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 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.


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.