DISCONTINUED OPERATIONS
Hawaii Business
On September 25, 2013, we completed the sale of all of our interest in Tesoro Hawaii, LLC, which operated a 94 Mbpd Hawaii refinery, retail stations and associated logistics assets (the “Hawaii Business”). We received gross proceeds of $539 million, including $75 million from the sale of assets and $464 million from the sale of inventory and other net working capital. Additional contingent consideration includes an earnout arrangement payable over three years for an aggregate amount of up to $40 million based on future gross margins. Any income related to the earnout arrangement will not be recorded until it is considered realizable. We have also agreed to indemnify the purchaser for up to $15 million of environmental remediation costs related to the Hawaii Business, subject to limitations described in the purchase agreement.
The assets and liabilities related to the Hawaii Business have been presented in the consolidated balance sheets as “assets related to discontinued operations” and “liabilities related to discontinued operations,” respectively as of December 31, 2012. Also, the results of operations for this business have been presented as discontinued operations in the statements of consolidated operations for the years ended December 31, 2013, 2012 and 2011.
We recognized $248 million of impairment charges related to the Hawaii Business in the fourth quarter of 2012, which included $20 million related to estimated costs for AROs. The AROs were assumed by the purchaser upon close of the transaction; therefore, we will not incur any removal or other closure costs for this business. In the second quarter of 2013, upon execution of the membership interest purchase agreement, we adjusted the AROs related to the Hawaii refinery downward $14 million, which is included in earnings from discontinued operations in the statements of consolidated operations for the year ended December 31, 2013.
Revenues and earnings (loss), including gain on disposition, before and after tax from the discontinued Hawaii Business for the years ended December 31, 2013, 2012 and 2011 were as follows:
|
| | | | | | | | | | | |
| 2013 | | 2012 | | 2011 |
| (In millions) |
Revenues | $ | 2,159 |
| | $ | 3,165 |
| | $ | 3,121 |
|
| | | | | |
Loss from discontinued operations, before tax | $ | (47 | ) | | $ | (218 | ) | | $ | (47 | ) |
Gain on sale of Hawaii Business, before tax (a) | 81 |
| | — |
| | — |
|
Total earnings (loss) from discontinued operations, before tax | 34 |
| | (218 | ) | | (47 | ) |
Income tax expense (benefit) | 14 |
| | (85 | ) | | (17 | ) |
Earnings (loss) from discontinued operations, net of tax | $ | 20 |
| | $ | (133 | ) | | $ | (30 | ) |
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| |
(a) | Gain on sale of the Hawaii Business includes a $17 million curtailment gain related to the remeasurement of our pension and other postretirement benefit obligations recognized during 2013. |
The following assets and liabilities relate to the discontinued Hawaii Business as of December 31, 2012:
|
| | | |
| December 31,
2012 |
| (In millions) |
Assets: | |
Receivables, less allowance for doubtful accounts | $ | 95 |
|
Inventories | 240 |
|
Prepayments and other current assets | 2 |
|
Total current assets related to discontinued operations | 337 |
|
Net property, plant and equipment | 13 |
|
Other noncurrent assets, net | 5 |
|
Total assets related to discontinued operations | $ | 355 |
|
| |
Liabilities: |
Accounts payable | $ | 17 |
|
Other current liabilities | 43 |
|
Total current liabilities related to discontinued operations | 60 |
|
Other noncurrent liabilities | 3 |
|
Debt | 2 |
|
Total liabilities related to discontinued operations | $ | 65 |
|
Cash flows related to the Hawaii Business have been combined with the cash flows from continuing operations in the statements of consolidated cash flows for all three years presented. Cash flows from (used in) operating and investing activities are summarized as follows (in millions):
|
| | | | | | | | | | | |
| 2013 | | 2012 | | 2011 |
Cash Flows From (Used in): | | | | | |
Operating activities | $ | 71 |
| | $ | 193 |
| | $ | (50 | ) |
Investing activities | $ | 537 |
| | $ | (19 | ) | | $ | (15 | ) |
