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Western Refining Announces Second Quarter 2016 Results

  • EPS of $0.70 per diluted share; EPS, excluding special items, of $0.72 per diluted share
  • Strong demand drove same store Southwest retail fuel volumes up 7% compared to Q2 2015
  • Completed the acquisition of Northern Tier

EL PASO, Texas, Aug. 02, 2016 (GLOBE NEWSWIRE) -- Western Refining, Inc. (NYSE:WNR) today reported second quarter 2016 net income attributable to Western of $65.4 million, or $0.70 per diluted share, as compared to net income attributable to Western of $133.9 million, or $1.40 per diluted share for the second quarter of 2015. Net income attributable to Western, excluding special items, was $66.5 million, or $0.72 per diluted share. This compares to second quarter 2015 net income, excluding special items, of $138.0 million, or $1.44 per diluted share. A reconciliation of reported earnings and description of special items can be found in the accompanying financial tables.

Jeff Stevens, Western's Chief Executive Officer, said, "This was a milestone quarter as we completed the Northern Tier transaction and began operating our combined assets as one team. All three refineries ran well during the quarter, retail fuel volumes were strong compared to Q2 2015 and we did a good job managing our expenses. Also, through our integrated retail and wholesale marketing supply system, we were able to mitigate our RIN expenses during a time that RINs increased in cost."

Western paid a dividend of $0.38 per share of common stock to shareholders in the second quarter. In July, Western's Board of Directors also approved a $0.38 per share dividend for the third quarter. Including the third quarter dividend, Western will have returned approximately $186 million to shareholders through dividends and share repurchases in 2016.

Looking forward, Stevens said, "The third quarter has started off well as gasoline demand remains good. Canadian and Bakken crude oil differentials are normalizing following the Fort McMurray wildfires. Asphalt volumes and margins remain good. Over the near term, we will focus on debt reduction from cash flow from operations, the sale of assets to WNRL, and distributions received from WNRL, while continuing to return cash to shareholders."

Conference Call Information

A conference call is scheduled for Tuesday, August 2, 2016, at 11:00 am ET to discuss Western's financial results for the second quarter ended June 30, 2016. 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: 35667046. The audio replay will be available two hours after the end of the call through August 16, 2016, by dialing (800) 585-8367 or (404) 537-3406, passcode: 35667046.

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 Company operates refineries in El Paso, Gallup, New Mexico and St. Paul Park, Minnesota. The Company’s retail operations includes retail service stations and convenience stores in Arizona, Colorado, Minnesota, New Mexico, Texas, and Wisconsin, operating primarily through the Giant, Howdy’s, and SuperAmerica brands.

Western Refining, Inc. also owns the general partner and approximately 61% of the limited partnership interest of Western Refining Logistics, LP (NYSE:WNRL).

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: the amount of cash Western has returned to shareholders in 2016 and its near term focus on continuing to return cash to shareholders; gasoline demand; Canadian and Bakken crude oil differentials; asphalt volumes and margins; and Western's focus on debt reduction from cash flow from operations, the sale of assets to WNRL, and distributions received from WNRL. 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. 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.
  • The NTI segment operates refining and transportation assets and operates and supports retail convenience stores primarily in the Upper Great Plains region of the United States.
  • WNRL owns and operates terminal, storage, transportation and wholesale assets consisting of a fleet of crude oil and refined product truck transports and wholesale petroleum product operations in the Southwest region. WNRL's primary customer is our refineries in the Southwest. WNRL purchases its wholesale 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,
2016 2015 2016 2015
(Unaudited)
(In thousands, except per share data)
Statements of Operations Data
Net sales (1)$2,107,308 $2,828,892 $3,562,812 $5,147,622
Operating costs and expenses:
Cost of products sold (exclusive of depreciation and amortization) (1)1,602,628 2,177,887 2,649,989 3,919,197
Direct operating expenses (exclusive of depreciation and amortization)231,169 224,723 454,754 440,034
Selling, general and administrative expenses56,052 59,540 109,337 115,343
Gain on disposal of assets, net(772) (387) (902) (105)
Maintenance turnaround expense400 593 525 698
Depreciation and amortization54,359 51,143 107,010 101,069
Total operating costs and expenses1,943,836 2,513,499 3,320,713 4,576,236
Operating income163,472 315,393 242,099 571,386
Other income (expense):
Interest income131 201 295 364
Interest and debt expense(26,928) (27,316) (53,609) (52,273)
Other, net4,341 4,024 10,445 7,230
Income before income taxes141,016 292,302 199,230 526,707
Provision for income taxes(38,152) (78,435) (56,781) (137,872)
Net income102,864 213,867 142,449 388,835
Less net income attributable to non-controlling interests (2)37,449 79,948 46,496 148,927
Net income attributable to Western Refining, Inc.$65,415 $133,919 $95,953 $239,908
Basic earnings per share$0.70 $1.40 $1.04 $2.51
Diluted earnings per share0.70 1.40 1.04 2.51
Dividends declared per common share0.38 0.34 0.76 0.64
Weighted average basic shares outstanding92,786 95,539 92,432 95,553
Weighted average dilutive shares outstanding (3)92,847 95,626 92,495 95,654


Three Months Ended Six Months Ended
June 30, June 30,
2016 2015 2016 2015
(Unaudited)
(In thousands)
Economic Hedging Activities Recognized Within Cost of Products Sold
Realized hedging gain, net$550 $7,823 $18,353 $25,376
Unrealized hedging loss, net(14,598) (22,287) (27,082) (42,344)
Total hedging loss, net$(14,048) $(14,464) $(8,729) $(16,968)
Cash Flow Data
Net cash provided by (used in):
Operating activities$115,754 $187,066 $116,858 $292,044
Investing activities(41,374) (4,962) (87,861) (14,133)
Financing activities(469,197) (101,242) (603,215) (165,134)
Capital expenditures$77,731 $66,350 $156,760 $119,545
Cash distributions received by Western from:
NTI$6,412 $38,472 $19,949 $55,927
WNRL13,555 10,901 26,947 21,215
Other Data
Adjusted EBITDA (4)$200,910 $355,050 $299,201 $669,060
Balance Sheet Data (at end of period)
Cash and cash equivalents $198,284 $543,936
Restricted cash 1,284 68,275
Working capital 730,608 1,105,559
Total assets 5,538,529 5,910,062
Total debt and lease financing obligation 2,068,681 1,554,150
Total equity 2,082,143 2,997,586

(1) Excludes $777.3 million, $1,404.8 million, $895.5 million and $1,632.0 million of intercompany sales and $777.3 million, $1,404.8 million, $895.5 million and $1,632.0 million of intercompany cost of products sold for three and six months ended June 30, 2016 and 2015, respectively.

(2) Net income attributable to non-controlling interests for the three and six months ended June 30, 2016, consisted of income from NTI and WNRL in the amount of $31.0 million, $35.3 million, $6.5 million and $11.2 million, respectively. 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.

(3) Our computation of diluted earnings per share includes 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 both the three and six months ended June 30, 2016 and 2015.

(4) Adjusted EBITDA represents earnings before interest and debt expense, 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. generally accepted accounting principles ("GAAP"). Our management believes that the presentation of Adjusted EBITDA is useful to investors because it is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry. In addition, our management believes that Adjusted EBITDA is useful in evaluating our operating performance compared to that of other companies in our industry because the calculation of Adjusted EBITDA generally eliminates the effects of financings, income taxes, the accounting effects of significant turnaround activities (that many of our competitors capitalize and thereby exclude from their measures of EBITDA) and certain non-cash charges that are items that may vary for different companies for reasons unrelated to overall operating performance.

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

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

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

Three Months Ended Six Months Ended
June 30, June 30,
2016 2015 2016 2015
(Unaudited)
(In thousands)
Net income attributable to Western Refining, Inc.$65,415 $133,919 $95,953 $239,908
Net income attributable to non-controlling interests37,449 79,948 46,496 148,927
Interest and debt expense26,928 27,316 53,609 52,273
Provision for income taxes38,152 78,435 56,781 137,872
Gain on disposal of assets, net(772) (387) (902) (105)
Depreciation and amortization54,359 51,143 107,010 101,069
Maintenance turnaround expense400 593 525 698
Net change in lower of cost or market inventory reserve(35,619) (38,204) (87,353) (53,926)
Unrealized loss on commodity hedging transactions14,598 22,287 27,082 42,344
Adjusted EBITDA$200,910 $355,050 $299,201 $669,060
EBITDA by Reporting Entity
Western Adjusted EBITDA$122,184 $217,860 $173,660 $389,143
NTI Adjusted EBITDA47,698 110,302 66,148 228,885
WNRL EBITDA31,028 26,888 59,393 51,032
Consolidated Adjusted EBITDA$200,910 $355,050 $299,201 $669,060


Three Months Ended
June 30,
2016
Western NTI WNRL
(Unaudited)
(In thousands)
Net income attributable to Western Refining, Inc.$21,400 $32,611 $11,404
Net income attributable to non-controlling interest 30,979 6,470
Interest and debt expense14,930 5,584 6,414
Provision for income taxes37,935 217
Loss (gain) on disposal of assets, net35 (5) (802)
Depreciation and amortization26,796 20,238 7,325
Maintenance turnaround expense400
Net change in lower of cost or market inventory reserve (35,619)
Unrealized loss (gain) on commodity hedging transactions20,688 (6,090)
Adjusted EBITDA$122,184 $47,698 $31,028


Six Months Ended
June 30,
2016
Western NTI WNRL
(Unaudited)
(In thousands)
Net income attributable to Western Refining, Inc.$39,410 $35,835 $20,708
Net income attributable to non-controlling interests 35,323 11,173
Interest and debt expense28,809 11,334 13,466
Provision for income taxes56,303 478
Loss (gain) on disposal of assets, net9 (10) (901)
Depreciation and amortization52,334 40,207 14,469
Maintenance turnaround expense525
Net change in lower of cost or market inventory reserve(40,689) (46,664)
Unrealized loss (gain) on commodity hedging transactions36,959 (9,877)
Adjusted EBITDA$173,660 $66,148 $59,393


Three Months Ended
June 30,
2015
Western NTI WNRL
(Unaudited)
(In thousands)
Net income attributable to Western Refining, Inc.$74,904 $48,490 $10,525
Net income attributable to non-controlling interest 74,558 5,390
Interest and debt expense14,321 6,747 6,248
Provision for income taxes78,287 148
Loss (gain) on disposal of assets, net69 (296) (160)
Depreciation and amortization26,891 19,515 4,737
Maintenance turnaround expense593
Net change in lower of cost or market inventory reserve (38,204)
Unrealized loss (gain) on commodity hedging transactions22,795 (508)
Adjusted EBITDA$217,860 $110,302 $26,888


Six Months Ended
June 30,
2015
Western NTI WNRL
(Unaudited)
(In thousands)
Net income attributable to Western Refining, Inc.$130,115 $89,128 $20,665
Net income attributable to non-controlling interests 138,354 10,573
Interest and debt expense28,551 13,510 10,212
Provision for income taxes137,521 351
Loss (gain) on disposal of assets, net450 (311) (244)
Depreciation and amortization52,714 38,880 9,475
Maintenance turnaround expense698
Net change in lower of cost or market inventory reserve(4,883) (49,043)
Unrealized loss (gain) on commodity hedging transactions43,977 (1,633)
Adjusted EBITDA$389,143 $228,885 $51,032

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,
2016 2015 2016 2015
(Unaudited)
(In thousands)
Operating Income
Western, excluding NTI and WNRL$74,138 $167,965 $123,212 $296,498
NTI64,843 125,135 72,958 233,122
WNRL24,491 22,293 45,929 41,766
Operating income$163,472 $315,393 $242,099 $571,386
Depreciation and Amortization
Western, excluding NTI and WNRL$26,796 $26,891 $52,334 $52,714
NTI20,238 19,515 40,207 38,880
WNRL7,325 4,737 14,469 9,475
Depreciation and amortization expense$54,359 $51,143 $107,010 $101,069
Capital Expenditures
Western, excluding NTI and WNRL$43,172 $47,345 $87,970 $85,953
NTI26,471 11,155 54,461 17,828
WNRL8,088 7,850 14,329 15,764
Capital expenditures$77,731 $66,350 $156,760 $119,545
Balance Sheet Data (at end of period)
Cash and cash equivalents
Western, excluding NTI and WNRL $156,085 $337,462
NTI 24,637 127,924
WNRL 17,562 78,550
Cash and cash equivalents $198,284 $543,936
Total debt
Western, excluding NTI and WNRL $1,340,678 $861,406
NTI 358,044 351,572
WNRL 313,152 291,775
Total debt $2,011,874 $1,504,753
Total working capital
Western, excluding NTI and WNRL $569,311 $736,521
NTI 166,130 302,256
WNRL (4,833) 66,782
Total working capital $730,608 $1,105,559

Refining Segment

El Paso and Gallup Refineries and Related Operations

Three Months Ended Six Months Ended
June 30, June 30,
2016 2015 2016 2015
(In thousands, except per barrel data)
Statement of Operations Data (Unaudited):
Net sales (including intersegment sales) (1)$1,315,609 $1,817,629 $2,201,929 $3,309,070
Operating costs and expenses:
Cost of products sold (exclusive of depreciation and amortization) (2)1,117,071 1,527,952 1,839,085 2,763,408
Direct operating expenses (exclusive of depreciation and amortization)79,338 76,676 152,826 153,474
Selling, general and administrative expenses7,384 7,133 14,654 16,702
Loss on disposal of assets, net35 78 35 495
Maintenance turnaround expense400 593 525 698
Depreciation and amortization22,386 19,951 43,671 40,435
Total operating costs and expenses1,226,614 1,632,383 2,050,796 2,975,212
Operating income$88,995 $185,246 $151,133 $333,858
Key Operating Statistics
Total sales volume (bpd) (1) (3)218,791 233,653 204,866 233,564
Total refinery production (bpd)157,981 160,266 160,574 162,539
Total refinery throughput (bpd) (4)159,778 162,001 162,573 164,635
Per barrel of refinery throughput:
Refinery gross margin (2) (5) (6)$13.55 $19.62 $12.15 $18.21
Direct operating expenses (7)5.46 5.20 5.17 5.15
Mid-Atlantic sales volume (bbls)1,971 2,513 3,702 4,453
Mid-Atlantic margin per barrel$0.76 $0.32 $0.94 $0.75

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,
2016 2015 2016 2015
Key Operating Statistics
Refinery product yields (bpd):
Gasoline88,058 86,034 89,035 87,607
Diesel and jet fuel60,687 63,188 62,414 64,143
Residuum2,479 5,140 2,849 5,039
Other6,757 5,904 6,276 5,750
Total refinery production (bpd)157,981 160,266 160,574 162,539
Refinery throughput (bpd):
Sweet crude oil128,024 132,230 125,988 131,709
Sour crude oil22,703 22,068 25,601 22,649
Other feedstocks and blendstocks9,051 7,703 10,984 10,277
Total refinery throughput (bpd) (4)159,778 162,001 162,573 164,635

El Paso Refinery

Three Months Ended Six Months Ended
June 30, June 30,
2016 2015 2016 2015
Key Operating Statistics
Refinery product yields (bpd):
Gasoline70,740 68,289 72,990 69,981
Diesel and jet fuel52,746 55,032 55,515 55,874
Residuum2,479 5,140 2,849 5,039
Other5,261 4,504 4,939 4,244
Total refinery production (bpd)131,226 132,965 136,293 135,138
Refinery throughput (bpd):
Sweet crude oil102,647 106,601 103,767 106,481
Sour crude oil22,703 22,068 25,601 22,649
Other feedstocks and blendstocks7,292 5,646 8,481 7,665
Total refinery throughput (bpd) (4)132,642 134,315 137,849 136,795
Total sales volume (bpd) (3)149,784 149,561 145,773 150,680
Per barrel of refinery throughput:
Refinery gross margin (2) (5)$14.14 $20.01 $10.65 $18.72
Direct operating expenses (7)4.26 4.17 3.86 4.13

Gallup Refinery

Three Months Ended Six Months Ended
June 30, June 30,
2016 2015 2016 2015
Key Operating Statistics
Refinery product yields (bpd):
Gasoline17,318 17,745 16,045 17,626
Diesel and jet fuel7,941 8,156 6,899 8,269
Other1,496 1,400 1,337 1,506
Total refinery production (bpd)26,755 27,301 24,281 27,401
Refinery throughput (bpd):
Sweet crude oil25,377 25,629 22,221 25,228
Other feedstocks and blendstocks1,759 2,057 2,503 2,612
Total refinery throughput (bpd) (4)27,136 27,686 24,724 27,840
Total sales volume (bpd) (3)37,443 33,637 34,028 33,263
Per barrel of refinery throughput:
Refinery gross margin (2) (5)$13.50 $22.64 $11.61 $18.34
Direct operating expenses (7)8.28 7.81 9.08 7.93

(1) Refining net sales for the three and six months ended June 30, 2016 and 2015 include $130.1 million, $186.3 million, $259.0 million and $474.5 million, respectively, representing a period average of 31,564 bpd, 25,065 bpd, 50,455 bpd and 49,621 bpd, respectively, in crude oil sales to third-parties.

(2) Cost of products sold for the combined refining segment includes the 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 our individual refineries.

Three Months Ended Six Months Ended
June 30, June 30,
2016 2015 2016 2015
(Unaudited)
(In thousands)
Realized hedging gain, net$8,873 $10,686 $31,142 $28,141
Unrealized hedging loss, net(20,688) (22,795) (36,959) (43,977)
Total hedging loss, net$(11,815) $(12,109) $(5,817) $(15,836)

(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%, 8.4%, 10.7% and 10.0% of our total consolidated sales volumes for the three and six months ended June 30, 2016 and 2015, 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) Total refinery throughput includes crude oil, other feedstocks and blendstocks.

(5) Refinery gross margin is a per barrel measurement calculated by dividing the difference between net sales and cost of products sold by our refineries’ total throughput volumes for the respective periods presented. Net realized and net non-cash unrealized economic hedging gains and losses included in the combined refining segment gross margin are not allocated to the individual refineries. Cost of products sold does not include any depreciation or amortization. Refinery gross margin is a non-GAAP performance measure that we believe is important to investors in evaluating our refinery performance as a general indication of the amount above our cost of products that we are able to sell refined products. Each of the components used in this calculation (net sales and cost of products sold) can be reconciled directly to our statement of operations. Our calculation of refinery gross margin may differ from similar calculations of other companies in our industry, thereby limiting its usefulness as a comparative measure.

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,
2016 2015 2016 2015
(Unaudited)
(In thousands)
Refinery net sales (including intersegment sales)$1,190,042 $1,611,573 $1,990,960 $2,967,092
Mid-Atlantic sales125,567 206,056 210,969 341,978
Net sales (including intersegment sales)$1,315,609 $1,817,629 $2,201,929 $3,309,070
Refinery cost of products sold (exclusive of depreciation and amortization)$992,994 $1,322,364 $1,631,582 $2,424,458
Mid-Atlantic cost of products sold124,077 205,588 207,503 338,950
Cost of products sold (exclusive of depreciation and amortization)$1,117,071 $1,527,952 $1,839,085 $2,763,408

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,
2016 2015 2016 2015
(Unaudited)
(In thousands, except per barrel data)
Refinery net sales (including intersegment sales)$1,190,042 $1,611,573 $1,990,960 $2,967,092
Refinery cost of products sold (exclusive of depreciation and amortization)992,994 1,322,364 1,631,582 2,424,458
Depreciation and amortization22,386 19,951 43,671 40,435
Gross profit174,662 269,258 315,707 502,199
Plus depreciation and amortization22,386 19,951 43,671 40,435
Refinery gross margin$197,048 $289,209 $359,378 $542,634
Refinery gross margin per throughput barrel$13.55 $19.62 $12.15 $18.21
Gross profit per throughput barrel$12.01 $18.26 $10.67 $16.85

(6) Cost of products sold for the combined refining segment includes changes in the lower of cost or market inventory reserve shown in the table below. The changes in this reserve are included in the combined refinery gross margin but are not included in those measures for the individual refineries. The following table calculates the combined refinery gross margin per throughput barrel excluding changes in the lower of cost or market inventory reserve that we believe is useful in evaluating our refinery performance exclusive of the impact of fluctuations in inventory values:

Three Months Ended Six Months Ended
March 31, June 30,
2016 2015 2016 2015
(Unaudited)
(In thousands, except per barrel data)
Refinery gross margin$197,048 $289,209 $359,378 $542,634
Net change in lower of cost or market inventory reserve (40,689) (4,883)
Refinery gross margin, excluding LCM adjustment$197,048 $289,209 $318,689 $537,751
Refinery gross margin, excluding LCM adjustment, per refinery throughput barrel$13.55 $19.62 $10.77 $18.05

(7) 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,
2016 2015 2016 2015
(Unaudited)
(In thousands, except per barrel data)
Net sales$700,351 $852,820 $1,197,824 $1,550,596
Operating costs and expenses:
Cost of products sold (exclusive of depreciation and amortization) (1)512,734 608,799 880,505 1,089,262
Direct operating expenses (exclusive of depreciation and amortization)79,995 76,348 158,139 146,053
Selling, general and administrative expenses22,546 23,319 46,025 43,590
Gain on disposal of assets, net(5) (296) (10) (311)
Depreciation and amortization20,238 19,515 40,207 38,880
Total operating costs and expenses635,508 727,685 1,124,866 1,317,474
Operating income$64,843 $125,135 $72,958 $233,122
Key Operating Statistics
Total sales volume (bpd)113,304 103,778 106,199 101,144
Total refinery production (bpd)99,243 98,722 100,018 96,529
Total refinery throughput (bpd) (2)99,149 98,954 99,878 96,544
Per barrel of throughput:
Refinery gross margin (1) (3)$11.67 $18.00 $9.87 $18.66
Direct operating expenses (4)4.64 4.68 4.71 4.64
Refinery product yields (bpd):
Gasoline48,573 46,605 49,312 45,786
Distillate (7)32,341 34,744 32,818 34,005
Residuum12,254 12,040 11,958 11,072
Other (8)6,075 5,333 5,930 5,666
Total refinery production (bpd)99,243 98,722 100,018 96,529
Refinery throughput (bpd):
Crude oil97,324 97,027 96,836 94,299
Other feedstocks (9)1,825 1,927 3,042 2,245
Total refinery throughput (bpd) (2)99,149 98,954 99,878 96,544
Retail fuel gallons sold (in thousands)78,458 77,398 151,548 149,259
Retail fuel margin per gallon (5)$0.23 $0.22 $0.23 $0.21
Merchandise sales96,235 95,799 180,428 178,413
Merchandise margin (6)26.1% 25.9% 26.1% 25.9%
Company-operated retail outlets at period end 170 165
Franchised retail outlets at period end 114 99

(1) Cost of products sold for NTI includes the net realized and net non-cash unrealized hedging activity shown in the table below, along with the effect of non-cash recoveries of $35.6 million, $46.7 million, $38.2 million and $49.0 million, for the three and six months, respectively, ended June 30, 2016 and 2015, respectively, in order to state segment inventory values at market prices. Hedging gains and losses and inventory market price adjustments are not included in our calculations of refinery gross profit and refinery gross margin.

Three Months Ended Six Months Ended
June 30, June 30,
2016 2015 2016 2015
(Unaudited)
(In thousands)
Realized hedging loss, net$(8,323) $(2,863) $(12,789) $(2,765)
Unrealized hedging gain, net6,090 508 9,877 1,633
Total hedging loss, net$(2,233) $(2,355) $(2,912) $(1,132)

(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 $3.2 million, $6.7 million, $37.2 million and $59.0 million related to crude oil sales during the three and six months ended June 30, 2016 and 2015, 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. NTI's refinery cost of products sold for the three and six months ended June 30, 2016 and 2015 excludes non-cash lower of cost or market adjustments to state refining inventory values at the lower of cost or market prices.

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,
2016 2015 2016 2015
(Unaudited)
(In thousands, except per barrel data)
Net refinery sales (including intersegment sales)$693,589 $839,876 $1,188,865 $1,529,406
Refinery cost of products sold (exclusive of depreciation and amortization)588,280 677,819 1,009,446 1,203,313
Refinery depreciation and amortization17,674 17,255 35,083 34,368
Gross profit87,635 144,802 144,336 291,725
Plus depreciation and amortization17,674 17,255 35,083 34,368
Refinery gross margin$105,309 $162,057 $179,419 $326,093
Refinery gross margin per refinery throughput barrel$11.67 $18.00 $9.87 $18.66
Gross profit per refinery throughput barrel$9.71 $16.08 $7.94 $16.69

(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.

(7) Distillate includes diesel, jet fuel, light cycle oil and kerosene.

(8) Other refinery products include propane, propylene, liquid sulfur and No. 6 fuel oil, among others. None of these products, by itself, contributes significantly to overall refinery product yields.

(9) Other feedstocks include gas oil, natural gasoline, normal butane and isobutane, among others. None of these feedstocks, by itself, contributes significantly to overall refinery throughput.

WNRL

WNRL's financial and operational data presented includes the historical results of all assets acquired from Western in the TexNew Mex Pipeline Transaction. This transaction 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 the TexNew Mex Pipeline System into WNRL.

Three Months Ended Six Months Ended
June 30, June 30,
2016 2015 2016 2015
(Unaudited)
(In thousands)
Statement of Operations Data:
Net sales$578,602 $735,904 $1,046,641 $1,343,300
Operating costs and expenses:
Cost of products sold504,256 664,026 899,846 1,205,727
Direct operating expenses37,574 38,058 76,475 74,429
Selling, general and administrative expenses5,758 6,279 10,823 12,234
Gain on disposal of assets, net(802) (160) (901) (244)
Depreciation and amortization7,325 6,670 14,469 12,562
Total operating costs and expenses554,111 714,873 1,000,712 1,304,708
Operating income$24,491 $21,031 $45,929 $38,592


Three Months Ended Six Months Ended
June 30, June 30,
2016 2015 2016 2015
(Unaudited)
(In thousands, except key operating statistics)
Key Operating Statistics
Pipeline and gathering (bpd):
Mainline movements:
Permian/Delaware Basin system55,953 43,873 52,719 40,213
Four Corners system (1)58,047 51,486 55,257 48,679
TexNew Mex system10,375 3,398 11,460 1,708
Gathering (truck offloading):
Permian/Delaware Basin system17,823 24,019 19,178 23,316
Four Corners system11,133 12,950 11,947 11,812
Terminalling, transportation and storage (bpd):
Shipments into and out of storage (includes asphalt)393,037 389,220 390,647 390,263
Wholesale:
Fuel gallons sold (in thousands)311,486 310,811 626,429 614,242
Fuel gallons sold to retail (included in fuel gallons sold above) (in thousands)83,721 79,023 163,562 154,286
Fuel margin per gallon (2)$0.025 $0.037 $0.027 $0.032
Lubricant gallons sold (in thousands)1,846 3,014 4,047 5,971
Lubricant margin per gallon (3)$0.89 $0.78 $0.78 $0.72
Asphalt trucking volume (tons)4,876 3,875
Crude oil trucking volume (bpd)42,092 48,992 38,801 46,037
Average crude oil revenue per barrel$2.17 $2.51 $2.20 $2.63

(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 our 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 Six Months Ended
June 30, June 30,
2016 2015 2016 2015
(Unaudited)
(In thousands, except per gallon data)
Statement of Operations Data
Net sales (including intersegment sales)$290,068 $318,072 $521,254 $576,674
Operating costs and expenses:
Cost of products sold (exclusive of depreciation and amortization)245,889 272,643 435,389 492,818
Direct operating expenses (exclusive of depreciation and amortization)34,262 33,641 67,314 65,995
Selling, general and administrative expenses3,016 3,109 5,914 6,373
Gain on disposal of assets, net (9) (26) (45)
Depreciation and amortization3,882 4,031 7,212 7,317
Total operating costs and expenses287,049 313,415 515,803 572,458
Operating income (loss)$3,019 $4,657 $5,451 $4,216
Key Operating Statistics
Retail fuel gallons sold98,550 90,339 190,019 174,163
Average retail fuel sales price per gallon, net of excise taxes$1.76 $2.20 $1.60 $2.02
Average retail fuel cost per gallon, net of excise taxes)1.61 2.03 1.45 1.86
Retail fuel margin per gallon (1)0.14 0.17 0.15 0.16
Merchandise sales$85,069 $79,981 161,036 150,868
Merchandise margin (2)29.2% 29.9% 29.4% 29.6%
Operating retail outlets at period end 259 262
Cardlock fuel gallons sold16,515 16,903 31,768 33,023
Cardlock fuel margin per gallon$0.118 $0.160 $0.123 $0.173
Operating cardlocks at period end 52 52


Three Months Ended Six Months Ended
June 30, June 30,
2016 2015 2016 2015
(Unaudited)
(In thousands, except per gallon data)
Net Sales
Retail fuel sales, net of excise taxes$173,258 $199,166 $304,083 $351,711
Merchandise sales85,069 79,981 161,036 150,868
Cardlock sales28,527 35,782 49,260 67,776
Other sales3,214 3,143 6,875 6,319
Net sales$290,068 $318,072 $521,254 $576,674
Cost of Products Sold
Retail fuel cost of products sold, net of excise taxes$159,096 $183,471 $276,316 $324,593
Merchandise cost of products sold60,227 56,104 113,746 106,169
Cardlock cost of products sold26,480 33,004 45,181 61,936
Other cost of products sold86 64 146 120
Cost of products sold$245,889 $272,643 $435,389 $492,818
Retail fuel margin per gallon (1)$0.14 $0.17 $0.15 $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 for our retail segment 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 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,
2016 2015
(Unaudited)
(In thousands, except per share data)
Reported diluted earnings per share$0.70 $1.40
Income before income taxes$141,016 $292,302
Special items:
Unrealized loss on commodity hedging transactions, net (1)14,598 22,287
Gain on disposal of assets, net(772) (387)
Net change in lower of cost or market inventory reserve (2)(35,619) (38,204)
Earnings before income taxes excluding special items119,223 275,998
Recomputed income taxes excluding special items (3)(38,805) (80,847)
Net income excluding special items80,418 195,151
Net income attributable to non-controlling interests13,888 57,138
Net income attributable to Western excluding special items$66,530 $138,013
Diluted earnings per share excluding special items$0.72 $1.44

(1) Unrealized loss from commodity hedging transactions, net, includes $20.7 million in unrealized losses and $6.1 million in unrealized gains for Western and NTI, respectively, for the three months ended June 30, 2016 and $22.8 million in unrealized losses and $0.5 million in unrealized gains for Western and NTI, respectively, for the three months ended June 30, 2015.

(2) Net change in lower of cost or market inventory reserve includes NTI adjustments of $35.6 million and $38.2 million, respectively, for the three months ended June 30, 2016 and June 30, 2015.

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

Investor and Analyst Contact: Jeffrey S. Beyersdorfer (602) 286-1530 Michelle Clemente (602) 286-1533 Retail Investors Contact: Alpha IR Group Dylan Schweitzer Chris Hodges (312) 445-2870 WNR@alpha-ir.com Media Contact: Gary W. Hanson (602) 286-1777

Source:Western Refining, Inc.