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Form 8-K Western Refining, Inc. For: Feb 26

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February 26, 2015 6:10 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): February 26, 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 February 26, 2015, Western Refining, Inc. (“Western” or the “Company”) issued a press release announcing its results of operations for the fourth quarter ended December 31, 2014, and the full year of 2014. A copy of the 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 February 26, 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: February 26, 2015




EXHIBIT INDEX
 
Exhibit No.
  
Description
99.1
  
Press Release, dated February 26, 2015.




FOR IMMEDIATE RELEASE
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 REPORTS FOURTH QUARTER AND FULL YEAR 2014 RESULTS
• Net income of $1.33 per diluted share; $1.19 per diluted share, excluding special items
• Completed the sale of Wholesale business to WNRL for $360 million
• Returned $424 million in cash to shareholders in fourth quarter
 
EL PASO, Texas - February 26, 2015 - Western Refining, Inc. (NYSE: WNR) today reported fourth quarter 2014 net income of $116.8 million, or $1.19 per diluted share, excluding special items. This compares to fourth quarter 2013 net income of $57.3 million, or $0.60 per diluted share, excluding special items. Including special items, the Company recorded fourth quarter 2014 net income attributable to Western Refining, Inc. of $130.9 million, or $1.33 per diluted share as compared to net loss of $7.3 million, or $(0.09) per diluted share for the fourth quarter of 2013. The special items for the fourth quarter of 2014 primarily included a non-cash lower of cost or market inventory adjustment of $78.6 million and a non-cash unrealized pre-tax hedging gain of $58.1 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).
Western recorded full year 2014 net income attributable to Western Refining, Inc. of $559.9 million, or $5.61 per diluted share compared to full year 2013 net income of $276.0 million, or $2.79 per diluted share.
Jeff Stevens, Western's President and Chief Executive Officer, said, "Western had a very successful 2014. We improved the safety and reliability at both the El Paso and Gallup refineries, realized significant synergies from our Northern Tier investment, and continued to grow WNRL. In addition, in 2014 we returned $553.0 million through dividends and share repurchases to our shareholders."
Stevens concluded, "We successfully executed our 2014 strategic plan and are well-positioned for positive growth in a volatile crude oil pricing environment. Our 2015 goals are focused on continuing to improve the safety, environmental, and reliability performance of our business while increasing operating efficiencies and containing costs. We are committed to continuing to return cash to our shareholders."
Conference Call Information
A conference call is scheduled for Thursday, February 26, 2015, at 10:00 am ET to discuss Western's financial results for the fourth quarter and full year ended December 31, 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: 55203854. The audio replay will be available two hours after the end of the call through March 12, 2015, by dialing (800) 585-8367 or (404) 537-3406, passcode: 55203854.




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, however, other items that have a cash impact, such as gains or losses on disposal of assets or 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). Western Refining, Inc. also owns 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 covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements contained herein include statements about: our positioning for positive growth; the volatility of the crude oil pricing environment; our focus on safety, environmental, and reliability performance of our business; our ability to increase operating efficiencies and contain costs; and our commitment to return cash to our shareholders. These statements are subject to the general risks inherent in the Company's business. These expectations may or may not be realized. Some of these expectations may be based upon assumptions or judgments that prove to be incorrect. In addition, 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 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. 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 the Upper Great Plains region of the U.S.
•
WNRL owns and operates terminal, storage, transportation 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 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 fueling fleet 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
 
Year Ended
 
December 31,
 
December 31,
 
2014
 
2013 (4)
 
2014
 
2013 (4)
 
(In thousands, except per share data)
Statements of Operations Data
 
 
 
 
 
 
 
Net sales (1)
$
3,024,816

 
$
3,022,281

 
$
15,153,573

 
$
10,086,070

Operating costs and expenses:
 
 
 

 
 
 
 
Cost of products sold (exclusive of depreciation and amortization) (1)
2,448,502

 
2,728,532

 
12,719,963

 
8,690,222

Direct operating expenses (exclusive of depreciation and amortization) (1)
230,639

 
164,641

 
850,634

 
523,836

Selling, general and administrative expenses
55,442

 
52,252

 
226,020

 
137,031

Affiliate severance costs
—

 
—

 
12,878

 
—

Loss (gain) on disposal of assets, net
7,591

 
2,035

 
8,530

 
(4,989
)
Maintenance turnaround expense
140

 
4,151

 
48,469

 
50,249

Depreciation and amortization
49,398

 
38,638

 
190,566

 
117,848

Total operating costs and expenses
2,791,712

 
2,990,249

 
14,057,060

 
9,514,197

Operating income
233,104

 
32,032

 
1,096,513

 
571,873

Other income (expense):
 
 
 
 
 
 
 
Interest income
289

 
205

 
1,188

 
746

Interest expense and other financing costs
(20,336
)
 
(21,939
)
 
(89,276
)
 
(68,040
)
Amortization of loan fees
(1,718
)
 
(1,899
)
 
(7,786
)
 
(6,541
)
Loss on extinguishment of debt
—

 
(1
)
 
(9
)
 
(46,773
)
Other, net
2,397

 
1,822

 
2,046

 
2,214

Income before income taxes
213,736

 
10,220

 
1,002,676

 
453,479

Provision for income taxes
(69,285
)
 
6,012

 
(292,604
)
 
(153,925
)
Net income
144,451

 
16,232

 
710,072

 
299,554

Less net income attributed to non-controlling interest
13,516

 
23,560

 
150,146

 
23,560

Net income (loss) attributable to Western
$
130,935

 
$
(7,328
)
 
$
559,926

 
$
275,994

Basic earnings (loss) per share
$
1.34

 
$
(0.09
)
 
$
6.17

 
$
3.35

Diluted earnings (loss) per share (2)
$
1.33

 
$
(0.09
)
 
$
5.61

 
$
2.79

Weighted average basic shares outstanding
98,029

 
79,720

 
90,708

 
82,248

Weighted average dilutive shares outstanding
98,172

 
79,720

 
101,190

 
104,904





 
Three Months Ended
 
Year Ended
 
December 31,
 
December 31,
 
2014
 
2013 (4)
 
2014
 
2013 (4)
 
(In thousands)
Cash Flow Data
 
 
 
 
 
 
 
Net cash provided by (used in):
 
 
 
 
 
 
 
Operating activities
$
243,575

 
$
91,740

 
$
737,633

 
$
441,153

Investing activities
(238,828
)
 
(755,563
)
 
(380,864
)
 
(895,885
)
Financing activities
(223,742
)
 
760,752

 
(393,680
)
 
468,835

Capital expenditures
76,017

 
57,888

 
223,271

 
205,677

Cash distributions received by Western from:
 
 
 
 
 
 
 
NTI
$
35,623

 
$
—

 
$
96,537

 
$
—

WNRL
9,833

 
—

 
35,043

 
—

Other Data
 
 
 
 
 
 
 
Adjusted EBITDA (3)
$
313,421

 
$
179,494

 
$
1,231,443

 
$
754,839

Balance Sheet Data (at end of period)
 
 
 
 
 
 
 
Cash and cash equivalents
 
 
 
 
$
431,159

 
$
468,070

Restricted cash
 
 
 
 
167,009

 
—

Working capital
 
 
 
 
754,762

 
448,667

Total assets
 
 
 
 
5,665,416

 
5,512,965

Total debt and lease financing obligation
 
 
 
 
1,548,026

 
1,411,517

Total equity
 
 
 
 
2,787,644

 
2,570,587

(1)
Excludes $902.9 million, $4,390.7 million, $1,024.8 million, and $4,277.8 million of intercompany sales; $898.6 million, $4,374.1 million, $1,020.7 million, and $4,265.0 million of intercompany cost of products sold; and $4.3 million, $16.6 million, $4.1 million and $12.8 million, of intercompany direct operating expenses for the three and twelve months ended December 31, 2014 and 2013, respectively.
(2)
Our computation of diluted earnings (loss) 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 (loss) per share calculation, we assumed issuance of 0.1 million restricted share units for both the three and twelve months ended December 31, 2014 and assumed issuance of 10.3 million shares related to our Convertible Senior Notes for the twelve months ended December 31, 2014. Our Convertible Senior Notes and our restricted shares and share units were determined to be anti-dilutive for the three months ended December 31, 2013 and as such were not included in our computation of diluted earnings (loss) per share. We assumed issuance of 0.2 million restricted shares and share units and assumed issuance of 22.5 million shares related to the Convertible Senior Notes for the twelve months ended December 31, 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 (loss) to Adjusted EBITDA for the periods presented:
 
Three Months Ended
 
Twelve Months Ended
 
December 31,
 
December 31,
 
2014
 
2013 (4)
 
2014
 
2013 (4)
 
(In thousands)
Net income (loss) attributable to Western
$
130,935

 
$
(7,328
)
 
$
559,926

 
$
275,994

Net income attributed to non-controlling interest
13,516

 
23,560

 
150,146

 
23,560

Interest expense and other financing costs
20,336

 
21,939

 
89,276

 
68,040

Amortization of loan fees
1,718

 
1,899

 
7,786

 
6,541

Provision for income taxes
69,285

 
(6,012
)
 
292,604

 
153,925

Depreciation and amortization
49,398

 
38,638

 
190,566

 
117,848

Maintenance turnaround expense
140

 
4,151

 
48,469

 
50,249

Loss (gain) on disposal of assets, net
7,591

 
2,035

 
8,530

 
(4,989
)
Loss on extinguishment of debt
—

 
1

 
9

 
46,773

Net change in lower of cost or market inventory reserve
78,554

 
—

 
78,554

 
—

Unrealized loss (gain) on commodity hedging transactions
(58,052
)
 
100,611

 
(194,423
)
 
16,898

Adjusted EBITDA
$
313,421

 
$
179,494

 
$
1,231,443

 
$
754,839

 
 
 
 
 
 
 
 
Adjusted EBITDA by Reporting Entity:
 
 
 
 
 
 
 
Western Adjusted EBITDA
$
170,235

 
$
118,067

 
$
763,829

 
$
693,412

NTI Adjusted EBITDA
118,260

 
49,829

 
397,061

 
49,829

WNRL Adjusted EBITDA
24,926

 
11,598

 
70,553

 
11,598

Adjusted EBITDA
$
313,421

 
$
179,494

 
$
1,231,443

 
$
754,839





 
Three Months Ended
 
December 31,
 
2014
 
2013 (4)
 
Western
 
WNRL
 
NTI
 
Western
 
WNRL
 
NTI
 
(Unaudited)
 
 (In thousands)
Net income (loss) attributable to Western Refining, Inc.
$
111,475

 
$
12,458

 
$
7,002

 
$
(26,492
)
 
$
5,572

 
$
13,592

Net income attributable to non-controlling interest
—

 
6,361

 
7,155

 
—

 
2,956

 
20,604

Interest expense and other financing costs
12,399

 
1,154

 
6,783

 
16,866

 
190

 
4,883

Amortization of loan fees
1,586

 
132

 
—

 
1,790

 
109

 
—

Provision for income taxes
69,165

 
120

 
—

 
(6,107
)
 
95

 
—

Depreciation and amortization
25,205

 
4,478

 
19,715

 
25,222

 
2,676

 
10,740

Maintenance turnaround expense
140

 
—

 
—

 
4,151

 
—

 
—

Loss on disposal of assets, net
7,359

 
223

 
9

 
2,025

 
—

 
10

Loss on extinguishment of debt
—

 
—

 
—

 
1

 
—

 
—

Net change in lower of cost or market inventory reserve
4,883

 
—

 
73,671

 
—

 
—

 
—

Unrealized loss (gain) on commodity hedging transactions
(61,977
)
 
—

 
3,925

 
100,611

 
—

 
—

Adjusted EBITDA
$
170,235

 
$
24,926

 
$
118,260

 
$
118,067

 
$
11,598

 
$
49,829

 
Twelve Months Ended
 
December 31,
 
2014
 
2013 (4)
 
Western
 
WNRL
 
NTI
 
Western
 
WNRL
 
NTI
 
(Unaudited)
 
 (In thousands)
Net income attributable to Western Refining, Inc.
$
436,300

 
$
34,787

 
$
88,839

 
$
256,830

 
$
5,572

 
$
13,592

Net income attributable to non-controlling interest
—

 
18,205

 
131,941

 
—

 
2,956

 
20,604

Interest expense and other financing costs
64,082

 
1,836

 
23,358

 
62,967

 
190

 
4,883

Amortization of loan fees
7,263

 
523

 
—

 
6,432

 
109

 
—

Provision for income taxes
292,145

 
459

 
—

 
153,830

 
95

 
—

Depreciation and amortization
99,502

 
14,520

 
76,544

 
104,432

 
2,676

 
10,740

Maintenance turnaround expense
48,469

 
—

 
—

 
50,249

 
—

 
—

Loss (gain) on disposal of assets, net
8,399

 
223

 
(92
)
 
(4,999
)
 
—

 
10

Loss on extinguishment of debt
9

 
—

 
—

 
46,773

 
—

 
—

Net change in lower of cost or market inventory reserve
4,883

 
—

 
73,671

 
—

 
—

 
—

Unrealized loss (gain) on commodity hedging transactions
(197,223
)
 
—

 
2,800

 
16,898

 
—

 
—

Adjusted EBITDA
$
763,829

 
$
70,553

 
$
397,061

 
$
693,412

 
$
11,598

 
$
49,829

(4)
The information presented includes the results of operations of NTI beginning November 12, 2013, the consummation date of the purchase transactions. Additionally, the information presented includes the financial results for WNRL from the period beginning October 16, 2013.








Consolidating Financial Data
The following tables set forth our consolidating historical financial data for the periods presented below.
 
Three Months Ended
 
Year Ended
 
December 31,
 
December 31,
 
2014
 
2013
 
2014
 
2013
 
(In thousands, except per share data)
Operating Income (Loss)
 
 
 
 
 
 
 
Western, excluding WNRL and NTI
$
194,400

 
$
(14,243
)
 
$
799,493

 
$
525,598

WNRL (1)
20,210

 
8,917

 
55,791

 
8,917

NTI (2)
18,494

 
37,358

 
241,229

 
37,358

Operating income
$
233,104

 
$
32,032

 
$
1,096,513

 
$
571,873

Depreciation and Amortization
 
 
 
 
 
 
 
Western, excluding WNRL and NTI
$
25,205

 
$
25,222

 
$
99,502

 
$
104,432

WNRL (1)
4,478

 
2,676

 
14,520

 
2,676

NTI (2)
19,715

 
10,740

 
76,544

 
10,740

Depreciation and amortization expense
$
49,398

 
$
38,638

 
$
190,566

 
$
117,848

Capital Expenditures


 


 


 


Western, excluding WNRL and NTI
$
60,478

 
$
47,194

 
$
161,968

 
$
194,983

WNRL (1)
4,983

 
2,810

 
16,408

 
2,810

NTI (2)
10,556

 
7,884

 
44,895

 
7,884

Capital expenditures
$
76,017

 
$
57,888

 
$
223,271

 
$
205,677

Balance Sheet Data (at end of period)
 
 
 
 
 
 
 
Cash and cash equivalents
 
 
 
 
 
 
 
Western, excluding WNRL and NTI
 
 
 
 
$
289,007

 
$
298,256

WNRL
 
 
 
 
54,298

 
84,000

NTI
 
 
 
 
87,854

 
85,814

Cash and cash equivalents
 
 
 
 
$
431,159

 
$
468,070

Total debt
 
 
 
 
 
 
 
Western, excluding WNRL and NTI
 
 
 
 
$
894,500

 
$
1,108,238

WNRL
 
 
 
 
269,000

 
—

NTI
 
 
 
 
357,037

 
278,369

Total debt
 
 
 
 
$
1,520,537

 
$
1,386,607

Total working capital
 
 
 
 
 
 
 
Western, excluding WNRL and NTI
 
 
 
 
$
501,034

 
$
256,262

WNRL
 
 
 
 
50,081

 
85,182

NTI
 
 
 
 
203,647

 
107,223

Total working capital
 
 
 
 
$
754,762

 
$
448,667

(1)
WNRL financial data represents financial results for the period beginning October 16, 2013 through December 31, 2014, and includes the financial results of WNRL wholesale beginning October 15, 2014 through December 31, 2014.
(2)
NTI financial data represents financial results for the period beginning November 12, 2013 through December 31, 2014.





Refining

El Paso and Gallup Refineries and Related Operations
 
Three Months Ended
 
Year Ended
 
December 31,
 
December 31,
 
2014
 
2013
 
2014
 
2013
 
(In thousands, except per barrel data)
Statement of Operations Data:
 
 
 
 
 
 
 
Net sales (including intersegment sales) (1)
$
1,918,993

 
$
2,218,723

 
$
9,485,734

 
$
8,866,162

Operating costs and expenses:
 
 
 
 
 
 
 
Cost of products sold (exclusive of depreciation and amortization) (6)
1,596,601

 
2,104,009

 
8,175,332

 
7,828,695

Direct operating expenses (exclusive of depreciation and amortization)
81,359

 
71,844

 
306,583

 
254,087

Selling, general and administrative expenses
6,770

 
8,432

 
28,470

 
26,451

(Gain) loss on disposal of assets, net
7,427

 
2,025

 
8,202

 
(4,999
)
Maintenance turnaround expense
140

 
4,151

 
48,469

 
50,249

Depreciation and amortization
21,581

 
19,878

 
81,726

 
75,346

Total operating costs and expenses
1,713,878

 
2,210,339

 
8,648,782

 
8,229,829

Operating income
$
205,115

 
$
8,384

 
$
836,952

 
$
636,333

Key Operating Statistics
 
 
 
 
 
 
 
Total sales volume (bpd) (2)
222,479

 
184,790

 
217,640

 
176,653

Total refinery production (bpd)
156,637

 
154,908

 
152,942

 
147,793

Total refinery throughput (bpd) (3)
158,231

 
157,252

 
155,019

 
150,429

Per barrel of throughput:
 
 
 
 
 
 
 
Refinery gross margin (4) (6)
$
22.13

 
$
7.99

 
$
23.11

 
$
18.89

Direct operating expenses (5)
5.59

 
5.14

 
5.42

 
5.69

Mid-Atlantic sales volume (bbls)
1,705

 
2,556

 
8,588

 
9,734

Mid-Atlantic margin per barrel
$
0.12

 
$
(0.30
)
 
$
0.32

 
$
0.47

El Paso and Gallup Refineries
 
Three Months Ended
 
Year Ended
 
December 31,
 
December 31,
 
2014
 
2013
 
2014
 
2013
Key Operating Statistics
 
 
 
 
 
 
 
Refinery product yields (bpd):
 
 
 
 
 
 
 
Gasoline
83,869

 
81,821

 
79,279

 
78,568

Diesel and jet fuel
62,370

 
62,852

 
63,359

 
59,580

Residuum
4,763

 
5,616

 
5,121

 
5,445

Other
5,635

 
4,619

 
5,183

 
4,200

Total refinery production (bpd)
156,637

 
154,908

 
152,942

 
147,793

Refinery throughput (bpd):
 
 
 
 
 
 
 
Sweet crude oil
123,414

 
124,460

 
121,514

 
117,289

Sour or heavy crude oil
25,922

 
24,907

 
25,113

 
25,195

Other feedstocks and blendstocks
8,895

 
7,885

 
8,392

 
7,945

Total refinery throughput (bpd) (3)
158,231

 
157,252

 
155,019

 
150,429





El Paso Refinery
 
Three Months Ended
 
Year Ended
 
December 31,
 
December 31,
 
2014
 
2013
 
2014
 
2013
Key Operating Statistics
 
 
 
 
 
 
 
Refinery product yields (bpd):
 
 
 
 
 
 
 
Gasoline
66,253

 
66,323

 
62,252

 
61,893

Diesel and jet fuel
53,285

 
56,244

 
54,501

 
52,600

Residuum
4,763

 
5,616

 
5,121

 
5,445

Other
4,191

 
3,858

 
3,740

 
3,442

Total refinery production (bpd)
128,492

 
132,041

 
125,614

 
123,380

Refinery throughput (bpd):
 
 
 
 
 
 
 
Sweet crude oil
97,874

 
101,538

 
96,384

 
93,654

Sour crude oil
25,922

 
24,907

 
25,113

 
25,195

Other feedstocks and blendstocks
5,828

 
7,278

 
5,739

 
6,488

Total refinery throughput (bpd) (3)
129,624

 
133,723

 
127,236

 
125,337

Total sales volume (bpd) (2)
140,299

 
148,437

 
139,216

 
141,894

Per barrel of throughput:
 
 
 
 
 
 
 
Refinery gross margin (4) (6)
$
14.99

 
$
13.85

 
$
18.34

 
$
18.74

Direct operating expenses (5)
4.55

 
3.97

 
4.37

 
4.30

Gallup Refinery
 
Three Months Ended
 
Year Ended
 
December 31,
 
December 31,
 
2014
 
2013
 
2014
 
2013
Key Operating Statistics
 
 
 
 
 
 
 
Refinery product yields (bpd):
 
 
 
 
 
 
 
Gasoline
17,616

 
15,498

 
17,027

 
16,675

Diesel and jet fuel
9,085

 
6,608

 
8,858

 
6,980

Other
1,444

 
761

 
1,443

 
758

Total refinery production (bpd)
28,145

 
22,867

 
27,328

 
24,413

Refinery throughput (bpd):
 
 
 
 
 
 
 
Sweet crude oil
25,540

 
22,922

 
25,130

 
23,635

Other feedstocks and blendstocks
3,067

 
607

 
2,653

 
1,457

Total refinery throughput (bpd) (3)
28,607

 
23,529

 
27,783

 
25,092

Total sales volume (bpd) (2)
34,429

 
36,353

 
34,300

 
34,759

Per barrel of throughput:
 
 
 
 
 
 
 
Refinery gross margin (4) (6)
$
16.56

 
$
14.43

 
$
16.55

 
$
18.94

Direct operating expenses (5)
7.90

 
11.24

 
8.40

 
10.13

(1)
Refining net sales for the three and twelve months ended December 31, 2014, includes $325.8 million and $1,489.6 million, respectively, representing a period average of 47,751 bpd and 44,124 bpd, respectively, in crude oil sales to third parties without comparable activity in either period 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)
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 9.84% and 14.44% of our total consolidated sales volumes for the years ended December 31, 2014 and 2013, 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.
(3)
Total refinery throughput includes crude oil, other feedstocks and blendstocks.
(4)
Refinery gross margin is a per barrel measurement calculated by dividing the difference between net sales and cost of products sold by our refineries’ total throughput volumes for the respective periods presented. Net realized and net non-cash unrealized economic hedging gains and losses included in the combined refining segment gross margin are not allocated to the individual refineries. Cost of products sold does not include any depreciation or amortization. Refinery gross margin is a non-GAAP performance measure that we believe is important to investors in evaluating our refinery performance as a general indication of the amount above our cost of products that we are able to sell refined products. Each of the components used in this calculation (net sales and cost of products sold) can be reconciled directly to our statement of operations. Our calculation of refinery gross margin may differ from similar calculations of other companies in our industry, thereby limiting its usefulness as a comparative measure.
The following table reconciles combined gross profit for our refineries to combined gross margin for our refineries for the periods presented:
 
Three Months Ended
 
Year Ended
 
December 31,
 
December 31,
 
2014
 
2013
 
2014
 
2013
 
(In thousands, except per barrel data)
Net sales (including intersegment sales)
$
1,762,323

 
$
1,919,619

 
$
8,496,576

 
$
7,693,829

Cost of products sold (exclusive of depreciation and amortization)
1,440,144

 
1,804,050

 
7,188,928

 
6,656,778

Depreciation and amortization
21,581

 
20,371

 
81,726

 
85,712

Gross profit
300,598

 
95,198

 
1,225,922

 
951,339

Plus depreciation and amortization
21,581

 
20,371

 
81,726

 
85,712

Refinery gross margin
$
322,179

 
$
115,569

 
$
1,307,648

 
$
1,037,051

Refinery gross margin per refinery throughput barrel
$
22.13

 
$
7.99

 
$
23.11

 
$
18.89

Gross profit per refinery throughput barrel
$
20.65

 
$
6.58

 
$
21.67

 
$
17.33

(5)
Refinery direct operating expenses per throughput barrel is calculated by dividing direct operating expenses by total throughput volumes for the respective periods presented. Direct operating expenses do not include any depreciation or amortization.
(6)
Cost of products sold for the combined refining segment includes the net realized and net non-cash unrealized hedging activity shown in the table below. The hedging gains and losses are also included in the combined gross profit and refinery gross margin but are not included in those measures for the individual refineries.
 
Three Months Ended
 
Year Ended
 
December 31,
 
December 31,
 
2014
 
2013
 
2014
 
2013
 
(In thousands)
Realized hedging gain, net
$
41,538

 
$
15,465

 
$
82,937

 
$
17,714

Unrealized hedging gain (loss), net
61,977

 
(100,611
)
 
197,223

 
(16,898
)
Total hedging gain (loss), net
$
103,515

 
$
(85,146
)
 
$
280,160

 
$
816






NTI
The following table sets forth the summary operating results for Northern Tier Energy, LP ("NTI"). The selected historical financial data for the 2013 period presented below represents the financial results from the period beginning November 12, 2013 through the year ended December 31, 2014.
 
Three Months Ended
 
Year Ended
 
December 31,
 
December 31,
 
2014
 
2013
 
2014
 
2013
 
(In thousands, except per barrel data)
Statement of Operations Data:
 
 
 
 
 
 
 
Net sales
$
953,925

 
$
686,824

 
$
5,159,657

 
$
686,824

Operating costs and expenses:
 
 
 
 
 
 
 
Cost of products sold (exclusive of depreciation and amortization) (1)
807,601

 
591,942

 
4,439,512

 
591,942

Direct operating expenses (exclusive of depreciation and amortization)
88,507

 
35,123

 
298,104

 
35,123

Selling, general and administrative expenses
19,599

 
11,651

 
91,482

 
11,651

Affiliate severance costs
—

 
—

 
12,878

 
—

Loss (gain) on disposal of assets, net
9

 
10

 
(92
)
 
10

Depreciation and amortization
19,715

 
10,740

 
76,544

 
10,740

Total operating costs and expenses
935,431

 
649,466

 
4,918,428

 
649,466

Operating income
18,494

 
37,358

 
241,229

 
37,358

Other income (expense):
 
 
 
 
 
 
 
Interest income
117

 
42

 
389

 
42

Interest expense and other financing costs
(6,783
)
 
(4,883
)
 
(23,358
)
 
(4,883
)
Other, net
2,329

 
1,679

 
2,520

 
1,679

Income before income taxes
$
14,157

 
$
34,196

 
$
220,780

 
$
34,196

Key Operating Statistics:
 
 
 
 
 
 
 
Total sales volume (bpd)
100,285

 
84,028

 
98,016

 
84,028

Total refinery production (bpd)
92,422

 
82,758

 
93,838

 
82,758

Total refinery throughput (bpd) (2)
91,964

 
82,261

 
93,525

 
82,261

Per barrel of throughput:
 
 
 
 
 
 
 
Refinery gross margin (1) (3)
$
11.54

 
$
18.06

 
$
15.91

 
$
18.06

Direct operating expenses (4)
5.91

 
5.05

 
4.77

 
5.05

 
 
 
 
 
 
 
 
Retail fuel gallons sold (in thousands)
77,324

 
40,031

 
306,777

 
40,031

Retail fuel margin per gallon (5)
$
0.28

 
$
0.17

 
$
0.22

 
$
0.17

Merchandise sales
85,055

 
27,958

 
349,145

 
27,958

Merchandise margin (6)
25.8
%
 
25.0
%
 
25.9
%
 
25.0
%
Company-operated retail outlets at period end
 
 
 
 
165

 
164

Franchised retail outlets at period end
 
 
 
 
89

 
75






(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 gains and losses are also included in the combined gross profit and refinery gross margin.
 
Three Months Ended
 
Year Ended
 
December 31,
 
December 31,
 
2014
 
2013
 
2014
 
2013
 
(In thousands)
Realized hedging loss (gain), net
$
9,520

 
$
(1,846
)
 
$
12,394

 
$
(1,846
)
Unrealized hedging loss, net
(3,925
)
 
—

 
(2,800
)
 
—

Total hedging loss (gain), net
$
5,595

 
$
(1,846
)
 
$
9,594

 
$
(1,846
)
(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 non‑cash 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 for the St. Paul Park refinery to gross margin for the St. Paul Park refinery for the period presented:
 
Three Months Ended
 
Year Ended
 
December 31,
 
December 31,
 
2014
 
2013
 
2014
 
2013
 
(In thousands, except per barrel data)
Net sales (including intersegment sales)
$
941,990

 
$
633,201

 
$
5,097,634

 
$
633,201

Cost of products sold (exclusive of depreciation and amortization)
844,390

 
557,453

 
4,554,658

 
557,453

Depreciation and amortization
17,160

 
9,485

 
67,538

 
9,485

Gross profit
80,440

 
66,263

 
475,438

 
66,263

Plus depreciation and amortization
17,160

 
9,485

 
67,538

 
9,485

Refinery gross margin
$
97,600

 
$
75,748

 
$
542,976

 
$
75,748

Refinery gross margin per refinery throughput barrel
$
11.54

 
$
18.06

 
$
15.91

 
$
18.06

Gross profit per refinery throughput barrel
$
9.51

 
$
15.79

 
$
13.93

 
$
15.79

(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)
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. Fuel margin per gallon is a measure frequently used in the retail industry to measure operating results related to retail 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. 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. Accordingly, the financial information of WNRL contained herein has been retrospectively adjusted to include the historical operating results and book values of assets acquired from Western prior to the effective date of the Wholesale Acquisition for all periods presented. The WNRL financial data is derived from the combined financial results of the WNRL predecessor (the “WNRL Predecessor”, WNRL’s predecessor as defined for accounting purposes), and the combined consolidated financial results of WNRL for the period beginning October 16, 2013, the date WNRL commenced operations. The WNRL Predecessor includes the financial results of the initial net assets acquired from Western during the initial public offering through October 15, 2013 and the net assets of WRW acquired on October 15, 2014.
 
Three Months Ended
 
Year Ended
 
December 31,
 
December 31,
 
2014
 
2013
 
2014
 
2013
 
(In thousands)
Net sales, net of excise taxes (including intersegment sales)
$
751,222

 
$
833,558

 
$
3,501,888

 
$
3,407,128

Operating costs and expenses:
 
 
 
 
 
 
 
Cost of products sold, net of excise taxes (exclusive of depreciation and amortization)
683,134

 
781,299

 
3,244,919

 
3,279,717

Direct operating expenses (exclusive of depreciation and amortization)
34,628

 
33,255

 
142,398

 
135,307

Selling, general and administrative expenses
5,264

 
4,476

 
22,540

 
17,661

Loss on disposal of assets, net
173

 
—

 
157

 
—

Depreciation and amortization
4,473

 
4,015

 
17,372

 
15,970

Total operating costs and expenses
727,672

 
823,045

 
3,427,386

 
3,448,655

Operating income (loss)
23,550

 
10,513

 
74,502

 
(41,527
)
Other income (expense):
 
 
 
 
 
 
 
Interest income
4

 
—

 
4

 
7

Interest expense and other financing costs
(1,154
)
 
(194
)
 
(1,851
)
 
(213
)
Amortization of loan fees
(132
)
 
(109
)
 
(523
)
 
(109
)
Other, net
12

 
41

 
120

 
143

Income (loss) before income taxes
$
22,280

 
$
10,251

 
$
72,252

 
$
(41,699
)




 
Three Months Ended
 
Year Ended
 
December 31,
 
December 31,
 
2014
 
2013
 
2014
 
2013
 
(In thousands, except per gallon/barrel data)
Pipeline and gathering (bpd):
 
 
 
 
 
 
 
Mainline movements:
 
 
 
 
 
 
 
Permian/Delaware Basin system
31,447

 
10,519

 
24,644

 
3,258

Four Corners system (1)
34,525

 
36,933

 
37,485

 
38,091

Gathering (truck offloading):
 
 
 
 
 
 
 
Permian/Delaware Basin system
24,050

 
16,996

 
24,166

 
10,169

Four Corners system
12,627

 
11,695

 
11,550

 
8,814

Terminalling, transportation and storage (bpd):
 
 
 
 
 
 
 
Shipments into and out of storage (includes asphalt)
387,633

 
383,017

 
381,371

 
367,208

Wholesale:
 
 
 
 
 
 
 
Fuel gallons sold
297,020

 
268,411

 
1,147,860

 
1,073,538

Fuel gallons sold to retail (included in fuel gallons sold, above)
73,395

 
63,444

 
268,148

 
254,907

Fuel margin per gallon (2)
$
0.024

 
$
0.028

 
$
0.022

 
$
0.026

Lubricant gallons sold
2,919

 
2,854

 
12,082

 
11,793

Lubricant margin per gallon (3)
$
0.83

 
$
0.96

 
$
0.86

 
$
0.89

Crude oil trucking volume (bpd)
41,369

 
17,778

 
36,314

 
12,603

Average crude oil revenue per barrel
$
2.79

 
$
2.14

 
$
2.90

 
$
2.24

(1)
Some barrels of crude oil movements to Western’s Gallup refinery are transported on more than one of our mainlines. Mainline movements for the Four Corners system include each barrel transported on each mainline.
(2)
Fuel margin per gallon is a measurement calculated by dividing the difference between fuel sales and cost of fuel sales 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 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
 
Three Months Ended
 
Year Ended
 
December 31,
 
December 31,
 
2014
 
2013
 
2014
 
2013
 
(In thousands, except per gallon data)
Statement of Operations Data:
 
 
 
 
 
 
 
Net sales (including intersegment sales)
$
303,514

 
$
307,732

 
$
1,395,903

 
$
1,402,564

Operating costs and expenses:
 
 
 
 
 
 
 
Cost of products sold (exclusive of depreciation and amortization)
259,749

 
271,828

 
1,233,632

 
1,254,212

Direct operating expenses (exclusive of depreciation and amortization)
29,353

 
28,339

 
118,468

 
111,320

Selling, general and administrative expenses
3,499

 
2,768

 
11,461

 
9,796

Gain on disposal of assets, net
(14
)
 
—

 
(154
)
 
—

Depreciation and amortization
2,912

 
3,001

 
11,733

 
12,382

Total operating costs and expenses
295,499

 
305,936

 
1,375,140

 
1,387,710

Operating income
$
8,015

 
$
1,796

 
$
20,763

 
$
14,854

Key Operating Statistics:
 
 
 
 
 
 
 
Retail fuel gallons sold
77,649

 
75,076

 
309,884

 
302,759

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

 
$
3.24

 
$
3.31

 
$
3.41

Average retail fuel cost per gallon, net of excise taxes
2.61

 
3.06

 
3.11

 
3.23

Retail fuel margin per gallon (1)
0.24

 
0.18

 
0.20

 
0.18

Merchandise sales
$
66,993

 
$
61,745

 
$
266,677

 
$
253,096

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

 
228

Cardlock gallons sold
16,185

 
16,775

 
67,420

 
67,803

Cardlock margin per gallon
$
0.184

 
$
0.137

 
$
0.178

 
$
0.153

Operating cardlocks at period end
 
 
 
 
50

 
53

 
Three Months Ended
 
Year Ended
 
December 31,
 
December 31,
 
2014
 
2013
 
2014
 
2013
 
(In thousands, except per gallon data)
Net Sales
 
 
 
 
 
 
 
Retail fuel sales, net of excise taxes
$
191,109

 
$
213,626

 
$
903,948

 
$
914,463

Merchandise sales
66,993

 
61,745

 
266,677

 
253,096

Cardlock sales
42,959

 
54,817

 
214,714

 
225,466

Other sales
2,453

 
(22,456
)
 
10,564

 
9,539

Net sales
$
303,514

 
$
307,732

 
$
1,395,903

 
$
1,402,564

Cost of Products Sold
 
 
 
 
 
 
 
Retail fuel cost of products sold, net of excise taxes
$
172,169

 
$
200,203

 
$
840,811

 
$
858,574

Merchandise cost of products sold
47,722

 
43,887

 
189,957

 
180,284

Cardlock cost of products sold
39,833

 
52,508

 
202,489

 
215,082

Other cost of products sold
25

 
(24,770
)
 
375

 
272

Cost of products sold
$
259,749

 
$
271,828

 
$
1,233,632

 
$
1,254,212

Retail fuel margin per gallon (1)
$
0.24

 
$
0.18

 
$
0.20

 
$
0.18

(1)
Retail fuel margin per gallon is a measurement calculated by dividing the difference between retail fuel sales and cost of retail fuel sales for our retail segment 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 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
 
December 31,
 
2014
 
2013
 
(In thousands, except per share data)
Reported diluted earnings (loss) per share
$
1.33

 
$
(0.09
)
Earnings before income taxes
$
213,736

 
$
10,220

Loss on disposal of assets, net
7,591

 
2,035

Unrealized loss (gain) from commodity hedging transactions
(58,052
)
 
100,611

Net change in lower of cost or market inventory reserve (1)
78,554

 
—

Loss on extinguishment of debt
—

 
1

Earnings before income taxes excluding special items
241,829

 
112,867

Recomputed income taxes after special items (2)
(61,795
)
 
(31,972
)
Net income excluding special items
180,034

 
80,895

Net income attributed to non-controlling interest
63,253

 
23,560

Net income attributable to Western after special items
$
116,781

 
$
57,335

Diluted earnings per share excluding special items
$
1.19

 
$
0.60

(1)
The net change in the lower of cost or market inventory reserve includes $73.7 million related to NTI's inventory.
(2)
We recompute income taxes after deducting earnings attributed to non-controlling interest.




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