EX-99.1 2 a5069934ex99_1.txt EXHIBIT 99.1 Exhibit 99.1 Tesoro Corporation Reports Record 2005 Fourth Quarter and Full Year Results, Declares Quarterly Cash Dividend SAN ANTONIO--(BUSINESS WIRE)--Feb. 2, 2006--Tesoro Corporation (NYSE:TSO) today reported record 2005 fourth quarter net earnings of $69 million, or $0.97 per share compared to breakeven results for the fourth quarter of 2004. Results for the 2005 fourth quarter included special after-tax charges of $57 million, or $0.81 per share, for tender and call premiums and the write-off of unamortized debt issuance costs associated with the company's refinancing of almost $1 billion of debt. Excluding these special items, fourth quarter earnings were $126 million, or $1.78 per share. Fourth quarter results also included other after-tax charges of $18 million, or $0.25 per share, which included a charge of $7 million related to obsolete refining assets and a $3 million impairment charge for certain retail assets. Also included is an $8 million charge for the accelerated depreciation primarily relating to the modification of the fluid coker unit at the company's Golden Eagle refinery. As previously announced, the existing fluid coker is being modified to a delayed coker with significant operational and environmental benefits. For the full year of 2005, the company reported record net earnings of $507 million, or $7.20 per share, versus net earnings for the full year of 2004 of $328 million, or $4.76 per share. Excluding special items, full year 2005 net earnings were $571 million, or $8.11 per share, compared to net earnings of $343 million, or $4.97 per share, for the full year of 2004. Results for the full year of 2005 included special after-tax charges of $64 million, or $0.91 per share, for tender and call premiums and the write-off of unamortized debt issuance costs associated with the Company's debt refinancing and prepayments along with expenses related to the termination and retirement of certain executive officers. Full year 2004 results included after-tax charges of $15 million, or $0.21 per share, primarily for debt prepayment and financing costs along with executive retirement expenses. "We continued to run our assets very well during the quarter and achieved record fourth quarter throughput rates of 541,000 barrels per day, allowing us to capture strong margins and post record fourth quarter results," said Bruce A. Smith, Chairman, President and CEO of Tesoro. The absence of any major turnaround activity during the quarter also contributed to the record run rates, when compared to last year's quarter. Improved marketing margins further contributed to record results. "The past year marked a major turning point for Tesoro," said Smith. "We further optimized our business model, made significant organizational changes including centralizing our decision-making process and strengthened the talent and expertise of our management team. With record annual throughput of 530,000 barrels per day, strong margins, and significant free cash flow, we initiated and then doubled a quarterly dividend, announced a $200 million stock buyback program, reduced debt by nearly $200 million, and refinanced the majority of our remaining high-coupon, secured debt with lower-coupon, unsecured debt." The refinancing and delevering will contribute over $40 million annually to future cash flows and pre-tax earnings. "As we look ahead to 2006, we continue to remain focused on safe, reliable, environmentally sound operations and executing our high-return capital reinvestment program. Industry fundamentals appear poised to deliver another year of strong refining margins and we expect to continue to be able to deliver outstanding results for our shareholders," Smith concluded. Board Declares Quarterly Dividend Tesoro announced today that its Board of Directors has approved the regular quarterly cash dividend of $0.10 per share. The dividend is payable on March 15, 2006 to shareholders of record as of March 1, 2006. Public Invited to Listen to Analyst Conference Call via Internet At 3:30 p.m., CT, Thursday, February 2, 2006 Tesoro will broadcast, live, its conference call with analysts regarding fourth quarter and full year 2005 results. Interested parties may listen to the live conference call over the Internet by logging on to Tesoro's Internet site at http://www.tsocorp.com. Tesoro Corporation, a Fortune 200 Company, is an independent refiner and marketer of petroleum products. Tesoro operates six refineries in the western United States with a combined capacity of nearly 560,000 barrels per day. Tesoro's retail-marketing system includes nearly 500 branded retail stations, of which over 200 are company owned and operated under the Tesoro(R) and Mirastar(R) brands. This news release contains certain statements that are "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements contain expectations of refining margins in our market areas, our ability to identify and execute capital projects and improve crude flexibility at our refineries. Factors which can cause actual results to differ from these forward-looking statements include: changes in general economic conditions, the timing and extent of changes in demand for refined products, availability and cost of crude oil, other feedstocks or refined products, throughput and yield levels, disruptions due to equipment interruptions or failure at our or third-party facilities, completion of capital projects, and other factors beyond our control. For more information concerning these factors and other factors that could cause such a difference, see our annual report on Form 10-K and quarterly reports on Form 10-Q, filed with the Securities and Exchange Commission. We undertake no obligation to publicly release the result of any revisions to any such forward-looking statements that may be made to reflect events or circumstances that occur, or which we become aware of, after the date hereof. TESORO CORPORATION STATEMENTS OF CONSOLIDATED OPERATIONS (Unaudited) (In millions except per share amounts) Three Months Ended Years Ended December 31, December 31, ------------------- -------------------- 2005 2004 2005 2004 ---------- ------- -------- ---------- Revenues $ 4,360 $ 3,389 $ 16,581 $ 12,262 Costs and Expenses: Costs of sales and operating expenses (a) 4,036 3,262 15,170 11,229 Selling, general and administrative expenses (a) (b) 36 44 179 152 Depreciation and amortization 58 43 186 154 Loss on asset disposals and impairments 10 10 19 14 ---------- ------- -------- ---------- Operating Income 220 30 1,027 713 Interest and Financing Costs (c) (117) (32) (211) (171) Interest Income and Other 9 2 15 5 ---------- ------- -------- ---------- Earnings Before Income Taxes 112 - 831 547 Income Tax Provision 43 - 324 219 ---------- ------- -------- ---------- Net Earnings $ 69 $ - $ 507 $ 328 ========== ======= ======== ========== Net Earnings Per Share: Basic $ 1.00 $ 0.00 $ 7.44 $ 5.01 Diluted $ 0.97 $ 0.00 $ 7.20 $ 4.76 Weighted Average Common Shares: Basic 68.8 66.0 68.1 65.5 Diluted 70.8 70.1 70.4 68.9 --------- (a) For the three months and the year ended December 31, 2005, the Company allocated certain information technology costs totaling $6 million and $29 million, respectively, previously reported as selling, general and administrative expenses, to costs of sales and operating expenses in order to better reflect costs directly attributable to our segment operations. (b) During 2005, the Company recorded stock-based and other compensation charges totaling $11 million related to the termination and retirement of certain executive officers. Stock based compensation during the 2004 fourth quarter includes expenses primarily for stock options associated with the retirement of certain executive officers totaling $2 million. (c) During the three months ended December 31, 2005, the Company incurred pretax charges of $92 million consisting of tender and call premiums and the write-off of unamortized debt issuance costs in connection with the refinancing of its 9 5/8% senior subordinated notes and 8% senior secured notes. In April 2005, the Company voluntarily prepaid the remaining $96 million outstanding principal balance of the senior secured term loans at a prepayment premium of 1%, which resulted in a pretax charge of $3 million consisting of the write-off of unamortized debt issuance costs and the 1% prepayment premium. During 2004, the Company wrote off unamortized debt issuance and discount costs of $9 million and incurred redemption premiums of $12 million associated with the voluntary prepayments of the 9% senior subordinated notes and senior secured term loans. In addition, the Company recorded charges of $2 million during 2004 for financing costs related to amending both the 8% senior secured notes and the senior secured term loans. NET EARNINGS ADJUSTED FOR SPECIAL ITEMS (Unaudited) (In millions except per share amounts) Three Months Ended Years Ended December 31, December 31, ------------------ ---------------- 2005 2004 2005 2004 --------- ------- ------- ------- Net Earnings - U.S. GAAP $ 69 $ - $ 507 $ 328 Special Items, After-tax: Debt refinancing and prepayment costs (c) 57 - 58 14 Termination and retirement costs (b) - 1 6 1 --------- ------- ------- ------- Net Earnings Adjusted for Special Items $ 126 $ 1 $ 571 $ 343 ========= ======= ======= ======= Net Earnings Per Share - U.S. GAAP $ 0.97 $ 0.00 $ 7.20 $ 4.76 Special Items Per Share, After-tax: Debt refinancing and prepayment costs (c) 0.81 - 0.82 0.20 Termination and retirement costs (b) - 0.01 0.09 0.01 --------- ------- ------- ------- Net Earnings Per Share Adjusted for Special Items $ 1.78 $ 0.01 $ 8.11 $ 4.97 ========= ======= ======= ======= --------------------------- Note: The special items present information that the Company believes is useful to investors. The Company believes that the special items described above are not indicative of its core operations. TESORO CORPORATION SELECTED OPERATING SEGMENT DATA (Unaudited) (In millions) Three Months Ended Years Ended December 31, December 31, ------------------ ---------------- 2005 2004 2005 2004 --------- ------- ------- ------- Operating Income (Loss) Refining (d) $ 247 $ 65 $ 1,194 $ 830 Retail (d) (1) 2 (31) (6) --------- ------- ------- ------- Total Segment Operating Income 246 67 1,163 824 Corporate and Unallocated Costs (b) (d) (26) (37) (136) (111) --------- ------- ------- ------- Operating Income 220 30 1,027 713 Interest and Financing Costs (c) (117) (32) (211) (171) Interest Income and Other 9 2 15 5 --------- ------- ------- ------- Earnings Before Income Taxes $ 112 $ - $ 831 $ 547 ========= ======= ======= ======= Depreciation and Amortization Refining $ 51 $ 37 $ 160 $ 130 Retail 4 5 17 18 Corporate 3 1 9 6 --------- ------- ------- ------- Depreciation and Amortization $ 58 $ 43 $ 186 $ 154 ========= ======= ======= ======= Capital Expenditures Refining $ 80 $ 86 $ 214 $ 167 Retail 3 1 6 3 Corporate 9 6 42 9 --------- ------- ------- ------- Capital Expenditures $ 92 $ 93 $ 262 $ 179 ========= ======= ======= ======= ---------------------- (d) For the three months and the year ended December 31, 2005, the Company allocated certain information technology costs totaling $6 million and $29 million, respectively, from corporate and unallocated costs to segment operating income. The costs allocated to the refining segment and retail segment totaled $5 million and $1 million, respectively, for the three months ended December 31, 2005, and $24 million and $5 million, respectively, for the year ended December 31, 2005. BALANCE SHEET DATA (Unaudited) (Dollars in millions) December 31, December 31, 2005 2004 ------------ ------------ Cash and Cash Equivalents $ 440 $ 185 Total Assets $ 5,097 $ 4,075 Total Debt $ 1,047 $ 1,218 Total Stockholders' Equity $ 1,887 $ 1,327 Total Debt to Capitalization Ratio 36% 48% TESORO CORPORATION OPERATING DATA (Unaudited) Three Months Ended Years Ended December 31, December 31, ------------------ ----------------- 2005 2004 2005 2004 --------- ------- -------- ------- REFINING SEGMENT Total Refining Segment Throughput (thousand barrels per day) Heavy crude 267 250 265 259 Light crude 259 243 245 241 Other feedstocks 15 18 20 20 --------- ------- -------- ------- Total Throughput 541 511 530 520 ========= ======= ======== ======= Yield (thousand barrels per day) Gasoline and gasoline blendstocks 249 237 248 251 Jet fuel 69 67 68 66 Diesel fuel 127 110 118 110 Heavy oils, residual products, internally produced fuel and other 117 117 115 113 --------- ------- -------- ------- Total Yield 562 531 549 540 ========= ======= ======== ======= Refining Margin ($/throughput bbl) (e) Gross $ 11.19 $ 7.23 $ 11.81 $ 9.12 Manufacturing cost before depreciation and amortization (e) $ 3.77 $ 3.37 $ 3.48 $ 3.01 Segment Operating Income ($ millions) Gross refining margin (after inventory changes) (f) $ 543 $ 316 $ 2,246 $ 1,706 Expenses Manufacturing costs 188 159 673 573 Other operating expenses 46 42 182 141 Selling, general and administrative 6 4 27 22 Depreciation and amortization (g) 51 37 160 130 Loss on asset disposals and impairments 5 9 10 10 --------- ------- -------- ------- Segment Operating Income $ 247 $ 65 $ 1,194 $ 830 ========= ======= ======== ======= Product Sales (thousand barrels per day) (h) Gasoline and gasoline blendstocks 292 298 294 300 Jet fuel 99 94 101 90 Diesel fuel 137 134 139 133 Heavy oils, residual products and other 76 101 75 81 --------- ------- -------- ------- Total Product Sales 604 627 609 604 ========= ======= ======== ======= Product Sales Margin ($/barrel) (h) Average sales price $ 72.91 $ 55.40 $ 70.20 $ 52.65 Average costs of sales 64.48 50.09 60.28 44.74 --------- ------- -------- ------- Product Sales Margin $ 8.43 $ 5.31 $ 9.92 $ 7.91 ========= ======= ======== ======= -------------------------- (e) Management uses gross refining margin per barrel to evaluate performance, allocate resources and compare profitability to other companies in the industry. Gross refining margin per barrel is calculated by dividing gross refining margin before inventory changes by total refining throughput and may not be calculated similarly by other companies. Management uses manufacturing costs per barrel to evaluate the efficiency of refinery operations and allocate resources. Manufacturing costs per barrel may not be comparable to similarly titled measures used by other companies. Investors and analysts use these financial measures to help analyze and compare companies in the industry on the basis of operating performance. These financial measures should not be considered as alternatives to segment operating income, revenues, costs of sales and operating expenses or any other measure of financial performance presented in accordance with accounting principles generally accepted in the United States of America. (f) Gross refining margin is revenues less costs of refining feedstocks, purchased products, transportation and distribution. Gross refining margin approximates total refining segment throughput times gross refining margin per barrel, adjusted for changes in refined product inventory due to selling a volume and mix of product that is different than actual volumes manufactured. Also includes the effect of intersegment sales to the retail segment at prices which approximate market. (g) Includes manufacturing depreciation and amortization per throughput barrel of approximately $0.95 and $0.71 for the three months ended December 31, 2005 and 2004, respectively, and $0.75 and $0.61 for the years ended December 31, 2005 and 2004, respectively. (h) Sources of total product sales include products manufactured at the refineries, products drawn from inventory balances and products purchased from third parties. Total product sales margin includes margins on sales of manufactured and purchased products and the effects of inventory changes. TESORO CORPORATION OPERATING DATA (Unaudited) Three Months Ended Years Ended December 31, December 31, ------------------- ----------------- 2005 2004 2005 2004 --------- -------- ------- -------- Refining By Region California (i) Throughput (thousand barrels per day) Heavy crude 157 123 151 128 Light crude 4 11 6 14 Other feedstocks 9 9 8 11 --------- -------- ------- -------- Total Throughput 170 143 165 153 ========= ======== ======= ======== Yield (thousand barrels per day) Gasoline and gasoline blendstocks 95 85 93 96 Diesel fuel 54 39 49 38 Heavy oils, residual products, internally produced fuel and other 32 28 31 28 --------- -------- ------- -------- Total Yield 181 152 173 162 ========= ======== ======= ======== Refining Margin ($/throughput bbl) Gross $ 15.05 $ 13.40 $ 17.88 $ 13.98 Manufacturing cost before depreciation and amortization $ 6.07 $ 6.03 $ 5.56 $ 5.07 Pacific Northwest (Alaska & Washington) (i) Throughput (thousand barrels per day) Heavy crude 82 97 85 89 Light crude 88 76 78 81 Other feedstocks 3 5 8 4 --------- -------- ------- -------- Total Throughput 173 178 171 174 ========= ======== ======= ======== Yield (thousand barrels per day) Gasoline and gasoline blendstocks 72 74 74 74 Jet fuel 30 32 31 31 Diesel fuel 28 26 25 27 Heavy oils, residual products, internally produced fuel and other 47 51 46 47 --------- -------- ------- -------- Total Yield 177 183 176 179 ========= ======== ======= ======== Refining Margin ($/throughput bbl) Gross $ 7.80 $ 5.54 $ 9.68 $ 7.99 Manufacturing cost before depreciation and amortization $ 2.97 $ 2.54 $ 2.74 $ 2.38 Mid-Pacific (Hawaii) (i) Throughput (thousand barrels per day) Heavy crude 28 30 29 42 Light crude 62 53 54 42 --------- -------- ------- -------- Total Throughput 90 83 83 84 ========= ======== ======= ======== Yield (thousand barrels per day) Gasoline and gasoline blendstocks 23 19 20 21 Jet fuel 28 24 26 24 Diesel fuel 13 15 12 15 Heavy oils, residual products, internally produced fuel and other 27 26 26 26 --------- -------- ------- -------- Total Yield 91 84 84 86 ========= ======== ======= ======== Refining Margin ($/throughput bbl) Gross $ 8.56 $ 3.95 $ 6.25 $ 5.30 Manufacturing cost before depreciation and amortization $ 1.61 $ 1.73 $ 1.85 $ 1.51 ---------------- (i) We experienced reduced throughput and yield levels during scheduled major maintenance turnarounds for the following refineries and periods: the Hawaii refinery during the 2005 second quarter; the California and Washington refineries during the 2005 first quarter; and the California refinery during the 2004 third and fourth quarters. TESORO CORPORATION OPERATING DATA (Unaudited) Three Months Ended Years Ended December 31, December 31, ------------------- ----------------- 2005 2004 2005 2004 -------- -------- ------- ------- Mid-Continent (North Dakota & Utah) Throughput (thousand barrels per day) Light crude 105 103 107 104 Other feedstocks 3 4 4 5 -------- -------- ------- ------- Total Throughput 108 107 111 109 ======== ======== ======= ======= Yield (thousand barrels per day) Gasoline and gasoline blendstocks 59 59 61 60 Jet fuel 11 11 11 11 Diesel fuel 32 30 32 30 Heavy oils, residual products, internally produced fuel and other 11 12 12 12 -------- -------- ------- ------- Total Yield 113 112 116 113 ======== ======== ======= ======= Refining Margin ($/throughput bbl) Gross $ 12.70 $ 4.38 $ 10.10 $ 7.02 Manufacturing cost before depreciation and amortization $ 3.25 $ 2.46 $ 2.73 $ 2.28 TESORO CORPORATION OPERATING DATA (Unaudited) Three Months Ended Years Ended December 31, December 31, ------------------ ---------------- 2005 2004 2005 2004 --------- ------- ------- ------- RETAIL SEGMENT Number of Stations (end of period) Company-operated 210 215 210 215 Branded jobber/dealer 268 292 268 292 --------- ------- ------- ------- Total Stations 478 507 478 507 ========= ======= ======= ======= Average Stations (during period) Company-operated 210 218 213 222 Branded jobber/dealer 270 305 281 316 --------- ------- ------- ------- Total Average Retail Stations 480 523 494 538 ========= ======= ======= ======= Fuel Sales (millions of gallons) Company-operated 59 71 258 290 Branded jobber/dealer 41 51 191 220 --------- ------- ------- ------- Total Fuel Sales 100 122 449 510 ========= ======= ======= ======= Fuel Margin ($/gallon) (j) $ 0.27 $ 0.19 $ 0.16 $ 0.16 Merchandise Sales ($ millions) $ 34 $ 31 $ 138 $ 127 Merchandise Margin ($ millions) $ 9 $ 9 $ 36 $ 35 Merchandise Margin % 26% 28% 26% 28% Segment Operating Income (Loss) ($ millions) Gross Margins Fuel (k) $ 26 $ 23 $ 71 $ 79 Merchandise and other non- fuel margin 10 10 39 39 --------- ------- ------- ------- Total Gross Margins 36 33 110 118 Expenses Operating expenses 22 20 90 76 Selling, general and administrative 6 5 25 26 Depreciation and amortization 4 5 17 18 Loss on asset disposals and impairments 5 1 9 4 --------- ------- ------- ------- Segment Operating Income (Loss) $ (1) $ 2 $ (31) $ (6) ========= ======= ======= ======= ---------- (j) Management uses fuel margin per gallon to compare profitability to other companies in the industry. Investors and analysts use fuel margin per gallon to help analyze and compare companies in the industry on the basis of operating performance. Fuel margin per gallon is calculated by dividing fuel gross margin by fuel sales volumes. Fuel margin per gallon may not be calculated similarly by other companies. (k) Includes the effect of intersegment purchases from the refining segment at prices which approximate market. CONTACT: Tesoro Corporation, San Antonio Investors: A. Pierre Dubois, 210-283-2164 or Media: Sarah Simpson, 210-283-2374