- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2
TO CURRENT REPORT ON
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): MAY 17, 2002
TESORO PETROLEUM CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 1-3473 95-0862768
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
300 CONCORD PLAZA DRIVE 78216-6999
SAN ANTONIO, TEXAS (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (210) 828-8484
- --------------------------------------------------------------------------------
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On May 17, 2002, Tesoro Petroleum Corporation ("Tesoro" or the
"Company") completed the acquisition of the 168,000 barrels per day Golden Eagle
refinery located in Martinez, California in the San Francisco Bay area along
with 70 associated retail sites throughout northern California (collectively,
the "Golden Eagle Assets") from Ultramar Inc., a subsidiary of Valero Energy
Corporation. The acquisition was completed pursuant to a Sale and Purchase
Agreement, dated February 4, 2002, by and among Ultramar Inc. and Tesoro
Refining and Marketing Company, as amended on February 20, 2002 and May 3, 2002,
which was previously filed as Exhibit 2.1 to this Current Report on Form 8-K and
is incorporated herein by reference. The Company intends to utilize the Golden
Eagle Assets in a similar manner as the seller.
The purchase price for the Golden Eagle Assets, as amended, was $945
million, plus $130 million for feedstock and refined product inventories,
subject to post-closing adjustments. The Company issued to the seller two
ten-year junior subordinated notes with face amounts aggregating $150 million as
part of the $945 million purchase price. The notes consist of: (i) a $100
million junior subordinated note, due July 2012, which is non-interest bearing
for the first five years and carries a 7.5% interest rate for the remaining
five-year period, and (ii) a $50 million junior subordinated note, due July
2012, which has no interest payment in year one and bears a 7.47% effective
interest rate for the second through the fifth years and a 7.5% interest rate
for years six through ten. Copies of the $100 million and $50 million junior
subordinated notes were previously filed as Exhibits 10.1 and 10.2 to this
Current Report on Form 8-K and are incorporated herein by reference. The Company
further funded the acquisition of the Golden Eagle Assets with borrowings under
its amended and restated Senior Secured Credit Facility (described in Item 5 of
this Current Report on Form 8-K, File No. 1-3473, filed May 24, 2002), proceeds
of a March 2002 common stock offering and the proceeds of a April 2002 senior
subordinated notes offering. The Company also assumed certain liabilities and
obligations (including costs associated with transferred employees and
environmental matters, among others) subject to certain levels of
indemnification.
In connection with the acquisition of the Golden Eagle Assets, the
Company entered into a letter agreement, dated May 5, 2002, with the State of
California Department of Justice, Office of the Attorney General, which was
previously filed as Exhibit 10.3 to this Current Report on Form 8-K and is
incorporated herein by reference.
The foregoing is qualified by reference to the previously filed
Exhibits 2.1, 10.1, 10.2 and 10.3 to this Current Report on Form 8-K,
which are incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial statements of businesses acquired.
The audited financial statements of Golden Eagle Refining and
Marketing Assets Business as of December 31, 2001 and 2000 and for the
year ended December 31, 2001 and the four months ended December 31,
2000 were filed on Form 8-K under Item 7 on February 22, 2002.
The unaudited financial statements of Golden Eagle Refining
and Marketing Assets Business as of March 31, 2002 and December 31,
2001 and for the three months ended March 31, 2002 and 2001 were filed
on Amendment No. 1 to Form 8-K under Item 7 on July 16, 2002.
(b) Pro forma financial information.
The following pro forma financial information is included in
Appendix A hereto and incorporated herein by reference.
<Table>
PRO FORMA FINANCIAL STATEMENTS
Unaudited Pro Forma Combined Condensed Balance Sheet
as of March 31, 2002 ............................................. A-3
Unaudited Pro Forma Combined Condensed Statement of Operations
for the Year Ended December 31, 2002.............................. A-5
Unaudited Pro Forma Combined Condensed Statement of Operations
for the Three Months Ended March 31, 2002......................... A-6
</Table>
(c) Exhibits.
2.1 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 dated February 20,
2002 and related Purchaser Parent Guaranty dated
February 4, 2002 (incorporated by reference to
Exhibit 2.12 to the Company's Annual Report on Form
10-K for the year ended December 31, 2001, File No.
1-3473) and Second Amendment dated May 3, 2002
(incorporated by reference to Exhibit 2.1 to the
Company's Current Report on Form 8-K filed May 9,
2002, File No. 1-3473).
10.1 $100 million Promissory Note, dated as of May 17,
2002, payable by the Company to Ultramar Inc.
(incorporated by reference to the Exhibit 10.1 to the
Company's Current Report on Form 8-K, File No.
1-3473, filed on May 24, 2002).
10.2 $50 million Promissory Note, dated as of May 17,
2002, payable by the Company to Ultramar Inc.
(incorporated by reference to the Exhibit 10.2 to the
Company's Current Report on Form 8-K, File No.
1-3473, filed on May 24, 2002).
10.3* Letter dated May 5, 2002 from the Company to the
State of California Department of Justice, Office of
the Attorney General (incorporated by reference to
the Exhibit 10.3 to the Company's Current Report on
Form 8-K, File No. 1-3473, filed on May 24, 2002).
10.4 $1,275,000,000 Amended and Restated Credit Agreement,
dated as of May 17, 2002, among the Company and
Lehman Brothers Inc. (arranger), Lehman Commercial
Paper Inc. (the syndication agent), Bank One, NA (the
administrative agent) and a syndicate of banks,
financial institutions and other entities
(incorporated by reference to the Exhibit 10.4 to the
Company's Current Report on Form 8-K, File No.
1-3473, filed on May 24, 2002). Certain schedules
and exhibits to this Amended and Restated Credit
Agreement have not been filed with this exhibit. The
Company agrees to furnish supplementally any omitted
schedule or exhibit to the SEC upon request.
* Portions have been omitted pursuant to a request for
confidential treatment.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
Date: July 24, 2002
TESORO PETROLEUM CORPORATION
By: /s/ Gregory A. Wright
--------------------------------------
Gregory A. Wright
Senior Vice President
and Chief Financial Officer
APPENDIX A
PRO FORMA FINANCIAL STATEMENTS
The term "Golden Eagle Assets" refers to the 168,000 barrels per day
("bpd") Golden Eagle refinery located in Martinez, California near the San
Francisco Bay Area along with 70 associated retail sites throughout northern
California that we acquired in May 2002. The term "Mid-Continent Acquisition"
refers to our September 2001 acquisition of our North Dakota and Utah refineries
and related storage, distribution and retail assets and the November 2001
acquisition of a crude oil gathering and transmission system located in Montana
and North Dakota that provides crude oil to the North Dakota refinery (the
"Pipeline System") from certain affiliates of BP plc ("BP"). The term
"Acquisitions" refers to the Mid-Continent Acquisition and the acquisition of
the Golden Eagle Assets.
The following unaudited pro forma combined condensed balance sheet gives
effect to the following events as if each had occurred on March 31, 2002:
- the acquisition of the Golden Eagle Assets;
- the offering of the outstanding 9 5/8% notes due 2012; and
- additional borrowings under our amended and restated senior secured
credit facility necessary to consummate the acquisition of the Golden
Eagle Assets.
The Mid-Continent Acquisition and the related financings closed during 2001
and are included in Tesoro's historical balance sheet as of March 31, 2002 as
reported in our Quarterly Report on Form 10-Q for the quarter ended March 31,
2002.
The following unaudited pro forma combined condensed statements of
operations give effect to the following events as if each had occurred on
January 1, 2001:
MID-CONTINENT ACQUISITION:
- consummation of the Mid-Continent Acquisition;
- the related borrowings under our senior secured credit facility; and
- the offering of our 9 5/8% notes due 2008.
ACQUISITION OF THE GOLDEN EAGLE ASSETS:
- the acquisition of the Golden Eagle Assets;
- the offering of the outstanding 9 5/8% notes due 2012;
- the March 2002 underwritten public offering of 23 million shares of our
common stock; and
- additional borrowings under our amended and restated senior secured
credit facility necessary to consummate the acquisition of the Golden
Eagle Assets.
OTHER ADJUSTMENT:
- the July 1, 2001 conversion of our Premium Income Equity Securities
("PIES(SM)") into shares of our common stock.
As reported in our Annual Report on Form 10-K for the year ended December
31, 2001, Tesoro's historical results of operations for the year ended December
31, 2001 included results of the Mid-Continent Acquisition (excluding the
Pipeline System) and related interest and financing costs for the period
September 6, 2001 (the closing date for those assets) through December 31, 2001
and results of the Pipeline System and related interest and financing costs for
the period November 1, 2001 (the closing date for the Pipeline System) through
December 31, 2001.
The acquisition of the Golden Eagle Assets was accounted for using the
purchase method of accounting. The estimates of the fair value of the Golden
Eagle Assets and related liabilities are based on preliminary estimates. These
estimates with respect to inventories, property, plant and equipment, intangible
assets and certain assumed liabilities may change from the amounts shown. In
June 2002, we announced our goal to reduce debt, which includes, among other
things, the possible divestiture of certain assets. We are reviewing certain
assets for possible sale, including the Beacon retail stations acquired as part
of the Golden Eagle Assets. We have not yet determined that it is likely that
the Beacon stations will be sold. Therefore we have not classified these assets
as "held for sale" in the unaudited pro forma combined condensed financial
statements. We have included the assets and results of operations with the other
Golden Eagle Business assets as "held and used". The classification would change
if we determine that it is likely that we will sell the Beacon retail stations.
A-1
The unaudited pro forma combined condensed financial statements are based
on assumptions that we believe are reasonable under the circumstances and are
intended for informational purposes only. They are not necessarily indicative of
the future financial position or future results of the combined companies or of
the financial position or the results of operations that would have actually
occurred had the Acquisitions taken place as of the date or for the periods
presented. The unaudited pro forma combined condensed statements of operations
do not reflect any benefits from potential cost savings or revenue enhancements
resulting from the integration of the operations of the Acquisitions. The
unaudited pro forma combined condensed statement of operations for the year
ended December 31, 2001 contains allocations of corporate overhead totaling
$23.3 million related to the historical Mid-Continent Acquisition and Golden
Eagle Assets financial statements. We believe the actual incremental corporate
overhead that we will incur will be less than the allocated amounts.
These unaudited pro forma combined condensed statements should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in our Annual Report on Form 10-K for the year ended
December 31, 2001 and Quarterly Report on Form 10-Q for the quarter ended March
31, 2002, the historical Consolidated Financial Statements of Tesoro Petroleum
Corporation, the Financial Statements of The North Dakota and Utah Refining and
Marketing Business of BP Corporation North America Inc. and the Financial
Statements of Golden Eagle Refining and Marketing Assets Business (the "Golden
Eagle Business").
A-2
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
MARCH 31, 2002
<Table>
<Caption>
HISTORICAL PRO FORMA
-------------------- --------------------------
GOLDEN
EAGLE
TESORO BUSINESS ADJUSTMENTS COMBINED
-------- -------- ----------- ---------
(DOLLARS IN MILLIONS)
ASSETS
Current Assets:
Cash and cash equivalents.................... $ 0.2 $ 0.1 $ (0.1)(a) $ 95.2
95.0 (b)
Receivables.................................. 434.7 -- -- 434.7
Inventories.................................. 418.6 116.7 32.3 (c) 567.6
Prepayments and other........................ 14.9 6.5 (4.5)(c) 16.9
-------- -------- ------- --------
Total Current Assets...................... 868.4 123.3 122.7 1,114.4
-------- -------- ------- --------
Property, Plant and Equipment.................. 1,903.0 909.8 (111.8)(c) 2,701.0
Less accumulated depreciation and
amortization.............................. (346.8) (68.3) 68.3 (c) (346.8)
-------- -------- ------- --------
Net Property, Plant and Equipment......... 1,556.2 841.5 (43.5) 2,354.2
-------- -------- ------- --------
Other Assets:
Deposits and restricted funds................ 300.0 -- (300.0)(b) --
Goodwill..................................... 95.2 199.4 (199.4)(d) 95.2
Other, net................................... 178.8 88.8 63.2 (c) 358.3
31.0 (b)
(3.5)(e)
-------- -------- ------- --------
Total Other Assets........................ 574.0 288.2 (408.7) 453.5
-------- -------- ------- --------
Total Assets......................... $2,998.6 $1,253.0 $(329.5) $3,922.1
======== ======== ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities..... $ 532.0 $ 123.3 $(115.3)(c) $ 538.7
(1.3)(e)
Lease termination obligation................. -- 36.1 (36.1)(c) --
Current maturities of debt and other
obligations............................... 34.0 -- 15.7 (b) 49.7
-------- -------- ------- --------
Total Current Liabilities................. 566.0 159.4 (137.0) 588.4
Deferred Income Taxes.......................... 148.5 73.3 (73.3)(a) 148.5
Other Liabilities.............................. 118.7 35.3 62.7 (c) 216.7
Debt and Other Obligations..................... 1,217.4 -- 805.3 (b) 2,022.7
Net Parent Investment.......................... -- 985.0 (985.0)(d) --
Stockholders' Equity:
Common stock................................. 11.0 -- -- 11.0
Additional paid-in capital................... 689.5 -- -- 689.5
Retained earnings............................ 266.3 -- (2.2)(e) 264.1
Treasury stock............................... (18.8) -- -- (18.8)
-------- -------- ------- --------
Total Stockholders' Equity................ 948.0 -- (2.2) 945.8
-------- -------- ------- --------
Total Liabilities and Stockholders'
Equity............................. $2,998.6 $1,253.0 $(329.5) $3,922.1
======== ======== ======= ========
</Table>
A-3
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
MARCH 31, 2002
(a) Represents an adjustment to exclude assets and liabilities of the Golden
Eagle Business we did not acquire.
(b) Represents an adjustment to reflect the financing of the acquisition of the
Golden Eagle Assets, to pay related fees, expenses and debt issuance costs
and for general corporate purposes as follows (in millions):
<Table>
<Caption>
SOURCES
- -------
9 5/8% senior subordinated notes due 2012................... $ 450.0
Net borrowings under our amended and restated senior secured
credit facility........................................... 310.0
Present value of junior subordinated notes issued to seller
($150 million face value)................................. 61.0
--------
821.0
Deposit and restricted funds................................ 300.0
--------
Total sources..................................... $1,121.0
========
</Table>
<Table>
<Caption>
USES
- ----
Acquisition of Golden Eagle Assets.......................... $ 995.0
Debt issuance costs......................................... 31.0
General corporate purposes.................................. 95.0
--------
Total uses........................................ $1,121.0
========
</Table>
(c) The following is a preliminary estimate of the purchase price for the Golden
Eagle Assets (in millions):
<Table>
Cash purchase price, including inventories.................. $925.0
Present value of junior subordinated notes issued to seller
($150 million face value)................................. 61.0
Estimated direct costs of acquisition....................... 9.0
------
Total purchase price.............................. $995.0
======
</Table>
For purposes of this pro forma analysis, the above estimated purchase price
has been allocated based on a preliminary assessment of the fair value of
the assets acquired and liabilities assumed as follows (in millions):
<Table>
Property, plant and equipment............................... $ 798.0
Inventories................................................. 149.0
Acquired intangibles........................................ 134.0
Other assets................................................ 20.0
Environmental, employee benefit and other liabilities....... (74.0)
Lease termination obligation................................ (32.0)
-------
Total purchase price................................... $ 995.0
=======
</Table>
We are reviewing certain assets for possible sale, including the Beacon
retail stations acquired as part of the Golden Eagle Assets. We have not yet
determined that it is likely that the Beacon stations will be sold.
Therefore we have not classified these assets as "held for sale" in the
unaudited pro forma combined condensed financial statements. We have
included the assets with the other Golden Eagle Assets as "held and used",
at preliminary values. The classification would change if we determine that
it is likely that we will sell the Beacon retail stations, and the valuation
of these assets could change based on their estimated sales value.
We are recording a termination liability related to an operating lease
reflected as a current liability on the seller's historical balance sheet.
The seller had planned to stop operating a leased MTBE plant at the end of
2002. While there may be other economic uses for this plant, we presently
expect to stop operating the leased MTBE plant at the end of 2003. The lease
termination obligation represents the fair value of lease payments
subsequent to 2003. This obligation is included in other liabilities on the
pro forma balance sheet.
(d) Represents the elimination of goodwill and historical equity related to the
Golden Eagle Business.
(e) Represents the pretax write-off of $3.5 million in deferred financing costs
related to our senior secured credit facility and the related income tax
benefit of $1.3 million.
A-4
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2001
<Table>
<Caption>
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
--------------------------- ------------------------- ------------ ------------------------
MID-CONTINENT GOLDEN EAGLE
MID-CONTINENT(1) AND OTHER ADJUSTED GOLDEN EAGLE BUSINESS
TESORO ACQUISITION ADJUSTMENTS TESORO BUSINESS ADJUSTMENTS COMBINED
-------- ---------------- ------------- -------- ------------ ------------ --------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Revenues................ $5,217.8 $972.3(2) $ -- $6,190.1 $2,020.6 $ (98.1)(g) $8,112.6
Costs and Expenses:
Costs of sales and
operating
expenses............ 4,857.5 835.0 (5.5)(a) 5,687.0 1,758.2 (98.1)(g) 7,348.3
1.2 (h)
Writedown of
inventories to
market value........ -- -- -- -- 55.9(4) -- 55.9
Selling, general and
administrative
expenses............ 104.2 19.1(3) -- 123.3 15.4(3) -- 138.7
Depreciation and
amortization........ 57.4 15.2 (1.2)(b) 75.3 44.0 (5.4)(i) 111.5
3.9 (c) (6.6)(j)
5.4 (k)
(1.2)(h)
-------- ------ ------ -------- -------- ------- --------
Operating Income........ 198.7 103.0 2.8 304.5 147.1 6.6 458.2
Interest and Financing
Costs, Net of
Capitalized
Interest.............. (52.8) -- (37.2)(d) (90.0) -- (86.1)(l) (188.8)
(3.5)(m)
(9.2)(n)
Interest Income......... 1.0 -- -- 1.0 -- -- 1.0
-------- ------ ------ -------- -------- ------- --------
Earnings Before Income
Taxes................. 146.9 103.0 (34.4) 215.5 147.1 (92.2) 270.4
Income Tax Provision.... 58.9 41.2 (13.1)(e) 87.0 60.1 (35.0)(o) 112.1
-------- ------ ------ -------- -------- ------- --------
Net Earnings............ 88.0 61.8(2) (21.3) 128.5 87.0 (57.2) 158.3
Preferred Dividend
Requirements.......... 6.0 -- (6.0)(f) -- -- -- --
-------- ------ ------ -------- -------- ------- --------
Net Earnings Applicable
to Common Stock....... $ 82.0 $ 61.8 $(15.3) $ 128.5 $ 87.0 $ (57.2) $ 158.3
======== ====== ====== ======== ======== ======= ========
Weighted average common
shares:
Basic................. 36.2 5.2 (f) 23.0 (p) 64.4
Diluted............... 41.9 23.0 (p) 64.9
Net earnings per share:
Basic................. $ 2.26 $ 2.46
Diluted............... $ 2.10 $ 2.44
</Table>
A-5
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2002
<Table>
<Caption>
HISTORICAL
------------------------ PRO FORMA
GOLDEN EAGLE -----------------------
TESORO BUSINESS ADJUSTMENTS COMBINED
-------- ------------ ----------- --------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Revenues............................................. $1,243.2 $430.6 $(16.5)(g) $1,657.3
Costs and Expenses:
Costs of sales and operating expenses.............. 1,247.8 444.5 (16.5)(g) 1,678.8
3.0 (h)
Selling, general and administrative expenses....... 38.5 2.7 -- 41.2
Depreciation and amortization...................... 20.1 12.8 (2.1)(j) 29.1
1.3 (k)
(3.0)(h)
-------- ------ ------ --------
Operating Income (Loss).............................. (63.2) (29.4) 0.8 (91.8)
Interest and Financing Costs, Net of Capitalized
Interest........................................... (30.3) -- (21.7)(l) (42.8)
9.2 (n)
Interest Income...................................... 0.7 -- -- 0.7
-------- ------ ------ --------
Earnings (Loss) Before Income Taxes.................. (92.8) (29.4) (11.7) (133.9)
Income Tax Provision (Benefit)....................... (37.2) (12.0) (4.4)(o) (53.6)
-------- ------ ------ --------
Net Earnings (Loss).................................. $ (55.6) $(17.4) $ (7.3) $ (80.3)
======== ====== ====== ========
Weighted average common shares:
Basic.............................................. 48.2 16.6 (p) 64.8
Diluted............................................ 48.2 16.6 (p) 64.8
Net earnings (loss) per share:
Basic.............................................. $ (1.15) $ (1.24)
Diluted............................................ $ (1.15) $ (1.24)
</Table>
A-6
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2001 AND THE THREE MONTHS ENDED MARCH 31, 2002
INFORMATIONAL NOTES
(1) Includes the Mid-Continent Acquisition (excluding the Pipeline System) for
the period from January 1, 2001 through September 5, 2001, and the Pipeline
System for the period from January 1, 2001 through October 31, 2001. The
results of operations of the Mid-Continent Acquisition (excluding the
Pipeline System) are included in Tesoro's historical results from the date
of acquisition, September 6, 2001 through December 31, 2001. The results of
operations of the Pipeline System are included in Tesoro's historical
results from the date of acquisition, November 1, 2001 through December 31,
2001.
(2) In connection with the Mid-Continent Acquisition, we entered into certain
offtake agreements with BP to provide us with a distribution channel for a
portion of our refined products produced at these refineries. The offtake
agreements commit approximately 37,220 bpd of refined products for a period
ranging from two to five years. Historically, BP sold these volumes through
its distribution network, which included retail stations and jobbers. The
product sales prices that we will receive under the offtake agreements may
be less than BP historically realized. A decrease in product sales price of
1 cent per gallon would have resulted in a decrease in revenues of $5.7
million and a decrease in net earnings of $3.4 million for the year ended
December 31, 2001.
(3) Historical Mid-Continent Acquisition results include $7.9 million of
allocated corporate overhead for the year ended December 31, 2001.
Historical Golden Eagle Business results include $15.4 million of allocated
corporate overhead for the year ended December 31, 2001.
(4) Represents a year-end, non-cash $55.9 million writedown of inventories to
current market values for the year ended December 31, 2001.
(5) We are reviewing certain assets for possible sale, including the Beacon
retail stations acquired as part of the Golden Eagle Assets. We have not
yet determined that it is likely that the Beacon stations will be sold.
Therefore we have not classified these assets as "held for sale" in the
unaudited pro forma combined condensed financial statements. We have
included the results of these retail operations in the Golden Eagle
Business. The unaudited pro forma combined condensed statements of
operations would change if we determine that it is likely that we will sell
the Beacon retail stations: pro forma operating income and net earnings
would decrease approximately $14.1 million and $8.7 million, respectively,
for the year ended December 31, 2001 and would increase approximately $3.6
million and $2.2 million, respectively, for the three months ended March
31, 2002.
MID-CONTINENT ADJUSTMENTS (YEAR ENDED DECEMBER 31, 2001)
(a) Represents an adjustment to conform the accounting policy for refinery
maintenance turnaround costs to our policy.
(b) Represents an adjustment in depreciation expense due to the change in
property, plant and equipment from book value to fair value. Pro forma
depreciation is calculated on the straight-line method over estimated
useful lives of 28 years for refinery and pipeline assets and 16 years for
terminals and retail assets.
(c) Represents the amortization of acquired intangible assets over their
estimated useful lives (weighted average life of 19 years). Intangible
assets include jobber agreements, customer contracts, refinery permits and
plans and refinery technology.
(d) Represents additional interest expense and amortization of debt issuance
costs under our senior secured credit facility and senior subordinated
notes, offset by a decrease in interest expense and amortization of debt
issuance costs related to our prior credit facility.
A-7
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENTS OF OPERATIONS -- (CONTINUED)
(e) Represents the income tax effect of the adjustments above at a combined
statutory tax rate of 38%.
OTHER ADJUSTMENT (YEAR ENDED DECEMBER 31, 2001)
(f) Represents the elimination of the preferred dividend requirements upon
conversion of our PIES(SM) into shares of our common stock on July 1, 2001.
GOLDEN EAGLE ADJUSTMENTS (YEAR ENDED DECEMBER 31, 2001 AND THREE MONTHS ENDED
MARCH 31, 2002)
(g) Represents an adjustment to eliminate excise taxes on wholesale sales
collected on behalf of governmental agencies associated with the seller's
operations from both revenues and costs of sales and operating expenses to
conform to our accounting policy.
(h) Represents an adjustment to conform the classification of the amortization
of refinery maintenance turnaround costs.
(i) Represents an adjustment to eliminate the seller's historical goodwill
amortization.
(j) Represents an adjustment to record depreciation expense based on our
preliminary allocation of fair values to property, plant and equipment. Pro
forma depreciation is calculated on the straight-line method over estimated
useful lives of primarily 28 years for refinery assets and 16 to 20 years
for retail assets.
(k) Represents an adjustment to record amortization of acquired intangible
assets assuming a weighted average life of 25 years.
(l) Represents additional interest expense and amortization of deferred
financing costs related to the junior subordinated notes issued to the
seller, our 9 5/8% senior subordinated notes due 2012 and our amended and
restated senior secured credit facility.
(m) Represents the write-off of $3.5 million in deferred financing costs
related to our senior secured credit facility.
(n) Represents bridge financing commitment fees incurred in connection with the
acquisition of the Golden Eagle Assets. These costs are included in
Tesoro's historical financial statements for the three months ended March
31, 2002.
(o) Represents the income tax effect of the adjustments above at a combined
statutory tax rate of 38%.
(p) Represents the underwritten public offering of 23 million shares of our
common stock. This offering was completed on March 6, 2002.
A-8
INDEX TO EXHIBITS
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
2.1 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 dated February 20,
2002 and related Purchaser Parent Guaranty dated
February 4, 2002 (incorporated by reference to
Exhibit 2.12 to the Company's Annual Report on Form
10-K for the year ended December 31, 2001, File No.
1-3473) and Second Amendment dated May 3, 2002
(incorporated by reference to Exhibit 2.1 to the
Company's Current Report on Form 8-K filed May 9,
2002, File No. 1-3473).
10.1 $100 million Promissory Note, dated as of May 17,
2002, payable by the Company to Ultramar Inc.
(incorporated by reference to the Exhibit 10.1 to the
Company's Current Report on Form 8-K, File No.
1-3473, filed on May 24, 2002).
10.2 $50 million Promissory Note, dated as of May 17,
2002, payable by the Company to Ultramar Inc.
(incorporated by reference to the Exhibit 10.2 to the
Company's Current Report on Form 8-K, File No.
1-3473, filed on May 24, 2002).
10.3* Letter dated May 5, 2002 from the Company to the
State of California Department of Justice, Office of
the Attorney General (incorporated by reference to
the Exhibit 10.3 to the Company's Current Report on
Form 8-K, File No. 1-3473, filed on May 24, 2002).
10.4 $1,275,000,000 Amended and Restated Credit Agreement,
dated as of May 17, 2002, among the Company and
Lehman Brothers Inc. (arranger), Lehman Commercial
Paper Inc. (the syndication agent), Bank One, NA (the
administrative agent) and a syndicate of banks,
financial institutions and other entities
(incorporated by reference to the Exhibit 10.4 to the
Company's Current Report on Form 8-K, File No.
1-3473, filed on May 24, 2002). Certain schedules
and exhibits to this Amended and Restated Credit
Agreement have not been filed with this exhibit. The
Company agrees to furnish supplementally any omitted
schedule or exhibit to the SEC upon request.
</Table>
* Portions have been omitted pursuant to a request for
confidential treatment.