-----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, T7P9QAYQKi/jyqIX4LmR89XXs2SRvfJ94AEAEoLjvXZDXfJ4TF/WJk38xZXXKd7/ G3gM9rdbBdAxbSYViUOVtg== 0000950129-98-002437.txt : 19980608 0000950129-98-002437.hdr.sgml : 19980608 ACCESSION NUMBER: 0000950129-98-002437 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19980601 ITEM INFORMATION: ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19980605 SROS: NYSE SROS: PCX FILER: COMPANY DATA: COMPANY CONFORMED NAME: TESORO PETROLEUM CORP /NEW/ CENTRAL INDEX KEY: 0000050104 STANDARD INDUSTRIAL CLASSIFICATION: PETROLEUM REFINING [2911] IRS NUMBER: 950862768 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-03473 FILM NUMBER: 98642834 BUSINESS ADDRESS: STREET 1: 8700 TESORO DR CITY: SAN ANTONIO STATE: TX ZIP: 78217 BUSINESS PHONE: 2108288484 8-K 1 TESORO PETROLEUM CORPORATION 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): May 29, 1998 TESORO PETROLEUM CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 1-3473 95-0862768 (State or other jurisdiction of (Commission (I.R.S. Employer incorporation) File Number) Identification No.)
8700 TESORO DRIVE, SAN ANTONIO, TEXAS 78217-6218 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 210-828-8484 ================================================================================ 2 ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS On May 29, 1998, Tesoro Petroleum Corporation ("Tesoro" or the "Company") completed the acquisition (the "Hawaii Acquisition") of all of the outstanding capital stock of BHP Petroleum Americas Refining Inc. and BHP Petroleum South Pacific Inc. (together, "BHP Hawaii"), both of which were affiliates of The Broken Hill Proprietary Company Limited ("BHP"). The acquisition includes a 95,000 barrel per day ("bpd") refinery in Kapolei, Hawaii, on the island of Oahu, approximately 20 miles west of Honolulu, and 32 (two of which are owned, but dealer operated) retail gasoline stations on Oahu, Maui and Hawaii. Tesoro paid $243.5 million in cash at closing for the acquisition, including $68.5 million for estimated working capital, which is subject to post-closing adjustments to reflect actual net working capital at closing. In addition, Tesoro issued an unsecured, non-interest bearing promissory note (the "BHP Note") in the amount of $50 million for the Hawaii Acquisition, which is payable in five equal annual installments, beginning on the eleventh anniversary date of the closing. The BHP Note provides for earlier payment if the future financial performance of BHP Hawaii exceeds certain thresholds. To ensure the continuity of crude supply to the Hawaii refinery, the Company also entered into a two-year agreement with an affiliate of BHP to assist Tesoro in acquiring crude oil feedstock sourced outside of North America and arranging for transportation of such crude oil to the Hawaii refinery. To finance the cash consideration paid in the Hawaii Acquisition, the Company entered into a senior secured interim credit facility (the "Interim Credit Facility") provided by Lehman Commercial Paper, Inc., an affiliate of Lehman Brothers Inc. (which served as a financial advisor to the Company in connection with the Hawaii Acquisition). The Interim Credit Facility is comprised of a term loan facility aggregating $750 million and a revolving credit facility in the amount of $350 million. The Interim Credit Facility is guaranteed by substantially all of the Company's active direct and indirect subsidiaries (collectively, the "Guarantors"), and is secured by substantially all the domestic assets of the Company and each of the Guarantors. 2 3 ITEM 5. OTHER EVENTS Washington Acquisition On May 1, 1998, Tesoro entered into a stock purchase agreement (the "Washington Agreement") to purchase (the "Washington Acquisition") all of the outstanding capital stock of Shell Anacortes Refining Company ("Shell Washington"), an affiliate of Shell Oil Company ("Shell"). Shell Washington owns and operates a 108,000 bpd refinery (the "Washington Refinery") located in Anacortes, Washington (on the Puget Sound, approximately 60 miles north of Seattle). Under the terms of the Washington Agreement, the Company has agreed to pay at closing a purchase price of $237 million plus estimated working capital as of closing. The Company has made a $5 million earnest money deposit and has agreed to deposit in escrow by June 30, 1998, the balance of the purchase price. The Washington Agreement contains representations and warranties and other general provisions that are customary for transactions of this nature. Shell is selling Shell Washington pursuant to agreements with the U.S. Federal Trade Commission (the "FTC") and the states of Oregon and Washington (the "States") resulting from its western states refining and marketing joint venture with Texaco. The closing of the Washington Acquisition is contingent upon the approval of the FTC and the States and other customary conditions. Tesoro currently anticipates that the Washington Acquisition will close on or after August 1, 1998. Private Placement Pursuant to Rule 135c of the Securities Act of 1933, as amended, attached hereto as Exhibit 99.2 and incorporated herein by reference is a press release by Tesoro Petroleum Corporation announcing plans to offer Senior Subordinated Notes in a private offering. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS (a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED. The combined financial statements of BHP Petroleum Americas Refining Inc. and BHP Petroleum South Pacific Inc. have been previously filed in a Current Report on Form 8-K dated May 13, 1998. Included as Exhibit 99.1 to this Form 8-K are the audited balance sheets of Shell Anacortes Refining Company as of December 31, 1996 and 1997 and the related statements of income, stockholders' equity and cash flows for the period from inception (January 4, 1996) through December 31, 1996 and the year ended December 31, 1997 and the unaudited balance sheets of Shell Anacortes Refining Company as of March 31, 1998 and the related statements of income and cash flows for the three months ended March 31, 1997 and 1998. (b) PRO FORMA FINANCIAL INFORMATION Unaudited pro forma combined condensed financial statements of the Company and BHP Petroleum Americas Refining Inc. and BHP Petroleum South Pacific Inc. have been previously filed in a Current Report on Form 8-K dated May 13, 1998. (c) EXHIBITS *2.1 Stock Sale Agreement, dated May 1, 1998, among the Company, Shell Anacortes Refining Company and Shell Refining Holding Company (incorporated by reference to the Company's Form 10-Q for the period ended March 31, 1998) +12.1 Computation of Ratio of Earnings to Fixed Charges. +23.1 Consent of Price Waterhouse LLP. +23.2 Consent of Arthur Andersen LLP. +23.3 Consent of Netherland, Sewell & Associates, Inc. +99.1 Audited Financial Statements of Shell Anacortes Refining Company as of December 31, 1996 and 1997 and Unaudited Financial Statements of Shell Anacortes Refining Company as of March 31, 1998. +99.2 Press release issued by Tesoro Petroleum Corporation on June 1, 1998. - --------------------------- * Previously filed. + Filed herewith. 3 4 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 hereunto duly authorized. TESORO PETROLEUM CORPORATION REGISTRANT Date: June 5, 1998 By: /s/ JAMES C. REED, JR. ----------------------------------- James C. Reed, Jr. Executive Vice President, General Counsel and Secretary 4 5 EXHIBIT INDEX EXHIBIT DESCRIPTION - ------- ----------- *2.1 Stock Sale Agreement, dated May 1, 1998, among the Company, Shell Anacortes Refining Company and Shell Refining Holding Company (incorporated by reference to the Company's Form 10-Q for the period ended March 31, 1998) +12.1 Computation of Ratio of Earnings to Fixed Charges. +23.1 Consent of Price Waterhouse LLP. +23.2 Consent of Arthur Andersen LLP. +23.3 Consent of Netherland, Sewell & Associates, Inc. +99.1 Audited Financial Statements of Shell Anacortes Refining Company as of December 31, 1996 and 1997 and Unaudited Financial Statements of Shell Anacortes Refining Company as of March 31, 1998. +99.2 Press release issued by Tesoro Petroleum Corporation on June 1, 1998. - ---------------------------- * Previously filed. + Filed herewith. 5 EX-12.1 2 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES 1 EXHIBIT 12.1 TESORO PETROLEUM CORPORATION Computation of Ratio of Earnings to Fixed Charges (Dollars in thousands)
Three Months Ended March 31 -------------------- 1997 1998 -------- -------- EARNINGS: Earnings before income taxes and extraordinary loss on extinguishments of debt, net ................................. $ 9,575 $10,890 Interest expense, net of capitalized interest ...................... 1,570 2,665 Amortization of debt discount ...................................... -- -- Amortization of debt issuance costs ................................ -- -- Estimated interest portion of rents (a) ............................ 3,406 2,910 ------- ------- Total Earnings ............................................. $14,551 $16,465 ======= ======= FIXED CHARGES: Interest expenses, whether expensed or capitalized ................. $ 1,570 $ 2,665 Amortization of debt discount ...................................... -- -- Amortization of debt issuance costs ................................ -- -- Estimated interest portion of rents (a) ............................ 3,406 2,910 ------- ------- Total Fixed Charges ........................................ $ 4,976 $ 5,575 ======= ======= PREFERRED STOCK DIVIDEND REQUIREMENTS ................................. $ -- $ -- ======= ======= COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDEND REQUIREMENTS .............................................. $ 4,976 $ 5,575 ======= ======= RATIO OF EARNINGS TO FIXED CHARGES .................................... 2.92 2.95 ======= ======= RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDEND REQUIREMENTS .............................. 2.92 2.95 ======= =======
- ---------- (a) For a majority of leases, the interest portion of rents was estimated by using the Company's incremental borrowing rate in effect at the inception of the leases. For the remaining leases, interest expense was estimated by using one third of the rental payments. Total rental expense, including marine charters, was $11.7 million and $12.3 million for the three months ended March 31, 1997 and 1998, respectively. EX-23.1 3 CONSENT OF PRICE WATERHOUSE LLP 1 EXHIBIT 23.1 Consent of Independent Accountant We hereby consent to the incorporation by reference in the Prospectus constituting part of the Registration Statement on Form S-3 (No. 333-51789) of Tesoro Petroleum Corporation of our report dated May 29, 1998 relating to the financial statements of Shell Anacortes Refining Company, which appears in the Current Report on Form 8-K of Tesoro Petroleum Corporation dated June 5, 1998. We also consent to the reference to us under the heading "Experts" in the two Prospectus Supplements for the Common Stock and Premium Income Equity Securities Offerings, which are a part of such Registration Statement. /s/ PRICE WATERHOUSE LLP Price Waterhouse LLP Houston, Texas June 5, 1998 EX-23.2 4 CONSENT OF ARTHUR ANDERSON LLP 1 EXHIBIT 23.2 CONSENT OF ARTHUR ANDERSEN LLP As independent public accountants, we hereby consent to the incorporation by reference in Registration Statement File No. 333-51789 of our report dated March 31, 1998 covering the audited combined financial statements of BHP Petroleum Americas Refining Inc. and BHP Petroleum South Pacific Inc. included in Tesoro Petroleum Corporation's Form 8-K, dated May 13, 1998, and to the reference to our Firm under the heading "Experts" in the two Prospectus Supplements for the Common Stock and Premium Income Equity Securities Offerings, which are a part of such Registration Statement. /s/ ARTHUR ANDERSEN LLP ARTHUR ANDERSEN LLP Honolulu, Hawaii June 4, 1998 EX-23.3 5 CONSENT OF NETHERLAND, SEWELL & ASSOC., INC 1 EXHIBIT 23.3 CONSENT OF INDEPENDENT PETROLEUM ENGINEERS AND GEOLOGISTS We hereby consent to the reference of our firm in the Annual Report on Form 10-K of Tesoro Petroleum Corporation for the year ended December 31, 1997, and the incorporation by reference of such report into the Registration Statement on Form S-3 (No. 333-51789) of our reserve report dated as of December 31, 1997. We also consent to the references to us, including the reference under the heading "Experts" in the Prospectus Supplements, which are a part of such Registration Statement on Form S-3. NETHERLAND, SEWELL & ASSOCIATES, INC. By: /s/ FREDERIC D. SEWELL --------------------------------- Frederic D. Sewell President Dallas, Texas June 5, 1998 EX-99.1 6 FINANCIAL STATEMENTS OF SHELL ANACORTES REFINING 1 EXHIBIT 99.1 REPORT OF INDEPENDENT ACCOUNTANTS --------------------------------- To the Board of Directors and Shareholder of Shell Anacortes Refining Company In our opinion, the accompanying balance sheet and the related statements of income and shareholder's equity and of cash flows present fairly, in all material respects, the financial position of Shell Anacortes Refining Company at December 31, 1997 and 1996, and the results of its operations and its cash flows for the year ended December 31, 1997 and for the period from inception (January 4, 1996) through December 31, 1996, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PRICE WATERHOUSE LLP Price Waterhouse LLP Houston, Texas May 29, 1998 2 SHELL ANACORTES REFINING COMPANY STATEMENT OF INCOME (THOUSANDS OF DOLLARS)
FOR THE PERIOD FROM INCEPTION FOR THE THREE MONTHS ENDED (JANUARY 4, 1996) YEAR ENDED MARCH 31, THROUGH DECEMBER 31, -------------------- DECEMBER 31, 1996 1997 1997 1998 ----------------- ------------ -------- -------- (UNAUDITED) REVENUES: Sales Third Parties......................... $296,168 $ 544,295 $130,553 $127,513 Related Parties....................... 525,120 545,623 160,662 73,918 Interest and other income................ 732 52 120 30 -------- ---------- -------- -------- Total Revenues........................... 822,020 1,089,970 291,335 201,461 -------- ---------- -------- -------- COSTS AND EXPENSES: Purchases of raw materials Third Parties......................... 542,949 888,057 260,887 161,142 Related Parties....................... 153,848 61,557 11,442 19,475 Other operating expenses................. 58,352 68,750 3,000 11,025 Depreciation and amortization............ 8,607 12,715 3,101 3,703 Operating taxes.......................... 11,458 18,584 5,043 3,752 Selling, general and administrative...... 7,547 14,277 3,042 2,512 Research and development................. 1,083 1,137 357 291 Interest expense on advances............. 9 252 37 10 -------- ---------- -------- -------- 783,853 1,065,329 286,909 201,910 -------- ---------- -------- -------- Income (loss) before income taxes........ 38,167 24,641 4,426 (449) Income tax............................... 13,444 8,902 1,636 (80) -------- ---------- -------- -------- Net income (loss)........................ $ 24,723 $ 15,739 $ 2,790 $ (369) ======== ========== ======== ========
The accompanying notes are an integral part of this statement. 3 SHELL ANACORTES REFINING COMPANY BALANCE SHEET (THOUSANDS OF DOLLARS)
AS OF AS OF AS OF DECEMBER 31, DECEMBER 31, MARCH 31, 1996 1997 1998 ------------ ------------ ------------ (UNAUDITED) ASSETS Current Assets: Cash and cash equivalents............................. $ 25 $ 25 $ 25 Advances to Shell Oil Company......................... -- 6,470 -- Owing by related parties.............................. 45,991 17,512 11,313 Other receivables..................................... 1,486 363 1,287 Inventories of product and crude...................... 4,987 25,321 37,398 Inventories of materials and supplies................. 3,676 3,774 3,907 Other current assets.................................. 1,777 1,789 4,349 -------- -------- -------- Total Current Assets.......................... 57,942 55,254 58,279 Property, Plant and Equipment at cost, less accumulated depreciation and amortization.......... 188,876 184,424 184,641 Other Noncurrent Assets............................... 7,524 8,093 8,774 -------- -------- -------- TOTAL ASSETS.................................. $254,342 $247,771 $251,694 ======== ======== ======== LIABILITIES AND SHAREHOLDER'S EQUITY Current Liabilities: Accounts payable...................................... $ 5,601 $ 5,030 $ 6,266 Advances from Shell Oil Company....................... 5,656 -- -- Income, operating, and consumer taxes................. 4,557 1,290 952 Owing to related parties.............................. 637 380 3,553 Other current liabilities............................. 3,855 3,753 3,881 -------- -------- -------- Total Current Liabilities..................... 20,306 10,453 14,652 Long-Term Liabilities................................. 13,240 14,149 14,412 Deferred Income Taxes................................. 24,059 25,693 25,523 -------- -------- -------- Total Liabilities............................. 57,605 50,295 54,587 -------- -------- -------- Shareholder's Equity: Common Stock: 3,000 shares authorized, issued and outstanding at $1.00 par value.................................. 3 3 3 Additional Paid in Capital......................... 181,011 181,011 181,011 Retained Earnings.................................. 15,723 16,462 16,093 -------- -------- -------- Total Shareholder's Equity.................... 196,737 197,476 197,107 -------- -------- -------- TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY.... $254,342 $247,771 $251,694 ======== ======== ========
The accompanying notes are an integral part of this statement. 4 SHELL ANACORTES REFINING COMPANY STATEMENT OF SHAREHOLDER'S EQUITY (THOUSANDS OF DOLLARS)
ADDITIONAL COMMON PAID-IN RETAINED STOCK CAPITAL EARNINGS TOTAL ------ ---------- -------- -------- Initial Capital Contribution........................ $-- $ 1 $ -- $ 1 Contribution of Anacortes refinery net assets....... 3 181,010 -- 181,013 Net income.......................................... -- -- 24,723 24,723 Dividends........................................... -- -- (9,000) (9,000) --- -------- -------- -------- Balance at December 31, 1996........................ 3 181,011 15,723 196,737 Net income.......................................... -- -- 15,739 15,739 Dividends........................................... -- -- (15,000) (15,000) --- -------- -------- -------- Balance at December 31, 1997........................ 3 181,011 16,462 197,476 Net income (loss) (unaudited)....................... -- -- (369) (369) --- -------- -------- -------- Balance at March 31, 1998 (unaudited)............... $ 3 $181,011 $ 16,093 $197,107 === ======== ======== ========
The accompanying notes are an integral part of this statement. 5 SHELL ANACORTES REFINING COMPANY STATEMENT OF CASH FLOWS (THOUSANDS OF DOLLARS)
FROM INCEPTION THREE MONTHS ENDED (JANUARY 4, 1996) FOR THE MARCH 31, THROUGH YEAR ENDED -------------------- DECEMBER 31, 1996 DECEMBER 31, 1997 1997 1998 ----------------- ----------------- -------- -------- (UNAUDITED) Cash Flow Provided by Operating Activities: Net income (loss).............................. $ 24,723 $ 15,739 $ 2,790 $ (369) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.............. 8,607 12,715 3,101 3,703 Deferred income taxes...................... 2,620 1,634 1,019 (170) (Increases) decreases in working capital: Owing by related parties................ (33,525) 28,479 45,990 6,199 Other receivables....................... (1,419) 1,123 (22,169) (924) Inventories of product and crude........ 1,013 (20,334) (19,170) (12,077) Inventories of materials and supplies... 1,252 (98) (48) (133) Other current assets.................... (447) (12) 88 (2,560) Accounts payable........................ 2,240 (571) (1,896) 1,236 Income, operating and consumer taxes.... 3,642 (3,267) 1,462 (338) Owing to related parties................ (1,750) (257) 6,572 3,173 Other current liabilities............... 122 (102) (594) 128 Other noncurrent items..................... 1,450 340 141 (418) -------- -------- -------- -------- Net Cash Provided by Operating Activities...... 8,528 35,389 17,286 (2,550) -------- -------- -------- -------- Cash Flow Used for Investing Activities: Capital expenditures........................... (4,892) (8,157) (2,625) (3,456) Proceeds from property sales and salvage, net of removal costs............................. (293) (106) 20 (464) Advances to Shell Oil Company.................. -- (6,470) (5,275) 6,470 -------- -------- -------- -------- Net Cash Used for Investing Activities......... (5,185) (14,733) (7,880) 2,550 -------- -------- -------- -------- Cash Flow Used for Financing Activities: Proceeds from issuance of common stock......... 1 -- -- -- Dividends to shareholder....................... (9,000) (15,000) (3,750) -- Advances from Shell Oil Company................ 5,656 (5,656) (5,656) -- -------- -------- -------- -------- Net Cash Used for Financing Activities......... (3,343) (20,656) (9,406) -- -------- -------- -------- -------- Net increase in cash and cash equivalents........ $ -- $ -- $ -- $ -- ======== ======== ======== ======== Cash and cash equivalents Balance at Beginning of period................. $ 25 $ 25 $ 25 $ 25 Increase in cash and cash equivalents...... -- -- -- -- -------- -------- -------- -------- Balance at End of period....................... $ 25 $ 25 $ 25 $ 25 ======== ======== ======== ======== Interest Paid.................................... $ 9 $ 252 $ 37 $ 9 ======== ======== ======== ======== Income taxes paid................................ $ 28,355 $ 7,700 $ -- $ 1,000 ======== ======== ======== ========
The accompanying notes are an integral part of this statement. 6 SHELL ANACORTES REFINING COMPANY NOTES TO FINANCIAL STATEMENTS NOTE 1 -- ORGANIZATION Shell Anacortes Refining Company ("the Company") was incorporated in the state of Delaware on January 4, 1996. The total number of authorized shares for the Company is 3,000 shares of common stock with a par value of $1 per share. On April 1, 1996, Shell Oil Products Company ("SOPC"), a subsidiary of Shell Oil Company ("Shell"), acquired 100 shares of common stock of the Company for $1,000. On April 30, 1996, through a series of transactions amongst Shell subsidiaries, the 100 shares of the Company's stock, which were previously owned by SOPC, were transferred to Shell Refining Holdings Company ("SRHC") in exchange for their stock. On May 1, 1996, a series of transactions were executed amongst Shell and certain subsidiaries of Shell which culminated in SRHC contributing the assets and property described in the Subscription Agreement as Anacortes Refinery Assets, comprised of property, plant and equipment, crude and product inventory, store stock, catalysts and deferred taxes on property, plant and equipment, to the Company in exchange for 2,900 shares of the Company's stock. Prior to May 1, 1996, the Anacortes Refinery Assets were owned by Shell. Therefore, refinery operations for the Company effectively began on May 1, 1996 upon contribution of the assets to the Company. The Company recorded the contributed assets at the predecessor's book value of approximately $181,013 thousand as the assets were contributed and ultimately held by entities under control. On May 1, 1996, simultaneously with the contribution of the Anacortes Refinery Assets, the Company assumed certain Shell net liabilities, as follows, in exchange for an equal amount of cash to settle these net liabilities (in thousands): Net Working Capital Deficits................................ $ 7,066 Deferred Tax Assets......................................... (497) Prepaid Qualified Pension Plan.............................. (7,000) Unqualified Pension Plan Liabilities........................ 500 Other Postretirement Employee Benefits Liabilities.......... 11,900 Deferred Tax on Postretirement Liabilities.................. (1,890) ------- Cash Received............................................... $10,079 =======
The cash payment was accounted for as a component of the Revolver (See Note 3). NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Uses of Estimates -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Cash Equivalents -- Cash equivalents consist of all highly liquid investments that are readily convertible to cash and have a maturity of three months or less at date of acquisition. Inventories -- Inventories of crude oil and products are valued at the lower of cost, predominantly on a last-in, first-out (LIFO) basis, or market, and include certain costs directly related to the production process. Materials and supplies are carried at average cost or less. Depreciation and Amortization -- Properties, plant and equipment are depreciated on a straight-line basis over their estimated useful lives which range between four and twenty years. Gains and losses are not recognized for normal retirements of properties, plant and equipment subject to composite group amortization or depreciation. Gains or losses from abnormal retirements or sales are recognized currently in income. Expenditures for maintenance and repairs are expensed as incurred. 7 SHELL ANACORTES REFINING COMPANY NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Income Taxes -- The Company follows Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes". SFAS No. 109 prescribes an asset and liability approach in accounting for income taxes. It requires that deferred tax assets and liabilities be determined using enacted tax laws for the estimated future tax effects attributable to temporary differences and carryforwards; the effects of future tax laws or rates are not anticipated. Under this method, future financial results will be impacted by the effect of future changes in income tax rates on cumulative deferred income tax balances. Fair Value of Financial Instruments -- The reported amounts of financial instruments such as cash equivalents, advances to Shell Oil Company and owing by related parties, approximate fair value because of their short maturities. Concentration of risk -- All of the Company's trade receivables are from Shell. Although collection of these receivables could be influenced by economic factors affecting the petroleum industry, the risk of significant loss is considered remote. Impairment of Long-Lived Assets -- Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" requires that long-lived assets and certain identifiable intangibles to be held and used be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of affected assets may not be recoverable. Long-lived assets were tested for impairment by comparing carrying amounts with estimated future cash flows expected from use of the assets and from their disposition. Estimates of future cash flows were developed utilizing internal estimates of future costs, product prices, capital costs and salvage values. At December 31, 1996 and December 31, 1997, no impairment write-down of reported balances was necessary. Interim Financial Data -- The interim financial data for the three months ended March 31, 1998 and March 31, 1997 is unaudited; however, in the opinion of the Company, the interim data includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for the interim period. NOTE 3 -- TRANSACTIONS WITH RELATED PARTIES The Company has entered into transactions with related parties including Shell and certain of its subsidiaries. Such transactions were in the ordinary course of business and include the purchase, sale and transportation of crude oil and refined products, as well as charges for certain general, administrative and other functions performed by Shell and its affiliates for the Company. The aggregate amounts of related party transactions during 1997 and 1996 were (in thousands):
FOR THE PERIOD FROM INCEPTION (JANUARY 4, 1996) THROUGH 1997 DECEMBER 31, 1996 -------- ----------------- Sales and other operating revenue......................... $545,623 $525,120 Purchases and transportation.............................. 61,557 153,848 Selling, general, and administrative...................... 12,952 6,553 Research and development.................................. 1,137 1,083 Interest income on Revolver............................... 35 732 Interest expense on Revolver.............................. 252 9
Purchases, Sales and Receivables Under various agreements between Shell and the Company, Shell arranges on behalf of the Company feedstock purchases in the Company's name from third parties and refined product sales in the Company's name to third parties. For feedstock purchases, Shell remits payments to the suppliers and charges the 8 SHELL ANACORTES REFINING COMPANY NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Company for the cost via intercompany accounts. Pursuant to an agreement with Shell for sales to third parties, the Company records an intercompany receivable from Shell and Shell collects the payments from the customers on behalf of the Company and credits the Company through the intercompany account. As a result of this agreement, the Company has sales and purchases with third parties yet cash on these transactions is settled via the Company's owing by/to related parties account with Shell. Since the legal right of offset exists with Shell, trade receivables and trade payables are reflected as a net amount within the owing by/to related parties balance. The Company also has entered into transactions with related parties for the purchase of feedstocks and the sale of refined products. The related trade payables and trade receivables are also included in the owing by/to related parties balance. At December 31, 1997 and 1996, trade receivables and trade payables, including the reconciliation to owing by related were as follows (in thousands):
AS OF AS OF DECEMBER 31, DECEMBER 31, 1997 1996 ------------ ------------ Trade receivables........................................... $86,502 $111,367 Trade payables.............................................. 67,914 83,708 ------- -------- Net owing by related parties balance for trade receivables and payables.............................................. 18,588 27,659 Receivable for overpayment of taxes (see below)............. -- 17,872 Other owing by related parties, net......................... (1,076) 460 ------- -------- Owing by related parties.................................... $17,512 $ 45,991 ======= ========
Advances with Shell The Company is party to a Revolving Credit and Cash Management Agreement (the "Revolver") with Shell. Under the Agreement, the Company will advance its excess cash (including net cash resulting from the proceeds of the refining business) to Shell, and Shell will pay the Company interest on such advances at a rate equal to the prime rate established from time to time by The Chase Manhattan Bank (N.A.), less one percent. In addition, under the Agreement, Shell has irrevocably committed to make a line of credit available to the Company in an aggregate principal amount not exceeding $40 million. The Company may draw on this line of credit on demand. Funds advanced by Shell to the Company under this line of credit will bear interest at the prime rate established from time to time by The Chase Manhattan Bank (N.A.). The funds maintained in the Revolver are liquid and available for use at the Company's discretion. Funds advanced to Shell under the Revolver as of December 31, 1997 amounted to $6.5 million and the interest rate on the amount outstanding at December 31, 1997 was 7.5%. As of December 31, 1996, funds advanced to the Company by Shell amounted to $5.7 million and the interest rate on the amount outstanding at December 31, 1996 was 8.25%. Under the Revolver there were amounts advanced to Shell and amounts due to Shell at various times throughout the period from the date of commencement of the Revolver (April 1, 1996) to December 31, 1997. Interest income earned on the funds advanced to Shell for the year ended December 31, 1997 and the period from inception (January 4, 1996) to December 31, 1996 amounted to $35 thousand and $732 thousand, respectively. Interest expense incurred on the funds advanced from Shell for the year ended December 31, 1997 and the period from inception (January 4, 1996) to December 31, 1996 amounted to $252 thousand and $9 thousand, respectively. Cost Sharing and other charges Under the Cost Sharing Agreement between Shell and the Company, research, development, and technology service costs related to the refining of crude oil and other raw materials are allocated to the 9 SHELL ANACORTES REFINING COMPANY NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Company based upon a percentage equal to the Company's equivalent distillation capacity as compared to the combined capacity for all refineries participating under the agreement. The Company is required under the agreement to pay Shell its share of estimated research, development, and technology service costs on a monthly basis. The Company is also charged for certain overhead administrative expenses at rates which have been agreed upon by the Company and Shell. Receivable for overpayment of taxes The Company files a separate tax return; however, for the period from inception (January 4, 1996) through December 31, 1996, the Company paid their estimated tax liability to SRHC which then remitted the taxes for itself and certain of its subsidiaries, including the Company, to the Internal Revenue Service. The amount submitted by the Company exceeded their tax liability by approximately $17 million due to estimates of the tax liability differing from actual results. The amount due for the overpayment is recorded in the owing by related parties balance. NOTE 4 -- INVENTORIES OF CRUDE OILS AND REFINED PRODUCTS Inventories are carried on a LIFO basis which was lower than current cost by $1.6 million at December 31, 1997 and $12.3 million at December 31, 1996. A portion of Shell's inventory was held on consignment by the Company. The title to and ownership of such inventory is intended to remain with Shell until purchased by the refining company in accordance with the Feedstock Consignment Agreement. For the year ended December 31, 1997 and the period from inception (January 4, 1996) through December 31, 1996, $13,395 thousand and $14,690 thousand, respectively, of crude and refined products were purchased from consignment. As of December 31, 1997, all the consigned crude inventory had been purchased by the Company with some product inventory remaining on consignment. During the period from May 1, 1996, the date of contribution of the Anacortes Refinery Assets, to December 31, 1996 inventory quantities were reduced. This reduction resulted in a liquidation of LIFO inventory quantities carried at lower costs prevailing in prior years, as the inventory was contributed at book value, as compared with the 1996 purchases for the period from May 1, 1996 to December 31, 1996, the effect of which decreased operating expenses by approximately $2,825 thousand. NOTE 5 -- PROPERTY, PLANT AND EQUIPMENT Investments in property, plant and equipment as of December 31, 1997 and 1996, respectively, are reported at historical cost as follows (in thousands):
1997 1996 ------------------------------ ------------------------------ COST RESERVE* NET COST RESERVE* NET -------- -------- -------- -------- -------- -------- Land.................. $ 2,808 $ 2,808 $ 2,808 $ 2,808 Manufacturing assets.............. 342,844 $161,228 181,616 334,693 $148,625 186,068 -------- -------- -------- -------- -------- -------- Total....... $345,652 $161,228 $184,424 $337,501 $148,625 $188,876 ======== ======== ======== ======== ======== ========
* Accumulated depreciation and amortization. 10 SHELL ANACORTES REFINING COMPANY NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE 6 -- TAXES Operating and income taxes incurred by the Company in 1997 and 1996 were as follows (in thousands):
FOR THE PERIOD FROM INCEPTION (JANUARY 4, 1996) THROUGH DECEMBER 31, 1997 1996 ------- ----------------- Operating Taxes - --------------- Hazardous substance....................................... $ 8,092 $ 3,978 Business and occupation................................... 5,745 4,980 Real and personal property................................ 2,089 1,192 Payroll................................................... 1,377 657 Other..................................................... 1,281 651 ------- ------- $18,584 $11,458 ======= ======= Federal and Other Incomes Taxes - ------------------------------- Current: Federal................................................ $ 6,758 $10,484 State.................................................. 510 340 Deferred: Federal................................................ 1,634 2,620 ------- ------- $ 8,902 $13,444 ======= =======
Total income tax expense for 1997 and 1996 was equivalent to an effective tax rate of 36% and 35%, respectively. Reconciliation to the expected tax at the U.S. statutory rate of 35% is as follows (in thousands):
FOR THE PERIOD FROM INCEPTION (JANUARY 4, 1996) THROUGH DECEMBER 31, 1997 1996 ------ ----------------- Expected tax at statutory rate.............................. $8,624 $13,358 State tax................................................... 332 221 Other....................................................... (54) (135) ------ ------- $8,902 $13,444 ====== =======
11 SHELL ANACORTES REFINING COMPANY NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Deferred income taxes are provided for the temporary differences between the tax basis of the Company's assets and liabilities and the amounts reported in the financial statements. Significant components of deferred tax liabilities and assets as of December 31, 1997 and December 31, 1996 are as follows (in millions):
1997 1996 ---- ---- Deferred tax liabilities: - ------------------------- Depreciation of properties, plant, and equipment.......... $30 $27 Other..................................................... 2 1 --- --- Total deferred tax liabilities.................... 32 28 --- --- Deferred tax assets: - -------------------- Other postretirement liabilities.......................... 4 4 Other..................................................... 2 -- --- --- Total deferred tax assets......................... 6 4 --- --- Net deferred tax liabilities...................... $26 $24 === ===
The Company has assessed the need for establishing a valuation allowance for its deferred tax assets and has determined that such an allowance is unnecessary. NOTE 7 -- POSTRETIREMENT BENEFITS The employees associated with fuels operations of the refinery became employees of the refinery subsidiary on April 1, 1996. In participation with Shell, the Company currently provides health care benefits for retired employees and their dependents. Eligibility for such benefits requires retirement from the Company with entitlement to an immediate pension generally upon the earlier of the attainment of age 50, when such age plus years of service equals 80, or the attainment of age 65. Other postretirement benefits provided to the employees include life insurance benefits. These life insurance benefits are primarily funded by employees; as a result, the cost of such benefits to the Company is not material. The health care benefits for retired employees and their dependents are provided by Shell's unfunded defined benefit plans. The benefit is defined as the Company's contributions to such plans. Annually, retirees are advised of the amount of the Company's monthly contribution to the plans for the following year and the monthly amount such retirees must pay for the particular coverage desired. Retiree health care costs allocated from Shell amounted to $503 thousand in 1997 and $364 thousand in 1996. Other long-term liabilities include $11.9 million in connection with retiree health care cost allocations as of both December 31, 1997 and 1996. As of May 1, 1996, the pre-existing liabilities of the refinery subsidiaries for post-retirement benefits of $11.9 million were conveyed to the Company in addition to an equal amount of cash to settle the net liabilities, based on actuarial data. 12 SHELL ANACORTES REFINING COMPANY NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE 8 -- PENSION PLAN AND PROVIDENT FUND The Company participates with Shell in the Shell Pension Plan (Plan), the Benefit Restoration Plan, the Senior Staff Plan, and the Shell Provident Fund. The Plan covers substantially all of the Company's employees. Benefits are based on years of service and the employee's average final compensation. The prepaid cost (accrued liability) conveyed to the Company on May 1, 1996 in addition to an equal amount of cash to settle the net liability, based on actuarial data was as follows (in millions):
MAY 1, 1996 ------ Qualified Pension Plan - ---------------------- Employees................................................. $ 3 Pensioners and deferred vested............................ 4 ---- $ 7 ==== Non-qualified Pension Plan - -------------------------- Employees................................................. $(.3) Pensioners and deferred vested............................ (.2) ---- $(.5) ====
There were no contributions to the Shell Pension Trust since May 1, 1996 due to the full-funding limitation of the applicable law. The Benefits Restoration Plan generally provides for payments of amounts in excess of limits imposed by federal tax law on benefit payments under the Shell Pension Plan. The Senior Staff Plan provides for defined monthly supplemental pension payments to members of the senior staff (consisting of certain officers and other high ranking employees). Both of these plans are unfunded. The Shell Provident Fund covers employees of the Company after stated periods of service, and provides for contributions by the employing company based on a stated percentage of the employees' salaries and wages. Employees may also contribute amounts up to a stated percentage. The Company's portion of the total cost of the Shell Provident Plan and the Shell Pension Plan was $1,306 thousand and $523 thousand, respectively, in 1997, and was $774 thousand and $540 thousand, respectively, in 1996. NOTE 9 -- CONTINGENCIES AND OTHER MATTERS The Company and related Shell subsidiaries are named defendants in certain lawsuits and named parties in certain governmental proceedings arising in the ordinary course of business. While the outcome of such contingencies, lawsuits or other proceedings against the Company cannot be predicted with certainty, management expects that such liability, to the extent not provided for through insurance or otherwise, will not have material adverse effect on the financial statements of the Company. In connection with the commencement of operations of the Company, Shell agreed to retain liability for, and indemnify the Company for all other liabilities and costs arising as the result of governmental or private claims, suits or enforcement actions, either threatened or asserted prior to May 1, 1996 or arising out of acts or incidents occurring prior to May 1, 1996, except for environmental claims, suits or actions. As to environmental claims, suits or actions, either private or governmental, and all other environmental costs and expenses, Shell has agreed to indemnify the Company for all liabilities and costs (including those for claims, suits or actions) in any year which exceed the budgeted environmental expenditures for such year. 13 SHELL ANACORTES REFINING COMPANY NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE 10 -- SUBSEQUENT EVENTS On January 15, 1998, Shell Oil and Texaco Inc. ("Texaco") reached an agreement on the formation and operational start up of Equilon Enterprises LLC ("Equilon"). Equilon is a joint venture which combines major elements of both companies' western and midwestern United States refining and marketing businesses and both companies' nationwide trading, transportation and lubricants businesses. The Company will be sold as part of a settlement agreement with the Federal Trade Commission involving the joint venture with Texaco. Beginning in December 1997, the Company must be held separate from all other operations within Shell and Texaco. On May 1, 1998, Shell Oil Company entered into an agreement to sell the stock of the Company to Tesoro Petroleum Corporation ("Tesoro"). Tesoro will acquire the Company for $237 million plus an additional payment for net working capital at the time of closing. The Federal Trade Commission and the states of Oregon and Washington will have final approval of the transaction and Tesoro as the buyer. Also as part of Federal Trade Commission agreement, effective January 1, 1998, the Company acquired all the third parties contracts in the state of Oregon previously held by Shell and purchased the associated inventory in the state of Oregon. EX-99.2 7 PRESS RELEASE BY TESORO PETROLEUM CORP. 06/01/98 1 Exhibit 99.2 NEWS RELEASE FOR IMMEDIATE RELEASE: CONTACT: SUSAN PIROTINA (210) 283-2631 TESORO ANNOUNCES PRIVATE OFFERING OF SENIOR SUBORDINATED NOTES SAN ANTONIO -- JUNE 1, 1998 -- Tesoro Petroleum Corporation (NYSE: TSO) announced today that it plans a private offering of $300 million in Senior Subordinated Notes eligible for Rule 144A in connection with its plans to finance its recent refinery acquisitions. The Company recently completed the acquisition of a refinery and 32 retail marketing outlets in Hawaii from The Broken Hill Proprietary Company Limited and has agreed to acquire a refinery in Anacortes, Washington from Shell Refining Holding Company. In connection with these acquisitions, the Company intends to raise proceeds from certain previously announced public equity offerings and the proposed offering of Senior Subordinated Notes. The Senior Subordinated Notes are expected to have a ten-year maturity without sinking fund requirements. The Notes will be subject to optional redemption by the Company after five years at declining premiums. The Senior Subordinated Notes will not be registered under the Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. Tesoro Petroleum Corporation is a natural resource company engaged in petroleum refining and marketing, natural gas exploration and production, marketing and distributing petroleum products and providing marine logistics services. -30- -----END PRIVACY-ENHANCED MESSAGE-----