Western Refining Announces Third Quarter 2016 Results

EL PASO, Texas, Oct. 31, 2016 (GLOBE NEWSWIRE) -- Western Refining, Inc. (NYSE:WNR) today reported third quarter 2016 net income attributable to Western of $38.6 million, or $0.35 per diluted share, as compared to net income attributable to Western of $153.3 million, or $1.61 per diluted share for the third quarter of 2015. Net income attributable to Western, excluding special items, was $50.0 million, or $0.46 per diluted share. This compares to third quarter 2015 net income, excluding special items, of $160.2 million, or $1.69 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, "We just completed the first full quarter since the acquisition of Northern Tier and the integration is going well. During the quarter, our refineries ran well and St. Paul Park initiated a successful crude unit turnaround. Margins continued to be volatile in the quarter and were down significantly compared to 2015. However, the location of our refineries, with access to attractive product regions, and our integrated refining and marketing model allow us to remain profitable in the current refining economic environment."

Excluding WNRL, Western finished the third quarter with cash of $445 million, including $195 million in restricted cash, compared to $182 million at the end of the second quarter. Free cash flow was approximately $65 million after interest, taxes, capital spending, and turnaround obligations during the third quarter.

Western paid a dividend of $0.38 per share of common stock to shareholders in the third quarter. In October, Western's Board of Directors also approved a $0.38 per share dividend for the fourth quarter. Including the fourth quarter dividend, Western will have returned approximately $228 million to shareholders through dividends and share repurchases in 2016.

Looking forward, Stevens said, "The fourth quarter has started off well. We completed a number of capital investments during the St. Paul Park turnaround which allows us to increase our crude oil throughout by 4,000 barrels per day and should improve our distillate yield by two percent. Our crude oil throughput capacity at St. Paul Park is currently 102,000 barrels per day. With the two new desalters, we have also added greater optionality in our crude oil slate for the refinery. These investments position us well for future profitability."

Conference Call Information

A conference call is scheduled for Tuesday, November 1, 2016, at 11:00 am ET to discuss Western's financial results for the third quarter ended September 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: 83400618. The audio replay will be available two hours after the end of the call through November 15, 2016, by dialing (800) 585-8367 or (404) 537-3406, passcode: 83400618.

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; however, other items that have a cash impact, such as gains or losses 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 53% 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: Western’s integration with Northern Tier Energy LP; Western’s access to attractive product regions; Western’s ability to remain profitable in the current economic environment; Western’s performance in the fourth quarter of 2016; Western’s ability to increase crude oil throughput, improve distillate yield, and realize greater optionality with its crude oil slate at St. Paul Park refinery; and Western’s positioning for future profitability. 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 three reportable segments, refining, WNRL and retail, based on manufacturing and marketing processes, the nature of our products and services and each segment's respective customer base. Prior to the Merger on June 23, 2016, we also reported NTI as a separate reportable segment. Following the completion of the Merger, NTI became a wholly-owned subsidiary of Western and, as a result, we have moved its assets and operations into our other reportable segments. Beginning on July 1, 2016, our management team, led by our chief operating decision maker, began monitoring our business and allocating resources based on these three reportable segments. The St. Paul Park refinery and related operations are now included in the refining segment and the SuperAmerica retail and bakery assets and operations are now included in the retail segment. We have retrospectively adjusted the historical segment financial data for the periods presented to reflect our revised segment presentation.

  • Our refining segment owns and operates three refineries 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.

  • WNRL owns and operates terminal, storage, transportation and wholesale assets in the Southwest and terminal and transportation assets in the Upper Great Plains region. WNRL's Southwest wholesale assets consist of a fleet of crude oil, asphalt and refined product truck transports and wholesale petroleum product operations. WNRL's primary customer is our refining segment. 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 ("Southwest Retail") and Upper Great Plains ("SuperAmerica") regions. 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,
2016 2015 2016 2015
(Unaudited)
(In thousands, except per share data)
Statements of Operations Data
Net sales (1)$2,065,076 $2,569,090 $5,627,888 $7,716,712
Operating costs and expenses:
Cost of products sold (exclusive of depreciation and amortization) (1)1,607,010 1,895,772 4,256,999 5,814,969
Direct operating expenses (exclusive of depreciation and amortization)232,553 234,440 687,307 674,474
Selling, general and administrative expenses57,320 54,465 166,657 169,808
Gain on disposal of assets, net(279) (52) (1,181) (157)
Maintenance turnaround expense27,208 490 27,733 1,188
Depreciation and amortization54,321 51,377 161,331 152,446
Total operating costs and expenses1,978,133 2,236,492 5,298,846 6,812,728
Operating income86,943 332,598 329,042 903,984
Other income (expense):
Interest income141 186 436 550
Interest and debt expense(34,456) (26,896) (88,065) (79,169)
Other, net3,380 4,327 13,825 11,557
Income before income taxes56,008 310,215 255,238 836,922
Provision for income taxes(11,700) (92,117) (68,481) (229,989)
Net income44,308 218,098 186,757 606,933
Less net income attributable to non-controlling interests (2)5,733 64,795 52,229 213,722
Net income attributable to Western Refining, Inc.$38,575 $153,303 $134,528 $393,211
Basic earnings per share$0.36 $1.61 $1.37 $4.12
Diluted earnings per share0.35 1.61 1.37 4.12
Dividends declared per common share0.38 0.34 1.14 0.98
Weighted average basic shares outstanding108,424 94,826 97,802 95,308
Weighted average dilutive shares outstanding (3)108,734 94,924 98,110 95,408


Three Months Ended Nine Months Ended
September 30, September 30,
2016 2015 2016 2015
(Unaudited)
(In thousands)
Economic Hedging Activities Recognized Within Cost of Products Sold
Realized hedging gain, net$27,757 $26,949 $46,110 $52,325
Unrealized hedging gain (loss), net(27,616) 271 (54,698) (42,073)
Total hedging gain (loss), net$141 $27,220 $(8,588) $10,252
Cash Flow Data
Net cash provided by (used in):
Operating activities$161,019 $373,620 $277,877 $665,664
Investing activities(269,218) (20,321) (357,079) (34,454)
Financing activities176,011 (187,665) (427,204) (352,799)
Capital expenditures$78,337 $76,431 $235,097 $195,976
Cash distributions received by Western from:
NTI$ $42,391 $19,949 $98,318
WNRL14,124 11,630 41,071 32,845
Other Data
Adjusted EBITDA (4)$184,164 $425,450 $483,365 $1,094,510
Balance Sheet Data (at end of period)
Cash and cash equivalents $266,096 $709,570
Restricted cash 195,000 12,328
Working capital 958,495 1,181,231
Total assets 5,715,125 5,840,393
Total debt and lease financing obligation 2,110,221 1,554,157
Total equity 2,267,446 3,032,495

(1) Excludes $937.1 million, $2,610.3 million, $1,063.4 million and $3,019.2 million of intercompany sales and $937.1 million, $2,610.3 million, $1,063.4 million and $3,019.2 million of intercompany cost of products sold for three and nine months ended September 30, 2016 and 2015, respectively.

(2) Net income attributable to non-controlling interests from WNRL for the three and nine months ended September 30, 2016, was $5.7 million and $16.9 million, respectively. Net income attributable to non-controlling interests from NTI for the nine months ended September 30, 2016 was $35.3 million with no comparable activity during the three months ended September 30, 2016. 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.

(3) Our computation of diluted earnings per share includes unvested restricted shares units and phantom stock. 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 0.3 million, 0.3 million, 0.1 million and 0.1 million restricted share units and phantom stock for the three and nine months ended September 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 Nine Months Ended
September 30, September 30,
2016 2015 2016 2015
(Unaudited)
(In thousands)
Net income attributable to Western Refining, Inc.$38,575 $153,303 $134,528 $393,211
Net income attributable to non-controlling interests5,733 64,795 52,229 213,722
Interest and debt expense34,456 26,896 88,065 79,169
Provision for income taxes11,700 92,117 68,481 229,989
Gain on disposal of assets, net(279) (52) (1,181) (157)
Depreciation and amortization54,321 51,377 161,331 152,446
Maintenance turnaround expense27,208 490 27,733 1,188
Net change in lower of cost or market inventory reserve(15,166) 36,795 (102,519) (17,131)
Unrealized loss (gain) on commodity hedging transactions27,616 (271) 54,698 42,073
Adjusted EBITDA$184,164 $425,450 $483,365 $1,094,510
Adjusted EBITDA:
Western (1)$155,136 $397,780 $394,944 $1,015,808
WNRL29,028 27,670 88,421 78,702
Consolidated Adjusted EBITDA$184,164 $425,450 $483,365 $1,094,510


Three Months Ended
September 30,
2016
Western (1) WNRL
(Unaudited)
(In thousands)
Net income attributable to Western Refining, Inc.$30,285 $8,290
Net income attributable to non-controlling interest 5,733
Interest and debt expense28,308 6,148
Provision for income taxes11,418 282
Gain on disposal of assets, net(217) (62)
Depreciation and amortization45,684 8,637
Maintenance turnaround expense27,208
Net change in lower of cost or market inventory reserve
(15,166)
Unrealized loss on commodity hedging transactions27,616
Adjusted EBITDA$155,136 $29,028


Nine Months Ended
September 30,
2016
Western (1) WNRL
(Unaudited)
(In thousands)
Net income attributable to Western Refining, Inc.$105,530 $28,998
Net income attributable to non-controlling interests35,323 16,906
Interest and debt expense68,451 19,614
Provision for income taxes67,721 760
Gain on disposal of assets, net(218) (963)
Depreciation and amortization138,225 23,106
Maintenance turnaround expense27,733
Net change in lower of cost or market inventory reserve
(102,519)
Unrealized loss on commodity hedging transactions54,698
Adjusted EBITDA$394,944 $88,421


Three Months Ended
September 30,
2015
Western (1) WNRL
(Unaudited)
(In thousands)
Net income attributable to Western Refining, Inc.$142,396 $10,907
Net income attributable to non-controlling interest59,209 5,586
Interest and debt expense20,692 6,204
Provision for income taxes92,114 3
Gain on disposal of assets, net(39) (13)
Depreciation and amortization46,394 4,983
Maintenance turnaround expense490
Net change in lower of cost or market inventory reserve36,795
Unrealized gain on commodity hedging transactions(271)
Adjusted EBITDA$397,780 $27,670


Nine Months Ended
September 30,
2015
Western (1) WNRL
(Unaudited)
(In thousands)
Net income attributable to Western Refining, Inc.$361,639 $31,572
Net income attributable to non-controlling interests197,563 16,159
Interest and debt expense62,753 16,416
Provision for income taxes229,635 354
Loss (gain) on disposal of assets, net100 (257)
Depreciation and amortization137,988 14,458
Maintenance turnaround expense1,188
Net change in lower of cost or market inventory reserve
(17,131)
Unrealized loss on commodity hedging transactions42,073
Adjusted EBITDA$1,015,808 $78,702

(1) Our presentation of Adjusted EBITDA for Western excludes the results of WNRL for all periods presented.

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,
2016 2015 2016 2015
(Unaudited)
(In thousands)
Operating Income
Refining$89,158 $312,602 $338,803 $900,405
WNRL13,271 18,424 43,056 41,454
Retail11,832 24,937 21,193 36,356
Other(27,318) (23,365) (74,010) (74,231)
Operating income$86,943 $332,598 $329,042 $903,984
Depreciation and Amortization
Refining$37,265 $35,400 $111,601 $105,916
WNRL10,579 8,963 29,470 25,816
Retail5,710 5,846 17,622 17,257
Other767 1,168 2,638 3,457
Depreciation and amortization expense$54,321 $51,377 $161,331 $152,446
Capital Expenditures
Refining$65,909 $61,399 $200,681 $127,914
WNRL8,530 10,648 24,378 52,150
Retail3,593 3,903 8,528 13,175
Other305 481 1,510 2,737
Capital expenditures$78,337 $76,431 $235,097 $195,976
Balance Sheet Data (at end of period)
Cash and cash equivalents
Western, excluding WNRL and restricted cash of $195.0 million $249,554 $638,198
WNRL 16,542 71,372
Cash and cash equivalents $266,096 $709,570
Total debt
Western, excluding WNRL $1,742,845 $1,212,970
WNRL 312,835 292,121
Total debt $2,055,680 $1,505,091
Total working capital
Western, excluding WNRL $973,436 $1,117,319
WNRL (14,941) 63,912
Total working capital $958,495 $1,181,231

Refining Segment

Three Months Ended Nine Months Ended
September 30, September 30,
2016 2015 2016 2015
(In thousands, except bpd and per barrel data)
Statement of Operations Data (Unaudited):
Net sales (including intersegment sales) (1)$1,835,327 $2,318,048 $5,012,283 $6,958,443
Operating costs and expenses:
Cost of products sold (exclusive of depreciation and amortization) (2)1,551,493 1,835,304 4,143,146 5,557,338
Direct operating expenses (exclusive of depreciation and amortization)115,791 118,401 345,352 343,681
Selling, general and administrative expenses14,420 15,851 45,631 49,559
Loss (gain) on disposal of assets, net(8) 17 356
Maintenance turnaround expense27,208 490 27,733 1,188
Depreciation and amortization37,265 35,400 111,601 105,916
Total operating costs and expenses1,746,169 2,005,446 4,673,480 6,058,038
Operating income$89,158 $312,602 $338,803 $900,405
Key Operating Statistics
Total sales volume (bpd) (1) (3)314,239 347,456 312,131 339,005
Total refinery production (bpd)253,365 252,420 258,166 256,828
Total refinery throughput (bpd) (4)255,222 255,170 260,024 259,154
Per barrel of refinery throughput:
Refinery gross margin (2) (5) (6)$12.02 $20.65 $12.13 $19.79
Direct operating expenses (7)4.93 5.04 4.85 4.86
Mid-Atlantic sales volume (bbls)1,987 2,144 5,689 6,597
Mid-Atlantic margin per barrel$0.77 $(1.10) $0.88 $0.15

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

El Paso Refinery

Three Months Ended Nine Months Ended
September 30, September 30,
2016 2015 2016 2015
Key Operating Statistics
Refinery product yields (bpd):
Gasoline76,161 71,855 74,054 70,613
Diesel and jet fuel56,574 55,667 55,871 55,804
Residuum2,930 4,121 2,876 4,730
Other5,356 5,016 5,080 4,503
Total refinery production (bpd)141,021 136,659 137,881 135,650
Refinery throughput (bpd):
Sweet crude oil105,990 107,577 104,513 106,850
Sour crude oil27,566 23,854 26,261 23,055
Other feedstocks and blendstocks8,876 7,485 8,614 7,604
Total refinery throughput (bpd) (4)142,432 138,916 139,388 137,509
Total sales volume (bpd) (3)154,648 149,861 148,753 150,404
Per barrel of refinery throughput:
Refinery gross margin (2) (5)$11.80 $18.51 $11.05 $18.65
Direct operating expenses (7)3.71 3.64 3.81 3.96

Gallup Refinery

Three Months Ended Nine Months Ended
September 30, September 30,
2016 2015 2016 2015
Key Operating Statistics
Refinery product yields (bpd):
Gasoline17,719 15,961 16,607 17,065
Diesel and jet fuel8,831 7,878 7,548 8,137
Other1,058 1,560 1,243 1,525
Total refinery production (bpd)27,608 25,399 25,398 26,727
Refinery throughput (bpd):
Sweet crude oil24,985 23,888 23,149 24,776
Other feedstocks and blendstocks3,260 1,776 2,755 2,331
Total refinery throughput (bpd) (4)28,245 25,664 25,904 27,107
Total sales volume (bpd) (3)37,022 33,489 35,033 33,339
Per barrel of refinery throughput:
Refinery gross margin (2) (5)$14.01 $23.08 $12.48 $19.85
Direct operating expenses (7)8.10 9.10 8.72 8.30

St. Paul Park Refinery

Three Months Ended Nine Months Ended
September 30, September 30,
2016 2015 2016 2015
Key Operating Statistics
Refinery product yields (bpd):
Gasoline42,896 43,914 47,158 45,155
Distillate25,667 30,404 30,417 32,791
Residuum9,212 10,091 11,036 10,742
Other6,960 5,953 6,276 5,763
Total refinery production (bpd)84,735 90,362 94,887 94,451
Refinery throughput (bpd):
Light crude oil43,888 51,701 53,692 55,779
Synthetic crude oil18,769 14,735 13,850 12,303
Heavy crude oil19,380 23,150 24,325 24,629
Other feedstocks2,509 1,004 2,863 1,827
Total refinery throughput (bpd) (4)84,546 90,590 94,730 94,538
Total sales volume (bpd) (3)90,906 99,617 101,064 100,630
Per barrel of throughput:
Refinery gross margin (2) (5) (6)$11.20 $24.57 $10.27 $20.57
Direct operating expenses (7)5.94 5.68 5.08 5.04

(1) Refining net sales for the three and nine months ended September 30, 2016 and 2015 include $148.3 million, $341.3 million, $409.1 million and $848.2 million, respectively, representing a period average of 37,027 bpd, 29,875 bpd, 73,630 bpd and 62,248 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 Nine Months Ended
September 30, September 30,
2016 2015 2016 2015
(Unaudited)
(In thousands)
Realized hedging gain, net$27,757 $26,949 $46,110 $52,325
Unrealized hedging gain (loss), net(27,616) 271 (54,698) (42,073)
Total hedging gain (loss), net$141 $27,220 $(8,588) $10,252

(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 6.0%, 5.8%, 6.2% and 6.8% of our total consolidated sales volumes for the three and nine months ended September 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 Nine Months Ended
September 30, September 30,
2016 2015 2016 2015
(Unaudited)
(In thousands)
Refinery net sales (including intersegment sales)$1,714,913 $2,163,163 $4,680,900 $6,461,580
Mid-Atlantic sales120,414 154,885 331,383 496,863
Net sales (including intersegment sales)$1,835,327 $2,318,048 $5,012,283 $6,958,443
Refinery cost of products sold (exclusive of depreciation and amortization)$1,432,610 $1,678,390 $3,816,760 $5,061,474
Mid-Atlantic cost of products sold118,883 156,914 326,386 495,864
Cost of products sold (exclusive of depreciation and amortization)$1,551,493 $1,835,304 $4,143,146 $5,557,338

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,
2016 2015 2016 2015
(Unaudited)
(In thousands, except per barrel data)
Refinery net sales (including intersegment sales)$1,714,913 $2,163,163 $4,680,900 $6,461,580
Refinery cost of products sold (exclusive of depreciation and amortization)1,432,610 1,678,390 3,816,760 5,061,474
Depreciation and amortization37,265 35,400 111,601 105,916
Gross profit245,038 449,373 752,539 1,294,190
Plus depreciation and amortization37,265 35,400 111,601 105,916
Refinery gross margin$282,303 $484,773 $864,140 $1,400,106
Refinery gross margin per throughput barrel$12.02 $20.65 $12.13 $19.79
Gross profit per throughput barrel$10.44 $19.14 $10.56 $18.29

(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 Nine Months Ended
September 30, September 30,
2016 2015 2016 2015
(Unaudited)
(In thousands, except per barrel data)
Refinery gross margin$282,303 $484,773 $864,140 $1,400,106
Net change in lower of cost or market inventory reserve(15,167) 36,022 (101,708) (16,598)
Refinery gross margin, excluding LCM adjustment$267,136 $520,795 $762,432 $1,383,508
Refinery gross margin, excluding LCM adjustment, per refinery throughput barrel$11.38 $22.18 $10.70 $19.56

(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.

WNRL

WNRL's financial and operational data presented includes the historical results of the assets acquired from Western in the St. Paul Park Logistics Transaction and the TexNew Mex Pipeline Transaction. These recent transactions were transfers 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 St. Paul Park Logistics Assets and the TexNew Mex Pipeline System into WNRL.

Three Months Ended Nine Months Ended
September 30, September 30,
2016 2015 2016 2015
(Unaudited)
(In thousands)
Statement of Operations Data:
Net sales$569,261 $680,670 $1,615,902 $2,023,970
Operating costs and expenses:
Cost of products sold495,536 601,557 1,395,382 1,807,284
Direct operating expenses43,454 45,927 131,103 131,156
Selling, general and administrative expenses6,483 5,812 17,854 18,517
Gain on disposal of assets, net(62) (13) (963) (257)
Depreciation and amortization10,579 8,963 29,470 25,816
Total operating costs and expenses555,990 662,246 1,572,846 1,982,516
Operating income$13,271 $18,424 $43,056 $41,454


Three Months Ended Nine Months Ended
September 30, September 30,
2016 2015 2016 2015
(Unaudited)
(In thousands, except key operating statistics)
Key Operating Statistics
Pipeline and gathering (bpd):
Mainline movements:
Permian/Delaware Basin system49,709 56,745 51,709 45,784
Four Corners system (1)53,070 66,602 54,523 54,719
TexNew Mex system7,504 14,834 10,132 6,131
Gathering (truck offloading):
Permian/Delaware Basin system15,514 25,961 17,948 24,207
Four Corners system9,577 16,487 11,151 13,387
Terminalling, transportation and storage (bpd):
Shipments into and out of storage (includes asphalt)416,761 408,787 399,415 396,506
Wholesale:
Fuel gallons sold (in thousands)313,600 305,566 940,029 919,808
Fuel gallons sold to retail (included in fuel gallons sold above) (in thousands)87,131 81,538 250,693 235,824
Fuel margin per gallon (2)$0.030 $0.029 $0.028 $0.031
Lubricant gallons sold (in thousands)1,355 2,998 5,402 8,969
Lubricant margin per gallon (3)$1.05 $0.70 $0.85 $0.71
Asphalt trucking volume (bpd)5,620 4,461
Crude oil trucking volume (bpd)36,144 49,620 37,909 47,245
Average crude oil revenue per barrel$2.11 $2.51 $2.17 $2.58

(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 Nine Months Ended
September 30, September 30,
2016 2015 2016 2015
(Unaudited)
(In thousands, except per gallon data)
Statement of Operations Data
Net sales (including intersegment sales)$597,621 $633,793 $1,610,033 $1,753,503
Operating costs and expenses:
Cost of products sold (exclusive of depreciation and amortization)497,114 522,102 1,328,801 1,469,321
Direct operating expenses (exclusive of depreciation and amortization)73,388 70,112 210,932 199,554
Selling, general and administrative expenses9,786 10,835 31,720 31,369
Gain on disposal of assets, net(209) (39) (235) (354)
Depreciation and amortization5,710 5,846 17,622 17,257
Total operating costs and expenses585,789 608,856 1,588,840 1,717,147
Operating income$11,832 $24,937 $21,193 $36,356
Key Operating Statistics
Southwest Retail:
Retail fuel gallons sold105,304 92,939 295,323 267,102
Average retail fuel sales price per gallon, net of excise taxes$1.79 $2.26 $1.66 $2.10
Average retail fuel cost per gallon, net of excise taxes1.60 1.95 1.50 1.89
Retail fuel margin per gallon (1)0.19 0.31 0.16 0.21
Merchandise sales$88,151 $83,146 249,187 234,014
Merchandise margin (2)28.8% 29.4% 29.2% 29.5%
Operating retail outlets at period end 260 261
Cardlock fuel gallons sold16,630 16,990 48,398 50,013
Cardlock fuel margin per gallon$0.122 $0.176 $0.123 $0.174
Operating cardlocks at period end 51 52
SuperAmerica:
Retail fuel gallons sold79,539 78,414 231,087 227,673
Retail fuel margin per gallon (1)$0.22 $0.27 $0.23 $0.23
Merchandise sales99,535 100,645 279,963 279,058
Merchandise margin (2)25.8% 25.8% 26.0% 25.9%
Company-operated retail outlets at period end 170 165
Franchised retail outlets at period end 115 102


Three Months Ended Nine Months Ended
September 30, September 30,
2016 2015 2016 2015
(Unaudited)
(In thousands, except per gallon data)
Net Sales
Retail fuel sales, net of excise taxes$359,916 $408,801 $963,670 $1,115,571
Merchandise sales187,686 183,791 529,150 513,072
Cardlock sales25,042 33,184 74,302 100,960
Other sales24,977 8,017 42,911 23,900
Net sales$597,621 $633,793 $1,610,033 $1,753,503
Cost of Products Sold
Retail fuel cost of products sold, net of excise taxes$321,843 $359,142 $862,609 $1,006,717
Merchandise cost of products sold136,597 133,346 383,680 371,719
Cardlock cost of products sold22,920 30,141 68,101 92,077
Other cost of products sold15,754 (527) 14,411 (1,192)
Cost of products sold$497,114 $522,102 $1,328,801 $1,469,321
Retail fuel margin per gallon (1)$0.21 $0.29 $0.19 $0.22

(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
September 30,
2016 2015
(Unaudited)
(In thousands, except per share data)
Reported diluted earnings per share$0.35 $1.61
Income before income taxes$56,008 $310,215
Special items:
Unrealized loss (gain) on commodity hedging transactions27,616 (271)
NTI merger reorganization costs2,666
Gain on disposal of assets, net(279) (52)
Net change in lower of cost or market inventory reserve(15,166) 36,795
Earnings before income taxes excluding special items70,845 346,687
Recomputed income taxes excluding special items (1)(15,158) (96,254)
Net income excluding special items55,687 250,433
Net income attributable to non-controlling interests5,704 90,215
Net income attributable to Western excluding special items$49,983 $160,218
Diluted earnings per share excluding special items$0.46 $1.69

(1) 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.