Delaware | 1-3473 | 95-0862768 | ||
(State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) |
19100 Ridgewood Pkwy San Antonio, Texas | 78259-1828 | |
(Address of principal executive offices) | (Zip Code) |
o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |
o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | |
o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | |
o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 2.02 | Results of Operations and Financial Condition. |
Item 9.01 | Financial Statements and Exhibits. |
(d) Exhibits. | ||||
99.1 | Press release announcing fourth quarter and year ended financial results issued on February 1, 2016, by Tesoro Corporation. |
TESORO CORPORATION | ||||
By: | /s/ STEVEN M. STERIN | |||
Steven M. Sterin | ||||
Executive Vice President and Chief Financial Officer | ||||
Index to Exhibits | |||
Exhibit Number | Description | ||
99.1 | Press release announcing fourth quarter and year ended financial results issued on February 1, 2016, by Tesoro Corporation. |
• | Record full year net earnings from continuing operations of $1.5 billion, or $12.39 per diluted share |
• | Excluding special items, adjusted earnings for 2015 were $1.7 billion, or $13.91 per diluted share |
• | Adjusted EBITDA for the quarter was $665 million and adjusted earnings were $221 million, or $1.83 per diluted share |
• | Record marketing segment performance for the year with operating income of $899 million |
• | Estimated improvements of approximately $670 million in 2015 |
• | Returned $872 million to shareholders for the year, including $209 million in the quarter |
Three Months Ended December 31, | Years Ended December 31, | ||||||||||||||
($ in millions, except per share data) | 2015 | 2014 | 2015 | 2014 | |||||||||||
Operating Income | |||||||||||||||
Refining | $ | 4 | $ | 90 | $ | 1,849 | $ | 1,178 | |||||||
TLLP | 104 | 32 | 419 | 187 | |||||||||||
Marketing | 175 | 261 | 899 | 553 | |||||||||||
Total Segment Operating Income | $ | 283 | $ | 383 | $ | 3,167 | $ | 1,918 | |||||||
Net Earnings From Continuing Operations Attributable to Tesoro | $ | 54 | $ | 172 | $ | 1,544 | $ | 872 | |||||||
Diluted EPS - Continuing Operations | $ | 0.45 | $ | 1.34 | $ | 12.39 | $ | 6.67 | |||||||
Diluted EPS - Discontinued Operations | — | (0.21 | ) | (0.03 | ) | (0.23 | ) | ||||||||
Total Diluted EPS | $ | 0.45 | $ | 1.13 | $ | 12.36 | $ | 6.44 | |||||||
Adjusted Diluted EPS - Continuing Operations | $ | 1.83 | $ | 1.47 | $ | 13.91 | $ | 6.97 |
Throughput (Mbpd) | |||
California | 465 - 490 | ||
Pacific Northwest | 180 - 190 | ||
Mid-Continent | 130 - 140 | ||
Consolidated | 775 - 820 | ||
Manufacturing Cost ($/throughput barrel) | |||
California | $ 6.30 - 6.55 | ||
Pacific Northwest | $ 3.60 - 3.80 | ||
Mid-Continent | $ 3.70 - 3.95 | ||
Consolidated | $ 5.20 - 5.45 | ||
Corporate/System ($ millions) | |||
Refining depreciation | $ | 140 | |
TLLP depreciation | $ | 45 | |
Corporate expense (before depreciation) | $ | 75 | |
Interest expense (before interest income) | $ | 60 |
December 31, | |||||||
2015 | 2014 | ||||||
ASSETS | |||||||
Current Assets | |||||||
Cash and cash equivalents (TLLP: $16 and $19, respectively) | $ | 942 | $ | 1,000 | |||
Receivables, net of allowance for doubtful accounts | 792 | 1,435 | |||||
Inventories (a) | 2,302 | 2,439 | |||||
Prepayments and other current assets | 271 | 200 | |||||
Total Current Assets | 4,307 | 5,074 | |||||
Net Property, Plant and Equipment (TLLP: $3,450 and $3,343, respectively) | 9,541 | 9,045 | |||||
Other Noncurrent Assets (TLLP: $1,190 and $1,224, respectively) | 2,484 | 2,372 | |||||
Total Assets | $ | 16,332 | $ | 16,491 | |||
LIABILITIES AND EQUITY | |||||||
Current Liabilities | |||||||
Accounts payable | $ | 1,568 | $ | 2,483 | |||
Other current liabilities | 962 | 947 | |||||
Total Current Liabilities | 2,530 | 3,430 | |||||
Other Noncurrent Liabilities | 1,995 | 1,924 | |||||
Debt, Net of Unamortized Issuance Costs (TLLP: $2,844 and $2,544, respectively) | 4,067 | 4,161 | |||||
Equity | 7,740 | 6,976 | |||||
Total Liabilities and Equity | $ | 16,332 | $ | 16,491 |
(a) | Due to a lower crude oil and refined product pricing environment experienced since the end of 2014, we recorded lower of cost or market adjustments related to our inventories of $359 million and $42 million at December 31, 2015 and 2014, respectively. The net impact to cost of sales was $276 million ($167 million after-tax) and $317 million ($192 million after-tax) for the three months and year ended December 31, 2015, respectively, for our crude oil, refined products, oxygenates and by-product inventories and $42 million ($25 million after-tax) for the three months and year ended December 31, 2014 for the same type of inventories. The year ended December 31, 2015 includes a benefit of $42 million of the reversal for the lower of cost or market inventory adjustment made in 2014. |
Three Months Ended December 31, | Years Ended December 31, | ||||||||||||||
2015 | 2014 | 2015 | 2014 | ||||||||||||
Revenues | $ | 6,273 | $ | 8,445 | $ | 28,711 | $ | 40,633 | |||||||
Costs and Expenses: | |||||||||||||||
Cost of sales (a) | 5,157 | 7,264 | 22,466 | 35,673 | |||||||||||
Operating expenses (b) | 602 | 607 | 2,278 | 2,420 | |||||||||||
Selling, general and administrative expenses (c) | 95 | 133 | 342 | 342 | |||||||||||
Depreciation and amortization expense | 203 | 153 | 756 | 562 | |||||||||||
Loss on asset disposals and impairments (d) | 30 | 6 | 42 | 4 | |||||||||||
Operating Income | 186 | 282 | 2,827 | 1,632 | |||||||||||
Interest and financing costs, net (c) (e) | (54 | ) | (67 | ) | (217 | ) | (235 | ) | |||||||
Equity in earnings (loss) of equity method investments (f) | (2 | ) | — | 7 | 10 | ||||||||||
Other income, net (b) (g) | 1 | 54 | 13 | 57 | |||||||||||
Earnings Before Income Taxes | 131 | 269 | 2,630 | 1,464 | |||||||||||
Income tax expense | 48 | 110 | 936 | 547 | |||||||||||
Net Earnings From Continuing Operations | 83 | 159 | 1,694 | 917 | |||||||||||
Loss from discontinued operations, net of tax (h) | — | (27 | ) | (4 | ) | (29 | ) | ||||||||
Net Earnings | 83 | 132 | 1,690 | 888 | |||||||||||
Less: Net earnings (loss) from continuing operations attributable to noncontrolling interest | 29 | (13 | ) | 150 | 45 | ||||||||||
Net Earnings Attributable to Tesoro Corporation | $ | 54 | $ | 145 | $ | 1,540 | $ | 843 | |||||||
Net Earnings (Loss) Attributable to Tesoro Corporation | |||||||||||||||
Continuing operations | $ | 54 | $ | 172 | $ | 1,544 | $ | 872 | |||||||
Discontinued operations | — | (27 | ) | (4 | ) | (29 | ) | ||||||||
Total | $ | 54 | $ | 145 | $ | 1,540 | $ | 843 | |||||||
Net Earnings (Loss) Per Share - Basic: | |||||||||||||||
Continuing operations | $ | 0.46 | $ | 1.36 | $ | 12.53 | $ | 6.79 | |||||||
Discontinued operations | — | (0.21 | ) | (0.03 | ) | (0.23 | ) | ||||||||
Total | $ | 0.46 | $ | 1.15 | $ | 12.50 | $ | 6.56 | |||||||
Weighted average common shares outstanding - Basic | 120.0 | 125.8 | 123.2 | 128.5 | |||||||||||
Net Earnings (Loss) Per Share - Diluted: | |||||||||||||||
Continuing operations | $ | 0.45 | $ | 1.34 | $ | 12.39 | $ | 6.67 | |||||||
Discontinued operations | — | (0.21 | ) | (0.03 | ) | (0.23 | ) | ||||||||
Total | $ | 0.45 | $ | 1.13 | $ | 12.36 | $ | 6.44 | |||||||
Weighted average common shares outstanding - Diluted | 121.4 | 127.8 | 124.6 | 130.8 |
(b) | Other income, net includes a refund and settlement from a crude pipeline network rate case of $59 million ($37 million after tax) for the three months and year ended December 31, 2014, which was partially offset by accruals for legal reserves that are pending resolution of $15 million ($12 million after tax) for the three months and year ended December 31, 2014. Of these accruals, $10 million is recorded in operating expenses for both the three months and year ended December 31, 2014. |
(c) | Includes stock-based compensation expenses of $18 million and $35 million for the three months ended December 31, 2015 and 2014, respectively, and $75 million and $55 million for the years ended December 31, 2015 and 2014, respectively. Also includes transaction and integration costs related to the following acquisitions: |
• | $18 million ($7 million to Tesoro, after-tax) for the three months and $19 million ($7 million to Tesoro, after-tax) year ended December 31, 2014 for TLLP’s acquisition of the natural gas gathering, processing, treating and transportation and crude oil gathering assets of QEP Field Services, LLC (the “Rockies Natural Gas Business”); |
• | $16 million ($5 million to Tesoro, after-tax) in bridge fees incurred for TLLP’s acquisition of the Rockies Natural Gas Business for the three months and year ended December 31, 2014. These are recorded as interest and financing costs. |
(d) | Includes a gain of $5 million ($2 million to Tesoro, after-tax) for the year ended December 31, 2014 resulting from TLLP’s sale of its Boise Terminal. |
(e) | Includes charges totaling $31 million and $10 million (together, $23 million to Tesoro, after-tax) for premiums and unamortized debt issuance costs associated with the redemption of Tesoro’s 9.750% Senior Notes and TLLP’s 5.875% Senior Notes, respectively, during the year ended December 31, 2014. |
(f) | Includes equity in earnings of equity method investments of $1 million and $7 million for the three months and year ended December 31, 2015, respectively, and $1 million for both the three months and year ended December 31, 2014, for TLLP related to its investments in Three Rivers Gathering and Uinta Basin Field Services. Our refining segment includes investments in Watson Cogen Company and Vancouver Energy. We recognized equity in loss from equity method investments of $3 million and $1 million for the three months ended December 31, 2015 and 2014, respectively, and equity in earnings from equity method investments of $9 million for the year ended December 31, 2014. |
(g) | During the year ended December 31, 2015, we recorded a gain of $11 million ($7 million after-tax) as other income for insurance proceeds related to the settlement of claims associated with the Washington Refinery Fire. |
(h) | Net loss from discontinued operations for the three months and year ended December 31, 2014 includes $42 million ($25 million after-tax) of charges for obligations we have to make certain improvements and resolve penalties and fines from our past ownership of the Hawaii Refinery. The net loss for the year ended December 31, 2015 of $6 million ($4 million after-tax) is related to a change in estimate for those regulatory improvements we are required to make. |
Three Months Ended December 31, | Years Ended December 31, | ||||||||||||||
2015 | 2014 | 2015 | 2014 | ||||||||||||
Earnings Before Income Taxes | |||||||||||||||
Refining (a) (b) (i) | $ | 4 | $ | 90 | $ | 1,849 | $ | 1,178 | |||||||
TLLP (c) (d) | 104 | 32 | 419 | 187 | |||||||||||
Marketing (i) | 175 | 261 | 899 | 553 | |||||||||||
Total Segment Operating Income | 283 | 383 | 3,167 | 1,918 | |||||||||||
Corporate and unallocated costs (c) | (97 | ) | (101 | ) | (340 | ) | (286 | ) | |||||||
Operating Income | 186 | 282 | 2,827 | 1,632 | |||||||||||
Interest and financing costs, net (e) | (54 | ) | (67 | ) | (217 | ) | (235 | ) | |||||||
Equity in earnings (loss) of equity method investments (f) | (2 | ) | — | 7 | 10 | ||||||||||
Other income, net (b) (g) | 1 | 54 | 13 | 57 | |||||||||||
Earnings Before Income Taxes | $ | 131 | $ | 269 | $ | 2,630 | $ | 1,464 | |||||||
Depreciation and Amortization Expense | |||||||||||||||
Refining | $ | 140 | $ | 111 | $ | 512 | $ | 427 | |||||||
TLLP | 46 | 26 | 179 | 78 | |||||||||||
Marketing | 12 | 12 | 46 | 42 | |||||||||||
Corporate | 5 | 4 | 19 | 15 | |||||||||||
Total Depreciation and Amortization Expense | $ | 203 | $ | 153 | $ | 756 | $ | 562 | |||||||
Special Items, Before Taxes (j) | |||||||||||||||
Refining | $ | 276 | $ | (6 | ) | $ | 317 | $ | (7 | ) | |||||
TLLP | 1 | 30 | 15 | 31 | |||||||||||
Corporate | — | 4 | (11 | ) | 5 | ||||||||||
Total Special Items | $ | 277 | $ | 28 | $ | 321 | $ | 29 | |||||||
Adjusted EBITDA | |||||||||||||||
Refining | $ | 414 | $ | 189 | $ | 2,662 | $ | 1,586 | |||||||
TLLP | 155 | 94 | 636 | 318 | |||||||||||
Marketing | 187 | 273 | 945 | 595 | |||||||||||
Corporate | (91 | ) | (39 | ) | (319 | ) | (209 | ) | |||||||
Total Adjusted EBITDA | $ | 665 | $ | 517 | $ | 3,924 | $ | 2,290 | |||||||
Capital Expenditures | |||||||||||||||
Refining | $ | 137 | $ | 169 | $ | 620 | $ | 445 | |||||||
TLLP | 59 | 109 | 296 | 250 | |||||||||||
Marketing | 14 | 27 | 34 | 54 | |||||||||||
Corporate | 40 | 10 | 56 | 30 | |||||||||||
Total Capital Expenditures | $ | 250 | $ | 315 | $ | 1,006 | $ | 779 |
(i) | Our refining segment uses Renewable Identification Numbers (“RINs”) to satisfy its obligations under the Renewable Fuels Standard, in addition to physically blending required biofuels. Effective April 1, 2013, we changed our intersegment pricing methodology and no longer reduced the amount marketing pays for the biofuels by the market value of the RINs due to significant volatility in the value of RINs. At the end of 2014, given the price of RINs had become more transparent in the price of biofuels, we determined our intersegment pricing methodology should include the market value of RINs as a reduction to the price our marketing segment pays to our refining segment. We made this change effective January 1, 2015. We have not adjusted financial information presented for our refining and marketing segments for the three months and year ended December 31, 2014. Had we made this change effective January 1, 2014, operating income in our refining segment would have been reduced by $31 million and $125 million for the three months and year ended December 31, 2014, respectively, with a corresponding increase to operating income in our marketing segment. |
(j) | The effects of special items on net earnings before income taxes by segment include: |
Three Months Ended December 31, | Years Ended December 31, | ||||||||||||||
2015 | 2014 | 2015 | 2014 | ||||||||||||
Refining | |||||||||||||||
Lower of cost or market inventory adjustment (a) | $ | 276 | $ | 42 | $ | 317 | $ | 42 | |||||||
Legal settlements, net (b) | — | (48 | ) | — | (49 | ) | |||||||||
TLLP | |||||||||||||||
Acquisition costs included in general and administrative expenses (c) (k) | 1 | 18 | 2 | 19 | |||||||||||
Throughput deficiency receivable (l) | — | 10 | 13 | 10 | |||||||||||
Gain on sale of Boise Terminal (d) | — | — | — | (5 | ) | ||||||||||
Inspection and maintenance expenses associated with the Northwest Products System (m) | — | 2 | — | 7 | |||||||||||
Corporate and Other | |||||||||||||||
Legal settlements, net (b) | — | 4 | — | 5 | |||||||||||
Insurance settlement gain (g) | — | — | (11 | ) | — |
(k) | Reflects acquisition costs included in general and administrative expenses primarily related to the acquisition of the Rockies Natural Gas Business. |
(l) | During the years ended December 31, 2015 and 2014, TLLP invoiced QEPFS customers for deficiency payments. TLLP did not recognize $13 million ($4 million to Tesoro, after-tax) and $10 million ($3 million to Tesoro, after-tax) for the years ended December 31, 2015 and 2014, respectively, of revenue related to the billing period as it represented opening balance sheet assets for the acquisition of the Rockies Natural Gas Business; however, TLLP is entitled to the cash receipt from such billings. |
(m) | Includes costs for detailed inspection and maintenance program on TLLP’s Northwest Products System Pipeline. |
Years Ended December 31, | |||||||
2015 | 2014 | ||||||
Cash Flows From (Used in) | |||||||
Operating activities | $ | 2,131 | $ | 1,364 | |||
Investing activities | (1,129 | ) | (3,172 | ) | |||
Financing activities | (1,060 | ) | 1,570 | ||||
Decrease in Cash and Cash Equivalents | $ | (58 | ) | $ | (238 | ) |
Years Ended December 31, | |||||||
2015 | 2014 | ||||||
Total debt, net of unamortized issuance costs, to capitalization ratio | 34 | % | 37 | % | |||
Total debt, net of unamortized issuance costs, to capitalization ratio excluding TLLP debt (n) | 19 | % | 27 | % | |||
Working capital (current assets less current liabilities) | $ | 1,777 | $ | 1,644 | |||
Total market value of TLLP units held by Tesoro (o) | 1,633 | 1,658 |
Three Months Ended December 31, | Years Ended December 31, | ||||||||||||||
2015 | 2014 | 2015 | 2014 | ||||||||||||
Cash distributions received from TLLP (p) | |||||||||||||||
For common/subordinated units held | $ | 22 | $ | 18 | $ | 80 | $ | 52 | |||||||
For general partner units held | 20 | 14 | 68 | 35 | |||||||||||
Total Cash Distributions Received from TLLP | $ | 42 | $ | 32 | $ | 148 | $ | 87 |
(n) | Excludes TLLP’s total debt, net of unamortized issuance costs, and capital leases of $2.8 billion and $2.5 billion at December 31, 2015 and 2014, respectively, which are non-recourse to Tesoro, except for Tesoro Logistics GP, LLC, and noncontrolling interest of $2.5 billion at both December 31, 2015 and 2014. |
(o) | Represents market value of units held at December 31, 2015 and 2014. Tesoro held 32,445,115 common units at a market value of $50.32 per unit based on the closing unit price at December 31, 2015. Tesoro held 28,181,748 common units at a market value of $58.85 per unit based on the closing unit price at December 31, 2014. |
(p) | Represents distributions received from TLLP during the three months and years ended December 31, 2015 and 2014 on common or subordinated units and general partner units held by Tesoro. |
Three Months Ended December 31, | Years Ended December 31, | ||||||||||||||
2015 | 2014 | 2015 | 2014 | ||||||||||||
Refined Product Sales (Mbpd) (q) | |||||||||||||||
Gasoline and gasoline blendstocks | 516 | 493 | 510 | 507 | |||||||||||
Diesel fuel | 222 | 202 | 204 | 206 | |||||||||||
Jet fuel | 151 | 157 | 152 | 149 | |||||||||||
Heavy fuel oils, residual products and other | 95 | 94 | 92 | 87 | |||||||||||
Total Refined Product Sales | 984 | 946 | 958 | 949 | |||||||||||
Refined Product Sales Margin ($/barrel) (q) (r) | |||||||||||||||
Average sales price | $ | 65.81 | $ | 91.71 | $ | 77.70 | $ | 112.17 | |||||||
Average costs of sales | 58.18 | 87.17 | 65.07 | 102.59 | |||||||||||
Refined Product Sales Margin | $ | 7.63 | $ | 4.54 | $ | 12.63 | $ | 9.58 |
(q) | 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. |
(r) | We calculate refined product sales margin per barrel by dividing refined product sales margin by total refined product sales (in barrels). Refined product sales margin represents refined product sales less refined product cost of sales. Average refined product sales price include all sales through our marketing segment including unbranded and branded channels as well as in bulk markets and exports through our refining segment. Average costs of sales and related sales margins include amounts recognized for the sale of refined products manufactured at our refineries along with the sale of refined products purchased from third parties to help fulfill supply commitments. 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 U.S. GAAP. |
Three Months Ended December 31, | Years Ended December 31, | ||||||||||||||
REFINING SEGMENT | 2015 | 2014 | 2015 | 2014 | |||||||||||
Total Refining Segment | |||||||||||||||
Throughput (Mbpd) | |||||||||||||||
Heavy crude | 156 | 131 | 151 | 155 | |||||||||||
Light crude | 596 | 609 | 580 | 613 | |||||||||||
Other feedstocks | 55 | 68 | 56 | 57 | |||||||||||
Total Throughput | 807 | 808 | 787 | 825 | |||||||||||
Yield (Mbpd) | |||||||||||||||
Gasoline and gasoline blendstocks | 420 | 428 | 409 | 429 | |||||||||||
Diesel fuel | 181 | 179 | 169 | 191 | |||||||||||
Jet fuel | 117 | 127 | 119 | 127 | |||||||||||
Heavy fuel oils, residual products, internally produced fuel and other | 136 | 124 | 139 | 132 | |||||||||||
Total Yield | 854 | 858 | 836 | 879 | |||||||||||
Segment Operating Income ($ millions) | |||||||||||||||
Gross refining margin (s) | $ | 670 | $ | 714 | $ | 4,342 | $ | 3,653 | |||||||
Expenses | |||||||||||||||
Manufacturing costs | 417 | 412 | 1,595 | 1,692 | |||||||||||
Other operating expenses | 84 | 95 | 346 | 340 | |||||||||||
Selling, general and administrative expenses | 1 | 4 | 8 | 13 | |||||||||||
Depreciation and amortization expense | 140 | 111 | 512 | 427 | |||||||||||
Loss on asset disposals and impairments | 24 | 2 | 32 | 3 | |||||||||||
Segment Operating Income | $ | 4 | $ | 90 | $ | 1,849 | $ | 1,178 | |||||||
Gross Refining Margin ($/throughput barrel) (t) (u) | $ | 12.76 | $ | 15.72 | $ | 16.22 | $ | 12.27 | |||||||
Manufacturing Cost before Depreciation and Amortization Expense ($/throughput barrel) (s) (t) | $ | 5.62 | $ | 5.54 | $ | 5.55 | $ | 5.62 |
(s) | 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 included $1 million for both the three months ended December 31, 2015 and 2014, and $2 million and $5 million for the years ended December 31, 2015 and 2014, respectively. Gross refining margin includes the effect of intersegment sales to the marketing segment and services provided by TLLP. Gross refining margin approximates total refining throughput multiplied by the gross refining margin per barrel. |
(t) | 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. 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. We calculate Manufacturing Costs per barrel by dividing Manufacturing Costs by total refining throughput. We calculate refined product sales margin per barrel by dividing refined product sales margin by total refining throughput. Refined product sales margin represents refined product sales less refined product cost of sales. 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 U.S. GAAP. |
(u) | We recorded a $359 million and $42 million charge for a lower of cost or market adjustment to our inventories at December 31, 2015 and 2014, respectively. The gross refining margin per throughput barrel for the three months and year ended December 31, 2015 excludes the adjustment impact of $276 million and $317 million, respectively, in the computation of the rate at a consolidated and regional level. The gross refining margin per throughput barrel for the three months and year ended December 31, 2014 excludes the impact of the $42 million charge on a consolidated and regional level. On a regional basis, gross refining margin would have reflected charges of $207 million, $76 million and $34 million for California, Pacific Northwest and Mid-Continent, respectively, for the year ended December 31, 2015. |
Three Months Ended December 31, | Years Ended December 31, | ||||||||||||||
Refining By Region | 2015 | 2014 | 2015 | 2014 | |||||||||||
California (Martinez and Los Angeles) | |||||||||||||||
Throughput (Mbpd) | |||||||||||||||
Heavy crude | 152 | 124 | 146 | 149 | |||||||||||
Light crude | 296 | 332 | 309 | 334 | |||||||||||
Other feedstocks | 42 | 52 | 38 | 40 | |||||||||||
Total Throughput | 490 | 508 | 493 | 523 | |||||||||||
Yield (Mbpd) | |||||||||||||||
Gasoline and gasoline blendstocks | 262 | 276 | 264 | 282 | |||||||||||
Diesel fuel | 105 | 113 | 100 | 120 | |||||||||||
Jet fuel | 67 | 76 | 74 | 80 | |||||||||||
Heavy fuel oils, residual products, internally produced fuel and other | 92 | 83 | 93 | 85 | |||||||||||
Total Yield | 526 | 548 | 531 | 567 | |||||||||||
Gross Refining Margin ($ millions) | $ | 520 | $ | 391 | $ | 2,928 | $ | 2,007 | |||||||
Gross Refining Margin ($/throughput barrel) (t) (u) | $ | 15.54 | $ | 8.98 | $ | 17.44 | $ | 10.67 | |||||||
Manufacturing Cost before Depreciation and Amortization Expense ($/throughput barrel) (s) (t) | $ | 6.51 | $ | 6.35 | $ | 6.37 | $ | 6.43 | |||||||
Capital Expenditures ($ millions) | $ | 92 | $ | 65 | $ | 290 | $ | 161 | |||||||
Pacific Northwest (Alaska & Washington) | |||||||||||||||
Throughput (Mbpd) | |||||||||||||||
Heavy crude | 4 | 7 | 5 | 6 | |||||||||||
Light crude | 164 | 150 | 151 | 153 | |||||||||||
Other feedstocks | 9 | 11 | 14 | 12 | |||||||||||
Total Throughput | 177 | 168 | 170 | 171 | |||||||||||
Yield (Mbpd) | |||||||||||||||
Gasoline and gasoline blendstocks | 76 | 76 | 75 | 74 | |||||||||||
Diesel fuel | 34 | 28 | 31 | 32 | |||||||||||
Jet fuel | 36 | 35 | 34 | 33 | |||||||||||
Heavy fuel oils, residual products, internally produced fuel and other | 37 | 34 | 36 | 37 | |||||||||||
Total Yield | 183 | 173 | 176 | 176 | |||||||||||
Gross Refining Margin ($ millions) | $ | 40 | $ | 78 | $ | 681 | $ | 584 | |||||||
Gross Refining Margin ($/throughput barrel) (t) (u) | $ | 6.45 | $ | 5.54 | $ | 12.17 | $ | 9.49 | |||||||
Manufacturing Cost before Depreciation and Amortization Expense ($/throughput barrel) (s) (t) | $ | 4.61 | $ | 4.50 | $ | 4.14 | $ | 4.37 | |||||||
Capital Expenditures ($ millions) | $ | 26 | $ | 23 | $ | 113 | $ | 54 |
Three Months Ended December 31, | Years Ended December 31, | ||||||||||||||
2015 | 2014 | 2015 | 2014 | ||||||||||||
Mid-Continent (North Dakota and Utah) | |||||||||||||||
Throughput (Mbpd) | |||||||||||||||
Light crude | 135 | 127 | 120 | 126 | |||||||||||
Other feedstocks | 5 | 5 | 4 | 5 | |||||||||||
Total Throughput | 140 | 132 | 124 | 131 | |||||||||||
Yield (Mbpd) | |||||||||||||||
Gasoline and gasoline blendstocks | 82 | 76 | 70 | 73 | |||||||||||
Diesel fuel | 14 | 38 | 38 | 39 | |||||||||||
Jet fuel | 42 | 16 | 11 | 14 | |||||||||||
Heavy fuel oils, residual products, internally produced fuel and other | 7 | 7 | 10 | 10 | |||||||||||
Total Yield | 145 | 137 | 129 | 136 | |||||||||||
Gross Refining Margin ($ millions) | $ | 111 | $ | 244 | $ | 731 | $ | 1,057 | |||||||
Gross Refining Margin ($/throughput barrel) (t) (u) | $ | 10.98 | $ | 20.52 | $ | 16.88 | $ | 22.14 | |||||||
Manufacturing Cost before Depreciation and Amortization Expense ($/throughput barrel) (s) (t) | $ | 3.79 | $ | 3.78 | $ | 4.26 | $ | 4.00 | |||||||
Capital Expenditures ($ millions) | $ | 19 | $ | 81 | $ | 217 | $ | 230 |
Three Months Ended December 31, | Years Ended December 31, | ||||||||||||||
TLLP SEGMENT | 2015 | 2014 | 2015 | 2014 | |||||||||||
Gathering | |||||||||||||||
Crude oil gathering pipeline throughput (Mbpd) | 205 | 150 | 188 | 123 | |||||||||||
Average crude oil gathering pipeline revenue per barrel (v) | $ | 1.86 | $ | 1.69 | $ | 1.79 | $ | 1.46 | |||||||
Crude oil gathering trucking volume (Mbpd) | 28 | 55 | 38 | 49 | |||||||||||
Average crude oil gathering trucking revenue per barrel (v) | $ | 3.27 | $ | 3.22 | $ | 3.25 | $ | 3.23 | |||||||
Gas gathering throughput (thousands of MMBtu/day) (w) | 1,102 | 1,046 | 1,077 | 1,046 | |||||||||||
Average gas gathering revenue per MMBtu (v) (w) | $ | 0.42 | $ | 0.41 | $ | 0.43 | $ | 0.41 | |||||||
Processing (w) | |||||||||||||||
NGL processing throughput (Mbpd) | 8 | 7 | 8 | 7 | |||||||||||
Average keep-whole fee per barrel of NGL (v) | $ | 35.00 | $ | 35.51 | $ | 34.46 | $ | 35.51 | |||||||
Fee-based processing throughput (thousands of MMBtu/day) | 748 | 693 | 743 | 693 | |||||||||||
Average fee-based processing revenue per MMBtu (v) | $ | 0.38 | $ | 0.30 | $ | 0.39 | $ | 0.30 | |||||||
Terminalling and Transportation | |||||||||||||||
Terminalling throughput (Mbpd) | 943 | 911 | 935 | 917 | |||||||||||
Average terminalling revenue per barrel (v) | $ | 1.19 | $ | 1.07 | $ | 1.11 | $ | 1.00 | |||||||
Pipeline transportation throughput (Mbpd) | 841 | 814 | 825 | 822 | |||||||||||
Average pipeline transportation revenue per barrel (v) | $ | 0.39 | $ | 0.37 | $ | 0.39 | $ | 0.36 | |||||||
Segment Operating Income ($ millions) | |||||||||||||||
Revenues | |||||||||||||||
Gathering | $ | 86 | $ | 51 | $ | 339 | $ | 135 | |||||||
Processing | 73 | 23 | 278 | 23 | |||||||||||
Terminalling and Transportation | 133 | 116 | 495 | 442 | |||||||||||
Total Revenues (x) | 292 | 190 | 1,112 | 600 | |||||||||||
Expenses | |||||||||||||||
Operating expenses (y) | 120 | 97 | 411 | 265 | |||||||||||
General and administrative expenses (z) | 21 | 35 | 102 | 74 | |||||||||||
Depreciation and amortization expense | 46 | 26 | 179 | 78 | |||||||||||
(Gain) loss on asset disposals and impairments | 1 | — | 1 | (4 | ) | ||||||||||
Segment Operating Income | $ | 104 | $ | 32 | $ | 419 | $ | 187 |
(v) | Management uses average revenue per barrel and average revenue per MMBtu to evaluate performance and compare profitability to other companies in the industry. We calculate average revenue per barrel as revenue divided by total throughput or keep-whole processing volumes. We calculate average revenue per MMBtu as revenue divided by gas gathering and fee-based processing volume. 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 as an alternative to segment operating income, revenues and operating expenses or any other measure of financial performance presented in accordance with U.S. GAAP. |
(w) | TLLP commenced natural gas gathering and processing operations with the acquisition of the Rockies Natural Gas Business on December 2, 2014. Per day calculations for 2014 only reflect the period that TLLP owned the Rockies Natural Gas Business. |
(x) | TLLP segment revenues from services provided to our refining segment were $161 million and $139 million for the three months ended December 31, 2015 and 2014, respectively, and $615 million and $497 million for the years ended December 31, 2015 and 2014, respectively. These amounts are eliminated upon consolidation. |
(y) | TLLP segment operating expenses include amounts billed by Tesoro for services provided to TLLP under various operational contracts. Amounts billed by Tesoro totaled $18 million and $15 million for the three months ended December 31, 2015 and 2014, respectively, and $76 million and $52 million for the years ended December 31, 2015 and 2014, respectively. These amounts are net of imbalance gains and reimbursements pursuant to the Amended Omnibus Agreement of $10 million and $11 million for the three months ended December 31, 2015 and 2014, respectively, and $42 million and $43 million for the years ended December 31, 2015 and 2014, 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 in our condensed statements of consolidated operations upon consolidation. |
(z) | 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 $14 million and $11 million for the three months ended December 31, 2015 and 2014, respectively, and $65 million and $39 million for the years ended December 31, 2015 and 2014, respectively, and are eliminated upon consolidation. General and administrative expenses are also reclassified to cost of sales. |
MARKETING SEGMENT | |||||
Years Ended December 31, | |||||
Number of Branded Stations (at the end of the year) | 2015 | 2014 | |||
Company/MSO-operated (aa) | 592 | 584 | |||
Jobber/dealer operated | 1,805 | 1,683 | |||
Total Stations | 2,397 | 2,267 |
Three Months Ended December 31, | Years Ended December 31, | ||||||||||||||
2015 | 2014 | 2015 | 2014 | ||||||||||||
Fuel Sales (millions of gallons) | 2,203 | 2,131 | 8,611 | 8,306 | |||||||||||
Fuel Margin ($/gallon) (ab) | $ | 0.12 | $ | 0.16 | $ | 0.14 | $ | 0.10 | |||||||
Segment Operating Income ($ millions) | |||||||||||||||
Gross Margins | |||||||||||||||
Fuel (ab) | $ | 257 | $ | 345 | $ | 1,208 | $ | 859 | |||||||
Other non-fuel (aa) (ac) | 13 | 19 | 58 | 111 | |||||||||||
Total Gross Margins | 270 | 364 | 1,266 | 970 | |||||||||||
Expenses | |||||||||||||||
Operating expenses | 77 | 81 | 300 | 352 | |||||||||||
Selling, general and administrative expenses | 3 | 6 | 15 | 17 | |||||||||||
Depreciation and amortization expense | 12 | 12 | 46 | 42 | |||||||||||
Loss on asset disposals and impairments | 3 | 4 | 6 | 6 | |||||||||||
Segment Operating Income | $ | 175 | $ | 261 | $ | 899 | $ | 553 |
(aa) | In December 2014, we converted our company-operated retail locations to multi-site operators retail stations. The impact of this change was not material to our marketing segment results. |
(ab) | Management uses fuel margin per gallon to compare fuel results to other companies in the industry. There are a variety of ways to calculate fuel margin per gallon and 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 may 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. |
(ac) | Primarily includes rental income for the three months and year ended December 31, 2015 and primarily merchandise revenue for the three months and year ended December 31, 2014. |
Three Months Ended December 31, | Years Ended December 31, | ||||||||||||||
2015 | 2014 | 2015 | 2014 | ||||||||||||
Reconciliation of Net Earnings to EBITDA and Adjusted EBITDA | |||||||||||||||
Net earnings | $ | 83 | $ | 132 | $ | 1,690 | $ | 888 | |||||||
Loss from discontinued operations, net of tax | — | 27 | 4 | 29 | |||||||||||
Depreciation and amortization expense | 203 | 153 | 756 | 562 | |||||||||||
Interest and financing costs, net | 54 | 67 | 217 | 235 | |||||||||||
Income tax expense | 48 | 110 | 936 | 547 | |||||||||||
EBITDA | 388 | 489 | 3,603 | 2,261 | |||||||||||
Special items (j) | 277 | 28 | 321 | 29 | |||||||||||
Adjusted EBITDA | $ | 665 | $ | 517 | $ | 3,924 | $ | 2,290 | |||||||
Reconciliation of Cash Flows from Operating Activities to EBITDA and Adjusted EBITDA | |||||||||||||||
Net cash from operating activities | $ | 284 | $ | 317 | $ | 2,131 | $ | 1,364 | |||||||
Net cash used in discontinued operations | 3 | 1 | 5 | 3 | |||||||||||
Debt redemption charges | — | — | (1 | ) | (41 | ) | |||||||||
Turnaround and branding charges | 94 | 137 | 342 | 256 | |||||||||||
Changes in current assets and current liabilities | (83 | ) | (42 | ) | 164 | 186 | |||||||||
Income tax expense | 48 | 110 | 936 | 547 | |||||||||||
Stock-based compensation expense | (18 | ) | (35 | ) | (75 | ) | (55 | ) | |||||||
Interest and financing costs, net | 54 | 67 | 217 | 235 | |||||||||||
Deferred income tax benefit (expense) | 92 | (19 | ) | (65 | ) | (246 | ) | ||||||||
Loss on asset disposals and impairments | (30 | ) | (6 | ) | (42 | ) | (4 | ) | |||||||
Other | (56 | ) | (41 | ) | (9 | ) | 16 | ||||||||
EBITDA | 388 | 489 | 3,603 | 2,261 | |||||||||||
Special items (j) | 277 | 28 | 321 | 29 | |||||||||||
Adjusted EBITDA | $ | 665 | $ | 517 | $ | 3,924 | $ | 2,290 |
Three Months Ended December 31, | Years Ended December 31, | ||||||||||||||
2015 | 2014 | 2015 | 2014 | ||||||||||||
Reconciliation of Refining Operating Income to Refining EBITDA and Adjusted EBITDA | |||||||||||||||
Operating income | $ | 4 | $ | 90 | $ | 1,849 | $ | 1,178 | |||||||
Impact related to TLLP Predecessor presentation (ad) | (3 | ) | (5 | ) | (16 | ) | (21 | ) | |||||||
Depreciation and amortization expense | 140 | 111 | 512 | 427 | |||||||||||
Equity in earnings (loss) of equity method investments (f) | (3 | ) | (1 | ) | — | 9 | |||||||||
EBITDA | 138 | 195 | 2,345 | 1,593 | |||||||||||
Special items (j) | 276 | (6 | ) | 317 | (7 | ) | |||||||||
Adjusted EBITDA | $ | 414 | $ | 189 | $ | 2,662 | $ | 1,586 | |||||||
Reconciliation of TLLP Operating Income to TLLP EBITDA and Adjusted EBITDA | |||||||||||||||
Operating income | $ | 104 | $ | 32 | $ | 419 | $ | 187 | |||||||
Loss attributable to Predecessor (ad) | 3 | 5 | 16 | 21 | |||||||||||
Depreciation and amortization expense | 46 | 26 | 179 | 78 | |||||||||||
Equity in earnings of equity method investments (f) | 1 | 1 | 7 | 1 | |||||||||||
EBITDA | $ | 154 | $ | 64 | $ | 621 | $ | 287 | |||||||
Special items (j) | 1 | 30 | 15 | 31 | |||||||||||
Adjusted EBITDA | $ | 155 | $ | 94 | $ | 636 | $ | 318 | |||||||
Reconciliation of Marketing Operating Income to Marketing EBITDA and Adjusted EBITDA | |||||||||||||||
Operating income | $ | 175 | $ | 261 | $ | 899 | $ | 553 | |||||||
Depreciation and amortization expense | 12 | 12 | 46 | 42 | |||||||||||
EBITDA and Adjusted EBITDA | $ | 187 | $ | 273 | $ | 945 | $ | 595 | |||||||
Reconciliation of Corporate and Other Operating Loss to Corporate and Other EBITDA and Adjusted EBITDA | |||||||||||||||
Operating loss | $ | (97 | ) | $ | (101 | ) | $ | (340 | ) | $ | (286 | ) | |||
Depreciation and amortization expense | 5 | 4 | 19 | 15 | |||||||||||
Other income, net (b) (g) | 1 | 54 | 13 | 57 | |||||||||||
EBITDA | (91 | ) | (43 | ) | (308 | ) | (214 | ) | |||||||
Special items (j) | — | 4 | (11 | ) | 5 | ||||||||||
Adjusted EBITDA | $ | (91 | ) | $ | (39 | ) | $ | (319 | ) | $ | (209 | ) |
(ad) | The TLLP financial and operational data presented include the historical results of all assets acquired from Tesoro prior to the acquisition dates. The acquisitions from Tesoro were transfers between entities under common control. Accordingly, the financial information of TLLP contained herein has been retrospectively adjusted to include the historical results of the assets acquired in the acquisitions from Tesoro prior to the effective date of each acquisition for all periods presented. The TLLP financial data is derived from the combined financial results of the TLLP predecessor (the “TLLP Predecessor”). We refer to the TLLP Predecessor and, prior to each acquisition date, the acquisitions from Tesoro collectively, as “TLLP’s Predecessors.” |
Rockies Natural Gas Business Year Ended December 31, 2015 | |||
Reconciliation of Operating Income to EBITDA and Adjusted EBITDA | |||
Operating income | $ | 179 | |
Depreciation and amortization expense | 93 | ||
EBITDA | 272 | ||
Throughput deficiency receivables (l) | 13 | ||
Adjusted EBITDA | $ | 285 |
Rockies Natural Gas Business 2015 Projected Annual EBITDA attributable to TLLP | |||
Reconciliation of Projected Net Earnings to Projected Annual EBITDA | |||
Projected net earnings | $ | 93 | |
Depreciation and amortization expense | 96 | ||
Interest and financing costs, net | 86 | ||
Projected Adjusted EBITDA | $ | 275 |
Year Ended December 31, 2015 | |||
Free Cash Flow Reconciliation | |||
Net cash flow from operating activities | $ | 2,131 | |
Less: Sustaining (Maintenance and Regulatory) capital | (454 | ) | |
Less: Dividend payments | (228 | ) | |
Less: Distributions to noncontrolling interest | (182 | ) | |
Free Cash Flow | $ | 1,267 |
Three Months Ended December 31, | Years Ended December 31, | ||||||||||||||
2015 | 2014 | 2015 | 2014 | ||||||||||||
Net Earnings Attributable to Tesoro Corporation from Continuing Operations - U.S. GAAP | $ | 54 | $ | 172 | $ | 1,544 | $ | 872 | |||||||
Special Items, After-tax: (ae) | |||||||||||||||
Transaction and integration costs (c) | — | 12 | 1 | 12 | |||||||||||
Lower of cost or market inventory adjustment (a) | 167 | 25 | 192 | 25 | |||||||||||
Throughput deficiency receivable (l) | — | 3 | 4 | 3 | |||||||||||
Legal settlements, net (b) | — | (25 | ) | — | (25 | ) | |||||||||
Insurance settlement gain (g) | — | — | (7 | ) | — | ||||||||||
Gain on sale of Boise Terminal (d) | — | — | — | (2 | ) | ||||||||||
Inspection and maintenance expenses associated with the Northwest Products System (m) | — | 1 | — | 3 | |||||||||||
Debt redemption charges (e) | — | — | — | 23 | |||||||||||
Adjusted Earnings | $ | 221 | $ | 188 | $ | 1,734 | $ | 911 | |||||||
Diluted Net Earnings per Share from Continuing Operations Attributable to Tesoro Corporation - U.S. GAAP | $ | 0.45 | $ | 1.34 | $ | 12.39 | $ | 6.67 | |||||||
Special Items Per Share, After-tax: (ae) | |||||||||||||||
Transaction and integration costs (c) | — | 0.09 | 0.01 | 0.09 | |||||||||||
Lower of cost or market inventory adjustment (a) | 1.38 | 0.20 | 1.54 | 0.19 | |||||||||||
Throughput deficiency receivable (l) | — | 0.03 | 0.03 | 0.03 | |||||||||||
Legal settlements, net (b) | — | (0.20 | ) | — | (0.19 | ) | |||||||||
Insurance settlement gain (g) | — | — | (0.06 | ) | — | ||||||||||
Gain on sale of Boise Terminal (d) | — | — | — | (0.02 | ) | ||||||||||
Inspection and maintenance expenses associated with the Northwest Products System (m) | — | 0.01 | — | 0.02 | |||||||||||
Debt redemption charges (e) | — | — | — | 0.18 | |||||||||||
Adjusted Diluted EPS | $ | 1.83 | $ | 1.47 | $ | 13.91 | $ | 6.97 |
(ae) | For the purpose of reconciling net earnings, special items have been adjusted pre-tax to reflect our limited and general partner interests in TLLP including amounts attributable to our incentive distribution rights. |
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