News: $WNR – Western Refining Announces Third Quarter 2015 Results

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 expenses 54,465     57,206     169,808     170,578  
Affiliate severance costs             12,878  
Loss (gain) on disposal of assets, net (52 )   (66 )   (157 )   939  
Maintenance turnaround expense 490     1,883     1,188     48,329  
Depreciation and amortization 51,377     46,910     152,446     141,168  
Total operating costs and expenses 2,236,492     3,703,671     6,812,728     11,265,348  
Operating income 332,598     348,653     903,984     863,409  
Other income (expense):              
Interest income 186     483     550     899  
Interest expense and other financing costs (26,896 )   (18,250 )   (79,169 )   (75,008 )
Loss on extinguishment of debt             (9 )
Other, net 4,327     (2,816 )   11,557     (351 )
Income before income taxes 310,215     328,070     836,922     788,940  
Provision for income taxes (92,117 )   (80,713 )   (229,989 )   (223,319 )
Net income 218,098     247,357     606,933     565,621  
Less net income attributable to non-controlling interests (2) 64,795     60,608     213,722     136,630  
Net income attributable to Western Refining, Inc. $ 153,303     $ 186,749     $ 393,211     $ 428,991  
               
Basic earnings per share $ 1.61     $ 1.85     $ 4.12     $ 4.86  
Diluted earnings per share 1.61     1.84     4.12     4.28  
Dividends declared per common share 0.34     0.26     0.98     0.78  
               
Weighted average basic shares outstanding 94,826     101,199     95,308     88,240  
Weighted average dilutive shares outstanding (3) 94,924     101,325     95,408     102,207  

  Three Months Ended   Nine Months Ended
  September 30,   September 30,
  2015   2014   2015   2014
  (Unaudited)
  (In thousands)
Economic Hedging Activities Recognized Within Cost of Products Sold              
Realized hedging gain, net $ 26,949     $ 26,716     $ 52,325     $ 44,272  
Unrealized hedging gain (loss), net 271     17,020     (42,073 )   136,371  
Total hedging gain, net $ 27,220     $ 43,736     $ 10,252     $ 180,643  
               
Cash Flow Data              
Net cash provided by (used in):              
Operating activities $ 373,620     $ 208,959     $ 665,664     $ 494,058  
Investing activities (20,321 )   (46,875 )   (34,454 )   (142,036 )
Financing activities (187,665 )   (43,743 )   (352,799 )   (169,938 )
Capital expenditures $ 76,431     $ 49,923     $ 195,976     $ 147,254  
Cash distributions received by Western from:              
NTI $ 42,391     $ 18,880     $ 98,318     $ 60,914  
WNRL 11,630     9,167     32,845     25,210  
Other Data              
Adjusted EBITDA (4) $ 425,450     $ 378,027     $ 1,094,510     $ 918,022  
Balance Sheet Data (at end of period)              
Cash and cash equivalents         $ 709,570     $ 650,154  
Restricted cash         12,328      
Working capital         1,137,952     1,078,164  
Total assets         5,881,886     5,863,884  
Total debt and lease financing obligation         1,595,650     1,279,435  
Total equity         3,032,495     3,127,805  

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

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

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

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

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

  • Adjusted EBITDA does not reflect our cash expenditures or future requirements for significant turnaround activities, capital expenditures or contractual commitments;
  • Adjusted EBITDA does not reflect the interest expense or the cash requirements necessary to service interest or principal payments on our debt;
  • Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs; and
  • Adjusted EBITDA, as we calculate it, may differ from the Adjusted EBITDA calculations of other companies in our industry, thereby limiting its usefulness as a comparative measure.

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

  Three Months Ended   Nine Months Ended
  September 30,   September 30,
  2015   2014   2015   2014
  (Unaudited)
   (In thousands)
Net income attributable to Western Refining, Inc. $ 153,303     $ 186,749     $ 393,211     $ 428,991  
Net income attributable to non-controlling interest 64,795     60,608     213,722     136,630  
Interest expense and other financing costs 26,896     18,250     79,169     75,008  
Provision for income taxes 92,117     80,713     229,989     223,319  
Loss (gain) on disposal of assets, net (52 )   (66 )   (157 )   939  
Depreciation and amortization 51,377     46,910     152,446     141,168  
Maintenance turnaround expense 490     1,883     1,188     48,329  
Loss on extinguishment of debt             9  
Net change in lower of cost or market inventory reserve 36,795         (17,131 )    
Unrealized loss (gain) on commodity hedging transactions (271 )   (17,020 )   42,073     (136,371 )
Adjusted EBITDA $ 425,450     $ 378,027     $ 1,094,510     $ 918,022  
               
EBITDA by Reporting Entity              
Western Adjusted EBITDA $ 233,954     $ 248,943     $ 623,097     $ 593,594  
NTI Adjusted EBITDA 163,826     112,991     392,711     278,801  
WNRL EBITDA 27,670     16,093     78,702     45,627  
Consolidated Adjusted EBITDA $ 425,450     $ 378,027     $ 1,094,510     $ 918,022  

  Three Months Ended
  September 30,
  2015
  Western   NTI   WNRL
  (Unaudited)
   (In thousands)
Net income attributable to Western Refining, Inc. $ 102,279     $ 40,117     $ 10,907  
Net income attributable to non-controlling interest     59,209     5,586  
Interest expense and other financing costs 13,960     6,732     6,204  
Provision for income taxes 92,114         3  
Gain on disposal of assets, net (6 )   (33 )   (13 )
Depreciation and amortization 26,648     19,746     4,983  
Maintenance turnaround expense 490          
Net change in lower of cost or market inventory reserve     36,795      
Unrealized loss (gain) on commodity hedging transactions (1,531 )   1,260      
Adjusted EBITDA $ 233,954     $ 163,826     $ 27,670  

  Nine Months Ended
  September 30,
  2015
  Western   NTI   WNRL
  (Unaudited)
   (In thousands)
Net income attributable to Western Refining, Inc. $ 232,394     $ 129,245     $ 31,572  
Net income attributable to non-controlling interest     197,563     16,159  
Interest expense and other financing costs 42,511     20,242     16,416  
Provision for income taxes 229,635         354  
Loss (gain) on disposal of assets, net 444     (344 )   (257 )
Depreciation and amortization 79,362     58,626     14,458  
Maintenance turnaround expense 1,188          
Net change in lower of cost or market inventory reserve (4,883 )   (12,248 )    
Unrealized loss (gain) on commodity hedging transactions 42,446     (373 )    
Adjusted EBITDA $ 623,097     $ 392,711     $ 78,702  
  Three Months Ended
  September 30,
  2014
  Western   NTI   WNRL
  (Unaudited)
   (In thousands)
Net income attributable to Western Refining, Inc. $ 144,024     $ 34,711     $ 8,014  
Net income attributable to non-controlling interest     56,357     4,251  
Interest expense and other financing costs 13,617     4,271     362  
Provision for income taxes 80,578         135  
Gain on disposal of assets, net (66 )        
Depreciation and amortization 25,097     18,482     3,331  
Maintenance turnaround expense 1,883          
Unrealized gain on commodity hedging transactions (16,190 )   (830 )    
Adjusted EBITDA $ 248,943     $ 112,991     $ 16,093  

  Nine Months Ended
  September 30,
  2014
  Western   NTI   WNRL
  (Unaudited)
   (In thousands)
Net income attributable to Western Refining, Inc. $ 324,825     $ 81,837     $ 22,329  
Net income attributable to non-controlling interest     124,786     11,844  
Interest expense and other financing costs 57,360     16,575     1,073  
Provision for income taxes 222,980         339  
Loss (gain) on disposal of assets, net 1,040     (101 )    
Depreciation and amortization 74,297     56,829     10,042  
Maintenance turnaround expense 48,329          
Loss on extinguishment of debt 9          
Unrealized gain on commodity hedging transactions (135,246 )   (1,125 )    
Adjusted EBITDA $ 593,594     $ 278,801     $ 45,627  


Consolidating Financial Data

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

  Three Months Ended   Nine Months Ended
  September 30,   September 30,
  2015   2014   2015   2014
  (Unaudited)
  (In thousands)
Operating Income              
Western, excluding NTI and WNRL $ 208,253     $ 239,093     $ 504,751     $ 605,093  
NTI 101,661     96,799     334,783     222,735  
WNRL 22,684     12,761     64,450     35,581  
Operating income $ 332,598     $ 348,653     $ 903,984     $ 863,409  
Depreciation and Amortization              
Western, excluding NTI and WNRL $ 26,648     $ 25,097     $ 79,362     $ 74,297  
NTI 19,746     18,482     58,626     56,829  
WNRL 4,983     3,331     14,458     10,042  
Depreciation and amortization expense $ 51,377     $ 46,910     $ 152,446     $ 141,168  
Capital Expenditures              
Western, excluding NTI and WNRL $ 52,293     $ 37,938     $ 138,246     $ 101,490  
NTI 17,439     9,237     35,267     34,339  
WNRL 6,699     2,748     22,463     11,425  
Capital expenditures $ 76,431     $ 49,923     $ 195,976     $ 147,254  
Balance Sheet Data (at end of period)              
Cash and cash equivalents              
Western, excluding NTI and WNRL         $ 523,590     $ 465,010  
NTI         114,608     106,035  
WNRL         71,372     79,109  
Cash and cash equivalents         $ 709,570     $ 650,154  
 Total debt              
Western, excluding NTI and WNRL         $ 890,375     $ 896,026  
NTI         356,209     357,312  
WNRL         300,000      
Total debt         $ 1,546,584     $ 1,253,338  
 Total working capital              
Western, excluding NTI and WNRL         $ 784,497     $ 726,937  
NTI         287,113     271,540  
WNRL         66,342     79,687  
Total working capital         $ 1,137,952     $ 1,078,164  


Refining Segment

El Paso and Gallup Refineries and Related Operations

  Three Months Ended   Nine Months Ended
  September 30,   September 30,
  2015   2014   2015   2014
  (In thousands, except per barrel data)
Statement of Operations Data (Unaudited):              
Net sales (including intersegment sales) (1) $ 1,652,934     $ 2,498,226     $ 4,963,407     $ 7,566,741  
Operating costs and expenses:              
Cost of products sold (exclusive of depreciation and amortization) (2) 1,335,326     2,145,984     4,098,734     6,578,731  
Direct operating expenses (exclusive of depreciation and amortization) 77,249     78,184     232,160     225,224  
Selling, general and administrative expenses 7,509     7,216     24,211     21,700  
Loss on disposal of assets, net     103     495     775  
Maintenance turnaround expense 490     1,883     1,188     48,329  
Depreciation and amortization 22,013     20,280     65,535     60,145  
Total operating costs and expenses 1,442,587     2,253,650     4,422,323     6,934,904  
Operating income $ 210,347     $ 244,576     $ 541,084     $ 631,837  
Key Operating Statistics              
Total sales volume (bpd) (1) (3) 247,839     219,755     238,375     216,009  
Total production (bpd) 162,058     156,291     162,377     151,697  
Total throughput (bpd) 164,580     158,452     164,616     153,937  
Per barrel of throughput:              
Refinery gross margin (2) (4) $ 21.11     $ 24.04     $ 19.22     $ 23.45  
Direct operating expenses (5) $ 5.10     $ 5.36     $ 5.17     $ 5.36  
Mid-Atlantic sales volume (bbls) 2,144     2,005     6,597     6,883  
Mid-Atlantic margin per barrel $ (1.10 )   $ 0.91     $ 0.15     $ 0.37  

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

El Paso and Gallup Refineries

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

El Paso Refinery

  Three Months Ended   Nine Months Ended
  September 30,   September 30,
  2015   2014   2015   2014
Key Operating Statistics              
Product yields (bpd):              
Gasoline 71,855     64,614     70,613     60,904  
Diesel and jet fuel 55,667     56,278     55,804     54,911  
Residuum 4,121     5,569     4,730     5,241  
Other 5,016     2,517     4,503     3,588  
Total production (bpd) 136,659     128,978     135,650     124,644  
Throughput (bpd):              
Sweet crude oil 107,577     97,514     106,850     95,881  
Sour crude oil 23,854     26,319     23,055     24,841  
Other feedstocks and blendstocks 7,485     6,844     7,604     5,709  
Total throughput (bpd) 138,916     130,677     137,509     126,431  
Total sales volume (bpd) (3) 149,861     138,212     150,404     138,851  
Per barrel of throughput:              
Refinery gross margin (2) (4) $ 18.51     $ 20.99     $ 18.65     $ 19.50  
Direct operating expenses (5) 3.64     4.32     3.96     4.31  

Gallup Refinery

  Three Months Ended   Nine Months Ended
  September 30,   September 30,
  2015   2014   2015   2014
Key Operating Statistics              
Product yields (bpd):              
Gasoline 15,961     16,736     17,065     16,828  
Diesel and jet fuel 7,878     9,508     8,137     8,781  
Other 1,560     1,069     1,525     1,444  
Total production (bpd) 25,399     27,313     26,727     27,053  
Throughput (bpd):              
Sweet crude oil 23,888     24,768     24,776     24,992  
Other feedstocks and blendstocks 1,776     3,007     2,331     2,514  
Total throughput (bpd) 25,664     27,775     27,107     27,506  
Total sales volume (bpd) (3) 33,489     35,705     33,339     34,257  
Per barrel of throughput:              
Refinery gross margin (2) (4) $ 23.08     $ 20.65     $ 19.85     $ 16.54  
Direct operating expenses (5) 9.10     8.29     8.30     8.58  

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

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

  Three Months Ended   Nine Months Ended
  September 30,   September 30,
  2015   2014   2015   2014
  (Unaudited)
  (In thousands)
Realized hedging gain, net $ 23,134     $ 20,737     $ 51,275     $ 41,399  
Unrealized hedging gain (loss), net 1,531     16,190     (42,446 )   135,246  
Total hedging gain, net $ 24,665     $ 36,927     $ 8,829     $ 176,645  

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

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

  Three Months Ended   Nine Months Ended
  September 30,   September 30,
  2015   2014   2015   2014
  (Unaudited)
  (In thousands)
Refinery net sales (including intersegment sales) $ 1,498,049     $ 2,263,053     $ 4,466,544     $ 6,734,253  
Mid-Atlantic sales 154,885     235,173     496,863     832,488  
Net sales (including intersegment sales) $ 1,652,934     $ 2,498,226     $ 4,963,407     $ 7,566,741  
               
Refinery cost of products sold (exclusive of depreciation and amortization) $ 1,178,412     $ 1,912,640     $ 3,602,870     $ 5,748,784  
Mid-Atlantic cost of products sold 156,914     233,344     495,864     829,947  
Cost of products sold (exclusive of depreciation and amortization) $ 1,335,326     $ 2,145,984     $ 4,098,734     $ 6,578,731  

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

  Three Months Ended   Nine Months Ended
  September 30,   September 30,
  2015   2014   2015   2014
  (Unaudited)
  (In thousands, except per barrel data)
Refinery net sales (including intersegment sales) $ 1,498,049     $ 2,263,053     $ 4,466,544     $ 6,734,253  
Refinery cost of products sold (exclusive of depreciation and amortization) 1,178,412     1,912,640     3,602,870     5,748,784  
Depreciation and amortization 22,013     20,280     65,535     60,145  
Gross profit 297,624     330,133     798,139     925,324  
Plus depreciation and amortization 22,013     20,280     65,535     60,145  
Refinery gross margin $ 319,637     $ 350,413     $ 863,674     $ 985,469  
Refinery gross margin per throughput barrel $ 21.11     $ 24.04     $ 19.22     $ 23.45  
Gross profit per throughput barrel $ 19.66     $ 22.65     $ 17.76     $ 22.02  

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

NTI

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

  Three Months Ended   Nine Months Ended
  September 30,   September 30,
  2015   2014   2015   2014
  (Unaudited)
  (In thousands, except per barrel data)
Net sales $ 798,025     $ 1,449,033     $ 2,348,621     $ 4,205,732  
Operating costs and expenses:              
Cost of products sold (exclusive of depreciation and amortization) (1) 573,686     1,235,697     1,662,948     3,631,911  
Direct operating expenses (exclusive of depreciation and amortization) 82,203     75,909     228,256     209,597  
Selling, general and administrative expenses 20,762     22,146     64,352     71,883  
Affiliate severance costs             12,878  
Gain on disposal of assets, net (33 )       (344 )   (101 )
Depreciation and amortization 19,746     18,482     58,626     56,829  
Total operating costs and expenses 696,364     1,352,234     2,013,838     3,982,997  
Operating income $ 101,661     $ 96,799     $ 334,783     $ 222,735  
               
Key Operating Statistics              
Total sales volume (bpd) 99,617     100,064     100,630     97,252  
Total refinery production (bpd) 90,362     96,625     94,451     94,314  
Total refinery throughput (bpd) (2) 90,590     96,464     94,538     94,054  
Per barrel of throughput:              
Refinery gross margin (1) (3) $ 20.65     $ 18.87     $ 21.15     $ 17.35  
Direct operating expenses (4) 4.84     4.46     4.74     4.37  
               
Retail fuel gallons sold (in thousands) 78,414     79,674     227,673     229,453  
Retail fuel margin per gallon (5) $ 0.27     $ 0.20     $ 0.23     $ 0.20  
Merchandise sales $ 100,645     $ 95,647     $ 279,058     $ 264,090  
Merchandise margin (6) 25.8 %   25.7 %   25.9 %   26.0 %
Company-operated retail outlets at period end         165     165  
Franchised retail outlets at period end         102     82  

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

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

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

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

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

  Three Months Ended   Nine Months Ended
  September 30,   September 30,
  2015   2014   2015   2014
  (Unaudited)
  (In thousands, except per barrel data)
Net refinery sales (including intersegment sales) $ 762,275     $ 1,425,308     $ 2,291,681     $ 4,155,644  
Refinery cost of products sold (exclusive of depreciation and amortization) 590,138     1,257,837     1,745,756     3,710,268  
Refinery depreciation and amortization 17,366     15,890     51,734     50,378  
Gross profit 154,771     151,581     494,191     394,998  
Plus depreciation and amortization 17,366     15,890     51,734     50,378  
Refinery gross margin $ 172,137     $ 167,471     $ 545,925     $ 445,376  
Refinery gross margin per refinery throughput barrel $ 20.65     $ 18.87     $ 21.15     $ 17.35  
Gross profit per refinery throughput barrel $ 18.57     $ 17.08     $ 19.15     $ 15.38  

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

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

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

WNRL

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

  Three Months Ended   Nine Months Ended
  September 30,   September 30,
  2015   2014   2015   2014
  (Unaudited)
  (In thousands)
Statement of Operations Data:              
Net sales (net of excise taxes) $ 674,479     $ 915,719     $ 2,016,376     $ 2,750,666  
Operating costs and expenses:              
Cost of products sold (net of excise taxes) 601,557     851,242     1,807,284     2,561,785  
Direct operating expenses 39,705     37,112     112,697     107,769  
Selling, general and administrative expenses 5,563     6,388     17,744     17,276  
Gain on disposal of assets, net (13 )   (34 )   (257 )   (16 )
Depreciation and amortization 4,983     4,292     14,458     12,898  
Total operating costs and expenses 651,795     899,000     1,951,926     2,699,712  
Operating income $ 22,684     $ 16,719     $ 64,450     $ 50,954  
  Three Months Ended   Nine Months Ended
  September 30,   September 30,
  2015   2014   2015   2014
  (Unaudited)
  (In thousands, except key operating statistics)
Key Operating Statistics              
Pipeline and gathering (bpd):              
Mainline movements:              
Permian/Delaware Basin system 56,745     27,382     45,784     22,351  
Four Corners system (1) 66,602     38,623     54,719     38,483  
Gathering (truck offloading):              
Permian/Delaware Basin system 25,961     24,250     24,207     24,205  
Four Corners system 16,487     10,979     13,387     11,187  
Terminalling, transportation and storage (bpd):              
Shipments into and out of storage (includes asphalt) 408,787     389,773     396,506     379,261  
Wholesale:              
Fuel gallons sold (in thousands) 305,566     289,822     919,808     850,840  
Fuel gallons sold to retail (included in fuel gallons sold above) (in thousands) 81,538     68,064     235,824     194,753  
Fuel margin per gallon (2) $ 0.029     $ 0.019     $ 0.031     $ 0.021  
Lubricant gallons sold (in thousands) 2,998     3,071     8,969     9,163  
Lubricant margin per gallon (3) $ 0.70     $ 0.83     $ 0.71     $ 0.81  
Crude oil trucking volume (bpd) 49,620     39,473     47,245     34,610  
Average crude oil revenue per barrel $ 2.51     $ 2.78     $ 2.58     $ 2.94  

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

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

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

Retail Segment

  Three Months Ended   Nine Months Ended
  September 30,   September 30,
  2015   2014   2015   2014
  (Unaudited)
  (In thousands, except per gallon data)
Statement of Operations Data              
Net sales (including intersegment sales) $ 328,895     $ 381,873     $ 905,569     $ 1,092,389  
Operating costs and expenses:              
Cost of products sold (exclusive of depreciation and amortization) 270,216     335,377     763,034     973,883  
Direct operating expenses (exclusive of depreciation and amortization) 35,283     30,710     101,278     89,115  
Selling, general and administrative expenses 3,263     2,654     9,636     7,962  
Gain on disposal of assets, net (6 )   (140 )   (51 )   (140 )
Depreciation and amortization 3,676     3,069     10,993     8,821  
Total operating costs and expenses 312,432     371,670     884,890     1,079,641  
Operating income $ 16,463     $ 10,203     $ 20,679     $ 12,748  
Key Operating Statistics              
Retail fuel gallons sold 92,939     80,705     267,102     232,236  
Average retail fuel sales price per gallon (net of excise taxes) $ 2.26     $ 3.12     $ 2.10     $ 3.07  
Average retail fuel cost per gallon (net of excise taxes) 1.95     2.86     1.89     2.88  
Fuel margin per gallon (1) 0.31     0.26     0.21     0.19  
Merchandise sales $ 83,146     $ 70,900     234,014     199,684  
Merchandise margin (2) 29.4 %   28.7 %   29.5 %   28.8 %
Operating retail outlets at period end         261     230  
Cardlock fuel gallons sold 16,990     16,906     50,013     51,235  
Cardlock fuel margin per gallon $ 0.176     $ 0.185     $ 0.174     $ 0.176  
Operating cardlocks at period end         52     54  
  Three Months Ended   Nine Months Ended
  September 30,   September 30,
  2015   2014   2015   2014
  (Unaudited)
  (In thousands, except per gallon data)
Net Sales              
Retail fuel sales (net of excise taxes) $ 209,705     $ 251,709     $ 561,416     $ 712,839  
Merchandise sales 83,146     70,900     234,014     199,684  
Cardlock sales 33,184     56,831     100,960     171,755  
Other sales 2,860     2,433     9,179     8,111  
Net sales $ 328,895     $ 381,873     $ 905,569     $ 1,092,389  
Cost of Products Sold              
Retail fuel cost of products sold (net of excise taxes) $ 181,282     $ 231,143     $ 505,875     $ 668,642  
Merchandise cost of products sold 58,737     50,531     164,906     142,235  
Cardlock cost of products sold 30,141     53,671     92,077     162,656  
Other cost of products sold 56     32     176     350  
Cost of products sold $ 270,216     $ 335,377     $ 763,034     $ 973,883  
Retail fuel margin per gallon (1) $ 0.31     $ 0.26     $ 0.21     $ 0.19  

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

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

Reconciliation of Special Items

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

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

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

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

 

CONTACT: Investor and Analyst Contact:
Jeffrey S. Beyersdorfer
(602) 286-1530

Michelle Clemente
(602) 286-1533

Media Contact:
Gary W. Hanson
(602) 286-1777