-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TbPI0fOXDvHBx80joo7ZBw083u4j6lkBiZrXjNCmMHi3tOMl4w39HMp+VZQxIfYR Reg/Jtjey2QU+lbu935pcg== 0000899681-96-000263.txt : 19960816 0000899681-96-000263.hdr.sgml : 19960816 ACCESSION NUMBER: 0000899681-96-000263 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TOSCO CORP CENTRAL INDEX KEY: 0000074091 STANDARD INDUSTRIAL CLASSIFICATION: PETROLEUM REFINING [2911] IRS NUMBER: 951865716 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07910 FILM NUMBER: 96613565 BUSINESS ADDRESS: STREET 1: 72 CUMMINGS POINT RD CITY: STAMFORD STATE: CT ZIP: 06902 BUSINESS PHONE: 2039771000 MAIL ADDRESS: STREET 1: 72 CUMMINGS POINT RD CITY: STAMFORD STATE: CT ZIP: 06902 FORMER COMPANY: FORMER CONFORMED NAME: OIL SHALE CORP DATE OF NAME CHANGE: 19760810 10-Q 1 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 JUNE 30, 1996 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 July 31, 1996 was 43,618,313 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 SIX MONTHS ENDED JUNE 30, 1996 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 6-16 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 17-22 EXHIBIT I - COMPUTATION OF EARNINGS PER SHARE 23 PART II. OTHER INFORMATION 24 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 1995 Annual Report on Form 10-K.
TOSCO CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS THOUSANDS OF DOLLARS JUNE DECEMBER 30, 31, 1996 1995 ---------------- ----------------- (Unaudited) ASSETS CURRENT ASSETS Cash and cash equivalents $44,178 $ 19,148 Short-term investments and deposits 33,416 29,125 Trade accounts receivable, less allowance for uncollectibles of $8,487,000 (1996) and $8,523,000 (1995) 205,133 296,768 Inventories 672,487 489,479 Prepaid expenses and other current assets 49,499 42,363 Deferred income taxes 30,517 4,558 ---------------- ----------------- TOTAL CURRENT ASSETS 1,035,230 881,441 Property, plant and equipment, net 1,683,124 961,418 Deferred turnarounds 74,505 82,249 Intangibles (primarily tradenames) 610,154 38,731 Other deferred charges and assets 136,205 39,332 ---------------- ----------------- TOTAL ASSETS $ 3,539,218 2,003,171 ================ ================= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 529,469 503,900 Accrued expenses and other liabilities 359,153 166,391 ---------------- ----------------- TOTAL CURRENT LIABILITIES 888,622 670,291 Revolver debt 368,000 45,000 Long-term debt 933,411 579,036 Other liabilities 156,140 16,916 Environmental cost liability 96,892 34,379 Deferred income taxes 81,836 30,439 SHAREHOLDERS' EQUITY: Common Stock - $.75 par value, 50,000,000 shares authorized, 46,167,354 (1996) and 39,613,950 (1995) shares issued 34,626 29,714 Capital in excess of par value 963,667 640,306 Retained earnings 88,586 27,903 Treasury stock, at cost (72,562) (70,813) ---------------- ----------------- TOTAL SHAREHOLDERS' EQUITY 1,014,317 627,110 ---------------- ----------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 3,539,218 2,003,171 ================ ================= 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 SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, -------------- -------------- 1996 1995 1996 1995 ----------------- ---------------- ----------------- ----------------- SALES $2,430,740 $1,904,038 $4,450,763 $3,600,357 --------- ---------- ---------- ----------- Cost of sales 2,265,495 1,829,540 4,202,907 3,493,713 Consolidation charge 13,500 3,000 13,500 5,200 Selling, general and administrative expense 47,867 22,294 74,937 44,896 Interest expense 20,864 15,541 37,587 30,939 Interest income (887) (839) (1,687) (1,738) ----------------- ---------------- ----------------- ----------------- 2,346,839 1,869,536 4,327,244 3,573,010 ----------------- ---------------- ----------------- ----------------- Income before provision for income taxes 83,901 34,502 123,519 27,347 Provision for income taxes 34,263 13,778 49,915 10,896 ----------------- ---------------- ----------------- ----------------- NET INCOME $49,638 $ 20,724 $73,604 $16,451 ================= ================ ================= ================= INCOME PER COMMON AND COMMON EQUIVALENT SHARE: Primary $ 1.23 $ 0.55 $ 1.88 $ 0.44 ================= ================ ================= ================= Fully diluted $ 1.23 $ 0.55 $ 1.87 $ 0.44 ================= ================ ================= ================= DIVIDENDS PER COMMON SHARE $ 0.16 $ 0.16 $ 0.32 $ 0.32 ================= ================ ================= ================= The accompanying notes are an integral part of these financial statements.
TOSCO CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) THOUSANDS OF DOLLARS Six Months Ended June 30, 1996 1995 -------------- -------------- Cash flows from operating activities: Net income $ 73,604 $ 16,451 Adjustments to arrive at net cash provided by operating activities: Depreciation 44,170 29,463 Amortization of deferred items and intangibles 31,262 22,417 Deferred income taxes 22,458 7,740 (Increase) decrease: Trade accounts receivable (Note 3) 142,856 22,240 Inventories (29,416) (16,028) Prepaid expenses and other current assets 5,970 4,190 Increase (decrease:) Accounts payable and accrued liabilities (205,199) 149,543 Other 12,821 (9,674) ------- Net cash provided by operating activities 98,526 226,342 CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of Circle K, excluding cash -$740,268, net of issuance of Common Stock -$327,039 (Note 2) (413,229) Purchase of property, plant and equipment, net (134,116) (92,712) Increase in deferred turnarounds, charges and other assets (51,424) (50,082) Net change in short-term investments and deposits (4,291) (7,706) -------- -------- Net cash used in investing activities (603,060) (150,500) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from bond offering 240,000 Borrowings (repayments) under revolver, net 323,000 (32,000) Short-term bank repayments (20,000) (41,500) Dividends on Preferred and Common Stock (12,921) (11,858) Other (515) (1,213) ---------- -------- Net cash provided by (used in) financing activities 529,564 (86,571) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 25,030 (10,729) Cash and cash equivalents at beginning of period 19,148 23,793 ------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 44,178 $ 13,064 ========== ========= The accompanying notes are an integral part of these financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Information with respect to the three and six months ended June 30, 1996 and 1995 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 The Circle K Company (Circle K) acquired on May 30, 1996 (Note 2). All significant intercompany accounts and transactions have been eliminated. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management estimates and assumptions that affect the reported amounts of assets and liabilities, reported results of operations, and disclosures of contingent assets and liabilities. Nature of Business Tosco is one of the largest independent refiners and marketers of petroleum products in the United States. Tosco has extensive distribution facilities and engages in related commercial activities throughout the United States and internationally. With the acquisition of Circle K, Tosco is the nation's largest operator of convenience stores. Reclassifications Certain previously reported amounts have been reclassified to conform to classifications adopted in 1996. CASH, CASH EQUIVALENTS, SHORT-TERM INVESTMENTS AND DEPOSITS Cash and cash equivalents include cash items on hand at convenience stores or in transit. As such, certain balances are not immediately available for investment. Cash available for investment is invested in certificates of deposit and other highly liquid investments. Investments with original maturities of more than three months and less than twelve months are classified as short-term investments and carried at cost which approximates market. In accordance with agreements with various state agencies, Circle K maintains cash balances in excess of outstanding money orders. Checks outstanding in excess of offsettable cash balances are reclassified and included in accounts payable. 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 June 30, 1996 (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. Inventories Inventories are stated at the lower of cost or market. The last-in, first-out (LIFO) method is used to determine cost for raw materials and refined petroleum products. The cost of retail gasoline inventories is primarily determined by the first-in, first-out (FIFO) method. The cost of store merchandise inventories is determined by the retail method. Intangibles Intangible assets consist principally of values assigned to tradenames. Other intangible assets include the excess of cost over the assigned value of net assets acquired (goodwill) in the Circle K acquisition. Tradenames and goodwill acquired in the Circle K acquisition are being amortized on a straight-line basis over 40 years. Other tradenames are being amortized over their respective licensing periods of up to 15 years. Supplier Advances Advances received in connection with supplier marketing or display allowances are amortized to income over the term of the respective arrangement based upon purchase levels. Self-Insurance Tosco is self-insured up to certain limits for worker's compensation, property damage and general liability claims. Accruals for loss incidences are made based on claims experience and certain actuarial assumptions followed in the insurance industry. Due to uncertainties inherent in the estimation process, actual losses could differ from amounts accrued. Excise Taxes Excise taxes collected on behalf of governmental agencies are excluded from sales, cost of sales or other expenses. Environmental Costs Environmental expenditures that relate to current operations are expensed or capitalized as appropriate. Expenditures that relate to an existing condition caused by past operations, which do not contribute to current or future revenue generation, are expensed. Liabilities are recorded when environmental assessments and/or remedial efforts are probable and the costs can be reasonably estimated. Generally, the timing of these accruals coincides with completion of investigations and other studies or a commitment to a formal plan of action. Estimated reimbursements of remediation costs of petroleum releases from underground storage tanks are recorded as assets for those states in which trust fund programs are currently reimbursing applicants and in which future reimbursement is probable. 2. Acquisitions Circle K Acquisition Tosco completed its acquisition of Circle K on May 30, 1996 (Merger Date) pursuant to an Agreement and Plan of Merger dated as of February 16, 1996, as amended (Merger Agreement), by and among Tosco, Circle K, and Tosco Acquisition Sub, Inc., a wholly-owned subsidiary of Tosco (Acquisition Sub). Pursuant to the Merger Agreement, Acquisition Sub was merged into Circle K and Circle K became a wholly owned subsidiary of Tosco. Circle K has approximately 2,500 convenience stores in the United States, 2,300 of which are company operated and 200 are franchised. Approximately 1,900 of the Circle K stores sell gasoline. The public shareholders of Circle K (Exchanging Shareholders) received approximately .6162 shares of common stock of Tosco (Common Stock) for each share of Circle K Common Stock. The number of shares of Common Stock issued was determined based upon the average of the closing prices of Common Stock during the ten consecutive trading days ending on May 28, 1996 (Average Tosco Stock Price) of $51.0875. A total of 5,320,953 shares of Common Stock was issued to the Exchanging Shareholders. Concurrently with the execution of the Merger Agreement, Tosco acquired 16,749,996 shares of Circle K Common Stock, (approximately 65% of the outstanding shares of Circle K) from certain Circle K shareholders (Selling Shareholders), pursuant to a stock sale agreement between Tosco and the Selling Shareholders. The Selling Shareholders received approximately $432.6 million and based upon the Average Tosco Stock Price 1,171,132 shares of Common Stock. Tosco also purchased, at prevailing market prices, a portion of Circle K Common Stock issued pursuant to the exercise of vested stock options held by employees of Circle K. Tosco purchased a total of 394,532 shares for $11,975,000 from the date of the Merger announcement through the Merger Date. In addition, options to purchase 436,303 shares, the majority of which did not vest prior to the Merger Date, were canceled for $6,632,000 (equal to the product of such options multiplied by the excess of $29.00 over the per share exercise prices). The total consideration for the acquisition consisted of approximately $451,000,000 of cash, 6,492,085 shares of Common Stock, and certain other costs. The cash portion of the acquisition was financed by the issuance of $240 million of 7 5/8% senior unsecured notes due May 15, 2006 and borrowings under Tosco's revolving credit facility (Note 7). The acquisition has been accounted for as a purchase. Accordingly, Circle K's assets and liabilities are included in the accompanying balance sheet at values based upon a preliminary allocation of the purchase price. The allocation will be finalized by the end of 1996 based upon appraisals and other evaluations currently in progress. The preliminary allocation of the purchase price is summarized as follows: (Thousands of Dollars) May 30,1996 ------------ Cash $ 41,465 Other current assets 245,032 Property, plant, and equipment 631,760 Other long-term assets 85,375 Intangibles, principally trade names 555,401 Current liabilities ( 443,740) Long-term debt (a) ( 114,356) Other non-current liabilities ( 219,204) ------------- Total $ 781,733 =========== (a) As required by the terms of its Senior Credit Agreement, Circle K retired debt obligations of $102,503,750 at the Merger Date from available cash and cash advances from Tosco. The consolidated results of operations of Tosco include the operations of Circle K from the Merger Date. Unaudited pro-forma results of operations of Tosco, assuming the acquisition had occurred on January 1, 1995 are as follows:
Pro-Forma Six Months Pro-Forma Year Ended June 30, 1996 Ended December 31, 1995 (Thousands of Dollars) Sales $ 5,751,608 (a) $ 10,298,582 =============== ============ Net income from continuing operations 85,067 (a) $ 80,768 =============== ============ Earnings per share Primary $ 1.91 (a) $ 1.84 =========== ===== Fully diluted 1.91 (a) $ 1.83 ========= =====
(a) The pro forma financial information excludes the pre-tax charge of $13,500,000 ($8,100,000 after-tax, $.21 per share), recorded in the second quarter of 1996, for the consolidation of Tosco's marketing division following the acquisition of Circle K. The costs of consolidation include employee severance, office lease termination and other costs that are not associated with or do not benefit activities that will be continued. The pro forma financial information is presented for informational purposes only and does not reflect the improvement in operating contribution anticipated from the merger or the possible 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 had the acquisition of Circle K been consummated as January 1, 1995, nor are they necessarily indicative of future operating results. Northeast marketing and refining assets On February 2, 1996, Tosco completed the purchase of the U.S. Northeast marketing and refining assets from British Petroleum (BP) for $59,000,000, excluding inventories. Under the purchase agreement, Tosco obtained an exclusive license valid for fifteen years, with various renewal options, to market retail gasoline and diesel fuels under the BP brand in the U.S. Northeast. The term of Tosco's exclusive license in nine Western states was also extended to fifteen years from the closing date. The purchase included the 190,000 B/D Trainer Refinery near Philadelphia (which was taken over in a non-operating mode) (Note 13), petroleum product terminals and certain associated pipeline interests. In May 1996, Tosco sold 3 of the terminals acquired which were surplus to Tosco's needs. Other acquired assets may be sold. BP retains environmental obligations relating to the Trainer Refinery and other properties included in the sale. The final allocation of the purchase price will be determined by the end of 1996. 3. Accounts Receivable In June 1995, 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). The agreement was amended in May 1996 to increase the program to $175,000,000. As of June 30, 1996 and December 31, 1995, approximately $174,300,000 and $99,800,000 respectively, of receivables had been sold. 4. Inventories
June 30, 1996 Dec. 31, 1995 -------------------------- -------------- Tosco excluding Circle K Circle K Consolidated (Thousands of Dollars) Raw materials (a) $ 229,207 $ 229,207 $223,795 Intermediates (a) 15,666 15,666 18,147 Refined petroleum products (a) 283,064 283,064 242,558 Retail merchandise 3,892 110,572 114,464 2,851 Retail gasoline/diesel 2,532(a) 25,205 27,737 2,128 Retail other 167 2,182 2,349 - ------------- ----------- ----------- ------- $ 534,528 $ 137,959 $ 672,487 $489,479 ========= ========= ========== ======== (a) The excess of replacement cost over the value of inventories based upon the LIFO method was $109,565,000 and $43,304,000 at June 30, 1996 and December 31, 1995, respectively.
5. DEFERRED CHARGES AND OTHER ASSETS
June 30, 1996 Dec. 31, 1995 ----------------------------- -------------- Tosco excluding Circle K Circle K Consolidated (Thousands of Dollars) Deferred financing costs $ 17,355 $ - $ 17,355 $ 15,701 Service station dealer advances 10,607 10,607 9,304 State environmental trust funds (Note 8) 27,772 27,772 Investment in joint venture (a) 19,120 19,120 Other assets 21,650 39,701 61,351 14,327 ------------- ------- ------------ ----------- $ 49,612 $ 86,593 $ 136,205 $ 39,332 =========== ======== ========== ========== (a) Joint venture with Southguard Corporation under which 164 stores operate under the Circle K name in Texas and Oklahoma under a franchising agreement.
6. Accrued Expenses and Other Liabilities
June 30, 1996 Dec. 31, 1995 --------------------- ------------- Tosco excluding Circle K Circle K Consolidated (Thousands of Dollars) Accrued taxes other than taxes on income $ 76,935 $ 34,711 $111,646 $ 64,122 Accrued compensation and related benefits 21,427 29,959 51,386 15,759 Income taxes payable (receivable) 3,569 ( 6,600) ( 3,031) ( 1,943) Acquisition related liabilities 15,923 8,775 24,698 37,841 Other accrued costs 25,370 25,030 50,400 29,841 Environmental remediation (Note 8) 26,000 26,000 Workers compensation and general liability 5,979 30,082 36,061 Lottery and money order payables 189 48,720 48,909 Short term borrowings (a) 20,000 Current installments of long-term debt 771 12,313 13,084 771 ------------- ---------- ---------- ------------ $ 150,163 $208,990 $ 359,153 $166,391 ========== ======== ========= ======== (a) Represents unsecured cash borrowings under short-term lines of credit with interest at alternative rates at Tosco's option.
7. Long Term Debt
June 30, 1996 Dec. 31, 1995 ------------------------------ --------------- Tosco excluding Circle K Circle K Consolidated (Thousands of Dollars) COLLATERALIZED First Mortgage Bonds due 3/15/97 (a) $ 100,000 $ 100,000 $ 100,000 First Mortgage Bonds due 3/15/02 200,000 200,000 200,000 First Mortgage Bonds due 5/15/03 150,000 150,000 150,000 Credit Agreement (b) 45,000 Capital Leases (c) $ 69,962 69,962 Real Estate Installment Purchase (d) 55,779 55,779 Other 4,978 776 5,754 4,807 UNCOLLATERALIZED New Credit Agreement (b) 368,000 368,000 7% Notes due 2000 125,000 125,000 125,000 7-5/8% Notes due 2006 240,000 240,000 ------------ --------------- ----------- -------- Total debt, including current portion 1,187,978 126,517 1,314,495 624,807 Less: Current installments 771 12,313 13,084 771 ------------ ----------- ----------- --------- Total long-term debt $1,187,207 $ 114,204 $1,301,411 $ 624,036 ========== ========= ========= ========== (a) The First Mortgage Bonds due March 15, 1997 are classified as long-term debt because of Tosco's intent and ability to refinance this amount on a long-term basis. (b) Effective April 8, 1996, Tosco entered into an amended and restated revolving credit agreement expiring in April, 2000 (New Credit Agreement). The New Credit Agreement provides Tosco with an unsecured $600,000,000 revolving credit facility that is available to Tosco for working capital, and general corporate purposes, including acquisitions (Note 2). Tosco's former $450,000,000 revolving credit agreement was a collateralized loan agreement, expiring in April, 1998, which restricted borrowings to a percentage of a borrowing base. (c) Circle K leases the majority of its stores and certain other properties and equipment. The store leases generally have initial terms of up to twenty-five years with one to three five-year renewal options. The net book value of assets under capital leases approximated the capital lease obligation. (d) In 2007, Circle K will receive title to approximately 200 convenience stores which it currently operates in various states. Payments under the agreement have been discounted at 9%.
Utilization of Revolving Credit Facilities
June 30, December 31, 1996 1995 ------------ ------------ (Thousands of Dollars) Revolving credit facilities Cash borrowings $ 368,000 $ 45,000 Letters of credit 97,462 90,055 ----------- ------------ Total utilization 465,462 135,055 Availability 134,538 314,945 Total credit line $ 600,000 $ 450,000 =========== ===========
Interest paid was $34,645,000 and $24,386,000 for the first six months of 1996 and 1995, respectively. 8. Environmental Liabilities
June 30, 1996 Dec. 31, 1995 ------------------------------ -------------- Tosco excluding Circle K Circle K Consolidated (Thousands of Dollars) Environmental liabilities $ 37,913 $ 47,938 (a) $ 85,851 $ 34,379 Environmental remediation settlement (b) 11,041 11,041 ------------ --------- --------- --------- $37,913 $ 58,979 $ 96,892 $ 34,379 ======= ======== ======== ========= (a) Long-term portion of environmental remediation costs to remove or mitigate contamination from underground storage tanks (Note 6). Estimated future claims for reimbursements of remediation costs from various state trust fund programs are included in other assets ($27,772,000) and receivables ($10,000,000). (b) Settlement agreement with certain state environmental agencies, pursuant to which Circle K agreed to pay for environmental remediation of certain former leased stores. Annual payments ranging from approximately $3,500,000 to $6,000,000 commence July 1996. The present value of the payments discounted at 9%, is approximately $15,000,000, $4,000,000 of which is included in current liabilities.
Environmental exposures are difficult to assess and estimate for numerous reasons, including the complexity and differing interpretations of governmental regulations, the lack of reliable data, the number of potentially responsible parties and their financial capabilities, the multiplicity of possible solutions, the years of remedial and monitoring activity required, and the identification of new sites. Tosco continues to evaluate its liability for environmental costs, net of liabilities transferred pursuant to the settlement of outstanding litigation with the predecessor owners of the Avon Refinery concerning environmental issues. While Tosco believes it has adequately provided for environmental exposures and accruals for trust fund reimbursements, should these matters be resolved unfavorably, they could have a material adverse effect on Tosco's long-term consolidated financial position and results of operations. 9. Other Liabilities
June 30, 1996 Dec. 31, 1995 ------------------------------ ------------- Tosco excluding Circle K Circle K Consolidated (Thousands of Dollars) Tax settlement (a) $ $ 26,728 $ 26,728$ Contract liability (b) 41,819 41,819 Worker's compensation and general liability claims 36,102 36,102 Other 25,705 25,786 51,491 16,916 ----------- ---------- --------- --------- $ 25,705 $130,435 $156,140 $ 16,916 ========== ======== ======== ======== (a) Tax settlement obligation payable over a six-year term with a balloon payment of $12,041,000 due in 1999. Interest at 8% is payable annually in arrears. (b) Contract liability related to certain obligations with a remaining term of approximately twenty years.
10. CAPITAL STOCK Tosco issued 6,492,085 shares of Common Stock in connection with the acquisition of Circle K (Note 2). Quarterly dividends of $.16 per common share were paid on June 28, 1996 to shareholders of record on June 18, 1996. 11. INCOME TAXES
Three Months Six Months Ended June 30, Ended June 30, 1996 1995 1996 1995 ---- ---- ---- ---- (Thousands of Dollars) Federal $ 27,752 $ 10,678 $ 40,651 $ 8,191 State 6,864 2,444 9,637 1,914 Foreign ( 353) 656 ( 373) 791 ---------- ----------- ----------- ---------- Provision for income taxes $ 34,263 $ 13,778 $ 49,915 $ 10,896 ======== ======== ========= ======== Cash payments (refunds) of income taxes, net $ 17,734 $ 1,295 $ 16,968 ($ 2,451) ======== ========= ======== =========
12. COMMITMENTS AND CONTINGENCIES Three cases have been filed against Circle K in Idaho state courts which involve former employees who allege discrimination due to their gender and age, one of which has been granted class certification. Circle K denies such allegations. The extent of liability, if any, is unknown. There are various other legal proceedings and claims pending against Tosco and Circle K which are common to its operations. While it is not feasible to predict or determine the ultimate outcome of these matters, it is the opinion of management that these suits will not result in monetary damages which in the aggregate would be material to the business or operations of Tosco. 13. SUBSEQUENT EVENTS On July 30, 1996, Tosco announced that if certain conditions are met in advance, it has a potential plan to modernize and reopen its refinery in Trainer, Pennsylvania (Note 2). The plan would include a modernization program of approximately $50,000,000 and a site-wide turnaround of all processing units. The updated refinery would be reconfigured to operate in the 150,000 B/D range. The one-year program will proceed only if a satisfactory agreement with organized labor can be reached promptly and permits from various regulatory agencies are received. 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 1995. The Annual Report sets forth Selected Financial Data which, in summary form, reviewed Tosco's results of operations and capitalization over the five-year period 1991-1995. This Management's Discussion and Analysis updates that data. ACQUISITIONS Tosco completed its acquisition of The Circle K Corporation (Circle K) on May 30, 1996. Circle K has approximately 2,500 convenience stores in the U.S., 2,300 of which are company operated. Approximately 1,900 of the Circle K stores sell gasoline. On February 2, 1996, Tosco purchased British Petroleum's U.S. Northeast marketing and refining assets. The assets purchased included an exclusive fifteen-year BP marketing license in the U.S. Northeast and an extension of Tosco's existing BP license in nine Western states. Tosco also acquired a refinery in Trainer, Pennsylvania (which was taken over in a non-operating mode), petroleum terminals and certain other assets. See Note 2 to the Consolidated Financial Statements. Results of Operations - Three Months Ended June 30 Three Months Ended June 30, 1996 1995 ---- ---- (Thousands of Dollars) Sales (a) $ 2,430,740 $1,904,038 Cost of sales 2,265,495 1,829,540 --------- --------- Operating contribution 165,245 74,498 Consolidation charge 13,500 3,000 Selling, general, and administrative expense 47,867 22,294 Net interest expense 19,977 14,702 ---------- ------------ Pre-tax income 83,901 34,502 Provision for income taxes 34,263 13,778 ---------- ------------ Net income $ 49,638 $ 20,724 ========== =========== (a) The increase in sales is primarily due to Tosco's acquisitions and higher petroleum sales prices. REFINING DATA SUMMARY THREE MONTHS ENDED JUNE 30, 1996 AND 1995 (IN THOUSANDS OF BARRELS PER DAY (B/D) EXCEPT FOR REFINING MARGINS)
Avon Bayway (a) Ferndale Consolidated 1996 1995 1996 1995 1996 1995 1996 1995 Crude oil 158.6 148.2 230.1 229.2 88.5 81.0 477.2 458.4 Add'l refinery feeds 15.4 15.3 52.7 65.2 .3 .5 68.4 81.0 ---------- -------- --------- ------- --------- ------- -------- ------- Total charges 174.0 163.5 282.8 294.4 88.8 81.5 545.6 539.4 ========= ======== ========= ======= ========== ===== ====== ====== Petroleum products produced: Clean Products (b) 146.2 139.2 232.5 246.0 60.5 55.0 439.2 440.2 Other finished products 19.8 21.5 54.8 54.1 25.8 23.6 100.4 99.2 ---------- ------ ------ ------- -------- ----- ------ ------ Total finished products produced 166.0 160.7 287.3 300.1 86.3 78.6 539.6 539.4 ------ ----- ------- ------- -------- ------ ------- ------ Operating margin per charge barrel (c) (d) $ 9.09 $ 5.16 $ 3.67 $ 3.04 $ 4.18 $ 2.77 $5.48 $ 4.26 ========== ======= ======= ======== ======== ======= ======= ======= (a) Bayway's margins include the results of hedges designed to lock in a predetermined level of operating margins on a varying percentage of Bayway's production. At June 30, 1996, Tosco had hedged approximately 2% of Bayway's remaining 1996 production. (b) Clean products are defined as clean transportation fuels (gasoline, diesel, and jet fuel) and heating oil. (c) Per-charge-barrel operating margin is defined as sales minus cost of sales, excluding refinery operating costs and non-operating items, divided by total refinery charges. (d) As illustrated by the table, operating 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, each refinery's configuration and complexity (ability to convert raw materials into clean products), and maintenance schedules.
Tosco earned $49.6 million, or $1.23 per fully diluted share, on sales of $2.4 billion for the second quarter of 1996, compared to net income of $20.7 million, or $.55 per fully diluted share, on sales of $1.9 billion for the second quarter of 1995. Results of operations for the second quarter of 1996 include an after-tax charge of $8.1 million ($.20 per share) for the consolidation costs of Tosco's marketing division following the acquisition of Circle K. The costs of consolidation in 1996 include employee severance, office lease termination, and other costs that are not associated with or do not benefit activities that will be continued. See Note 2 to the Consolidated Financial Statements. Results of operations for the second quarter of 1995 included an after-tax charge of $1.8 million related to a major expense reduction program at the Avon Refinery. Tosco generated an operating contribution (income before the consolidation charge, selling, general and administrative expense, net interest expense, and income taxes) for the second quarter of 1996 of $165.2 million, an increase of $91.0 million from 1995. The increase was primarily due to good refining margins and the acquisition of Circle K. Consolidated margins increased by $1.22 per barrel to $5.48 per barrel due to increases in sales prices, primarily gasoline, which outpaced higher raw material costs. The better margins were due to a variety of factors including reduced supplies resulting from West Cost industry shutdowns of processing units caused by fires and other unscheduled operating difficulties. Higher operating margins were aided by higher production results as total raw material charges increased by 6,200 B/D to a 545,600 B/D. Bayway also improved its operating margins by reducing its throughput ratio of high-cost, partially refined feedstocks to total raw material charges. Retail marketing fuel margins averaged $.12 per gallon for the second quarter of 1996 compared to $.09 for the second quarter of 1995 and volume sold increased 45,000 B/D to 115,000 B/D. The increases are primarily due to the May 30th acquisition of Circle K and strong retail margins in June. Merchandise gross profit (defined as merchandise sales less merchandise cost of sales excluding store operating expenses) increased $50 million due to the Circle K acquisition. The increase in selling, general, and administrative expense for the second quarter of 1996 is attributable to Tosco's acquisitions and higher levels of incentive compensation due to higher levels of operating income. Interest expense increased in 1996, despite the reduction in interest costs resulting from a receivable transfer agreement, primarily due to higher debt levels related to Tosco's acquisitions.
Results of Operations - Six Months Ended June 30 Six Months Ended June 30, 1996 1995 ---- ---- (Thousands of Dollars) Sales $4,450,763 $3,600,357 Cost of sales 4,202,907 3,493,713 ----------- ----------- Operating contribution 247,856 106,644 Consolidation charge 13,500 5,200 Selling, general, and administrative expense 74,937 44,896 Net interest expense 35,900 29,201 ----------- ------------- Pre-tax income 123,519 27,347 Provision for income taxes 49,915 10,896 ----------- ------------ Net income $ 73,604 $ 16,451 ========== ============
REFINING DATA SUMMARY SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (IN THOUSANDS OF B/D EXCEPT FOR REFINING MARGINS) AVON (a) Bayway Ferndale (a) CONSOLIDATED 1996 1995 1996 1995 1996 1995 1996 1995 Crude oil 159.2 154.6 228.6 227.8 86.2 68.6 474.0 451.0 Add'l refinery feeds 14.9 10.0 51.3 66.5 1.5 1.4 67.7 77.9 --------- -------- ------------------ ---------- ------- -------- -------- Total charges 174.1 164.6 279.9 294.3 87.7 70.0 541.7 528.9 ======== ======== ======== ======== ========= ======= ======== ====== Petroleum products produced: Clean Products 141.9 123.3 233.1 246.0 60.9 45.7 435.9 415.0 Other finished products 26.6 37.6 52.6 54.1 24.7 22.1 103.9 113.8 --------- ----- ------ ------- ------- ------- -------- ------ Total finished products produced 168.5 160.9 285.7 300.1 85.6 67.8 539.8 528.8 ========== ====== ======= ====== ========= ======= ======= ======= Operating margin per charge barrel $ 6.89 $ 4.85 $ 3.91 $ 2.73 $ 3.93 $ 2.58 $4.87 $3.87 ========== ======== ======== ======= ========= ====== ====== ====== (a) Avon's catalytic cracker, the refinery's principal gasoline production unit, and the processing units at the Ferndale Refinery were shutdown for 55 and 33 days, respectively, in the first quarter of 1995 for major scheduled turnaround maintenance.
Tosco earned $73.6 million, or $1.87 per fully diluted share, on sales of $4.5 billion for the first six months of 1996, compared to $16.5 million, or $.44 per fully diluted share, on sales of $3.6 billion for the first six months of 1995. Results of operations for the first half of 1996 include an after-tax consolidation charge of $8.1 million ($.20 per share). Results of operations for the first half of 1995 include an after-tax restructuring charge of $3.1 million ($.08 per share). Tosco generated an operating contribution for the first half of 1996 of $247.9 million, an increase of $141 million from 1995. The increase was attributable to good refining margins, the acquisition of Circle K and Bayway's strong first quarter 1996 performance due to the cold winter weather in the Northeast. Conversely, first quarter 1995 operating contribution was severely impacted by extremely poor refining margins and extensive scheduled turnaround maintenance. Retail marketing fuel margins averaged $.10 per gallon for the first half of 1996 compared to $.09 for the comparable 1995 period. Retail volumes sold also increased by 26,700 B/D to 94,200 B/D due to Tosco's acquisitions. The increase in selling, general, and administrative expense for the first six months of 1996 versus the comparable period of 1995 was due to Tosco's expanded operations. The increase in net interest expense for 1996 is primarily due to higher levels of debt due to Tosco's acquisitions. OUTLOOK Results of operations continue to be determined by two factors: the operating efficiency of the refineries and refining and retail marketing margins. The first half of 1996 had no major turnaround activity. Assuming reasonable margins, Tosco presently expects to run its operating refineries at high production levels for the balance of 1996. The favorable refining margins and strong retail margins of the second quarter have continued into the third quarter. However, East Coast refining margins, which deteriorated late in the second quarter, remain weak. Tosco is not able to predict margins due to uncertainties associated with oil markets. In view of uncertain operating margins in highly competitive markets, Tosco is committed to improving its operating results by lowering costs in all areas. Tosco's acquisitions of BP's Northeast assets and of Circle K advanced Tosco's goal of becoming a major gasoline retailer. In addition, the Circle K acquisition made Tosco the largest operator of convenience stores in the United States. Tosco expects to achieve significant economies of scale from the Circle K acquisition and enhanced earnings and cash flows. Construction on a solvent deasphalting unit (SDA) at the Bayway Refinery is expected to be completed in August 1996. The SDA will process approximately 20,000 B/D of low-value residual fuel to produce feedstock for the catcracker, the world's largest and the refinery's principal gasoline manufacturing unit. The SDA will reduce the amount of high-cost, partially refined feedstocks that Bayway currently purchases from third parties and improve Bayway's margins. In addition, the first of four chartered crude oil tankers will begin deliveries of crude oil in the third quarter. The tankers will transport crude oil from Bayway's leased deep-water terminal in Nova Scotia, Canada or in direct shipments from suppliers and should lower shipping costs and the potential for spills. On July 30, 1996, Tosco announced that if certain conditions are met in advance, it has a potential plan to modernize and reopen its refinery in Trainer, Pennsylvania. The plan would include a modernization program of approximately $50 million and a site-wide turnaround of all processing units. The updated refinery would be reconfigured to operate in the 150,000 B/D range. The one-year program will proceed only if a satisfactory agreement with organized labor can be reached promptly and permits are received from various regulatory agencies. CASH FLOWS AND LIQUIDITY As summarized in the Statement of Cash Flows, cash increased by $25 million during the first six months of 1996 as cash provided by operating and financing activities of $98 million and $530 million, respectively, exceeded cash used in investing of $603 million. Cash provided by operating activities of $98 million was from cash earnings from operations of $172 million (net income plus depreciation, amortization, and deferred income taxes) and an increase in other sources of $13 million offset by an increase in working capital of $87 million. Net cash used in investing activities totaled $603 million, primarily for the acquisition of Circle K of $413 million, capital additions of $134 million (including $40 million for the BP Northeast refining and marketing assets), increases in deferred charges and other assets of $51 million and increases in short-term investments and deposits of $4 million. Cash provided by financing activities totaled $530 million, consisting of proceeds from Tosco's $240 million bond offering, net borrowings under the revolving credit facility of $323 million, partially offset by short-term bank repayments of $20 million, and dividends on common stock and other payments of $13 million. Liquidity (as measured by cash, short-term investments and deposits and unused credit facilities) decreased by $151 million during 1996 due to a decrease in unused credit facilities of $180 million, partially offset by an increase of $25 million in cash and cash equivalents and $4 million short-term investments and deposits. At June 30, 1996, liquidity totaled $212 million (an amount which Tosco believes is adequate to meet its expected liquidity demands for at least the next twelve months). Tosco has the intent and ability to refinance $100 million of First Mortgage Bonds due March 15, 1997 on a long-term basis. CAPITAL EXPENDITURES AND CAPITALIZATION On February 2, 1996, Tosco completed the purchase of BP's U.S. Northeast marketing and refining assets. On May 30, 1996, Tosco completed its acquisition of Circle K. Other capital expenditures for the first six months of 1996 of $94 million were for budgeted capital projects, primarily at the Avon Refinery and retail outlets. Capital spending programs continue to address the completion of reformulated fuel specifications, compliance with environmental regulations and permits, operating flexibility and reliability, personnel/process safety, and retail expansion and modernization. Due to the acquisition of Circle K, capital spending for retail operations is focused on integrating both operations and enhancing existing retail sites that can be financed from internal cash flows. At June 30, 1996, total shareholders' equity was $1.0 billion, an increase from December 31, 1995 of $388 million due to the issuance of approximately 6.5 million shares of Common Stock ($327 million) and net income of $74 million less dividend and other payments of $13 million. Debt, including current maturities and short-term bank borrowings, increased by $670 million to $1.3 billion at June 30, 1996 primarily due to the acquisition of Circle K. TOSCO CORPORATION AND SUBSIDIARIES PART I - EXHIBIT I COMPUTATION OF EARNINGS PER SHARE (Unaudited) In Thousands Except Per Share Data
Three Months Six Months Ended June 30, Ended June 30, 1996 1995 1996 1995 Net income $49,638 $20,724 $73,604 $16,451 Weighted average number of shares outstanding during the period 39,290 37,060 38,268 37,055 Stock option equivalents 1,015 465 923 356 ------- ------- ------- ------- Shares used for computation of primary earnings per share 40,305 37,525 39,191 37,411 Additional stock option equivalents 17 109 37 ------- ------- ------- ------- Shares and equivalents used for computation of fully diluted earnings per share 40,322 37,525 39,300 37,448 ========= ======== ======== ======= Earnings per share: Primary $ 1.23 $ 0.55 $ 1.88 $ 0.44 ======== ======== ======== ====== Fully diluted $ 1.23 $ 0.55 $ 1.87 $ 0.44 ======== ======== ======== ======
PART II. OTHER INFORMATION Item 1. Legal Proceedings On July 19, 1996 the United States Court of Appeals for the Eighth Circuit issued its decision in the case of Lion Oil Company v. Tosco Corporation (United States Court of Appeals for the Eighth Circuit, Case No. 95-3270) upholding the District Court's decision granting Tosco's Motion for Judgement on the Pleading and dismissing Lion Oil Company's complaint with prejudice. The Circuit Court affirmed the lower court's finding 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 in 1985. A number of cases were filed by former employees against Circle K Corporation, now a Tosco subsidiary, in Idaho state court alleging discrimination and termination due to gender and age. (Vernita Bunch and Helen Lewis v. Circle K Corporation, District Court for the Sixth Judicial District of the State of Idaho, Case No. CV OC 95-50466, Rhonda Terrell v. Circle K Corporation, District Court for the Fourth Judicial District of the State of Idaho, Case No, CV OC 95-00930D and Constance Clark, et al. v. Circle K Corporation, District Court for the Fourth Judicial District of the State of Idaho, Case No. CV OC 96-01115D). The Clark case has been certified as a class action. The extent of liability, if any, is unknown. Discovery is in progress in all cases. Item 2. Changes in the Rights of Security Holders On May 30, 1996 Tosco issued 6,492,085 shares of Common Stock in connection with the acquisition of Circle K. In addition, Tosco issued $240,000,000 of 7 5/8% senior unsecured notes due 2006 as part of the Circle K acquisition. Item 4. Submission of Matters to Vote of Security Holders On May 16, 1996 an Annual Meeting of the Stockholders was held. The table below briefly describes the proposals and the results of the shareholder vote. Election of Directors Names Votes For Withhold Authority Jefferson F. Allen 31,781,198 48,698 Joseph B. Carr 31,721,630 108,266 Patrick M. DeBarros 31,781,074 48,882 Houston I. Flournoy 31,745,452 84,444 Clarence G. Frame 31,752,835 77,061 Edmund A. Hajim 31,780,773 49,123 Joseph P. Ingrassia 31,744,010 85,886 Charles J. Luellen 31,776,932 52,964 Thomas D. O'Malley 31,779,646 50,250 Ratification and approval Votes For Votes Against Abstain of appointment of Coopers & Lybrand as independent accountants 31,796,034 16,492 17,370 Item 6. Exhibits and Reports on Form 8-K a. Exhibits 11. Computation of Earnings Per Share (See Part I, Exhibit I). b. Reports on Form 8-K A Report on Form 8-K dated April 25, 1996 was filed relating to the merger of a wholly-owned subsidiary of Tosco with and into the Circle K Corporation by merger pursuant to an Agreement and Plan of Merger dated February 16, 1996. This Form 8-K reported the following financial statements under Item 7. Financial Statements, Pro Forma Financial Information and Exhibits: 1. Audited consolidated financial statements of the Circle K Corporation and subsidiaries ("Circle K") as of April 30, 1995 and 1994, and for the year ended April 30, 1995 and for the period July 27, 1993 (date of inception), to April 30, 1994, and the consolidated statements of operations, stockholders' equity and cash flows of Circle K's predecessor and its subsidiaries for the period May 1, 1993 to July 26, 1993 and for the year ended April 30, 1993. 2. Unaudited consolidated financial statements of Circle K as of January 31, 1996 and for the nine months ended January 31, 1996 and January 31, 1995. 3. Tosco Corporation and Circle K pro forma combined financial statements (unaudited), consisting of pro forma combined balance sheet as of December 31, 1995 and pro forma combined statement of income for the year ended December 31, 1995. A Report on Form 8-K dated June 12, 1996 was filed relating to the completion of Tosco's transaction for the Circle K Corporation pursuant to an Agreement and Plan of Merger dated February 16, 1996 (Reported as Item 2. Acquisition or Disposition of Assets). This Form 8-K also reported the following information under Item 7. Financial Statements, Pro Forma Financial Information and Exhibits: Financial Statements The financial statements of Circle K are incorporated herein by reference to Tosco's Current Report on Form 8-K filed with the Securities and Exchange Commission on April 25, 1996. Pro Forma Financial Information It is impracticable to file with this Report the pro forma financial information required to be filed in connection with the Merger pursuant to Article 11 of Regulation S-X. Such pro forma financial information will be filed by amendment as soon as practicable and not later than 60 days after this Report must be filed. The pro forma financial information was subsequently filed on August 12, 1996 on a Form 8-K/A amending such Form 8-K. 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: August 14, 1996 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 EX-27 2
5 1,000 6-MOS DEC-31-1996 JUN-30-1996 44,178 33,416 213,620 8,487 672,487 1,035,230 2,105,671 422,547 3,539,218 888,622 450,000 0 0 34,626 963,667 3,539,218 4,450,763 4,450,763 4,202,907 4,202,907 0 0 37,587 123,519 49,915 73,604 0 0 0 73,604 1.88 1.87
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