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 RefiningWestern 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 expenses 57,320     54,465     166,657     169,808  
Gain on disposal of assets, net (279 )   (52 )   (1,181 )   (157 )
Maintenance turnaround expense 27,208     490     27,733     1,188  
Depreciation and amortization 54,321     51,377     161,331     152,446  
Total operating costs and expenses 1,978,133     2,236,492     5,298,846     6,812,728  
Operating income 86,943     332,598     329,042     903,984  
Other income (expense):              
Interest income 141     186     436     550  
Interest and debt expense (34,456 )   (26,896 )   (88,065 )   (79,169 )
Other, net 3,380     4,327     13,825     11,557  
Income before income taxes 56,008     310,215     255,238     836,922  
Provision for income taxes (11,700 )   (92,117 )   (68,481 )   (229,989 )
Net income 44,308     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 share 0.35     1.61     1.37     4.12  
               
Dividends declared per common share 0.38     0.34     1.14     0.98  
               
Weighted average basic shares outstanding 108,424     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 activities 176,011     (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  
WNRL 14,124     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 interests 5,733     64,795     52,229     213,722  
Interest and debt expense 34,456     26,896     88,065     79,169  
Provision for income taxes 11,700     92,117     68,481     229,989  
Gain on disposal of assets, net (279 )   (52 )   (1,181 )   (157 )
Depreciation and amortization 54,321     51,377     161,331     152,446  
Maintenance turnaround expense 27,208     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 transactions 27,616     (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  
WNRL 29,028     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 expense 28,308     6,148  
Provision for income taxes 11,418     282  
Gain on disposal of assets, net (217 )   (62 )
Depreciation and amortization 45,684     8,637  
Maintenance turnaround expense 27,208      
Net change in lower of cost or market inventory reserve (15,166 )    
Unrealized loss on commodity hedging transactions 27,616      
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 interests 35,323     16,906  
Interest and debt expense 68,451     19,614  
Provision for income taxes 67,721     760  
Gain on disposal of assets, net (218 )   (963 )
Depreciation and amortization 138,225     23,106  
Maintenance turnaround expense 27,733      
Net change in lower of cost or market inventory reserve (102,519 )    
Unrealized loss on commodity hedging transactions 54,698      
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 interest 59,209     5,586  
Interest and debt expense 20,692     6,204  
Provision for income taxes 92,114     3  
Gain on disposal of assets, net (39 )   (13 )
Depreciation and amortization 46,394     4,983  
Maintenance turnaround expense 490      
Net change in lower of cost or market inventory reserve 36,795      
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 interests 197,563     16,159  
Interest and debt expense 62,753     16,416  
Provision for income taxes 229,635     354  
Loss (gain) on disposal of assets, net 100     (257 )
Depreciation and amortization 137,988     14,458  
Maintenance turnaround expense 1,188      
Net change in lower of cost or market inventory reserve (17,131 )    
Unrealized loss on commodity hedging transactions 42,073      
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  
WNRL 13,271     18,424     43,056     41,454  
Retail 11,832     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  
WNRL 10,579     8,963     29,470     25,816  
Retail 5,710     5,846     17,622     17,257  
Other 767     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  
WNRL 8,530     10,648     24,378     52,150  
Retail 3,593     3,903     8,528     13,175  
Other 305     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 expenses 14,420     15,851     45,631     49,559  
Loss (gain) on disposal of assets, net (8 )       17     356  
Maintenance turnaround expense 27,208     490     27,733     1,188  
Depreciation and amortization 37,265     35,400     111,601     105,916  
Total operating costs and expenses 1,746,169     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):              
Gasoline 76,161     71,855     74,054     70,613  
Diesel and jet fuel 56,574     55,667     55,871     55,804  
Residuum 2,930     4,121     2,876     4,730  
Other 5,356     5,016     5,080     4,503  
Total refinery production (bpd) 141,021     136,659     137,881     135,650  
Refinery throughput (bpd):              
Sweet crude oil 105,990     107,577     104,513     106,850  
Sour crude oil 27,566     23,854     26,261     23,055  
Other feedstocks and blendstocks 8,876     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):              
Gasoline 17,719     15,961     16,607     17,065  
Diesel and jet fuel 8,831     7,878     7,548     8,137  
Other 1,058     1,560     1,243     1,525  
Total refinery production (bpd) 27,608     25,399     25,398     26,727  
Refinery throughput (bpd):              
Sweet crude oil 24,985     23,888     23,149     24,776  
Other feedstocks and blendstocks 3,260     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):              
Gasoline 42,896     43,914     47,158     45,155  
Distillate 25,667     30,404     30,417     32,791  
Residuum 9,212     10,091     11,036     10,742  
Other 6,960     5,953     6,276     5,763  
Total refinery production (bpd) 84,735     90,362     94,887     94,451  
Refinery throughput (bpd):              
Light crude oil 43,888     51,701     53,692     55,779  
Synthetic crude oil 18,769     14,735     13,850     12,303  
Heavy crude oil 19,380     23,150     24,325     24,629  
Other feedstocks 2,509     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 sales 120,414     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 sold 118,883     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 amortization 37,265     35,400     111,601     105,916  
Gross profit 245,038     449,373     752,539     1,294,190  
Plus depreciation and amortization 37,265     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 sold 495,536     601,557     1,395,382     1,807,284  
Direct operating expenses 43,454     45,927     131,103     131,156  
Selling, general and administrative expenses 6,483     5,812     17,854     18,517  
Gain on disposal of assets, net (62 )   (13 )   (963 )   (257 )
Depreciation and amortization 10,579     8,963     29,470     25,816  
Total operating costs and expenses 555,990     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 system 49,709     56,745     51,709     45,784  
Four Corners system (1) 53,070     66,602     54,523     54,719  
TexNew Mex system 7,504     14,834     10,132     6,131  
Gathering (truck offloading):              
Permian/Delaware Basin system 15,514     25,961     17,948     24,207  
Four Corners system 9,577     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 expenses 9,786     10,835     31,720     31,369  
Gain on disposal of assets, net (209 )   (39 )   (235 )   (354 )
Depreciation and amortization 5,710     5,846     17,622     17,257  
Total operating costs and expenses 585,789     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 sold 105,304     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 taxes 1.60     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 sold 16,630     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 sold 79,539     78,414     231,087     227,673  
Retail fuel margin per gallon (1) $ 0.22     $ 0.27     $ 0.23     $ 0.23  
Merchandise sales 99,535     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 sales 187,686     183,791     529,150     513,072  
Cardlock sales 25,042     33,184     74,302     100,960  
Other sales 24,977     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 sold 136,597     133,346     383,680     371,719  
Cardlock cost of products sold 22,920     30,141     68,101     92,077  
Other cost of products sold 15,754     (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 transactions 27,616     (271 )
NTI merger reorganization costs 2,666      
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 items 70,845     346,687  
Recomputed income taxes excluding special items (1) (15,158 )   (96,254 )
Net income excluding special items 55,687     250,433  
Net income attributable to non-controlling interests 5,704     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) 286-1530Michelle Clemente(602) 286-1533Retail Investors Contact:Alpha IR GroupDylan SchweitzerChris Hodges(312) 445-2870WNR@alpha-ir.comMedia Contact:Gary W. Hanson(602) 286-1777

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