-----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, Bsg4oR6eSYIErFHdDcJ3BqdbZhdLXl3Vje7kKXMv0ugqRVXF/Aacp4ym691Hg+W0 lrCcn9SrVehCEyg92GYfsw== 0000899681-98-000477.txt : 19980817 0000899681-98-000477.hdr.sgml : 19980817 ACCESSION NUMBER: 0000899681-98-000477 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: NYSE 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: SEC FILE NUMBER: 001-07910 FILM NUMBER: 98689560 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, 1998 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, 1998 was 156,362,669 shares. TOSCO CORPORATION AND SUBSIDIARIES INDEX TO FINANCIAL AND OTHER INFORMATION FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998 PAGE(S) PART I FINANCIAL INFORMATION Item 1. Financial Statements: Consolidated Balance Sheets as of June 30, 1998 and December 31, 1997 2 Consolidated Statements of Income for the three and six month periods ended June 30, 1998 and 1997 3 Consolidated Statements of Cash Flows for the six month periods ended June 30, 1998 and 1997 4 Notes to Consolidated Financial Statements 5 - 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 - 11 PART II OTHER INFORMATION Item 4. Submission of Matters to Vote of Security Holders 12 Item 6. Exhibits and Reports on Form 8-K: 13 Exhibit 11 - Computation of Earnings per Share for the three and six month periods ended June 30, 1998 and 1997 14 Exhibit 12 - Ratio of Earnings to Fixed Charges for the three and six month periods ended June 30, 1998 and 1997 15 Signatures 16
TOSCO CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) (Thousands of Dollars, Except Par Value) June 30, December 31, 1998 1997 ---------- ------------ ASSETS Current assets: Cash and cash equivalents $ 38,961 $ 34,482 Marketable securities and deposits 53,426 43,687 Trade accounts receivable, less allowance for uncollectibles of $19,049 (1998) and $19,018 (1997) 264,183 315,123 Inventories 1,308,956 1,253,692 Prepaid expenses and other current assets 86,501 107,632 Deferred income taxes 57,646 57,646 ----------- ------------ Total current assets 1,809,673 1,812,262 Property, plant, and equipment, net 3,258,098 3,170,955 Deferred turnarounds, net 121,887 123,330 Intangible assets (primarily tradenames), less accumulated amortization of $45,717 (1998) and $34,546 (1997) 688,333 699,559 Other deferred charges and assets 154,616 168,746 ------------ ------------- $6,032,607 $5,974,852 ============ ============= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable, accrued expenses, and other liabilities $1,411,272 $1,540,867 Current maturities of long-term debt 2,557 11,908 ------------ ------------- Total current liabilities 1,413,829 1,552,775 Revolving credit facility 309,000 166,000 Long-term debt 1,359,773 1,415,257 Accrued environmental costs 257,593 252,964 Deferred income taxes 137,288 140,435 Other liabilities 187,498 203,366 ------------- ------------ Total liabilities 3,664,981 3,730,797 ------------- ------------ Company-obligated, mandatorily redeemable, convertible preferred securities of Tosco Financing Trust, holding solely 5.75% convertible junior subordinated debentures of Tosco Corporation (Trust Preferred Securities) 300,000 300,000 ------------- ------------- Shareholders' equity: Common stock, $.75 par value, 250,000,000 shares authorized, 177,800,107 (1998) and 177,706,038 (1997) shares issued 133,579 133,507 Additional paid-in capital 2,029,709 2,028,985 Retained earnings 377,420 254,351 Treasury stock, at cost (473,082) (472,788) ------------- ------------- Total shareholders' equity 2,067,626 1,944,055 ------------- ------------- $6,032,607 $5,974,852 ============= ============= 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 June 30, Six Months Ended June 30, 1998 1997 1998 1997 ------------ ---------- ----------- ----------- Sales $ 3,168,389 $ 3,196,431 $ 6,215,444 $ 5,606,704 Cost of sales 2,882,523 2,948,053 5,743,378 5,272,538 Selling, general, and administrative expenses 77,624 85,019 152,471 136,928 Interest expense 33,472 45,801 70,922 69,944 Interest income (1,002) (1,372) (2,422) (2,141) -------------- ------------- -------------- -------------- Income before income taxes and distributions on Trust Preferred Securities 175,772 118,930 251,095 129,435 Income taxes 72,945 49,295 104,204 53,715 -------------- ------------- -------------- -------------- Income before distributions on Trust Preferred Securities 102,827 69,635 146,891 75,720 Distributions on Trust Preferred Securities, net of income tax benefit of $1,789 (three month periods) and $3,579 (six month periods) 2,523 2,523 5,046 5,046 -------------- ------------- -------------- -------------- Net income $100,304 $67,112 $141,845 $70,674 ============== ============= ============== ============== Basic earnings per share $0.64 $0.44 $0.91 $0.50 ============== ============= ============== ============== Diluted earnings per share $0.61 $0.42 $0.86 $0.49 ============== ============= ============== ============== Dividends per share $0.06 $0.06 $0.06 $0.06 ============== ============= ============== ============== Weighted average common and common equivalent shares used for computation of basic earnings per share 156,348,509 152,491,892 156,337,022 141,833,861 Assumed conversion of dilutive stock options 4,402,193 4,393,690 4,482,601 4,323,624 Assumed conversion of Trust Preferred Securities 9,113,940 9,113,940 9,113,940 9,113,940 -------------- ------------- -------------- -------------- Weighted average common and common equivalent shares used for computation of diluted earnings per share 169,864,642 165,999,522 169,933,563 155,271,425 ============== ============= ============== ============== 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, 1998 1997 ------------ ---------- Cash flows from operating activities: Net income $141,845 $70,674 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 157,689 137,481 Changes in operating assets and liabilities, net (131,175) (116,881) Other, net 5,963 (2,141) ------------- ------------ Net cash provided by operating activities 174,322 89,133 ------------- ------------ Cash flows from investing activities: Net change in marketable securities and deposits (9,739) 2,905 Purchase of property, plant, and equipment, net (184,719) (183,896) Net increase in deferred turnarounds, deferred charges, and other assets (32,308) (110,690) Acquisition of 76 Products assets - (1,138,464) Other, net 9,262 - ------------- ------------ Net cash used in investing activities (217,504) (1,430,145) ------------- ------------ Cash flows from financing activities: Net borrowings under revolving credit facility 143,000 515,000 Proceeds from note and debenture offering - 600,000 Payments under long-term debt agreements (12,724) (106,898) Early payoff of real estate installment purchase note (64,622) - Proceeds from common stock offering, net - 697,395 Repurchase of Unocal Shares - (393,708) Dividends paid on common stock (18,776) (17,178) Other, net 783 (7,537) ------------- ------------ Net cash provided by financing activities 47,661 1,287,074 ------------- ------------ Net increase (decrease) in cash and cash equivalents 4,479 (53,938) Cash and cash equivalents at beginning of period 34,482 94,418 ------------- ------------ Cash and cash equivalents at end of period $ 38,961 $40,480 ============= ============ The accompanying notes are an integral part of these financial statements.
TOSCO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1997 (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 the disclosure requirements 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 1997 Annual Report on Form 10-K. 2. ACCOUNTING CHANGES Effective January 1, 1998, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 130 "Reporting Comprehensive Income" ("SFAS No. 130") and Statement of Position No. 98-1 "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" ("SOP No. 98-1"). SFAS No. 130 establishes standards for reporting and display of comprehensive income and its components (net income plus all other non-owner changes in equity). SOP No 98-1 provides guidance on accounting for the costs of computer software developed or obtained for internal use. The adoption of these accounting pronouncements did not have a material impact on the Company's financial statements for the three and six month periods ended June 30, 1998. 3. INVENTORIES JUNE 30, DECEMBER 31, (THOUSANDS OF DOLLARS) 1998 1997 ------------- ------------- Refineries (LIFO): Raw materials $ 468,463 $ 468,515 Intermediates 268,594 181,414 Finished products 411,913 440,525 Retail (FIFO): Merchandise 123,486 121,082 Gasoline and diesel 35,171 39,901 Other 1,329 2,255 ------------- -------------- $ 1,308,956 $ 1,253,692 ============= ============== Inventories accounted for under the LIFO method at June 30, 1998 and December 31, 1997, are reduced by a $53,000,000 non-cash inventory valuation reserve recorded in 1997. At June 30, 1998, the fair value of Tosco's LIFO inventories was less than their carrying value. The price decline is believed to be temporary. 4. REVOLVING CREDIT FACILITY JUNE 30, DECEMBER 31, (THOUSANDS OF DOLLARS) 1998 1997 ------------- ------------ Cash borrowings outstanding $ 309,000 $ 166,000 Letters of credit 30,240 57,241 ------------- ------------ Total utilization 339,240 223,241 Availability 660,760 776,759 ------------- ------------ $ 1,000,000 $ 1,000,000 ============= ============== 5. LONG-TERM DEBT During January 1998, Tosco completed the purchase of approximately 200 convenience stores by paying off the outstanding balance on a real estate installment purchase note for $64,622,000, including the settlement of contingent payments. 6. CAPITAL STOCK During May 1998, the Company's stockholders approved the adoption of the 1998 Stock Incentive Plan (the "1988 Plan"). The 1998 Plan provides for the grant of a maximum of 1,500,000 shares of Tosco Common Stock in the form of stock options, restricted stock awards, and/or stock appreciation rights. Stock options may be granted as "Incentive Stock Options" (as defined by the Internal Revenue Code of 1986), or as nonqualified options, including nonqualified stock options whose purchase price or vesting requirements are based on the employee's achievement of established performance objectives. Options may be exercised as determined by the Compensation Committee of the Board of Directors but in no event after ten years from the date of grant. The exercise price of nonqualified stock options is determined by the Compensation Committee and may be less than the fair value of Common Stock on the date of grant. Awards under the 1998 Plan may be granted until March 18, 2008. 7. SUPPLEMENTAL CASH FLOW INFORMATION SIX MONTHS ENDED JUNE 30, (THOUSANDS OF DOLLARS) 1998 1997 ------------- --------- Cash paid during the period for: Interest, net of amounts capitalized $ 71,111 $ 49,590 Income taxes, net of refunds received 27,559 43,997 8. NEW ACCOUNTING STANDARDS The Financial Accounting Standards Board issued SFAS No. 131 "Disclosures about Segments of an Enterprise and Related Information" ("SFAS No. 131") during June 1997, SFAS No. 132 "Employers' Disclosures about Pensions and Other Postretirement Benefits" ("SFAS No. 132") during February 1998, and SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133") during June, 1998. SFAS No. 131 establishes disclosure standards regarding information about operating segments. SFAS No. 132 changes the disclosure requirements for pension and other postretirement benefits, but does not change any existing measurement or recognition provisions. SFAS No. 133 establishes accounting and reporting standards for derivative instruments and for hedging activities. The Company will comply with the expanded disclosure requirements of SFAS No. 131 and SFAS No. 132 with its 1998 annual financial statements. The Company plans to adopt SFAS No. 133 on January 1, 2000. Adoption of SFAS No. 133 is not expected to have a material impact on the Company's results of operations or financial position. 9. SUBSEQUENT EVENT During July 1998, the Company extended its long-term operating leases for the BP Northern California and Exxon Arizona service stations. The modified leases continue to be accounted for as operating leases and extend through July 2001 with renewal options through July 2003. Minimum annual rental expense varies with a commercial paper rate. ITEM 2. 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 and six month periods ended June 30, 1998 should be read in conjunction with Management's Discussion and Analysis included in the Company's 1997 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 1993 through 1997. This Management's Discussion and Analysis updates that data. Tosco completed its acquisition of Union Oil Company of California's ("Unocal") West Coast petroleum refining, marketing, and related supply and transportation assets on March 31, 1997 (the "76 Products Acquisition"). The assets are comprised of two petroleum refining systems, a retail gasoline system consisting of 76-branded gasoline service stations, a distribution system comprised of company-owned oil storage terminals, crude oil and product pipelines, the world-wide rights to the "76" and "Union" brands, and a lubricants business.
RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, (THOUSANDS OF DOLLARS) 1998 1997 1998 1997 ------------- ------------- ------------- --------- Sales $ 3,168,389 $ 3,196,431 $ 6,215,444 $ 5,606,704 Cost of sales 2,882,523 2,948,053 5,743,378 5,272,538 Selling, general, and administrative expenses 77,624 85,019 152,471 136,928 Interest expense, net 32,470 44,429 68,500 67,803 ------------- ------------- ------------- ------------- Income before income taxes and distributions on Trust Preferred Securities 175,772 118,930 251,095 129,435 Income taxes 72,945 49,295 104,204 53,715 ------------- ------------- ------------- ------------- Income before distributions on Trust Preferred Securities 102,827 69,635 146,891 75,720 Distributions on Trust Preferred Securities, net of income tax benefit 2,523 2,523 5046 5,046 ------------- ------------- ------------- ------------- Net income $ 100,304 $ 67,112 $ 141,845 $ 70,674 ============= ============= ============= ============= Earnings per share (a) $ 0.61 $ 0.42 $ 0.86 $ 0.49 ============= ============= ============= ============= (a) Earnings per share throughout Management's Discussion and Analysis of Financial Condition and Results of Operations are expressed on a diluted basis. REFINING DATA SUMMARY (A) THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, 1998 1997 1998 1997 ------------- ------------- ------------- --------- Average charge barrels input per day (b): Crude oil 879,900 761,600 868,900 573,400 Other feed and blending stocks 109,800 94,600 100,500 71,500 ----------- ----------- ----------- -------- 989,700 856,200 969,400 644,900 ============= ============= ============= ============= Average production barrels produced per day (b): Clean products (c) 822,000 692,300 803,600 516,900 Other finished products 159,000 150,800 162,800 121,000 ------------- ------------- ------------- ------------- 981,000 843,100 966,400 637,900 ============= ============= ============= ============= Operating margin per charge barrel (d) $ 5.30 $ 4.62 $ 4.86 $ 4.75 ========= ========== ========= ============= (a) The Refining Data Summary presents the operating results of the following refineries: - Bayway Refinery, located on the New York Harbor - Ferndale Refinery, located on Washington's Puget Sound - Los Angeles Refinery System, comprised of two refineries in Los Angeles (acquired on March 31, 1997) - San Francisco Area Refinery System, comprised of the Rodeo-Santa Maria complex (acquired on March 31, 1997) and the Avon Refinery - Trainer Refinery, located near Philadelphia (opened on May 8, 1997). (b) A barrel is equal to 42 gallons. (c) Clean products are defined as clean transportation fuels (gasoline, diesel, distillates, and jet fuel) and heating oil. (d) Operating margin per charge barrel is calculated as operating contribution, excluding refinery operating costs, divided by total refinery charge barrels. Operating contribution for 1997 includes insurance recoveries related to the unscheduled shutdowns of the Bayway Refinery cat cracker and the Avon Refinery hydrocracker.
RETAIL DATA SUMMARY (A) THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, 1998 1997 1998 1997 ------------- ------------- ------------- --------- Volume of fuel sold (thousands of gallons) 1,136,128 1,181,479 2,204,766 1,807,424 Blended fuel margin (cents per gallon) (b) 9.9 14.7 10.5 12.5 Number of gasoline stations at period end 4,529 4,708 4,529 4,708 Merchandise sales (thousands of dollars) $ 541,391 $ 520,963 $ 1,017,248 $ 983,559 Merchandise margin (percentage of sales) 29.3% 29.3% 29.2% 29.5% Number of merchandise stores at period end 2,337 2,522 2,337 2,522 Other retail gross profit (thousands of dollars) $ 28,303 $ 33,540 $ 57,710 $ 53,174 (a) The Retail Data Summary includes the operations of the 76 Products gasoline service stations subsequent to March 31, 1997 (date acquired). (b) Blended fuel margin is calculated as fuel sales minus fuel cost of sales divided by fuel gallons sold.
1998 SECOND QUARTER COMPARED TO 1997 SECOND QUARTER Tosco earned net income of $100.3 million ($0.61 per share) on sales of $3.2 billion during the second quarter of 1998, compared to earnings of $67.1 million ($0.42 per share) on sales of $3.2 billion in the corresponding period of 1997. The sales decrease of approximately $28.0 million was primarily due to lower product prices partially offset by increased refinery production levels, principally as a result of the Trainer Refinery opening on May 8, 1997. Tosco generated an operating contribution (sales less cost of sales) of $285.9 million for the second quarter of 1998 compared to $248.4 million in the corresponding period in 1997. The improvement of $37.5 million was attributable to refining (improvement of $105.8 million) and retail (reduction of $68.3 million) operations. Refining operating contribution was $204.3 million for the 1998 second quarter compared to $98.4 million in the 1997 second quarter. This increase was primarily due to higher production volumes and higher West Coast operating margins per charge barrel. Production volumes were higher in 1998 due to the opening of the Trainer Refinery (on May 8, 1997) and scheduled and unscheduled shutdowns of certain units at the refineries during 1997. Improved West Coast margins resulted from a strong overall demand for gasoline. Retail operating contribution was $81.6 million for the quarter ended March 31, 1998 compared to $149.9 million in the comparable period in 1997. The 1998 decline was primarily attributable to lower blended fuel margins due to highly competitive conditions. Selling, general, and administrative expenses for the quarter ended June 30, 1998 decreased by $7.4 million compared to the corresponding period in 1997 primarily because of the absence of transition costs incurred in 1997 related to the 76 Products Acquisition. Net interest expense for the quarter ended June 30, 1998 decreased by $12.0 million compared to the 1997 period. This decrease was primarily due to lower borrowings under Tosco's revolving credit facility. SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997 Tosco earned net income of $141.8 million ($0.86 per share) on sales of $6.2 billion during the six months ended June 30, 1998, compared to earnings of $70.7 million ($0.49 per share) on sales of $5.6 billion in the corresponding period of 1997. The increase in sales is attributable to higher refinery production and retail fuel volumes resulting from the 76 Products Acquisition (on March 31, 1997) and the opening of the Trainer Refinery (on May 8, 1997), which more than offset a reduction in refinery product and retail fuel prices. Tosco generated an operating contribution of $472.1 million for the six month period ended June 30, 1998 compared to $334.2 million in the corresponding period in 1997. The improvement of $137.9 million was attributable to refining (improvement of $169.3 million) and retail (reduction of $31.4 million) operations. Refining operating contribution was $317.1 million for the six month period ended June 30, 1998 compared to $147.8 million in the 1997 first six months. The increase of $169.3 million was primarily due to higher production volumes and higher West Coast operating margin per charge barrel. Production volumes were higher in 1998 due to the 76 Products Acquisition, the opening of the Trainer Refinery (on May 8, 1997), and scheduled and unscheduled shutdowns of certain refinery units during 1997. Refining operating contribution for the six month period ended June 30, 1997 includes insurance recovery accruals related to the unscheduled shutdowns of the Bayway Refinery cat cracker and the Avon Refinery hydrocracker. Retail operating contribution was $155.0 million for the six month period ended June 30, 1998 compared to $186.4 million in the comparable period in 1997. The 1998 decrease was due to lower blended fuel margins in the 1998 second quarter partially offset by higher fuel volumes from the 76 Products Acquisition. Selling, general, and administrative expenses for the first six months of 1998 increased by $15.5 million compared to the corresponding period in 1997 primarily due to the 76 Products Acquisition on March 31, 1997 and higher incentive compensation costs. OUTLOOK Results of operations are primarily determined by the operating efficiency of the refineries, and by refining and retail fuel margins. Normal levels of maintenance, including certain turnaround activity, are scheduled for the remainder of 1998 and Tosco expects, given reasonable margins, to operate its refineries at high levels during the remainder of 1998. Refining margins at the beginning of the 1998 third quarter initially improved over the second quarter due to stronger demand for gasoline. More recently, refining margins have declined as large amounts of product have entered the markets. Retail fuel margins generally work in reverse of refining margins but competitive markets in California and Arizona may weaken this historical trend. Tosco is not able to predict the level of refinery and retail fuel operating margins for the balance of 1998 because of the uncertainties associated with oil markets. In view of uncertain operating margins and highly competitive markets, Tosco is committed to improving its results by lowering costs without compromising safety, reliability, or environmental compliance. Tosco's policy is to defer the recognition of non-cash writedowns of inventories due to price declines at interim reporting dates, unless the decline is not expected to be restored by year-end. At June 30, 1998, the fair value of Tosco's LIFO inventories was approximately $150 million less than their carrying value. This writedown was not recorded because the price decline is believed to be temporary. Tosco estimates that a future $1.00 per barrel change in raw material and finished product prices will have an aproximate $50 million impact on the net realizable value of inventories. However, because raw material and finished product prices do not move in unison, the net realizable value will vary depending on actual price changes and the mix and level of inventories. The expectation of price recoveries by year-end will be reevaluated at September 30, 1998. CASH FLOWS As summarized in the Consolidated Statement of Cash Flows, cash and cash equivalents increased by $4.5 million during the six month period ended June 30, 1998 as cash provided by operating activities of $174.3 and financing activities of $47.7 million exceeded cash used in investing activities of $217.5 million. Net cash provided by operating activities of $174.3 million was from cash earnings (net income plus depreciation and amortization) of $299.5 million and $6.0 million from other uses, net of an increase in net operating assets and liabilities of $131.2 million. Net cash used in investing activities totaled $217.5 million, due to capital additions ($184.7 million), spending for turnarounds, deferred charges, and other assets ($32.3 million), and other items ($0.5 million). Net cash provided by financing activities totaled $47.7 million, as net borrowings under the revolving credit facility of $143.0 million and other items of $0.8 million exceeded scheduled and early principal payments on long-term debt of $77.3 million and dividend payments of $18.8 million. LIQUIDITY AND CAPITAL RESOURCES At June 30, 1998, liquidity (cash and cash equivalents, marketable securities and deposits, and availability under the revolving credit facility) totaled $753.1 million, a $101.8 million decrease from the December 31, 1997 balance of $854.9 million. Cash and cash equivalents increased by $4.5 million, marketable securities and deposits increased by $9.7 million, and availability under the revolving credit facility decreased by $116.0 million. At June 30, 1998, total shareholders' equity was $2.1 billion, a $123.6 million increase from the December 31, 1997 balance. This increase was due to net income of $141.8 million and other items of $0.6 million, less Common Stock dividends of $18.8 million. Debt (short-term bank borrowings, current and non-current maturities of long-term debt, and revolving credit facility) increased by $78.2 million during the six month period ended June 30, 1998 to $1.7 billion due to cash borrowings under the revolving credit facility, net of early and scheduled principal payments under long-term debt agreements. The ratio of long-term debt (revolving credit facility and non-current portion of long-term debt) to total capitalization (revolving credit facility, non-current portion of long-term debt, Trust Preferred Securities, and total shareholders' equity) was 41%, consistent with the ratio at December 31, 1997. In January 1997, Tosco filed a shelf registration statement providing for the issuance of up to $1.5 billion aggregate principal amount of debt and equity securities. 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. At June 30, 1998, Tosco had available for issue $779 million of securities pursuant to this shelf registration statement. Tosco's Board of Directors previously approved the repurchase of up to $300 million of Tosco Common Stock. Purchases, if any, will be made from time to time in the open market or otherwise at prevailing prices which Tosco considers opportune and as permitted by applicable securities laws. 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 for at least the next twelve months. CAPITAL EXPENDITURES Tosco spent $184.7 million on budgeted capital projects during the first six months of 1998, primarily at its retail sites (enhancing existing sites and upgrading underground storage tanks) and at the San Francisco Area Refinery System. Refinery capital spending programs were primarily for the completion of projects related to compliance with environmental regulations and permits, personnel/process safety programs, and operating flexibility and reliability projects. Tosco continues its efforts to rationalize its marketing system and plans to shed selected marginal properties throughout the balance of 1998. IMPACT OF THE YEAR 2000 ISSUE Historically, certain computer programs have had two digits rather than four digits to define a given calendar year. Any computer programs that use two digits to define the year may recognize a date using "00" as the year 1900 rather than 2000. This is generally referred to as the "Year 2000 Issue." The Year 2000 Issue could result in business and field system failures or miscalculations causing disruptions of operations. Tosco recognizes the need to review its computer operations and operating systems with respect to the Year 2000 Issue and is cognizant of the time-sensitive nature of the problem. Since 1996, Tosco has been proactively upgrading and replacing its business systems while integrating the Circle K and 76 Products acquisitions. Tosco has assessed how its business systems may be affected by the Year 2000 Issue and is currently implementing plans to address the known Year 2000 problems. These plans involve a combination of additional software upgrades, replacements, and modifications. Tosco has completed an assessment and is currently implementing plans related to the Year 2000 Issue on its refinery field systems. The impact of the Year 2000 Issue on its marketing and distribution field systems is currently being assessed. Additionally, Tosco is currently communicating with and evaluating the systems of its customers, suppliers, financial institutions, and others with which it does business to identify any potential Year 2000 problems. Tosco does not believe its Year 2000 costs related to its business and field systems, and its customers and suppliers will have a material adverse effect on Tosco's future operating results or financial position. However, if Tosco or its significant customers and suppliers are unable to make the necessary computer system changes on a timely basis, such inability could negatively impact Tosco's results of operations. NEW ACCOUNTING STANDARDS The Financial Accounting Standards Board issued SFAS No. 131 "Disclosures about Segments of an Enterprise and Related Information" ("SFAS No. 131") during June 1997, SFAS No. 132 "Employers' Disclosures about Pensions and Other Postretirement Benefits" ("SFAS No. 132") during February 1998, and SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133") during June, 1998. SFAS No. 131 establishes disclosure standards regarding information about operating segments. SFAS No. 132 changes the disclosure requirements for pension and other postretirement benefits, but does not change any existing measurement or recognition provisions. SFAS No. 133 establishes accounting and reporting standards for derivative instruments and for hedging activities. The Company will comply with the expanded disclosure requirements of SFAS No. 131 and SFAS No. 132 with its 1998 annual financial statements. The Company plans to adopt SFAS No. 133 on January 1, 2000. Adoption of SFAS No. 133 is not expected to have a material impact on the Company's results of operations or financial position. FORWARD LOOKING STATEMENTS TOSCO HAS MADE, AND MAY CONTINUE TO MAKE, VARIOUS FORWARD-LOOKING STATEMENTS WITH RESPECT TO ITS FINANCIAL POSITION, BUSINESS STRATEGY, PROJECTED COSTS, PROJECTED SAVINGS, AND PLANS AND OBJECTIVES OF MANAGEMENT. SUCH FORWARD-LOOKING STATEMENTS ARE IDENTIFIED BY THE USE OF FORWARD-LOOKING WORDS OR PHRASES SUCH AS "ANTICIPATES," "INTENDS," "EXPECTS," "PLANS," "BELIEVES," "ESTIMATES," OR WORDS OR PHRASES OF SIMILAR IMPORT. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO NUMEROUS ASSUMPTIONS, RISKS, AND UNCERTAINTIES, AND THE STATEMENTS LOOKING FORWARD BEYOND 1998 ARE SUBJECT TO GREATER UNCERTAINTY BECAUSE OF THE INCREASED LIKELIHOOD OF CHANGES IN UNDERLYING FACTORS AND ASSUMPTIONS. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED BY THE FORWARD-LOOKING STATEMENTS. IN ADDITION TO FACTORS PREVIOUSLY DISCLOSED BY TOSCO AND FACTORS IDENTIFIED ELSEWHERE HEREIN, CERTAIN OTHER FACTORS COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM SUCH FORWARD-LOOKING STATEMENTS. ALL SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO TOSCO, OR PERSONS ACTING ON BEHALF OF TOSCO, ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO SUCH FACTORS. TOSCO'S FORWARD-LOOKING STATEMENTS REPRESENT ITS JUDGMENT ONLY ON THE DATES SUCH STATEMENTS ARE MADE. BY MAKING ANY FORWARD-LOOKING STATEMENTS, TOSCO ASSUMES NO DUTY TO UPDATE THEM TO REFLECT NEW, CHANGED, OR UNANTICIPATED EVENTS OR CIRCUMSTANCES. PART II OTHER INFORMATION Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS On May 21, 1998, an Annual Meeting of Tosco Corporation Stockholders was held. The table below briefly describes the proposals and the results of the shareholder vote: I. Election of Directors WITHHOLD VOTES FOR AUTHORITY Jefferson F. Allen 132,421,965 190,052 Patrick M. de Barros 132,420,746 191,271 Wayne A. Budd 132,390,355 221,662 Houston I. Flournoy 132,368,263 243,754 Edmund A. Hajim 132,412,297 199,720 Joseph P. Ingrassia 132,398,967 213,050 Charles J. Luellen 132,417,949 194,068 Eija Malmivirta 132,380,634 231,383 Mark R. Mulvoy 132,385,028 226,989 Thomas D. O'Malley 132,420,106 191,911 II. Ratification of Independent Accountants VOTES FOR VOTES AGAINST ABSTAIN Ratification and approval of appointment of Coopers & Lybrand L.L.P. as independent accountants 132,437,166 60,314 114,537 III. Approval of a Stock Incentive Plan VOTES FOR VOTES AGAINST ABSTAIN Approval of the 1998 Stock Incentive Plan of Tosco Corporation 107,983,469 24,127,368 501,180 IV. Stockholder Proposal - Pollution Policy BROKER VOTES FOR VOTES AGAINST ABSTAIN NON-VOTE Adoption of policy requiring each of Tosco's major facilities to conduct an annual review of available pollution prevention options and provide a summary report to shareholders 4,405,157 117,420,833 2,374,733 8,411,294 PART II OTHER INFORMATION, CONTINUED 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 Data Schedule (filed electronically only) b. Reports on Form 8-K: None. EX-11 2 EXHIBIT 11
TOSCO CORPORATION AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE (Unaudited) (Thousands of Dollars, Except Per Share Data) Three Months Ended June 30, Six Months Ended June 30, 1998 1997 1998 1997 ----------- ----------- ---------- --------- Income before distributions on Trust Preferred Securities $102,827 $69,635 $146,891 $75,720 Distributions on Trust Preferred Securities, net of income tax benefit 2,523 2,523 5,046 5,046 ------------- ------------- ------------ ------------- Net income $100,304 $67,112 $141,845 $70,674 ============= ============= ============ ============= BASIC EARNINGS PER SHARE Earnings used for computation of basic earnings per share $100,304 $67,112 $141,845 $70,674 ------------- ------------- ------------ -------------- Weighted average shares outstanding during the period 156,348,509 152,491,892 156,337,022 141,833,861 ------------- ------------- ------------ -------------- Basic earnings per share $0.64 $0.44 $0.91 $0.50 ============= ============= ============ ============= DILUTED EARNINGS PER SHARE Earnings used for computation of diluted earnings per share $102,827 $69,635 $146,891 $75,720 ------------- ------------- ------------ -------------- Weighted average shares outstanding during the period 156,348,509 152,491,892 156,337,022 141,833,861 Assumed conversion of dilutive stock options 4,402,193 4,393,690 4,482,601 4,323,624 Assumed conversion of Trust Preferred Securities 9,113,940 9,113,940 9,113,940 9,113,940 ------------- ------------- ------------ -------------- Weighted average shares outstanding used for computation of diluted earnings per share 169,864,642 165,999,522 169,933,563 155,271,425 ------------- ------------- ------------ -------------- Diluted earnings per share $0.61 $0.42 $0.86 $0.49 ============= ============= ============ =============
EX-12 3 EXHIBIT 12
TOSCO CORPORATION AND SUBSIDIARIES RATIO OF EARNINGS TO FIXED CHARGES (Thousands of Dollars) (Unaudited) Three Months Ended June 30, Six Months Ended June 30, 1998 1997 1998 1997 ----------- ----------- ----------- ---------- Income before income taxes and distributions on Trust Preferred Securities $175,772 $ 118,930 $ 251,095 $ 129,435 Fixed charges to be added to income before income taxes and distributions on Trust Preferred Securities: Interest expense, including amortization of financing costs 33,472 45,801 70,922 69,944 Interest factor of rental expense 15,199 12,919 29,928 20,094 ------------ ------------- ------------ ----------- Earnings $224,443 $177,650 $351,945 $219,473 ------------ ------------- ------------ ----------- Interest expense, including amortization of financing costs $33,472 $45,801 $70,922 $69,944 Interest capitalized 1,379 458 1,528 707 Interest factor of rental expense 15,199 12,919 29,928 20,094 Distributions on Trust Preferred Securities 4,312 4,312 8,625 8,625 ------------ ------------- ------------ ----------- Fixed charges $54,362 $63,490 $111,003 $99,370 ------------ ------------- ------------ ----------- Ratio of earnings to fixed charges 4.13 2.80 3.17 2.21 ============ ============= ============ ===========
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 __, 1998 By: /S/ ROBERT I. SANTO ---------------------- (Robert I. Santo) Vice President and Chief Accounting Officer EX-27 4
5 1,000 6-MOS DEC-31-1998 JUN-30-1998 38,961 53,426 283,232 19,049 1,308,956 1,809,673 4,050,469 792,371 6,032,607 1,413,829 350,000 300,000 0 133,579 1,934,047 6,032,607 6,215,444 6,215,444 5,743,378 5,743,378 0 0 70,922 251,095 104,204 146,891 0 0 0 141,845 .91 .86
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