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): August 5, 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 August 5, 2015, issued a press release announcing financial results for its second quarter ended June 30, 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 7.01  Regulation FD Disclosure.

Financial information supplemental to the second quarter earnings conference call is available on the Company's website at www.tsocorp.com. The conference call is scheduled on August 6, 2015 at 7:30 a.m. CST. The financial information supplemental to the conference call is filed as Exhibit 99.2 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 7.01 of Form 8-K. Accordingly, the information in Item 7.01 of this Current Report, including the Slide Presentation, 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 second quarter financial results issued on August 5, 2015, by Tesoro Corporation.
 
 
99.2

Supplemental earnings presentation financial information dated as of August 5, 2015.


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: August 5, 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 second quarter financial results issued on August 5, 2015, by Tesoro Corporation.
99.2
 
Supplemental earnings presentation financial information dated as of August 5, 2015.


4


Exhibit 99.1

Tesoro Corporation Reports 2015 Second Quarter Record Results
Record second quarter net earnings from continuing operations of $586 million, or $4.62 per diluted share
Approved a 18% increase to regularly quarterly dividend to $0.50 per share
Returned over $300 million to shareholders in the second quarter
Delivered over $325 million of business improvements in the first half of 2015
Company on target to achieve business improvements of approximately $670 million for 2015
Expects to offer drop down to TLLP of $50 million to $75 million of EBITDA

SAN ANTONIO - August 5, 2015 - Tesoro Corporation (NYSE:TSO) today reported second quarter 2015 net earnings of $582 million, or $4.59 per diluted share compared to net earnings of $224 million, or $1.70 per diluted share for the second quarter of 2014. Net earnings from continuing operations for the second quarter were $586 million or $4.62 per diluted share. Adjusted EBITDA for the second quarter 2015 was $1.2 billion compared to $548 million last year.

 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
($ in millions, except per share data)
2015
 
2014
 
2015
 
2014
Operating Income
 
 
 
 
 
 
 
     Refining
$
753

 
$
358

 
$
936

 
$
538

     TLLP
109

 
48

 
217

 
108

     Marketing
212

 
88

 
345

 
112

Total Segment Operating Income
$
1,074

 
$
494

 
$
1,498

 
$
758

Net Earnings From Continuing Operations Attributable
   to Tesoro
$
586

 
$
224

 
$
731

 
$
303

 
 
 
 
 
 
 
 
Diluted EPS - Continuing Operations
$
4.62

 
$
1.70

 
$
5.77

 
$
2.29

Diluted EPS - Discontinued Operations
(0.03
)
 

 
(0.03
)
 
(0.01
)
Total Diluted EPS
$
4.59

 
$
1.70

 
$
5.74

 
$
2.28

Adjusted Diluted EPS - Continuing Operations
$
4.62

 
$
1.70

 
$
5.60

 
$
2.42


“We achieved record levels of EBITDA, net income and EPS for the quarter, underscoring our ability to efficiently optimize our assets across the value chain and leverage favorable market conditions” said Greg Goff, Chairman and CEO. “We returned in excess of $300 million to shareholders in the second quarter and delivered over $325 million in business improvements so far this year. The third quarter is off to an excellent start in the current strong margin environment and we expect our refineries to run at 95% to 100% utilization.”


1


For the second quarter 2015, the Company recorded segment operating income of $1.1 billion compared to segment operating income of $494 million in the second quarter of 2014. The increase was largely driven by strong demand, continued growth in the logistics segment and business improvements.

The refining segment’s operating income was $753 million for the quarter, compared to $358 million in the second quarter of 2014. Our refineries benefited from a substantially improved margin environment and lower operating expenses partially offset by turnarounds and maintenance activities.

Total refinery throughput for the quarter was 783 thousand barrels per day, or 92% utilization. Manufacturing costs in the second quarter of 2015 decreased $0.30/bbl over last year to $5.58/bbl primarily attributable to lower energy prices.

The Tesoro Index was $21.61/bbl for the second quarter of 2015 with a realized gross refining margin of $19.13/bbl or 89% of the Tesoro Index, compared to a realized gross refining margin of $13.11 or 101% of the Tesoro Index last year. Capture rates in the quarter were impacted by the combination of refinery downtime, less advantaged crude oil differentials, and increased processing of intermediate feedstocks in our California and Pacific Northwest refineries.

The logistics segment’s operating income was $109 million in the second quarter of 2015 compared to $48 million in the second quarter of 2014. This growth was driven by the Rockies natural gas business and additional volumes from last year’s expansion and reversal project on the High Plains Pipeline in North Dakota.

The retail segment is now referred to as Marketing which includes all retail and wholesale operations. The marketing segment’s operating income was $212 million, up from $88 million in the second quarter of last year. The increase was due to strong market conditions and growing consumer demand.

Corporate and unallocated costs for the second quarter 2015 were $65 million, including $5 million of corporate depreciation and variable stock-based compensation expense of $7 million.


2


Capital Spending and Liquidity
Capital spending for the second quarter 2015 was $160 million for Tesoro Corporation and $77 million for TLLP. The Company estimates full year 2015 capital spending, excluding TLLP, of $600 million. TLLP capital spending is estimated to be approximately $450 million. Turnaround expenditures for the second quarter were $77 million. The Company expects full year 2015 turnaround expenditures of $280 million and deferred retail branding costs of $50 million.

The Company ended the second quarter of 2015 with approximately $1.0 billion in cash and $2.9 billion of availability under the Company’s revolving credit facility with no current borrowings. Excluding TLLP debt and equity, total debt, net of unamortized issuance costs was $1.6 billion or 25% of total capitalization at the end of the second quarter of 2015. On a consolidated basis total outstanding debt, net of unamortized issuance costs was $4.2 billion. TLLP ended the second quarter with $299 million in borrowings under its separate revolving credit facility.

Returning Cash to Shareholders
During the second quarter of 2015, Tesoro returned $303 million to shareholders through the purchase of nearly 2.8 million of the Company’s shares for $250 million and quarterly dividends of $53 million. The Company has $731 million remaining under the authorized $1.0 billion share repurchase program and plans to continue repurchasing shares in 2015.

Tesoro Corporation today also announced that the board of directors has increased the quarterly cash dividend by approximately 18% to $0.50 per share payable on September 14, 2015, to all holders of record as of August 28, 2015.

Strategic Update
The Company is confident in achieving its 2015 plan of delivering approximately $670 million of business improvements. During the first half of 2015, we estimate that we delivered $325 million towards our ongoing initiatives around synergies and business improvement objectives, including approximately $70 million related to West Coast improvements, approximately $100 million related to capturing margin improvements, and approximately $155 million from growing our logistics operations.


3


Tesoro Logistics completed the integration of the Rockies natural gas business and closed the merger of QEPM in July. Through the first half of 2015, the Rockies natural gas business delivered approximately $141 million of adjusted EBITDA, including $14 million of synergies. Tesoro Logistics expects the Rockies natural gas business to deliver $25 million of synergies in 2015.

Tesoro expects to offer Tesoro Logistics the opportunity to acquire crude oil and refined product storage and pipeline assets in Los Angeles in the fourth quarter of 2015. Tesoro expects these assets to deliver an annual EBITDA of $50 to $75 million to TLLP.

In the second quarter 2015, the Company completed the second phase of the Salt Lake City Conversion Project. The project is designed to improve yields of gasoline and diesel, improve the flexibility of processing crude feedstocks and increases total throughput capacity by 4 thousand barrels per day. The refinery is currently processing approximately 22 thousand barrels per day of waxy crude.

The permitting process for the Vancouver Energy project to construct a 360 thousand barrel per day crude oil rail-to-marine terminal has been delayed by the Washington State’s Energy Facility Site Evaluation Committee (“EFSEC”). EFSEC has begun the adjudicative phase and now indicates that it expects to release the Draft Environmental Impact Statement by November of 2015. The Company expects that EFSEC will submit its recommendation to the governor of Washington once it completes the adjudicative phase.

Public Invited to Listen to Analyst and Investor Conference Call
At 7:30 a.m. CT tomorrow morning, Tesoro will broadcast, live, its conference call with analysts regarding second quarter 2015 results and other business matters. Interested parties may listen to the live conference call over the Internet by logging on to http://www.tsocorp.com.

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 2,265 retail stations under the ARCO®, Shell®, Exxon®, Mobil®, USA Gasoline™ and Tesoro® brands.


4


This earnings release contains certain statements that are “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 concerning expectations for achievement of targeted business improvement objectives for 2015; plans to offer dropdown assets to TLLP and the related EBITDA to be generated by such assets; our ability to efficiently optimize our assets across the value chain and leverage favorable market conditions; expected refinery utilization rates; expectations about capital spending, turnaround expenditures and deferred retail branding costs; plans to continue repurchasing shares in 2015;expectations regarding synergies from TLLP’s acquisition of the Rockies natural gas business; benefits, including the increased throughput capacity, of the Salt Lake City Conversion Project; and timing of the permitting and approval process for the Vancouver Energy project. For more information concerning factors that could affect these statements see our annual report on Form 10-K and quarterly reports on Form 10-Q, filed with the Securities and Exchange Commission. We undertake no obligation to publicly release the result of any revisions to any such forward-looking statements that may be made to reflect events or circumstances that occur, or which we become aware of, after the date hereof.


Contact:
Investors:
Sam Ramraj, Vice President, Investor Relations, (210) 626-4757

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


5


Non-GAAP Measures

Our management uses a variety of financial and operating metrics to analyze operating segment performance. To supplement our financial information presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), our management uses additional metrics that are known as “non-GAAP” financial metrics in its evaluation of past performance and prospects for the future. These metrics are significant factors in assessing our operating results and profitability and include earnings before interest, income taxes, depreciation and amortization expenses (“EBITDA”). 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 (loss) in a certain period. We provide complete reconciliation and discussion of items identified as special items with our presentation of adjusted EBITDA.

We present EBITDA and adjusted EBITDA because we believe some investors and analysts use EBITDA and adjusted EBITDA to help analyze our cash flows including our ability to satisfy principal and interest obligations with respect to our indebtedness and use cash for other purposes, including capital expenditures. EBITDA and adjusted EBITDA are also used by some investors and analysts to analyze and compare companies on the basis of operating performance and by management for internal analysis. EBITDA and adjusted EBITDA should not be considered as alternatives to U.S. GAAP net earnings or net cash from operating activities. EBITDA and adjusted EBITDA have important limitations as analytical tools, because they exclude some, but not all, items that affect net earnings and net cash from operating activities.

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.

Items Impacting Comparability

We changed our operating segment presentation in the second quarter of 2015 to reflect the changing nature of our underlying assets, operations and how our chief operating decision maker (“CODM”) manages our business. In previous periods, a portion of our marketing business related to sales in unbranded or wholesale channels was presented within our refining operating segment. Our branded operations represent the assets and operations that were previously shown as the retail segment. Upon considering the changes in our business, including the transition from company-owned retail operations to multi-site operator model, we assessed how our CODM evaluates the business, assesses performance and allocates resources. From this analysis, we believe presentation of a marketing segment inclusive of both unbranded and branded marketing operations is appropriate. As of June 30, 2015, we revised our operating segments to include refining, TLLP and a new marketing segment. Comparable prior period information has been recast to reflect our revised segment presentation. No other changes were deemed necessary to our refining and TLLP segments.

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.

TLLP acquired assets related to, and entities engaged in, natural gas gathering, transportation and processing in Wyoming, Colorado, Utah, and North Dakota (the “Rockies Natural Gas Business”) through its acquisition of QEP Field Services, LLC (“QEPFS”) from QEP Resources, Inc. on December 2, 2014. QEPFS held an approximate 56% limited partner interest in QEP Midstream Partners, LP (“QEPM”) at June 30, 2015 and 100% of QEPM’s general partner, QEP Midstream Partners GP, LLC, which itself holds a 2% general partner interest and all of the incentive distribution rights in QEPM. All intercompany transactions with TLLP and QEPM are eliminated upon consolidation.




6



TESORO CORPORATION
RESULTS OF CONSOLIDATED OPERATIONS
(Unaudited)
(In millions, except per share amounts)
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
Revenues
$
8,232

 
$
11,104

 
$
14,695

 
$
21,037

Costs and Expenses:
 
 
 
 
 
 
 
Cost of sales (a)
6,398

 
9,867

 
11,738

 
18,815

Operating expenses
578

 
598

 
1,087

 
1,189

Selling, general and administrative expenses (b)
61

 
92

 
152

 
123

Depreciation and amortization expense
182

 
135

 
361

 
265

(Gain) loss on asset disposals and impairments (c)
4

 
2

 
8

 
(3
)
Operating Income
1,009

 
410

 
1,349

 
648

Interest and financing costs, net (d)
(54
)
 
(41
)
 
(109
)
 
(118
)
Other income, net (e)
3

 
3

 
2

 
2

Earnings Before Income Taxes
958

 
372

 
1,242

 
532

Income tax expense
334

 
132

 
430

 
188

Net Earnings From Continuing Operations
624

 
240

 
812

 
344

Loss from discontinued operations, net of tax
(4
)
 

 
(4
)
 
(1
)
Net Earnings
620

 
240

 
808

 
343

Less: Net earnings from continuing operations attributable to
   noncontrolling interest
38

 
16

 
81

 
41

Net Earnings Attributable to Tesoro Corporation
$
582

 
$
224

 
$
727

 
$
302

Net Earnings (Loss) Attributable to Tesoro Corporation
 
 
 
 
 
 
 
Continuing operations
$
586

 
$
224

 
$
731

 
$
303

Discontinued operations
(4
)
 

 
(4
)
 
(1
)
Total
$
582

 
$
224

 
$
727

 
$
302

Net Earnings (Loss) Per Share - Basic:
 
 
 
 
 
 
 
Continuing operations
$
4.67

 
$
1.73

 
$
5.84

 
$
2.33

Discontinued operations
(0.03
)
 

 
(0.03
)
 
(0.01
)
Total
$
4.64

 
$
1.73

 
$
5.81

 
$
2.32

Weighted average common shares outstanding - Basic
125.2

 
129.3

 
125.2

 
130.3

Net Earnings (Loss) Per Share - Diluted:
 
 
 
 
 
 
 
Continuing operations
$
4.62

 
$
1.70

 
$
5.77

 
$
2.29

Discontinued operations
(0.03
)
 

 
(0.03
)
 
(0.01
)
Total
$
4.59

 
$
1.70

 
$
5.74

 
$
2.28

Weighted average common shares outstanding - Diluted
126.3

 
131.5

 
126.6

 
132.7

________________________
(a)
Includes a benefit of $42 million ($25 million after-tax) recognized during the six months ended June 30, 2015 resulting from the reversal of a lower of cost or market inventory valuation adjustment recorded in the fourth quarter of 2014.
(b)
Includes stock-based compensation expense of $7 million and $26 million for the three months ended June 30, 2015 and 2014, respectively, and expense of $35 million and $8 million for the six months ended June 30, 2015 and 2014, respectively. The significant impact to stock-based compensation expense is primarily a result of changes in Tesoro’s stock price during the three and six months ended June 30, 2015 as compared to the three and six months ended June 30, 2014.
(c)
Includes a gain of $5 million ($1 million to Tesoro, after-tax) for the six months ended June 30, 2014 resulting from TLLP’s sale of its Boise Terminal.
(d)
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 six months ended June 30, 2014.
(e)
Includes equity in earnings of equity method investments of $1 million and $4 million for the three and six months ended June 30, 2015, respectively, for TLLP related to its investments in Three Rivers Gathering and Uinta Basin Field Services. Also includes equity in earnings of equity method investments of $1 million for the six months ended June 30, 2015 and equity in loss of equity method investments of $2 million and $1 million for the three and six months ended June 30, 2014, respectively, for our refining segment related to its investments in Watson Cogen Company and Vancouver Energy.

7



TESORO CORPORATION
SELECTED SEGMENT OPERATING DATA
(Unaudited) (In millions)
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
Earnings Before Income Taxes
 
 
 
 
 
 
 
Refining (a) (f)
$
753

 
$
358

 
$
936

 
$
538

TLLP (c)
109

 
48

 
217

 
108

Marketing (f)
212

 
88

 
345

 
112

Total Segment Operating Income
1,074

 
494

 
1,498

 
758

Corporate and unallocated costs (b)
(65
)
 
(84
)
 
(149
)
 
(110
)
Operating Income
1,009

 
410

 
1,349

 
648

Interest and financing costs, net (d)
(54
)
 
(41
)
 
(109
)
 
(118
)
Other expense, net
3

 
3

 
2

 
2

Earnings Before Income Taxes
$
958

 
$
372

 
$
1,242

 
$
532

Depreciation and Amortization Expense
 
 
 
 
 
 
 
Refining
$
122

 
$
104

 
$
241

 
$
205

TLLP
44

 
17

 
88

 
33

Marketing
11

 
10

 
23

 
20

Corporate
5

 
4

 
9

 
7

Total Depreciation and Amortization Expense
$
182

 
$
135

 
$
361

 
$
265

Special Items, Before Taxes (g)
 
 
 
 
 
 
 
Refining
$

 
$

 
$
(42
)
 
$

TLLP

 

 
13

 
(5
)
Total Special Items
$

 
$

 
$
(29
)
 
$
(5
)
Adjusted EBITDA
 
 
 
 
 
 
 
Refining (e)
$
875

 
$
464

 
$
1,134

 
$
744

TLLP (e)
154

 
65

 
322

 
136

Marketing
223

 
98

 
368

 
132

Corporate
(58
)
 
(79
)
 
(141
)
 
(102
)
Total Adjusted EBITDA
$
1,194

 
$
548

 
$
1,683

 
$
910

Capital Expenditures
 
 
 
 
 
 
 
Refining
$
148

 
$
94

 
$
332

 
$
162

TLLP
77

 
48

 
143

 
74

Marketing
8

 
13

 
12

 
18

Corporate
4

 
12

 
10

 
16

Total Capital Expenditures
$
237

 
$
167

 
$
497

 
$
270

___________________
(f)
Our refining segment uses 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 has 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 and six months ended June 30, 2014. Had we made this change effective January 1, 2014, operating income in our refining segment would have been reduced by $31 million and $59 million for the three and six months ended June 30, 2014, respectively, with a corresponding increase to operating income in our marketing segment.

8



(g)
The effects of special items on net earnings before income taxes by segment include:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
 
(in millions)
Refining
 
 
 
 
 
 
 
Inventory valuation adjustment (a)
$

 
$

 
$
(42
)
 
$

TLLP
 
 
 
 
 
 
 
Throughput deficiency receivables (h)

 

 
13

 

Gain on sale of Boise Terminal (c)

 

 

 
(5
)

(h)
During the six months ended June 30, 2015, TLLP invoiced QEPFS customers for deficiency payments. TLLP did not recognize $13 million ($4 million to Tesoro, after-tax) 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.


9



TESORO CORPORATION
OTHER SUMMARY FINANCIAL INFORMATION
(Unaudited) (Dollars in millions)
 
June 30,
2015
 
December 31,
2014
Cash and cash equivalents (TLLP: $13 and $19, respectively)
$
978

 
$
1,000

Inventories (i)
2,444

 
2,439

Current maturities of debt, net of unamortized issuance costs
403

 
6

Long-term debt, net of unamortized issuance costs
   (TLLP: $2,586 and $2,544, respectively)
3,808

 
4,161

Total equity
7,383

 
6,976

Total debt, net of unamortized issuance costs, to capitalization ratio
36
%
 
37
%
Total debt, net of unamortized issuance costs, to capitalization ratio excluding TLLP
   debt (j)
25
%
 
27
%
Working capital (current assets less current liabilities)
1,494

 
1,608

Total market value of TLLP units held by Tesoro (k)
1,610

 
1,658


 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
Cash distributions received from TLLP (l):
 
 
 
 
 
 
 
For common/subordinated units held
$
19

 
$
11

 
$
38

 
$
22

For general partner units held
14

 
8

 
30

 
13

_______________________
(i)
The total carrying value of our crude oil and refined product inventories was less than replacement cost by approximately $578 million at June 30, 2015.
(j)
Excludes TLLP’s total debt, net of unamortized issuance costs, and capital leases of $2.6 billion and $2.5 billion at June 30, 2015 and December 31, 2014, respectively, which are non-recourse to Tesoro, except for Tesoro Logistics GP, LLC, and noncontrolling interest of $2.5 billion at both June 30, 2015 and December 31, 2014.
(k)
Represents market value of the 28,181,748 common units held by Tesoro at both June 30, 2015 and December 31, 2014. The market values were $57.12 and $58.85 per unit based on the closing unit price at June 30, 2015 and December 31, 2014, respectively.
(l)
Represents distributions received from TLLP during the three and six months ended June 30, 2015 and 2014 on common or subordinated units and general partner units held by Tesoro.


10




TESORO CORPORATION
SELECTED CONSOLIDATED OPERATING DATA AND RESULTS
(Unaudited)
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
Refined Product Sales (Mbpd) (m)
 
 
 
 
 
 
 
Gasoline and gasoline blendstocks
512

 
505

 
500

 
509

Diesel fuel
201

 
213

 
190

 
200

Jet fuel
152

 
142

 
155

 
147

Heavy fuel oils, residual products and other
98

 
90

 
86

 
83

Total Refined Product Sales
963

 
950

 
931

 
939

 
 
 
 
 
 
 
 
Refined Product Sales Margin ($/barrel) (n)
 
 
 
 
 
 
 
Average sales price
$
88.87

 
$
123.35

 
$
81.79

 
$
119.19

Average costs of sales
72.14

 
110.98

 
68.77

 
108.21

Refined Product Sales Margin
$
16.73

 
$
12.37

 
$
13.02

 
$
10.98

___________________________
(m)
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.
(n)
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 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.


11



TESORO CORPORATION
SEGMENT OPERATING DATA AND RESULTS
(Unaudited)
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
REFINING SEGMENT
2015
 
2014
 
2015
 
2014
Total Refining Segment
 
 
 
 
 
 
 
Throughput (Mbpd)
 
 
 
 
 
 
 
Heavy crude (o)
174

 
161

 
135

 
165

Light crude
542

 
602

 
544

 
601

Other feedstocks
67

 
53

 
61

 
51

Total Throughput
783

 
816

 
740

 
817

Yield (Mbpd)
 
 
 
 
 
 
 
Gasoline and gasoline blendstocks
416

 
424

 
388

 
422

Diesel fuel
158

 
187

 
151

 
194

Jet fuel
118

 
121

 
118

 
124

Heavy fuel oils, residual products, internally produced fuel
   and other
144

 
140

 
130

 
132

Total Yield
836

 
872

 
787

 
872

Segment Operating Income ($ millions)
 
 
 
 
 
 
 
Gross refining margin (p) (f)
$
1,363

 
$
974

 
$
2,133

 
$
1,762

Expenses
 
 
 
 
 
 
 
Manufacturing costs
398

 
436

 
795

 
852

Other operating expenses
84

 
71

 
151

 
162

Selling, general and administrative expenses
3

 
4

 
4

 
5

Depreciation and amortization expense
122

 
104

 
241

 
205

Loss on asset disposal and impairments
3

 
1

 
6

 

Segment Operating Income (f)
$
753

 
$
358

 
$
936

 
$
538

Gross Refining Margin ($/throughput barrel) (q) (r)
$
19.13

 
$
13.11

 
$
15.61

 
$
11.92

Manufacturing Cost before Depreciation and Amortization
   Expense ($/throughput barrel) (q)
$
5.58

 
$
5.88

 
$
5.93

 
$
5.77

___________________________
(o)
We define heavy crude oil as crude oil with an American Petroleum Institute gravity of 24 degrees or less.
(p)
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 the three months ended June 30, 2014 and $1 million and $4 million for the six months ended June 30, 2015 and 2014, respectively. Gross refining margin includes the effect of intersegment sales to the marketing segment and fees charged by TLLP for the transportation and terminalling of crude oil and refined products. Gross refining margin approximates total refining throughput multiplied by the gross refining margin per barrel.
(q)
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 for manufactured refined products sold 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. 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.
(r)
The gross refining margin per throughput barrel excludes the impact of the $42 million benefit recognized during the six months ended June 30, 2015 from the reversal of 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. There was no impact to the three months ended June 30, 2015.


12



TESORO CORPORATION
SEGMENT OPERATING DATA AND RESULTS
(Unaudited)
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
Refining By Region
2015
 
2014
 
2015
 
2014
California (Martinez and Los Angeles)
 
 
 
 
 
 
 
Throughput (Mbpd)
 
 
 
 
 
 
 
Heavy crude (o)
169

 
155

 
129

 
160

Light crude
313

 
333

 
305

 
331

Other feedstocks
41

 
35

 
39

 
32

Total Throughput
523

 
523

 
473

 
523

 
 
 
 
 
 
 
 
Yield (Mbpd)
 
 
 
 
 
 
 
Gasoline and gasoline blendstocks
290

 
282

 
258

 
279

Diesel fuel
101

 
116

 
92

 
125

Jet fuel
80

 
82

 
76

 
80

Heavy fuel oils, residual products, internally produced fuel
   and other
98

 
89

 
86

 
84

Total Yield
569

 
569

 
512

 
568

 
 
 
 
 
 
 
 
Gross Refining Margin ($ millions)
$
957

 
$
578

 
$
1,393

 
$
979

Gross Refining Margin ($/throughput barrel) (q) (r)
$
20.10

 
$
12.15

 
$
15.92

 
$
10.36

Manufacturing Cost before Depreciation and Amortization
Expense ($/throughput barrel) (q)
$
5.89

 
$
6.66

 
$
6.62

 
$
6.57

Capital Expenditures ($ millions)
$
59

 
$
37

 
$
114

 
$
64

 
 
 
 
 
 
 
 
Pacific Northwest (Alaska & Washington)
 
 
 
 
 
 
 
Throughput (Mbpd)
 
 
 
 
 
 
 
Heavy crude (o)
5

 
6

 
6

 
5

Light crude
126

 
141

 
132

 
144

Other feedstocks
23

 
13

 
18

 
14

Total Throughput
154

 
160

 
156

 
163

 
 
 
 
 
 
 
 
Yield (Mbpd)
 
 
 
 
 
 
 
Gasoline and gasoline blendstocks
71

 
69

 
70

 
71

Diesel fuel
23

 
28

 
25

 
30

Jet fuel
31

 
29

 
32

 
30

Heavy fuel oils, residual products, internally produced fuel
   and other
34

 
39

 
34

 
38

Total Yield
159

 
165

 
161

 
169

 
 
 
 
 
 
 
 
Gross Refining Margin ($ millions)
$
240

 
$
126

 
$
404

 
$
258

Gross Refining Margin ($/throughput barrel) (q) (r)
$
17.12

 
$
8.66

 
$
14.02

 
$
8.71

Manufacturing Cost before Depreciation and Amortization
Expense ($/throughput barrel) (q)
$
4.28

 
$
4.78

 
$
4.36

 
$
4.52

Capital Expenditures ($ millions)
$
29

 
$
8

 
$
55

 
$
13



13



TESORO CORPORATION
SEGMENT OPERATING DATA AND RESULTS
(Unaudited)
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
Mid-Continent (North Dakota and Utah)
 
 
 
 
 
 
 
Throughput (Mbpd)
 
 
 
 
 
 
 
Light crude
103

 
128

 
107

 
126

Other feedstocks
3

 
5

 
4

 
5

Total Throughput
106

 
133

 
111

 
131

 
 
 
 
 
 
 
 
Yield (Mbpd)
 
 
 
 
 
 
 
Gasoline and gasoline blendstocks
55

 
73

 
60

 
72

Diesel fuel
34

 
43

 
34

 
39

Jet fuel
7

 
10

 
10

 
14

Heavy fuel oils, residual products, internally produced fuel
   and other
12

 
12

 
10

 
10

Total Yield
108

 
138

 
114

 
135

 
 
 
 
 
 
 
 
Gross Refining Margin ($ millions)
$
166

 
$
269

 
$
335

 
$
521

Gross Refining Margin ($/throughput barrel) (q) (r)
$
17.15

 
$
22.14

 
$
16.46

 
$
22.06

Manufacturing Cost before Depreciation and Amortization
Expense ($/throughput barrel) (q)
$
5.94

 
$
4.14

 
$
5.22

 
$
4.11

Capital Expenditures ($ millions)
$
60

 
$
49

 
$
163

 
$
85



14



TESORO CORPORATION
SEGMENT OPERATING DATA AND RESULTS
(Unaudited)
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
TLLP SEGMENT
2015
 
2014
 
2015
 
2014
Gathering
 
 
 
 
 
 
 
Crude oil gathering pipeline throughput (Mbpd)
187

 
109

 
173

 
103

Average crude oil gathering pipeline revenue per barrel (s)
$
1.71

 
$
1.34

 
$
1.80

 
$
1.34

Crude oil gathering trucking volume (Mbpd)
45

 
47

 
46

 
46

Average crude oil gathering trucking revenue per barrel (s)
$
3.32

 
$
3.23

 
$
3.28

 
$
3.21

Gas gathering throughput (thousands of MMBtu/day) (t)
1,071

 

 
1,046

 

Average gas gathering revenue per MMBtu (s) (t)
$
0.48

 
$

 
$
0.43

 
$

Processing (t)
 
 
 
 
 
 
 
NGL processing throughput (Mbpd)
8

 

 
7

 

Average keep-whole fee per barrel of NGL (s)
$
35.14

 
$

 
$
33.60

 
$

Fee-based processing throughput (thousands of MMBtu/day)
768

 

 
729

 

Average fee-based processing revenue per MMBtu (s)
$
0.36

 
$

 
$
0.40

 
$

Terminalling and Transportation
 
 
 
 
 
 
 
Terminalling throughput (Mbpd)
913

 
913

 
915

 
907

Average terminalling revenue per barrel (s)
$
1.10

 
$
0.95

 
$
1.10

 
$
0.94

Pipeline transportation throughput (Mbpd)
801

 
813

 
810

 
815

Average pipeline transportation revenue per barrel (s)
$
0.38

 
$
0.36

 
$
0.38

 
$
0.36

 
 
 
 
 
 
 
 
Segment Operating Income ($ millions)
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
 
Gathering
$
89

 
$
27

 
$
166

 
$
52

Processing
67

 

 
134

 

Terminalling and transportation
119

 
106

 
238

 
208

Total Revenues (u)
275

 
133

 
538

 
260

Expenses
 
 
 
 
 
 
 
Operating expenses (v)
94

 
55

 
180

 
100

General and administrative expenses (w)
28

 
13

 
53

 
23

Depreciation and amortization expense
44

 
17

 
88

 
33

Gain on asset disposals and impairments

 

 

 
(4
)
Segment Operating Income
$
109

 
$
48

 
$
217

 
$
108

___________________________
(s)
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.
(t)
TLLP commenced natural gas gathering and processing operations with the acquisition of the Rockies Natural Gas Business on December 2, 2014.
(u)
TLLP segment revenues from services provided to our refining segment were $154 million and $117 million for the three months ended June 30, 2015 and 2014, respectively, and $302 million and $228 million for the six months ended June 30, 2015 and 2014, respectively. These amounts are eliminated upon consolidation.
(v)
TLLP segment operating expenses include amounts billed by Tesoro for services provided to TLLP under various operational contracts. Amounts billed by Tesoro totaled $24 million and $20 million for the three months ended June 30, 2015 and 2014, respectively, and $49 million and $40 million for the six months ended June 30, 2015 and 2014, respectively. Operating expenses also include imbalance gains and reimbursements pursuant to the Amended Omnibus Agreement of $11 million and $8 million for the three months ended June 30, 2015 and 2014, respectively, and $19 million and $15 million for the six months ended June 30, 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.


15



(w)
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 $18 million and $10 million for the three months ended June 30, 2015 and 2014, respectively, and $35 million and $17 million for the six months ended June 30, 2015 and 2014, respectively, and are eliminated upon consolidation. General and administrative expenses are also reclassified to cost of sales.


16



TESORO CORPORATION
SEGMENT OPERATING DATA AND RESULTS
(Unaudited)
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
MARKETING SEGMENT
2015
 
2014
 
2015
 
2014
Average Number of Branded Stations (during the period)
 
 
 
 
 
 
 
Company/MSO-operated (x)
583

 
581

 
584

 
578

Jobber/dealer operated
1,680

 
1,693

 
1,679

 
1,695

Total Average Branded Stations
2,263

 
2,274

 
2,263

 
2,273

 
 
 
 
 
 
 
 
Branded and Unbranded Fuel Sales (millions of gallons)
2,099

 
2,079

 
4,159

 
4,020

 
 
 
 
 
 
 
 
Branded and Unbranded Fuel Margin ($/gallon) (y)
$
0.14

 
$
0.08

 
$
0.12

 
$
0.06

 
 
 
 
 
 
 
 
Segment Operating Income ($ millions)
 
 
 
 
 
 
 
Gross Margins
 
 
 
 
 
 
 
Fuel (y) (f)
$
287

 
$
163

 
$
491

 
$
255

Other non-fuel (z)
15

 
31

 
29

 
59

Total Gross Margins
302

 
194

 
520

 
314

Expenses
 
 
 
 
 
 
 
Operating expenses
72

 
92

 
141

 
174

Selling, general and administrative expenses
6

 
3

 
9

 
6

Depreciation and amortization expense
11

 
10

 
23

 
20

Loss on asset disposals and impairments
1

 
1

 
2

 
2

Segment Operating Income (f)
$
212

 
$
88

 
$
345

 
$
112

___________________________
(x)
During the fourth quarter 2014, we converted our company-operated locations to multi-site operators (“MSO”) retaining the transportation fuel sales. All employees and merchandise inventory were transferred to the MSOs.
(y)
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.
(z)
Includes merchandise gross margins for the three and six months ended June 30, 2014.


17



TESORO CORPORATION
RECONCILIATION OF AMOUNTS REPORTED UNDER U.S. GAAP
(Unaudited) (In millions)
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
Reconciliation of Net Earnings to EBITDA and Adjusted
   EBITDA
 
 
 
 
 
 
 
Net earnings
$
620

 
$
240

 
$
808

 
$
343

Loss from discontinued operations, net of tax
4

 

 
4

 
1

Depreciation and amortization expense
182

 
135

 
361

 
265

Income tax expense
334

 
132

 
430

 
188

Interest and financing costs, net
54

 
41

 
109

 
118

EBITDA
1,194

 
548

 
1,712

 
915

Special items (g)

 

 
(29
)
 
(5
)
Adjusted EBITDA
$
1,194

 
$
548

 
$
1,683

 
$
910

 
 
 
 
 
 
 
 
Reconciliation of Cash Flows from Operating
   Activities to EBITDA and Adjusted EBITDA
 
 
 
 
 
 
 
Net cash from operating activities
$
1,055

 
$
526

 
$
907

 
$
376

Debt redemption charges

 

 

 
(31
)
Deferred charges
84

 
19

 
167

 
79

Changes in current assets and current liabilities
(249
)
 
(140
)
 
221

 
203

Income tax expense
334

 
132

 
430

 
188

Stock-based compensation expense
(7
)
 
(26
)
 
(35
)
 
(8
)
Interest and financing costs, net
54

 
41

 
109

 
118

Deferred income tax expense
(42
)
 
(16
)
 
(46
)
 
(24
)
Other
(35
)
 
12

 
(41
)
 
14

EBITDA
1,194

 
548

 
1,712

 
915

Special items (g)

 

 
(29
)
 
(5
)
Adjusted EBITDA
$
1,194

 
$
548

 
$
1,683

 
$
910



18



 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
Reconciliation of Refining Operating Income to Refining
   EBITDA and Adjusted EBITDA
 
 
 
 
 
 
 
Operating income
$
753

 
$
358

 
$
936

 
$
538

Depreciation and amortization expense
122

 
104

 
241

 
205

Other income (expense), net (e)

 
2

 
(1
)
 
1

EBITDA
875

 
464

 
1,176

 
744

Special items (g)

 

 
(42
)
 

Adjusted EBITDA
$
875

 
$
464

 
$
1,134

 
$
744

 
 
 
 
 
 
 
 
Reconciliation of TLLP Operating Income to TLLP
   EBITDA and Adjusted EBITDA
 
 
 
 
 
 
 
Operating income
$
109

 
$
48

 
$
217

 
$
108

Depreciation and amortization expense
44

 
17

 
88

 
33

Other income, net (e)
1

 

 
4

 

EBITDA
154

 
65

 
309

 
141

Special items (g)

 

 
13

 
(5
)
Adjusted EBITDA
$
154

 
$
65

 
$
322

 
$
136

 
 
 
 
 
 
 
 
Reconciliation of Marketing Operating Income to Marketing
   EBITDA and Adjusted EBITDA
 
 
 
 
 
 
 
Operating income
$
212

 
$
88

 
$
345

 
$
112

Depreciation and amortization expense
11

 
10

 
23

 
20

EBITDA and Adjusted EBITDA
$
223

 
$
98

 
$
368

 
$
132

 
 
 
 
 
 
 
 
Reconciliation of Corporate and Other Operating Loss to
   Corporate and Other EBITDA and Adjusted EBITDA
 
 
 
 
 
 
 
Operating loss
$
(65
)
 
$
(84
)
 
$
(149
)
 
$
(110
)
Depreciation and amortization expense
5

 
4

 
9

 
7

Other income (expense), net (e)
2

 
1

 
(1
)
 
1

EBITDA and Adjusted EBITDA
$
(58
)
 
$
(79
)
 
$
(141
)
 
$
(102
)

 
Rockies Natural Gas Business
 
Six Months Ended June 30, 2015
Reconciliation of Net Earnings to EBITDA and Adjusted EBITDA
 
Net earnings
$
81

Depreciation and amortization expense
47

EBITDA
128

Throughput deficiency receivables (h)
13

Adjusted EBITDA
$
141


 
TLLP Projected Annual EBITDA Contribution from Drop Down
Reconciliation of TLLP Projected Net Earnings to Projected Annual EBITDA
 
Projected net earnings
$ 28 - 53

Depreciation and amortization expense
2

Interest and financing costs, net
20

Projected Annual EBITDA
$ 50 - 75


19



TESORO CORPORATION
NET EARNINGS ADJUSTED FOR SPECIAL ITEMS
(Unaudited) (In millions except per share amounts)
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
Net Earnings Attributable to Tesoro Corporation from
   Continuing Operations - U.S. GAAP
$
586

 
$
224

 
$
731

 
$
303

Special Items, After-tax: (aa)
 
 
 
 
 
 
 
Inventory valuation adjustment (a)

 

 
(25
)
 

Throughput deficiency receivables (h)

 

 
4

 

Debt redemption charges (d)

 

 

 
19

Gain on sale of Boise Terminal (c)

 

 

 
(1
)
Adjusted Earnings (ab)
$
586

 
$
224

 
$
710

 
$
321

 
 
 
 
 
 
 
 
Diluted Net Earnings per Share from Continuing Operations
   Attributable to Tesoro Corporation - U.S. GAAP
$
4.62

 
$
1.70

 
$
5.77

 
$
2.29

Special Items Per Share, After-tax: (aa)
 
 
 
 
 
 
 
Inventory valuation adjustment (a)

 

 
(0.20
)
 

Throughput deficiency receivables (h)

 

 
0.03

 

Debt redemption charges (d)

 

 

 
0.14

Gain on sale of Boise Terminal (c)

 

 

 
(0.01
)
Adjusted Diluted EPS (ab)
$
4.62

 
$
1.70

 
$
5.60

 
$
2.42

________________________
(aa)
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.
(ab)
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.


20


2nd Quarter 2015 Earnings Slides August 5, 2015 Exhibit 99.2


 
This Presentation includes and references “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to, among other things, expectations regarding refining margins, revenues, cash flows, capital expenditures, turnaround expenses and other financial items. These statements also relate to our business strategy, goals and expectations concerning our market position, future operations, margins and profitability. We have used the words “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “will,” “would” and similar terms and phrases to identify forward-looking statements in this Presentation, which speak only as of the date the statements were made. Although we believe the assumptions upon which these forward-looking statements are based are reasonable, any of these assumptions could prove to be inaccurate and the forward-looking statements based on these assumptions could be incorrect. Our operations involve risks and uncertainties, many of which are outside our control, and any one of which, or a combination of which, could materially affect our results of operations and whether the forward-looking statements ultimately prove to be correct. Actual results and trends in the future may differ materially from those suggested or implied by the forward-looking statements depending on a variety of factors which are described in greater detail in our filings with the SEC. All future written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the previous statements. We undertake no obligation to update any information contained herein or to publicly release the results of any revisions to any forward-looking statements that may be made to reflect events or circumstances that occur, or that we become aware of, after the date of this Presentation. Forward Looking Statements 2


 
3Q 2015 Outlook 3 California Pacific Northwest Mid- Continent Consolidated Throughput (mbpd) 510 - 530 180 - 190 120 - 130 810 - 850 Manufacturing Cost ($/bbl) $5.75 - $6.00 $3.90 - $4.15 $3.55 - $3.80 $4.95 - $5.20 $ in millions Corporate/System Refining/ Logistics Depreciation $ 120/45 Corporate Expense Before Depreciation $ 70 Interest Expense Before Interest Income $ 55


 
Net Earnings 4 1.70 3.06 1.34 1.15 4.62 2Q 2014 3Q 2014 4Q 2014 1Q 2015 2Q 2015 A xi s Ti tl e Axis Title Diluted EPS from Continuing Operations $ per share $ in millions, except per share amounts 2Q 2014 3Q 2014 4Q 2014 1Q 2015 2Q 2015 Refining $358 $536 $85 $183 $753 TLLP 48 61 37 108 109 Marketing 88 180 261 133 212 Corporate and Unallocated Costs (84) (75) (101) (84) (65) Interest and Financing Costs, Net (41) (50) (67) (55) (54) Other Income (Expense), Net1 3 11 54 (1) 3 Income Tax Expense (132) (249) (110) (96) (334) Net Loss from Discontinued Operations, Net of Tax2 0 (1) (27) 0 (4) Net (Earnings) Loss Attributable to Non-Controlling Interest (16) (17) 13 (43) (38) Net Earnings Attributable to Tesoro Corporation $ 224 $ 396 $ 145 $ 145 $ 582 Diluted EPS from Continuing Operations $ 1.70 $ 3.06 $ 1.34 $ 1.15 $ 4.62 Diluted EPS from Discontinued Operations $ 0.00 $ (0.01) $ (0.21) $ 0.00 $ (0.03) 1. Represents net amount of other income (expense) and equity in earnings of equity method investments as reported. 2. On September 25, 2013, we completed the sale of all of our interest in Tesoro Hawaii, LLC, which operates the 94 mbpd Hawaii refinery, retail stations and associated logistics assets to a subsidiary of Par Petroleum Corporation. As a result, we have reflected its results of operations as discontinued operations for all periods presented, and we have excluded our Hawaii operations from the operational data presented in the tables and discussion that follow. 78 224 396 145 582 2Q 2014 3Q 2014 4Q 2014 1Q 2015 2Q 2015 Net Earnings Attributable to Tesoro Corporation $ in millions


 
2Q 2015 Cash Flow 5 $ in millions 29 (324) (348) 459 1,194 (32) 978 Beginning Cash EBITDA Working Capital & Other Interest & Tax, Net Capex & Turnaround Shareholder Distributions & Buybacks Ending Cash


 
Throughput by Refining Region 6 160 150 154 100 120 140 160 180 200 2Q 2014 2Q 2015 Guidance 2Q 2015 Actual MBPD Pacific Northwest 133 115 106 0 30 60 90 120 150 2Q 2014 2Q 2015 Guidance 2Q 2015 Actual MBPD Mid-Continent 523 523 523 100 200 300 400 500 600 2Q 2014 2Q 2015 Guidance 2Q 2015 Actual MBPD California 1 1 1 1) Mid-range of guidance


 
Manufacturing Cost by Refining Region 4.78 4.88 4.28 - 1.00 2.00 3.00 4.00 5.00 2Q 2014 2Q 2015 Guidance 2Q 2015 Actual $/bbl Pacific Northwest 4.14 5.13 5.94 - 1.00 2.00 3.00 4.00 5.00 6.00 2Q 2014 2Q 2015 Guidance 2Q 2015 Actual $/bbl Mid-Continent 6.66 5.78 5.89 - 2.00 4.00 6.00 8.00 2Q 2014 2Q 2015 Guidance 2Q 2015 Actual $/bbl 1 California 7 1) Mid-range of guidance 1 1


 
8 Non-GAAP Financial Measures (In millions) Unaudited Three Months Ended June 30, 2015 Six Months Ended June 30, 2015 Reconciliation of Net Earnings to EBITDA Net earnings $ 620 $ 808 Loss from discontinued operations, net of tax 4 4 Depreciation and amortization expense 182 361 Income tax expense 334 430 Interest and financing costs, net 54 109 EBITDA $ 1,194 $ 1,712 Rockies Natural Gas Business EBITDA attributable to TLLP (In millions) Unaudited Three Months Ended June 30, 2015 Six Months Ended June 30, 2015 Reconciliation of TLLP Net Earnings to EBITDA and Adjusted EBITDA Net earnings $ 43 $ 81 Depreciation and amortization expense 23 47 EBITDA $ 66 $ 128 Throughput deficiency receivables - 13 Adjusted EBITDA $ 66 $ 141 (In millions) Unaudited Rockies Natural Gas Business 2015 Projected Annual EBITDA attributable to TLLP Reconciliation of TLLP Projected Net Earnings to Projected Annual EBITDA Projected net earnings $ 57 Depreciation and amortization expense 132 Interest and financing costs, net 86 Projected Annual EBITDA $ 275


 
9 Non-GAAP Financial Measures (In millions) Unaudited TLLP Projected Annual EBITDA Contribution from Drop Down Reconciliation of TLLP Projected Net Earnings to Projected Annual EBITDA Projected net earnings $ 28 - 53 Depreciation and amortization expense 2 Interest and financing costs, net 20 Projected Annual EBITDA $ 50 - 75 (In millions) Unaudited TLLP 2015 Projected Annual EBITDA Reconciliation of TLLP Projected Net Earnings to Projected Annual EBITDA Projected net earnings $ 288 - 328 Depreciation and amortization expense 202 Interest and financing costs, net 150 Projected Annual EBITDA $ 640 - 680 (In millions) Unaudited TLLP 2017 Projected Annual EBITDA Projected net earnings $ 537 Depreciation and amortization expense 237 Interest and financing costs, net 226 Projected Annual EBITDA $ 1,000


 
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