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Western Refining Announces Second Quarter 2015 Results

EL PASO, Texas, Aug. 4, 2015 (GLOBE NEWSWIRE) -- Western Refining, Inc. (NYSE:WNR) today reported results for its second quarter ending June 30, 2015. Net income attributable to Western, excluding special items, was $138 million, or $1.44 per diluted share. This compares to second quarter 2014 net income, excluding special items, of $128.8 million, or $1.29 per diluted share. Including special items, the Company recorded second quarter 2015 net income attributable to Western of $133.9 million, or $1.40 per diluted share, as compared to net income attributable to Western of $156.7 million, or $1.56 per diluted share for the second 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 outstanding quarter for all of our business segments. Our refineries ran at historically high throughput rates in a strong margin environment and expenses were in line with expectations. In our Retail business, we saw an increase in same store fuel volumes, fuel margins, and merchandise sales. NTI and WNRL also performed well in the quarter which contributed to our solid financial results."

Western paid a dividend of $0.34 per share of common stock to shareholders in the second quarter. In July, Western's Board of Directors approved a $0.34 per share dividend for the third quarter. Including the third quarter dividend, Western will have returned approximately $118 million to shareholders through dividends and share repurchases to date in 2015.

Looking forward, Stevens said, "In the third quarter, gasoline margins have strengthened in the Southwest and gasoline demand continues to be good. In July, we moved approximately 17,000 barrels per day of Four Corners area crude oil to the El Paso refinery through the TexNew Mex pipeline. Construction of the Bobcat pipeline is on schedule and on budget and phase one should be completed later in 2015. These pipelines are part of our evolving southwest logistics system which will provide even greater flexibility for delivering crude oil from the Four Corners region and Delaware and Permian basins to our refineries and eastward to other locations. Overall, Western is well positioned for the second half of 2015."

Conference Call Information

A conference call is scheduled for Tuesday, August 4, 2015, at 10:00 am ET to discuss Western's financial results for the second quarter ended June 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: 66525450. The audio replay will be available two hours after the end of the call through August 18, 2015, by dialing (800) 585-8367 or (404) 537-3406, passcode: 66525450.

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 covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements contained herein include statements about: gasoline demand and gasoline margins in the southwest US; the timing and cost for completion of construction of the Bobcat crude oil pipeline; Western's evolving southwest logistics system and flexibility it will provide to deliver crude oil from the Four Corners area and Delaware and Permian basins to Western's refineries and eastward to other locations; and Western's overall positioning for the second half of 2015. 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, and Western does not undertake any obligation to (and expressly disclaims any obligation to) update any forward-looking statements to reflect events or circumstances after the date such statements were made, or to reflect the occurrence of unanticipated events.

Consolidated Financial Data

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

  • Our refining segment owns and operates two refineries in the Southwest that process crude oil and other feedstocks primarily into gasoline, diesel fuel, jet fuel and asphalt. We market refined products to a diverse customer base including wholesale distributors and retail chains. The refining segment also sells refined products in the Mid-Atlantic region and Mexico.
  • NTI owns and operates refining and transportation assets and operates and supports retail convenience stores primarily in Minnesota and Wisconsin.
  • WNRL owns and operates terminal, storage, transportation and provides related services primarily to our refining segment in the Southwest. The WNRL segment also includes wholesale assets consisting of a fleet of crude oil and refined product truck transports and wholesale petroleum product operations in the Southwest region. WNRL receives its product supply from the refining segment and third-party suppliers.
  • Our retail segment operates retail convenience stores and unmanned commercial 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 Six Months Ended
June 30, June 30,
2015 2014 2015 2014
(Unaudited)
(In thousands, except per share data)
Statements of Operations Data
Net sales (1) $ 2,828,892 $ 4,351,290 $ 5,147,622 $ 8,076,433
Operating costs and expenses:
Cost of products sold (exclusive of depreciation and amortization) (1) 2,177,887 3,731,169 3,919,197 6,891,906
Direct operating expenses (exclusive of depreciation and amortization) (1) 224,723 203,463 440,034 401,812
Selling, general and administrative expenses 59,540 54,640 115,343 113,372
Affiliate severance costs 3,479 12,878
Loss (gain) on disposal of assets, net (387) 119 (105) 1,005
Maintenance turnaround expense 593 698 46,446
Depreciation and amortization 51,143 47,848 101,069 94,258
Total operating costs and expenses 2,513,499 4,040,718 4,576,236 7,561,677
Operating income 315,393 310,572 571,386 514,756
Other income (expense):
Interest income 201 221 364 416
Interest expense and other financing costs (27,316) (27,801) (52,273) (56,758)
Loss on extinguishment of debt (1) (9)
Other, net 4,024 983 7,230 2,465
Income before income taxes 292,302 283,974 526,707 460,870
Provision for income taxes (78,435) (93,407) (137,872) (142,606)
Net income 213,867 190,567 388,835 318,264
Less net income attributable to non-controlling interests (2) 79,948 33,871 148,927 76,022
Net income attributable to Western Refining, Inc. $ 133,919 $ 156,696 $ 239,908 $ 242,242
Basic earnings per share $ 1.40 $ 1.88 $ 2.51 $ 2.97
Diluted earnings per share 1.40 1.56 2.51 2.44
Dividends declared per common share 0.34 0.26 0.64 0.52
Weighted average basic shares outstanding 95,539 83,556 95,553 81,653
Weighted average dilutive shares outstanding (3) 95,626 102,657 95,654 102,655
Three Months Ended Six Months Ended
June 30, June 30,
2015 2014 2015 2014
(Unaudited)
(In thousands)
Economic Hedging Activities Recognized Within Cost of Products Sold
Realized hedging gain, net $7,823 $1,812 $25,376 $17,556
Unrealized hedging gain (loss), net (22,287) 45,379 (42,344) 119,350
Total hedging gain (loss), net $(14,464) $47,191 $(16,968) $136,906
Cash Flow Data
Net cash provided by (used in):
Operating activities $187,066 $ 214,355 $ 292,044 $ 278,387
Investing activities (4,962) (38,000) (14,133) (88,449)
Financing activities (101,242) (76,179) (165,134) (126,195)
Capital expenditures 66,350 40,021 119,545 90,619
Cash distributions received by Western from:
NTI $ 38,472 $ 27,429 $ 55,927 $ 42,034
WNRL 10,901 8,868 21,215 16,043
Other Data
Adjusted EBITDA (4) $ 355,050 $ 314,364 $ 669,060 $ 539,996
Balance Sheet Data (at end of period)
Cash and cash equivalents $ 543,936 $ 531,813
Restricted cash 68,275
Working capital 1,063,221 839,194
Total assets 5,953,549 5,796,768
Total debt and lease financing obligation 1,597,637 1,200,171
Total equity 2,997,586 2,981,640

(1) Excludes $895.5 million, $1,632.0 million, $1,236.7 million and $2,294.8 million of intercompany sales and $895.5 million, $1,632.0 million, $1,232.2 million and $2,286.5 million of intercompany cost of products sold for three and six months ended June 30, 2015 and 2014, respectively, and $4.5 million and $8.3 million of intercompany direct operating expenses for the three and six months ended June 30, 2014, respectively, with no comparable activity for three and six months ended June 30, 2015.

(2) Net income attributable to non-controlling interests for the three and six months ended June 30, 2015, consisted of income from NTI and WNRL in the amount of $74.6 million, $138.4 million, $5.4 million and $10.6 million, respectively. Net income attributable to non-controlling interests for the three and six months ended June 30, 2014, consisted of income from NTI and WNRL in the amount of $30.1 million, $68.4 million, $3.8 million and $7.6 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 six months ended June 30, 2015. We assumed issuance of 0.1 million restricted share units for both the three and six months ended June 30, 2014 and 19.0 million and 20.9 million shares related to the Convertible Senior Unsecured Notes for the three and six months ended June 30, 2014, respectively.

(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 United States 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 Six Months Ended
June 30, June 30,
2015 2014 2015 2014
(Unaudited)
(In thousands)
Net income attributable to Western Refining, Inc. $ 133,919 $ 156,696 $ 239,908 $ 242,242
Net income attributable to non-controlling interest 79,948 33,871 148,927 76,022
Interest expense and other financing costs 27,316 27,801 52,273 56,758
Provision for income taxes 78,435 93,407 137,872 142,606
Loss (gain) on disposal of assets, net (387) 119 (105) 1,005
Depreciation and amortization 51,143 47,848 101,069 94,258
Maintenance turnaround expense 593 698 46,446
Loss on extinguishment of debt 1 9
Net change in lower of cost or market inventory reserve (38,204) (53,926)
Unrealized loss (gain) on commodity hedging transactions 22,287 (45,379) 42,344 (119,350)
Adjusted EBITDA $ 355,050 $ 314,364 $ 669,060 $ 539,996
EBITDA by Reporting Entity
Western Adjusted EBITDA $ 217,860 $ 221,500 $ 389,143 $ 344,651
WNRL Adjusted EBITDA 26,888 14,884 51,032 29,534
NTI Adjusted EBITDA 110,302 77,980 228,885 165,811
Adjusted EBITDA $ 355,050 $ 314,364 $ 669,060 $ 539,996
Three Months Ended
June 30,
2015
Western WNRL NTI
(Unaudited)
(In thousands)
Net income attributable to Western Refining, Inc. $ 74,904 $ 10,525 $ 48,490
Net income attributable to non-controlling interest 5,390 74,558
Interest expense and other financing costs 14,321 6,248 6,747
Provision for income taxes 78,287 148
Loss (gain) on disposal of assets, net 69 (160) (296)
Depreciation and amortization 26,891 4,737 19,515
Maintenance turnaround expense 593
Net change in lower of cost or market inventory reserve (38,204)
Unrealized loss (gain) on commodity hedging transactions 22,795 (508)
Adjusted EBITDA $ 217,860 $ 26,888 $ 110,302
Six Months Ended
June 30,
2015
Western WNRL NTI
(Unaudited)
(In thousands)
Net income attributable to Western Refining, Inc. $ 130,115 $ 20,665 $ 89,128
Net income attributable to non-controlling interest 10,573 138,354
Interest expense and other financing costs 28,551 10,212 13,510
Provision for income taxes 137,521 351
Loss (gain) on disposal of assets, net 450 (244) (311)
Depreciation and amortization 52,714 9,475 38,880
Maintenance turnaround expense 698
Net change in lower of cost or market inventory reserve (4,883) (49,043)
Unrealized loss (gain) on commodity hedging transactions 43,977 (1,633)
Adjusted EBITDA $ 389,143 $ 51,032 $ 228,885
Three Months Ended
June 30,
2014
Western WNRL NTI
(Unaudited)
(In thousands)
Net income attributable to Western Refining, Inc. $ 126,596 $ 7,171 $ 22,929
Net income attributable to non-controlling interest 3,804 30,067
Interest expense and other financing costs 21,272 357 6,172
Provision for income taxes 93,322 85
Loss (gain) on disposal of assets, net 208 (89)
Depreciation and amortization 25,019 3,467 19,362
Loss on extinguishment of debt 1
Unrealized gain on commodity hedging transactions (44,918) (461)
Adjusted EBITDA $ 221,500 $ 14,884 $ 77,980
Six Months Ended
June 30,
2014
Western WNRL NTI
(Unaudited)
(In thousands)
Net income attributable to Western Refining, Inc. $ 180,801 $ 14,315 $ 47,126
Net income attributable to non-controlling interest 7,593 68,429
Interest expense and other financing costs 43,743 711 12,304
Provision for income taxes 142,402 204
Loss (gain) on disposal of assets, net 1,106 (101)
Depreciation and amortization 49,200 6,711 38,347
Maintenance turnaround expense 46,446
Loss on extinguishment of debt 9
Unrealized loss (gain) on commodity hedging transactions (119,056) (294)
Adjusted EBITDA $ 344,651 $ 29,534 $ 165,811

Consolidating Financial Data

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

Three Months Ended Six Months Ended
June 30, June 30,
2015 2014 2015 2014
(Unaudited)
(In thousands)
Operating Income
Western, excluding WNRL and NTI $ 167,965 $ 240,549 $ 296,498 $ 366,000
WNRL 22,293 11,417 41,766 22,820
NTI 125,135 58,606 233,122 125,936
Operating income $ 315,393 $ 310,572 $ 571,386 $ 514,756
Depreciation and Amortization
Western, excluding WNRL and NTI $26,891 $ 25,019 $ 52,714 $ 49,200
WNRL 4,737 3,467 9,475 6,711
NTI 19,515 19,362 38,880 38,347
Depreciation and amortization expense $ 51,143 $ 47,848 $ 101,069 $ 94,258
Capital Expenditures
Western, excluding WNRL and NTI $ 47,345 $ 26,039 $ 85,953 $ 63,552
WNRL 7,850 2,773 15,764 8,677
NTI 11,155 11,209 17,828 18,390
Capital expenditures $ 66,350 $ 40,021 $ 119,545 $ 90,619
Balance Sheet Data (at end of period)
Cash and cash equivalents
Western, excluding WNRL and NTI $ 337,462 $ 345,476
WNRL 78,550 79,395
NTI 127,924 106,942
Cash and cash equivalents $ 543,936 $ 531,813
Total debt
Western, excluding WNRL and NTI $ 891,750 $ 897,456
WNRL 300,000
NTI 356,490 278,125
Total debt $ 1,548,240 $ 1,175,581
Total working capital
Western, excluding WNRL and NTI $ 694,183 $ 614,013
WNRL 66,782 81,256
NTI 302,256 143,925
Total working capital $ 1,063,221 $ 839,194

Refining Segment

El Paso and Gallup Refineries and Related Operations

Three Months Ended Six Months Ended
June 30, June 30,
2015 2014 2015 2014

(In thousands, except per barrel data)
Statement of Operations Data (Unaudited):
Net sales (including intersegment sales) (1) $ 1,819,032 $ 2,742,701 $ 3,310,473 $ 5,068,515
Operating costs and expenses:
Cost of products sold (exclusive of depreciation and amortization) (2) 1,527,952 2,392,222 2,763,408 4,432,747
Direct operating expenses (exclusive of depreciation and amortization) 77,379 74,286 154,911 147,040
Selling, general, and administrative expenses 7,133 7,354 16,702 14,484
Loss on disposal of assets, net 78 188 495 672
Maintenance turnaround expense 593 698 46,446
Depreciation and amortization 21,884 20,397 43,522 39,865
Total operating costs and expenses 1,635,019 2,494,447 2,979,736 4,681,254
Operating income $ 184,013 $ 248,254 $ 330,737 $ 387,261
Key Operating Statistics
Total sales volume (bpd) (1) (3) 233,653 227,313 233,564 214,105
Total production (bpd) 160,266 163,567 162,539 149,362
Total throughput (bpd) 162,001 165,641 164,635 151,642
Per barrel of throughput:
Refinery gross margin (2) (4) $ 19.71 $ 23.42 $ 18.26 $ 23.14
Direct operating expenses (5) 5.25 4.93 5.20 5.36
Mid-Atlantic sales volume (bbls) 2,513 2,496 4,453 4,878
Mid-Atlantic margin per barrel $ 0.32 $ (1.03) $ 0.75 $ 0.15

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 Six Months Ended
June 30, June 30,
2015 2014 2015 2014
Key Operating Statistics
Product yields (bpd):
Gasoline 86,034 84,773 87,607 75,894
Diesel and jet fuel 63,188 69,080 64,143 62,626
Residuum 5,140 5,792 5,039 5,075
Other 5,904 3,922 5,750 5,767
Total production (bpd) 160,266 163,567 162,539 149,362
Throughput (bpd):
Sweet crude oil 132,230 126,797 131,709 120,157
Sour crude oil 22,068 29,019 22,649 24,090
Other feedstocks and blendstocks 7,703 9,825 10,277 7,395
Total throughput (bpd) 162,001 165,641 164,635 151,642

El Paso Refinery

Three Months Ended Six Months Ended
June 30, June 30,
2015 2014 2015 2014
Key Operating Statistics
Product yields (bpd):
Gasoline 68,289 68,566 69,981 59,018
Diesel and jet fuel 55,032 60,693 55,874 54,215
Residuum 5,140 5,792 5,039 5,075
Other 4,504 2,462 4,244 4,132
Total production (bpd) 132,965 137,513 135,138 122,440
Throughput (bpd):
Sweet crude oil 106,601 102,162 106,481 95,052
Sour crude oil 22,068 29,019 22,649 24,090
Other feedstocks and blendstocks 5,646 8,060 7,665 5,132
Total throughput (bpd) 134,315 139,241 136,795 124,274
Total sales volume (bpd) (3) 149,561 150,728 150,680 139,176
Per barrel of throughput:
Refinery gross margin (2) (4) $ 20.01 $ 20.95 $ 18.72 $ 18.70
Direct operating expenses (5) 4.17 3.86 4.13 4.31

Gallup Refinery

Three Months Ended Six Months Ended
June 30, June 30,
2015 2014 2015 2014
Key Operating Statistics
Product yields (bpd):
Gasoline 17,745 16,207 17,626 16,876
Diesel and jet fuel 8,156 8,387 8,269 8,411
Other 1,400 1,460 1,506 1,635
Total production (bpd) 27,301 26,054 27,401 26,922
Throughput (bpd):
Sweet crude oil 25,629 24,635 25,228 25,105
Other feedstocks and blendstocks 2,057 1,765 2,612 2,263
Total throughput (bpd) 27,686 26,400 27,840 27,368
Total sales volume (bpd) (3) 33,637 33,839 33,263 33,520
Per barrel of throughput:
Refinery gross margin (2) (4) $ 22.64 $ 15.34 $ 18.34 $ 14.42
Direct operating expenses (5) 7.81 9.03 7.93 8.73

(1) Refining net sales for the three and six months ended June 30, 2015 and 2014 include $259.0 million, $474.5 million, $399.0 million and $753.4 million, respectively, representing a period average of 50,455 bpd, 49,621 bpd, 42,747 bpd and 41,409 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 Six Months Ended
June 30, June 30,
2015 2014 2015 2014
(Unaudited)
(In thousands)
Realized hedging gain, net $ 10,686 $ 4,177 $ 28,141 $ 20,661
Unrealized hedging gain (loss), net (22,795) 44,918 (43,977) 119,056
Total hedging gain (loss), net $ (12,109) $ 49,095 $ (15,836) $ 139,717

(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 10.7%, 10.0%, 9.4% and 11.1% of our total consolidated sales volumes for the three and six months ended June 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 Six Months Ended
June 30, June 30,
2015 2014 2015 2014
(Unaudited)
(In thousands)
Refinery net sales (including intersegment sales) $ 1,612,976 $ 2,430,001 $ 2,968,495 $ 4,471,200
Mid-Atlantic sales 206,056 312,700 341,978 597,315
Net sales (including intersegment sales) $ 1,819,032 $ 2,742,701 $ 3,310,473 $ 5,068,515
Refinery cost of products sold (exclusive of depreciation and amortization) $ 1,322,364 $ 2,076,946 $ 2,424,458 $ 3,836,144
Mid-Atlantic cost of products sold 205,588 315,276 338,950 596,603
Cost of products sold (exclusive of depreciation and amortization) $ 1,527,952 $ 2,392,222 $ 2,763,408 $ 4,432,747

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 Six Months Ended
June 30, June 30,
2015 2014 2015 2014
(Unaudited)
(In thousands, except per barrel data)
Refinery net sales (including intersegment sales) $ 1,612,976 $ 2,430,001 $ 2,968,495 $ 4,471,200
Refinery cost of products sold (exclusive of depreciation and amortization) 1,322,364 2,076,946 2,424,458 3,836,144
Depreciation and amortization 21,884 20,397 43,522 39,865
Gross profit 268,728 332,658 500,515 595,191
Plus depreciation and amortization 21,884 20,397 43,522 39,865
Refinery gross margin $ 290,612 $353,055 $ 544,037 $ 635,056
Refinery gross margin per throughput barrel $ 19.71 $ 23.42 $ 18.26 $ 23.14
Gross profit per throughput barrel $ 18.23 $ 22.07 $ 16.80 $ 21.69

(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 Six Months Ended
June 30, June 30,
2015 2014 2015 2014
(Unaudited)
(In thousands, except per barrel data)
Net sales $ 852,820 $ 1,499,321 $ 1,550,596 $ 2,756,699
Operating costs and expenses:
Cost of products sold (exclusive of depreciation and amortization) (1) 608,799 1,328,824 1,089,262 2,396,214
Direct operating expenses (exclusive of depreciation and amortization) 76,348 66,507 146,053 133,688
Selling, general and administrative expenses 23,319 22,632 43,590 49,737
Affiliate severance costs 3,479 12,878
Gain on disposal of assets, net (296) (89) (311) (101)
Depreciation and amortization 19,515 19,362 38,880 38,347
Total operating costs and expenses 727,685 1,440,715 1,317,474 2,630,763
Operating income $ 125,135 $ 58,606 $ 233,122 $ 125,936
Key Operating Statistics
Total sales volume (bpd) 103,778 102,409 101,144 95,822
Total refinery production (bpd) 98,722 93,342 96,529 93,139
Total refinery throughput (bpd) (2) 98,954 93,022 96,544 92,826
Per barrel of throughput:
Refinery gross margin (1) (3) $ 21.98 $ 15.03 $ 21.39 $ 16.54
Direct operating expenses (4) 4.80 4.17 4.70 4.33
Retail fuel gallons sold (in thousands) 77,398 76,740 149,259 149,779
Retail fuel margin per gallon (5) $ 0.22 $ 0.19 $ 0.21 $ 0.19
Merchandise sales 95,799 89,895 178,413 168,443
Merchandise margin (6) 25.9% 26.5% 25.9% 26.2%
Company-operated retail outlets at period end 165 164
Franchised retail outlets at period end 99 81

(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 Six Months Ended
June 30, June 30,
2015 2014 2015 2014
(Unaudited)
(In thousands)
Realized hedging loss, net $ (2,863) $ (2,365) $ (2,765) $ (3,105)
Unrealized hedging gain, net 508 461 1,633 294
Total hedging loss, net $ (2,355) $ (1,904) $ (1,132) $ (2,811)

(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 $37.2 million, $59.0 million, $314.5 million and $569.2 million related to crude oil sales during the three and six months ended June 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 six months ended June 30, 2015 includes a non-cash recovery of $38.2 million and $49.0 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 Six Months Ended
June 30, June 30,
2015 2014 2015 2014
(Unaudited)
(In thousands, except per barrel data)
Net refinery sales (including intersegment sales) $ 839,876 $ 1,486,741 $ 1,529,406 $ 2,730,336
Refinery cost of products sold (exclusive of depreciation and amortization) 641,872 1,359,500 1,155,618 2,452,431
Refinery depreciation and amortization 17,255 17,398 34,368 34,488
Gross profit 180,749 109,843 339,420 243,417
Plus depreciation and amortization 17,255 17,398 34,368 34,488
Refinery gross margin $ 198,004 $ 127,241 $ 373,788 $ 277,905
Refinery gross margin per refinery throughput barrel $ 21.98 $ 15.03 $ 21.39 $ 16.54
Gross profit per refinery throughput barrel $ 20.07 $ 12.98 $ 19.42 $ 14.49

(4) NTI's direct operating expenses per throughput barrel is 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 Six Months Ended
June 30, June 30,
2015 2014 2015 2014
(Unaudited)
(In thousands)
Statement of Operations Data:
Net sales (net of excise taxes) $ 734,501 $ 970,337 $ 1,341,897 $ 1,834,947
Operating costs and expenses:
Cost of products sold (net of excise taxes) 664,026 905,726 1,205,727 1,710,543
Direct operating expenses 37,355 36,974 72,992 70,657
Selling, general and administrative expenses 6,250 5,691 12,181 10,888
Loss (gain) on disposal of assets, net (160) 18 (244) 18
Depreciation and amortization 4,737 4,454 9,475 8,606
Total operating costs and expenses 712,208 952,863 1,300,131 1,800,712
Operating income $ 22,293 $ 17,474 $ 41,766 $ 34,235
Three Months Ended Six Months Ended
June 30, June 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 43,873 24,196 40,213 19,794
Four Corners system (1) 51,486 35,837 48,679 38,412
Gathering (truck offloading):
Permian/Delaware Basin system 24,019 26,178 23,316 24,182
Four Corners system 12,950 11,188 11,812 11,293
Terminalling, transportation and storage (bpd):
Shipments into and out of storage (includes asphalt) 389,220 406,881 390,263 373,918
Wholesale:
Fuel gallons sold (in thousands) 310,811 293,204 614,242 561,018
Fuel gallons sold to retail (included in fuel gallons sold above) (in thousands) 79,023 65,095 154,286 126,689
Fuel margin per gallon (2) $ 0.037 $ 0.020 $ 0.032 $ 0.022
Lubricant gallons sold (in thousands) 3,014 3,068 5,971 6,092
Lubricant margin per gallon (3) $ 0.78 $ 0.85 $ 0.72 $ 0.80
Crude oil trucking volume (bpd) 48,992 37,251 46,037 32,138
Average crude oil revenue per barrel $ 2.51 $ 2.99 $ 2.63 $ 3.03

(1) Some barrels of crude oil in route to Western's Gallup refinery and Permian/Delaware Basin are transported on more than one of our mainlines. 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 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 Six Months Ended
June 30, June 30,
2015 2014 2015 2014
(Unaudited)
(In thousands, except per gallon data)
Statement of Operations Data
Net sales (including intersegment sales) $ 318,072 $ 375,232 $ 576,674 $ 710,516
Operating costs and expenses:
Cost of products sold (exclusive of depreciation and amortization) 272,643 336,381 492,818 638,506
Direct operating expenses (exclusive of depreciation and amortization) 33,641 29,950 65,995 58,405
Selling, general and administrative expenses 3,109 2,709 6,373 5,308
Gain on disposal of assets, net (9) (45)
Depreciation and amortization 4,031 2,817 7,317 5,752
Total operating costs and expenses 313,415 371,857 572,458 707,971
Operating income $ 4,657 $ 3,375 $ 4,216 $ 2,545
Key Operating Statistics
Retail fuel gallons sold 90,339 78,143 174,163 151,530
Average retail fuel sales price per gallon (net of excise taxes) $ 2.20 $ 3.13 $ 2.02 $ 3.05
Average retail fuel cost per gallon (net of excise taxes) 2.03 2.96 1.86 2.89
Fuel margin per gallon (1) 0.17 0.17 0.16 0.16
Merchandise sales $ 79,981 $ 68,314 150,868 128,784
Merchandise margin (2) 29.9% 28.7% 29.6% 28.8%
Operating retail outlets at period end
Cardlock fuel gallons sold 16,903 17,444 33,023 34,329
Cardlock fuel margin per gallon $ 0.160 $ 0.181 $ 0.173 $ 0.172
Operating cardlocks at period end 52 52
Three Months Ended Six Months Ended
June 30, June 30,
2015 2014 2015 2014
(Unaudited)
(In thousands, except per gallon data)
Net Sales
Retail fuel sales (net of excise taxes) $ 199,166 $ 244,842 $ 351,711 $ 461,130
Merchandise sales 79,981 68,314 150,868 128,784
Cardlock sales 35,782 59,217 67,776 114,924
Other sales 3,143 2,859 6,319 5,678
Net sales $ 318,072 $ 375,232 $ 576,674 $ 710,516
Cost of Products Sold
Retail fuel cost of products sold (net of excise taxes) $ 183,471 $ 231,385 $ 324,593 $ 437,499
Merchandise cost of products sold 56,104 48,728 106,169 91,704
Cardlock cost of products sold 33,004 56,043 61,936 108,985
Other cost of products sold 64 225 120 318
Cost of products sold $ 272,643 $ 336,381 $ 492,818 $ 638,506
Retail fuel margin per gallon (1) $ 0.17 $ 0.17 $ 0.16 $ 0.16

(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
June 30,
2015 2014
(Unaudited)
(In thousands, except per share data)
Reported diluted earnings per share $ 1.40 $ 1.56
Income before income taxes $ 292,302 $ 283,974
Unrealized loss (gain) on commodity hedging transactions 22,287 (45,379)
Loss (gain) on disposal of assets, net (387) 119
Affiliate severance costs 3,479
Net change in lower of cost or market inventory reserve (38,204)
Loss on extinguishment of debt 1
Earnings before income taxes excluding special items 275,998 242,194
Recomputed income taxes excluding special items (1) (80,847) (77,696)
Net income excluding special items 195,151 164,498
Net income attributable to non-controlling interest 57,138 35,721
Net income attributable to Western excluding special items $ 138,013 $ 128,777
Diluted earnings per share excluding special items $ 1.44 $ 1.29

(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

Source:Western Refining, Inc.