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Western Refining Announces Fourth Quarter and Full Year 2012 Results

Western Refining Inc. Logo

Strong Margin Environment Leads to Significant Debt Reduction,

Shareholder Return, and Capital Investment

EL PASO, Texas, Feb. 28, 2013 (GLOBE NEWSWIRE) -- Western Refining, Inc. (NYSE:WNR) today reported fourth quarter 2012 net income, excluding special items, of $155.7 million, or $1.45 per diluted share. This compares to fourth quarter 2011 net income, excluding special items, of $50.8 million, or $0.50 per diluted share. Including special items, the Company recorded fourth quarter 2012 net income of $207.6 million, or $1.92 per diluted share as compared to a net loss of $64.6 million, or $0.72 per diluted share for the fourth quarter of 2011. The special item for the fourth quarter of 2012 was a non-cash unrealized pre-tax hedging gain of $81.5 million. The quarter-on-quarter improvement was due in large part to higher refining margins resulting from cost-advantaged crude oils and strong product values in the Southwest U.S.

For the year ended December 31, 2012, the Company reported net income, excluding special items, of $552.3 million, or $5.08 per diluted share as compared to net income, excluding special items, of $330.4 million, or $3.14 per diluted share for the year ended December 31, 2011. Including special items, Western recorded full year 2012 net income of $398.9 million, or $3.71 per diluted share compared to full year 2011 net income of $132.7 million, or $1.34 per diluted share.

A reconciliation of reported earnings and description of special items can be found in the accompanying financial tables.

Jeff Stevens, Western's President and Chief Executive Officer, said, "In 2012, Western Refining realized its highest fourth quarter and full year Adjusted EBITDA in Company history. We undertook a number of strategic actions to capitalize on the strong margin environment, strengthen our balance sheet, and invest in the business. Over the last two years, we believe we have demonstrated our ability to capture these positive market conditions and dramatically transform the earnings power of the Company."

The Company successfully completed a number of strategic initiatives during 2012:

  • reduced total debt by $304 million
  • returned $323 million in cash to shareholders via dividends and share repurchases
  • expanded the crude oil capacity of the Gallup Refinery
  • invested in a gathering system for cost-advantaged crude oil in the Permian Basin

For the fourth quarter of 2012, Adjusted EBITDA was $298.5 million compared to Adjusted EBITDA of $144.7 million for the fourth quarter of 2011. For the year ended December 31, 2012, Adjusted EBITDA was a $1,083.7 million compared to the full year 2011 Adjusted EBITDA of $786.2 million.

Total debt as of December 31, 2012, was $499.9 million and cash was $454.0 million resulting in net debt of $45.9 million.

Stevens continued, "We have established ambitious goals for the Company in 2013. We will continue to focus on safety and reliability. We also plan to further enhance our cost-advantaged crude oil position, grow our logistics assets, increase our financial flexibility, and return cash to shareholders. The Gallup refinery is running at expanded rates, our crude oil gathering system in the Permian Basin is nearing completion, and we continue to maximize the use of cost-advantaged crude oil available in our region. All of these actions, coupled with the location of our assets, position Western well for 2013."

Conference Call Information

A conference call is scheduled for Thursday, February 28, 2013, at 10:00 a.m. ET to discuss Western's financial results. A slide presentation will also be available for reference during the conference call. The call, press release, and slide presentation can be accessed on the Investor Relations section on Western's website, www.wnr.com. The call can also be heard by dialing (866) 566-8590 or (702) 224-9819, passcode: 85926413. The audio replay will be available two hours after the end of the call through March 7, 2013, by dialing (800) 585-8367 or (404) 537-3406, passcode: 85926413.

Non-GAAP Financial Measures

In a number of places in the press release and related tables, we have excluded the impact of the non-cash loss and impairments on disposal of assets, the impact of the non-cash unrealized net gains and losses from our commodity hedging activities, and the non-cash loss on extinguishment of debt. We believe it is useful for investors to understand our financial performance excluding these special items so that investors can see the operating trends underlying our business. Investors should not consider these non-GAAP measures in isolation from, or as a substitute for, the financial information that we report in accordance with GAAP.

About Western Refining

Western Refining, Inc. is an independent refining and marketing company headquartered in El Paso, Texas. Western operates refineries in El Paso, and Gallup, New Mexico. Western's asset portfolio also includes stand-alone refined products terminals in Albuquerque and Bloomfield, New Mexico, asphalt terminals in Albuquerque, El Paso, and Phoenix and Tucson, Arizona, retail service stations and convenience stores in Arizona, Colorado, New Mexico, and Texas, a fleet of crude oil and finished product truck transports, and wholesale petroleum products operations in Arizona, California, Colorado, Maryland, Nevada, New Mexico, Texas, and Virginia. More information about the Company is available at www.wnr.com.

The Western Refining, Inc. logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=7615

Cautionary Statement on Forward-Looking Statements

This press release contains forward-looking statements covered by the safe harbor provisions of the PSLRA. The forward-looking statements contained herein include statements about our future: continued focus on safety and reliability; ability to further enhance and maximize our use of cost-advantaged crude oil; ability to grow our logistics assets including the completion of our crude oil gathering system in the Permian Basin; ability to increase our financial flexibility; return of cash to shareholders; ability to run the Gallup refinery at expanded rates; and our positioning for 2013. These statements are subject to the general risks inherent in the Company's business. These expectations may or may not be realized. Some of these expectations may be based upon assumptions or judgments that prove to be incorrect. In addition, Western's business and operations involve numerous risks and uncertainties, many of which are beyond Western's control, which could result in Western's expectations not being realized, or otherwise materially affect Western's financial condition, results of operations, and cash flows. Additional information relating to the uncertainties affecting Western's business is contained in the Company's filings with the Securities and Exchange Commission. The forward-looking statements are only as of the date made, and Western does not undertake any obligation to (and expressly disclaims any obligation to) update any forward-looking statements to reflect events or circumstances after the date such statements were made, or to reflect the occurrence of unanticipated events.

Consolidated Financial Data

The following tables set forth our summary historical financial and operating data for the periods indicated below:

Three Months Ended Year Ended
December 31, December 31,
2012 2011 2012 2011
(In thousands, except per share data)
Statements of Operations Data
Net sales (1) $2,248,257 $2,276,426 $9,503,134 $9,071,037
Operating costs and expenses:
Cost of products sold (exclusive of depreciation and amortization) (1) 1,710,775 1,678,103 8,054,385 7,532,423
Direct operating expenses (exclusive of depreciation and amortization) (1) 122,813 125,992 483,070 463,563
Selling, general, and administrative expenses 34,545 29,781 114,628 105,768
(Gain) loss and impairments on disposal of assets, net 450,796 (1,891) 447,166
Maintenance turnaround expense 13,763 1,107 47,140 2,443
Depreciation and amortization 24,799 30,594 93,907 135,895
Total operating costs and expenses 1,906,695 2,316,373 8,791,239 8,687,258
Operating income 341,562 (39,947) 711,895 383,779
Other income (expense):
Interest income 136 165 696 510
Interest expense and other financing costs (17,419) (33,410) (81,349) (134,601)
Amortization of loan fees (1,641) (2,057) (6,860) (8,926)
Loss on extinguishment of debt (29,695) (7,654) (34,336)
Other, net (278) 140 359 (3,898)
Income (loss) before income taxes 322,360 (104,804) 617,087 202,528
Provision for income taxes (114,773) 40,247 (218,202) (69,861)
Net income (loss) $207,587 $(64,557) $398,885 $132,667
Basic earnings (loss) per share $2.35 $(0.72) $4.42 $1.46
Diluted earnings (loss) per share (2) $1.92 $(0.72) $3.71 $1.34
Weighted average basic shares outstanding 87,589 89,285 89,270 88,981
Weighted average dilutive shares outstanding 110,250 89,285 111,822 109,792
Cash Flow Data
Net cash provided by (used in):
Operating activities $320,056 $107,649 $916,353 $508,200
Investing activities (71,418) (39,149) 18,506 (72,194)
Financing activities (304,515) (300,306) (651,721) (325,089)
Other Data
Adjusted EBITDA (3) $298,463 $144,656 $1,083,669 $786,239
Capital expenditures 71,434 39,154 202,157 83,809
Balance Sheet Data (at end of period)
Cash and cash equivalents $453,967 $170,829
Restricted cash 220,355
Working capital 559,213 544,981
Total assets 2,480,407 2,570,344
Total debt 499,863 803,990
Stockholders' equity 909,070 819,828

(1) Excludes $1,099.0 million, $4,909.4 million, $1,345.1 million, and $5,022.8 million of intercompany sales; $1,096.4 million, $4,901.5 million, $1,342.1 million, and $5,010.9 million of intercompany cost of products sold; and $2.6 million, $7.9 million, $3.0 million and $11.9 million, of intercompany direct operating expenses for the three and twelve months ended December 31, 2012 and 2011, respectively.

(2) Our computation of diluted earnings (loss) per share potentially includes our Convertible Senior Notes and our restricted shares and share units. If determined to be dilutive to period earnings, these securities are included in the denominator of our diluted earnings (loss) per share calculation. For purposes of the diluted earnings (loss) per share calculation, we assumed issuance of 0.6 million and 0.5 million restricted shares and share units for the three and twelve months ended December 31, 2012, respectively, and assumed issuance of 22.1 million shares related to the Convertible Senior Notes, respectively for both periods. We assumed issuance of 0.7 million and 0.9 million restricted shares and share units for the three and twelve months ended December 31, 2011, respectively, and assumed issuance of 19.9 million shares related to the Convertible Senior Notes, respectively for both periods.

(3) Adjusted EBITDA represents earnings before interest expense and other financing costs, amortization of loan fees, provision for income taxes, depreciation, amortization, maintenance turnaround expense, and certain other non-cash income and expense items. However, Adjusted EBITDA is not a recognized measurement under United States generally accepted accounting principles ("GAAP"). Our management believes that the presentation of Adjusted EBITDA is useful to investors because it is frequently used by securities analysts, investors, and other interested parties in the evaluation of companies in our industry. In addition, our management believes that Adjusted EBITDA is useful in evaluating our operating performance compared to that of other companies in our industry because the calculation of Adjusted EBITDA generally eliminates the effects of financings, income taxes, the accounting effects of significant turnaround activities (that many of our competitors capitalize and thereby exclude from their measures of EBITDA), and certain non-cash charges that are items that may vary for different companies for reasons unrelated to overall operating performance.

Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

  • Adjusted EBITDA does not reflect our cash expenditures or future requirements for significant turnaround activities, capital expenditures, or contractual commitments;
  • Adjusted EBITDA does not reflect the interest expense or the cash requirements necessary to service interest or principal payments on our debt;
  • Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs; and
  • Adjusted EBITDA, as we calculate it, may differ from the Adjusted EBITDA calculations of other companies in our industry, thereby limiting its usefulness as a comparative measure.

Because of these limitations, Adjusted EBITDA should not be considered a measure of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our GAAP results and using Adjusted EBITDA only supplementally. The following table reconciles net income (loss) to Adjusted EBITDA for the periods presented:

Three Months Ended Twelve Months Ended
December 31, December 31,
2012 2011 2012 2011
(In thousands)
Net income (loss) $207,587 $(64,557) $398,885 $132,667
Interest expense and other financing costs 17,419 33,410 81,349 134,601
Amortization of loan fees 1,641 2,057 6,860 8,926
Provision for income taxes 114,773 (40,247) 218,202 69,861
Depreciation and amortization 24,799 30,594 93,907 135,895
Maintenance turnaround expense 13,763 1,107 47,140 2,443
Loss and impairments on disposal of assets, net (a) 450,796 450,796
Loss on extinguishment of debt 29,695 7,654 34,336
Unrealized loss (gain) on commodity hedging transactions (b) (81,519) (298,199) 229,672 (183,286)
Adjusted EBITDA $298,463 $144,656 $1,083,669 $786,239

(a) The calculation of Adjusted EBITDA for the year ended December 31, 2011 includes the add-back of net gains and losses of $450.8 million incurred from the sale of the Yorktown refining and certain pipeline assets, and to a lesser extent the impairment of Bloomfield refining assets. We have adjusted this amount to exclude a $3.6 million gain related to the sale of platinum catalyst that was previously included in the net loss from other sales transactions. We consider the sale of catalyst to be a routine transaction occurring in the normal course of business and as such, should not be added back to net income (loss) in our calculation of Adjusted EBITDA.

(b) Adjusted EBITDA has been adjusted for the impact of net non-cash unrealized gains and losses related to our commodity hedging transactions. We believe the inclusion of this component of net income provides a better representation of Adjusted EBITDA given the non-cash and potentially volatile nature of commodity hedging.

Refining Segment
All Refineries and Related Operations
Three Months Ended Year Ended
December 31, December 31,
2012 (6) 2011 (6) 2012 (6) 2011 (6)
(In thousands, except per barrel data)
Statement of Operations Data:
Net sales (including intersegment sales) $1,923,146 $2,151,333 $8,340,178 $8,399,698
Operating costs and expenses:
Cost of products sold (exclusive of depreciation and amortization) (5) 1,446,878 1,594,655 7,133,308 7,059,210
Direct operating expenses (exclusive of depreciation and amortization) 83,123 87,670 320,659 329,237
Selling, general, and administrative expenses 7,858 7,218 27,136 27,451
(Gain) loss and impairments on disposal of assets, net 450,796 (1,382) 447,166
Maintenance turnaround expense 13,763 1,107 47,140 2,443
Depreciation and amortization 20,747 26,424 77,575 119,057
Total operating costs and expenses 1,572,369 2,167,870 7,604,436 7,984,564
Operating income (loss) $350,777 $(16,537) $735,742 $415,134
Key Operating Statistics
Total sales volume (bpd) (1) 173,726 198,826 184,086 189,339
Total refinery production (bpd) 149,842 142,437 147,461 140,124
Total refinery throughput (bpd) (2) 152,280 144,643 149,809 142,257
Per barrel of throughput:
Refinery gross margin (3) (5) $34.00 $41.83 $22.01 $25.82
Refinery gross margin excluding hedging activities (3) (5) 30.74 20.58 28.40 23.83
Gross profit (3) (5) 32.51 39.85 20.60 23.52
Direct operating expenses (4) 5.93 6.59 5.85 6.34
Southwest Refineries (El Paso and Gallup with Related Operations)
Three Months Ended Year Ended
December 31, December 31,
2012 (6) 2011 (6) 2012 (6) 2011 (6)
(In thousands, except per barrel data)
Net sales (including intersegment sales) $1,923,146 $2,146,257 $8,339,492 $8,383,594
Operating costs and expenses:
Cost of products sold (exclusive of depreciation and amortization) (5) 1,446,723 1,590,158 7,137,486 7,048,140
Direct operating expenses (exclusive of depreciation and amortization) 83,123 76,909 320,659 285,800
Selling, general, and administrative expenses 7,858 7,218 27,136 27,451
(Gain) loss and impairments on disposal of assets, net (14,829) (1,382) (14,829)
Maintenance turnaround expense 13,763 1,107 47,140 2,443
Depreciation and amortization 20,747 18,966 77,575 76,254
Total operating costs and expenses 1,572,214 1,679,529 7,608,614 7,425,259
Operating income $350,932 $466,728 $730,878 $958,335
Key Operating Statistics
Total sales volume (bpd) (1) 173,726 198,446 184,070 189,007
Total refinery production (bpd) 149,842 142,437 147,461 140,124
Total refinery throughput (bpd) (2) 152,280 144,643 149,809 142,257
Per barrel of throughput:
Refinery gross margin (3) (5) $34.01 $41.79 $21.92 $25.72
Refinery gross margin excluding hedging activities (3) (5) 30.75 20.54 28.31 23.73
Gross profit (3) (5) 32.53 40.36 20.51 24.25
Direct operating expenses (4) 5.93 5.78 5.85 5.50
All Refineries (El Paso and Gallup)
Three Months Ended Year Ended
December 31, December 31,
2012 2011 2012 2011
Key Operating Statistics
Refinery product yields (bpd):
Gasoline 78,516 75,300 76,536 74,224
Diesel and jet fuel 61,497 57,548 61,224 57,037
Residuum 5,873 5,373 5,655 5,219
Other 3,956 4,216 4,046 3,644
Total refinery production (bpd) 149,842 142,437 147,461 140,124
Refinery throughput (bpd):
Sweet crude oil 119,187 114,246 115,345 113,347
Sour or heavy crude oil 26,665 20,776 24,792 19,876
Other feedstocks and blendstocks 6,428 9,621 9,672 9,034
Total refinery throughput (bpd) (2) 152,280 144,643 149,809 142,257
El Paso Refinery
Three Months Ended Year Ended
December 31, December 31,
2012 2011 2012 2011
Key Operating Statistics
Refinery product yields (bpd):
Gasoline 64,637 59,638 61,669 58,236
Diesel and jet fuel 55,056 50,729 54,600 50,211
Residuum 5,873 5,373 5,655 5,219
Other 3,417 3,483 3,280 2,882
Total refinery production (bpd) 128,983 119,223 125,204 116,548
Refinery throughput (bpd):
Sweet crude oil 98,184 92,683 94,404 91,589
Sour crude oil 26,665 20,776 24,792 19,876
Other feedstocks and blendstocks 5,936 7,403 7,734 6,680
Total refinery throughput (bpd) (2) 130,785 120,862 126,930 118,145
Total sales volume (bpd) (1) 142,671 165,285 151,352 155,196
Per barrel of throughput:
Refinery gross margin (3) (5) $30.77 $20.71 $28.25 $23.18
Direct operating expenses (4) 4.36 4.84 4.50 4.50
Gallup Refinery
Three Months Ended Year Ended
December 31, December 31,
2012 2011 2012 2011
Key Operating Statistics
Refinery product yields (bpd):
Gasoline 13,879 15,662 14,867 15,988
Diesel and jet fuel 6,441 6,819 6,624 6,826
Other 539 733 766 762
Total refinery production (bpd) 20,859 23,214 22,257 23,576
Refinery throughput (bpd):
Sweet crude oil 21,003 21,563 20,941 21,758
Other feedstocks and blendstocks 492 2,218 1,938 2,354
Total refinery throughput (bpd) (2) 21,495 23,781 22,879 24,112
Total sales volume (bpd) (1) 31,055 33,161 32,718 33,811
Per barrel of throughput:
Refinery gross margin (3) (5) $30.26 $19.47 $28.25 $26.05
Direct operating expenses (4) 11.43 8.27 9.60 8.27

(1) Sales volume includes sales of refined products sourced primarily from our refinery production as well as refined products purchased from third parties. We purchase additional refined products from third parties to supplement supply to our customers. These products are similar to the products that we currently manufacture and represented 13.83% and 14.78% of our total consolidated sales volumes for the years ended December 31, 2012 and 2011, respectively. The majority of the purchased refined products are distributed through our wholesale refined product sales activities in the Mid-Atlantic region where we satisfy our refined product customer sales requirements through a third-party supply agreement.

(2) Total refinery throughput includes crude oil, other feedstocks, and blendstocks.

(3) Refinery gross margin is a per barrel measurement calculated by dividing the difference between net sales and cost of products sold by our refineries' total throughput volumes for the respective periods presented. Net realized and net non-cash unrealized economic hedging gains and losses included in the combined refining segment gross margin are not allocated to the individual refineries. Cost of products sold does not include any depreciation or amortization. Refinery gross margin is a non-GAAP performance measure that we believe is important to investors in evaluating our refinery performance as a general indication of the amount above our cost of products that we are able to sell refined products. Each of the components used in this calculation (net sales and cost of products sold) can be reconciled directly to our statement of operations. Our calculation of refinery gross margin may differ from similar calculations of other companies in our industry, thereby limiting its usefulness as a comparative measure.

The following table reconciles combined gross profit for all refineries to combined gross margin for all refineries for the periods presented:

Three Months Ended Year Ended
December 31, December 31,
2012 2011 2012 2011
(In thousands, except per barrel data)
Net sales (including intersegment sales) $1,923,146 $2,151,333 $8,340,178 $8,399,698
Cost of products sold (exclusive of depreciation and amortization) 1,446,878 1,594,655 7,133,308 7,059,210
Depreciation and amortization 20,747 26,424 77,575 119,057
Gross profit 455,521 530,254 1,129,295 1,221,431
Plus depreciation and amortization 20,747 26,424 77,575 119,057
Refinery gross margin $476,268 $556,678 $1,206,870 $1,340,488
Refinery gross margin per refinery throughput barrel (4) $34.00 $41.83 $22.01 $25.82
Gross profit per refinery throughput barrel (4) $32.51 $39.85 $20.60 $23.52

The following table reconciles gross profit for our Southwest refineries to combined gross margin for our Southwest refineries for the periods presented:

Three Months Ended Year Ended
December 31, December 31,
2012 2011 2012 2011
(In thousands, except per barrel data)
Net sales (including intersegment sales) $1,923,146 $2,146,257 $8,339,492 $8,383,594
Cost of products sold (exclusive of depreciation and amortization) 1,446,723 1,590,158 7,137,486 7,048,140
Depreciation and amortization 20,747 18,966 77,575 76,254
Gross profit 455,676 537,133 1,124,431 1,259,200
Plus depreciation and amortization 20,747 18,966 77,575 76,254
Refinery gross margin $476,423 $556,099 $1,202,006 $1,335,454
Refinery gross margin per refinery throughput barrel (4) $34.01 $41.79 $21.92 $25.72
Gross profit per refinery throughput barrel (4) $32.53 $40.36 $20.51 $24.25
(4) Refinery direct operating expenses per throughput barrel is calculated by dividing direct operating expenses by total throughput volumes for the respective periods presented. Direct operating expenses do not include any depreciation or amortization.
(5) Cost of products sold for the combined refining segment includes the net realized and net non-cash unrealized hedging activity shown in the table below. The hedging gains and losses are also included in the combined gross profit and refinery gross margin but are not included in those measures for the individual refineries.
Three Months Ended Year Ended
December 31, December 31,
2012 2011 2012 2011
(In thousands)
Realized hedging loss, net $(35,932) $(16,445) $(120,805) $(78,995)
Unrealized hedging gain (loss), net 81,519 299,266 (229,672) 182,343
Total hedging gain (loss), net $45,587 $282,821 $(350,477) $103,348
(6) The difference between the total refining financial data and our Southwest refining financial data represents the sale of refined products associated with the Yorktown operations. We sold 5,707 barrels of feedstocks during 2012 and 120,783 barrels during 2011.
Wholesale Segment
Three Months Ended Year Ended
December 31, December 31,
2012 2011 (3) 2012 2011 (3)
(In thousands, except per gallon data)
Statement of Operations Data
Net sales (including intersegment sales) $1,120,455 $1,200,003 $4,860,291 $4,753,790
Operating costs and expenses:
Cost of products sold (exclusive of depreciation and amortization) 1,091,538 1,182,818 4,748,077 4,645,851
Direct operating expenses (exclusive of depreciation and amortization) 15,176 16,599 67,491 65,829
Selling, general, and administrative expenses 2,800 3,185 10,407 11,177
Gain on disposal of assets, net (509)
Depreciation and amortization 988 1,055 3,814 4,312
Total operating costs and expenses 1,110,502 1,203,657 4,829,280 4,727,169
Operating income (loss) $9,953 $(3,654) $31,011 $26,621
Operating Data
Fuel gallons sold 356,183 401,306 1,520,581 1,543,173
Fuel gallons sold to retail 62,937 35,038 244,906 213,137
Average fuel sales price per gallon $3.28 $3.12 $3.32 $3.22
Average fuel cost per gallon 3.21 3.10 3.27 3.17
Fuel margin per gallon (1) 0.08 0.03 0.07 0.06
Lubricant gallons sold 2,811 2,726 11,492 10,823
Average lubricant sales price per gallon $11.11 $11.46 $11.15 $10.85
Average lubricant cost per gallon 10.06 10.30 10.05 9.60
Lubricant margin (2) 9.5% 10.1% 9.9% 11.5%
Realized hedging gain (loss) $— $(1,201) $(23,643) $2,962
Unrealized hedging gain (loss) (1,067) 943
Three Months Ended Year Ended
December 31, December 31,
2012 2011 (3) 2012 2011 (3)
(In thousands, except per gallon data)
Net Sales
Fuel sales (including intersegment sales) $1,167,674 $1,251,983 $5,054,987 $4,971,199
Excise taxes included in fuel sales (85,861) (90,838) (355,957) (366,393)
Lubricant sales 31,232 31,236 128,171 117,478
Other sales (including intersegment sales) 7,410 7,622 33,090 31,506
Net sales $1,120,455 $1,200,003 $4,860,291 $4,753,790
Cost of Products Sold
Fuel cost of products sold $1,144,503 $1,242,044 $4,970,965 $4,895,302
Excise taxes included in fuel cost of products sold (85,861) (90,838) (355,957) (366,393)
Lubricant cost of products sold 28,269 28,075 115,540 103,925
Other cost of products sold 4,627 3,537 17,529 13,017
Cost of products sold $1,091,538 $1,182,818 $4,748,077 $4,645,851
Fuel margin per gallon (1) $0.08 $0.03 $0.07 $0.06

(1) Fuel margin per gallon is a measurement calculated by dividing the difference between fuel sales and cost of fuel sales for our wholesale segment by the number of gallons sold. Fuel margin per gallon is a measure frequently used in the petroleum products wholesale industry to measure operating results related to fuel sales.

(2) Lubricant margin is a measurement calculated by dividing the difference between lubricant sales and lubricant cost of products sold by lubricant sales. Lubricant margin is a measure frequently used in the petroleum products wholesale industry to measure operating results related to lubricant sales.

(3) Our wholesale segment began selling finished product through our Yorktown facility during January 2011. The finished products sold through our Yorktown facility were purchased from third parties. Net sales of $347.3 million and $1,338.7 million, cost of products sold of $353.2 million and $1,327.6 million, and direct operating costs of $1.6 million and $6.8 million for the three and nine months ended December 31, 2011, respectively, were from new wholesale activities through our Yorktown facility with no comparable activity in the prior periods.

Retail Segment
Three Months Ended Year Ended
December 31, December 31,
2012 2011 2012 2011
(In thousands, except per gallon data)
Statement of Operations Data
Net sales (including intersegment sales) $303,672 $270,232 $1,212,070 $940,395
Operating costs and expenses:
Cost of products sold (exclusive of depreciation and amortization) 268,835 242,733 1,074,532 838,247
Direct operating expenses (exclusive of depreciation and amortization) 27,054 24,762 102,793 80,458
Selling, general, and administrative expenses 2,194 2,297 8,161 7,329
Depreciation and amortization 2,615 2,421 10,473 9,653
Total operating costs and expenses 300,698 272,213 1,195,959 935,687
Operating income (loss) $2,974 $(1,981) $16,111 $4,708
Operating Data
Fuel gallons sold 75,024 70,296 291,244 230,429
Average fuel sales price per gallon $3.47 $3.27 $3.56 $3.44
Average fuel cost per gallon 3.27 3.12 3.36 3.27
Fuel margin per gallon (1) 0.20 0.15 0.20 0.17
Merchandise sales $61,481 $56,402 $248,023 $204,998
Merchandise margin (2) 28.5% 27.2% 29.0% 28.0%
Operating retail outlets at period end (3) 222 209
Three Months Ended Year Ended
December 31, December 31,
2012 2011 2012 2011
(In thousands, except per gallon data)
Net Sales
Fuel sales (including intersegment sales) $260,294 $229,810 $1,036,404 $792,502
Excise taxes included in fuel sales (29,091) (23,498) (111,805) (83,255)
Merchandise sales 61,481 56,402 248,023 204,998
Other sales 10,988 7,518 39,448 26,150
Net sales $303,672 $270,232 $1,212,070 $940,395
Costs of Products Sold
Fuel cost of products sold $245,105 $219,260 $978,979 $753,487
Excise taxes included in fuel cost of products sold (29,091) (23,498) (111,805) (83,255)
Merchandise cost of products sold 43,988 41,033 176,215 147,692
Other cost of products sold 8,833 5,938 31,143 20,323
Cost of products sold $268,835 $242,733 $1,074,532 $838,247
Fuel margin per gallon (1) $0.20 $0.15 $0.20 $0.17

(1) Fuel margin per gallon is a measurement calculated by dividing the difference between fuel sales and cost of fuel sales for our retail segment by the number of gallons sold. Fuel margin per gallon is a measure frequently used in the convenience store industry to measure operating results related to fuel sales.

(2) Merchandise margin is a measurement calculated by dividing the difference between merchandise sales and merchandise cost of products sold by merchandise sales. Merchandise margin is a measure frequently used in the convenience store industry to measure operating results related to merchandise sales.

(3) During the twelve months ended December 31, 2012, we added 13 retail outlets. We did not add any retail outlets during the fourth quarter of 2012.

Reconciliation of Special Items

We present certain additional financial measures below that are non-GAAP measures within the meaning of Regulation G under the Securities Exchange Act of 1934.

We present these non-GAAP measures to provide investors with additional information to analyze our performance from period to period. We believe it is useful for investors to understand our financial performance excluding these special items so that investors can see the operating trends underlying our business. Investors should not consider these non-GAAP measures in isolation from, or as a substitute for, the financial information that we report in accordance with GAAP. These non-GAAP measures reflect subjective determinations by management and may differ from similarly titled non-GAAP measures presented by other companies.

Three Months Ended Year Ended
December 31, December 31,
2012 2011 2012 2011
(In thousands, except per share data)
Reported diluted earnings (loss) per share $1.92 $(0.72) $3.71 $1.34
Earnings (loss) before income taxes $322,360 $(104,804) $617,087 $202,528
Loss and impairments on disposal of assets, net 450,796 450,796
Unrealized (gain) loss from hedging future production (81,519) (298,199) 229,672 (183,286)
Loss on extinguishment of debt 29,695 7,654 34,336
Earnings before income taxes excluding special items 240,841 77,488 854,413 504,374
Recomputed income taxes after special items (85,161) (26,729) (302,120) (173,981)
Net income excluding special items $155,680 $50,759 $552,293 $330,393
Diluted earnings per share excluding special items $1.45 $0.50 $5.08 $3.14

CONTACT: Investor and Analyst Contact: Jeffrey S. Beyersdorfer (602) 286-1530 Media Contact: Gary W. Hanson (602) 286-1777

Source:Western Refining, Inc.