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Form 8-K Western Refining, Inc. For: Nov 04

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November 4, 2014 6:03 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�4, 2014
�
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
(Registrants 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�4, 2014, Western Refining, Inc. (Western or the Company) issued a press release announcing its results of operations for the third quarter ended September�30, 2014.�A copy of the press release is attached hereto as Exhibit 99.1 and is incorporated herein by reference.

Item 7.01 �����������Regulation FD Disclosure.
On November 3, 2014, the Board of Directors of Western authorized a share repurchase program of up to $200�million. On November 4, 2014, the Company issued a press release announcing this share repurchase program.�A copy of this press release is attached hereto as Exhibit 99.1 and is incorporated herein by reference.

Item 8.01 ������� ����Other Events.
On November 3, 2014, the Board of Directors of Western approved a special cash dividend of $2.00 per share of common stock. The dividend will be paid on December 1, 2014, to shareholders of record at the close of market on November 18, 2014. On November 4, 2014, the Company issued a press release announcing this cash dividend.�A copy of this press release is attached hereto as Exhibit 99.1 and is 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 4, 2014.




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�4, 2014




EXHIBIT INDEX
�
Exhibit No.
��
Description
99.1
��
Press Release, dated November 4, 2014.




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 2014 RESULTS
" Net income of $1.84 per diluted share, $1.73 per diluted share, excluding special items
" Approval of special dividend of $2.00 per share, payable in December 2014
" Additional $200 million in share repurchases authorized

EL PASO, Texas - November�4, 2014 - Western Refining, Inc. (NYSE: WNR) today reported results for its third quarter ending September�30, 2014. Net income attributable to Western, excluding special items, was $175.3�million, or $1.73 per diluted share. This compares to third quarter 2013 net income, excluding special items, of $29.6�million, or $0.33 per diluted share.
Including special items, the Company recorded third quarter 2014 net income attributable to Western of $186.7�million, or $1.84 per diluted share, as compared to net income of $50.3�million, or $0.53 per diluted share for the third quarter of 2013. Special items in the third quarter of 2014 consisted primarily of a noncash, unrealized pre-tax hedging gain of $17.0�million. A reconciliation of reported earnings and description of special items can be found in the accompanying financial tables. Western's consolidated financial results include the results of both Western Refining Logistics, LP (NYSE: WNRL) and Northern Tier Energy LP (NYSE: NTI).
Jeff Stevens, Western's President and Chief Executive Officer, said, "Our third quarter results reflect exceptional performance throughout all of Western's business segments. Our refineries operated very well and we benefited from an attractive margin environment. The WTI Midland/Cushing crude oil differential was at historical highs and our wholesale and retail businesses performed well."
During the third quarter, Western paid a dividend of $0.26 per share of common stock and repurchased approximately $43�million or 1.1�million shares of common stock.
In October, Western's Board of Directors approved a $0.30 per share dividend for the fourth quarter, a 15% increase over the third quarter dividend. On November 3, 2014, the Board declared a special dividend of $2.00 per share to be paid on December 1, 2014 to shareholders of record on November 18, 2014. Finally, the Board also authorized an additional $200 million for share repurchases.
Stevens added, "We continue to make great progress toward accomplishing our 2014 goals. Our operations continue to run safely and reliably and we are executing on a number of discretionary capital projects. We have realized a number of synergies related to the NTI acquisition and expect to exceed our initial projection of $20�million in annual savings. Finally, we continue to return cash to our shareholders through dividends and share repurchases. Including the announced special dividend, and share repurchases through October 31, 2014, Western will return approximately $450�million in cash to shareholders in 2014."

Looking forward, Stevens said, "The fourth quarter is off to a good start. We successfully closed the sale of our wholesale business to WNRL for $360�million in cash and equity. We continue to benefit from a wide WTI Midland/Cushing price differential. Both refineries are operating well and capturing good margins. The Tex NewMex line will be completed and begin to receive line-fill in late December and will be fully




operational by the end of the first quarter of 2015. Additionally, our retail operations had improved margins in October. Overall, we are well positioned to have another very successful quarter."
Conference Call Information
A conference call is scheduled for Tuesday, November 4, 2014, at 10:00 am ET to discuss Western's financial results for the third quarter ended September�30, 2014. A slide presentation 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: 5150117. The audio replay will be available two hours after the end of the call through November 14, 2014, by dialing (855) 859-2056 or (404) 537-3406, passcode: 5150117.
Non-GAAP Financial Measures
In a number of places in the press release and related tables, we have excluded from GAAP measures certain income and expense items. The excluded items are generally non-cash in nature such as unrealized net gains and losses from commodity hedging activities or losses on extinguishment of debt; however, other items that have a cash impact, such as gains on disposal of assets and significant costs to exit an activity 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 39% 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 covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements contained herein include statements about: progress in accomplishing our 2014 goals; our execution of discretionary capital projects; synergies related to the NTI acquisition including our expected annual savings resulting from such acquisition; our operating performance including the ability of our operations to continue to run safely and reliably; the margin environment and our ability to benefit from the margin environment; the discount between West Texas Intermediate Cushing (WTI) and WTI Midland crude oils; the timing for the completion of the TexNew Mex pipeline and the 70-mile extension and the Bobcat pipeline, including when they are expected to be fully operational; development of our logistics capabilities in the San Juan and Permian Basins; our ability and the timing for substituting common stream crude oil for shale crude oil at our El Paso refinery; our capital budget, including requisite approvals; our ability to return cash to shareholders through dividends and share repurchases and to maintain strong cash balances; and our overall positioning for the fourth quarter 2014. These statements are subject to the general risks inherent in Westerns 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, 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. 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, 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
We report our operating results in five business segments: refining, NTI, WNRL, wholesale and retail.
"
Our refining segment operates two refineries in the Southwest owned by Western that process crude oil and other feedstocks primarily into gasoline, diesel fuel, jet fuel and asphalt. We market refined products to a diverse customer base including wholesale distributors and retail chains.
"
NTI owns and operates refining and transportation assets and operates retail convenience store assets and supports franchised retail convenience stores primarily in the Upper Great Plains region of the U.S.
"
WNRL owns and operates terminal, storage and transportation assets and provides related services primarily to our refining group in the Southwest.
"
Our wholesale segment includes a fleet of crude oil and refined product truck transports and wholesale petroleum product operations in the Southwest region. The wholesale group also markets refined products in the Northeast and Mid-Atlantic regions. Wholesale receives its product supply from the refining group and third-party suppliers.
"
Our retail segment operates retail convenience stores located in the Southwest that 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,
�
2014
�
2013
�
2014
�
2013
�
(Unaudited)
�
�
(In thousands, except per share data)
Statements of Operations Data
�
�
�
�
�
�
�
Net sales (1)
$
4,052,324

�
$
2,447,610

�
$
12,128,757

�
$
7,063,789

Operating costs and expenses:
�
�
�
�
�
�
�
Cost of products sold (exclusive of depreciation and amortization) (1)
3,379,555

�
2,177,623

�
10,271,461

�
5,961,690

Direct operating expenses (exclusive of depreciation and amortization) (1)
218,183

�
123,474

�
619,995

�
359,195

Selling, general and administrative expenses
57,206

�
28,777

�
170,578

�
84,779

Affiliate severance costs


�


�
12,878

�


Loss (gain) on disposal of assets, net
(66
)
�
(7,024
)
�
939

�
(7,024
)
Maintenance turnaround expense
1,883

�
2,895

�
48,329

�
46,098

Depreciation and amortization
46,910

�
27,735

�
141,168

�
79,210

Total operating costs and expenses
3,703,671

�
2,353,480

�
11,265,348

�
6,523,948

Operating income
348,653

�
94,130

�
863,409

�
539,841

Other income (expense):
�
�
�
�
�
�
�
Interest income
483

�
155

�
899

�
541

Interest expense and other financing costs
(16,358
)
�
(13,432
)
�
(68,940
)
�
(46,101
)
Amortization of loan fees
(1,892
)
�
(1,523
)
�
(6,068
)
�
(4,642
)
Loss on extinguishment of debt


�
(6
)
�
(9
)
�
(46,772
)
Other, net
(2,816
)
�
94

�
(351
)
�
392

Income before income taxes
328,070

�
79,418

�
788,940

�
443,259

Provision for income taxes
(80,713
)
�
(29,074
)
�
(223,319
)
�
(159,937
)
Net income
247,357

�
50,344

�
565,621

�
283,322

Less net income attributable to non-controlling interests
60,608

�


�
136,630

�


Net income attributable to Western Refining, Inc.
$
186,749

�
$
50,344

�
$
428,991

�
$
283,322

Basic earnings per share
$
1.85

�
$
0.63

�
$
4.86

�
$
3.40

Diluted earnings per share
1.84

�
0.53

�
4.28

�
2.80

Weighted average basic shares outstanding
101,199

�
80,254

�
88,240

�
83,100

Weighted average dilutive shares outstanding (2)
101,325

�
102,720

�
102,207

�
105,602






�
Three Months Ended
�
Nine Months Ended
�
September 30,
�
September 30,
�
2014
�
2013
�
2014
�
2013
�
(Unaudited)
�
(In thousands)
Cash Flow Data
�
�
�
�
�
�
�
Net cash provided by (used in):
�
�
�
�
�
�
�
Operating activities
$
208,959

�
$
90,089

�
$
494,058

�
$
349,413

Investing activities
(46,875
)
�
(38,902
)
�
(142,036
)
�
(140,322
)
Financing activities
(43,743
)
�
(52,381
)
�
(169,938
)
�
(291,917
)
Capital expenditures
49,923

�
45,935

�
147,254

�
147,789

Cash distributions received by Western from:
�
�
�
�
�
�
�
NTI
$
18,880

�
$


�
$
60,914

�
$


WNRL
9,167

�


�
25,210

�


Other Data
�
�
�
�
�
�
�
Adjusted EBITDA (3)
$
378,027

�
$
92,240

�
$
918,022

�
$
575,345

Balance Sheet Data (at end of period)
�
�
�
�
�
�
�
Cash and cash equivalents
�
�
�
�
$
650,154

�
$
371,141

Working capital
�
�
�
�
1,078,164

�
371,392

Total assets
�
�
�
�
5,863,884

�
2,549,078

Total debt and lease financing obligation
�
�
�
�
1,279,435

�
564,683

Total equity
�
�
�
�
3,127,805

�
917,070


(1)
Excludes $1,193.0�million, $3,487.8�million, $1,113.1�million and $3,253.0�million of intercompany sales; $1,189.0�million, $3,475.5�million, $1,109.6�million and $3,244.3�million of intercompany cost of products sold; and $4.0�million, $12.3�million, $3.5�million and $8.7�million of intercompany direct operating expenses for the three and nine months ended September�30, 2014 and 2013, respectively.
(2)
Our computation of diluted earnings per share includes our Convertible Senior Unsecured Notes and any unvested restricted shares and share 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 both the three and nine months ended September�30, 2014, and assumed issuance of 13.8�million shares related to the Convertible Senior Unsecured Notes for the nine months ended September�30, 2014. We assumed issuance of 0.1�million and 0.2�million restricted shares and share units for the three and nine months ended September�30, 2013, respectively, and assumed issuance of 22.4 million shares related to the Convertible Senior Unsecured Notes for both the three and nine months ended September�30, 2013.
(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 to Adjusted EBITDA for the periods presented:
�
Three Months Ended
�
Nine Months Ended
�
September 30,
�
September 30,
�
2014
�
2013
�
2014
�
2013
�
(Unaudited)
�
�(In thousands)
Net income attributable to Western Refining, Inc.
$
186,749

�
$
50,344

�
$
428,991

�
$
283,322

Net income attributable to non-controlling interest
60,608

�


�
136,630

�


Interest expense and other financing costs
16,358

�
13,432

�
68,940

�
46,101

Provision for income taxes
80,713

�
29,074

�
223,319

�
159,937

Amortization of loan fees
1,892

�
1,523

�
6,068

�
4,642

Depreciation and amortization
46,910

�
27,735

�
141,168

�
79,210

Maintenance turnaround expense
1,883

�
2,895

�
48,329

�
46,098

Loss (gain) on disposal of assets, net
(66
)
�
(7,024
)
�
939

�
(7,024
)
Loss on extinguishment of debt


�
6

�
9

�
46,772

Unrealized gain on commodity hedging transactions
(17,020
)
�
(25,745
)
�
(136,371
)
�
(83,713
)
Adjusted EBITDA
$
378,027

�
$
92,240

�
$
918,022

�
$
575,345

�
�
�
�
�
�
�
�
EBITDA by Reporting Entity
�
�
�
�
�
�
�
Western Adjusted EBITDA
$
248,943

�
$
92,240

�
$
593,594

�
$
575,345

WNRL EBITDA
16,093

�


�
45,627

�


NTI Adjusted EBITDA
112,991

�


�
278,801

�


Adjusted EBITDA
$
378,027

�
$
92,240

�
$
918,022

�
$
575,345


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

�
$
8,014

�
$
34,711

Net income attributable to non-controlling interest


�
4,251

�
56,357

Interest expense and other financing costs
11,857

�
230

�
4,271

Provision for income taxes
80,578

�
135

�


Amortization of loan fees
1,760

�
132

�


Depreciation and amortization
25,097

�
3,331

�
18,482

Maintenance turnaround expense
1,883

�


�


Gain on disposal of assets, net
(66
)
�


�


Unrealized gain on commodity hedging transactions
(16,190
)
�


�
(830
)
Adjusted EBITDA
$
248,943

�
$
16,093

�
$
112,991





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

�
$
22,329

�
$
81,837

Net income attributable to non-controlling interest


�
11,844

�
124,786

Interest expense and other financing costs
51,683

�
682

�
16,575

Provision for income taxes
222,980

�
339

�


Amortization of loan fees
5,677

�
391

�


Depreciation and amortization
74,297

�
10,042

�
56,829

Maintenance turnaround expense
48,329

�


�


Gain (loss) on disposal of assets, net
1,040

�


�
(101
)
Loss on extinguishment of debt
9

�


�


Unrealized gain on commodity hedging transactions
(135,246
)
�


�
(1,125
)
Adjusted EBITDA
$
593,594

�
$
45,627

�
$
278,801





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,
�
2014
�
2013
�
2014
�
2013
�
(Unaudited)
�
(In thousands)
Operating Income
�
�
�
�
�
�
�
Refining
$
242,809

�
$
100,209

�
$
629,393

�
$
557,604

Wholesale
8,321

�
6,273

�
24,554

�
24,193

Retail
8,524

�
5,492

�
7,979

�
9,210

Corporate and other
(20,561
)
�
(17,844
)
�
(56,833
)
�
(51,166
)
Western, excluding WNRL and NTI
239,093

�
94,130

�
605,093

�
539,841

WNRL
12,761

�


�
35,581

�


NTI
96,799

�


�
222,735

�


Operating income
$
348,653

�
$
94,130

�
$
863,409

�
$
539,841

Depreciation and Amortization
�
�
�
�
�
�
�
Western, excluding WNRL and NTI
$
25,097

�
$
27,735

�
$
74,297

�
$
79,210

WNRL
3,331

�


�
10,042

�


NTI
18,482

�


�
56,829

�


Depreciation and amortization expense
$
46,910

�
$
27,735

�
$
141,168

�
$
79,210

Capital Expenditures
�
�
�
�
�
�
�
Western, excluding WNRL and NTI
$
37,938

�
$
45,935

�
$
101,490

�
$
147,789

WNRL
2,748

�


�
11,425

�


NTI
9,237

�


�
34,339

�


Capital expenditures
$
49,923

�
$
45,935

�
$
147,254

�
$
147,789

Balance Sheet Data (at end of period)
�
�
�
�
�
�
�
Cash and cash equivalents
�
�
�
�
�
�
�
Western, excluding WNRL and NTI
�
�
�
�
$
465,010

�
$
371,141

WNRL
�
�
�
�
79,109

�


NTI
�
�
�
�
106,035

�


Cash and cash equivalents
�
�
�
�
$
650,154

�
$
371,141

�Total debt
�
�
�
�
�
�
�
Western, excluding WNRL and NTI
�
�
�
�
$
896,026

�
$
554,487

WNRL
�
�
�
�


�


NTI
�
�
�
�
357,312

�


Total debt
�
�
�
�
$
1,253,338

�
$
554,487

Total debt to capitalization ratio (1)
�
�
�
�
63.4
%
�
60.5
%
�Total working capital
�
�
�
�
�
�
�
Western, excluding WNRL and NTI
�
�
�
�
$
726,937

�
$
371,392

WNRL
�
�
�
�
79,687

�


NTI
�
�
�
�
271,540

�


Total working capital
�
�
�
�
$
1,078,164

�
$
371,392

(1)
Calculation of total debt to capitalization ratio for the nine months ended September�30, 2014, excludes NTI debt of $357.3�million and total equity of $1,715.5�million attributable to non-controlling interest.





Refining Segment
El Paso and Gallup Refineries and Related Operations
�
Three Months Ended
�
Nine Months Ended
�
September 30,
�
September 30,
�
2014
�
2013
�
2014
�
2013
�
�
(In thousands, except per barrel data)
Statement of Operations Data (Unaudited):
�
�
�
�
�
�
�
Net sales (including intersegment sales) (1)
$
2,263,053

�
$
1,996,642

�
$
6,734,253

�
$
5,774,210

Operating costs and expenses:
�
�
�
�
�
�
�
Cost of products sold (exclusive of depreciation and amortization) (2)
1,912,640

�
1,787,848

�
5,748,784

�
4,852,728

Direct operating expenses (exclusive of depreciation and amortization)
78,122

�
82,893

�
225,127

�
238,106

Selling, general, and administrative expenses
7,216

�
7,245

�
21,700

�
21,357

Loss (gain) on disposal of assets, net
103

�
(7,024
)
�
775

�
(7,024
)
Maintenance turnaround expense
1,883

�
2,895

�
48,329

�
46,098

Depreciation and amortization
20,280

�
22,576

�
60,145

�
65,341

Total operating costs and expenses
2,020,244

�
1,896,433

�
6,104,860

�
5,216,606

Operating income
$
242,809

�
$
100,209

�
$
629,393

�
$
557,604

Key Operating Statistics
�
�
�
�
�
�
�
Total sales volume (bpd) (1) (3)
219,755

�
176,675

�
216,009

�
173,911

Total refinery production (bpd)
156,291

�
156,431

�
151,697

�
145,395

Total refinery throughput (bpd) (4)
158,452

�
159,622

�
153,937

�
148,130

Per barrel of throughput:
�
�
�
�
�
�
�
Refinery gross margin (2) (5)
$
24.04

�
$
14.22

�
$
23.45

�
$
22.79

Direct operating expenses (6)
5.36

�
5.64

�
5.36

�
5.89

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,
�
2014
�
2013
�
2014
�
2013
Key Operating Statistics
�
�
�
�
�
�
�
Refinery product yields (bpd):
�
�
�
�
�
�
�
Gasoline
81,350

�
80,773

�
77,732

�
77,471

Diesel and jet fuel
65,786

�
65,076

�
63,692

�
58,477

Residuum
5,569

�
6,188

�
5,241

�
5,388

Other
3,586

�
4,394

�
5,032

�
4,059

Total refinery production (bpd)
156,291

�
156,431

�
151,697

�
145,395

Refinery throughput (bpd):
�
�
�
�
�
�
�
Sweet crude oil
122,282

�
125,875

�
120,873

�
114,873

Sour crude oil
26,319

�
26,583

�
24,841

�
25,292

Other feedstocks and blendstocks
9,851

�
7,164

�
8,223

�
7,965

Total refinery throughput (bpd) (4)
158,452

�
159,622

�
153,937

�
148,130





El Paso Refinery
�
Three Months Ended
�
Nine Months Ended
�
September 30,
�
September 30,
�
2014
�
2013
�
2014
�
2013
Key Operating Statistics
�
�
�
�
�
�
�
Refinery product yields (bpd):
�
�
�
�
�
�
�
Gasoline
64,614

�
63,737

�
60,904

�
60,399

Diesel and jet fuel
56,278

�
57,686

�
54,911

�
51,371

Residuum
5,569

�
6,188

�
5,241

�
5,388

Other
2,517

�
3,645

�
3,588

�
3,302

Total refinery production (bpd)
128,978

�
131,256

�
124,644

�
120,460

Refinery throughput (bpd):
�
�
�
�
�
�
�
Sweet crude oil
97,514

�
101,660

�
95,881

�
90,997

Sour crude oil
26,319

�
26,583

�
24,841

�
25,292

Other feedstocks and blendstocks
6,844

�
5,315

�
5,709

�
6,222

Total refinery throughput (bpd) (4)
130,677

�
133,558

�
126,431

�
122,511

Total sales volume (bpd) (3)
138,212

�
142,151

�
138,851

�
139,689

Per barrel of throughput:
�
�
�
�
�
�
�
Refinery gross margin (2) (5)
$
20.99

�
$
11.56

�
$
19.50

�
$
20.54

Direct operating expenses (6)
4.32

�
4.35

�
4.31

�
4.43


Gallup Refinery
�
Three Months Ended
�
Nine Months Ended
�
September 30,
�
September 30,
�
2014
�
2013
�
2014
�
2013
Key Operating Statistics
�
�
�
�
�
�
�
Refinery product yields (bpd):
�
�
�
�
�
�
�
Gasoline
16,736

�
17,036

�
16,828

�
17,072

Diesel and jet fuel
9,508

�
7,390

�
8,781

�
7,106

Other
1,069

�
749

�
1,444

�
757

Total refinery production (bpd)
27,313

�
25,175

�
27,053

�
24,935

Refinery throughput (bpd):
�
�
�
�
�
�
�
Sweet crude oil
24,768

�
24,215

�
24,992

�
23,876

Other feedstocks and blendstocks
3,007

�
1,849

�
2,514

�
1,743

Total refinery throughput (bpd) (4)
27,775

�
26,064

�
27,506

�
25,619

Total sales volume (bpd) (3)
35,705

�
34,524

�
34,257

�
34,222

Per barrel of throughput:
�
�
�
�
�
�
�
Refinery gross margin (2) (5)
$
20.65

�
$
10.63

�
$
16.54

�
$
20.38

Direct operating expenses (6)
8.29

�
8.91

�
8.58

�
9.79





(1)
Refining net sales for the three and nine months ended September�30, 2014 include $410.4�million and $1,163.8�million, respectively, representing 45,837 and 42,901 bpd, respectively, in crude oil sales to third-parties without comparable activity in 2013. The majority of the crude oil sales resulted from the purchase of barrels in excess of what was required for production purposes in the El Paso and Gallup refineries.
(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,
�
2014
�
2013
�
2014
�
2013
�
(Unaudited)
�
(In thousands)
Realized hedging gain, net
$
20,737

�
$
12,739

�
$
41,399

�
$
2,250

Unrealized hedging gain, net
16,190

�
25,745

�
135,246

�
83,713

Total hedging gain, net
$
36,927

�
$
38,484

�
$
176,645

�
$
85,963

(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 12.6% and 11.5% of our total consolidated sales volumes for the three and nine months ended September�30, 2014, 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.
(4)
Total refinery throughput includes crude oil and other feedstocks and blendstocks.
(5)
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 noncash 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 the El Paso and Gallup refineries to combined gross margin for both refineries for the periods presented:
�
Three Months Ended
�
Nine Months Ended
�
September 30,
�
September 30,
�
2014
�
2013
�
2014
�
2013
�
(Unaudited)
�
�
(In thousands, except per barrel data)
Net sales (including intersegment sales)
$
2,263,053

�
$
1,996,642

�
$
6,734,253

�
$
5,774,210

Cost of products sold (exclusive of depreciation and amortization)
1,912,640

�
1,787,848

�
5,748,784

�
4,852,728

Depreciation and amortization
20,280

�
22,576

�
60,145

�
65,341

Gross profit
330,133

�
186,218

�
925,324

�
856,141

Plus depreciation and amortization
20,280

�
22,576

�
60,145

�
65,341

Refinery gross margin
$
350,413

�
$
208,794

�
$
985,469

�
$
921,482

Refinery gross margin per refinery throughput barrel
$
24.04

�
$
14.22

�
$
23.45

�
$
22.79

Gross profit per refinery throughput barrel
$
22.65

�
$
12.68

�
$
22.02

�
$
21.17

(6)
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. We acquired the general partner and a 38.7% limited partner interest in NTI on November 12, 2013. There is no comparable activity in prior periods.
�
Three Months Ended
�
Nine Months Ended
�
September 30,
�
2014
�
(Unaudited)
�
(In thousands, except per barrel data)
Net sales
$
1,449,033

�
$
4,205,732

Operating costs and expenses:
�
�
�
Cost of products sold (exclusive of depreciation and amortization) (1)
1,235,697

�
3,631,911

Direct operating expenses (exclusive of depreciation and amortization)
75,909

�
209,597

Selling, general and administrative expenses
22,146

�
71,883

Affiliate severance costs


�
12,878

Gain on disposal of assets,�net


�
(101
)
Depreciation and amortization
18,482

�
56,829

Total operating costs and expenses
1,352,234

�
3,982,997

Operating income
96,799

�
222,735

Other income (expense):
�
�
�
Interest income
95

�
272

Interest expense and other financing costs
(4,271
)
�
(16,575
)
Other, net
(1,555
)
�
191

Income before income taxes
$
91,068

�
$
206,623

�
�
�
�
Key Operating Statistics
�
�
�
Total sales volume (bpd)
100,064

�
97,252

Total refinery production (bpd)
96,625

�
94,314

Total refinery throughput (bpd) (2)
96,464

�
94,054

Per barrel of throughput:
�
�
�
Refinery gross margin (1) (3)
$
18.87

�
$
17.35

Refinery gross margin excluding hedging activities (1) (3)
18.10

�
17.19

Gross profit (1) (3)
17.08

�
15.38

Direct operating expenses (4)
4.46

�
4.37

Retail fuel gallons sold (in thousands)
79,674

�
229,453

Retail fuel margin per gallon (5)
$
0.20

�
$
0.20

Merchandise sales
95,647

�
264,090

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

Franchised retail outlets at period end
�
�
82






(1)
Cost of products sold for NTI includes the net realized and net non-cash unrealized hedging activity shown in the table below. The hedging losses are also included in the combined gross profit and refinery gross margin.
�
Three Months Ended
�
Nine Months Ended
�
September 30,
�
2014
�
(Unaudited)
�
(In thousands)
Realized hedging gain, net
$
5,978

�
$
2,874

Unrealized hedging gain, net
830

�
1,125

Total hedging gain, net
$
6,808

�
$
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 our refinery's total throughput volumes for the respective period presented. The net realized and net noncash unrealized economic hedging losses included in NTI's gross margin are not allocated to the refinery. 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 gross margin for the St.�Paul Park refinery for the period presented:
�
Three Months Ended
�
Nine Months Ended
�
September 30,
�
2014
�
(Unaudited)
�
(In thousands, except per barrel data)
Net sales (including intersegment sales)
$
1,425,308

�
$
4,155,644

Cost of products sold (exclusive of depreciation and amortization)
1,257,837

�
3,710,268

Depreciation and amortization
15,890

�
50,378

Gross profit
151,581

�
394,998

Plus depreciation and amortization
15,890

�
50,378

Refinery gross margin
$
167,471

�
$
445,376

Refinery gross margin per refinery throughput barrel
$
18.87

�
$
17.35

Gross profit per refinery throughput barrel
$
17.08

�
$
15.38

(4)
NTI's 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)
Fuel margin per gallon is a measurement calculated by dividing the difference between fuel sales and fuel cost of products sold by the number of gallons sold. 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 following table sets forth the summary operating results for WNRL. There is no comparable activity prior to WNRL's commencement of operations on October�16, 2013.
�
Three Months Ended
�
Nine Months Ended
�
September 30,
�
2014
�
(Unaudited)
�
(In thousands, except key operating statistics)
Revenues:
�
�
�
Affiliate
$
34,914

�
$
101,294

Third-party
686

�
2,044

Total revenues
35,600

�
103,338

Operating costs and expenses:
�

�
�

Operating and maintenance expenses
17,034

�
51,123

General and administrative expenses
2,474

�
6,592

Depreciation and amortization
3,331

�
10,042

Total operating costs and expenses
22,839

�
67,757

Operating income
12,761

�
35,581

Other income (expense):
�
�
�
Interest expense and other financing costs
(230
)
�
(682
)
Amortization of loan fees
(132
)
�
(391
)
Other, net
1

�
4

Income before income taxes
$
12,400

�
$
34,512

�
�
�
�
Key Operating Statistics
�
�
�
Pipeline and gathering (bpd):
�
�
�
Mainline movements:
�
�
�
Permian/Delaware Basin system
27,382

�
22,351

Four Corners system (1)
38,623

�
38,483

Gathering (truck offloading):
�
�
�
Permian/Delaware Basin system
24,250

�
24,205

Four Corners system
10,979

�
11,187

Terminalling, transportation and storage (bpd):
�
�
�
Shipments into and out of storage (includes asphalt)
389,773

�
379,261

(1)
Some barrels of crude oil movements to our Gallup refinery are transported on more than one of WNRL's mainlines. Mainline movements for the Four Corners system include each barrel transported on each mainline.





Wholesale Segment
�
Three Months Ended
�
Nine Months Ended
�
September 30,
�
September 30,
�
2014
�
2013
�
2014
�
2013
�
�
(In thousands, except per gallon data)
Statement of Operations Data (Unaudited)
�
�
�
�
�
�
�
Net sales (including intersegment sales)
$
1,172,574

�
$
1,242,365

�
$
3,652,614

�
$
3,618,413

Operating costs and expenses:
�
�
�
�
�
�
�
Cost of products sold (exclusive of depreciation and amortization)
1,138,553

�
1,216,132

�
3,555,046

�
3,533,482

Direct operating expenses (exclusive of depreciation and amortization)
21,282

�
16,557

�
59,944

�
49,345

Selling, general and administrative expenses
3,208

�
2,424

�
9,427

�
8,449

Gain on disposal of assets, net
(29
)
�


�
(16
)
�


Depreciation and amortization
1,239

�
979

�
3,659

�
2,944

Total operating costs and expenses
1,164,253

�
1,236,092

�
3,628,060

�
3,594,220

Operating income
$
8,321

�
$
6,273

�
$
24,554

�
$
24,193

Operating Data
�
�
�
�
�
�
�
Fuel gallons sold
390,941

�
399,291

�
1,191,168

�
1,157,620

Fuel gallons sold to retail (included in fuel gallons sold)
68,064

�
65,705

�
194,753

�
191,463

Average fuel sales price per gallon, net of excise taxes
$
2.86

�
$
3.00

�
$
2.94

�
$
3.02

Average fuel cost per gallon, net of excise taxes
2.81

�
2.96

�
2.88

�
2.96

Fuel margin per gallon (1)
0.07

�
0.06

�
0.06

�
0.07

Lubricant gallons sold
3,071

�
2,986

�
9,163

�
8,939

Average lubricant sales price per gallon
$
11.93

�
$
11.27

�
$
11.80

�
$
11.15

Average lubricant cost per gallon
10.71

�
10.10

�
10.61

�
9.96

Lubricant margin (2)
10.2
%
�
10.3
%
�
10.1
%
�
10.7
%
�
Three Months Ended
�
Nine Months Ended
�
September 30,
�
September 30,
�
2014
�
2013
�
2014
�
2013
�
(Unaudited)
�
(In thousands, except per gallon data)
Net Sales
�
�
�
�
�
�
�
Fuel sales, net of excise taxes
$
1,119,914

�
$
1,199,765

�
$
3,498,715

�
$
3,491,772

Lubricant sales
36,640

�
33,644

�
108,139

�
99,661

Other sales
16,020

�
8,956

�
45,760

�
26,980

Net sales
$
1,172,574

�
$
1,242,365

�
$
3,652,614

�
$
3,618,413

Cost of Products Sold
�
�
�
�
�
�
�
Fuel cost of products sold, net of excise taxes
$
1,098,414

�
$
1,180,630

�
$
3,436,513

�
$
3,427,488

Lubricant cost of products sold
32,893

�
30,164

�
97,208

�
89,025

Other cost of products sold
7,246

�
5,338

�
21,325

�
16,969

Cost of products sold
$
1,138,553

�
$
1,216,132

�
$
3,555,046

�
$
3,533,482

Fuel margin per gallon (1)
$
0.07

�
$
0.06

�
$
0.06

�
$
0.07

(1)
Wholesale fuel margin per gallon is a function of the difference between wholesale fuel sales and cost of fuel sales divided by the number of total gallons sold less gallons sold to our retail segment. 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.




Retail Segment
�
Three Months Ended
�
Nine Months Ended
�
September 30,
�
September 30,
�
2014
�
2013
�
2014
�
2013
�
(In thousands, except per gallon data)
Statement of Operations Data (Unaudited)
�
�
�
�
�
�
�
Net sales (including intersegment sales)
$
325,042

�
$
321,710

�
$
920,634

�
$
924,183

Operating costs and expenses:
�
�
�
�
�
�
�
Cost of products sold (exclusive of depreciation and amortization)
281,706

�
283,282

�
811,227

�
819,810

Direct operating expenses (exclusive of depreciation and amortization)
29,773

�
27,492

�
86,511

�
80,431

Selling, general and administrative expenses
2,333

�
2,082

�
6,863

�
6,013

Gain on disposal of assets, net
(140
)
�


�
(140
)
�


Depreciation and amortization
2,846

�
3,362

�
8,194

�
8,719

Total operating costs and expenses
316,518

�
316,218

�
912,655

�
914,973

Operating income
$
8,524

�
$
5,492

�
$
7,979

�
$
9,210

Operating Data
�
�
�
�
�
�
�
Fuel gallons sold
80,705

�
78,132

�
232,236

�
227,683

Average fuel sales price per gallon, net of excise taxes
$
3.12

�
$
3.12

�
$
3.07

�
$
3.08

Average fuel cost per gallon, net of excise taxes
2.86

�
2.90

�
2.88

�
2.89

Fuel margin per gallon (1)
0.26

�
0.22

�
0.19

�
0.19

�
�
�
�
�
�
�
�
Merchandise sales
$
70,900

�
$
67,398

�
$
199,684

�
$
191,351

Merchandise margin (2)
28.7
%
�
28.9
%
�
28.8
%
�
28.7
%
Operating retail outlets at period end
�
�
�
�
230

�
221

�
Three Months Ended
�
Nine Months Ended
�
September 30,
�
September 30,
�
2014
�
2013
�
2014
�
2013
�
(Unaudited)
�
(In thousands, except per gallon data)
Net Sales
�
�
�
�
�
�
�
Fuel sales, net of excise taxes
$
251,709

�
$
244,058

�
$
712,839

�
$
700,837

Merchandise sales
70,900

�
67,398

�
199,684

�
191,351

Other sales
2,433

�
10,254

�
8,111

�
31,995

Net sales
$
325,042

�
$
321,710

�
$
920,634

�
$
924,183

Cost of Products Sold
�
�
�
�
�
�
�
Fuel cost of products sold, net of excise taxes
$
231,143

�
$
227,241

�
$
668,642

�
$
658,371

Merchandise cost of products sold
50,531

�
47,893

�
142,235

�
136,397

Other cost of products sold
32

�
8,148

�
350

�
25,042

Cost of products sold
$
281,706

�
$
283,282

�
$
811,227

�
$
819,810

Fuel margin per gallon (1)
$
0.26

�
$
0.22

�
$
0.19

�
$
0.19

(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.




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
�
Nine Months Ended
�
September 30,
�
September 30,
�
2014
�
2013
�
2014
�
2013
�
(Unaudited)
�
�
(In thousands, except per share data)
Reported diluted earnings per share
$
1.84

�
$
0.53

�
$
4.28

�
$
2.80

Income before income taxes
$
328,070

�
$
79,418

�
$
788,940

�
$
443,259

Unrealized gain on commodity hedging transactions
(17,020
)
�
(25,745
)
�
(136,371
)
�
(83,713
)
Loss (gain) on disposal of assets, net
(66
)
�
(7,024
)
�
939

�
(7,024
)
Affiliate severance costs


�


�
12,878

�


Loss on extinguishment of debt


�
6

�
9

�
46,772

Earnings before income taxes excluding special items
310,984

�
46,655

�
666,395

�
399,294

Recomputed income taxes excluding special items (1)
(75,567
)
�
(17,080
)
�
(230,706
)
�
(144,065
)
Net income excluding special items
235,417

�
29,575

�
435,689

�
255,229

Net income attributable to non-controlling interest
60,099

�


�
143,834

�


Net income attributable to Western excluding special items
$
175,318

�
$
29,575

�
$
291,855

�
$
255,229

Diluted earnings per share excluding special items
$
1.73

�
$
0.33

�
$
4.34

�
$
2.54

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




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