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TESORO CORP /NEW/ (TSO)
10-K
Annual report pursuant to section 13 and 15(d)
Filed on 03/01/2011
Filed Period 12/31/2010

Table of contents

  • Page 1
    TESORO CORP /NEW/ (TSO) 10-K Annual report pursuant to section 13 and 15(d) Filed on 03/01/2011 Filed Period 12/31/2010

  • Page 2
    ... File Number 1-3473 TESORO CORPORATION (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 95-0862768 (I.R.S. Employer Identification No.) 19100 Ridgewood Parkway San Antonio, Texas (Address of principal executive offices...

  • Page 3
    TESORO CORPORATION ANNUAL REPORT ON FORM 10-K TABLE OF CONTENTS Page PART I Items 1. and 2. Business and Properties Refining Retail Competition Government Regulation and Legislation Working Capital Seasonality Employees Properties Glossary of Terms Executive Officers of the Registrant Board of ...

  • Page 4
    ... refined products in wholesale and bulk markets to a wide variety of customers within the operations area. Our retail operating segment ("retail") sells transportation fuels and convenience products in 15 states through a network of 880 retail stations, primarily under the Tesoro®, Shell®, USA...

  • Page 5
    ... oil capacity and throughput rates of crude oil and other feedstocks by refinery are as follows: Refinery Crude Oil Capacity (bpd)(a) 2010 Throughput (bpd) 2009 2008 California Golden Eagle Los Angeles Pacific Northwest Washington(b) Alaska Mid-Pacific Hawaii Mid-Continent North Dakota Utah...

  • Page 6
    ... 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 California, Alaska, North Dakota, Colorado, Wyoming and Utah. We purchase foreign crude oil primarily from South America, Russia, Canada and...

  • Page 7
    ... refining yield by region is summarized below (in Mbpd): 2010 Volume % 2009 Volume % 2008 Volume % California Gasoline and gasoline blendstocks Jet fuel Diesel fuel Heavy oils, residual products, internally produced fuel and other Total Pacific Northwest Gasoline and gasoline blendstocks Jet fuel...

  • Page 8
    ... other customers. Terminalling. We operate 18 refined products terminals at our refineries and other locations 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...

  • Page 9
    ... well as conventional gasoline, diesel fuel and jet fuel. The refinery also produces heavy fuel oils, liquefied petroleum gas and petroleum coke. Transportation. Our Los Angeles refinery leases a marine terminal at the Port of Long Beach that enables us to receive crude oil and ship refined products...

  • Page 10
    ... refined products through our Kenai marine terminal and from the Port of Anchorage marine facility to customers via ships and barges. Terminals. We operate refined products terminals at Nikiski and Anchorage, which are supplied by our Alaska refinery. We also distribute refined products through...

  • Page 11
    ...our truck loading rack. We also own and operate refined products terminals in Boise and Burley, Idaho that are supplied by pipeline from our Utah refinery. Wholesale Marketing and Refined Product Distribution We sell refined products including gasoline and gasoline blendstocks, jet fuel, diesel fuel...

  • Page 12
    ...and diesel fuel purchase and resale transactions are principally on the U.S. West Coast. Our primary jet fuel resale activity consists of supplying markets in Alaska, California, Washington, Hawaii and Utah. We also purchase for resale a lesser amount of gasoline and other refined products for sales...

  • Page 13
    ..., New Mexico and Washington. Our retail stations (summarized by type and brand) were located in the following states as of December 31, 2010: CompanyOperated Type Jobber/ Dealer Brand USA Gasolinetm State Total Tesoro(a) Shell® Mirastar® Total California North Dakota Alaska Minnesota Utah...

  • Page 14
    ... 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 15
    ... and high-volume retailers. We sell gasoline in Alaska, California, Hawaii, North Dakota, Utah, Washington and other western states through a network of company-operated retail stations and branded and unbranded jobber/dealers. Competitive factors that affect retail marketing include product price...

  • Page 16
    ... Alyeska Pipeline Service Company. We have a spill-response services agreement in Hawaii with Clean Islands Council. We also 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, Clean...

  • Page 17
    ..., ship charters, barges and equipment used in the storage, transportation and production of feedstocks and refined products. We conduct our retail business under the Tesoro®, Shell®, USA Gasolinetm and Mirastar® brands through a network of 880 retail stations, of which 381 are company-operated...

  • Page 18
    ...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 than gasoline, jet fuel and diesel fuel produced in the refining process. These products include residual fuels, gas oils, propane...

  • Page 19
    ... finished gasoline. Retail Fuel Margin - The margin on fuel products sold through our retail segment calculated as revenues less cost of sales. Cost of sales in fuel margin are based on purchases from our refining segment and third-parties using average bulk market prices adjusted for transportation...

  • Page 20
    ...Vice President, General Counsel and Secretary Senior Vice President, Chief Financial Officer Senior Vice President, Strategy and Business Development Vice President and Controller Vice President, Finance and Treasurer May 2010 March 2008 April 2009 May 2010 November 2010 December 2006 February 2011...

  • Page 21
    ... Finance and Treasurer in February 2011. Ms. Jackson served as the Company's Vice President, Finance starting in November 2010 and the Vice President of Internal Audit beginning in May 2007. Prior to that, she served as Executive Director of Internal Audit at Valero Corporation beginning in May 2005...

  • Page 22
    ... of the Environmental, Health and Safety Committee of Tesoro Corporation; Retired Executive Vice President for ConocoPhillips; Director of Post Oak Bank (Houston, Texas); Director of Albemarle Corporation. Retired Vice President of Texaco and President and Chief Executive Officer of Texaco Refining...

  • Page 23
    ... to lower prices or reduced margins for the products we sell, which could have an adverse effect on our business, financial condition and results of operations. Meeting the requirements of evolving environmental, health and safety laws and regulations including those related to climate change could...

  • Page 24
    ... results of operations. We carry property, casualty and business interruption insurance but we do not maintain insurance coverage against all potential losses. Marine vessel charter agreements do not include indemnity provisions for oil spills so we also carry marine charterer's liability insurance...

  • Page 25
    ...") to the maximum extent possible. We and the owners of tankers we charter have contracted with various spill response service companies in the areas in which we transport and store crude oil and refined products to meet the requirements of the Federal Oil Pollution Act of 1990 and state and foreign...

  • Page 26
    ... 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 the...

  • Page 27
    ...February 2011, Tesoro Corporation, Tesoro Refining and Marketing Company and other defendants were named in a lawsuit brought by the estates and families of six of the seven fatally injured employees arising from the April 2, 2010 Washington refinery incident. In addition, a thirdparty propane truck...

  • Page 28
    ... USA Petroleum Corporation, et al., Tesoro Corporation and Tesoro Refining and Marketing Company City of Santa Barbara v. Chevron USA, Inc., et al., Tesoro Refining and Marketing Company Superior Court of California, County of Sacramento United States District Court of Southern District of New York...

  • Page 29
    ... business model to that of Tesoro's including refining, transporting, storing and marketing transportation fuels and related products. The New Peer Group is more representative of companies that we internally benchmark against. The change in Peer Group from 2009 is the removal of Alon USA Energy...

  • Page 30
    ... 31, 2010. 2011 Annual Meeting of Stockholders The 2011 Annual Meeting of Stockholders will be held at 4:00 P.M. Central Time on Wednesday, May 4, 2011, at Tesoro Corporate Headquarters, 19100 Ridgewood Parkway, San Antonio, Texas. Holders of common stock of record at the close of business on March...

  • Page 31
    ...(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) Net earnings (loss) included...

  • Page 32
    ... 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; • direct or indirect effects on our business resulting from actual...

  • Page 33
    ... Tesoro Corporation to own, operate, develop and acquire crude oil and refined products logistics assets. Headquartered in San Antonio, Texas, Tesoro Logistics LP's initial assets will consist of a crude oil gathering system in the Bakken Shale/Williston Basin area, eight refined products terminals...

  • Page 34
    ... The information contained in this Form 10-K with respect to this offering shall not constitute an offer to sell or a solicitation of an offer to buy these securities. Tesoro Panama Company Sociedad Anonima ("TPSA") As part of our business strategy, we formed TPSA to use our leased pipeline and tank...

  • Page 35
    ... table depicts average key crude oil pricing and West Coast benchmark product margins for 2010 and 2009: Improved West Coast distillate supply and demand fundamentals led to improved diesel margins in 2010 as compared to 2009. During 2010, U.S. West Coast benchmark diesel fuel margins increased by...

  • Page 36
    ... in Tesoro stock prices during 2010 as compared to 2009; • a reduction in cost of sales of $69 million resulting from a LIFO liquidation benefit during 2009; and • additional operating expenses of $27 million directly related to the April 2, 2010, incident at our Washington refinery, partially...

  • Page 37
    ... $55 million in business interruption insurance recoveries related to the April 2, 2010 incident at our Washington refinery for the year ended December 31, 2010. Management uses gross refining margin per barrel to evaluate performance and compare profitability to other companies in the industry...

  • Page 38
    ... Other operating expenses Selling, general and administrative expenses Depreciation and amortization expense(g) Loss on asset disposals and impairments(h) Segment Operating Income(i) Refined Product Sales (Mbpd)(j) Gasoline and gasoline blendstocks Jet fuel Diesel fuel Heavy oils, residual products...

  • Page 39
    ... our Hawaii, North Dakota, Golden Eagle and Utah refineries in 2010. We also temporarily shut-down processing at the Washington refinery beginning in April 2010, and resumed operations at planned rates in November 2010. We experienced reduced throughput due to scheduled turnarounds at our Alaska and...

  • Page 40
    ...Hawaii, North Dakota, Golden Eagle and Utah refineries. Total refining throughput during 2009 was impacted by scheduled turnarounds at our Alaska and Golden Eagle refineries, scheduled maintenance at our Washington refinery and unscheduled downtime at the Los Angeles refinery. Refined Products Sales...

  • Page 41
    ... scheduled and unscheduled industry downtime and lower average gasoline inventories. Our California region was negatively impacted by a reduction in heavy and light crude oil price differentials that reduced gross refining margin during 2009, because our California refineries run a high proportion...

  • Page 42
    ... intersegment purchases from our refining segment at prices which approximate market. Includes impairment charges during 2008 related to the closure of 42 Mirastar retail stations and a potential sale of 20 retail stations. 2010 Compared to 2009 Operating Income. Our retail segment operating income...

  • Page 43
    ... to closing the 42 Mirastar retail stations. Fuel sale revenues decreased $1.2 billion, or 28%, to $3.0 billion in 2009, from $4.2 billion in 2008, reflecting significantly lower sales prices and decreased fuel sales volumes. Cost of sales decreased from 2008 due to lower prices for purchased fuel...

  • Page 44
    ... our capital resources and liquidity are impacted by changes in the price of crude oil and refined products, availability of trade credit, market uncertainty and a variety of additional factors beyond our control. These factors include the level of consumer demand for transportation fuels, weather...

  • Page 45
    ...a periodically adjusted borrowing base of approximately $2.2 billion (based upon an Alaska North Slope crude oil price of $84 per barrel), consisting of Tesoro's eligible cash and cash equivalents, receivables and petroleum inventories, net of the standard reserve as defined, or the Revolving Credit...

  • Page 46
    ... crude oil and product prices, we collect higher product prices sooner than we pay for more expensive crude purchases. Inventories increased by approximately seven million barrels from December 31, 2009. This was offset by corresponding increases in accounts payable and current maturities of long...

  • Page 47
    ... spending is primarily at our Golden Eagle and Los Angeles refineries. Refining throughput and yields in 2011 will be affected by these turnarounds. During 2010, we spent $140 million for refinery turnarounds and catalyst, primarily at our Utah, Golden Eagle, North Dakota and Hawaii refineries. 45

  • Page 48
    .... Represents primarily long-term commitments for the transportation of crude oil and refined products as well as to purchase industrial gases, chemical processing services and utilities at our refineries. These purchase obligations are based on the contract's minimum volume requirements. Minimum...

  • Page 49
    ... sites, including our refineries, tank farms, pipelines, operating retail stations, closed retail stations operating refined products terminals and closed refined products terminals. The impact of these legislative and regulatory developments, including any greenhouse gas cap-and-trade program...

  • Page 50
    ... at planned rates in November 2010. In February 2011, Tesoro Corporation, Tesoro Refining and Marketing Company and other defendants were named in a lawsuit brought by the estates and families of six of the seven fatally injured employees arising from the April 2, 2010 Washington refinery incident...

  • Page 51
    ... During 2009, Chevron filed a lawsuit against us claiming they are entitled to a share of the refunds we received in 2008 from the owners of the Trans Alaska Pipeline System ("TAPS"). We received $50 million in 2008, net of contingent legal fees, for excessive intrastate rates charged by TAPS...

  • Page 52
    ... by California's South Coast Air Quality Management District require the emission of nitrogen oxides to be initially reduced in 2011 at our Los Angeles refinery. Currently, we plan to meet this requirement by implementing operational changes, small capital projects and the continued management of...

  • Page 53
    ... excess product inventories and rising crude oil costs, 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 54
    ... assumptions we used are appropriate, significant differences in actual experience or significant changes in assumptions would affect pension and other postretirement benefits costs and obligations. We determine the discount rate primarily by reference to rates of high quality corporate bonds that...

  • Page 55
    ... - We follow the fair value method of accounting for stock-based compensation. We estimate the fair value of options and certain other stock-based awards using the Black-Scholes option-pricing model or a Monte Carlo simulation with assumptions based primarily on historical data. The Black...

  • Page 56
    ... prices we sell our refined products for and the prices we pay for crude oil and other feedstocks. We may use derivative instruments to manage the risks from changes in the prices of crude oil and refined products, fluctuations in foreign currency exchange rates, or to capture market opportunities...

  • Page 57
    ...quoted market prices of our derivative instruments, assuming all other factors remain constant, could change the fair value of our derivative instruments and pretax operating income by approximately $5 million. Tesoro Panama Company Sociedad Anonima We formed TPSA to use our leased pipeline and tank...

  • Page 58
    ... its cash flows for each of the three years in the period ended December 31, 2010, 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...

  • Page 59
    Table of Contents TESORO CORPORATION STATEMENTS OF CONSOLIDATED OPERATIONS Years Ended December 31, 2009 (In millions except per share amounts) 2010 2008 REVENUES(a) $ 20,583 $ COSTS AND EXPENSES: Cost of sales(a) 18,251 Operating expenses 1,474 Selling, general and administrative expenses 242 ...

  • Page 60
    ... Refining Retail Corporate and other Less accumulated depreciation and amortization Net Property, Plant and Equipment OTHER NONCURRENT ASSETS Acquired intangibles, net Other, net Total Other Noncurrent Assets Total Assets LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable...

  • Page 61
    ... 31, 2007 Net earnings Cash dividends Repurchases of common stock Shares issued for stock options and benefit plans Excess tax benefits from stock-based compensation arrangements exercised Restricted common stock grants and amortization Other comprehensive loss: Pension and other benefit liability...

  • Page 62
    ...Accounts payable and accrued liabilities Net cash from operating activities CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES Capital expenditures Proceeds from asset sales Net cash used in investing activities CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES Proceeds from debt offerings, net of discount...

  • Page 63
    ... refined products in wholesale and bulk markets to a wide variety of customers within the operations area. Our retail operating segment ("retail") sells transportation fuels and convenience products in 15 states through a network of 880 retail stations, primarily under the Tesoro®, Shell®, USA...

  • Page 64
    ... materials and supplies at average cost. We use commodity derivatives to manage price volatility associated with our foreign subsidiary crude oil inventories. In the fourth quarter of 2010, we began designating certain commodity derivatives as fair value hedges for accounting purposes. Subsequent...

  • Page 65
    ... requirements associated with the closure of our refining facilities, terminal facilities or pipelines, including the demolition or removal of certain major processing units, buildings, tanks, pipelines or other equipment; and • removal of underground storage tanks at our owned retail stations at...

  • Page 66
    ... 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 67
    ... in selling, general and administrative expenses. Derivative Instruments and Hedging Activities We periodically use non-trading derivative instruments to primarily manage exposure to commodity price risks associated with the purchase or sale of crude oil and finished products. We may also use non...

  • Page 68
    Table of Contents TESORO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) and purchase contracts to manage our exposure to these exchange rate fluctuations. Amounts are recorded in foreign currency exchange gain (loss). New Accounting Standards and Disclosures Fair Value ...

  • Page 69
    ... market price of the common stock during each respective reporting period. NOTE C - RECEIVABLES Receivables at December 31, 2010 and 2009, consisted of the following (in millions): 2010 2009 Trade receivables Tax receivables Other receivables Allowance for doubtful accounts Total Receivables, Net...

  • Page 70
    ... units using recent refinery sales transactions and quoted common stock prices of comparable companies within the refining industry. The carrying value of our Hawaii refinery reporting unit increased during the year as a result of increased turnaround spending and a reduction in certain pension and...

  • Page 71
    ... (in millions): December 31, 2010 Historical Cost Accumulated Amortization Net Book Value Historical Cost December 31, 2009 Accumulated Amortization Net Book Value Air emissions credits Customer agreements and contracts(a) USA Gasoline tradename Refinery permits and plans Favorable leases Other...

  • Page 72
    ... our financial instruments, including cash and cash equivalents, receivables, accounts payable and certain accrued liabilities approximate fair value because of the short maturities of these instruments. The fair value of our debt was estimated primarily using quoted market prices. Both the carrying...

  • Page 73
    ... with the purchase or sale of physical delivery of feedstocks, products and energy supplies to or from the Company's refineries, terminals, retail operations and customers in our normal market areas. We may also use non-trading derivative instruments to manage price risks associated with inventories...

  • Page 74
    ... on Hedged Item(b) Derivatives Designated as Fair Value Hedging Instruments: Commodity Futures Contracts (b) (c) $ (3) $ 4 $ 1 Gains (losses) recognized in income on derivatives and hedged items are included in cost of sales in the statements of consolidated operations. For fair value hedges...

  • Page 75
    Table of Contents TESORO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Open Short Positions All of our open positions are scheduled to mature within the next twelve months. The information below presents the net volume of outstanding contracts by type of instrument and year ...

  • Page 76
    ...include cash dividends, stock repurchases or voluntary prepayments of subordinated debt. Tesoro Corporation Revolving Credit Facility ("Revolving Credit Facility") We amended our Revolving Credit Facility in February 2010. Modifications included: lowering the minimum required tangible net worth, the...

  • Page 77
    ...a periodically adjusted borrowing base of approximately $2.2 billion (based upon an Alaska North Slope crude oil price of $84 per barrel), consisting of Tesoro's eligible cash and cash equivalents, receivables and petroleum inventories, net of the standard reserve as defined, or the Revolving Credit...

  • Page 78
    ... to the covenants in the indenture for Tesoro's 61/4% senior notes due 2012. 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 79
    ... tank removal at our leased retail stations. Changes in asset retirement obligations for the years ended December 31, 2010 and 2009 were as follows (in millions): 2010 2009 Balance at beginning of year Additions to accrual Accretion expense Settlements Changes in timing and amount of estimated cash...

  • Page 80
    ... were (in millions): 2010 2009 Deferred tax assets: Tax credit carryforwards Net operating losses Accrued pension and other postretirement benefits Asset retirement obligations Accrued environmental remediation liabilities Other accrued liabilities Stock-based compensation Other Total deferred tax...

  • Page 81
    ...) is as follows (in millions): 2010 2009 2008 Income tax expense (benefit) at U.S. federal statutory rate Effect of: State income taxes, net of federal income tax effect Manufacturing activities deduction Goodwill write-off Income tax settlements Medicare Part D law change Other Income tax expense...

  • Page 82
    ... retail savings plan, both of which provide for eligible employees to make contributions, subject to certain limitations, into designated investment funds with a matching contribution by Tesoro. In June 2010, the Compensation Committee of the Board of Directors approved changes to certain retirement...

  • Page 83
    ... of Contents TESORO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Changes to retirement plans • The funded qualified employee retirement plan changed from a "Final Average Pay" ("FAP") based formula to a "Cash Balance Account" based formula. The FAP benefit formula will...

  • Page 84
    ... 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 85
    ... a focus on long duration issues. The fair value of these investments has been estimated using the net asset value per share. This pooled separate account fund primarily invests in completed, income-producing real estate properties with cash flows that are expected to increase over time and provide...

  • Page 86
    ...Contents TESORO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Changes in our projected benefit obligations and plan assets, and the funded status for our pension plans and other postretirement benefits as of December 31, 2010 and 2009 were (in millions): Pension Benefits 2010...

  • Page 87
    ... TESORO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The components of pension and postretirement net periodic benefit expense (income) included in the consolidated statements of operations for the years ended December 31, 2010, 2009 and 2008 were (in millions): 2010 Pension...

  • Page 88
    ...6.14% - 6.40% - - We determine the discount rate primarily by reference to rates of high-quality, long-term corporate bonds that mature in a pattern similar to the expected payments to be made under the plans. As a result of the changes to other postretirement benefits during the second quarter of...

  • Page 89
    ... We have various cancellable and noncancellable operating leases related to land, office and retail facilities, ship charters, tanks and equipment and other facilities used in the storage, transportation, and sale of crude oil, feedstocks and refined products. In general, these leases have remaining...

  • Page 90
    ... We have long-term take-or-pay commitments for the transportation of crude oil and refined products as well as to purchase industrial gases, chemical processing services and utilities associated with the operation of our refineries. The minimum annual payments under these take-or-pay agreements are...

  • Page 91
    ...February 2011, Tesoro Corporation, Tesoro Refining and Marketing Company and other defendants were named in a lawsuit brought by the estates and families of six of the seven fatally injured employees arising from the April 2, 2010 Washington refinery incident. In addition, a thirdparty propane truck...

  • Page 92
    ... on the operating plan that existed prior to the incident. Our property damage insurance has a $10 million deductible. We have filed business interruption insurance claims and property damage claims related to this incident. During 2010, we collected $55 million in business interruption insurance...

  • Page 93
    ... not pay any cash dividends during 2010. During 2009 and 2008, we paid cash dividends on common stock totaling $0.35 per share and $0.40 per share, respectively. Treasury Stock We purchase shares of our common stock in open market transactions to meet our obligations under employee benefit plans. We...

  • Page 94
    ... the straight-line method. These awards generally vest in annual increments ratably over three years. Restricted common stock granted in connection with the inducement awards of the CEO Agreement will vest 100% on May 1, 2011. The total fair value of restricted shares vested in 2010, 2009 and 2008...

  • Page 95
    ... 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 one share of common stock on the date of exercise over the grant price of...

  • Page 96
    ... During the year ended December 31, 2010, we granted performance unit awards to certain officers and other key employees. These performance unit awards represent the right to receive a cash payment at the end of the performance period depending on Tesoro's achievement of pre-established performance...

  • Page 97
    ..., 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 from third-parties, at wholesale through terminal...

  • Page 98
    ... related to refining equipment at our Los Angeles refinery of $20 million and $12 million, respectively. Includes $55 million in business interruption insurance recoveries related to the April 2, 2010 incident at our Washington refinery for the year ended December 31, 2010. Retail operating income...

  • Page 99
    ... Tesoro Corporation to own, operate, develop and acquire crude oil and refined products logistics assets. Headquartered in San Antonio, Texas, Tesoro Logistics LP's initial assets will consist of a crude oil gathering system in the Bakken Shale/Williston Basin area, eight refined products terminals...

  • Page 100
    ... 31, 2010 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 Total Current Assets Net Property, Plant and...

  • Page 101
    ... 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 Total Current Assets Net Property, Plant and...

  • Page 102
    ... 31, 2010 Tesoro Corporation Guarantor Subsidiaries NonGuarantor Subsidiaries (In millions) Eliminations Consolidated REVENUES Costs and expenses OPERATING INCOME (LOSS) Equity in earnings (loss) of subsidiaries Other expense EARNINGS (LOSS) BEFORE INCOME TAXES Income tax expense (benefit)(a) NET...

  • Page 103
    ... Statement of Cash Flows for the Year Ended December 31, 2010 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...

  • Page 104
    ... 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 expenditures...

  • Page 105
    ... Year Ended December 31, 2008 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 expenditures...

  • Page 106
    ... and $12 million in property damage insurance recoveries related to the April 2, 2010 incident at our Washington refinery for the three months and year ended December 31, 2010. The sum of four quarters may not equal annual results due to rounding or quarterly number of shares outstanding. Reductions...

  • Page 107
    ... are designed to provide reasonable assurance that the information that we are required to disclose in reports we file under the Exchange Act is accumulated and communicated to management, as appropriate. During the quarter ended December 31, 2010, there have been no changes in our internal control...

  • Page 108
    ... Management Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company's internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board...

  • Page 109
    ..., 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 this Item will be contained in the Company's 2011 Proxy Statement, incorporated herein by reference. ITEM...

  • Page 110
    ... North America Inc. and BP Pipelines (North America) Inc. (incorporated by reference herein to Exhibit 2.1 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2001, File No. 1-3473). - Asset Purchase Agreement by and between the Company and Shell Oil Products...

  • Page 111
    ...Corporation, USA Gasoline Corporation, Palisades Gas and Wash, Inc. and USA San Diego LLC dated as of January 26, 2007 (incorporated by reference herein to Exhibit 2.3 to the Company's Current Report on Form 8-K filed on February 1, 2007, File No. 1-3473). - Letter Agreement to the Purchase and Sale...

  • Page 112
    ...to the Tesoro Corporation Restoration Retirement Plan effective January 1, 2010 (incorporated by reference herein to Exhibit 10.13 to the Company's Annual Report on Form 10-K for the year ended December 31, 2009, File No. 1-3473). - Copy of the Company's Key Employee Stock Option Plan dated November...

  • Page 113
    ... Compensation Plan (incorporated by reference herein to Exhibit A to the Company's Proxy Statement for the Annual Meeting of Stockholders held on May 4, 2005, File No. 1-3473). †10.30 - Tesoro Corporation Executive Severance and Change in Control Plan effective January 12, 2011 (incorporated...

  • Page 114
    ...reference in such filing. Copies of exhibits filed as part of this Form 10-K may be obtained by stockholders of record at a charge of $0.15 per page, minimum $5.00 each request. Direct inquiries to the Corporate Secretary, Tesoro Corporation, 19100 Ridgewood Pkwy, San Antonio, Texas, 78259-1828. 112

  • Page 115
    ... Officer) Senior Vice President and Chief Financial Officer (Principal Financial Officer) Vice President and Controller (Principal Accounting Officer) Chairman of the Board of Directors Director Director Director Director Director Director Director Director 113 February 23, 2011 February 23, 2011...

  • Page 116
    ... upon change of control" (as defined below), the Company (or its successor) shall pay to Employee within ten days of such termination the following severance payments and benefits: (a) A lump-sum payment equal to two and one-half times the base salary of the Employee at the then current rate; and...

  • Page 117
    ..."change of control" shall be deemed to have occurred if (i) there shall be consummated (A) any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which shares of the Company's Common Stock would be converted into cash, securities...

  • Page 118
    ... Company to continue in effect any thrift, stock ownership, pension, life insurance, health, dental and accident or disability plan in which Employee is participating or is eligible to participate at the time of the change of control (or plans providing Employee with substantially similar benefits...

  • Page 119
    In the event of a change of control as "change of control" is defined in any stock option plan or stock option agreement pursuant to which the Employee holds options to purchase common stock of the Company, Employee shall retain the rights to all accelerated vesting and other benefits under the ...

  • Page 120
    ... Plaza Drive San Antonio, Texas 78216-6999 G. Scott Spendlove If to the Employee: IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. COMPANY: TESORO CORPORATION By: /s/ Bruce A. Smith Bruce A. Smith Chairman of the Board of Directors, President...

  • Page 121
    Exhibit 21.1 SUBSIDIARIES OF THE COMPANY Tesoro Corporation is publicly held and has no parent. The ...Tesoro Alaska Company Tesoro Refining and Marketing Company Tesoro Companies, Inc. Tesoro Northstore Company Tesoro Canada Supply & Distribution, Ltd. Tesoro Hawaii Corporation Tesoro Panama Company...

  • Page 122
    ... 1, 2011, with respect to the consolidated financial statements of Tesoro Corporation, and the effectiveness of internal control over financial reporting of Tesoro Corporation, included in this Annual Report (Form 10-K) for the year ended December 31, 2010. /s/ ERNST & YOUNG LLP San Antonio, Texas...

  • Page 123
    ... in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who...

  • Page 124
    ... in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who...

  • Page 125
    ... OF 2002 In connection with the Annual Report of Tesoro Corporation (the "Company") on Form 10-K for the year ended December 31, 2010 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Gregory J. Goff, Chief Executive Officer of the Company, certify, pursuant...

  • Page 126
    ... 2002 In connection with the Annual Report of Tesoro Corporation (the "Company") on Form 10-K for the year ended December 31, 2010 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, G. Scott Spendlove, Chief Financial Officer of the Company, certify, pursuant...