Operating Segments (Notes)

6 Months Ended

Jun. 30, 2014

Segment Reporting [Abstract]

OPERATING SEGMENTS

OPERATING SEGMENTS

The Company’s revenues are derived from three operating segments: refining, TLLP and retail. We own and operate six petroleum refineries located in California, Washington, Alaska, North Dakota and Utah that manufacture gasoline and gasoline blendstocks, jet fuel, diesel fuel, residual fuel oil and other refined products. We sell these refined products, together with refined products purchased from third parties, at wholesale through terminal facilities and other locations and opportunistically export refined products to foreign markets. TLLP’s assets and operations include certain crude oil gathering assets and crude oil and refined products terminalling and transportation assets acquired from Tesoro and other third parties. Revenues from the TLLP segment are generated by charging fees for gathering crude oil and for terminalling, transporting and storing crude oil and refined products. Our retail segment sells gasoline, diesel fuel and convenience store items through company-operated retail stations and branded jobber/dealers in 17 states. Since we do not have significant operations in foreign countries, revenue generated in and long-lived assets located in foreign countries are not material to our operations.

We evaluate the performance of our segments based primarily on segment operating income. Segment operating income includes those revenues and expenses that are directly attributable to management of the respective segment. Intersegment sales from refining to retail are made at prices which approximate market. TLLP revenues include intersegment transactions with our refining segment at prices which we believe are no less favorable to either party than those that could have been negotiated with unaffiliated parties with respect to similar services. Income taxes, other income, net, interest and financing costs, net, corporate depreciation and corporate general and administrative expenses are excluded from segment operating income.

Segment information related to continuing operations is as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
	(In millions)
Revenues
Refining:
Refined products	$	10,520		$	8,146		$	20,020		$	14,890
Crude oil resales and other	354			597			626			1,066
TLLP:
Crude oil gathering	27			21			52			43
Terminalling and transportation	103			39			203			69
Retail:
Fuel (a)	3,523			2,218			6,547			3,725
Merchandise and other	69			59			130			107
Intersegment sales	(3,492		)	(2,183		)	(6,541		)	(3,656		)
Total Revenues	$	11,104		$	8,897		$	21,037		$	16,244
Segment Operating Income
Refining	$	372		$	375		$	555		$	634
TLLP (b)	50			20			112			44
Retail	72			25			91			40
Total Segment Operating Income	494			420			758			718
Corporate and unallocated costs (c)	(84		)	(56		)	(110		)	(161		)
Operating Income	410			364			648			557
Interest and financing costs, net (d)	(41		)	(33		)	(118		)	(63		)
Other income, net (e)	3			56			2			56
Earnings Before Income Taxes	$	372		$	387		$	532		$	550
Depreciation and Amortization Expense
Refining	$	105		$	90		$	206		$	178
TLLP	16			7			32			11
Retail	10			9			20			17
Corporate	4			5			7			10
Total Depreciation and Amortization Expense	$	135		$	111		$	265		$	216
Capital Expenditures
Refining	$	94		$	134		$	162		$	232
TLLP	48			22			74			33
Retail	13			9			18			16
Corporate	12			5			16			8
Total Capital Expenditures	$	167		$	170		$	270		$	289

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(a) Federal and state motor fuel taxes on sales by our retail segment are included in both revenues and cost of sales in our condensed statements of consolidated operations. These taxes totaled $152 million and $143 million for the three months ended June 30, 2014 and 2013, respectively, and $293 million and $272 million for the six months ended June 30, 2014 and 2013, respectively.

(b) We present TLLP’s segment operating income net of general and administrative expenses totaling $5 million and $4 million representing TLLP’s corporate costs for the three months ended June 30, 2014 and 2013, respectively, and $8 million for each of the six months ended June 30, 2014 and 2013 that are not allocated to TLLP’s operating segments.

(c) Includes stock-based compensation expense of $26 million and benefit of $4 million for the three months ended June 30, 2014 and 2013, respectively, and expense of $8 million and $45 million for the six months ended June 30, 2014 and 2013, respectively. The significant impact to stock-based compensation expense during the six months ended June 30, 2014 compared to the prior period is primarily a result of changes in Tesoro’s stock price.

(d) Includes charges totaling $31 million 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 $54 million in refunds from a settlement of a rate proceeding from the California Public Utilities Commission for the three and six months ended June 30, 2013.