Exhibit 99.1
Tesoro Announces First Quarter Results, Initiates Cash Dividend on Common Stock
SAN ANTONIO--(BUSINESS WIRE)--May 9, 2005--Tesoro Corporation (NYSE:TSO)
today reported net earnings of $27.7 million, or $0.40 per share, for the first
quarter of 2005 compared to net earnings of $50.4 million, or $0.75 per share,
for the first quarter of 2004.
As reported in the attached financial information, results for the quarter
include an after-tax charge of $6.3 million, or $0.09 per share for expenses
related to previously announced termination and retirement of certain executive
officers. Excluding these special items, net earnings were $34.0 million, or
$0.49 per share.
"Overall, our refining margins during the quarter were up year-over-year
and quarter-over-quarter signaling continued strength in market fundamentals.
Our plan has been to take needed turnarounds in preparation for another strong
summer gasoline season," said Bruce Smith, Chairman, President and CEO at
Tesoro. "During the first quarter we completed significant planned turnarounds
at Golden Eagle and Anacortes that precluded us from capturing the full benefit
of strong first quarter industry spreads. Tesoro estimates that first quarter
2005 operating income was reduced by $75 million as a result of planned
turnaround activity, unplanned boiler repairs on two separate units at Golden
Eagle, and an unplanned outage of the naphtha hydrotreater and reformer at
Anacortes."
In total, since September 2004, operating income has been impacted by
approximately $175 million due to major turnaround activity at Tesoro's two
largest refineries as well as some unplanned system downtime. "Our turnaround
plan was to position our system to take advantage of the normally higher margin
environment that begins in March. In fact, our plan is working as March and
April operating income has been excellent," Smith added.
Overall refining operating expenses during the quarter rose due to higher
utility, maintenance and employee costs as well as increased allocation of
administrative expenses, which included information technology expenses for the
first time.
Retail operating income was negatively impacted by rapidly rising spot
prices which narrowed margins, and by the continued rationalization of stations
in non-core areas which negatively impacted volume.
In addition to executive termination and retirement expenses, selling,
general and administrative expenses increased during the quarter as Tesoro
continues to invest in infrastructure improvement opportunities. "Administrative
expenses during the quarter were higher than we expect to see in subsequent
quarters as we extended our employment of outside consultants to help us
implement system and process improvements designed to lead to savings in the
future," Smith said.
"Interest expense will be further reduced in subsequent quarters following
the April 18 prepayment of the remaining $96 million principal balance of the
Senior Secured Term Loans due 2008," Smith commented. The company will record a
pre-tax charge in the second quarter totaling approximately $3 million related
to the prepayment, including the 1% premium and a non-cash write-off of the
unamortized deferred financing costs. At today's interest rates, annual savings
amount to approximately $8 million.
"Since the acquisition of the Golden Eagle refinery nearly three years ago,
we have reduced our total debt by nearly $1.0 billion and have reduced the ratio
of net debt to net capitalization from 68% to 45%," Smith noted.
Tesoro Initiates Cash Dividend on Common Stock
"For the past several years, we have created substantial value for our
shareholders by using our strong cash flow to repay debt. While debt reduction
is still important, this option is no longer the sole method of creating future
shareholder value. In light of our prospects for continued strong cash flows,
Tesoro's Board of Directors has declared a quarterly dividend of $0.05 per share
payable on June 15, 2005, to shareholders of record on June 1, 2005," Smith
announced. "Tesoro's Board believes that the institution of a regular quarterly
dividend is an important component in creating a balanced approach to using free
cash flow to create shareholder value. A dividend is one of the means to achieve
this goal and we have also developed plans for reinvesting some of that cash in
strategic capital projects."
Board Approves Incremental Capital Spending
Tesoro announced that its Board of Directors had approved an incremental
$55 million capital spending program in 2005 designed to capture strategic
opportunities in the areas of crude flexibility, yield improvements and cost
reduction, as well as an additional regulatory project. The Company also
continues to look at other ways of returning or reinvesting cash to create
shareholder value.
An overview of the plans will be discussed at an analyst conference
scheduled for May 11th. That conference will be webcast via Tesoro's website at
http://www.tsocorp.com.
"With significant turnaround activities at our largest refineries behind
us, a much improved balance sheet, strong free cash flow, and clear
opportunities to strategically reinvest free cash flows, we have put our
shareholders in a position to benefit from what appears to be a very bright
future," Smith concluded.
Public Invited to Listen to Analyst Conference Call via Internet
At 2 p.m., CDT, Monday, May 9, 2005 Tesoro will broadcast, live, its
conference call with analysts regarding first quarter 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 500 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 approximately 500 branded retail
stations, of which over 200 are company 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 concern anticipated strong industry refining margins in 2005, our
expectations to reduce administrative expenses, and our initiatives to improve
profitability and generate free cash flow. 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, 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
March 31,
--------------------
2005 2004
---------- --------
Revenues $ 3,171.2 $2,429.9
Costs and Expenses:
Costs of sales and operating expenses (a) 2,997.3 2,234.7
Selling, general and administrative
expenses (a) (b) 53.7 31.0
Depreciation and amortization 41.5 37.0
Loss on asset disposals and impairments 1.2 0.6
---------- --------
Operating Income 77.5 126.6
Interest and Financing Costs, Net (c) (31.3) (42.9)
---------- --------
Earnings Before Income Taxes 46.2 83.7
Income Tax Provision 18.5 33.3
---------- --------
Net Earnings $ 27.7 $ 50.4
========== ========
Net Earnings Per Share:
Basic $ 0.41 $ 0.78
Diluted $ 0.40 $ 0.75
Weighted Average Common Shares:
Basic 66.8 65.0
Diluted 70.1 67.3
- --------------------------------------------
(a) For the three months ended March 31, 2005, the Company allocated
certain information technology costs totaling $6.5 million,
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) Includes stock-based and other compensation charges totaling $10.5
million during the 2005 first quarter, related to the termination
and retirement of certain executive officers.
(c) In March 2004 the Company amended both the 8% senior secured notes
and the senior secured term loans resulting in pretax financing
expenses of $2.5 million.
NET EARNINGS ADJUSTED FOR SPECIAL ITEMS
(Unaudited)
(In millions except per share amounts)
Three Months Ended
March 31,
-------------------
2005 2004
--------- --------
Net Earnings - U.S. GAAP $ 27.7 $ 50.4
Special Items, After-tax:
Termination and retirement costs (b) 6.3 -
--------- --------
Net Earnings Adjusted for Special Items $ 34.0 $ 50.4
========= ========
Net Earnings Per Share - U.S. GAAP $ 0.40 $ 0.75
Special Items Per Share, After-tax:
Termination and retirement costs (b) 0.09 -
--------- --------
Net Earnings Per Share Adjusted for Special
Items $ 0.49 $ 0.75
========= ========
- --------------------------------------------
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
March 31,
------------------
2005 2004
-------- --------
Operating Income (Loss)
Refining (d) $ 132.7 $ 151.6
Retail (d) (11.3) (4.2)
-------- --------
Total Segment Operating Income 121.4 147.4
Corporate and Unallocated Costs (b) (d) (42.7) (20.2)
Loss on Asset Disposals and Impairments (1.2) (0.6)
-------- --------
Operating Income 77.5 126.6
Interest and Financing Costs, Net (c) (31.3) (42.9)
-------- --------
Earnings Before Income Taxes $ 46.2 $ 83.7
======== ========
Depreciation and Amortization
Refining $ 35.2 $ 31.0
Retail 4.3 4.4
Corporate 2.0 1.6
-------- --------
Depreciation and Amortization $ 41.5 $ 37.0
======== ========
Capital Expenditures
Refining $ 37.0 $ 14.5
Retail 0.2 0.1
Corporate 26.7 0.3
-------- --------
Capital Expenditures $ 63.9 $ 14.9
======== ========
- ------------------------------------
(d) For the three months ended March 31, 2005, the Company allocated
certain information technology costs totaling $6.5 million from
corporate and unallocated costs to segment operating income. The
$6.5 million included $4.9 million in refining and $1.6 million in
retail.
BALANCE SHEET DATA
(Unaudited)
(Dollars in millions)
March 31, December 31, June 30,
2005 2004 2002
--------- ------------ --------
Cash and Cash Equivalents $ 89.1 $ 184.8 $ 43.0
Total Assets $ 4,391.7 $ 4,075.1 $3,961.8
Total Debt (e) $ 1,227.4 $ 1,218.3 $2,060.4
Total Stockholders' Equity $ 1,389.4 $ 1,327.1 $ 931.1
Total Debt to Capitalization Ratio 47% 48% 69%
Total Debt (e) $ 1,227.4 $ 1,218.3 $2,060.4
Less: Cash and Cash Equivalents $ 89.1 $ 184.8 $ 43.0
--------- ------------ --------
Net Debt (f) $ 1,138.3 $ 1,033.5 $2,017.4
Total Stockholders' Equity $ 1,389.4 $ 1,327.1 $ 931.1
--------- ------------ --------
Net Capitalization (f) $ 2,527.7 $ 2,360.6 $2,948.5
Net Debt to Net Capitalization
Ratio (f) 45% 44% 68%
- ---------------------------
(e) On April 18, 2005, the Company voluntarily prepaid the remaining
$96 million outstanding principal balance of our senior secured
term loans at a prepayment premium of 1%.
(f) Net debt represents total debt less cash and cash equivalents. Net
capitalization represents the total of net debt and total
stockholders' equity. The Company believes net debt to net
capitalization is useful in measuring financial leverage at March
31, 2005 because cash at the end of the quarter was used to prepay
the senior secured term loans as discussed in note (e) above. Net
debt to net capitalization should not be considered as an
alternative to debt to capitalization or any measure of financial
leverage presented in accordance with accounting principles
generally accepted in the United States of America. Net debt to
net capitalization may not be comparable to similarly titled
measures used by other companies. The Company has presented net
debt to net capitalization as of June 30, 2002 to reflect debt
reduction since the acquisition of the California refinery in May
2002.
TESORO CORPORATION
OPERATING DATA
(Unaudited)
Three Months Ended
March 31,
------------------
2005 2004
--------- --------
REFINING SEGMENT
Total Refining Segment
Throughput (thousand barrels per day)
Heavy crude 262.7 272.0
Light crude 188.3 211.6
Other feedstocks 26.1 14.1
--------- --------
Total Throughput 477.1 497.7
========= ========
Yield (thousand barrels per day)
Gasoline and gasoline blendstocks 223.3 245.8
Jet fuel 64.9 64.1
Diesel fuel 90.9 103.4
Heavy oils, residual products, internally
produced fuel and other 115.7 104.3
--------- --------
Total Yield 494.8 517.6
========= ========
Refining Margin ($/throughput bbl) (g)
Gross $ 8.37 $ 7.58
Manufacturing cost before depreciation and
amortization (g) $ 3.55 $ 2.88
Segment Operating Income ($ millions)
Gross refining margin (after inventory
changes) (h) $ 366.9 $348.0
Expenses
Manufacturing costs 152.5 130.5
Other operating expenses 39.1 29.5
Selling, general and administrative 7.4 5.4
Depreciation and amortization (i) 35.2 31.0
--------- --------
Segment Operating Income $ 132.7 $151.6
========= ========
Product Sales (thousand barrels per day) (j)
Gasoline and gasoline blendstocks 267.7 289.4
Jet fuel 95.9 79.5
Diesel fuel 122.8 119.8
Heavy oils, residual products and other 68.9 75.8
--------- --------
Total Product Sales 555.3 564.5
========= ========
Product Sales Margin ($/barrel) (j)
Average sales price $ 59.09 $44.98
Average costs of sales 51.36 37.90
--------- --------
Product Sales Margin $ 7.73 $ 7.08
========= ========
- -------------------------------------------
(g) 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 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.
(h) 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.
(i) Includes manufacturing depreciation and amortization per
throughput barrel of approximately $0.73 and $0.60 for the three
months ended March 31, 2005 and 2004, respectively.
(j) Sources of total product sales include products manufactured at
the refineries, products drawn from inventory balances and
products purchased from third parties. Total product sales margin
includes margins on sales of manufactured and purchased products
and the effects of inventory changes.
TESORO CORPORATION
OPERATING DATA
(Unaudited)
Three Months Ended
March 31,
------------------
2005 2004
-------- --------
Refining By Region
California (k)
Throughput (thousand barrels per day)
Heavy crude 144.0 144.4
Light crude - 4.0
Other feedstocks 5.1 4.8
-------- --------
Total Throughput 149.1 153.2
======== ========
Yield (thousand barrels per day)
Gasoline and gasoline blendstocks 82.0 97.7
Diesel fuel 40.5 37.0
Heavy oils, residual products, internally
produced fuel and other 34.2 28.1
-------- --------
Total Yield 156.7 162.8
======== ========
Refining Margin ($/throughput bbl)
Gross $ 16.58 $11.10
Manufacturing cost before depreciation and
amortization $ 5.54 $ 4.61
Pacific Northwest (Alaska & Washington) (k)
Throughput (thousand barrels per day)
Heavy crude 80.9 84.4
Light crude 42.4 72.9
Other feedstocks 17.1 5.2
-------- --------
Total Throughput 140.4 162.5
======== ========
Yield (thousand barrels per day)
Gasoline and gasoline blendstocks 62.6 69.3
Jet fuel 28.1 28.7
Diesel fuel 11.7 26.7
Heavy oils, residual products, internally
produced fuel and other 43.3 42.5
-------- --------
Total Yield 145.7 167.2
======== ========
Refining Margin ($/throughput bbl)
Gross $ 4.57 $ 6.44
Manufacturing cost before depreciation and
amortization $ 3.20 $ 2.38
Mid-Pacific (Hawaii)
Throughput (thousand barrels per day)
Heavy crude 37.8 43.2
Light crude 46.0 41.2
-------- --------
Total Throughput 83.8 84.4
======== ========
Yield (thousand barrels per day)
Gasoline and gasoline blendstocks 19.7 23.2
Jet fuel 26.3 24.7
Diesel fuel 11.9 15.0
Heavy oils, residual products, internally
produced fuel and other 26.9 23.0
-------- --------
Total Yield 84.8 85.9
======== ========
Refining Margin ($/throughput bbl)
Gross $ 4.04 $ 4.54
Manufacturing cost before depreciation and
amortization $ 1.67 $ 1.32
- --------------------------------------------------
(k) Scheduled maintenance turnarounds at our California and Washington
refineries during the 2005 first quarter resulted in reduced
throughput and yield levels.
TESORO CORPORATION
OPERATING DATA
(Unaudited)
Three Months Ended
March 31,
------------------
2005 2004
-------- --------
Mid-Continent (North Dakota & Utah)
Throughput (thousand barrels per day)
Light crude 99.9 93.5
Other feedstocks 3.9 4.1
-------- --------
Total Throughput 103.8 97.6
======== ========
Yield (thousand barrels per day)
Gasoline and gasoline blendstocks 59.0 55.6
Jet fuel 10.5 10.7
Diesel fuel 26.8 24.7
Heavy oils, residual products, internally
produced fuel and other 11.3 10.7
-------- --------
Total Yield 107.6 101.7
======== ========
Refining Margin ($/throughput bbl)
Gross $ 5.08 $ 6.54
Manufacturing cost before depreciation and
amortization $ 2.69 $ 2.35
TESORO CORPORATION
OPERATING DATA
(Unaudited)
Three Months Ended
March 31,
--------------------
2005 2004
--------- --------
RETAIL SEGMENT
Number of Stations (end of period)
Company-operated 218 224
Branded jobber/dealer 289 324
--------- --------
Total Stations 507 548
========= ========
Average Stations (during period)
Company-operated 217 225
Branded jobber/dealer 291 326
--------- --------
Total Average Retail Stations 508 551
========= ========
Fuel Sales (millions of gallons)
Company-operated 65.0 69.6
Branded jobber/dealer 46.0 53.3
--------- --------
Total Fuel Sales 111.0 122.9
========= ========
Fuel Margin ($/gallon) (l) $ 0.12 $ 0.14
Merchandise Sales ($ millions) $ 29.9 $ 28.2
Merchandise Margin ($ millions) $ 7.6 $ 7.3
Merchandise Margin % 25% 26%
Segment Operating Loss ($ millions)
Gross Margins
Fuel (m) $ 12.9 $ 17.5
Merchandise and other non-fuel margin 8.4 8.2
--------- --------
Total Gross Margins 21.3 25.7
Expenses
Operating expenses 22.7 18.5
Selling, general and administrative 5.6 7.0
Depreciation and amortization 4.3 4.4
--------- --------
Segment Operating Loss $ (11.3) $ (4.2)
========= ========
- ---------------------------
(l) 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.
(m) 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:
Tara Ford Payne, 210-283-2676