Western Refining Announces Third Quarter 2016 Results

 | Source: Western Refining, Inc. Western Refining, Inc.

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.

 


            











    

        

        
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