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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
¥ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2009
or
nTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-3473
TESORO CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 95-0862768
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
19100 Ridgewood Parkway
San Antonio, Texas
(Address of principal executive offices)
78259-1828
(Zip Code)
Registrant’s telephone number, including area code:
210-626-6000
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
Common Stock, $0.16 23par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes ¥No n
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes nNo ¥
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ¥No n
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files). Yes nNo n
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¥
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer,
or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting
company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ¥Accelerated filer nNon-accelerated filer nSmaller reporting company n
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the
Act). Yes nNo ¥
At June 30, 2009, the aggregate market value of the voting common stock held by non-affiliates of the registrant was
approximately $1.8 billion based upon the closing price of its common stock on the New York Stock Exchange Composite
tape. At February 22, 2010, there were 140,572,348 shares of the registrant’s common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Proxy Statement to be filed pursuant to Regulation 14A pertaining to the 2010 Annual
Meeting of Stockholders are incorporated by reference into Part III hereof. The Company intends to file such Proxy
Statement no later than 120 days after the end of the fiscal year covered by this Form 10-K.

Table of contents

  • Page 1
    ... or organization) 95-0862768 (I.R.S. Employer Identification No.) 19100 Ridgewood Parkway San Antonio, Texas (Address of principal executive offices) 78259-1828 (Zip Code) Registrant's telephone number, including area code: 210-626-6000 Securities registered pursuant to Section 12(b) of...

  • Page 2
    ... about Market Risk ...Financial Statements and Supplementary Data ...Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ...Controls and Procedures ...Other Information ...PART III Directors, Executive Officers and Corporate Governance ...Executive Compensation...

  • Page 3
    ... and properties. Our principal executive offices are located at 19100 Ridgewood Parkway, San Antonio, Texas 78259-1828 and our telephone number is (210) 626-6000. Our common stock trades on the New York Stock Exchange under the symbol "TSO". We file reports with the SEC, including annual reports on...

  • Page 4
    ... throughput rates of crude oil and other feedstocks by refinery are as follows: Refinery Crude Oil Capacity (bpd)(a) 2009 Throughput (bpd) 2008 2007 California Golden Eagle...Los Angeles(b) ...Pacific Northwest Washington ...Alaska ...Mid-Pacific Hawaii ...Mid-Continent North Dakota...Utah ...Total...

  • Page 5
    ... agreements priced at market. We purchase the remainder of our crude oil and feedstock supplies in the spot market. We purchase domestic crude oil primarily in Alaska, California, Montana, Wyoming, Utah, Colorado and North Dakota. We purchase foreign crude oil primarily from Canada, South America...

  • Page 6
    ... oils, liquefied petroleum gas, petroleum coke and asphalt. Our refining yield by region is summarized below (in Mbpd): 2009 Volume % 2008 Volume % 2007 Volume % California (a) Gasoline and gasoline blendstocks ...Jet fuel ...Diesel fuel ...Heavy oils, residual products, internally produced fuel...

  • Page 7
    ... in California, Washington, Alaska, Hawaii, North Dakota, Utah and Idaho. We also distribute products through third-party terminals and truck racks in our market areas and through purchases and exchange arrangements with other refining and marketing companies. California Refineries Golden Eagle...

  • Page 8
    ... western Washington and Portland, Oregon. We also deliver refined products through our marine terminal to ships and barges. Terminals. We operate refined products terminals at Anacortes, Port Angeles and Vancouver, Washington, supplied primarily by our refineries. We also distribute refined products...

  • Page 9
    ... islands. Terminals. market areas. We distribute refined products from our refinery to customers through third-party terminals in our Mid-Continent Refineries North Dakota Refining. Our 58 Mbpd North Dakota refinery is located on the Missouri River near Mandan on approximately 950 acres. We supply...

  • Page 10
    ... arrangements. We sell, at wholesale, to unbranded distributors and high-volume retailers, and we distribute refined product through owned and third-party terminals. Jet Fuel. We supply jet fuel to passenger and cargo airlines at airports in Alaska, Hawaii, California, Washington, Utah and other...

  • Page 11
    ... Mexico and Washington. Our retail stations (summarized by type and brand) were located in the following states as of December 31, 2009: Brand State Type Company-Operated Jobber/ Dealer Total Tesoro» Mirastar» Shell» USA GasolineTM Total California ...Alaska ...North Dakota ...Utah...Washington...

  • Page 12
    ... refineries with crude oil from their own production. We sell gasoline through our network of retail stations as well as on a wholesale basis. We sell most of our distillate production through wholesale channels. We compete with other refiners and with importers for customers in most of our market...

  • Page 13
    ...Alaska, California, Hawaii, North Dakota, Utah, Washington and other western and mid-continental states through a network of company-operated retail stations and branded and unbranded jobber/dealers. Competitive factors that affect retail marketing include product price, station appearance, location...

  • Page 14
    ... Pipeline Service Company. We have a response services agreement in Hawaii with Clean Islands Council. We have entered into contracts with Marine Spill Response Corporation for Hawaii, the San Francisco Bay, Puget Sound, the Port of Los Angeles and the Port of Long Beach. We also contract with spill...

  • Page 15
    ..., purchased refined products, transportation and distribution. Heavy Crude Oil - Crude oil with an API gravity of 24 degrees or less. Heavy crude oils are generally sold at a discount to lighter crude oils. Heavy Fuel Oils, Residual Products, Internally Produced Fuel and Other - Products other...

  • Page 16
    ... isohexane. Both isopentane and isohexane are high-octane gasoline components. Jobber/Dealer Stations - Retail stations owned by third parties that sell products purchased from or through us and carry one of our brands. Light Crude Oil - Crude oil with an API gravity greater than 24 degrees. Light...

  • Page 17
    ..., Chief Operating Officer Executive Vice President and Chief Financial Officer Executive Vice President, Strategy and Corporate Development Executive Vice President, General Counsel and Secretary Vice President and Controller June 1996 March 2008 November 2008 March 2008 April 2009 December...

  • Page 18
    ...Bank (Houston, Texas); Director of Albemarle Corporation. Donald H. Schmude ...Retired Vice President of Texaco and President and Chief Executive Officer of Texaco Refining & Marketing, Inc. Michael E. Wiley ...Chairman of the Compensation Committee of Tesoro Corporation; Retired Chairman, President...

  • Page 19
    ... and individual customers. We also face strong competition in the market for the sale of retail gasoline and merchandise. Our competitors include service stations operated by fully integrated major oil companies and other well-recognized national or regional retail outlets, often selling gasoline or...

  • Page 20
    ... Northwest refineries import crude oil and other feedstocks by tanker. Transportation of crude oil and refined products over water involves inherent risk and subjects us to the provisions of the Federal Oil Pollution Act of 1990 and state laws in California, Hawaii, Washington and Alaska. Among...

  • Page 21
    ... impact on our refining and wholesale marketing operations, earnings and cash flow. Also, crude oil supply contracts generally have market-responsive pricing provisions. We purchase our refinery feedstocks weeks before manufacturing and selling the refined products. Price level changes during...

  • Page 22
    ... of crude oil and refined products. Our Washington refinery receives all of its Canadian crude oil and delivers a high proportion of its gasoline, diesel fuel and jet fuel through third-party pipelines and the balance through marine vessels. Our Hawaii and Alaska refineries receive most...

  • Page 23
    ... an offer from the Bay Area Air Quality Management District (the "District") to settle 44 NOVs for $740,000. The NOVs were issued from May 2006 to April 2008 and allege violations of air quality regulations at our Golden Eagle refinery. We are continuing to negotiate a settlement of the NOVs with...

  • Page 24
    ... stock to the cumulative total return of the S&P 500 Composite Index and to a composite peer group of six companies. The composite peer group (the "Peer Group") includes Alon USA Energy, Inc., Frontier Oil Corporation, Holly Corporation, Sunoco, Inc., Valero Energy Corporation and Western Refining...

  • Page 25
    Our common stock is listed under the symbol "TSO" on the New York Stock Exchange. Summarized below are high and low sales prices of and dividends declared on our common stock on the New York Stock Exchange during 2009 and 2008. Sales Prices per Common Share High Low Dividends per Common Share ...

  • Page 26
    ... $ 262 (a) Our financial results include the results of our Los Angeles refinery and Shell and USA Gasoline retail stations since acquisition in May 2007. (b) Share and per share amounts have been adjusted to reflect our May 2007 two-for-one stock split. (c) During 2009, we reclassified our gains...

  • Page 27
    ... of crude oil, other refinery feedstocks and refined products; • changes in our cash flow from operations; • changes in the cost or availability of third-party vessels, pipelines and other means of transporting crude oil feedstocks and refined products; • actions of customers and competitors...

  • Page 28
    ...for these projects. Industry Overview Our profitability is heavily influenced by the cost of crude oil and the aggregate value of the products we make from that crude oil. Product values and crude oil costs are set by the market and are outside of the control of any refiner. Indexed models have been...

  • Page 29
    ..., combined with rising crude oil prices, weakened industry refining margins during 2009. Margins were further compromised by new global refining capacity and the increased supply of ethanol in the gasoline market. Prices for crude oil, in this case West Texas Intermediate, increased approximately 75...

  • Page 30
    ...91 million charge to write-off a receivable; • the impact of rising crude oil prices on our derivative positions during the first half of 2008 resulting in higher losses of $46 million year-over-year; and • planned turnarounds of several units at our Washington and Golden Eagle refineries during...

  • Page 31
    ...Light crude ...Other feedstocks ...Total Throughput ...% Heavy Crude Oil of Total Refining Throughput (c) ...Yield (thousand barrels per day)(b) Gasoline and gasoline blendstocks ...Jet Fuel ...Diesel Fuel...Heavy oils, residual products, internally produced fuel and other ... $26,759 1,126 $27,885...

  • Page 32
    ..., respectively. Refined products revenues include intersegment sales to our retail segment, at prices which approximate market of $2.7 billion, $3.9 billion and $2.8 billion in 2009, 2008 and 2007, respectively. (b) Volumes for 2007 include amounts for the Los Angeles refinery since acquisition in...

  • Page 33
    ... and purchased refined products. (i) We experienced reduced throughput due to scheduled turnarounds at the Alaska and Golden Eagle refineries during the 2009 second quarter, scheduled maintenance at the Washington refinery during the 2009 first quarter, and scheduled turnarounds at the Golden Eagle...

  • Page 34
    ... the delayed coker at the Los Angeles refinery primarily during the 2009 fourth quarter. Total refining throughput during 2008 was impacted by turnarounds at our Golden Eagle and Washington refineries. Refined Products Sales. Revenues from sales of refined products decreased 41% to $15.7 billion in...

  • Page 35
    ... Mbpd. Excluding the Los Angeles refinery (acquired in May 2007), throughput decreased by 37 Mbpd primarily reflecting throughput reductions at our Alaska, Hawaii and Washington refineries to match production to demand and a turnaround of five major units at our Golden Eagle refinery from mid-March...

  • Page 36
    ... States of America. (b) Includes the effect of intersegment purchases from our refining segment at prices which approximate market. (c) Includes impairment charges during 2008 related to the closure of 42 Mirastar retail stations and a potential sale of 20 retail stations. 2009 Compared to 2008...

  • Page 37
    ... due to higher average product sales prices. Costs of sales increased in 2008 due to increased sales volumes and higher average prices for purchased fuel. Operating expenses increased by $34 million during 2008 as compared to 2007. Shell and USA Gasoline retail stations contributed $40 million in...

  • Page 38
    ... settlement of federal tax audits for the years 1996 through 2005. CAPITAL RESOURCES AND LIQUIDITY Overview We operate in an environment where our capital resources and liquidity are impacted by changes in the price of crude oil and refined products, availability of trade credit, market uncertainty...

  • Page 39
    ...February 2010 and May 2009, we amended our credit agreement, which among other things, modified the following: • lowered the minimum tangible net worth requirement, as defined; • the purchase or sale of certain assets is no longer subject to the fixed charge coverage ratio test; • the covenant...

  • Page 40
    ... receivables and inventories. Payables and receivables decreased due to the lower prices of crude oil and refined products. Receivables decreased less than payables as a result of product prices lagging sharply falling crude oil prices. Inventories decreased from year end due in part to our efforts...

  • Page 41
    ... Dakota refinery during the second quarter and our Hawaii refinery during the third quarter. Refining throughput and yields in 2010 will be affected by these turnarounds. During 2009, we spent $141 million for refinery turnarounds and catalyst, primarily at our Golden Eagle, Alaska and Los Angeles...

  • Page 42
    ... may be required to comply with the Clean Air Act and other federal, state and local requirements for our various sites, including our refineries, tank farms, pipelines, operating and closed retail stations and operating and closed refined products terminals. The impact of these legislative and...

  • Page 43
    ... result in increased expenditures for tax liabilities in the future. Environmental Liabilities We are currently, and expect to continue, incurring expenses for environmental cleanup at a number of currently and previously owned or operated refining, pipeline, terminal and retail station properties...

  • Page 44
    ... of California in February 2006. These projects could cost between $50 million and $150 million through 2016. The timing of these projects is being evaluated and is subject to change. We are required under a consent decree with the EPA to reduce air emissions at our North Dakota and Utah refineries...

  • Page 45
    ... business and industry as well as quoted market prices for comparable company common stocks and refinery sales transactions. Decreased forecasted cash flows and quoted market prices reduced our estimated fair value below carrying value at our Washington refinery resulting in a goodwill impairment of...

  • Page 46
    ... settlement dates. Pension and Other Postretirement Benefits - Accounting for pensions and other postretirement benefits involves several assumptions and estimates including discount rates, expected rate of return on plan assets, rates of compensation, health care cost trends, inflation, retirement...

  • Page 47
    ...discount rate for the pension plans would have had the following effects in 2009 (in millions): 1-PercentagePoint Increase 1-PercentagePoint Decrease Expected Rate of Return Effect on net periodic pension expense ...Discount Rate Effect on net periodic pension expense ...Effect on projected benefit...

  • Page 48
    ... report to executive management for consideration. Commodity Price Risks Our earnings and cash flows from operations depend on the margin, relative to fixed and variable expenses (including the costs of crude oil and other feedstocks), at which we are able to sell our refined products. The prices...

  • Page 49
    ...are exposed to exchange rate fluctuations on our monthly purchases of Canadian crude oil. Beginning in August 2009, we entered into forward contracts of Canadian dollars (C$) to manage any monthly exchange rate fluctuations. As of December 31, 2009, we had a forward contract to purchase C$67 million...

  • Page 50
    ... results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Tesoro Corporation's internal control...

  • Page 51
    ...material respects, the results of operations and cash flows of Tesoro Corporation and subsidiaries for the year-ended December 31, 2007, in conformity with accounting principles generally accepted in the United States of America. /s/ DELOITTE & TOUCHE LLP Houston, Texas February 28, 2008 (October...

  • Page 52
    TESORO CORPORATION STATEMENTS OF CONSOLIDATED OPERATIONS Years Ended December 31, 2009 2008 2007 (In millions except per share amounts) REVENUES(a) ...COSTS AND EXPENSES: Costs of sales and operating expenses(a) ...Selling... (benefit) ...INFORMATION: (a) Includes excise taxes collected by our retail...

  • Page 53
    ... 31, 2009 2008 (Dollars in millions except per share amounts) ASSETS CURRENT ASSETS Cash and cash equivalents ...Receivables, less allowance for doubtful accounts ...Inventories ...Prepayments and other ...Total Current Assets ...PROPERTY, PLANT AND EQUIPMENT Refining ...Retail ...Corporate and...

  • Page 54
    ...Cash dividends ...Repurchases of common stock ...Shares issued for stock options and benefit plans ...Excess tax benefits from stock-based compensation arrangements exercised...Restricted stock..., 2009 ... 147.3 $24 $947 $2,427 (6.9) $(140) $(171) The accompanying notes are an integral part of...

  • Page 55
    ... ...Excess tax benefits from stock-based compensation arrangements ...Other changes in non-current assets and liabilities ...Changes in current assets and current liabilities: Receivables ...Inventories ...Prepayments and other ...Accounts payable and accrued liabilities ...Net cash from operating...

  • Page 56
    ... a network of 886 retail stations, primarily under the Tesoro», Mirastar», Shell», and USA GasolineTM brands. Our earnings, cash flows from operations and liquidity depend upon many factors, including producing and selling refined products at margins above fixed and variable expenses. The prices...

  • Page 57
    ... of underground storage tanks at our owned retail stations at or near the time of closure. We have not historically incurred significant AROs for hazardous materials disposal or other removal costs associated with asset retirements or replacements during scheduled maintenance projects. We believe...

  • Page 58
    ... the book value of the assets may not be recoverable. Acquired intangibles are recorded at fair value as of the date acquired and consist primarily of air emissions credits, customer agreements and contracts and the USA Gasoline trade name. We amortize acquired intangibles on a straight-line basis...

  • Page 59
    ...; nonmonetary crude oil and refined product exchange transactions used to optimize our refinery supply; and sale and purchase transactions entered into with the same counterparty that are deemed to be in contemplation with one another. We include transportation fees charged to customers in "Revenues...

  • Page 60
    TESORO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) executed with the same counterparty under master netting arrangements. We did not designate or account for any derivative instruments as cash flow or fair value hedges during 2009, 2008 or 2007. Foreign Currency Exchange The...

  • Page 61
    ... including acquired or impaired goodwill, the initial recognition of asset retirement obligations and impaired property, plant and equipment The adoption of this standard did not impact our financial position or results of operations. Subsequent Events We adopted a standard as of June 30, 2009, that...

  • Page 62
    ...prior years. These LIFO liquidations resulted in a decrease in costs of sales of $69 million and $138 million during 2009 and 2008, respectively. NOTE E - GOODWILL AND ACQUIRED INTANGIBLES Goodwill Goodwill is not amortized but is tested for impairment at least annually. We review the recorded value...

  • Page 63
    ... product inventories and rising crude oil costs during 2009 reduced current period and forecasted earnings within our business and industry as well as quoted market prices for comparable company common stocks and refinery sales transactions. Decreased forecasted cash flows and quoted market prices...

  • Page 64
    ... change in refined product prices versus crude oil prices impacts profit margins and has a significant impact on our earnings and cash flows. To manage these commodity price risks, we periodically use derivative instruments primarily associated with the purchase or sale of crude oil and finished...

  • Page 65
    ... following information presents the gains and losses for our non-hedging derivative instruments for the years ended December 31, 2009 and 2008 (in millions): Years Ended December 31, 2009 2008 Location of Gain (Loss) Commodity contracts ...NOTE I - ACCRUED LIABILITIES Costs of sales and operating...

  • Page 66
    ...February 2010 and May 2009, we amended our credit agreement, which among other things, modified the following: • lowered the minimum tangible net worth requirement, as defined; • the purchase or sale of certain assets is no longer subject to the fixed charge coverage ratio test; • the covenant...

  • Page 67
    ... by the issued letters of credit. The agreements may be terminated by either party, at any time. 9 3⁄4% Senior Notes Due 2019 In June 2009, we issued $300 million aggregate principal amount of 93⁄4% senior notes due June 2019 for general corporate purposes. The notes were issued at 96.172...

  • Page 68
    ... to the covenants in the indenture for Tesoro's 65⁄8% senior notes due 2015. Substantially all of these covenants will terminate before the notes mature if one of two specified ratings agencies assigns the notes an investment grade rating and no events of default exist under the indenture. The...

  • Page 69
    ...estimated cash flows for certain retirement projects at our Golden Eagle refinery. The estimated liability for the retirement projects was reduced based on lower actual and forecasted spending. NOTE L - INCOME TAXES The components of income tax provision (benefit) were as follows (in millions): 2009...

  • Page 70
    TESORO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 2009 2008 Deferred Tax Liabilities: Accelerated depreciation and property related items...Deferred maintenance costs, including refinery turnarounds ...Amortization of intangible assets ...Inventory ...Other ...Total ...

  • Page 71
    ... restoration of retirement benefits to certain executives and other senior employees of Tesoro that are not available due to the limits imposed by the Internal Revenue Code on our funded employee retirement plan. Tesoro provides health care benefits to retirees who met certain service requirements...

  • Page 72
    ... last reported sales price or closing price as reported by an independent pricing service. When market prices are not readily available, the determination of fair value may rely on factors such as significant market activity or security specific events, changes in interest rates and credit quality...

  • Page 73
    ... Postretirement Benefits 2009 2008 Change in projected benefit obligation: Projected benefit obligations at beginning of year ...Service cost ...Interest cost ...Actuarial (gain) loss ...Benefits paid ...Plan amendments ...Curtailments ...Special termination benefits ...Projected benefit obligation...

  • Page 74
    ... Pension Benefits 2009 2008 2007 Other Postretirement Benefits 2009 2008 2007 Components of net periodic benefit cost: Service cost ...Interest cost ...Expected return on plan assets ...Amortization of prior service cost ...Recognized net actuarial loss ...Special termination benefits ...Recognized...

  • Page 75
    ... 31: Pension Benefits 2009 2008 2007 Other Postretirement Benefits 2009 2008 2007 Projected Benefit Obligation: Discount rate(a) ...Rate of compensation increase ...Net Periodic Benefit Cost: Discount rate(a) ...Rate of compensation increase ...Expected long-term return on plan assets(b) ... 5.80...

  • Page 76
    ... by the Internal Revenue Code. Retail Savings Plan We sponsor a savings plan, in lieu of the thrift plan, for eligible retail employees who have completed one year of service and have worked at least 1,000 hours within that time. Eligible employees receive a mandatory employer contribution equal...

  • Page 77
    ... to renew. Tesoro has operating leases for most of its retail stations with primary remaining terms up to 43 years, and generally containing renewal options and escalation clauses. Our storage tank leases run primarily through 2017. Our minimum annual lease payments as of December 31, 2009, for...

  • Page 78
    ... CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Environmental Liabilities We are currently, and expect to continue, incurring expenses for environmental cleanup at a number of currently and previously owned or operated refining, pipeline, terminal and retail station properties...

  • Page 79
    ... directors under the 2005 Director Compensation Plan and the 1995 Non-Employee Director Stock Option Plan. We also have outstanding awards under our Amended and Restated Executive Long-Term Incentive Plan and Key Employee Stock Option Plan. At December 31, 2009, Tesoro had 2,056,706 shares available...

  • Page 80
    ... six months after it is granted. The plan expired in February 2010 and no further options may be granted under the plan. • The Key Employee Stock Option Plan provided stock option grants to eligible employees who were not executive officers of Tesoro. The options, which become exercisable one year...

  • Page 81
    ...The 2006 Long-Term Stock Appreciation Rights Plan (the "SAR Plan") permits the grant of stock appreciation rights ("SARs") to key managers and other employees of Tesoro. A SAR granted under the SAR Plan entitles an employee to receive cash in an amount equal to the excess of the fair market value of...

  • Page 82
    ... refineries located in California, Washington, Alaska, Hawaii, North Dakota and Utah. These refineries manufacture gasoline and gasoline blendstocks, jet fuel, diesel fuel, residual fuel oils and other refined products. We sell these refined products, together with refined products purchased...

  • Page 83
    ...2009 2008 2007 Revenues Refining: Refined products ...Crude oil resales and other(a) ...Retail: Fuel(b) ...Merchandise and other ...Intersegment sales from Refining to Retail ...Total Revenues ...Segment Operating Income (Loss) Refining(c) ...Retail(d) ...Total Segment Operating Income ...Corporate...

  • Page 84
    ... closing 42 Mirastar retail stations and the potential sale of 20 retail stations. (e) During 2008, we received net refunds totaling $50 million from the Trans Alaska Pipeline System for previous year's refinery transportation and distribution costs associated with our protest of intrastate tariffs...

  • Page 85
    ... Balance Sheet as of December 31, 2009 Tesoro Corporation Guarantor Subsidiaries NonGuarantor Subsidiaries (In millions) Eliminations Consolidated ASSETS Current Assets Cash and cash equivalents ...Receivables, less allowance for doubtful accounts ...Inventories ...Prepayments and other ...$ - 114...

  • Page 86
    ... Total Current Assets ...Net Property, Plant and Equipment ...Investment in Subsidiaries ...Long-Term Receivables from Affiliates . . Other Noncurrent Assets ...Total Assets ... LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable and accrued liabilities ...Current maturities...

  • Page 87
    ...the Year Ended December 31, 2009 Tesoro Corporation Guarantor Subsidiaries NonGuarantor Subsidiaries (...28,416 27,945 471 - (42) 429 151 278 $ $ $ (a) The income tax provision (benefit) reflected in each column does not include any tax effect of the equity in earnings from subsidiaries. Condensed...

  • Page 88
    ... for the Year Ended December 31, 2009 Tesoro Corporation Guarantor Subsidiaries NonGuarantor Subsidiaries (In millions) Eliminations Consolidated CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES Net cash from (used in) operating activities ...CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES Capital...

  • Page 89
    ... sales ...Net cash from (used in) investing activities ...CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES Borrowings under revolver ...Repayments under revolver ...Repurchase of common stock ...Dividend payments ...Repayments of debt ...Proceeds from stock options exercised ...Excess tax benefits...

  • Page 90
    ... tax benefits from stock-based compensation arrangements ...Net intercompany borrowings (repayments) ...Financing costs and other ...Net cash from (used in) financing activities ...DECREASE IN CASH AND CASH EQUIVALENTS ...CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ...CASH AND CASH EQUIVALENTS...

  • Page 91
    ...) $28,416 $27,177 $ 471 $ 278 $ 2.03 $ 2.00 (a) During the 2009 fourth quarter, we incurred a $43 million charge for goodwill impairment in our refining segment. During the 2008 fourth quarter, we incurred a $91 million charge to write-off a receivable for which collection was deemed unlikely. 90

  • Page 92
    ..., as defined; • the purchase or sale of certain assets is no longer subject to the fixed charge coverage ratio; • letters of credit allowed under separate letter of credit agreements are no longer subject to a cap; • the applicable margin as defined; and • the annual rate of commitment...

  • Page 93
    .... In our opinion, Tesoro Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States...

  • Page 94
    ... and ethics for senior financial executives on our website at www.tsocorp.com, and you may receive a copy, free of charge by writing to Tesoro Corporation, Attention: Investor Relations, 19100 Ridgewood Pkwy, San Antonio, Texas 78259-1828. ITEM 11. EXECUTIVE COMPENSATION Information required under...

  • Page 95
    ... 2.1 to the Company's Current Report on Form 8-K filed on February 1, 2007, File No. 1-3473). 2.7 - Sale and Purchase Agreement for Golden Eagle Refining and Marketing Assets, dated February 4, 2002, by and among Ultramar Inc. and Tesoro Refining and Marketing Company, including First Amendment...

  • Page 96
    Exhibit Number Description of Exhibit 2.9 - Purchase and Sale Agreement and Joint Escrow Instructions by and among the Company and USA Petroleum Corporation, USA Gasoline Corporation, Palisades Gas and Wash, Inc. and USA San Diego LLC dated as of January 26, 2007 (incorporated by reference herein ...

  • Page 97
    ...3473). †10.10 - 2006 Long-Term Incentive Plan dated effective January 1, 2009 (incorporated by reference to Exhibit 10.4 to the Company's Current Report on Form 8-K filed December 18, 2008, File No. 1-3473). †10.11 - Tesoro Corporation 2006 Executive Deferred Compensation Plan effective January...

  • Page 98
    ... and Restated Employment Agreement between Tesoro and Bruce A. Smith dated as of August 4, 2009 (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed August 4, 2009, File No. 1-3473). †10.21 - Employment Agreement between the Company and William J. Finnerty...

  • Page 99
    ... Ethics for Senior Financial Executives (incorporated by reference herein to Exhibit 14.1 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2003, File No. 1-3473). *21.1 - Subsidiaries of the Company. *23.1 - Consent of Independent Registered Public Accounting Firm...

  • Page 100
    ..., thereunto duly authorized. TESORO CORPORATION By BRUCE A. SMITH Bruce A. Smith Chairman of the Board of Directors, President and Chief Executive Officer /s/ Dated: March 1, 2010 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the...