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): April 22, 2015
Tesoro Corporation
(Exact name of registrant as specified in its charter)


 
 
 
 
 
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)

(210) 626-6000
(Registrant’s telephone number,
including area code)

Not Applicable
(Former name or former address, if
changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2.):
 
 
 
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.

Tesoro Corporation (or the “Company”) on April 22, 2015, issued a press release announcing selected financial results for its first quarter ended March 31, 2015. The press release is filed as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated herein by reference.

The information above is being furnished, not filed, pursuant to Item 2.02 of Form 8-K. Accordingly, the information in Item 2.02 of this Current Report, including the press release, will not be incorporated by reference into any registration statement filed by the Company under the Securities Act of 1933, as amended, unless specifically identified therein as being incorporated by reference.

Item 9.01 Financial Statements and Exhibits.
 
(d)
Exhibits.
 
 
 
 
 
 
99.1

Press release announcing selected first quarter financial results issued on April 22, 2015 by Tesoro Corporation.


2


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.
Date: April 22, 2015
 
 
 
 
 
 
TESORO CORPORATION

 
 
 
By:  
/s/ STEVEN M. STERIN
 
 
 
Steven M. Sterin
 
 
 
Executive Vice President and Chief Financial Officer
 
 


3


Index to Exhibits
 
 
 
Exhibit Number
 
Description
 
 
 
99.1
 
Press release announcing selected first quarter financial results issued on April 22, 2015 by Tesoro Corporation.


4


Exhibit 99.1

Tesoro Corporation Pre-Releases First Quarter 2015 Earnings and Affirms Second Quarter and Full Year Guidance for 2015

SAN ANTONIO - April 22, 2015 - Tesoro Corporation (NYSE:TSO) today reported first quarter 2015 net earnings of $145 million or $1.15 per diluted share compared to net earnings of $78 million or $0.58 per diluted share for the first quarter of 2014. Adjusted earnings for the first quarter, excluding a net benefit from special items of $21 million after tax, were $124 million or $0.98 per diluted share. Adjusted EBITDA for the first quarter, excluding special items, was $489 million compared to $362 million last year.
“We managed through a very difficult first quarter which resulted from the labor disruption at our three West Coast refineries. Also during the quarter planned maintenance was performed at three refineries, including extended downtime at the Martinez refinery,” said Greg Goff, Chairman and CEO. “As of the beginning of April, the labor disputes have been resolved and we are back on track to deliver on our stated 2015 business improvement objectives. We are very confident in our current 2015 Plan, which is consistent with consensus EBITDA estimates of approximately $800 million for the second quarter and $2.6 billion for full year 2015,” said Goff.
The first quarter of 2015 was impacted by work stoppages at the Anacortes, Washington and Los Angeles and Martinez, California refineries. Also during the first quarter, planned maintenance was performed at our Martinez, Anacortes and Salt Lake City, Utah refineries. Our California region was the most significantly impacted by the work stoppage. The Martinez refinery was idled during February and March and production was impacted at the Los Angeles refinery. Compared to first quarter of 2014, California region throughput was lower by approximately 100 thousand barrels per day, resulting in increased operating costs of more than $1 per barrel.
The impact of the work stoppage and the planned turnarounds in the first quarter resulted in a consolidated refining gross margin of $11.77 per barrel compared to the consolidated Tesoro Index of $16.71 per barrel. The combination of higher system throughput during January when margins were low, the work stoppage impact in February and March and inventory builds associated with the turnarounds resulted in lower capture rates for the quarter. We expect to realize a positive impact to system capture rates in the second quarter as we are in the final steps of completing the planned maintenance. We still expect to achieve our 2015 plan, which is consistent with consensus EBITDA estimates of approximately $800 million for the second quarter and $2.6 billion for full year 2015.

1

Tesoro plans to release its full earnings for the first quarter 2015 after the market closes on Thursday, May 7, 2015. The Company will broadcast, live, its conference call with analysts regarding first quarter results and other business matters on Friday, May 8, 2015, at 7:30 a.m. CT. Interested parties may listen to the live conference call over the Internet by logging on to www.tsocorp.com.

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 and ownership in a logistics business which includes a 36% interest in Tesoro Logistics LP (NYSE: TLLP) and ownership of its general partner. Tesoro's retail-marketing system includes over 2,200 retail stations under the ARCO®, Shell®, Exxon®, Mobil®, USA Gasoline(TM) and Tesoro® brands.
This 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 our expectations regarding estimates and expectations regarding our business improvement objectives for 2015 and EBITDA estimates for the second quarter and full year 2015. For more information concerning factors that could affect these statements see our annual report on Form 10-K 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:
Sam Ramraj, Vice President, Investor Relations, (210) 626-4757

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

2


TESORO CORPORATION
SEGMENT OPERATING DATA AND RESULTS
(Unaudited)
 
Three Months Ended
March 31,
REFINING SEGMENT
2015
 
2014
Total Refining Segment
 
 
 
Throughput (Mbpd)
 
 
 
Heavy crude (a)
96

 
170

Light crude
546

 
598

Other feedstocks
54

 
49

Total Throughput
696

 
817

 
 
 
 
Yield (Mbpd)
 
 
 
Gasoline and gasoline blendstocks
358

 
421

Diesel fuel
144

 
200

Jet fuel
119

 
128

Heavy fuel oils, residual products, internally produced fuel and other
117

 
124

Total Yield
738

 
873

 
 
 
 
Refined Product Sales (Mbpd) (b)
 
 
 
Gasoline and gasoline blendstocks
487

 
512

Diesel fuel
180

 
187

Jet fuel
158

 
152

Heavy fuel oils, residual products and other
74

 
77

Total Refined Product Sales
899

 
928

 
 
 
 
Segment Operating Income ($ millions)
 
 
 
Gross refining margin (c)
$
779

 
$
795

Expenses
 
 
 
Manufacturing costs
397

 
416

Other operating expenses
67

 
92

Selling, general and administrative expenses
3

 
2

Depreciation and amortization expense
119

 
101

Loss on asset disposal and impairments
3

 
(1
)
Segment Operating Income
$
190

 
$
185

 
 
 
 
Gross refining margin ($/throughput bbl) (d) (e)
$
11.77

 
$
10.80

Manufacturing cost before depreciation and amortization expense
   ($/throughput bbl) (c)
$
6.33

 
$
5.65

Refined Product Sales Margin ($/bbl) (c) (d)
 
 
 
Average sales price
$
74.13

 
$
114.87

Average costs of sales
65.11

 
105.34

Refined Product Sales Margin
$
9.02

 
$
9.53



3


___________________________
(a)
We define heavy crude oil as crude oil with an American Petroleum Institute gravity of 24 degrees or less.
(b)
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.
(c)
Consolidated gross refining margin combines gross refining margin for each of our regions adjusted for other amounts not directly attributable to a specific region. 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.
(d)
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.
(e)
The gross refining margin per throughput barrel excludes the impact of the $42 million benefit recognized during the three months ended March 31, 2015 from a lower of cost or market inventory valuation adjustment recorded in the fourth quarter of 2014 in the computation of the rate at a consolidated or regional level.


4


TESORO CORPORATION
SEGMENT OPERATING DATA AND RESULTS
(Unaudited)
 
Three Months Ended
March 31,
Refining By Region
2015
 
2014
California (Martinez and Los Angeles)
 
 
 
Throughput (Mbpd)
 
 
 
Heavy crude (a)
90

 
165

Light crude
295

 
327

Other feedstocks
37

 
29

Total Throughput
422

 
521

 
 
 
 
Yield (Mbpd)
 
 
 
Gasoline and gasoline blendstocks
223

 
277

Diesel fuel
83

 
134

Jet fuel
73

 
78

Heavy fuel oils, residual products, internally produced fuel and other
75

 
78

Total Yield
454

 
567

 
 
 
 
Gross refining margin ($ millions)
$
436

 
$
397

Gross refining margin ($/throughput bbl) (d) (e)
$
10.67

 
$
8.45

Manufacturing cost before depreciation and amortization expense
($/throughput bbl) (c)
$
7.53

 
$
6.48

Capital expenditures ($ millions)
$
55

 
$
27

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

 
5

Light crude
139

 
148

Other feedstocks
13

 
15

Total Throughput
158

 
168

 
 
 
 
Yield (Mbpd)
 
 
 
Gasoline and gasoline blendstocks
69

 
74

Diesel fuel
26

 
32

Jet fuel
33

 
32

Heavy fuel oils, residual products, internally produced fuel and other
35

 
36

Total Yield
163

 
174

 
 
 
 
Gross refining margin ($ millions)
$
172

 
$
136

Gross refining margin ($/throughput bbl) (d) (e)
$
11.52

 
$
9.04

Manufacturing cost before depreciation and amortization expense
($/throughput bbl) (c)
$
4.43

 
$
4.27

Capital expenditures ($ millions)
$
26

 
$
5



5


TESORO CORPORATION
SEGMENT OPERATING DATA AND RESULTS
(Unaudited)
 
Three Months Ended
March 31,
 
2015
 
2014
Mid-Continent (North Dakota and Utah)
 
 
 
Throughput (Mbpd)
 
 
 
Light crude
112

 
124

Other feedstocks
4

 
4

Total Throughput
116

 
128

 
 
 
 
Yield (Mbpd)
 
 
 
Gasoline and gasoline blendstocks
66

 
70

Diesel fuel
35

 
34

Jet fuel
13

 
18

Heavy fuel oils, residual products, internally produced fuel and other
7

 
10

Total Yield
121

 
132

 
 
 
 
Gross refining margin ($ millions)
$
172

 
$
260

Gross refining margin ($/throughput bbl) (d) (e)
$
16.06

 
$
22.56

Manufacturing cost before depreciation and amortization expense
($/throughput bbl) (c)
$
4.56

 
$
4.07

Capital expenditures ($ millions)
$
103

 
$
36



6


TESORO CORPORATION
RECONCILIATION OF AMOUNTS REPORTED UNDER U.S. GAAP
(Unaudited) (In millions)
 
Three Months Ended
March 31,
 
2015
 
2014
Reconciliation of Net Earnings to EBITDA and Adjusted EBITDA
 
 
 
Net earnings
$
188

 
$
103

Loss from discontinued operations, net of tax
—

 
1

Depreciation and amortization expense
179

 
130

Income tax expense
96

 
56

Interest and financing costs, net
55

 
77

EBITDA (f)
$
518

 
$
367

Special items (g)
(29
)
 
(5
)
Adjusted EBITDA (f)
$
489

 
$
362

 
 
 
 
Reconciliation of Cash Flows from (used in) Operating Activities
   to EBITDA and Adjusted EBITDA
 
 
 
Net cash used in operating activities
$
(148
)
 
$
(150
)
Debt redemption charges
—

 
(31
)
Deferred charges
83

 
60

Changes in current assets and current liabilities
470

 
343

Income tax expense
96

 
56

Stock-based compensation benefit (expense)
(28
)
 
18

Interest and financing costs, net
55

 
77

Other
(10
)
 
(6
)
EBITDA (f)
$
518

 
$
367

Special items (g)
(29
)
 
(5
)
Adjusted EBITDA (f)
$
489

 
$
362

________________
(f)
We define EBITDA as consolidated earnings, including earnings attributable to noncontrolling interest, excluding net earnings (loss) from discontinued operations, before depreciation and amortization expense, net interest and financing costs, income taxes and interest income. We define Adjusted EBITDA as EBITDA plus or minus amounts determined to be “special items” by our management based on their unusual nature and relative significance to earnings in a certain period.
(g)
Special items included in EBITDA but excluded for presentation of adjusted EBITDA consist of the following:
 
Three Months Ended
March 31,
 
2015
 
2014
 
(In millions)
Inventory valuation adjustment (h)
$
(42
)
 
$
—

Throughput deficiency receivable (i)
13

 
—

Gain on sale of Boise Terminal (j)
—

 
(5
)
Total special items included in EBITDA
$
(29
)
 
$
(5
)
____________________
(h)
Includes a benefit of $42 million ($25 million after tax) recognized during the three months ended March 31, 2015 resulting from a lower of cost or market inventory valuation adjustment recorded in the fourth quarter of 2014.
(i)
During the three months ended March 31, 2015, TLLP invoiced a QEPFS customer for a shortfall payment. TLLP did not recognize $13 million ($4 million to Tesoro, after tax) of revenue related to the billing period as it represented an opening balance sheet asset for the acquisition of the Rockies Natural Gas Business; however, TLLP is entitled to the cash receipt from such billing.
(j)
Includes a gain of $5 million ($1 million to Tesoro, after-tax) for the three months ended March 31, 2014 resulting from TLLP’s sale of its Boise Terminal.


7


TESORO CORPORATION
RECONCILIATION OF AMOUNTS PROJECTED UNDER U.S. GAAP
(Unaudited) (In millions)
 
Three Months
 
Year Ended
 
Ended June 30,
 
December 31,
Reconciliation of Projected Net Earnings to Projected EBITDA
2015
 
2015
Projected net earnings
$
379

 
$
1,086

Depreciation and amortization expense
178

 
716

Income tax expense
186

 
560

Interest and financing costs, net
57

 
238

Projected EBITDA (f)
$
800

 
$
2,600




8


TESORO CORPORATION
NET EARNINGS ADJUSTED FOR SPECIAL ITEMS
(Unaudited) (In millions except per share amounts)
 
Three Months Ended
March 31,
 
2015
 
2014
Net Earnings Attributable to Tesoro Corporation from
   Continuing Operations - U.S. GAAP
$
145

 
$
79

Special Items, After-tax: (k)
 
 
 
Inventory valuation adjustment (h)
(25
)
 
—

Throughput deficiency receivable (i)
4

 
—

Debt redemption charges (l)
—

 
19

Gain on sale of Boise Terminal (j)
—

 
(1
)
Adjusted Earnings (m)
$
124

 
$
97

 
 
 
 
Diluted Net Earnings per Share from Continuing Operations
   Attributable to Tesoro Corporation - U.S. GAAP
$
1.15

 
$
0.59

Special Items Per Share, After-tax: (k)
 
 
 
Inventory valuation adjustment (h)
(0.20
)
 
—

Throughput deficiency receivable (i)
0.03

 
—

Debt redemption charges (l)
—

 
0.14

Gain on sale of Boise Terminal (j)
—

 
(0.01
)
Adjusted Diluted EPS (m)
$
0.98

 
$
0.72

________________________
(k)
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.
(l)
Includes charges totaling $31 million ($19 million after-tax) for premiums and unamortized debt issuance costs associated with the redemption of the 2019 Notes during the three months ended March 31, 2014.
(m)
We present net earnings from continuing operations adjusted for special items (“Adjusted Earnings”) and net earnings per diluted share from continuing operations adjusted for special items (“Adjusted Diluted EPS”) as management believes that the impact of these items on net earnings from continuing operations and diluted earnings per share from continuing operations 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, earnings 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.


9
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