EX-99.1 2 a5263741ex991.txt EXHIBIT 99.1 Exhibit 99.1 Tesoro Corporation Announces Record Third Quarter Earnings and Throughput SAN ANTONIO--(BUSINESS WIRE)--Nov. 2, 2006--Tesoro Corporation (NYSE:TSO) today reported third quarter net income of $274 million, or $3.92 per share, as compared to $226 million, or $3.20 per share, for the third quarter of last year. Results for the third quarter include an after-tax charge of $17 million, or $0.24 per share, related to the termination of the Anacortes coker project. Excluding this charge, earnings for the quarter were $4.16 per share. For the first nine months of 2006, net income was $643 million, or $9.17 per share, compared to net income of $438 million, or $6.23 per share, for the nine months ending September 30, 2005. The company set a new throughput record this quarter of 574,000 barrels per day which was 15,000 barrels a day greater than the previous record. The company's refineries in California, Alaska, Washington and North Dakota each achieved record throughput for an individual quarter. "Over the past 12 months, five of our six refineries have recorded quarterly record throughput rates. This is just one of many improvements that have contributed to our strong financial performance and allowed us to surpass in the third quarter many of our 2005 annual records," said Bruce A. Smith, Tesoro's Chairman, President and CEO. Operating income for the first nine months of 2006 was $1.1 billion, surpassing the company's 2005 full year operating income. Operating income for the quarter was up 14% or over $50 million versus the third quarter of 2005, despite West Coast crack spreads that were down 15%. This improvement reflects higher reliability and better optimization of the company's assets through sourcing crude oils with the best refining value and moving the products into the right markets. In addition, gross profit margins and capture rates were higher due to a more stable margin environment. As compared to the hurricane-driven volatility of last year's third quarter, the relative stability this year resulted in higher wholesale market spreads and better realizations of the benchmark crack spread. Capital spending for the first nine months of 2006 was approximately $345 million, of which $59 million was for turnaround expenditures. For the year, the company anticipates capital spending of between $550 and $575 million. The company expects capital spending for 2007 to be between $550 and $650 million including turnarounds. The Golden Eagle coker modification project is now expected to cost between $475 and $525 million and the startup has been deferred to early 2008. Higher raw material costs and limited engineering and construction resources continue to pressure project costs. In addition, the company purchased roughly 815,000 shares of its common stock for $51 million during the quarter. Year to date through the third quarter, the company has purchased 2.1 million shares for $135 million. Looking at the immediate quarter, two factors will impact profitability - normal seasonal demand shifts and the Anacortes turnaround. While the seasonal demand shift is expected to be typical, the fundamental outlook remains bullish for product demand in 2007. Gasoline inventories on the West Coast are low relative to the five-year average heading into a busy turnaround season that is expected to extend into the first quarter of next year. In addition, immediate relief for the industry's need to import high octane blending components required to produce West Coast gasoline seems unlikely in the near-term. These factors should provide support for a strong West Coast margin environment in 2007. "Our employees continue to excel in achieving throughput records through safe and reliable performance. Given each and every employee's commitment to operational excellence, along with our belief that historically strong margins will persist, we expect to continue delivering significant value growth for our shareholders," said Smith. Board Declares Quarterly Dividend Tesoro announced today that its Board of Directors has approved a regular quarterly cash dividend of $0.10 per share. The dividend is payable December 15, 2006 to shareholders of record as of December 1, 2006. Public Invited to Listen to Analyst Conference Call via Internet At 3:00 p.m., CST, Thursday, November 2nd, 2006, Tesoro will broadcast, live, its conference call with analysts regarding third quarter 2006 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 approximately 560,000 barrels per day. Tesoro's retail-marketing system includes over 450 branded retail stations, of which over 200 are company owned and operated under the Tesoro(R) and Mirastar(R) brands. This earnings release contains certain statements that are "forward-looking" statements concerning the market environment, capital expenditures and accounting adjustments within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. For more information concerning factors that could affect these statements 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 Nine Months Ended September 30, September 30, ------------------ ----------------- 2006 2005 2006 2005 --------- -------- -------- -------- Revenues $5,278 $5,017 $14,084 $12,221 Costs and Expenses: Costs of sales and operating expenses 4,697 4,536 12,662 11,134 Selling, general and administrative expenses (a) 41 41 126 143 Depreciation and amortization 63 44 183 128 Loss on asset disposals and impairments (b) 31 4 43 9 --------- -------- -------- -------- Operating Income 446 392 1,070 807 Interest and Financing Costs (c) (19) (30) (60) (94) Interest Income and Other 15 5 32 6 --------- -------- -------- -------- Earnings Before Income Taxes 442 367 1,042 719 Income Tax Provision 168 141 399 281 --------- -------- -------- -------- Net Earnings $274 $226 $643 $438 ========= ======== ======== ======== Net Earnings Per Share: Basic $4.02 $3.29 $9.43 $6.45 Diluted $3.92 $3.20 $9.17 $6.23 Weighted Average Common Shares: Basic 68.1 68.7 68.2 67.9 Diluted 69.9 70.7 70.1 70.3 ---------------------------- (a) During the nine months ended September 30, 2005, the Company recorded stock-based and other compensation charges totaling $11 million related to the termination and retirement of certain executive officers. (b) During the three months ended September 30, 2006, the Company recorded charges totaling $27 million related to the termination of the delayed coker project at our Washington refinery. (c) 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. NET EARNINGS ADJUSTED FOR SPECIAL ITEMS (Unaudited) (In millions except per share amounts) Three Months Nine Months Ended Ended September 30, September 30, --------------- --------------- 2006 2005 2006 2005 ------- ------- ------- ------- Net Earnings - U.S. GAAP $ 274 $ 226 $ 643 $ 438 Special Items, After-tax: Delayed coker project termination costs (b) 17 - 17 - Termination and retirement costs (a) - - - 6 Debt prepayment and financing costs (c) - - - 2 ------- ------- ------- ------- Net Earnings Adjusted for Special Items $ 291 $ 226 $ 660 $ 446 ======= ======= ======= ======= Net Earnings Per Share - U.S. GAAP $ 3.92 $ 3.20 $ 9.17 $ 6.23 Special Items Per Share, After-tax: Delayed coker project termination costs (b) 0.24 - 0.24 - Termination and retirement costs (a) - - - 0.08 Debt prepayment and financing costs (c) - - - 0.03 ------- ------- ------- ------- Net Earnings Per Share Adjusted for Special Items $ 4.16 $ 3.20 $ 9.41 $ 6.34 ======= ======= ======= ======= 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 Nine Months Ended Ended September 30, September 30, ------------- --------------- 2006 2005 2006 2005 ------ ----- ------ ------- Operating Income (Loss) Refining (b) $ 474 $ 434 $ 1,192 $ 947 Retail 3 (10) (21) (30) ------ ----- ------ ------- Total Segment Operating Income 477 424 1,171 917 Corporate and Unallocated Costs (31) (32) (101) (110) ------ ----- ------ ------- Operating Income 446 392 1,070 807 Interest and Financing Costs (c) (19) (30) (60) (94) Interest Income and Other 15 5 32 6 ------ ----- ------ ------- Earnings Before Income Taxes $ 442 $ 367 $ 1,042 $ 719 ====== ===== ====== ======= Depreciation and Amortization Refining $ 56 $ 37 $ 164 $ 109 Retail 4 5 12 13 Corporate 3 2 7 6 ------ ----- ------ ------- Depreciation and Amortization $ 63 $ 44 $ 183 $ 128 ====== ===== ====== ======= - Capital Additions Refining $ 99 $ 49 $ 242 $ 134 Retail 3 2 4 3 Corporate 32 3 40 33 ------ ----- ------ ------- Capital Additions $ 134 $ 54 $ 286 $ 170 ====== ===== ====== ======= BALANCE SHEET DATA (Unaudited) (Dollars in millions) September 30, December 31, 2006 2005 -------------- --------------- Cash and Cash Equivalents $ 886 $ 440 Total Assets $ 5,946 $ 5,097 Total Debt $ 1,044 $ 1,047 Total Stockholders' Equity $ 2,425 $ 1,887 Total Debt to Capitalization Ratio 30% 36% TESORO CORPORATION OPERATING DATA (Unaudited) Three Months Nine Months Ended Ended September 30, September 30, -------------- -------------- 2006 2005 2006 2005 ------ ------ ------ ------ REFINING SEGMENT Total Refining Segment Throughput (thousand barrels per day) Heavy crude 274 259 269 265 Light crude 277 281 250 240 Other feedstocks 23 19 19 21 ------ ------ ------ ------ Total Throughput 574 559 538 526 ====== ====== ====== ====== Yield (thousand barrels per day) Gasoline and gasoline blendstocks 262 260 251 247 Jet fuel 75 73 70 68 Diesel fuel 139 129 123 116 Heavy oils, residual products, internally produced fuel and other 117 116 115 114 ------ ------ ------ ------ Total Yield 593 578 559 545 ====== ====== ====== ====== Refining Margin ($/throughput bbl) (d) Gross $15.25 $13.87 $14.09 $12.02 Manufacturing cost before depreciation and amortization (d) $ 3.32 $ 3.25 $ 3.47 $ 3.38 Segment Operating Income ($ millions) Gross refining margin (after inventory changes) (e) $ 786 $ 696 $2,039 $1,703 Expenses Manufacturing costs 175 167 510 485 Other operating expenses 45 49 122 136 Selling, general and administrative 6 7 16 21 Depreciation and amortization (f) 56 37 164 109 Loss on asset disposals and impairments 30 2 35 5 ------ ------ ------ ------ Segment Operating Income $ 474 $ 434 $1,192 $ 947 ====== ====== ====== ====== Product Sales (thousand barrels per day) (g) Gasoline and gasoline blendstocks 301 310 284 295 Jet fuel 96 106 92 101 Diesel fuel 136 154 131 140 Heavy oils, residual products and other 93 80 86 75 ------ ------ ------ ------ Total Product Sales 626 650 593 611 ====== ====== ====== ====== Product Sales Margin ($/barrel) (g) Average sales price $87.33 $79.98 $83.94 $69.30 Average costs of sales 74.95 67.79 71.82 58.88 ------ ------ ------ ------ Product Sales Margin $12.38 $12.19 $12.12 $10.42 ====== ====== ====== ====== --------------- (d) 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. (e) 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. (f) Includes manufacturing depreciation and amortization per throughput barrel of approximately $0.97 and $0.64 for the three months ended September 30, 2006 and 2005, respectively, and $1.03 and $0.68 for the nine months ended September 30, 2006 and 2005, respectively. (g) Sources of total product sales include products manufactured at the refineries, products drawn from inventory balances and products purchased from third parties. Total product sales margin includes margins on sales of manufactured and purchased products and the effects of inventory changes. Total product sales were reduced by 33 Mbpd and 25 Mbpd in the three months and nine months ended September 30, 2006 , respectively, as a result of recording certain purchases and sales transactions with the same counterparty on a net basis beginning in the 2006 first quarter upon adoption of EITF Issue No. 04-13, "Accounting for Purchases and Sales of Inventory with the Same Counterparty." TESORO CORPORATION OPERATING DATA (Unaudited) Three Months Nine Months Ended Ended September 30, September 30, -------------- --------------- 2006 2005 2006 2005 ------ ------ ------- ------ Refining By Region California (h) Throughput (thousand barrels per day) Heavy crude 160 146 153 149 Light crude 4 15 3 7 Other feedstocks 9 8 8 7 ------ ------ ------- ------ Total Throughput 173 169 164 163 ====== ====== ======= ====== Yield (thousand barrels per day) Gasoline and gasoline blendstocks 97 96 96 92 Diesel fuel 54 51 46 48 Heavy oils, residual products, internally produced fuel and other 31 31 32 31 ------ ------ ------- ------ Total Yield 182 178 174 171 ====== ====== ======= ====== Refining Margin ($/throughput bbl) Gross $19.65 $20.51 $19.98 $18.88 Manufacturing cost before depreciation and amortization $ 5.23 $ 5.33 $5.59 $ 5.39 Pacific Northwest (Alaska & Washington) (h) Throughput (thousand barrels per day) Heavy crude 82 83 88 87 Light crude 103 98 81 74 Other feedstocks 8 6 6 9 ------ ------ ------- ------ Total Throughput 193 187 175 170 ====== ====== ======= ====== Yield (thousand barrels per day) Gasoline and gasoline blendstocks 79 81 73 74 Jet fuel 36 33 31 32 Diesel fuel 37 32 30 24 Heavy oils, residual products, internally produced fuel and other 46 46 46 45 ------ ------ ------- ------ Total Yield 198 192 180 175 ====== ====== ======= ====== Refining Margin ($/throughput bbl) Gross $12.15 $12.87 $11.94 $10.33 Manufacturing cost before depreciation and amortization $ 2.56 $ 2.52 $2.69 $ 2.67 Mid-Pacific (Hawaii) (h) Throughput (thousand barrels per day) Heavy crude 32 30 28 29 Light crude 57 57 59 51 ------ ------ ------- ------ Total Throughput 89 87 87 80 ====== ====== ======= ====== Yield (thousand barrels per day) Gasoline and gasoline blendstocks 21 20 21 19 Jet fuel 27 28 28 25 Diesel fuel 14 13 14 12 Heavy oils, residual products, internally produced fuel and other 28 28 26 26 ------ ------ ------- ------ Total Yield 90 89 89 82 ====== ====== ======= ====== Refining Margin ($/throughput bbl) Gross $ 9.31 $ 5.60 $6.67 $ 5.39 Manufacturing cost before depreciation and amortization $ 1.85 $ 1.75 $1.73 $ 1.94 - ----------------------------------- (h) The Company experienced reduced throughput due to scheduled maintenance turnarounds at the Alaska refinery during the 2006 second quarter and the California refinery during the 2006 first quarter and unscheduled downtime at the North Dakota refinery during the 2006 second quarter. During the 2005 second quarter, the Company experienced reduced throughput at the Hawaii refinery due to a scheduled maintenance turnaround. In the 2005 first quarter, the Company experienced reduced throughput at the California and Washington refineries, primarily as a result of scheduled major maintenance turnarounds and unscheduled downtime. TESORO CORPORATION OPERATING DATA (Unaudited) Three Months Nine Months Ended September Ended September 30, 30, ----------------- ------------------- 2006 2005 2006 2005 -------- ------- --------- -------- Mid-Continent (North Dakota & Utah) (h) Throughput (thousand barrels per day) Light crude 113 111 107 108 Other feedstocks 6 5 5 5 -------- ------- --------- -------- Total Throughput 119 116 112 113 ======== ======= ========= ======== Yield (thousand barrels per day) Gasoline and gasoline blendstocks 65 63 61 62 Jet fuel 12 12 11 11 Diesel fuel 34 33 33 32 Heavy oils, residual products, internally produced fuel and other 12 11 11 12 -------- ------- --------- -------- Total Yield 123 119 116 117 ======== ======= ========= ======== Refining Margin ($/throughput bbl) Gross $ 17.84 $ 11.98 $ 14.69 $ 9.26 Manufacturing cost before depreciation and amortization $ 2.90 $ 2.55 $ 2.93 $ 2.57 TESORO CORPORATION OPERATING DATA (Unaudited) Three Months Nine Months Ended Ended September 30, September 30, ------------- -------------- 2006 2005 2006 2005 ------ ------ ------ ------- RETAIL SEGMENT Number of Stations (end of period) Company-operated 194 211 194 211 Branded jobber/dealer 262 274 262 274 ------ ------ ------ ------- Total Stations 456 485 456 485 ====== ====== ====== ======= Average Stations (during period) Company-operated 202 212 207 213 Branded jobber/dealer 260 278 260 285 ------ ------ ------ ------- Total Average Retail Stations 462 490 467 498 ====== ====== ====== ======= Fuel Sales (millions of gallons) Company-operated 66 67 189 199 Branded jobber/dealer 51 54 138 150 ------ ------ ------ ------- Total Fuel Sales 117 121 327 349 ====== ====== ====== ======= Fuel Margin ($/gallon) (i) $ 0.22 $ 0.12 $ 0.16 $ 0.13 Merchandise Sales ($ millions) $ 38 $ 39 $ 108 $ 104 Merchandise Margin ($ millions) $ 11 $ 10 $ 29 $ 27 Merchandise Margin % 29% 26% 27% 26% Segment Operating Income (Loss) ($ millions) Gross Margins Fuel (j) $ 26 $ 15 $ 52 $ 45 Merchandise and other non-fuel margin 11 11 31 29 ------ ------ ------ ------- Total Gross Margins 37 26 83 74 Expenses Operating expenses 22 24 67 68 Selling, general and administrative 7 5 19 19 Depreciation and amortization 4 5 12 13 Loss on asset disposals and impairments 1 2 6 4 ------ ------ ------ ------- Segment Operating Income (Loss) $ 3 $ (10) $ (21)$ (30) ====== ====== ====== ======= ------------------ (i) 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. (j) Includes the effect of intersegment purchases from the refining segment at prices which approximate market. CONTACT: Tesoro Corporation, San Antonio Investors: Scott Phipps, Manager, Investor Relations, 210-283-2882 or Media: Natalie Silva, Manager, Public Relations, 210-283-2729