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EXHIBIT 99.3
PRO FORMA COMBINED FINANCIAL STATEMENTS
The unaudited pro forma combined condensed financial statements give effect to
the following transactions, which are anticipated to occur on May 29, 1998,
(collectively, the "Transactions"):
(i) Tesoro Petroleum Corporation (the "Company" or "Tesoro") closes the
acquisition (the "Hawaii Acquisition") of all of the outstanding
capital stock of BHP Petroleum Americas Refining Inc. and BHP South
Pacific Inc. (together, "BHP Hawaii"), both of which are affiliates of
The Broken Hill Proprietary Company Limited ("BHP"). The cash
purchase price for the Hawaii Acquisition is $275 million, subject to
adjustment for an amount by which working capital of BHP Hawaii at the
closing date differs from $100 million. In addition, Tesoro will issue
an unsecured, non-interest bearing promissory note (the "BHP Note") in
the amount of $50 million, payable in five equal annual installments
of $10 million each, beginning on the eleventh anniversary date of the
closing.
(ii)In conjunction with closing the Hawaii Acquisition, Tesoro will borrow
funds to finance the cash consideration for the Hawaii Acquisition and
refinance substantially all of its existing indebtedness. These
borrowings will be financed through term loans and a revolving credit
facility which will be fully underwritten by Lehman Brothers.
The unaudited pro forma combined condensed financial statements have been
prepared from, and should be read in conjunction with, the historical combined
financial statements and notes thereto of BHP Hawaii, which are included as
Exhibits 99.1 and 99.2 to this Form 8-K, and the historical consolidated
financial statements and notes thereto of Tesoro which have been previously
filed. The Hawaii Acquisition will be accounted for using the purchase method of
accounting for Tesoro's acquisition of BHP Hawaii after giving effect to the pro
forma reclassifications and adjustments described in the accompanying notes.
The Unaudited Pro Forma Combined Condensed Balance Sheet gives effect to the
Transactions as if each had occurred on December 31, 1997. The Unaudited Pro
Forma Combined Condensed Statement of Operations for the year ended December 31,
1997 gives effect to the Transactions as if each had occurred on January 1,
1997. BHP Hawaii's results of operations, which are reported on a fiscal year
ending May 31, have been adjusted to a December 31 year end. The estimates of
the fair value of BHP Hawaii's assets and liabilities are based on valuations
that are preliminary. Such valuations will be updated to the closing date of the
Hawaii Acquisition and may change from the amounts shown herein; however, the
Company does not expect such changes to be material.
The unaudited pro forma combined condensed financial statements are intended for
informational purposes and 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 Hawaii Acquisition been in effect as of the date or for the
period presented. The Unaudited Pro Forma Combined Condensed Statement of
Operations does not reflect any benefits from cost savings or revenue
enhancements that are anticipated to result from the integration of operations
of Tesoro and BHP Hawaii. There can be no assurance that the Hawaii Acquisition,
related financing or any other pending transactions will be consummated.
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UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
DECEMBER 31, 1997
Historical Pro Forma Pro Forma
Tesoro BHP Hawaii Adjustments Combined
--------- ---------- ------------ ---------
(In Thousands of Dollars)
ASSETS
Current Assets:
Cash and cash equivalents ...................................... $ 8,352 2,704 (2,704)(a) 8,352
Receivables .................................................... 76,282 56,653 (4,513)(a) 128,422
Inventories .................................................... 87,359 84,331 7,800(b) 179,490
Prepayments and other .......................................... 9,842 3,539 13,381
--------- ------- -------- ---------
Total Current Assets ......................................... 181,835 147,227 583 329,645
--------- ------- -------- ---------
Property, Plant and Equipment:
Refining and marketing ......................................... 370,174 680,332 (467,018)(c) 583,488
Exploration and production ..................................... 291,411 291,411
Marine services ................................................ 43,072 43,072
Corporate ...................................................... 13,689 13,689
--------- ------- -------- ---------
718,346 680,332 (467,018) 931,660
Less accumulated depreciation, depletion and amortization..... 304,523 349,085 (349,085)(c) 304,523
--------- ------- -------- ---------
Net Property, Plant and Equipment ............................ 413,823 331,247 (117,933)(c) 627,137
--------- ------- -------- ---------
Other Assets ...................................................... 32,150 3,350 (1,008)(d) 47,643
14,200(d)
(1,049)(e)
--------
12,143
--------- ------- -------- ---------
Total Assets ............................................... $ 627,808 481,824 (105,207) 1,004,425
========= ======= ======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable ............................................... $ 58,767 35,872 94,639
Accrued liabilities and current income taxes payable ........... 31,726 12,667 (3,950)(f) 44,659
6,375(e)
(2,159)(g)
Current maturities of long-term debt and other obligations...... 17,002 1,007 (15,294)(d) 2,715
--------- ------- -------- ---------
Total Current Liabilities .................................... 107,495 49,546 (15,028) 142,013
--------- ------- -------- ---------
Deferred Income Taxes ............................................. 28,824 36,086 (36,086)(h) 28,824
--------- ------- -------- ---------
Other Liabilities ................................................. 43,211 31,032 (15,858)(f) 58,385
--------- ------- -------- ---------
Long-Term Debt and Other Obligations, Less Current Maturities 115,314 8,751 323,724(d) 447,789
--------- ------- -------- ---------
Notes Payable to Affiliate ........................................ -- 145,000 (145,000)(a) --
--------- ------- -------- ---------
Stockholders' Equity:
Common stock ................................................... 4,418 8,208 (8,208)(i) 4,418
Additional paid-in capital ..................................... 190,925 52,362 (52,362)(i) 190,925
Retained earnings .............................................. 140,980 150,839 (150,839)(i) 135,430
(7,709)(d)
2,159(g)
Treasury stock ................................................. (3,359) (3,359)
--------- ------- -------- ---------
Total Stockholders' Equity ................................... 332,964 211,409 (216,959) 327,414
--------- ------- -------- ---------
Total Liabilities and Stockholders' Equity ................. $ 627,808 481,824 (105,207) 1,004,425
========= ======= ======== =========
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NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
BALANCE SHEET
DECEMBER 31, 1997
(a) Represents an adjustment to exclude assets and liabilities of BHP Hawaii
that will not be acquired by Tesoro.
(b) Represents an adjustment of BHP Hawaii's finished goods inventories to net
realizable value, less an allowance for a normal profit margin, and of raw
materials inventories to replacement cost.
(c) Represents an adjustment of BHP Hawaii's property, plant and equipment to
fair value.
(d) Represents an adjustment to reflect the BHP Note (discounted at 10%) plus
aggregate borrowings of $415 million to finance the Hawaii Acquisition, to
refinance existing indebtedness of Tesoro and to pay related fees,
expenses and debt issuance costs.
(e) Represents an adjustment to conform BHP Hawaii's accounting policy for
refinery maintenance costs to that of Tesoro.
(f) Represents an adjustment of BHP Hawaii's liabilities for certain employee
benefits and for environmental matters taking into effect an environmental
agreement which provides for certain environmental indemnifications.
(g) Represents an adjustment to reduce income taxes payable for the tax effect
resulting from a charge to earnings related to the refinancing of existing
indebtedness.
(h) Represents the elimination of the deferred tax obligations of BHP Hawaii.
(i) Represents the elimination of BHP Hawaii's historical equity.
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UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
Historical Pro Forma Pro Forma
Tesoro BHP Hawaii Adjustments Combined
------ ---------- ----------- --------
(In Thousands of Dollars, Except Per Share Amounts)
Revenues:
Refining and marketing ................................................. $ 720,868 946,727 1,667,595
Exploration and production ............................................. 84,798 -- 84,798
Marine services ........................................................ 132,251 -- 132,251
Other income ........................................................... 5,543 211 5,754
--------- ---------- ---------
Total Revenues ...................................................... 943,460 946,938 1,890,398
--------- ---------- ---------
Operating Costs and Expenses:
Refining and marketing ................................................. 687,036 882,104 (1,000)(a)1,568,140
Exploration and production ............................................. 13,230 -- 13,230
Marine services ........................................................ 124,725 -- 124,725
Depreciation, depletion and amortization ............................... 45,729 13,762 (3,858)(b) 55,633
Refinery assets write-down ............................................. -- 88,813 (88,813)(c) --
Goodwill write-off ..................................................... -- 30,351 (30,351)(c) --
--------- ---------- -------- ----------
Total Operating Costs and Expenses .................................. 870,720 1,015,030 (124,022) 1,761,728
--------- ---------- -------- ----------
Operating Profit (Loss) .................................................... 72,740 (68,092) 124,022 128,670
General and Administrative ................................................ (13,588) (25,054)(h) (38,642)
Interest Expense, Net of Capitalized Interest .............................. (6,699) (8,227) 13,966(d) (41,927)
(37,312)(e)
(3,655)(f)
Interest Income ............................................................ 1,597 -- 1,597
Other Expense, Net ......................................................... (4,930) -- (4,930)
--------- ---------- -------- ----------
Earnings Before Income Taxes ............................................... 49,120 (101,373) 97,021 44,768
Income Tax Provision ....................................................... 18,435 (27,032) 27,166(g) 18,569
--------- ---------- -------- ----------
Earnings Before Extraordinary Items ........................................ $ 30,685 (74,341) 69,855 26,199
========= ========== ======== ==========
Weighted Average Common Shares - Basic ..................................... 26,410 26,410
========= ==========
Weighted Average Common Shares and Potentially
Dilutive Common Shares - Diluted ....................................... 26,868 26,868
========= ==========
Earnings Before Extraordinary Items:
Per Share - Basic ...................................................... $ 1.16 0.99
========= ==========
Per Share - Diluted .................................................... $ 1.14 0.98
========= ==========
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NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(a) Represents an adjustment for a Tesoro contract termination.
(b) Represents an adjustment in depreciation expense due to the change in BHP
Hawaii's property, plant and equipment to fair value. Pro Forma
depreciation is calculated on the straight-line method over estimated
useful lives of 28 years for the refinery and five to ten years for
machinery, equipment and buildings.
(c) Represents elimination of the charge for asset and goodwill impairment
recognized in BHP Hawaii's historical financial statements.
(d) Represents elimination of interest on BHP Hawaii's obligations that will
not be assumed by Tesoro and the elimination of interest on Tesoro's
obligations that will be refinanced.
(e) Represents accretion, based on a 10% discount rate, of the $50 million BHP
Note and additional interest on borrowings of approximately $415 million to
finance the Hawaii Acquisition, refinance existing indebtedness and pay
related fees and costs.
(f) Represents amortization of debt issuance costs related to the financing
under term loans and revolving credit facility.
(g) Represents an adjustment to increase the income tax provision for the tax
effect resulting from the adjustments to earnings described above.
(h) Includes BHP Hawaii employee bonuses of $4 million, which were awarded
based upon the performance of BHP operations that are not to be
acquired by Tesoro.