
On May 15, 1997, the Company terminated the Additional Credit Facility (Note 4).
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
INTRODUCTION
Management's Discussion and Analysis of Financial Condition and Results of
Operations for the three month period ended March 31, 1997 should be read in
conjunction with Management's Discussion and Analysis included in the Company's
1996 Annual Report on Form 10-K. The Annual Report sets forth Selected Financial
Data that, in summary form, reviewed Tosco's results of operations and
capitalization over the five year period 1992 through 1996. This Management's
Discussion and Analysis updates that data.
ACQUISITIONS
On March 31, 1997, Tosco completed its purchase of Unocal's West Coast
petroleum refining, marketing, and related supply and transportation assets for
a purchase price (including liabilities assumed) of approximately $1.4 billion,
plus the value of inventories and credit card receivables (the "Unocal
Acquisition"). Tosco is now the largest independent refiner and marketer of
petroleum products in the United States, and is also the nation's largest
operator of company-controlled convenience stores.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31,
(THOUSANDS OF DOLLARS) 1997 1996
------------- ---------
Sales $ 2,410,273 $ 2,020,023
Cost of sales 2,324,485 1,937,412
Selling, general, and administrative expenses 51,909 27,070
Interest expense, net 23,374 15,923
------------- --------------
Income before income taxes and dividends on Trust Preferred Securities 10,505 39,618
Income taxes 4,420 15,652
------------- --------------
Income before dividends on Trust Preferred Securities 6,085 23,966
Dividends on Trust Preferred Securities, net of income taxes 2,522
------------- --------------
Net income $ 3,563 $ 23,966
============= ==============
Fully diluted earnings per share (a) $ 0.03 $ 0.21
============= ==============
(a) Earnings per share reflect the 3-for-1 stock split declared and distributed in
February 1997.
THREE MONTHS ENDED MARCH 31,
1997 (a) 1996
------------- ---------
REFINING (b):
Average charge barrels input per day (c):
Crude oil 383,200 470,900
Other feed and blending stocks 48,100 67,200
------------- --------------
431,300 538,100
============= ==============
Average barrels of petroleum products produced per day:
Clean products (d) 339,300 432,000
Other finished products 91,100 109,500
------------- --------------
430,400 541,500
============= ==============
Operating margin per charge barrel (e) $ 5.03 $ 4.25
============= ==============
THREE MONTHS ENDED MARCH 31,
1997 (a) 1996
------------- ---------
RETAIL:
Volume of fuel sold (thousands of gallons) 625,945 280,104
Blended fuel margin (cents per gallon) 8.3 7.6
Number of gasoline stations at period end 3,180 1,275
Merchandise sales (thousands of dollars) $ 462,596 $ 7,977
Merchandise margin (percentage of sales) 29.7% 30.1%
Number of merchandise stores at period end 2,390 102
Other retail gross profit (thousands of dollars) $ 19,632 $ 5,999
(a) The 1997 operating data does not include assets or operations acquired in the Unocal
Acquisition.
(b) The refining data summary presents the operating results of the Bayway Refinery,
located on the New York Harbor; the Avon Refinery, located in the
San Francisco Bay Area; the Ferndale Refinery, located on
Washington's Puget Sound. The Trainer Refinery, located near
Philadelphia, which was acquired in a shutdown state and is
currently undergoing refurbishment and modernization, is
scheduled to restart during the second quarter of 1997.
(c) A charge barrel is equal to 42 gallons.
(d) Clean products are defined as clean transportation fuels (gasoline, diesel,
distillates, and jet fuel) and heating oil. Clean product production for
the first quarter of 1997 was reduced due to scheduled turnaround
maintenance at the Avon Refinery coker unit, and the incidents at the Avon
Refinery hydrocracker and the Bayway Refinery cat cracker.
(e) Operating margin per charge barrel is calculated as operating contribution, including
insurance recoveries, as adjusted to exclude refinery operating costs,
divided by total refinery charge barrels. Refinery charge barrels for the
first quarter of 1997 were reduced due to scheduled turnaround maintenance
at the Avon Refinery coker unit, and the incidents at the Avon Refinery
hydrocracker and the Bayway Refinery cat cracker.
1997 FIRST QUARTER COMPARED TO 1996 FIRST QUARTER
Tosco earned $3.6 million ($0.03 per fully diluted share) on sales of $2.4
billion for the first quarter of 1997, compared to earnings of $24.0 million
($0.21 per fully diluted share) on sales of $2.0 billion in the corresponding
period of 1996. The increase in sales is attributable to a $815 million increase
in retail sales due to Tosco's acquisitions, net of a $425 million decrease in
refinery sales due primarily to reduced refinery production.
Tosco generated an operating contribution of $85.8 million for the first quarter
of 1997 compared to $82.6 million in the corresponding period in 1996. Retail
operating contribution increased by $24 million due to the impact of the Circle
K acquisition, and refinery operating contribution decreased by $20 million. The
refinery operating contribution decrease was attributable to a number of
factors, including the unscheduled shutdown of the Bayway Refinery's cat
cracker; the scheduled turnaround at the Avon Refinery's coker unit; the
shutdown of the Avon Refinery's hydrocracker as a result of a fire in January
1997; unusually mild winter weather on the East Coast in 1997; and, high raw
material prices which could not be fully recovered in the markets. The 1997
first quarter refinery operating margin includes $53 million (net of deductible
amounts and asset write-offs) of insurance recoveries for damages and business
interruption claims at the Avon hydrocracker and the Bayway cat cracker.
Selling, general, and administrative expenses for the quarter ended March 31,
1997 increased by $24.8 million compared to the corresponding period in 1996
primarily due to Tosco's expanded operations.
Net interest expense for the quarter ended March 31, 1997 increased by $7.5
million compared to 1996. This increase is primarily due to higher debt levels
incurred to finance Tosco's expanded operations and acquisitions.
Income taxes, including the benefit associated with the dividends on
company-obligated, mandatorily redeemable, convertible preferred securities, for
the 1997 first quarter were $2.6 million compared to the 1996 first quarter of
$15.7 million. Tosco's effective income tax rate increased due to the
nondeductibility of the amortization of certain intangible assets acquired in
the Circle K acquisition.
OUTLOOK
Results of operations for the balance of 1997 will be primarily determined
by the operating efficiency of the refineries, and refining and retail fuel
margins. The Bayway cat cracker unit returned to normal operation in late
January 1997. Although the Avon hydrocracker unit remains shut down, the loss of
production from this unit is not expected to have a significant continuing
financial impact due to business interruption insurance coverage. The Avon fluid
coker unit returned to full service in early March 1997 and Tosco expects the
Avon hydrocracker unit to resume operations in July 1997. There are no other
major turnarounds scheduled at Tosco's operating refineries during 1997. The
shut-down Trainer Refinery, which is currently undergoing a $100 million
refurbishment and modernization program, is expected to restart during the
second quarter of 1997.
Refining and retail fuel margins at the beginning of the second quarter are at
satisfactory levels. Merchandise margins remained consistent through the end of
April. Tosco is not able to predict whether such margins will continue due to
the uncertainties associated with the oil markets.
CASH FLOWS
As summarized in the Consolidated Statement of Cash Flows, cash and cash
equivalents decreased by $41.7 million during the first quarter of 1997 as cash
used in operating and investing activities of $63.9 million and $736.7 million,
respectively, exceeded cash provided by financing activities of $758.9 million.
Net cash used in operating activities of $63.9 million was from cash earnings of
$6.5 million (net income plus depreciation and amortization less insurance
recoveries), net of an increase in net operating assets and liabilities of $69.3
million, and $1.1 million from other uses.
Net cash used in investing activities totaled $736.7 million due to the Unocal
escrow deposit ($600 million), capital additions ($72.2 million), spending for
turnarounds, deferred charges and other assets ($55.2 million), and other items
($9.3 million).
Net cash provided by financing activities totaled $758.9 million as proceeds
from notes and debentures of $600 million and net borrowings under the Revolving
Credit Facilities of $276 million exceeded principal payments on long-term debt
of $102.9 million, dividend payments of $7.8 million, and other items of $6.3
million.
LIQUIDITY
At March 31, 1997, liquidity (cash and cash equivalents, marketable securities
and deposits, and unused credit facilities) totaled $597 million, a $20 million
decrease from the December 31, 1996 balance of $617 million. Cash and cash
equivalents decreased by $41.7 million, marketable securities and deposits
increased by $2.6 million, and unused credit facilities increased by $18.9
million. See Note 4 to the Consolidated Financial Statements.
In January 1997, Tosco filed a shelf registration statement providing for the
issuance of up to $1.5 billion aggregate principal amount of its securities. The
securities to be issued may consist of one or more series of debentures, notes
or other uncollateralized forms of indebtedness, Common Stock, Preferred Stock,
and Preferred Stock represented by depository shares. Such securities may be
offered, separately or together, in amounts and at prices and terms to be set
forth in one or more supplements to the shelf registration statement. On May 1,
1997, the Company issued 25,300,000 shares of Common Stock pursuant to a
prospectus supplement to the shelf registration statement. The net proceeds from
this Common Stock offering were $697 million, based on an offering price of
$28.50 per share. The net proceeds were used to repurchase and retire the common
stock issued to Unocal ($394 million) and repay borrowings under the Revolving
Credit Facilities used to finance the Unocal Acquisition ($303 million).
The Revolving Credit Facilities, as well as funds potentially available from the
issuance of securities, provide Tosco with adequate resources to meet its
expected liquidity demands, including required debt payments and liquidity
requirements associated with the Unocal Acquisition, for at least the next
twelve months. See Note 9 to the Consolidated Financial Statements.
CAPITAL EXPENDITURES
On March 31, 1997, Tosco completed the Unocal Acquisition. In addition, Tosco
spent $72.2 million on budgeted capital projects during the first quarter of
1997, primarily at the Avon, Bayway, and Trainer Refineries and for retail
assets. Refinery capital spending programs were for the completion of projects
to meet reformulated fuel specifications, compliance with environmental
regulations and permits, personnel/process safety programs, and operating
flexibility and reliability projects. Retail capital spending was focused on
integrating operations, enhancing existing sites, and upgrading underground
storage tanks.
CAPITALIZATION
At March 31, 1997, total shareholders' equity was $1.5 billion, a $391 million
increase from the December 31, 1996 balance of $1.1 billion. This increase was
due to the issuance of 14,092,482 shares of Common Stock to Unocal for $396.9
million, net income of $3.6 million less Common Stock dividends of $7.8 million,
and other items of $1.2 million. Debt (short-term bank borrowings, current and
non-current maturities of long-term debt, and revolving credit facilities)
increased by $773 million to $1.7 billion, due to Tosco's borrowings to fund the
Unocal Acquisition, net of principal payments.
The ratio of long-term debt (revolving credit facilities and non-current portion
of long-term debt) to total capitalization (revolving credit facilities,
non-current portion of long-term debt, Trust Preferred Securities, and total
shareholders' equity) increased from 38% at December 31, 1996 to 49% at March
31, 1997. This increase was primarily due to the issuance of $600 million of
long-term debt in January 1997 and net borrowings of $276 million under the
Revolving Credit Facilities, net of long-term debt payments of $103 million and
$397 of Common Stock issued to Unocal on March 31, 1997.
NEW ACCOUNTING STANDARD
During February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 "Earnings Per Share" ("SFAS No. 128").
SFAS No. 128 modifies the computation, presentation, and disclosure requirements
for earnings per share amounts. The adoption of SFAS No. 128, in the fourth
quarter of 1997, is not expected to have a significant impact on Tosco's
reported earnings per share.
PART II OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The operator of a landfill to which it is alleged Tosco sent hazardous waste has
sued numerous alleged waste generators, including Tosco, municipalities and
transporters, under CERCLA and other environmental laws, (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. This matter has been settled. (1995 10-K).
In a case filed by private litigants against all major petroleum refiners,
distributors and retailers in California, including Tosco, alleging they have
restrained trade and restricted the supply of a certain type of cleaner burning
gasoline sold in California, AGUILAR, ET AL. V. ATLANTIC RICHFIELD CORPORATION
ET AL. (Superior Court of California, County of San Diego, Case No. 00700810),
the court has granted Plaintiffs' motion for certification as a class. (1996 3rd
Quarter 10-Q).
Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
On February 12, 1997, a Special Meeting of Shareholders was held. At this
meeting, an amendment to Tosco's Articles of Incorporation increasing the number
of authorized shares of Common Stock from 50,000,000 to 250,000,000 was approved
by the following margin:
97,412,268 Votes (post-split) for the amendment
5,966,115 Votes (post-split) against the amendment
109,752 Votes (post-split) abstaining
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits:
11 - Computation of Earnings Per Share (see page 14)
12 - Ratio of Earnings to Fixed Charges (see page 15)
27 - Financial Statement Data Schedule
b. Report on Form 8-K
A Report on Form 8-K dated April 15, 1997 was filed in relation to the
acquisition of Union Oil Company of California's West Coast petroleum refining,
marketing and related supply and transportation assets on March 31, 1997. This
Form 8-K reported on Item 2., Acquisition or Disposition of Assets, and on the
following financial information under Item 7., Financial Statements, Pro Forma
Financial Information and Exhibits:
1. Audited financial statements of 76 Products Company, a division of
Union Oil Company of California, as of December 31, 1996 and 1995
and each of the three years in the period ended December 31, 1996