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Form 8-K Western Refining, Inc. For: Nov 03

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November 3, 2015 6:04 AM EST


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 8-K
 
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 3, 2015
 
WESTERN REFINING, INC.
(Exact name of Registrant as specified in its charter)
 
 
 
 
 
 
 
Delaware
 
001-32721
 
20-3472415
(State or other jurisdiction
of incorporation)
 
(Commission
File Number)
 
(IRS Employer
Identification Number)
123 West Mills Ave., Suite 200
El Paso, Texas 79901
(Address of principal executive offices)
(915) 534-1400
(Registrant’s telephone number, including area code)
 
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
¨
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))







Item 2.02
Results of Operations and Financial Condition.
On November 3, 2015, Western Refining, Inc. (“Western” or the “Company”) issued a press release announcing its results of operations for the third quarter ended September 30, 2015. A copy of the press release and earnings presentation are attached hereto as Exhibit 99.1 and Exhibit 99.2, respectively, and are incorporated herein by reference.

The information contained in this Current Report on Form 8-K (including the exhibit) is being furnished and shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that Section. The information contained in this Current Report on Form 8-K shall not be incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in any such filing.

Item 9.01
Financial Statements and Exhibits

(d)
Exhibits
Exhibit No.
 
Description
99.1
 
Press Release, dated November 3, 2015.
99.2
 
Earnings Presentation, dated November 3, 2015.




SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
 
WESTERN REFINING, INC.
 
 
By:
/s/ Gary R. Dalke
Name:
Gary R. Dalke
Title:
Chief Financial Officer
Dated: November 3, 2015




EXHIBIT INDEX
 
Exhibit No.
  
Description
99.1
  
Press Release, dated November 3, 2015.
99.2
 
Earnings Presentation, dated November 3, 2015.




FOR IMMEDIATE RELEASE
Exhibit 99.1
 
 
Investor and Analyst Contact:
Media Contact:
Jeffrey S. Beyersdorfer
Gary W. Hanson
(602) 286-1530
(602) 286-1777
 
 
Michelle Clemente
 
(602) 286-1533
 

WESTERN REFINING ANNOUNCES THIRD QUARTER 2015 RESULTS

EL PASO, Texas - November 3, 2015 - Western Refining, Inc. (NYSE: WNR) today reported results for its third quarter ended September 30, 2015. Net income attributable to Western, excluding special items, was $160 million, or $1.69 per diluted share. This compares to third quarter 2014 net income, excluding special items, of $175.3 million, or $1.73 per diluted share. Including special items, the Company recorded third quarter 2015 net income attributable to Western of $153.3 million, or $1.61 per diluted share, as compared to net income attributable to Western of $186.7 million, or $1.84 per diluted share for the third quarter of 2014. 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, "This was another excellent quarter operationally and financially for all of our business segments. Our financial results benefited from solid overall margin performance and a continued focus on cost control. The El Paso refinery had an outstanding quarter operationally, with expense per barrel results being one of the lowest quarters on record. In our Retail business, we saw an increase in same store fuel volumes, fuel margins, and merchandise sales, resulting in a record quarter from a profit perspective. NTI and WNRL also performed well in the quarter, which contributed to our outstanding financial results."
Western paid a dividend of $0.34 per share of common stock to shareholders in the third quarter. In October, Western's Board of Directors approved a $0.38 per share dividend for the fourth quarter. Including the fourth quarter dividend, Western will have returned approximately $234 million to shareholders through dividends and share repurchases in 2015.
Looking forward, Stevens said, "The fourth quarter has started off well. We just completed the sale of the TexNew Mex pipeline to WNRL for $180 million. Construction of Phase One of the Bobcat pipeline is complete and now gives us the ability to move crude oil to Midland and the US Gulf Coast. We also announced a proposal to purchase all of the remaining publicly-held units of NTI. Finally, the refining margin environment has been good during October and we still see strong demand for gasoline and diesel in our region."

Conference Call Information
A conference call is scheduled for Tuesday, November 3, 2015, at 10:00 am ET to discuss Western's financial results for the third quarter ended September 30, 2015. A slide presentation, which includes our quarterly guidance, will 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: 47810509. The audio replay will be available two hours after the end of the call through November 17, 2015, by dialing (800) 585-8367 or (404) 537-3406, passcode: 47810509.




Non-GAAP Financial Measures
In a number of places in the press release and related tables, we have excluded certain income and expense items from GAAP measures. The excluded items are generally non-cash in nature such as unrealized net gains and losses from commodity hedging activities or losses on disposal of assets; however, other items that have a cash impact, such as gains on disposal of assets are also excluded. We believe it is useful for investors and financial analysts to understand our financial performance excluding such items so that they can see the operating trends underlying our business. Readers of this press release 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. The refining segment operates refineries in El Paso, and Gallup, New Mexico. The retail segment includes retail service stations, convenience stores, and unmanned fleet fueling locations in Arizona, Colorado, New Mexico, and Texas.
Western Refining, Inc. owns the general partner and approximately 66% of the limited partnership interest of Western Refining Logistics, LP (NYSE:WNRL) and the general partner and approximately 38% of the limited partnership interest in Northern Tier Energy LP (NYSE:NTI).
More information about Western Refining is available at www.wnr.com.
Cautionary Statement on Forward-Looking Statements
This press release contains forward-looking statements which are protected by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements reflect Western’s current expectations regarding future events, results or outcomes. The forward-looking statements contained herein include statements about: financial results for the fourth quarter of 2015; the ability of the Bobcat pipeline to move crude oil to Midland and the US Gulf Coast; Western’s proposal to acquire all of the remaining publicly-held common units of NTI; refining margins; gasoline and diesel demand; and the positioning of Western’s refineries to capture refining margins through the end of the year. These statements are subject to the general risks inherent in Western’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 its 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 its filings with the Securities and Exchange Commission to which you are referred. The forward-looking statements are only as of the date made. Except as required by law, 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
We report our operating results in four business segments: refining, NTI, WNRL and retail.
•
Our refining segment owns and operates two refineries in the Southwest that process crude oil and other feedstocks primarily into gasoline, diesel fuel, jet fuel and asphalt. Our refining segment also owns and operates certain logistics assets including a 375 mile section of the TexNew Mex Pipeline system that extends from WNRL's crude oil station in Star Lake, New Mexico, in the Four Corners region to its T station in Eddy County, New Mexico. We market refined products to a diverse customer base including wholesale distributors and retail chains. The refining segment also sells refined products in the Mid-Atlantic region and Mexico.
•
NTI owns and operates refining and transportation assets and operates and supports retail convenience stores primarily in Minnesota and Wisconsin.
•
WNRL owns and operates terminal, storage and transportation assets and provides related services primarily to our refining segment in the Southwest. The WNRL segment also includes wholesale assets consisting of a fleet of crude oil and refined product truck transports and wholesale petroleum product and lubricant distribution operations in the Southwest region. WNRL receives its product supply from the refining segment and third-party suppliers.
•
Our retail segment operates retail convenience stores and unmanned commercial fleet fueling ("cardlock") locations located in the Southwest. The retail convenience stores sell gasoline, diesel fuel and convenience store merchandise.
The following tables set forth our unaudited summary historical financial and operating data for the periods indicated below:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
 
(Unaudited)
 
 
(In thousands, except per share data)
Statements of Operations Data
 
 
 
 
 
 
 
Net sales (1)
$
2,569,090

 
$
4,052,324

 
$
7,716,712

 
$
12,128,757

Operating costs and expenses:
 
 
 
 
 
 
 
Cost of products sold (exclusive of depreciation and amortization) (1)
1,895,772

 
3,379,555

 
5,814,969

 
10,271,461

Direct operating expenses (exclusive of depreciation and amortization) (1)
234,440

 
218,183

 
674,474

 
619,995

Selling, general and administrative expenses
54,465

 
57,206

 
169,808

 
170,578

Affiliate severance costs
—

 
—

 
—

 
12,878

Loss (gain) on disposal of assets, net
(52
)
 
(66
)
 
(157
)
 
939

Maintenance turnaround expense
490

 
1,883

 
1,188

 
48,329

Depreciation and amortization
51,377

 
46,910

 
152,446

 
141,168

Total operating costs and expenses
2,236,492

 
3,703,671

 
6,812,728

 
11,265,348

Operating income
332,598

 
348,653

 
903,984

 
863,409

Other income (expense):
 
 
 
 
 
 
 
Interest income
186

 
483

 
550

 
899

Interest expense and other financing costs
(26,896
)
 
(18,250
)
 
(79,169
)
 
(75,008
)
Loss on extinguishment of debt
—

 
—

 
—

 
(9
)
Other, net
4,327

 
(2,816
)
 
11,557

 
(351
)
Income before income taxes
310,215

 
328,070

 
836,922

 
788,940

Provision for income taxes
(92,117
)
 
(80,713
)
 
(229,989
)
 
(223,319
)
Net income
218,098

 
247,357

 
606,933

 
565,621

Less net income attributable to non-controlling interests (2)
64,795

 
60,608

 
213,722

 
136,630

Net income attributable to Western Refining, Inc.
$
153,303

 
$
186,749

 
$
393,211

 
$
428,991

 
 
 
 
 
 
 
 
Basic earnings per share
$
1.61

 
$
1.85

 
$
4.12

 
$
4.86

Diluted earnings per share
1.61

 
1.84

 
4.12

 
4.28

Dividends declared per common share
0.34

 
0.26

 
0.98

 
0.78

 
 
 
 
 
 
 
 
Weighted average basic shares outstanding
94,826

 
101,199

 
95,308

 
88,240

Weighted average dilutive shares outstanding (3)
94,924

 
101,325

 
95,408

 
102,207






 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
 
(Unaudited)
 
(In thousands)
Economic Hedging Activities Recognized Within Cost of Products Sold
 
 
 
 
 
 
 
Realized hedging gain, net
$
26,949

 
$
26,716

 
$
52,325

 
$
44,272

Unrealized hedging gain (loss), net
271

 
17,020

 
(42,073
)
 
136,371

Total hedging gain, net
$
27,220

 
$
43,736

 
$
10,252

 
$
180,643

 
 
 
 
 
 
 
 
Cash Flow Data
 
 
 
 
 
 
 
Net cash provided by (used in):
 
 
 
 
 
 
 
Operating activities
$
373,620

 
$
208,959

 
$
665,664

 
$
494,058

Investing activities
(20,321
)
 
(46,875
)
 
(34,454
)
 
(142,036
)
Financing activities
(187,665
)
 
(43,743
)
 
(352,799
)
 
(169,938
)
Capital expenditures
$
76,431

 
$
49,923

 
$
195,976

 
$
147,254

Cash distributions received by Western from:
 
 
 
 
 
 
 
NTI
$
42,391

 
$
18,880

 
$
98,318

 
$
60,914

WNRL
11,630

 
9,167

 
32,845

 
25,210

Other Data
 
 
 
 
 
 
 
Adjusted EBITDA (4)
$
425,450

 
$
378,027

 
$
1,094,510

 
$
918,022

Balance Sheet Data (at end of period)
 
 
 
 
 
 
 
Cash and cash equivalents
 
 
 
 
$
709,570

 
$
650,154

Restricted cash
 
 
 
 
12,328

 
—

Working capital
 
 
 
 
1,137,952

 
1,078,164

Total assets
 
 
 
 
5,881,886

 
5,863,884

Total debt and lease financing obligation
 
 
 
 
1,595,650

 
1,279,435

Total equity
 
 
 
 
3,032,495

 
3,127,805

(1)
Excludes $885.2 million, $2,517.3 million, $1,193.0 million and $3,487.8 million of intercompany sales and $885.2 million, $2,517.3 million, $1,189.0 million and $3,475.5 million of intercompany cost of products sold for three and nine months ended September 30, 2015 and 2014, respectively, and $4.0 million and $12.3 million of intercompany direct operating expenses for the three and nine months ended September 30, 2014, respectively, with no comparable activity for three and nine months ended September 30, 2015.
(2)
Net income attributable to non-controlling interests for the three and nine months ended September 30, 2015, consisted of income from NTI and WNRL in the amount of $59.2 million, $197.6 million, $5.6 million and $16.2 million, respectively. Net income attributable to non-controlling interests for the three and nine months ended September 30, 2014, consisted of income from NTI and WNRL in the amount of $56.4 million, $124.8 million, $4.3 million and $11.8 million, respectively.
(3)
Our computation of diluted earnings per share includes our Convertible Senior Unsecured Notes and any unvested restricted shares units. If determined to be dilutive to period earnings, these securities are included in the denominator of our diluted earnings per share calculation. For purposes of the diluted earnings per share calculation, we assumed issuance of 0.1 million restricted share units for the three and nine months ended September 30, 2015. We assumed issuance of 0.1 million restricted share units for both the three and nine months ended September 30, 2014 and 13.8 million shares related to the Convertible Senior Unsecured Notes for the nine months ended September 30, 2014.
(4)
Adjusted EBITDA represents earnings before interest expense and other financing costs, 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 U.S. 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.
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
 
(Unaudited)
 
 (In thousands)
Net income attributable to Western Refining, Inc.
$
153,303

 
$
186,749

 
$
393,211

 
$
428,991

Net income attributable to non-controlling interest
64,795

 
60,608

 
213,722

 
136,630

Interest expense and other financing costs
26,896

 
18,250

 
79,169

 
75,008

Provision for income taxes
92,117

 
80,713

 
229,989

 
223,319

Loss (gain) on disposal of assets, net
(52
)
 
(66
)
 
(157
)
 
939

Depreciation and amortization
51,377

 
46,910

 
152,446

 
141,168

Maintenance turnaround expense
490

 
1,883

 
1,188

 
48,329

Loss on extinguishment of debt
—

 
—

 
—

 
9

Net change in lower of cost or market inventory reserve
36,795

 
—

 
(17,131
)
 
—

Unrealized loss (gain) on commodity hedging transactions
(271
)
 
(17,020
)
 
42,073

 
(136,371
)
Adjusted EBITDA
$
425,450

 
$
378,027

 
$
1,094,510

 
$
918,022

 
 
 
 
 
 
 
 
EBITDA by Reporting Entity
 
 
 
 
 
 
 
Western Adjusted EBITDA
$
233,954

 
$
248,943

 
$
623,097

 
$
593,594

NTI Adjusted EBITDA
163,826

 
112,991

 
392,711

 
278,801

WNRL EBITDA
27,670

 
16,093

 
78,702

 
45,627

Consolidated Adjusted EBITDA
$
425,450

 
$
378,027

 
$
1,094,510

 
$
918,022






 
Three Months Ended
 
September 30,
 
2015
 
Western
 
NTI
 
WNRL
 
(Unaudited)
 
 (In thousands)
Net income attributable to Western Refining, Inc.
$
102,279

 
$
40,117

 
$
10,907

Net income attributable to non-controlling interest
—

 
59,209

 
5,586

Interest expense and other financing costs
13,960

 
6,732

 
6,204

Provision for income taxes
92,114

 
—

 
3

Gain on disposal of assets, net
(6
)
 
(33
)
 
(13
)
Depreciation and amortization
26,648

 
19,746

 
4,983

Maintenance turnaround expense
490

 
—

 
—

Net change in lower of cost or market inventory reserve
—

 
36,795

 
—

Unrealized loss (gain) on commodity hedging transactions
(1,531
)
 
1,260

 
—

Adjusted EBITDA
$
233,954

 
$
163,826

 
$
27,670


 
Nine Months Ended
 
September 30,
 
2015
 
Western
 
NTI
 
WNRL
 
(Unaudited)
 
 (In thousands)
Net income attributable to Western Refining, Inc.
$
232,394

 
$
129,245

 
$
31,572

Net income attributable to non-controlling interest
—

 
197,563

 
16,159

Interest expense and other financing costs
42,511

 
20,242

 
16,416

Provision for income taxes
229,635

 
—

 
354

Loss (gain) on disposal of assets, net
444

 
(344
)
 
(257
)
Depreciation and amortization
79,362

 
58,626

 
14,458

Maintenance turnaround expense
1,188

 
—

 
—

Net change in lower of cost or market inventory reserve
(4,883
)
 
(12,248
)
 
—

Unrealized loss (gain) on commodity hedging transactions
42,446

 
(373
)
 
—

Adjusted EBITDA
$
623,097

 
$
392,711

 
$
78,702

 
Three Months Ended
 
September 30,
 
2014
 
Western
 
NTI
 
WNRL
 
(Unaudited)
 
 (In thousands)
Net income attributable to Western Refining, Inc.
$
144,024

 
$
34,711

 
$
8,014

Net income attributable to non-controlling interest
—

 
56,357

 
4,251

Interest expense and other financing costs
13,617

 
4,271

 
362

Provision for income taxes
80,578

 
—

 
135

Gain on disposal of assets, net
(66
)
 
—

 
—

Depreciation and amortization
25,097

 
18,482

 
3,331

Maintenance turnaround expense
1,883

 
—

 
—

Unrealized gain on commodity hedging transactions
(16,190
)
 
(830
)
 
—

Adjusted EBITDA
$
248,943

 
$
112,991

 
$
16,093






 
Nine Months Ended
 
September 30,
 
2014
 
Western
 
NTI
 
WNRL
 
(Unaudited)
 
 (In thousands)
Net income attributable to Western Refining, Inc.
$
324,825

 
$
81,837

 
$
22,329

Net income attributable to non-controlling interest
—

 
124,786

 
11,844

Interest expense and other financing costs
57,360

 
16,575

 
1,073

Provision for income taxes
222,980

 
—

 
339

Loss (gain) on disposal of assets, net
1,040

 
(101
)
 
—

Depreciation and amortization
74,297

 
56,829

 
10,042

Maintenance turnaround expense
48,329

 
—

 
—

Loss on extinguishment of debt
9

 
—

 
—

Unrealized gain on commodity hedging transactions
(135,246
)
 
(1,125
)
 
—

Adjusted EBITDA
$
593,594

 
$
278,801

 
$
45,627






Consolidating Financial Data
The following tables set forth our consolidating historical financial data for the periods presented below.
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
 
(Unaudited)
 
(In thousands)
Operating Income
 
 
 
 
 
 
 
Western, excluding NTI and WNRL
$
208,253

 
$
239,093

 
$
504,751

 
$
605,093

NTI
101,661

 
96,799

 
334,783

 
222,735

WNRL
22,684

 
12,761

 
64,450

 
35,581

Operating income
$
332,598

 
$
348,653

 
$
903,984

 
$
863,409

Depreciation and Amortization
 
 
 
 
 
 
 
Western, excluding NTI and WNRL
$
26,648

 
$
25,097

 
$
79,362

 
$
74,297

NTI
19,746

 
18,482

 
58,626

 
56,829

WNRL
4,983

 
3,331

 
14,458

 
10,042

Depreciation and amortization expense
$
51,377

 
$
46,910

 
$
152,446

 
$
141,168

Capital Expenditures
 
 
 
 
 
 
 
Western, excluding NTI and WNRL
$
52,293

 
$
37,938

 
$
138,246

 
$
101,490

NTI
17,439

 
9,237

 
35,267

 
34,339

WNRL
6,699

 
2,748

 
22,463

 
11,425

Capital expenditures
$
76,431

 
$
49,923

 
$
195,976

 
$
147,254

Balance Sheet Data (at end of period)
 
 
 
 
 
 
 
Cash and cash equivalents
 
 
 
 
 
 
 
Western, excluding NTI and WNRL
 
 
 
 
$
523,590

 
$
465,010

NTI
 
 
 
 
114,608

 
106,035

WNRL
 
 
 
 
71,372

 
79,109

Cash and cash equivalents
 
 
 
 
$
709,570

 
$
650,154

 Total debt
 
 
 
 
 
 
 
Western, excluding NTI and WNRL
 
 
 
 
$
890,375

 
$
896,026

NTI
 
 
 
 
356,209

 
357,312

WNRL
 
 
 
 
300,000

 
—

Total debt
 
 
 
 
$
1,546,584

 
$
1,253,338

 Total working capital
 
 
 
 
 
 
 
Western, excluding NTI and WNRL
 
 
 
 
$
784,497

 
$
726,937

NTI
 
 
 
 
287,113

 
271,540

WNRL
 
 
 
 
66,342

 
79,687

Total working capital
 
 
 
 
$
1,137,952

 
$
1,078,164







Refining Segment
El Paso and Gallup Refineries and Related Operations
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
 
 
(In thousands, except per barrel data)
Statement of Operations Data (Unaudited):
 
 
 
 
 
 
 
Net sales (including intersegment sales) (1)
$
1,652,934

 
$
2,498,226

 
$
4,963,407

 
$
7,566,741

Operating costs and expenses:
 
 
 
 
 
 
 
Cost of products sold (exclusive of depreciation and amortization) (2)
1,335,326

 
2,145,984

 
4,098,734

 
6,578,731

Direct operating expenses (exclusive of depreciation and amortization)
77,249

 
78,184

 
232,160

 
225,224

Selling, general and administrative expenses
7,509

 
7,216

 
24,211

 
21,700

Loss on disposal of assets, net
—

 
103

 
495

 
775

Maintenance turnaround expense
490

 
1,883

 
1,188

 
48,329

Depreciation and amortization
22,013

 
20,280

 
65,535

 
60,145

Total operating costs and expenses
1,442,587

 
2,253,650

 
4,422,323

 
6,934,904

Operating income
$
210,347

 
$
244,576

 
$
541,084

 
$
631,837

Key Operating Statistics
 
 
 
 
 
 
 
Total sales volume (bpd) (1) (3)
247,839

 
219,755

 
238,375

 
216,009

Total production (bpd)
162,058

 
156,291

 
162,377

 
151,697

Total throughput (bpd)
164,580

 
158,452

 
164,616

 
153,937

Per barrel of throughput:
 
 
 
 
 
 
 
Refinery gross margin (2) (4)
$
21.11

 
$
24.04

 
$
19.22

 
$
23.45

Direct operating expenses (5)
$
5.10

 
$
5.36

 
$
5.17

 
$
5.36

Mid-Atlantic sales volume (bbls)
2,144

 
2,005

 
6,597

 
6,883

Mid-Atlantic margin per barrel
$
(1.10
)
 
$
0.91

 
$
0.15

 
$
0.37

The following tables set forth our summary refining throughput and production data for the periods and refineries presented:
El Paso and Gallup Refineries
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Key Operating Statistics
 
 
 
 
 
 
 
Product yields (bpd):
 
 
 
 
 
 
 
Gasoline
87,816

 
81,350

 
87,678

 
77,732

Diesel and jet fuel
63,545

 
65,786

 
63,941

 
63,692

Residuum
4,121

 
5,569

 
4,730

 
5,241

Other
6,576

 
3,586

 
6,028

 
5,032

Total production (bpd)
162,058

 
156,291

 
162,377

 
151,697

Throughput (bpd):
 
 
 
 
 
 
 
Sweet crude oil
131,465

 
122,282

 
131,626

 
120,873

Sour crude oil
23,854

 
26,319

 
23,055

 
24,841

Other feedstocks and blendstocks
9,261

 
9,851

 
9,935

 
8,223

Total throughput (bpd)
164,580

 
158,452

 
164,616

 
153,937





El Paso Refinery
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Key Operating Statistics
 
 
 
 
 
 
 
Product yields (bpd):
 
 
 
 
 
 
 
Gasoline
71,855

 
64,614

 
70,613

 
60,904

Diesel and jet fuel
55,667

 
56,278

 
55,804

 
54,911

Residuum
4,121

 
5,569

 
4,730

 
5,241

Other
5,016

 
2,517

 
4,503

 
3,588

Total production (bpd)
136,659

 
128,978

 
135,650

 
124,644

Throughput (bpd):
 
 
 
 
 
 
 
Sweet crude oil
107,577

 
97,514

 
106,850

 
95,881

Sour crude oil
23,854

 
26,319

 
23,055

 
24,841

Other feedstocks and blendstocks
7,485

 
6,844

 
7,604

 
5,709

Total throughput (bpd)
138,916

 
130,677

 
137,509

 
126,431

Total sales volume (bpd) (3)
149,861

 
138,212

 
150,404

 
138,851

Per barrel of throughput:
 
 
 
 
 
 
 
Refinery gross margin (2) (4)
$
18.51

 
$
20.99

 
$
18.65

 
$
19.50

Direct operating expenses (5)
3.64

 
4.32

 
3.96

 
4.31


Gallup Refinery
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Key Operating Statistics
 
 
 
 
 
 
 
Product yields (bpd):
 
 
 
 
 
 
 
Gasoline
15,961

 
16,736

 
17,065

 
16,828

Diesel and jet fuel
7,878

 
9,508

 
8,137

 
8,781

Other
1,560

 
1,069

 
1,525

 
1,444

Total production (bpd)
25,399

 
27,313

 
26,727

 
27,053

Throughput (bpd):
 
 
 
 
 
 
 
Sweet crude oil
23,888

 
24,768

 
24,776

 
24,992

Other feedstocks and blendstocks
1,776

 
3,007

 
2,331

 
2,514

Total throughput (bpd)
25,664

 
27,775

 
27,107

 
27,506

Total sales volume (bpd) (3)
33,489

 
35,705

 
33,339

 
34,257

Per barrel of throughput:
 
 
 
 
 
 
 
Refinery gross margin (2) (4)
$
23.08

 
$
20.65

 
$
19.85

 
$
16.54

Direct operating expenses (5)
9.10

 
8.29

 
8.30

 
8.58

(1)
Refining net sales for the three and nine months ended September 30, 2015 and 2014 include $279.4 million, $753.8 million, $410.4 million and $1,163.8 million, respectively, representing a period average of 64,488 bpd, 54,631 bpd, 45,837 bpd and 42,901 bpd, respectively, in crude oil sales to third-parties.




(2)
Cost of products sold for the refining segment includes the segment's 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
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
 
(Unaudited)
 
(In thousands)
Realized hedging gain, net
$
23,134

 
$
20,737

 
$
51,275

 
$
41,399

Unrealized hedging gain (loss), net
1,531

 
16,190

 
(42,446
)
 
135,246

Total hedging gain, net
$
24,665

 
$
36,927

 
$
8,829

 
$
176,645

(3)
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 8.4%, 9.4%, 8.7% and 10.3% of our total consolidated sales volumes for the three and nine months ended September 30, 2015 and 2014, respectively. The majority of the purchased refined products are distributed through our refined product sales activities in the Mid-Atlantic region where we satisfy our refined product customer sales requirements through a third-party supply agreement.
(4)
Refinery gross margin for the respective periods presented is a per barrel measurement calculated by subtracting cost of products sold from net sales and dividing that difference by our refineries’ total throughput volumes. 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. Refinery gross margin is a non-GAAP performance measure that we believe is useful for evaluating our refinery performance as a general indication of the excess of the refined product sales amount over the related cost of products sold. Our calculation of refinery gross margin excludes the sales and costs related to our Mid-Atlantic business that we report within the refining segment. The following table reconciles the sales and cost of sales used to calculate refinery gross margin with the total sales and cost of sales reported in the refining statement of operations data above:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
 
(Unaudited)
 
(In thousands)
Refinery net sales (including intersegment sales)
$
1,498,049

 
$
2,263,053

 
$
4,466,544

 
$
6,734,253

Mid-Atlantic sales
154,885

 
235,173

 
496,863

 
832,488

Net sales (including intersegment sales)
$
1,652,934

 
$
2,498,226

 
$
4,963,407

 
$
7,566,741

 
 
 
 
 
 
 
 
Refinery cost of products sold (exclusive of depreciation and amortization)
$
1,178,412

 
$
1,912,640

 
$
3,602,870

 
$
5,748,784

Mid-Atlantic cost of products sold
156,914

 
233,344

 
495,864

 
829,947

Cost of products sold (exclusive of depreciation and amortization)
$
1,335,326

 
$
2,145,984

 
$
4,098,734

 
$
6,578,731





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 our refineries to combined gross margin for our refineries for the periods presented:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
 
(Unaudited)
 
 
(In thousands, except per barrel data)
Refinery net sales (including intersegment sales)
$
1,498,049

 
$
2,263,053

 
$
4,466,544

 
$
6,734,253

Refinery cost of products sold (exclusive of depreciation and amortization)
1,178,412

 
1,912,640

 
3,602,870

 
5,748,784

Depreciation and amortization
22,013

 
20,280

 
65,535

 
60,145

Gross profit
297,624

 
330,133

 
798,139

 
925,324

Plus depreciation and amortization
22,013

 
20,280

 
65,535

 
60,145

Refinery gross margin
$
319,637

 
$
350,413

 
$
863,674

 
$
985,469

Refinery gross margin per throughput barrel
$
21.11

 
$
24.04

 
$
19.22

 
$
23.45

Gross profit per throughput barrel
$
19.66

 
$
22.65

 
$
17.76

 
$
22.02

(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.




NTI
The following table sets forth the summary operating results for NTI.
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
 
(Unaudited)
 
(In thousands, except per barrel data)
Net sales
$
798,025

 
$
1,449,033

 
$
2,348,621

 
$
4,205,732

Operating costs and expenses:
 
 
 
 
 
 
 
Cost of products sold (exclusive of depreciation and amortization) (1)
573,686

 
1,235,697

 
1,662,948

 
3,631,911

Direct operating expenses (exclusive of depreciation and amortization)
82,203

 
75,909

 
228,256

 
209,597

Selling, general and administrative expenses
20,762

 
22,146

 
64,352

 
71,883

Affiliate severance costs
—

 
—

 
—

 
12,878

Gain on disposal of assets, net
(33
)
 
—

 
(344
)
 
(101
)
Depreciation and amortization
19,746

 
18,482

 
58,626

 
56,829

Total operating costs and expenses
696,364

 
1,352,234

 
2,013,838

 
3,982,997

Operating income
$
101,661

 
$
96,799

 
$
334,783

 
$
222,735

 
 
 
 
 
 
 
 
Key Operating Statistics
 
 
 
 
 
 
 
Total sales volume (bpd)
99,617

 
100,064

 
100,630

 
97,252

Total refinery production (bpd)
90,362

 
96,625

 
94,451

 
94,314

Total refinery throughput (bpd) (2)
90,590

 
96,464

 
94,538

 
94,054

Per barrel of throughput:
 
 
 
 
 
 
 
Refinery gross margin (1) (3)
$
20.65

 
$
18.87

 
$
21.15

 
$
17.35

Direct operating expenses (4)
4.84

 
4.46

 
4.74

 
4.37

 
 
 
 
 
 
 
 
Retail fuel gallons sold (in thousands)
78,414

 
79,674

 
227,673

 
229,453

Retail fuel margin per gallon (5)
$
0.27

 
$
0.20

 
$
0.23

 
$
0.20

Merchandise sales
$
100,645

 
$
95,647

 
$
279,058

 
$
264,090

Merchandise margin (6)
25.8
%
 
25.7
%
 
25.9
%
 
26.0
%
Company-operated retail outlets at period end
 
 
 
 
165

 
165

Franchised retail outlets at period end
 
 
 
 
102

 
82

(1)
Cost of products sold for NTI includes the net realized and net non-cash unrealized hedging activity shown in the table below. Hedging gains and losses are also included in the combined gross profit and refinery gross margin.
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
 
(Unaudited)
 
(In thousands)
Realized hedging gain, net
$
3,815

 
$
5,978

 
$
1,050

 
$
2,874

Unrealized hedging gain (loss), net
(1,260
)
 
830

 
373

 
1,125

Total hedging gain, net
$
2,555

 
$
6,808

 
$
1,423

 
$
3,999

(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 the refinery's total throughput volumes for the respective periods presented. Refinery net sales include $35.3 million, $94.4 million, $322.6 million and $891.7 million related to crude oil sales during the three and nine months




ended September 30, 2015 and 2014, respectively. Refinery gross margin is a non-GAAP performance measure that we believe is useful in evaluating refinery performance as a general indication of the excess of the refined product sales amount over the related cost of products sold. Each of the components used in this calculation (net sales and cost of products sold) can be reconciled to corresponding amounts included in the 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. Cost of products sold for the three and nine months ended September 30, 2015 includes a non-cash adjustment of $36.8 million and a non-cash recovery of $12.2 million, respectively, in order to state the inventories value at market prices which were lower than cost.
The following table reconciles gross profit to gross margin for the St. Paul Park refinery for the periods presented:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
 
(Unaudited)
 
(In thousands, except per barrel data)
Net refinery sales (including intersegment sales)
$
762,275

 
$
1,425,308

 
$
2,291,681

 
$
4,155,644

Refinery cost of products sold (exclusive of depreciation and amortization)
590,138

 
1,257,837

 
1,745,756

 
3,710,268

Refinery depreciation and amortization
17,366

 
15,890

 
51,734

 
50,378

Gross profit
154,771

 
151,581

 
494,191

 
394,998

Plus depreciation and amortization
17,366

 
15,890

 
51,734

 
50,378

Refinery gross margin
$
172,137

 
$
167,471

 
$
545,925

 
$
445,376

Refinery gross margin per refinery throughput barrel
$
20.65

 
$
18.87

 
$
21.15

 
$
17.35

Gross profit per refinery throughput barrel
$
18.57

 
$
17.08

 
$
19.15

 
$
15.38

(4)
NTI's direct operating expenses per throughput barrel are calculated by dividing refining direct operating expenses by total throughput volumes for the respective periods presented. Direct operating expenses do not include any depreciation or amortization.
(5)
Retail fuel margin per gallon is a measurement calculated by dividing the difference between retail fuel sales and retail fuel cost of products sold by the number of gallons sold. Retail fuel margin per gallon is a measure frequently used in the retail industry to measure operating results related to fuel sales.
(6)
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 retail industry to measure operating results related to merchandise sales.





WNRL
The WNRL financial and operational data presented include the historical results of all assets acquired from Western in the Wholesale Acquisition. This acquisition from Western was a transfer of assets between entities under common control. We have retrospectively adjusted historical financial and operational data of WNRL, for all periods presented, to reflect the purchase and consolidation of WRW into WNRL.
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
 
(Unaudited)
 
(In thousands)
Statement of Operations Data:
 
 
 
 
 
 
 
Net sales (net of excise taxes)
$
674,479

 
$
915,719

 
$
2,016,376

 
$
2,750,666

Operating costs and expenses:
 

 
 

 
 
 
 

Cost of products sold (net of excise taxes)
601,557

 
851,242

 
1,807,284

 
2,561,785

Direct operating expenses
39,705

 
37,112

 
112,697

 
107,769

Selling, general and administrative expenses
5,563

 
6,388

 
17,744

 
17,276

Gain on disposal of assets, net
(13
)
 
(34
)
 
(257
)
 
(16
)
Depreciation and amortization
4,983

 
4,292

 
14,458

 
12,898

Total operating costs and expenses
651,795

 
899,000

 
1,951,926

 
2,699,712

Operating income
$
22,684

 
$
16,719

 
$
64,450

 
$
50,954

 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
 
(Unaudited)
 
(In thousands, except key operating statistics)
Key Operating Statistics
 
 
 
 
 
 
 
Pipeline and gathering (bpd):
 
 
 
 
 
 
 
Mainline movements:
 
 
 
 
 
 
 
Permian/Delaware Basin system
56,745

 
27,382

 
45,784

 
22,351

Four Corners system (1)
66,602

 
38,623

 
54,719

 
38,483

Gathering (truck offloading):
 
 
 
 
 
 
 
Permian/Delaware Basin system
25,961

 
24,250

 
24,207

 
24,205

Four Corners system
16,487

 
10,979

 
13,387

 
11,187

Terminalling, transportation and storage (bpd):
 
 
 
 
 
 
 
Shipments into and out of storage (includes asphalt)
408,787

 
389,773

 
396,506

 
379,261

Wholesale:
 
 
 
 
 
 
 
Fuel gallons sold (in thousands)
305,566

 
289,822

 
919,808

 
850,840

Fuel gallons sold to retail (included in fuel gallons sold above) (in thousands)
81,538

 
68,064

 
235,824

 
194,753

Fuel margin per gallon (2)
$
0.029

 
$
0.019

 
$
0.031

 
$
0.021

Lubricant gallons sold (in thousands)
2,998

 
3,071

 
8,969

 
9,163

Lubricant margin per gallon (3)
$
0.70

 
$
0.83

 
$
0.71

 
$
0.81

Crude oil trucking volume (bpd)
49,620

 
39,473

 
47,245

 
34,610

Average crude oil revenue per barrel
$
2.51

 
$
2.78

 
$
2.58

 
$
2.94

(1)
Some barrels of crude oil in route to Western's Gallup refinery and Permian/Delaware Basin are transported on more than one mainline. Mainline movements for the Four Corners and Delaware Basin systems include each barrel transported on each mainline.




(2)
Fuel margin per gallon is a measurement calculated by dividing the difference between fuel sales, net of transportation charges, and cost of fuel sales for WNRL's wholesale business 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.
(3)
Lubricant margin per gallon is a measurement calculated by dividing the difference between lubricant sales, net of transportation charges, and lubricant cost of products sold by the number of gallons sold. Lubricant margin is a measure frequently used in the petroleum products wholesale industry to measure operating results related to lubricant sales.





Retail Segment
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
 
(Unaudited)
 
(In thousands, except per gallon data)
Statement of Operations Data
 
 
 
 
 
 
 
Net sales (including intersegment sales)
$
328,895

 
$
381,873

 
$
905,569

 
$
1,092,389

Operating costs and expenses:
 
 
 
 
 
 
 
Cost of products sold (exclusive of depreciation and amortization)
270,216

 
335,377

 
763,034

 
973,883

Direct operating expenses (exclusive of depreciation and amortization)
35,283

 
30,710

 
101,278

 
89,115

Selling, general and administrative expenses
3,263

 
2,654

 
9,636

 
7,962

Gain on disposal of assets, net
(6
)
 
(140
)
 
(51
)
 
(140
)
Depreciation and amortization
3,676

 
3,069

 
10,993

 
8,821

Total operating costs and expenses
312,432

 
371,670

 
884,890

 
1,079,641

Operating income
$
16,463

 
$
10,203

 
$
20,679

 
$
12,748

Key Operating Statistics
 
 
 
 
 
 
 
Retail fuel gallons sold
92,939

 
80,705

 
267,102

 
232,236

Average retail fuel sales price per gallon (net of excise taxes)
$
2.26

 
$
3.12

 
$
2.10

 
$
3.07

Average retail fuel cost per gallon (net of excise taxes)
1.95

 
2.86

 
1.89

 
2.88

Fuel margin per gallon (1)
0.31

 
0.26

 
0.21

 
0.19

Merchandise sales
$
83,146

 
$
70,900

 
234,014

 
199,684

Merchandise margin (2)
29.4
%
 
28.7
%
 
29.5
%
 
28.8
%
Operating retail outlets at period end
 
 
 
 
261

 
230

Cardlock fuel gallons sold
16,990

 
16,906

 
50,013

 
51,235

Cardlock fuel margin per gallon
$
0.176

 
$
0.185

 
$
0.174

 
$
0.176

Operating cardlocks at period end
 
 
 
 
52

 
54

 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
 
(Unaudited)
 
(In thousands, except per gallon data)
Net Sales
 
 
 
 
 
 
 
Retail fuel sales (net of excise taxes)
$
209,705

 
$
251,709

 
$
561,416

 
$
712,839

Merchandise sales
83,146

 
70,900

 
234,014

 
199,684

Cardlock sales
33,184

 
56,831

 
100,960

 
171,755

Other sales
2,860

 
2,433

 
9,179

 
8,111

Net sales
$
328,895

 
$
381,873

 
$
905,569

 
$
1,092,389

Cost of Products Sold
 
 
 
 
 
 
 
Retail fuel cost of products sold (net of excise taxes)
$
181,282

 
$
231,143

 
$
505,875

 
$
668,642

Merchandise cost of products sold
58,737

 
50,531

 
164,906

 
142,235

Cardlock cost of products sold
30,141

 
53,671

 
92,077

 
162,656

Other cost of products sold
56

 
32

 
176

 
350

Cost of products sold
$
270,216

 
$
335,377

 
$
763,034

 
$
973,883

Retail fuel margin per gallon (1)
$
0.31

 
$
0.26

 
$
0.21

 
$
0.19





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




Reconciliation of Special Items
We present certain additional financial measures below and elsewhere in this press release 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
 
September 30,
 
2015
 
2014
 
(Unaudited)
 
(In thousands, except per share data)
Reported diluted earnings per share
$
1.61

 
$
1.84

Income before income taxes
$
310,215

 
$
328,070

Special items:
 
 
 
Unrealized gain on commodity hedging transactions
(271
)
 
(17,020
)
Gain on disposal of assets, net
(52
)
 
(66
)
Net change in lower of cost or market inventory reserve
36,795

 
—

Earnings before income taxes excluding special items
346,687

 
310,984

Recomputed income taxes excluding special items (1)
(96,254
)
 
(75,567
)
Net income excluding special items
250,433

 
235,417

Net income attributable to non-controlling interest
90,215

 
60,099

Net income attributable to Western excluding special items
$
160,218

 
$
175,318

Diluted earnings per share excluding special items
$
1.69

 
$
1.73

(1)
We recompute income taxes after deducting special items and earnings attributable to non-controlling interest.



Q3 2015 Earnings Review November 3, 2015

 
2 Cautionary Statement on Forward-Looking Statements This presentation contains forward-looking statements which are protected by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements reflect Western’s current expectations regarding future events, results or outcomes. Words such as “anticipate,” “assume,” “believe,” “budget,” “continue,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “plan,” “position,” “potential,” “predict,” “project,” “strategy,” “will,” “future” and other similar terms and phrases are used to identify forward-looking statements. The forward-looking statements contained herein include, but are not limited to, statements about: Western’s share repurchases and its commitment to maintain a dividend yield in the top quartile of its peer group; and fourth quarter 2015 guidance, including total throughput, direct operating expenses, selling, general and administrative expenses (“SG&A”), depreciation and amortization, interest expense and other financing costs, fiscal year 2015 capital expenditures which include maintenance/ regulatory expenditures and discretionary expenditures. These statements are subject to the general risks inherent in Western Refining, Inc.’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 its 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 its filings with the Securities and Exchange Commission. The forward-looking statements are only as of the date made. Except as required by law, 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.

 
3 Q3 2015 Highlights S Safe and reliable operations; strong throughput at El Paso and Gallup S Adjusted EBITDA of $425 million S Western Standalone: $234 million S WNRL: $28 million S NTI: $164 million S Share repurchases of $80 million; dividend of $0.34 per share S Completion of Phase One of the Bobcat Crude Oil Pipeline System in October ($ in millions, except per share data) Q3 2015 Q3 2014 Net income attributable to Western Refining, Inc. $153 $187 per Diluted Share $1.61 $1.84 Net income attributable to Western excluding special items1 $160 $175 per Diluted Share, excluding special items $1.69 $1.73 Adjusted EBITDA2 $425 $378 1 See Appendix for further detail on Net Income (loss) excluding special items. 2 Adjusted EBITDA excludes an adjustment for non-cash unrealized mark-to-market hedging gains and losses; see Appendix for reconciliation of Net Income to Adjusted EBITDA and the definition of Adjusted EBITDA.

 
4 Refining Operating Metrics Gross Margin ($ per throughput barrel) 1 Operating margin is defined as gross margin minus direct operating expenses. Direct Operating Expenses ($ per throughput barrel) Operating Margin ($ per throughput barrel) Q3 2015 Q3 2014 El Pas o Gallu p $25 $0 $20.99 $18.51 $25 $0 $4.32 $3.64 $25 $0 $16.67 $14.87 $25 $0 $20.65 $23.08 $25 $0 $8.29 $9.10 $25 $0 $12.36 $13.98 1

 
5 1,200 1,000 800 600 400 200 0 $ m illi on s Beginning Cash and Restricted Cash 6/30/15 Adjusted EBITDA Payments on Debt and Capital Leases Cash Taxes and Cash Interest Paid Share Repurchases Dividends Paid CAPEX Change in Working Cap & Other NTI and WNRL Distributions Change in Restricted Cash Ending Cash and Restricted Cash 9/30/15 $612 $722 $426 $56 $2 $86 $80 $33 $76 $22 $73 Q2 2015 to Q3 2015 Consolidated Cash Flow Bridge 1 Adjusted EBITDA includes both controlling and non-controlling interests of NTI and WNRL; see Appendix for a reconciliation of Net Income to Adjusted EBITDA and the definition of Adjusted EBITDA. 2 NTI and WNRL cash distributions to the non-controlling interests. 2 Western $ 405.7 $ 234.0 $ (1.6) $ (71.7) $ (80.0) $ (32.5) $ (52.3) $ 78.4 $ — $ 55.9 $ 535.9 NTI 127.9 163.8 (0.2) (2.0) — — (17.4) (89.9) (67.6) — 114.6 WNRL 78.6 27.7 — (11.9) — — (6.7) (10.5) (5.8) — 71.4 Total $ 612.2 $ 425.5 $ (1.8) $ (85.6) $ (80.0) $ (32.5) $ (76.4) $ (22.0) $ (73.4) $ 55.9 $ 721.9 1

 
6 Balanced Approach to Capital Allocation Growth Capital S Investment in refineries and logistics infrastructure S TexNew Mex Reversal and Extension S Bobcat Crude Oil Pipeline Dividends S Committed to maintaining a top quartile of peer group dividend yield Share Repurchase S Opportunistically repurchase WNR shares 2015E Western Standalone Capital Allocation Capital Expenditures: 40% Share Repurchase: 27% Dividends: 33% 1 Total capital allocation includes declared Q4 15 dividend of $0.38 per share, full year 2015E discretionary capital of $155.2 million, and total share repurchases through 9-30-15 of $105 million. 1Total = $389 million

 
7 Capital Structure 1 Western Standalone excludes NTI and WNRL. 2 Includes Restricted Cash of $12 million 3 Debt levels shown are net of premium and conversion feature. 4 See Appendix for a reconciliation of Net Income to Adjusted EBITDA and the definition of Adjusted EBITDA. As of September 30, 2015 ($ millions) WNR Consolidated Western1 Standalone Total Cash and Restricted Cash 2 $ 722 $ 536 Western Revolving Credit Facility $ — $ — Term Loan, due 2020 540 540 6.25% Senior Unsecured Notes due 2021 350 350 NTI Revolving Credit Facility — 7.125% Senior Secured Notes due 2020 356 WNRL Revolving Credit Facility — 7.5% Senior Notes, due 2023 300 Total Long-term Debt 3 1,546 890 Shareholders' Equity 3,032 1,318 Total Capitalization $ 4,578 $ 2,208 LTM Adjusted EBITDA 4 $ 1,408 $ 1,058 Total Debt / LTM Adjusted EBITDA 1.1x 0.8x Total Debt / Total Capitalization 34% 40%

 
8 Operations El Paso Gallup St. Paul Park(NTI) Total Throughput (mbpd) 126 - 130 25.5 - 27.5 96 - 101 Direct Operating Expenses ($/Bbl) $4.10 - $4.30 $8.25 - $8.50 $4.20 - $4.70 Q4 2015 Guidance Other ($ millions) Western Standalone NTI WNRL Total SG&A $30 $21 $6 $57 Depreciation and Amortization $27 $20 $7 $54 Interest Expense and Other Financing Costs $14 $8 $7 $29 FY 2015 Capital Expenditures Maintenance/Regulatory $66 $32 $11 $109 Discretionary 155 30 27 212 FY 2015 Total Capital Expenditures $221 $62 $38 $321

 
Appendix

 
10 Reconciliation of Special Items 1 Income taxes recalculated after deducting special items and earnings attributable to non-controlling interest from Income before income taxes. Three Months Ended September 30, 2015 2014  (In thousands, except per share data) Reported diluted earnings per share $ 1.61 $ 1.84 Income before income taxes $ 310,215 $ 328,070 Special items: Unrealized gain on commodity hedging transactions (271) (17,020) Loss (gain) on disposal of assets, net (52) (66) Net change in lower of cost or market inventory reserve 36,795 — Earnings before income taxes excluding special items 346,687 310,984 Recomputed income taxes excluding special items 1 (96,254) (75,567) Net income excluding special items 250,433 235,417 Net income attributable to non-controlling interest 90,215 60,099 Net income attributable to Western excluding special items $ 160,218 $ 175,318 Diluted earnings per share excluding special items $ 1.69 $ 1.73

 
11 Consolidated Adjusted EBITDA Reconciliation 1 Adjusted EBITDA includes an adjustment for non-cash unrealized mark-to-market hedging gains and losses; see Appendix for reconciliation of Net Income to Adjusted EBITDA and the definition of Adjusted EBITDA. Three Months Ended September 30, 2015 2014 (In thousands) Net income attributable to Western Refining, Inc. $ 153,303 $ 186,749 Net income attributable to non-controlling interest 64,795 60,608 Interest expense and other financing costs 26,896 18,250 Provision for income taxes 92,117 80,713 Depreciation and amortization 51,377 46,910 Maintenance turnaround expense 490 1,883 Loss (gain) on disposal of assets, net (52) (66) Net change in lower of cost or market inventory reserve 36,795 — Unrealized loss (gain) on commodity hedging transactions (271) (17,020) Adjusted EBITDA 1 $ 425,450 $ 378,027

 
12 Consolidated Adjusted EBITDA Reconciliations Three Month Period Ending Twelve Months Ended (In Thousands) Consolidated Western Refining, Inc. Dec 2014 Mar 2015 Jun 2015 Sep 2015 Sep 2015 Net income attributable to Western Refining, Inc. $ 130,935 $ 105,989 $ 133,919 $ 153,303 $ 524,146 Net income attributable to non-controlling interest 13,516 68,979 79,948 64,795 227,238 Interest expense and other financing costs 22,054 24,957 27,316 26,896 101,223 Provision for income taxes 69,285 59,437 78,435 92,117 299,274 Depreciation and amortization 49,398 49,926 51,143 51,377 201,844 Maintenance turnaround expense 140 105 593 490 1,328 Loss (gain) on disposal of assets, net 7,591 282 (387) (52) 7,434 Net change in lower of cost or market inventory reserve 78,554 (15,722) (38,204) 36,795 61,423 Unrealized (gain) loss on commodity hedging transactions (58,052) 20,057 22,287 (271) (15,979) Adjusted EBITDA 1 $ 313,421 $ 314,010 $ 355,050 $ 425,450 $ 1,407,931 1 Adjusted EBITDA includes an adjustment for non-cash unrealized mark-to-market hedging gains and losses; see Appendix for reconciliation of Net Income to Adjusted EBITDA and the definition of Adjusted EBITDA.

 
13 Last Twelve Months September 30, 2015 Western Standalone NTI WNRL WNR Consolidated (In thousands) Net income attributable to Western Refining, Inc. $ 343,869 $ 136,247 $ 44,030 $ 524,146 Net income attributable to non-controlling interest — 204,718 22,520 227,238 Interest expense and other financing costs 56,496 27,025 17,702 101,223 Provision for income taxes 298,800 — 474 299,274 Loss (gain) on disposal of assets, net 7,803 (335) (34) 7,434 Depreciation and amortization 104,567 78,341 18,936 201,844 Maintenance turnaround expense 1,328 — — 1,328 Net change in lower of cost or market inventory reserve — 61,423 — 61,423 Unrealized loss (gain) on commodity hedging transactions (19,531) 3,552 — (15,979) Adjusted EBITDA 793,332 $ 510,971 $ 103,628 $ 1,407,931 Controlling interests in NTI 1 196,213 Controlling interests in WNRL 1 68,498 Total Adjusted EBITDA $ 1,058,043 Consolidating Adjusted EBITDA Reconciliations 1 Western's controlling interests in NTI and WNRL represent 38% and 66%, respectively.

 
14 Adjusted EBITDA Reconciliation The tables on the previous page reconcile net income to Adjusted EBITDA for the periods presented. Adjusted EBITDA represents earnings before interest expense and other financing costs, 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, differs from the NTI and WNRL Adjusted EBITDA calculation and 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.

 
15 Volume Hedged (000 barrels) % of Planned Production Hedged Strike Price Mark-to-Market Price1 September 30, 2015 Offsetting Unrealized Gain Period Gasoline Distillate Gasoline Distillate Gasoline Distillate Gasoline Distillate Positions ($MM) 2 2015 Q4 750 1,772 10% 33.0% 9.70 26.38 7.36 14.68 8.9 2016 Q1 150 645 2.4% 14.0% 10.20 26.38 8.25 15.04 5.9 Q2 — 795 —% 13.2% — 26.35 — 16.04 4.7 Q3 — 1,545 —% 25.4% — 26.93 — 16.72 4.7 Q4 — 795 —% 13.1% — 26.35 — 16.02 4.7 2017 Q1 — 375 —% 8.1% — 23.49 — 16.36 — Q2 — 150 —% 2.5% — 23.60 — 17.26 — Q3 — 150 —% 2.5% — 23.60 — 18.04 — Q4 — 150 —% 2.5% — 23.60 — 17.02 — 1 Mark-to-market pricing based on data obtained from the CME Group. 2 Represents unrealized gains on short positions that were closed by the purchase of an offsetting long position as of Q3 2015, neither of which position will be realized until maturity. Western Standalone Crack Spread Hedge Positions As of September 30, 2015

 
Western Standalone Hedging Gain/(Loss) As of September 30, 2015 ($ millions) Hedging Period Realized Gain/(Loss) Total Realized Gain / (Loss) Crack Spread Inventory/Other Q1 2015 $17.1 $0.4 $17.5 Q2 2015 18.1 (7.4) 10.7 Q3 2015 16.8 6.3 23.1 Hedging Period Unrealized Gain/(Loss) Total Unrealized Gain / (Loss)Crack Spread Inventory/Other Q1 2015 $(20.3) $(0.9) $(21.2) Q2 2015 (23.7) 0.9 (22.8) Q3 2015 2.7 (1.2) 1.5 16

 
17 Consolidated Unrealized Hedging Gains and Losses 1 ($millions) Balance Sheet Fair Value Income Statement Period Beg. Of Period End of Period Unrealized Gain (Loss) 2014 Q1 $(64.5) $9.5 $74.0 Q2 $9.5 $54.9 $45.4 Q3 $54.9 $71.9 $17.0 Q4 $71.9 $130.0 $58.1 2015 Q1 $130.0 $109.9 $(20.1) Q2 $109.9 $87.6 $(22.3) Q3 $87.6 $87.9 $0.3 1 Includes WNR crack spreads and inventory hedging positions and NTI inventory hedging positions.

 

 

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