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, Nov. 4, 2014 (GLOBE NEWSWIRE) -- 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 non‑cash, 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 Western's business. These expectations may or may not be realized. Some of these expectations may be based upon assumptions or judgments that prove to be incorrect. In addition, 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:

(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:

Consolidating Financial Data

The following tables set forth our consolidating historical financial data for the periods presented below.

(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.

The following tables set forth our summary refining throughput and production data for the periods and refineries presented:

(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.

(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 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 the El Paso and Gallup refineries to combined gross margin for both refineries for the periods presented:

(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.

(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.

(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 to gross margin for the St. Paul Park refinery for the period presented:

(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.

(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.

(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.

(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.

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