EX-99.1 2 exhibit991earningsreleaseq.htm EXHIBIT 99.1 Exhibit 99.1 Earnings Release Q4 2013
Exhibit 99.1


Tesoro Corporation Reports 2013 Fourth Quarter and Full Year Results

•
Full year net income from continuing operations of $386 million, or $2.81 per diluted share excluding special items
•
Fourth quarter net income of $5 million, or $0.04 per diluted share excluding special items
•
Fourth quarter repayment of $800 million of $1.2 billion interim borrowings to purchase Southern California refining, marketing and logistics business
•
Repurchased $100 million of shares during fourth quarter
•
Declared regular quarterly dividend of $0.25 per share


SAN ANTONIO - February 5, 2014 - Tesoro Corporation (NYSE:TSO) today reported a fourth quarter 2013 net loss of $7 million, or $0.05 per diluted share compared to net income of $27 million, or $0.19 per diluted share for the fourth quarter of 2012. Fourth quarter results include $40 million in variable stock-based compensation expense. The 2013 fourth quarter results also include a net loss from discontinued operations of $3 million, or $0.02 per diluted share related to divested Hawaii business. Net loss from continuing operations of $4 million, or $0.03 per diluted share compares to net income from continuing operations of $184 million, or $1.32 per diluted share for the fourth quarter of 2012.

The fourth quarter 2013 results include after-tax expense of $0.07 per diluted share related to integration costs associated with completing our 2013 acquisitions. Excluding this special item, the Company earned $5 million or $0.04 per diluted share.

For the full year 2013, the Company reported net income of $412 million, or $3.00 per diluted share, versus net income of $743 million, or $5.25 per diluted share for the full year 2012.

1

Net income from continuing operations for the full year 2013 was $392 million, or $2.85 per diluted share, versus $876 million, or $6.20 per diluted share for the full year 2012. Excluding special items, for the full year 2013, the Company earned net income from continuing operations of $386 million, or $2.81 per diluted share, versus an adjusted net income from continuing operations of $922 million or $6.52 per diluted share for the full year 2012.

“Despite a lower margin and crude oil differential environment, and weaker earnings relative to 2012, 2013 was a year of important strategic accomplishments for Tesoro,” said Greg Goff, President and CEO. “The acquisition of the Los Angeles refining, marketing and logistics assets, the acquisition of the Northwest Products System and the sale of our business in Hawaii collectively represent significant achievements in the continuing transformation of Tesoro. We returned over $500 million to shareholders in the form of dividends and share repurchases and ended the year with a strong balance sheet even after nearly $3 billion in acquisitions.”

For the fourth quarter 2013, the Company recorded segment operating income of $152 million compared to segment operating income of $406 million, in the fourth quarter of 2012. The reduction was driven primarily by a weaker margin environment across all operating regions. In addition, fourth quarter 2013 results were negatively impacted by the valuation of a portion of our foreign crude oil inventory for our California refining system and very weak retail marketing margins in December.

The Tesoro Index was $7.65 per barrel (/bbl) for the fourth quarter, down $4.76/bbl relative to a year ago. The Company’s realized gross margin was $9.45/bbl for the fourth quarter. During the fourth quarter North American crude oil discounts widened compared to Brent.

2

While the Mid-Continent and Canadian crude oil discounts widened, the market also saw Light Louisiana Sweet discounts in the Gulf Coast of nearly $8.50/bbl and the West Coast saw ANS discounts of over $4.50/bbl. Total throughput in the quarter was 786 thousand barrels per day, or 92% utilization, reflecting planned turnaround activity in California during the period.

Lower utilization rates as a result of planned turnaround activity resulted in slightly higher direct manufacturing costs per barrel in the fourth quarter relative to the third quarter, up $0.63/bbl to $5.39/bbl.

Same store fuel sales during the quarter were higher by almost 2% versus fourth quarter last year. However, retail fuel margins were down relative to the fourth quarter of last year. Total retail fuel sales volumes were up over 120% year-over-year driven by the addition of approximately 835 dealer-operated ARCO® retail stations on June 1, 2013.

Corporate and unallocated costs were $40 million in the fourth quarter, excluding $5 million of corporate depreciation, $40 million in variable stock-based compensation expense and $15 million of integration costs associated with our 2013 acquisitions.

Capital Spending and Liquidity
Capital spending for the full year 2013 was $558 million, which includes $79 million of Tesoro Logistics LP (“TLLP”) capital spending. The Company currently expects full year 2014 capital spending of approximately $670 million, excluding TLLP capital spending of approximately $160 million. Turnaround expenditures for the full year were $360 million. The Company expects full 2014 year turnaround expenditures of $205 million.


3

The Company ended the fourth quarter with over $1.2 billion in cash and approximately $2.2 billion of availability on the Tesoro Corporation revolving credit facility. During the fourth quarter, the Company repaid $800 million of revolving credit and term loan borrowings related to the Los Angeles acquisition. There are currently no borrowings under the Company’s revolving credit facility. Total debt, excluding TLLP, was $1.67 billion or approximately 28% of total capitalization for the end of the fourth quarter 2013.

TLLP ended the quarter with over $23 million in cash and approximately $575 million of availability on its separate revolving credit facility.

Returning Cash to Shareholders
Tesoro Corporation today announced that the board of directors has declared a regular quarterly cash dividend of $0.25 per share payable on March 14, 2014 to all holders of record as of February 28, 2014.

During the fourth quarter of 2013, Tesoro returned about $135 million to shareholders through the purchase of nearly 2 million of the Company’s shares and its regular quarterly dividend. The Company has repurchased approximately $500 million under its $1 billion share repurchase program.

2014 Strategic Focus
“The Company is well positioned to move forward with our strategic objectives for 2014 and beyond,” said Goff. “We’re focused on delivering the synergies associated with creating a world scale refining and marketing business in California; enhancing gross margins by supplying additional advantaged crude oil to our refining system and growing the logistics business while maintaining strong financial discipline.”


4

Public Invited to Listen to Analyst Conference Call
At 7:30 a.m. CST tomorrow morning, Tesoro will broadcast, live, its conference call with analysts regarding fourth quarter and full year 2013 results and other business matters.  Interested parties may listen to the live conference call over the Internet by logging on to http://www.tsocorp.com.

Twitter Communication
Tesoro Corporation is utilizing Twitter, in conjunction with other Regulation FD-compliant disclosure vehicles, such as press releases, 8-Ks and its investor relations web site, as part of broader investor and stakeholder communication strategy. The Twitter page can be found at http://twitter.com/TesoroCorp.

Tesoro Corporation, a Fortune 100 company, is an independent refiner and marketer of petroleum products. Tesoro, through its subsidiaries, operates six refineries in the western United States with a combined capacity of over 850,000 barrels per day.  Tesoro's retail-marketing system includes over 2,200 retail stations under the Tesoro®, Shell®, ARCO®, Exxon®, Mobil® and USA Gasoline™ brands.

This earnings release contains certain statements that are "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 concerning execution of our strategic plan and improvements in our business; future operating performance, including gross margins; the delivery of high return capital projects; the realization of value added initiatives and  synergies; expectations about capital spending; growth in our logistics business; and maintaining strong financial discipline. For more information concerning factors that could affect these statements see our annual report on Form 10-K and quarterly reports on Form 10-Q, filed with the Securities and Exchange Commission. We undertake no obligation to publicly release the result of any revisions to any such forward-looking statements that may be made to reflect events or circumstances that occur, or which we become aware of, after the date hereof.

Contact:
Investors:
Brian Randecker, Senior Director, Investor Relations, (210) 626-4757

Media:
Tesoro Media Relations, media@tsocorp.com, (210) 626-7702



5


Factors Affecting Comparability

On June 1, 2013, we acquired BP’s integrated southern California refining, marketing and logistics business from BP West Coast Products, LLC and other affiliated sellers (the “Los Angeles Acquisition”). Our results for the year ended December 31, 2013 include results of operations of the assets acquired in the Los Angeles Acquisition from the date of acquisition. In addition, the refining segment and California region operating highlights for the year ended December 31, 2013 include the results of the Carson refinery from the date of acquisition. We are integrating our Wilmington and Carson refineries and refer to the combined facility as the Los Angeles refinery. Additionally, the retail segment results for the year ended December 31, 2013 include the results of operations for the retail assets acquired as part of the Los Angeles Acquisition from the date of acquisition.

On September 25, 2013, we completed the sale of all of our interest in Tesoro Hawaii, LLC, which operates the 94 thousand barrels per day (“Mbpd”) Hawaii refinery, retail stations and associated logistics assets (the “Hawaii Business”) to a subsidiary of Par Petroleum Corporation. As a result, we have reflected its results as discontinued operations in the results of operations for all periods presented and have excluded the Hawaii Business from the financial and operational data presented in the tables that follow.

As of December 31, 2013, we began reporting the logistics assets and operations of our consolidated variable interest entity, Tesoro Logistics LP (“TLLP”), as a separate operating segment. In previous periods, when certain quantitative thresholds had not been met, TLLP’s assets and operations were presented within our refining operating segment. TLLP’s assets and operations include certain crude oil gathering assets and crude oil and refined products terminalling and transportation assets acquired from Tesoro and third parties. The TLLP financial and operational data presented include the historical results of all assets acquired from Tesoro prior to the acquisition dates. The historical results of operations of these assets have been retrospectively adjusted to conform to current presentation. These adjustments resulted in lower gross refining margins. The refining segment now includes costs for transportation and terminalling services provided by TLLP that were previously eliminated with consolidated reporting of TLLP revenues within our refining segment results.


6


TESORO CORPORATION
RESULTS OF CONSOLIDATED OPERATIONS
(Unaudited)
(In millions, except per share amounts)
 
Three Months Ended
 December 31,
 
Years Ended
 December 31,
 
2013
 
2012
 
2013
 
2012
Revenues
$
10,116

 
$
7,525

 
$
37,601

 
$
29,809

Costs and Expenses:
 
 
 
 
 
 
 
Cost of sales
9,258

 
6,626

 
34,085

 
26,045

Operating expenses
560

 
372

 
1,911

 
1,405

Selling, general and administrative expenses (a)
108

 
70

 
337

 
297

Depreciation and amortization expense
133

 
111

 
489

 
418

Loss on asset disposals and impairments
5

 
8

 
24

 
23

Operating Income
52

 
338

 
755

 
1,621

Interest and financing costs, net (b)
(41
)
 
(30
)
 
(151
)
 
(167
)
Interest income
1

 
—

 
2


2

Equity in earnings (loss) of equity method investments
(1
)
 
—

 
11

 
—

Other income (expense), net (c)
(2
)
 
(5
)
 
63

 
(26
)
Earnings Before Income Taxes
9

 
303

 
680

 
1,430

Income tax expense
3

 
111

 
246

 
527

Net Earnings From Continuing Operations
6

 
192

 
434

 
903

Net earnings (loss) from discontinued operations, net of tax (d)
(3
)
 
(157
)
 
20

 
(133
)
Net Earnings
3

 
35

 
454

 
770

Less: Net earnings from continuing operations attributable to noncontrolling interest
10

 
8

 
42

 
27

NET EARNINGS (LOSS) ATTRIBUTABLE TO TESORO CORPORATION
$
(7
)
 
$
27

 
$
412

 
$
743

 
 
 
 
 
 
 
 
NET EARNINGS (LOSS) ATTRIBUTABLE TO TESORO CORPORATION
 
 
 
 
 
 
 
Continuing operations
$
(4
)
 
$
184

 
$
392

 
$
876

Discontinued operations
(3
)
 
(157
)
 
20

 
(133
)
Total
$
(7
)
 
$
27

 
$
412

 
$
743

 
 
 
 
 
 
 
 
NET EARNINGS (LOSS) PER SHARE - BASIC:
 
 
 
 
 
 
 
Continuing operations
$
(0.03
)
 
$
1.32

 
$
2.90

 
$
6.28

Discontinued operations
(0.02
)
 
(1.13
)
 
0.15

 
(0.95
)
Total
$
(0.05
)
 
$
0.19

 
$
3.05

 
$
5.33

Weighted average common shares outstanding - Basic
132.5
 
139.1
 
135.0
 
139.4
 
 
 
 
 
 
 
 
NET EARNINGS (LOSS) PER SHARE - DILUTED:
 
 
 
 
 
 
 
Continuing operations
$
(0.03
)
 
$
1.32

 
$
2.85

 
$
6.20

Discontinued operations
(0.02
)
 
(1.13
)
 
0.15

 
(0.95
)
Total
$
(0.05
)
 
$
0.19

 
$
3.00

 
$
5.25

Weighted average common shares outstanding - Diluted
134.9

 
141.6

 
137.3

 
141.5



7

________________
(a)
Includes stock-based compensation expense of $46 million and $11 million for the three months ended December 31, 2013 and 2012, respectively, and $79 million and $99 million for the years ended December 31, 2013 and 2012, respectively. The significant impact to stock-based compensation expense is primarily a result of changes in Tesoro's stock price during the periods as compared to the prior periods. Also includes integration costs related to the Los Angeles Acquisition and TLLP’s acquisition of Chevron’s Northwest Products System of $15 million ($9 million after-tax) for the three months ended December 31, 2013 and transaction and integration costs of $62 million ($38 million after-tax) for the year ended December 31, 2013 and $9 million ($6 million after-tax) and $10 million ($6 million after-tax) for the three months and year ended December 31, 2012, respectively.
(b)
Includes a charge of $28 million ($17 million after-tax) for premiums and unamortized debt issuance costs associated with the redemption of our 6.625% and 6.500% Senior Notes for the year ended December 31, 2012.
(c)
Includes a $16 million ($10 million after-tax) benefit related to the release of a legal reserve as a result of a favorable litigation settlement and $54 million ($34 million after-tax) in refunds from the settlement of a rate proceeding from the California Public Utilities Commission for the year ended December 31, 2013. Includes expenses related to certain legal matters of $4 million ($3 million after-tax) and $26 million ($16 million after-tax) for the three months and year ended December 31, 2012, respectively.
(d)
Net earnings (loss) from discontinued operations include an $81 million ($49 million after-tax) gain related to the sale of the Hawaii Business, which included a $17 million curtailment gain related to the remeasurement of our pension and other postretirement benefit obligations during the year ended December 31, 2013.


8

TESORO CORPORATION
SELECTED OPERATING SEGMENT DATA
(Unaudited) (In millions)
 
Three Months Ended
December 31,
 
Years Ended
 December 31,
 
2013
 
2012
 
2013
 
2012
Operating Income
 
 
 
 
 
 
 
Refining
$
106

 
$
344

 
$
866

 
$
1,707

TLLP
22

 
21

 
81

 
64

Retail
24

 
41

 
120

 
126

Total Segment Operating Income
152

 
406

 
1,067

 
1,897

Corporate and unallocated costs
(100
)
 
(68
)
 
(312
)
 
(276
)
Operating Income
52

 
338

 
755

 
1,621

Interest and financing costs, net (b)
(41
)
 
(30
)
 
(151
)
 
(167
)
Interest income
1

 
—

 
2

 
2

Equity in earnings (loss) of equity method investments
(1
)
 
—

 
11

 
—

Other income (expense), net (c)
(2
)
 
(5
)
 
63

 
(26
)
Earnings Before Income Taxes
$
9

 
$
303

 
$
680

 
$
1,430

 
 
 
 
 
 
 
 
Depreciation and Amortization Expense
 
 
 
 
 
 
 
Refining
$
101

 
$
88

 
$
388

 
$
342

TLLP
16

 
4

 
43

 
13

Retail
11

 
9

 
37

 
36

Corporate
5

 
10

 
21

 
27

Depreciation and Amortization Expense
$
133

 
$
111

 
$
489

 
$
418

 
 
 
 
 
 
 
 
Capital Expenditures
 
 
 
 
 
 
 
Refining
$
96

 
$
126

 
$
417

 
$
365

TLLP
24

 
16

 
79

 
91

Retail
14

 
28

 
40

 
73

Corporate
12

 
4

 
22

 
13

Capital Expenditures
$
146

 
$
174

 
$
558

 
$
542


BALANCE SHEET DATA
(Unaudited) (Dollars in millions)
 
 
December 31,
2013
 
December 31,
2012
 
 
 
Cash and cash equivalents
 
$
1,238

 
$
1,639

Inventories (e)
 
$
2,565

 
$
1,338

Current maturities of debt
 
$
6

 
$
3

Long-Term Debt
 
$
2,823

 
$
1,585

Total Equity
 
$
5,485

 
$
4,737

Total Debt to Capitalization Ratio, excluding capital leases related to discontinued operations
 
34
%
 
25
%
Total Debt to Capitalization Ratio excluding TLLP debt and capital leases related to discontinued operations (f)
 
28
%
 
22
%
Working Capital
 
$
1,918

 
$
1,755

___________________
(e)
The total carrying value of our crude oil and refined product inventories was less than replacement cost by approximately $1.7 billion at December 31, 2013.
(f)
Excludes TLLP’s total debt, including capital leases, of $1.2 billion and $354 million and noncontrolling interest of $1.2 billion and $486 million at December 31, 2013 and 2012, respectively. $1.2 billion and $350 million of TLLP’s total debt is comprised of TLLP Senior Notes at December 31, 2013 and 2012, respectively, which are non-recourse to Tesoro, except for Tesoro Logistics GP, LLC.


9

TESORO CORPORATION
OPERATING DATA
(Unaudited)
 
Three Months Ended
December 31,
 
Years Ended
December 31,
REFINING SEGMENT
2013
 
2012
 
2013
 
2012
Total Refining Segment
 
 
 
 
 
 
 
Throughput (Mbpd) (g)
 
 
 
 
 
 
 
Heavy crude (h)
158

 
144

 
185

 
155

Light crude
562

 
344

 
459

 
325

Other feedstocks
66

 
44

 
53

 
37

Total Throughput
786

 
532

 
697

 
517

 
 
 
 
 
 
 
 
Yield (Mbpd)
 
 
 
 
 
 
 
Gasoline and gasoline blendstocks
407

 
293

 
350

 
270

Jet fuel
121

 
63

 
100

 
64

Diesel fuel
174

 
131

 
158

 
119

Heavy fuel oils, residual products, internally produced fuel and other
132

 
77

 
132

 
93

Total Yield
834

 
564

 
740

 
546

 
 
 
 
 
 
 
 
Gross refining margin ($/throughput bbl) (i)
$
9.45

 
$
15.11

 
$
11.19

 
$
17.11

Manufacturing cost before depreciation and amortization expense
($/throughput bbl) (i)
$
5.39

 
$
4.88

 
$
5.14

 
$
4.89

Segment Operating Income ($ millions)
 
 
 
 
 
 
 
Gross refining margin (j)
$
683

 
$
739

 
$
2,848

 
$
3,233

Expenses
 
 
 
 
 
 
 
Manufacturing costs
392

 
239

 
1,308

 
923

Other operating expenses
76

 
59

 
257

 
228

Selling, general and administrative expenses
4

 
5

 
13

 
20

Depreciation and amortization expense
101

 
88

 
388

 
342

Loss on asset disposal and impairments
4

 
4

 
16

 
13

Segment Operating Income
$
106

 
$
344

 
$
866

 
$
1,707

 
 
 
 
 
 
 
 
Refined Product Sales (Mbpd) (k)
 
 
 
 
 
 
 
Gasoline and gasoline blendstocks
492

 
340

 
429

 
343

Jet fuel
143

 
75

 
117

 
76

Diesel fuel
181

 
147

 
176

 
141

Heavy fuel oils, residual products and other
89

 
69

 
86

 
67

Total Refined Product Sales
905

 
631

 
808

 
627

 
 
 
 
 
 
 
 
Refined Product Sales Margin ($/bbl) (i) (k)
 
 
 
 
 
 
 
Average sales price
$
112.95

 
$
119.04

 
$
118.40

 
$
123.64

Average costs of sales
105.22

 
108.28

 
109.64

 
110.94

Refined Product Sales Margin
$
7.73

 
$
10.76

 
$
8.76

 
$
12.70



10

________________
(g)
We had reduced throughput due to turnarounds at our Washington refinery during the first half of 2013, our Utah refinery during the 2013 second quarter, our Martinez refinery during the 2012 first quarter and our Alaska refinery during the 2012 second quarter. We had higher throughput at our North Dakota refinery during the first half of 2013 as a result of the refinery expansion completed in the second half of 2012 and at our Los Angeles refinery during the 2013 second, third and fourth quarters due to the acquisition of the Carson refinery.
(h)
We define heavy crude oil as crude oil with an American Petroleum Institute gravity of 24 degrees or less.
(i)
Management uses various measures to evaluate performance and efficiency and to compare profitability to other companies in the industry, including gross refining margin per barrel, manufacturing costs before depreciation and amortization expense (“Manufacturing Costs”) per barrel and refined product sales margin per barrel.
•
Management uses gross refining margin per barrel to evaluate performance and compare profitability to other companies in the industry. There are a variety of ways to calculate gross refining margin per barrel; different companies may calculate it in different ways. We calculate gross refining margin per barrel by dividing gross refining margin (revenues less costs of feedstocks, purchased refined products, transportation and distribution) by total refining throughput.
•
Management uses Manufacturing Costs per barrel to evaluate the efficiency of refining operations. There are a variety of ways to calculate Manufacturing Costs per barrel; different companies may calculate it in different ways. We calculate Manufacturing Costs per barrel by dividing Manufacturing Costs by total refining throughput.
•
Management uses refined product sales margin per barrel to evaluate the profitability of manufactured and purchased refined product sales. There are a variety of ways to calculate refined product sales margin per barrel; different companies may calculate it in different ways. We calculate refined product sales margin per barrel by calculating an average refined product sales price per barrel and an average refined product cost of sales per barrel, which are calculated by dividing refined product sales or refined product cost of sales by total refining throughput. The average refined product cost of sales per barrel is subtracted from the average refined product sales price per barrel.
Investors and analysts use these financial measures to help analyze and compare companies in the industry on the basis of operating performance. These financial measures should not be considered alternatives to segment operating income, revenues, costs of sales and operating expenses or any other measure of financial performance presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
(j)
Consolidated gross refining margin combines gross refining margin for each of our regions adjusted for other amounts not directly attributable to a specific region. Other amounts resulted in an increase of $2 million and $1 million for the three months ended December 31, 2013 and 2012, respectively, and $6 million and $3 million for the years ended December 31, 2013 and 2012, respectively. Gross refining margin includes the effect of intersegment sales to the retail segment at prices which approximate market and fees charged by TLLP for the transportation and terminalling of crude oil and refined products at prices which we believe are no less favorable to either party than those that could have been negotiated with unaffiliated parties with respect to similar services. Gross refining margin approximates total refining throughput multiplied by the gross refining margin per barrel.
(k)
Sources of total refined product sales include refined products manufactured at our refineries and refined products purchased from third parties. Total refined product sales margins include margins on sales of manufactured and purchased refined products.


11

TESORO CORPORATION
OPERATING DATA
(Unaudited)
 
Three Months Ended
December 31,
 
Years Ended
December 31,
Refining By Region
2013
 
2012
 
2013
 
2012
California (Martinez and Los Angeles)
 
 
 
 
 
 
 
Throughput (Mbpd) (g)
 
 
 
 
 
 
 
Heavy crude (h)
152

 
141

 
178

 
151

Light crude
298

 
83

 
206

 
67

Other feedstocks
44

 
25

 
38

 
24

Total Throughput
494

 
249

 
422

 
242

 
 
 
 
 
 
 
 
Yield (Mbpd)
 
 
 
 
 
 
 
Gasoline and gasoline blendstocks
260

 
145

 
218

 
132

Jet fuel
75

 
18

 
57

 
21

Diesel fuel
112

 
74

 
97

 
61

Heavy fuel oils, residual products, internally produced fuel and other
85

 
35

 
83

 
48

Total Yield
532

 
272

 
455

 
262

 
 
 
 
 
 
 
 
Gross refining margin ($ in millions)
$
276

 
$
244

 
$
1,304

 
$
966

Gross refining margin ($/throughput bbl) (i)
$
6.08

 
$
10.61

 
$
8.47

 
$
10.91

Manufacturing cost before depreciation and amortization expense
($/throughput bbl) (i)
$
6.11

 
$
6.48

 
$
5.86

 
$
6.30

Capital expenditures ($ in millions)
$
39

 
$
41

 
$
143

 
$
154

 
 
 
 
 
 
 
 
Pacific Northwest (Alaska & Washington)
 
 
 
 
 
 
 
Throughput (Mbpd) (g)
 
 
 
 
 
 
 
Heavy crude (h)
6

 
3

 
7

 
4

Light crude
143

 
142

 
138

 
142

Other feedstocks
18

 
15

 
11

 
9

Total Throughput
167

 
160

 
156

 
155

 
 
 
 
 
 
 
 
Yield (Mbpd)
 
 
 
 
 
 
 
Gasoline and gasoline blendstocks
75

 
75

 
65

 
69

Jet fuel
31

 
31

 
30

 
31

Diesel fuel
28

 
25

 
28

 
25

Heavy fuel oils, residual products, internally produced fuel and other
39

 
34

 
38

 
35

Total Yield
173

 
165

 
161

 
160

 
 
 
 
 
 
 
 
Gross refining margin ($ in millions)
$
168

 
$
193

 
$
590

 
$
911

Gross refining margin ($/throughput bbl) (i)
$
10.94

 
$
13.17

 
$
10.33

 
$
16.09

Manufacturing cost before depreciation and amortization expense
($/throughput bbl) (i)
$
4.30

 
$
3.72

 
$
4.17

 
$
3.83

Capital expenditures ($ in millions)
$
6

 
$
23

 
$
49

 
$
59



12

TESORO CORPORATION
OPERATING DATA
(Unaudited)
 
Three Months Ended
December 31,
 
Years Ended
December 31,
 
2013
 
2012
 
2013
 
2012
Mid-Continent (North Dakota and Utah)
 
 
 
 
 
 
 
Throughput (Mbpd) (g)
 
 
 
 
 
 
 
Light crude
121

 
119

 
115

 
116

Other feedstocks
4

 
4

 
4

 
4

Total Throughput
125

 
123

 
119

 
120

 
 
 
 
 
 
 
 
Yield (Mbpd)
 
 
 
 
 
 
 
Gasoline and gasoline blendstocks
72

 
73

 
67

 
69

Jet fuel
15

 
14

 
13

 
12

Diesel fuel
34

 
32

 
33

 
33

Heavy fuel oils, residual products, internally produced fuel and other
8

 
8

 
11

 
10

Total Yield
129

 
127

 
124

 
124

 
 
 
 
 
 
 
 
Gross refining margin ($ in millions)
$
237

 
$
301

 
$
948

 
$
1,353

Gross refining margin ($/throughput bbl) (i)
$
20.63

 
$
26.71

 
$
21.73

 
$
30.90

Manufacturing cost before depreciation and amortization expense
($/throughput bbl) (i)
$
3.98

 
$
3.11

 
$
3.86

 
$
3.40

Capital expenditures ($ in millions)
$
51

 
$
62

 
$
225

 
$
152



13

TESORO CORPORATION
OPERATING DATA
(Unaudited)
 
Three Months Ended
December 31,
 
Years Ended
December 31,
TLLP SEGMENT
2013
 
2012
 
2013
 
2012
Crude Oil Gathering
 
 
 
 
 
 
 
Pipeline gathering throughput (Mbpd)
88

 
77

 
86

 
67

Average pipeline gathering revenue per barrel
$
1.29

 
$
1.29

 
$
1.27

 
$
1.35

Trucking volume (Mbpd)
43

 
47

 
44

 
38

Average trucking revenue per barrel
$
3.26

 
$
2.84

 
$
3.10

 
$
2.87

Terminalling and Transportation
 
 
 
 
 
 
 
Terminalling throughput (Mbpd)
904

 
384

 
713

 
344

Average terminalling revenue per barrel
$
0.74

 
$
0.69

 
$
0.71

 
$
0.61

Pipeline transportation throughput (Mbpd)
325

 
79

 
169

 
89

Average pipeline transportation revenue per barrel
$
0.48

 
$
0.25

 
$
0.50

 
$
0.22

 
 
 
 
 
 
 
 
Segment Operating Income ($ millions)
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
 
Crude Oil Gathering
$
23

 
$
22

 
$
90

 
$
73

Terminalling and Transportation
76

 
26

 
215

 
84

Total Revenues (l)
99

 
48

 
305

 
157

Expenses
 
 
 
 
 
 
 
Operating expenses (m)
51

 
18

 
150

 
63

General and administrative expenses (n)
10

 
4

 
31

 
16

Depreciation and amortization expense
16

 
4

 
43

 
13

Loss on asset disposals and impairments
—

 
1

 
—

 
1

Segment Operating Income
$
22

 
$
21

 
$
81

 
$
64

________________
(l)
TLLP segment revenues from services provided to our refining segment were $84 million and $45 million for the three months ended December 31, 2013 and 2012, respectively, and $265 million and $143 million for the years ended December 31, 2013 and 2012, respectively. These amounts are eliminated upon consolidation.
(m)
TLLP segment operating expenses include amounts billed by Tesoro for services provided to TLLP under various operational contracts. These amounts totaled $9 million and $3 million for the three months ended December 31, 2013 and 2012, respectively, and $27 million and $15 million for the years ended December 31, 2013 and 2012, respectively. These amounts are eliminated upon consolidation. TLLP segment third-party operating expenses related to the transportation of crude oil and refined products are reclassified to cost of sales upon consolidation.
(n)
TLLP segment general and administrative expenses include amounts charged by Tesoro for general and administrative services provided to TLLP under various operational and administrative contracts. These amounts totaled $6 million and $3 million for the three months ended December 31, 2013 and 2012, respectively, and $18 million and $13 million for the years ended December 31, 2013 and 2012, respectively. These amounts are eliminated upon consolidation.


14

TESORO CORPORATION
OPERATING DATA
(Unaudited)
 
Three Months Ended
December 31,
 
Years Ended
December 31,
RETAIL SEGMENT
2013
 
2012
 
2013
 
2012
Number of Stations (end of period)
 
 
 
 
 
 
 
Company-operated
574

 
568

 
574

 
568

Branded jobber/dealer (o)
1,690

 
804

 
1,690

 
804

Total Stations
2,264

 
1,372

 
2,264

 
1,372

 
 
 
 
 
 
 
 
Average Stations (during period)
 
 
 
 
 
 
 
Company-operated
574

 
568

 
571

 
496

Branded jobber/dealer (o)
1,679

 
797

 
1,285

 
791

Total Average Retail Stations
2,253

 
1,365

 
1,856

 
1,287

 
 
 
 
 
 
 
 
Fuel Sales (millions of gallons)
 
 
 
 
 
 
 
Company-operated
266

 
259

 
1,072

 
909

Branded jobber/dealer (o)
763

 
191

 
2,096

 
782

Total Fuel Sales
1,029

 
450

 
3,168

 
1,691

 
 
 
 
 
 
 
 
Fuel margin ($/gallon) (p)
$
0.09

 
$
0.25

 
$
0.12

 
$
0.21

Merchandise Sales ($ millions)
$
46

 
$
44

 
$
188

 
$
178

Merchandise Margin ($ millions)
$
11

 
$
11

 
$
48

 
$
45

Merchandise Margin %
24
%
 
25
%
 
26
%
 
25
%
 
 
 
 
 
 
 
 
Segment Operating Income ($ millions)
 
 
 
 
 
 
 
Gross Margins
 
 
 
 
 
 
 
Fuel (p)
$
96

 
$
114

 
$
390

 
$
361

Merchandise and other non-fuel margin
28

 
17

 
99

 
74

Total Gross Margins
124

 
131

 
489

 
435

Expenses
 
 
 
 
 
 
 
Operating expenses
87

 
74

 
318

 
252

Selling, general and administrative expenses
1

 
3

 
9

 
13

Depreciation and amortization expense
11

 
9

 
37

 
36

Loss on asset disposals and impairments
1

 
4

 
5

 
8

Segment Operating Income
$
24

 
$
41

 
$
120

 
$
126

________________
(o)
Reflects the acquisition of supply rights for approximately 835 dealer-operated and branded wholesale retail stations with the Los Angeles Acquisition on June 1, 2013.
(p)
Management uses fuel margin per gallon to compare profitability to other companies in the industry. There are a variety of ways to calculate fuel margin per gallon; different companies may calculate it in different ways. We calculate fuel margin per gallon by dividing fuel gross margin by fuel sales volumes. Investors and analysts use fuel margin per gallon to help analyze and compare companies in the industry on the basis of operating performance. This financial measure should not be considered an alternative to revenues, segment operating income or any other measure of financial performance presented in accordance with U.S. GAAP. Fuel margin and fuel margin per gallon include the effect of intersegment purchases from the refining segment at prices which approximate market.


15

TESORO CORPORATION
RECONCILIATION OF AMOUNTS REPORTED UNDER U.S. GAAP
(Unaudited) (In millions)
 
Three Months Ended
December 31,
 
Years Ended
December 31,
 
2013
 
2012
 
2013
 
2012
Reconciliation of Net Earnings (Loss) to Adjusted EBITDA
 
 
 
 
 
 
 
Net earnings (loss) attributable to Tesoro Corporation
$
(7
)
 
$
27

 
$
412

 
$
743

Net earnings from continuing operations attributable to noncontrolling interest
10

 
8

 
42

 
27

Loss (earnings) from discontinued operations, net of tax (d)
3

 
157

 
(20
)
 
133

Depreciation and amortization expense
133

 
111

 
489

 
418

Interest and financing costs, net
41

 
30

 
151

 
167

Income tax expense
3

 
111

 
246

 
527

Interest income
(1
)
 
—

 
(2
)
 
(2
)
Adjusted EBITDA (q)
$
182

 
$
444

 
$
1,318

 
$
2,013

 
 
 
 
 
 
 
 
Reconciliation of Cash Flows from (used in) Operating Activities to Adjusted EBITDA
 
 
 
 
 
 
 
Net cash from operating activities
$
189

 
$
410

 
$
859

 
$
1,585

Net cash used in (from) discontinued operations
3

 
(153
)
 
(71
)
 
(193
)
Loss on asset disposals and impairments
(5
)
 
(8
)
 
(24
)
 
(23
)
Other changes in assets and liabilities
(175
)
 
(113
)
 
(46
)
 
(230
)
Deferred income tax benefit (expense)
56

 
113

 
(166
)
 
8

Deferred charges
118

 
68

 
451

 
277

Interest and financing costs, net
41

 
30

 
151

 
167

Income tax expense
3

 
111

 
246

 
527

Stock-based compensation expense
(46
)
 
(11
)
 
(79
)
 
(99
)
Other
(2
)
 
(3
)
 
(3
)
 
(6
)
Adjusted EBITDA (q)
$
182

 
$
444

 
$
1,318

 
$
2,013

________________
(q)
Adjusted EBITDA represents consolidated earnings (loss), including earnings attributable to noncontrolling interest, excluding net earnings from discontinued operations, before income tax expense, depreciation and amortization expense, net interest and financing costs and interest income. We present Adjusted EBITDA because we believe some investors and analysts use Adjusted EBITDA to help analyze our cash flows including our ability to satisfy principal and interest obligations with respect to our indebtedness and use cash for other purposes, including capital expenditures. Adjusted EBITDA is also used by some investors and analysts to analyze and compare companies on the basis of operating performance and by management. Adjusted EBITDA should not be considered as an alternative to net earnings (loss), earnings before income taxes, cash flows from operating activities or any other measure of financial performance presented in accordance with U.S. GAAP. Adjusted EBITDA may not be comparable to similarly titled measures used by other entities.


16

NET EARNINGS (LOSS) ADJUSTED FOR SPECIAL ITEMS
(Unaudited) (In millions except per share amounts)
 
Three Months Ended
December 31,
 
Years Ended
December 31,
 
2013
 
2012
 
2013
 
2012
Net Earnings (Loss) Attributable to Tesoro Corporation from Continuing Operations - U.S. GAAP
$
(4
)
 
$
184

 
$
392

 
$
876

Special Items, After-tax:
 
 
 
 
 
 
 
Transaction and integration costs (a)
9

 
6

 
38

 
6

Legal adjustments (c)
—

 
3

 
(44
)
 
16

Debt redemption charges (b)
—

 
—

 
—

 
17

Supplemental vacation accrual (s)
—

 
—

 
—

 
5

MF Global Holding Ltd. loss (t)
—

 
—

 
—

 
2

Net Earnings Adjusted for Special Items (r)
$
5

 
$
193

 
$
386

 
$
922

 
 
 
 
 
 
 
 
Diluted Net Earnings (Loss) per Share from Continuing Operations Attributable to Tesoro Corporation - U.S. GAAP
$
(0.03
)
 
$
1.32

 
$
2.85

 
$
6.20

Special Items Per Share, After-tax:
 
 
 
 
 
 
 
Transaction and integration costs (a)
0.07

 
0.04

 
0.28

 
0.04

Legal adjustments (c)
—

 
0.02

 
(0.32
)
 
0.11

Debt redemption charges (b)
—

 
—

 
—

 
0.12

Supplemental vacation accrual (s)
—

 
—

 
—

 
0.04

MF Global Holding Ltd. loss (t)
—

 
—

 
—

 
0.01

Net Earnings per Diluted Share Adjusted for Special Items (r)
$
0.04

 
$
1.38

 
$
2.81

 
$
6.52

________________
(r)
We present net earnings adjusted for special items (“Adjusted Earnings”) and net earnings per diluted share adjusted for special items (“Adjusted Diluted EPS”) as management believes that the impact of these items on net earnings and diluted earnings per share is important information for an investor's understanding of the operations of our business and the financial information presented. Adjusted Earnings and Adjusted Diluted EPS should not be considered as an alternative to net earnings (loss), earnings (loss) per diluted share or any other measure of financial performance presented in accordance with U.S. GAAP. Adjusted Earnings and Adjusted Diluted EPS may not be comparable to similarly titled measures used by other entities.
(s)
Includes an expense of $5 million, after-tax, for a supplemental vacation accrual related to a change in benefits for retirement eligible employees for the year ended December 31, 2012.
(t)
Includes a loss of $2 million, after-tax, related to the liquidation of our outstanding accounts receivable balance with MF Global Holding Ltd. for the year ended December 31, 2012.


17