|
|
|
|
|
|
|
NOTES TO FINANCIAL STATEMENTS
|
NOTE 1 — DESCRIPTION OF THE PLAN
The accompanying financial statements are that of the Tesoro Corporation Thrift Plan (the “Plan” or the "Thrift Plan"), a defined contribution plan of Tesoro Corporation (“Tesoro”, or the “Company”) and the following description provides only general information of the Plan. Participants should refer to the applicable formal plan documents for more complete information. The Plan is subject to, and complies with, the provisions of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”).
The Plan, originally adopted as of April 1, 1979, is a voluntary defined contribution plan open to certain non-union employees of Tesoro. Employees whose positions are covered by a collective bargaining agreement may participate if the Plan is included in the agreement.
The purpose of the Plan is to encourage Company employees to save and invest a portion of their eligible compensation, as defined, to have an additional source of income upon their retirement or disability, or for their family in the event of death. Benefits provided by the Plan are in addition to benefits that participants are entitled to receive under any other programs of the Company and under the Federal Social Security Act. The investments in the Plan are held by Fidelity Management Trust Company (“Fidelity” or the “Trustee”). Fidelity is responsible for holding, investing and accounting for the assets of the Plan and maintaining separate accounts for all participants of the Plan. The Plan is administered by the Employee Benefits Committee, consisting of individuals appointed by the Board of Directors of the Company.
PARTICIPANT CONTRIBUTIONS.
Participants can contribute up to 50% of eligible pay on a pre-tax, Roth 401(k) contribution option ("Roth"), or after-tax basis, or any combination not to exceed 50% of their eligible pay. The total combined pre-tax and Roth contribution amounts cannot exceed the annual Internal Revenue Service (“IRS”) dollar limit (
$18,000
in
2016
). Employees age 50 and over may contribute additional pre-tax and/or Roth catch-up contributions (
$6,000
in
2016
) to the Plan. Certain highly compensated employees may be subject to more restrictive maximum deferrals, including no after-tax contributions. The Plan is required to return contributions received during the year in excess of the IRS limits. Refunds of employee contributions in excess of IRS or the Plan limits totaled
$31,940
and
$25,905
for the years ended
December 31, 2016
and
2015
, respectively. These refunds were distributed subsequent to December 31 and are recorded as a liability on the Statements of Net Assets Available for Benefits.
Contributions are made to the Plan by the Company on behalf of each eligible employee based upon their elected compensation deferral through payroll deductions. Individual accounts are maintained for each of the Plan’s participants. Each participant’s account is credited with the participant’s contribution, the Company’s contributions and the Plan’s earnings and charged with withdrawals and an allocation of the Plan’s losses. Allocations are based on participant earnings or account balances, as defined. The Plan participant contributions are invested in one or more of the investment options, or the Tesoro Corporation Common Stock Fund (the “Tesoro Stock Fund”), at the option of the participant. The Plan participants may elect a Roth 401(k) contribution option, allowing participants to make contributions on an after-tax basis. Under the Roth 401(k) option, accumulated investment earnings on contributions are tax free to the participant on qualified distributions.
EMPLOYER CONTRIBUTIONS.
The Plan allows for a Company match on the first 6% of base pay, for those contributing on either a pre-tax or Roth basis to the Plan, including catch-up contributions. Regular after-tax contributions, contributions on bonus pay and contributions on unscheduled overtime pay are not matched by the Company. Matching contributions made to the Plan from participants who have more than a year of service are designated safe-harbor contributions. The Company’s matching contributions are invested in one or more of the investment options, or the Tesoro Stock Fund, at the option of the participant.
The Company provides for a profit-sharing contribution to the Plan. This discretionary contribution, calculated as a percentage of employee’s base pay based on a pre-determined target for the calendar year, can range from 0% to 4% based on actual performance. Contributions will normally be made following the performance year. All employees eligible for the Plan who are employed on December 31
st
of the year the results are achieved are qualified
Tesoro Corporation Thrift Plan 2016 |
6
|
|
|
|
|
|
|
NOTES TO FINANCIAL STATEMENTS
|
to receive this contribution, even if they are not contributing to the Plan. If a participant does not make a deferral election, the default contribution will be to the participant’s age appropriate lifecycle fund. A profit-sharing contribution was not made for 2016. The Company approved a profit-sharing contribution in the amount of 4.0% of base pay for
2015
. The
2015
discretionary profit-sharing contribution to the Plan of
$23,747,386
was contributed by the Company in 2016, and are reflected as an employer contribution receivable on the Statements of Net Assets Available for Benefits.
VESTING.
Employees are fully vested at all times in their participant, safe-harbor matching, and Company non-elective contributions. Company matching contributions and any related earnings are 100% vested after one year of service. Upon voluntary termination of employment prior to normal retirement for reasons other than disability or death, an employee will be entitled to the total of his or her participant contributions to the Plan and the vested portion of the Company contributions made to the employee’s account. Generally, vesting service begins with the employment date and ends upon termination of service with the Company.
FORFEITURES.
Upon termination of service, a participant’s nonvested portion of the Company’s matching contribution may be used to reduce future employer contributions or to pay reasonable administrative expenses. At
December 31, 2016
and
2015
, the forfeited nonvested account balance was
$83,101
and
$100,348
, respectively. This account balance includes forfeited nonvested amounts, as well as uncashed stale-dated check amounts. The administrative expenses paid through the forfeited nonvested account were
$100,909
during the year ended
December 31, 2016
.
REVENUE SHARING.
Under the Plan, certain funds offer revenue sharing. During the year ended
December 31, 2016
, revenue sharing credits in the amounts of
$414,481
were used to pay administrative expenses of the Plan.
INVESTMENT OPTIONS.
Participants may elect to invest in certain investment options offered under the Plan. Participants may change the percentage they contribute and the investment direction of their contributions and related company matches. The investment menu is comprised of target date funds, actively managed funds, index funds and the Tesoro Stock Fund.
LOANS.
Generally, participants can borrow up to the lesser of $50,000 or one half of their vested account balance from the Plan with a minimum loan of $1,000. Such loans are secured by the participant’s vested account balance and bear interest at the prime rate plus 1%. Outstanding loans at
December 31, 2016
incur interest at rates between
4.25%
and
9.75%
for the Plan. The Plan allows for new loans with original terms of six months to five years. Upon termination of employment, the loan repayment may continue at the election of the participant. If payments are in default, the unpaid loan balance will be treated as a distribution to the participant.
PAYMENT OF BENEFITS.
Upon termination of employment, involuntary layoff, retirement, disability or death, the participant or the participant’s beneficiary (distributee) will be provided the opportunity to request a distribution from the Plan. The Plan permits at-will withdrawals of the after-tax employee contributions. Any hardship withdrawals from amounts constituting the before-tax employee contribution will result in a six-month suspension of further contributions.
ADMINISTRATIVE EXPENSES.
The Plan allows for the payment of administrative expenses by either the Plan or the Company. Forfeited nonvested accounts and revenue sharing credits are used to pay administrative fees. Any additional fees are paid by the Company, except for those related to participant loans or withdrawals.
PLAN TERMINATION.
The Company has the right under the Plan to discontinue its contributions at any time and terminate the Plan subject to the provisions set forth in ERISA. In the event that the Plan is terminated, participants would become 100% vested in their account.
ACQUISITIONS.
During 2016, the Company acquired Great Northern Midstream LLC and Dakota Prairie Refining LLC. Assets and loans associated with qualified defined contribution plans were transfered into the Plan as disclosed on the Statement of Changes in Net Assets Available for Benefits.
Tesoro Corporation Thrift Plan 2016
|
7
|
|
|
|
|
|
|
NOTES TO FINANCIAL STATEMENTS
|
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING.
The financial statements of the Plan have been prepared using the accrual method of accounting in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
USE OF ESTIMATES.
The preparation of financial statements in conformity with U.S. GAAP requires the Plan's management to make estimates that affect the amounts reported in the financial statements and accompanying notes and supplemental schedules. Actual results could differ from those estimates.
INVESTMENT VALUATION AND INCOME RECOGNITION.
Investments held by the Plan are stated at fair value. Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date (an exit price).
Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded on an accrual basis. Dividends are recorded on the ex-dividend date.
PAYMENTS OF BENEFITS.
As of
December 31, 2016
and
2015
, there were no participant initiated withdrawals from the Plan that had not been distributed. Benefit payments are recorded when paid.
NOTES RECEIVABLE FROM PARTICIPANTS.
Notes receivable from participants represent participant loans that are recorded at their unpaid principal balance plus any accrued but unpaid interest. Interest income on notes receivable from participants is recorded when it is earned. Related fees are recorded as administrative expenses when incurred. No allowance for credit losses has been recorded as of
December 31, 2016
or
2015
. If a participant ceases to make loan repayments, and the Plan administrator deems the participant loan to be a distribution, the participant loan balance is reduced and a benefit payment is recorded.
NOTE 3 — FAIR VALUE MEASUREMENTS
Financial assets and financial liabilities are classified according to the fair value hierarchy. Financial assets and liabilities classified as level 1 instruments are valued based on quoted prices in active markets for identical assets and liabilities. Level 2 instruments are valued based on quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability. Level 3 instruments are valued based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The level in the fair value hierarchy within which the fair value measurement is classified is determined based on the level of the input that is significant to the fair value measure in its entirety. We do not have any financial assets or liabilities classified as level 2 or level 3 at December 31, 2016 or 2015.
The Tesoro Stock Fund value is based upon the underlying Tesoro Corporation common stock closing price reported on the active market on which the individual security is traded and is categorized as level 1. Shares of mutual funds are valued using quoted market prices from national securities exchanges, which represent shares held by the Plan at year-end and are valued as level 1 fair value assets. The Plan's common/collective trust funds are measured at fair value, using Net Asset Value ("NAV") as a practical expedient, and have been excluded from the fair value hierarchy in accordance with Accounting Standards Update 2015-07.
Tesoro Corporation Thrift Plan 2016 |
8
|
|
|
|
|
|
|
NOTES TO FINANCIAL STATEMENTS
|
PLAN ASSETS AT FAIR VALUE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets at Fair Value as of December 31, 2016
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Tesoro Stock Fund
|
$
|
237,852,172
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
237,852,172
|
|
|
Mutual Funds
|
796,043,858
|
|
|
—
|
|
|
—
|
|
|
796,043,858
|
|
|
Plan Assets Measured at Fair Value
|
$
|
1,033,896,030
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,033,896,030
|
|
|
Common/collective Trust Funds Measured at NAV
(1)
|
|
|
|
|
|
|
116,083,822
|
|
|
Total Plan Assets
|
|
|
|
|
|
|
$
|
1,149,979,852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets at Fair Value as of December 31, 2015
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Tesoro Stock Fund
|
$
|
259,713,105
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
259,713,105
|
|
|
Mutual Funds
|
695,008,072
|
|
|
—
|
|
|
—
|
|
|
695,008,072
|
|
|
Plan Assets Measured at Fair Value
|
$
|
954,721,177
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
954,721,177
|
|
|
Common/collective Trust Funds Measured at NAV
(1)
|
|
|
|
|
|
|
125,182,190
|
|
|
Total Plan Assets
|
|
|
|
|
|
|
$
|
1,079,903,367
|
|
|
|
|
|
(1)
|
Common Collective Trust Funds
|
_____________________________________________________________________________________________________________
|
|
|
|
|
|
|
|
|
|
|
Common Collective Trust Name
|
|
Investment Objective
|
|
Types of Investments
|
|
Restrictions
|
|
Fidelity Managed Income Portfolio II
|
|
Deliver safety and stability by preserving principal and accumulating earnings
|
|
Benefit-Responsive Investment Contracts issued by insurance companies and other financial institutions, fixed income securities, and money market funds
|
|
No restrictions; however, the Plan is required to provide a one year redemption notice to liquidate its entire share in the funds, such notice was provided in April 2016 to permit a change in this investment option in April 2017
|
|
Artisan International Growth Trust Fund
|
|
Seek long-term capital growth
|
|
Publicly traded corporate equities, including common and preferred stocks, warrants, and depository receipts, of non-U.S. companies across a broad capitalization range
|
|
No restrictions; however, the Trustee reserves the right to require five business days advance written notice from the Plan for withdrawal
|
|
Boston Partners Large Cap Value Equity Fund (previously, "Robeco Large Cap Value Equity Fund")
|
|
Outperform its benchmark index, the Russell 1000 Value Index
|
|
Equity securities of U.S. and non-U.S. issuers, including, without limitation, American Depository Receipts on non-U.S. issuers, that are denominated in U.S. dollars and trade in U.S. markets, including, without limitation, on U.S. exchanges or in the over-the-counter market
|
|
No restrictions; however, the Trustee reserves the right to require five business days advance written notice from the Plan for withdrawal
|
Tesoro Corporation Thrift Plan 2016
|
9
|
|
|
|
|
|
|
NOTES TO FINANCIAL STATEMENTS
|
NOTE 4 — EXEMPT PARTY-IN-INTEREST TRANSACTIONS
Certain investments of the Plan are shares of mutual funds managed by Fidelity, the Trustee, as defined by the Plan. Therefore, these transactions qualify as exempt party-in-interest transactions.
At
December 31, 2016
and
2015
, the Plan held shares of common stock of the Company.
SHARES AND COST OF COMMON STOCK OF THE COMPANY HELD BY THE PLAN
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
Number of shares
|
|
2,658,406
|
|
|
2,402,970
|
|
|
Cost basis of shares
|
|
$
|
144,504,844
|
|
|
$
|
104,795,452
|
|
NOTE 5 — FEDERAL INCOME TAX STATUS
The Plan received a determination letter from the IRS on
December 8, 2014
, stating that the Plan is qualified
under Section 401(a) of the Internal Revenue Code (the “Code”) and, therefore, the related trust is exempt from taxation. The Plan has been amended since the most recent determination letter. Once qualified, the Plan is required to operate in conformity with the Code to maintain their qualification. The Plan's administrator believes the Plan is being operated in compliance with the applicable requirements of the Code and, therefore, believes the Plan, as amended, is qualified and the related trust is tax-exempt.
U.S. GAAP requires management to evaluate uncertain tax positions taken by the Plan. The financial statement effects of a tax position are recognized when the position is more likely than not, based on the technical merits, to be sustained upon examination by the IRS. Management has analyzed the tax positions taken by the Plan and has concluded that as of
December 31, 2016
and
2015
, there are no uncertain positions taken or expected to be taken. The Plan has recognized no interest or penalties related to uncertain tax positions. The Plan is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress. Management believes it is no longer subject to income tax examinations for years prior to 2013.
NOTE 6 — RISKS AND UNCERTAINTIES
The Plan provides for investments in various securities through investment funds offered to participants, including but not limited to, various mutual funds and equity of the Company, among others. Investment securities, in general, are exposed to various risks such as interest rate, credit, liquidity and overall market volatility risk. Due to the level of risk associated with certain investment securities, it is reasonably possible that changes in the values of investment securities will occur in the near term and such changes could materially affect the amounts reported in the statements of net assets available for benefits and participant account balances.