EL PASO, Texas, Nov. 4, 2010 (GLOBE NEWSWIRE) -- Western Refining, Inc. (NYSE:WNR) today reported net income of $6.9 million, or $0.08 per diluted share, for the third quarter of 2010 versus a net loss of $4.8 million, or $0.05 per diluted share, for the same period in 2009. Excluding special items, net income was $11.4 million, or $0.13 per share for the third quarter of 2010 versus a net loss of $8.7 million or $0.10 per share for the prior year period. A reconciliation of net income (loss) to net income (loss) excluding special items, for all periods shown, is included in the accompanying financial tables.
The year-over-year improvement reflects higher refining margins and the continued gains generated from the Company's 2010 cost savings initiatives. Western's Southwest refineries generated strong gross margins per barrel during the quarter with the El Paso refinery improving 21% and the Four Corners refinery improving 38% relative to the third quarter of 2009. Western's Retail business had a record quarter, posting operating income of $7.6 million, an increase of 13% as compared to the prior year quarter, driven by increases in fuel and merchandise volumes. In addition, the Company's Wholesale business performed well due to increased lubricants margins and improving demand for both fuels and lubricants.
Jeff Stevens, Western's Chief Executive Officer, said, "We are very pleased to report another profitable quarter. Our refineries ran well and we believe refining margins at our Southwest refineries continued to be some of the strongest in the U.S. We are optimistic about the fourth quarter due to the strength in diesel margins which offset the weaker gasoline margins that we typically see this time of year. Overall, both gasoline and diesel margins are significantly stronger than the fourth quarter of 2009."
During the third quarter, Western announced the safe and successful completion of the shutdown of its Yorktown refining operations and generated $56 million in cash from the partial liquidation of working capital. The Company also incurred costs of $4 million during the quarter related to the shutdown. Western continues to operate the products terminal and is supplying finished products to its local customers. Western is currently negotiating with a number of interested parties regarding strategic alternatives for Yorktown, including third-party storage and terminalling or the sale of the terminal assets.
Western continues to benefit from the successful implementation of the Four Corners refinery consolidation and other cost reductions announced in 2009. These initiatives had an initial target of $50 million in annualized savings starting in 2010.
"Our focus on the cost savings initiatives continues to show results," continued Stevens. "We are on track to exceed our target of $50 million in annualized cost savings and we continue to take the necessary steps to actively manage our business in a prudent and fiscally responsible manner."
Cash flow from operations during the quarter was $239.6 million and capital expenditures were $20 million. The Company reduced total debt by $159.2 million during the quarter, primarily related to the revolving credit facility, and ended the period with a cash balance of $77.5 million.
In conclusion, Stevens stated, "We are pleased with the earnings potential of our assets and are continuing to be pro-active to ensure we are running our operations in a safe, reliable, and cost effective manner, which we believe will allow us to remain profitable in these market conditions."
Conference Call Information
A conference call is scheduled for November 4, 2010, at 10:00 a.m. ET to discuss Western's financial results. The call can be accessed at Western's website, www.wnr.com. The call can also be heard by dialing (866) 566-8590, passcode: 94459083. The audio replay will be available through November 11, 2010, by dialing (800) 642-1687, passcode: 94459083.
A copy of this press release, together with the reconciliations of certain non-GAAP financial measures contained herein, can be accessed on the investor relations menu on Western's website, www.wnr.com.
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 goodwill and other impairment losses from our results of operations for the third quarter of 2010 and the second quarter of 2009. We have also excluded third quarter 2010 charges related to the suspension of our refining operations at the Yorktown facility. We have excluded these amounts to better analyze changes in our business from period-to-period as these are non-recurring charges.
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 refined products terminals in Albuquerque and Bloomfield, New Mexico and Yorktown, Virginia, asphalt terminals in Phoenix and Tucson, Arizona, Albuquerque, and El Paso, retail service stations and convenience stores in Arizona, Colorado, and New Mexico, a fleet of crude oil and finished product truck transports, and wholesale petroleum products operations in Arizona, California, Colorado, Nevada, New Mexico, Texas, and Utah. More information about the Company is available at .
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. The forward-looking statements contained herein include statements about demand for our products, our expectations for diesel and gasoline margins, potential strategic alternatives for the Yorktown refinery, expected cost savings from initiatives we are pursuing, and our expectations regarding our future profitability. These statements are subject to the general risks inherent in our business and reflect our current expectations regarding these matters. 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, our business and operations involve numerous risks and uncertainties, many of which are beyond our control, which could result in our expectations not being realized or otherwise materially affect our financial condition, results of operations and cash flows. For additional information relating to the uncertainties affecting our business you are referred to our filings with the Securities and Exchange Commission. The forward-looking statements are only as of the date made, and we do not undertake any obligation to (and expressly disclaim 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 of historical and financial and operating data for the periods indicated below:
(1) Excludes $833.2 million, $583.7 million, $2,317.0 million, and $1,450.6 million of intercompany sales; $831.6 million, $582.3 million, $2,312.6 million, and $1,446.4 million of intercompany cost of products sold; and $1.6 million, $1.4 million, $4.4 million, and $4.2 million of intercompany direct operating expenses for the three and nine months ended September 30, 2010 and 2009, respectively.
(2) Adjusted EBITDA represents earnings before interest expense, income tax expense, amortization of loan fees, depreciation, amortization, maintenance turnaround expense, LCM inventory reserve adjustments, and goodwill and other impairment losses. However, Adjusted EBITDA is not a recognized measurement under 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, and the accounting effects of significant turnaround activities (which many of our competitors capitalize and thereby exclude from their measures of EBITDA) and acquisitions, 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
- our calculation of Adjusted EBITDA 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:
The following tables present the segment financial data for our refining group, including other revenues and expenses not specific to a particular refinery:
The following tables set forth our summary refining throughput and production data for the periods presented below:
(1) Cost of products sold for the three and nine months ended September 30, 2009 included non‑cash LCM recovery adjustments of $11.7 million and $61.0 million, respectively, related to valuing our Yorktown inventories to net realizable market values. These non‑cash adjustments resulted in a corresponding increase of $0.57 and $1.01 in combined refinery gross margin per throughput barrel for the three and nine months ended September 30, 2009, respectively. The increase in Yorktown's gross margin was $1.97 and $3.38 for the three and nine months ended September 30, 2009, respectively. Also included in cost of products sold for the three and nine months ended September 30, 2009 are $0.7 million and $13.3 million, respectively, in economic hedging losses previously reported in gain (loss) from derivative activities in the Condensed Consolidated Statements of Operations.
(2) Includes sales of refined products sourced from our refinery production as well as refined products purchased from third parties.
(3) Total refinery throughput includes crude oil, other feedstocks, and blendstocks.
(4) 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. 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 gross profit to refinery gross margin for the periods presented:
(5) 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.
(6) In late November 2009, we consolidated refining operations in the Four Corners region and indefinitely suspended refining operations at our Bloomfield refinery. Refinery production, throughput, and sales volumes for the three and nine months ended September 30, 2010 reflect production and sales of refined products at the Gallup refinery only.
(7) In early September 2010, we suspended refining operations at our Yorktown refinery. We calculated the refinery production, throughput, and sales volumes for the three and nine months ended September 30, 2010 by dividing total volumes for the period by 92 and 273 days, respectively.
(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.
(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.
Reconciliation of Special Items
We present below certain additional financial measures that are non-GAAP measures within the meaning of Regulation G under the Securities and 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.
(1) During the third quarter of 2010, we ceased operating our refined products distribution terminal located in Flagstaff, Arizona. The Company's impairment analysis resulted in pre-tax and after-tax impairment loss of $4.0 million and $2.3 million, respectively.
During the second quarter of 2009, we determined that the goodwill in four of our six reporting units was impaired, which resulted in pre-tax and after-tax goodwill impairment loss of $299.6 million in that quarter. The goodwill impairment loss is included in the refining, retail, and wholesale segments' operating income but is excluded from the operating results presented here in order to make that information comparable between periods.
(2) During the fourth quarter of 2008, we recorded an adjustment to reduce the carrying value of our inventories to the lower of cost or market, which resulted in a pre-tax increase of cost of products sold of $61.0 million. During the third quarter of 2009 reversing adjustments to value our inventories at the lower of cost or market were recorded, which resulted in a pre-tax decrease in cost of products sold of $11.7 million and $61.0 million for the three and nine months ended September 30, 2009, respectively ($4.0 million and $46.1 million after tax). This charge and reversal are included in the refining segment's operating income, but are excluded from the operating results presented here in order to make that information comparable between periods.
(3) During the third quarter of 2010, we temporarily suspended refining operations at our Yorktown facility. In connection with this change in operations, we recorded one-time termination benefits of $3.0 million and other refinery costs relating to the suspension of operations at Yorktown of $1.0 million. These were non-recurring charges. We expect to incur additional costs during the fourth quarter of 2010.
CONTACT: Western Refining, Inc. Investor and Analyst Contact: Jeffrey S. Beyersdorfer Media Contact: Gary Hanson (915) 534-1400