Western Refining Announces Third Quarter 2015 Results

| Source: Western Refining, Inc. Western Refining, Inc.

EL PASO, Texas, Nov. 03, 2015 (GLOBE NEWSWIRE) -- Western Refining, Inc. (NYSE:WNR) today reported results for its third quarter ended September 30, 2015. Net income attributable to Western, excluding special items, was $160 million, or $1.69 per diluted share. This compares to third quarter 2014 net income, excluding special items, of $175.3 million, or $1.73 per diluted share.  Including special items, the Company recorded third quarter 2015 net income attributable to Western of $153.3 million, or $1.61 per diluted share, as compared to net income attributable to Western of $186.7 million, or $1.84 per diluted share for the third quarter of 2014.  A reconciliation of reported earnings and description of special items can be found in the accompanying financial tables.

Jeff Stevens, Western's President and Chief Executive Officer, said, "This was another excellent quarter operationally and financially for all of our business segments. Our financial results benefited from solid overall margin performance and a continued focus on cost control.  The El Paso refinery had an outstanding quarter operationally, with expense per barrel results being one of the lowest quarters on record. In our Retail business, we saw an increase in same store fuel volumes, fuel margins, and merchandise sales, resulting in a record quarter from a profit perspective.  NTI and WNRL also performed well in the quarter, which contributed to our outstanding financial results."

Western paid a dividend of $0.34 per share of common stock to shareholders in the third quarter.  In October, Western's Board of Directors approved a $0.38 per share dividend for the fourth quarter.  Including the fourth quarter dividend, Western will have returned approximately $234 million to shareholders through dividends and share repurchases in 2015.

Looking forward, Stevens said, "The fourth quarter has started off well. We just completed the sale of the TexNew Mex pipeline to WNRL for $180 million.  Construction of Phase One of the Bobcat pipeline is complete and now gives us the ability to move crude oil to Midland and the US Gulf Coast.  We also announced a proposal to purchase all of the remaining publicly-held units of NTI.  Finally, the refining margin environment has been good during October and we still see strong demand for gasoline and diesel in our region."

Conference Call Information

A conference call is scheduled for Tuesday, November 3, 2015, at 10:00 am ET to discuss Western's financial results for the third quarter ended September 30, 2015.  A slide presentation, which includes our quarterly guidance, will be available for reference during the conference call. The call, press release and slide presentation can be accessed on the Investor Relations section on Western's website, www.wnr.com. The call can also be heard by dialing (866) 566-8590 or (702) 224-9819, passcode: 47810509. The audio replay will be available two hours after the end of the call through November 17, 2015, by dialing (800) 585-8367 or (404) 537-3406, passcode: 47810509.

Non-GAAP Financial Measures

In a number of places in the press release and related tables, we have excluded certain income and expense items from GAAP measures. The excluded items are generally non-cash in nature such as unrealized net gains and losses from commodity hedging activities or losses on disposal of assets; however, other items that have a cash impact, such as gains on disposal of assets are also excluded. We believe it is useful for investors and financial analysts to understand our financial performance excluding such items so that they can see the operating trends underlying our business. Readers of this press release should not consider these non-GAAP measures in isolation from, or as a substitute for, the financial information that we report in accordance with GAAP.

About Western Refining

Western Refining, Inc. is an independent refining and marketing company headquartered in El Paso, Texas. The refining segment operates refineries in El Paso, and Gallup, New Mexico. The retail segment includes retail service stations, convenience stores, and unmanned fleet fueling locations in Arizona, Colorado, New Mexico, and Texas.

Western Refining, Inc. owns the general partner and approximately 66% of the limited partnership interest of Western Refining Logistics, LP (NYSE:WNRL) and the general partner and approximately 38% of the limited partnership interest in Northern Tier Energy LP (NYSE:NTI).

More information about Western Refining is available at www.wnr.com.

Cautionary Statement on Forward-Looking Statements

This press release contains forward-looking statements which are protected by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements reflect Western’s current expectations regarding future events, results or outcomes. The forward-looking statements contained herein include statements about: financial results for the fourth quarter of 2015; the ability of the Bobcat pipeline to move crude oil to Midland and the US Gulf Coast; Western’s proposal to acquire all of the remaining publicly-held common units of NTI; refining margins; gasoline and diesel demand; and the positioning of Western’s refineries to capture refining margins through the end of the year. These statements are subject to the general risks inherent in Western’s business. These expectations may or may not be realized. Some of these expectations may be based upon assumptions or judgments that prove to be incorrect. In addition, Western’s business and operations involve numerous risks and uncertainties, many of which are beyond its control, which could result in Western’s expectations not being realized, or otherwise materially affect Western’s financial condition, results of operations, and cash flows. Additional information relating to the uncertainties affecting Western's business is contained in its filings with the Securities and Exchange Commission to which you are referred. The forward-looking statements are only as of the date made. Except as required by law, Western does not undertake any obligation to (and expressly disclaims any obligation to) update any forward-looking statements to reflect events or circumstances after the date such statements were made, or to reflect the occurrence of unanticipated events.

Consolidated Financial Data

We report our operating results in four business segments: refining, NTI, WNRL and retail.

  • Our refining segment owns and operates two refineries in the Southwest that process crude oil and other feedstocks primarily into gasoline, diesel fuel, jet fuel and asphalt. Our refining segment also owns and operates certain logistics assets including a 375 mile section of the TexNew Mex Pipeline system that extends from WNRL's crude oil station in Star Lake, New Mexico, in the Four Corners region to its T station in Eddy County, New Mexico. We market refined products to a diverse customer base including wholesale distributors and retail chains. The refining segment also sells refined products in the Mid-Atlantic region and Mexico.

  • NTI owns and operates refining and transportation assets and operates and supports retail convenience stores primarily in Minnesota and Wisconsin.

  • WNRL owns and operates terminal, storage and transportation assets and provides related services primarily to our refining segment in the Southwest. The WNRL segment also includes wholesale assets consisting of a fleet of crude oil and refined product truck transports and wholesale petroleum product and lubricant distribution operations in the Southwest region. WNRL receives its product supply from the refining segment and third-party suppliers.

  • Our retail segment operates retail convenience stores and unmanned commercial fleet fueling ("cardlock") locations located in the Southwest. The retail convenience stores sell gasoline, diesel fuel and convenience store merchandise.


The following tables set forth our unaudited summary historical financial and operating data for the periods indicated below:

 Three Months Ended Nine Months Ended
 September 30, September 30,
 2015 2014 2015 2014
 (Unaudited)
 (In thousands, except per share data)
Statements of Operations Data       
Net sales (1)$2,569,090  $4,052,324  $7,716,712  $12,128,757 
Operating costs and expenses:       
Cost of products sold (exclusive of depreciation and amortization) (1)1,895,772  3,379,555  5,814,969  10,271,461 
Direct operating expenses (exclusive of depreciation and amortization) (1)234,440  218,183  674,474  619,995 
Selling, general and administrative expenses54,465  57,206  169,808  170,578 
Affiliate severance costs—  —  —  12,878 
Loss (gain) on disposal of assets, net(52) (66) (157) 939 
Maintenance turnaround expense490  1,883  1,188  48,329 
Depreciation and amortization51,377  46,910  152,446  141,168 
Total operating costs and expenses2,236,492  3,703,671  6,812,728  11,265,348 
Operating income332,598  348,653  903,984  863,409 
Other income (expense):       
Interest income186  483  550  899 
Interest expense and other financing costs(26,896) (18,250) (79,169) (75,008)
Loss on extinguishment of debt—  —  —  (9)
Other, net4,327  (2,816) 11,557  (351)
Income before income taxes310,215  328,070  836,922  788,940 
Provision for income taxes(92,117) (80,713) (229,989) (223,319)
Net income218,098  247,357  606,933  565,621 
Less net income attributable to non-controlling interests (2)64,795  60,608  213,722  136,630 
Net income attributable to Western Refining, Inc.$153,303  $186,749  $393,211  $428,991 
        
Basic earnings per share$1.61  $1.85  $4.12  $4.86 
Diluted earnings per share1.61  1.84  4.12  4.28 
Dividends declared per common share0.34  0.26  0.98  0.78 
        
Weighted average basic shares outstanding94,826  101,199  95,308  88,240 
Weighted average dilutive shares outstanding (3)94,924  101,325  95,408  102,207 



 Three Months Ended Nine Months Ended
 September 30, September 30,
 2015 2014 2015 2014
 (Unaudited)
 (In thousands)
Economic Hedging Activities Recognized Within Cost of Products Sold       
Realized hedging gain, net$26,949  $26,716  $52,325  $44,272 
Unrealized hedging gain (loss), net271  17,020  (42,073) 136,371 
Total hedging gain, net$27,220  $43,736  $10,252  $180,643 
        
Cash Flow Data       
Net cash provided by (used in):       
Operating activities$373,620  $208,959  $665,664  $494,058 
Investing activities(20,321) (46,875) (34,454) (142,036)
Financing activities(187,665) (43,743) (352,799) (169,938)
Capital expenditures$76,431  $49,923  $195,976  $147,254 
Cash distributions received by Western from:       
NTI$42,391  $18,880  $98,318  $60,914 
WNRL11,630  9,167  32,845  25,210 
Other Data       
Adjusted EBITDA (4)$425,450  $378,027  $1,094,510  $918,022 
Balance Sheet Data (at end of period)       
Cash and cash equivalents    $709,570  $650,154 
Restricted cash    12,328  — 
Working capital    1,137,952  1,078,164 
Total assets    5,881,886  5,863,884 
Total debt and lease financing obligation    1,595,650  1,279,435 
Total equity    3,032,495  3,127,805 


(1)     Excludes $885.2 million, $2,517.3 million, $1,193.0 million and $3,487.8 million of intercompany sales and $885.2 million, $2,517.3 million, $1,189.0 million and $3,475.5 million of intercompany cost of products sold for three and nine months ended September 30, 2015 and 2014, respectively, and $4.0 million and $12.3 million of intercompany direct operating expenses for the three and nine months ended September 30, 2014, respectively, with no comparable activity for three and nine months ended September 30, 2015.

(2)     Net income attributable to non-controlling interests for the three and nine months ended September 30, 2015, consisted of income from NTI and WNRL in the amount of $59.2 million, $197.6 million, $5.6 million and $16.2 million, respectively. Net income attributable to non-controlling interests for the three and nine months ended September 30, 2014, consisted of income from NTI and WNRL in the amount of $56.4 million, $124.8 million, $4.3 million and $11.8 million, respectively.

(3)     Our computation of diluted earnings per share includes our Convertible Senior Unsecured Notes and any unvested restricted shares units. If determined to be dilutive to period earnings, these securities are included in the denominator of our diluted earnings per share calculation. For purposes of the diluted earnings per share calculation, we assumed issuance of 0.1 million restricted share units for the three and nine months ended September 30, 2015. We assumed issuance of 0.1 million restricted share units for both the three and nine months ended September 30, 2014 and 13.8 million shares related to the Convertible Senior Unsecured Notes for the nine months ended September 30, 2014.

(4)     Adjusted EBITDA represents earnings before interest expense and other financing costs, provision for income taxes, depreciation, amortization, maintenance turnaround expense and certain other non-cash income and expense items. However, Adjusted EBITDA is not a recognized measurement under U.S. GAAP. Our management believes that the presentation of Adjusted EBITDA is useful to investors because it is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry. In addition, our management believes that Adjusted EBITDA is useful in evaluating our operating performance compared to that of other companies in our industry because the calculation of Adjusted EBITDA generally eliminates the effects of financings, income taxes, the accounting effects of significant turnaround activities (that many of our competitors capitalize and thereby exclude from their measures of EBITDA) and certain non-cash charges that are items that may vary for different companies for reasons unrelated to overall operating performance.


Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

  • Adjusted EBITDA does not reflect our cash expenditures or future requirements for significant turnaround activities, capital expenditures or contractual commitments;

  • Adjusted EBITDA does not reflect the interest expense or the cash requirements necessary to service interest or principal payments on our debt;

  • Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs; and

  • Adjusted EBITDA, as we calculate it, may differ from the Adjusted EBITDA calculations of other companies in our industry, thereby limiting its usefulness as a comparative measure.


Because of these limitations, Adjusted EBITDA should not be considered a measure of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our GAAP results and using Adjusted EBITDA only supplementally.

 Three Months Ended Nine Months Ended
 September 30, September 30,
 2015 2014 2015 2014
 (Unaudited)
  (In thousands)
Net income attributable to Western Refining, Inc.$153,303  $186,749  $393,211  $428,991 
Net income attributable to non-controlling interest64,795  60,608  213,722  136,630 
Interest expense and other financing costs26,896  18,250  79,169  75,008 
Provision for income taxes92,117  80,713  229,989  223,319 
Loss (gain) on disposal of assets, net(52) (66) (157) 939 
Depreciation and amortization51,377  46,910  152,446  141,168 
Maintenance turnaround expense490  1,883  1,188  48,329 
Loss on extinguishment of debt—  —  —  9 
Net change in lower of cost or market inventory reserve36,795  —  (17,131) — 
Unrealized loss (gain) on commodity hedging transactions(271) (17,020) 42,073  (136,371)
Adjusted EBITDA$425,450  $378,027  $1,094,510  $918,022 
        
EBITDA by Reporting Entity       
Western Adjusted EBITDA$233,954  $248,943  $623,097  $593,594 
NTI Adjusted EBITDA163,826  112,991  392,711  278,801 
WNRL EBITDA27,670  16,093  78,702  45,627 
Consolidated Adjusted EBITDA$425,450  $378,027  $1,094,510  $918,022 


 Three Months Ended
 September 30,
 2015
 Western NTI WNRL
 (Unaudited)
  (In thousands)
Net income attributable to Western Refining, Inc.$102,279  $40,117  $10,907 
Net income attributable to non-controlling interest—  59,209  5,586 
Interest expense and other financing costs13,960  6,732  6,204 
Provision for income taxes92,114  —  3 
Gain on disposal of assets, net(6) (33) (13)
Depreciation and amortization26,648  19,746  4,983 
Maintenance turnaround expense490  —  — 
Net change in lower of cost or market inventory reserve—  36,795  — 
Unrealized loss (gain) on commodity hedging transactions(1,531) 1,260  — 
Adjusted EBITDA$233,954  $163,826  $27,670 


 Nine Months Ended
 September 30,
 2015
 Western NTI WNRL
 (Unaudited)
  (In thousands)
Net income attributable to Western Refining, Inc.$232,394  $129,245  $31,572 
Net income attributable to non-controlling interest—  197,563  16,159 
Interest expense and other financing costs42,511  20,242  16,416 
Provision for income taxes229,635  —  354 
Loss (gain) on disposal of assets, net444  (344) (257)
Depreciation and amortization79,362  58,626  14,458 
Maintenance turnaround expense1,188  —  — 
Net change in lower of cost or market inventory reserve(4,883) (12,248) — 
Unrealized loss (gain) on commodity hedging transactions42,446  (373) — 
Adjusted EBITDA$623,097  $392,711  $78,702 



 Three Months Ended
 September 30,
 2014
 Western NTI WNRL
 (Unaudited)
  (In thousands)
Net income attributable to Western Refining, Inc.$144,024  $34,711  $8,014 
Net income attributable to non-controlling interest—  56,357  4,251 
Interest expense and other financing costs13,617  4,271  362 
Provision for income taxes80,578  —  135 
Gain on disposal of assets, net(66) —  — 
Depreciation and amortization25,097  18,482  3,331 
Maintenance turnaround expense1,883  —  — 
Unrealized gain on commodity hedging transactions(16,190) (830) — 
Adjusted EBITDA$248,943  $112,991  $16,093 


 Nine Months Ended
 September 30,
 2014
 Western NTI WNRL
 (Unaudited)
  (In thousands)
Net income attributable to Western Refining, Inc.$324,825  $81,837  $22,329 
Net income attributable to non-controlling interest—  124,786  11,844 
Interest expense and other financing costs57,360  16,575  1,073 
Provision for income taxes222,980  —  339 
Loss (gain) on disposal of assets, net1,040  (101) — 
Depreciation and amortization74,297  56,829  10,042 
Maintenance turnaround expense48,329  —  — 
Loss on extinguishment of debt9  —  — 
Unrealized gain on commodity hedging transactions(135,246) (1,125) — 
Adjusted EBITDA$593,594  $278,801  $45,627 


Consolidating Financial Data

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

 Three Months Ended Nine Months Ended
 September 30, September 30,
 2015 2014 2015 2014
 (Unaudited)
 (In thousands)
Operating Income       
Western, excluding NTI and WNRL$208,253  $239,093  $504,751  $605,093 
NTI101,661  96,799  334,783  222,735 
WNRL22,684  12,761  64,450  35,581 
Operating income$332,598  $348,653  $903,984  $863,409 
Depreciation and Amortization       
Western, excluding NTI and WNRL$26,648  $25,097  $79,362  $74,297 
NTI19,746  18,482  58,626  56,829 
WNRL4,983  3,331  14,458  10,042 
Depreciation and amortization expense$51,377  $46,910  $152,446  $141,168 
Capital Expenditures       
Western, excluding NTI and WNRL$52,293  $37,938  $138,246  $101,490 
NTI17,439  9,237  35,267  34,339 
WNRL6,699  2,748  22,463  11,425 
Capital expenditures$76,431  $49,923  $195,976  $147,254 
Balance Sheet Data (at end of period)       
Cash and cash equivalents       
Western, excluding NTI and WNRL    $523,590  $465,010 
NTI    114,608  106,035 
WNRL    71,372  79,109 
Cash and cash equivalents    $709,570  $650,154 
 Total debt       
Western, excluding NTI and WNRL    $890,375  $896,026 
NTI    356,209  357,312 
WNRL    300,000  — 
Total debt    $1,546,584  $1,253,338 
 Total working capital       
Western, excluding NTI and WNRL    $784,497  $726,937 
NTI    287,113  271,540 
WNRL    66,342  79,687 
Total working capital    $1,137,952  $1,078,164 



Refining Segment

El Paso and Gallup Refineries and Related Operations

 Three Months Ended Nine Months Ended
 September 30, September 30,
 2015 2014 2015 2014
 (In thousands, except per barrel data)
Statement of Operations Data (Unaudited):       
Net sales (including intersegment sales) (1)$1,652,934  $2,498,226  $4,963,407  $7,566,741 
Operating costs and expenses:       
Cost of products sold (exclusive of depreciation and amortization) (2)1,335,326  2,145,984  4,098,734  6,578,731 
Direct operating expenses (exclusive of depreciation and amortization)77,249  78,184  232,160  225,224 
Selling, general and administrative expenses7,509  7,216  24,211  21,700 
Loss on disposal of assets, net—  103  495  775 
Maintenance turnaround expense490  1,883  1,188  48,329 
Depreciation and amortization22,013  20,280  65,535  60,145 
Total operating costs and expenses1,442,587  2,253,650  4,422,323  6,934,904 
Operating income$210,347  $244,576  $541,084  $631,837 
Key Operating Statistics       
Total sales volume (bpd) (1) (3)247,839  219,755  238,375  216,009 
Total production (bpd)162,058  156,291  162,377  151,697 
Total throughput (bpd)164,580  158,452  164,616  153,937 
Per barrel of throughput:       
Refinery gross margin (2) (4)$21.11  $24.04  $19.22  $23.45 
Direct operating expenses (5)$5.10  $5.36  $5.17  $5.36 
Mid-Atlantic sales volume (bbls)2,144  2,005  6,597  6,883 
Mid-Atlantic margin per barrel$(1.10) $0.91  $0.15  $0.37 



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

El Paso and Gallup Refineries

 Three Months Ended Nine Months Ended
 September 30, September 30,
 2015 2014 2015 2014
Key Operating Statistics       
Product yields (bpd):       
Gasoline87,816  81,350  87,678  77,732 
Diesel and jet fuel63,545  65,786  63,941  63,692 
Residuum4,121  5,569  4,730  5,241 
Other6,576  3,586  6,028  5,032 
Total production (bpd)162,058  156,291  162,377  151,697 
Throughput (bpd):       
Sweet crude oil131,465  122,282  131,626  120,873 
Sour crude oil23,854  26,319  23,055  24,841 
Other feedstocks and blendstocks9,261  9,851  9,935  8,223 
Total throughput (bpd)164,580  158,452  164,616  153,937 



El Paso Refinery

 Three Months Ended Nine Months Ended
 September 30, September 30,
 2015 2014 2015 2014
Key Operating Statistics       
Product yields (bpd):       
Gasoline71,855  64,614  70,613  60,904 
Diesel and jet fuel55,667  56,278  55,804  54,911 
Residuum4,121  5,569  4,730  5,241 
Other5,016  2,517  4,503  3,588 
Total production (bpd)136,659  128,978  135,650  124,644 
Throughput (bpd):       
Sweet crude oil107,577  97,514  106,850  95,881 
Sour crude oil23,854  26,319  23,055  24,841 
Other feedstocks and blendstocks7,485  6,844  7,604  5,709 
Total throughput (bpd)138,916  130,677  137,509  126,431 
Total sales volume (bpd) (3)149,861  138,212  150,404  138,851 
Per barrel of throughput:       
Refinery gross margin (2) (4)$18.51  $20.99  $18.65  $19.50 
Direct operating expenses (5)3.64  4.32  3.96  4.31 



Gallup Refinery

 Three Months Ended Nine Months Ended
 September 30, September 30,
 2015 2014 2015 2014
Key Operating Statistics       
Product yields (bpd):       
Gasoline15,961  16,736  17,065  16,828 
Diesel and jet fuel7,878  9,508  8,137  8,781 
Other1,560  1,069  1,525  1,444 
Total production (bpd)25,399  27,313  26,727  27,053 
Throughput (bpd):       
Sweet crude oil23,888  24,768  24,776  24,992 
Other feedstocks and blendstocks1,776  3,007  2,331  2,514 
Total throughput (bpd)25,664  27,775  27,107  27,506 
Total sales volume (bpd) (3)33,489  35,705  33,339  34,257 
Per barrel of throughput:       
Refinery gross margin (2) (4)$23.08  $20.65  $19.85  $16.54 
Direct operating expenses (5)9.10  8.29  8.30  8.58 


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

(2)     Cost of products sold for the refining segment includes the segment's net realized and net non-cash unrealized hedging activity shown in the table below. The hedging gains and losses are also included in the combined gross profit and refinery gross margin but are not included in those measures for the individual refineries.


 Three Months Ended Nine Months Ended
 September 30, September 30,
 2015 2014 2015 2014
 (Unaudited)
 (In thousands)
Realized hedging gain, net$23,134  $20,737  $51,275  $41,399 
Unrealized hedging gain (loss), net1,531  16,190  (42,446) 135,246 
Total hedging gain, net$24,665  $36,927  $8,829  $176,645 


(3)     Sales volume includes sales of refined products sourced primarily from our refinery production as well as refined products purchased from third parties. We purchase additional refined products from third parties to supplement supply to our customers. These products are similar to the products that we currently manufacture and represented 8.4%, 9.4%, 8.7% and 10.3% of our total consolidated sales volumes for the three and nine months ended September 30, 2015 and 2014, respectively. The majority of the purchased refined products are distributed through our refined product sales activities in the Mid-Atlantic region where we satisfy our refined product customer sales requirements through a third-party supply agreement.

(4)     Refinery gross margin for the respective periods presented is a per barrel measurement calculated by subtracting cost of products sold from net sales and dividing that difference by our refineries’ total throughput volumes. Net realized and net non-cash unrealized economic hedging gains and losses included in the combined refining segment gross margin are not allocated to the individual refineries. Refinery gross margin is a non-GAAP performance measure that we believe is useful for evaluating our refinery performance as a general indication of the excess of the refined product sales amount over the related cost of products sold. Our calculation of refinery gross margin excludes the sales and costs related to our Mid-Atlantic business that we report within the refining segment. The following table reconciles the sales and cost of sales used to calculate refinery gross margin with the total sales and cost of sales reported in the refining statement of operations data above:


 Three Months Ended Nine Months Ended
 September 30, September 30,
 2015 2014 2015 2014
 (Unaudited)
 (In thousands)
Refinery net sales (including intersegment sales)$1,498,049  $2,263,053  $4,466,544  $6,734,253 
Mid-Atlantic sales154,885  235,173  496,863  832,488 
Net sales (including intersegment sales)$1,652,934  $2,498,226  $4,963,407  $7,566,741 
        
Refinery cost of products sold (exclusive of depreciation and amortization)$1,178,412  $1,912,640  $3,602,870  $5,748,784 
Mid-Atlantic cost of products sold156,914  233,344  495,864  829,947 
Cost of products sold (exclusive of depreciation and amortization)$1,335,326  $2,145,984  $4,098,734  $6,578,731 


Our calculation of refinery gross margin may differ from similar calculations of other companies in our industry, thereby limiting its usefulness as a comparative measure. The following table reconciles combined gross profit for our refineries to combined gross margin for our refineries for the periods presented:

 Three Months Ended Nine Months Ended
 September 30, September 30,
 2015 2014 2015 2014
 (Unaudited)
 (In thousands, except per barrel data)
Refinery net sales (including intersegment sales)$1,498,049  $2,263,053  $4,466,544  $6,734,253 
Refinery cost of products sold (exclusive of depreciation and amortization)1,178,412  1,912,640  3,602,870  5,748,784 
Depreciation and amortization22,013  20,280  65,535  60,145 
Gross profit297,624  330,133  798,139  925,324 
Plus depreciation and amortization22,013  20,280  65,535  60,145 
Refinery gross margin$319,637  $350,413  $863,674  $985,469 
Refinery gross margin per throughput barrel$21.11  $24.04  $19.22  $23.45 
Gross profit per throughput barrel$19.66  $22.65  $17.76  $22.02 


(5)     Refinery direct operating expenses per throughput barrel is calculated by dividing direct operating expenses by total throughput volumes for the respective periods presented. Direct operating expenses do not include any depreciation or amortization.


NTI

The following table sets forth the summary operating results for NTI.

 Three Months Ended Nine Months Ended
 September 30, September 30,
 2015 2014 2015 2014
 (Unaudited)
 (In thousands, except per barrel data)
Net sales$798,025  $1,449,033  $2,348,621  $4,205,732 
Operating costs and expenses:       
Cost of products sold (exclusive of depreciation and amortization) (1)573,686  1,235,697  1,662,948  3,631,911 
Direct operating expenses (exclusive of depreciation and amortization)82,203  75,909  228,256  209,597 
Selling, general and administrative expenses20,762  22,146  64,352  71,883 
Affiliate severance costs—  —  —  12,878 
Gain on disposal of assets, net(33) —  (344) (101)
Depreciation and amortization19,746  18,482  58,626  56,829 
Total operating costs and expenses696,364  1,352,234  2,013,838  3,982,997 
Operating income$101,661  $96,799  $334,783  $222,735 
        
Key Operating Statistics       
Total sales volume (bpd)99,617  100,064  100,630  97,252 
Total refinery production (bpd)90,362  96,625  94,451  94,314 
Total refinery throughput (bpd) (2)90,590  96,464  94,538  94,054 
Per barrel of throughput:       
Refinery gross margin (1) (3)$20.65  $18.87  $21.15  $17.35 
Direct operating expenses (4)4.84  4.46  4.74  4.37 
        
Retail fuel gallons sold (in thousands)78,414  79,674  227,673  229,453 
Retail fuel margin per gallon (5)$0.27  $0.20  $0.23  $0.20 
Merchandise sales$100,645  $95,647  $279,058  $264,090 
Merchandise margin (6)25.8% 25.7% 25.9% 26.0%
Company-operated retail outlets at period end    165  165 
Franchised retail outlets at period end    102  82 


(1)     Cost of products sold for NTI includes the net realized and net non-cash unrealized hedging activity shown in the table below. Hedging gains and losses are also included in the combined gross profit and refinery gross margin.

 Three Months Ended Nine Months Ended
 September 30, September 30,
 2015 2014 2015 2014
 (Unaudited)
 (In thousands)
Realized hedging gain, net$3,815  $5,978  $1,050  $2,874 
Unrealized hedging gain (loss), net(1,260) 830  373  1,125 
Total hedging gain, net$2,555  $6,808  $1,423  $3,999 


(2)     Total refinery throughput includes crude oil, other feedstocks and blendstocks.

(3)     Refinery gross margin is a per barrel measurement calculated by dividing the difference between net sales and cost of products sold by the refinery's total throughput volumes for the respective periods presented. Refinery net sales include $35.3 million, $94.4 million, $322.6 million and $891.7 million related to crude oil sales during the three and nine months ended September 30, 2015 and 2014, respectively. Refinery gross margin is a non-GAAP performance measure that we believe is useful in evaluating refinery performance as a general indication of the excess of the refined product sales amount over the related cost of products sold. Each of the components used in this calculation (net sales and cost of products sold) can be reconciled to corresponding amounts included in the statement of operations. Our calculation of refinery gross margin may differ from similar calculations of other companies in our industry, thereby limiting its usefulness as a comparative measure. Cost of products sold for the three and nine months ended September 30, 2015 includes a non-cash adjustment of $36.8 million and a non-cash recovery of $12.2 million, respectively, in order to state the inventories value at market prices which were lower than cost.


The following table reconciles gross profit to gross margin for the St. Paul Park refinery for the periods presented:  

 Three Months Ended Nine Months Ended
 September 30, September 30,
 2015 2014 2015 2014
 (Unaudited)
 (In thousands, except per barrel data)
Net refinery sales (including intersegment sales)$762,275  $1,425,308  $2,291,681  $4,155,644 
Refinery cost of products sold (exclusive of depreciation and amortization)590,138  1,257,837  1,745,756  3,710,268 
Refinery depreciation and amortization17,366  15,890  51,734  50,378 
Gross profit154,771  151,581  494,191  394,998 
Plus depreciation and amortization17,366  15,890  51,734  50,378 
Refinery gross margin$172,137  $167,471  $545,925  $445,376 
Refinery gross margin per refinery throughput barrel$20.65  $18.87  $21.15  $17.35 
Gross profit per refinery throughput barrel$18.57  $17.08  $19.15  $15.38 


(4)     NTI's direct operating expenses per throughput barrel are calculated by dividing refining direct operating expenses by total throughput volumes for the respective periods presented. Direct operating expenses do not include any depreciation or amortization.

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

(6)     Merchandise margin is a measurement calculated by dividing the difference between merchandise sales and merchandise cost of products sold by merchandise sales. Merchandise margin is a measure frequently used in the retail industry to measure operating results related to merchandise sales.


WNRL

The WNRL financial and operational data presented include the historical results of all assets acquired from Western in the Wholesale Acquisition. This acquisition from Western was a transfer of assets between entities under common control. We have retrospectively adjusted historical financial and operational data of WNRL, for all periods presented, to reflect the purchase and consolidation of WRW into WNRL.

 Three Months Ended Nine Months Ended
 September 30, September 30,
 2015 2014 2015 2014
 (Unaudited)
 (In thousands)
Statement of Operations Data:       
Net sales (net of excise taxes)$674,479  $915,719  $2,016,376  $2,750,666 
Operating costs and expenses:       
Cost of products sold (net of excise taxes)601,557  851,242  1,807,284  2,561,785 
Direct operating expenses39,705  37,112  112,697  107,769 
Selling, general and administrative expenses5,563  6,388  17,744  17,276 
Gain on disposal of assets, net(13) (34) (257) (16)
Depreciation and amortization4,983  4,292  14,458  12,898 
Total operating costs and expenses651,795  899,000  1,951,926  2,699,712 
Operating income$22,684  $16,719  $64,450  $50,954 



 Three Months Ended Nine Months Ended
 September 30, September 30,
 2015 2014 2015 2014
 (Unaudited)
 (In thousands, except key operating statistics)
Key Operating Statistics       
Pipeline and gathering (bpd):       
Mainline movements:       
Permian/Delaware Basin system56,745  27,382  45,784  22,351 
Four Corners system (1)66,602  38,623  54,719  38,483 
Gathering (truck offloading):       
Permian/Delaware Basin system25,961  24,250  24,207  24,205 
Four Corners system16,487  10,979  13,387  11,187 
Terminalling, transportation and storage (bpd):       
Shipments into and out of storage (includes asphalt)408,787  389,773  396,506  379,261 
Wholesale:       
Fuel gallons sold (in thousands)305,566  289,822  919,808  850,840 
Fuel gallons sold to retail (included in fuel gallons sold above) (in thousands)81,538  68,064  235,824  194,753 
Fuel margin per gallon (2)$0.029  $0.019  $0.031  $0.021 
Lubricant gallons sold (in thousands)2,998  3,071  8,969  9,163 
Lubricant margin per gallon (3)$0.70  $0.83  $0.71  $0.81 
Crude oil trucking volume (bpd)49,620  39,473  47,245  34,610 
Average crude oil revenue per barrel$2.51  $2.78  $2.58  $2.94 


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

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

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


Retail Segment

 Three Months Ended Nine Months Ended
 September 30, September 30,
 2015 2014 2015 2014
 (Unaudited)
 (In thousands, except per gallon data)
Statement of Operations Data       
Net sales (including intersegment sales)$328,895  $381,873  $905,569  $1,092,389 
Operating costs and expenses:       
Cost of products sold (exclusive of depreciation and amortization)270,216  335,377  763,034  973,883 
Direct operating expenses (exclusive of depreciation and amortization)35,283  30,710  101,278  89,115 
Selling, general and administrative expenses3,263  2,654  9,636  7,962 
Gain on disposal of assets, net(6) (140) (51) (140)
Depreciation and amortization3,676  3,069  10,993  8,821 
Total operating costs and expenses312,432  371,670  884,890  1,079,641 
Operating income$16,463  $10,203  $20,679  $12,748 
Key Operating Statistics       
Retail fuel gallons sold92,939  80,705  267,102  232,236 
Average retail fuel sales price per gallon (net of excise taxes)$2.26  $3.12  $2.10  $3.07 
Average retail fuel cost per gallon (net of excise taxes)1.95  2.86  1.89  2.88 
Fuel margin per gallon (1)0.31  0.26  0.21  0.19 
Merchandise sales$83,146  $70,900  234,014  199,684 
Merchandise margin (2)29.4% 28.7% 29.5% 28.8%
Operating retail outlets at period end    261  230 
Cardlock fuel gallons sold16,990  16,906  50,013  51,235 
Cardlock fuel margin per gallon$0.176  $0.185  $0.174  $0.176 
Operating cardlocks at period end    52  54 



 Three Months Ended Nine Months Ended
 September 30, September 30,
 2015 2014 2015 2014
 (Unaudited)
 (In thousands, except per gallon data)
Net Sales       
Retail fuel sales (net of excise taxes)$209,705  $251,709  $561,416  $712,839 
Merchandise sales83,146  70,900  234,014  199,684 
Cardlock sales33,184  56,831  100,960  171,755 
Other sales2,860  2,433  9,179  8,111 
Net sales$328,895  $381,873  $905,569  $1,092,389 
Cost of Products Sold       
Retail fuel cost of products sold (net of excise taxes)$181,282  $231,143  $505,875  $668,642 
Merchandise cost of products sold58,737  50,531  164,906  142,235 
Cardlock cost of products sold30,141  53,671  92,077  162,656 
Other cost of products sold56  32  176  350 
Cost of products sold$270,216  $335,377  $763,034  $973,883 
Retail fuel margin per gallon (1)$0.31  $0.26  $0.21  $0.19 


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

(2)     Merchandise margin is a measurement calculated by dividing the difference between merchandise sales and merchandise cost of products sold by merchandise sales. Merchandise margin is a measure frequently used in the convenience store industry to measure operating results related to merchandise sales.


Reconciliation of Special Items

We present certain additional financial measures below and elsewhere in this press release that are non-GAAP measures within the meaning of Regulation G under the Securities Exchange Act of 1934.

We present these non-GAAP measures to provide investors with additional information to analyze our performance from period to period. We believe it is useful for investors to understand our financial performance excluding these special items so that investors can see the operating trends underlying our business. Investors should not consider these non-GAAP measures in isolation from, or as a substitute for, the financial information that we report in accordance with GAAP. These non-GAAP measures reflect subjective determinations by management and may differ from similarly titled non-GAAP measures presented by other companies.

 Three Months Ended
 September 30,
 2015 2014
 (Unaudited)
 (In thousands, except per share data)
Reported diluted earnings per share$1.61  $1.84 
Income before income taxes$310,215  $328,070 
Special items:   
Unrealized gain on commodity hedging transactions(271) (17,020)
Gain on disposal of assets, net(52) (66)
Net change in lower of cost or market inventory reserve36,795  — 
Earnings before income taxes excluding special items346,687  310,984 
Recomputed income taxes excluding special items (1)(96,254) (75,567)
Net income excluding special items250,433  235,417 
Net income attributable to non-controlling interest90,215  60,099 
Net income attributable to Western excluding special items$160,218  $175,318 
Diluted earnings per share excluding special items$1.69  $1.73 


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

 


            











    

        

        
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