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

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

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

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

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.

The following tables set forth our unaudited summary historical financial and operating data for the periods indicated below:

  Three Months Ended   Six Months Ended
  June 30,   June 30,
  2016   2015   2016   2015
  (Unaudited)
  (In thousands, except per share data)
Statements of Operations Data              
Net sales (1) $ 2,107,308     $ 2,828,892     $ 3,562,812     $ 5,147,622  
Operating costs and expenses:              
Cost of products sold (exclusive of depreciation and amortization) (1) 1,602,628     2,177,887     2,649,989     3,919,197  
Direct operating expenses (exclusive of depreciation and amortization) 231,169     224,723     454,754     440,034  
Selling, general and administrative expenses 56,052     59,540     109,337     115,343  
Gain on disposal of assets, net (772 )   (387 )   (902 )   (105 )
Maintenance turnaround expense 400     593     525     698  
Depreciation and amortization 54,359     51,143     107,010     101,069  
Total operating costs and expenses 1,943,836     2,513,499     3,320,713     4,576,236  
Operating income 163,472     315,393     242,099     571,386  
Other income (expense):              
Interest income 131     201     295     364  
Interest and debt expense (26,928 )   (27,316 )   (53,609 )   (52,273 )
Other, net 4,341     4,024     10,445     7,230  
Income before income taxes 141,016     292,302     199,230     526,707  
Provision for income taxes (38,152 )   (78,435 )   (56,781 )   (137,872 )
Net income 102,864     213,867     142,449     388,835  
Less net income attributable to non-controlling interests (2) 37,449     79,948     46,496     148,927  
Net income attributable to Western Refining, Inc. $ 65,415     $ 133,919     $ 95,953     $ 239,908  
               
Basic earnings per share $ 0.70     $ 1.40     $ 1.04     $ 2.51  
Diluted earnings per share 0.70     1.40     1.04     2.51  
               
Dividends declared per common share 0.38     0.34     0.76     0.64  
               
Weighted average basic shares outstanding 92,786     95,539     92,432     95,553  
Weighted average dilutive shares outstanding (3) 92,847     95,626     92,495     95,654  
  Three Months Ended   Six Months Ended
  June 30,   June 30,
  2016   2015   2016   2015
  (Unaudited)
  (In thousands)
Economic Hedging Activities Recognized Within Cost of Products Sold              
Realized hedging gain, net $ 550     $ 7,823     $ 18,353     $ 25,376  
Unrealized hedging loss, net (14,598 )   (22,287 )   (27,082 )   (42,344 )
Total hedging loss, net $ (14,048 )   $ (14,464 )   $ (8,729 )   $ (16,968 )
               
Cash Flow Data              
Net cash provided by (used in):              
Operating activities $ 115,754     $ 187,066     $ 116,858     $ 292,044  
Investing activities (41,374 )   (4,962 )   (87,861 )   (14,133 )
Financing activities (469,197 )   (101,242 )   (603,215 )   (165,134 )
Capital expenditures $ 77,731     $ 66,350     $ 156,760     $ 119,545  
Cash distributions received by Western from:              
NTI $ 6,412     $ 38,472     $ 19,949     $ 55,927  
WNRL 13,555     10,901     26,947     21,215  
Other Data              
Adjusted EBITDA (4) $ 200,910     $ 355,050     $ 299,201     $ 669,060  
Balance Sheet Data (at end of period)              
Cash and cash equivalents         $ 198,284     $ 543,936  
Restricted cash         1,284     68,275  
Working capital         730,608     1,105,559  
Total assets         5,538,529     5,910,062  
Total debt and lease financing obligation         2,068,681     1,554,150  
Total equity         2,082,143     2,997,586  

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

(2)  Net income attributable to non-controlling interests for the three and six months ended June 30, 2016, consisted of income from NTI and WNRL in the amount of $31.0 million, $35.3 million, $6.5 million and $11.2 million, respectively. Net income attributable to non-controlling interests for the three and six months ended June 30, 2015, consisted of income from NTI and WNRL in the amount of $74.6 million, $138.4 million, $5.4 million and $10.6 million, respectively.

(3)  Our computation of diluted earnings per share includes unvested restricted shares units. If determined to be dilutive to period earnings, these securities are included in the denominator of our diluted earnings per share calculation. For purposes of the diluted earnings per share calculation, we assumed issuance of 0.1 million restricted share units for both the three and six months ended June 30, 2016 and 2015.

(4)  Adjusted EBITDA represents earnings before interest and debt expense, provision for income taxes, depreciation, amortization, maintenance turnaround expense and certain other non-cash income and expense items. However, Adjusted EBITDA is not a recognized measurement under U.S. generally accepted accounting principles ("GAAP"). Our management believes that the presentation of Adjusted EBITDA is useful to investors because it is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry. In addition, our management believes that Adjusted EBITDA is useful in evaluating our operating performance compared to that of other companies in our industry because the calculation of Adjusted EBITDA generally eliminates the effects of financings, income taxes, the accounting effects of significant turnaround activities (that many of our competitors capitalize and thereby exclude from their measures of EBITDA) and certain non-cash charges that are items that may vary for different companies for reasons unrelated to overall operating performance.

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

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

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

  Three Months Ended   Six Months Ended
  June 30,   June 30,
  2016   2015   2016   2015
  (Unaudited)
   (In thousands)
Net income attributable to Western Refining, Inc. $ 65,415     $ 133,919     $ 95,953     $ 239,908  
Net income attributable to non-controlling interests 37,449     79,948     46,496     148,927  
Interest and debt expense 26,928     27,316     53,609     52,273  
Provision for income taxes 38,152     78,435     56,781     137,872  
Gain on disposal of assets, net (772 )   (387 )   (902 )   (105 )
Depreciation and amortization 54,359     51,143     107,010     101,069  
Maintenance turnaround expense 400     593     525     698  
Net change in lower of cost or market inventory reserve (35,619 )   (38,204 )   (87,353 )   (53,926 )
Unrealized loss on commodity hedging transactions 14,598     22,287     27,082     42,344  
Adjusted EBITDA $ 200,910     $ 355,050     $ 299,201     $ 669,060  
               
EBITDA by Reporting Entity              
Western Adjusted EBITDA $ 122,184     $ 217,860     $ 173,660     $ 389,143  
NTI Adjusted EBITDA 47,698     110,302     66,148     228,885  
WNRL EBITDA 31,028     26,888     59,393     51,032  
Consolidated Adjusted EBITDA $ 200,910     $ 355,050     $ 299,201     $ 669,060  
  Three Months Ended
  June 30,
  2016
  Western   NTI   WNRL
  (Unaudited)
   (In thousands)
Net income attributable to Western Refining, Inc. $ 21,400     $ 32,611     $ 11,404  
Net income attributable to non-controlling interest —     30,979     6,470  
Interest and debt expense 14,930     5,584     6,414  
Provision for income taxes 37,935     —     217  
Loss (gain) on disposal of assets, net 35     (5 )   (802 )
Depreciation and amortization 26,796     20,238     7,325  
Maintenance turnaround expense 400     —     —  
Net change in lower of cost or market inventory reserve —     (35,619 )   —  
Unrealized loss (gain) on commodity hedging transactions 20,688     (6,090 )   —  
Adjusted EBITDA $ 122,184     $ 47,698     $ 31,028  
  Six Months Ended
  June 30,
  2016
  Western   NTI   WNRL
  (Unaudited)
   (In thousands)
Net income attributable to Western Refining, Inc. $ 39,410     $ 35,835     $ 20,708  
Net income attributable to non-controlling interests —     35,323     11,173  
Interest and debt expense 28,809     11,334     13,466  
Provision for income taxes 56,303     —     478  
Loss (gain) on disposal of assets, net 9     (10 )   (901 )
Depreciation and amortization 52,334     40,207     14,469  
Maintenance turnaround expense 525     —     —  
Net change in lower of cost or market inventory reserve (40,689 )   (46,664 )   —  
Unrealized loss (gain) on commodity hedging transactions 36,959     (9,877 )   —  
Adjusted EBITDA $ 173,660     $ 66,148     $ 59,393  
  Three Months Ended
  June 30,
  2015
  Western   NTI   WNRL
  (Unaudited)
   (In thousands)
Net income attributable to Western Refining, Inc. $ 74,904     $ 48,490     $ 10,525  
Net income attributable to non-controlling interest —     74,558     5,390  
Interest and debt expense 14,321     6,747     6,248  
Provision for income taxes 78,287     —     148  
Loss (gain) on disposal of assets, net 69     (296 )   (160 )
Depreciation and amortization 26,891     19,515     4,737  
Maintenance turnaround expense 593     —     —  
Net change in lower of cost or market inventory reserve —     (38,204 )   —  
Unrealized loss (gain) on commodity hedging transactions 22,795     (508 )   —  
Adjusted EBITDA $ 217,860     $ 110,302     $ 26,888  
  Six Months Ended
  June 30,
  2015
  Western   NTI   WNRL
  (Unaudited)
   (In thousands)
Net income attributable to Western Refining, Inc. $ 130,115     $ 89,128     $ 20,665  
Net income attributable to non-controlling interests —     138,354     10,573  
Interest and debt expense 28,551     13,510     10,212  
Provision for income taxes 137,521     —     351  
Loss (gain) on disposal of assets, net 450     (311 )   (244 )
Depreciation and amortization 52,714     38,880     9,475  
Maintenance turnaround expense 698     —     —  
Net change in lower of cost or market inventory reserve (4,883 )   (49,043 )   —  
Unrealized loss (gain) on commodity hedging transactions 43,977     (1,633 )   —  
Adjusted EBITDA $ 389,143     $ 228,885     $ 51,032  

Consolidating Financial Data

The following tables set forth our consolidating historical financial data for the periods presented below.

  Three Months Ended   Six Months Ended
  June 30,   June 30,
  2016   2015   2016   2015
  (Unaudited)
  (In thousands)
Operating Income              
Western, excluding NTI and WNRL $ 74,138     $ 167,965     $ 123,212     $ 296,498  
NTI 64,843     125,135     72,958     233,122  
WNRL 24,491     22,293     45,929     41,766  
Operating income $ 163,472     $ 315,393     $ 242,099     $ 571,386  
Depreciation and Amortization              
Western, excluding NTI and WNRL $ 26,796     $ 26,891     $ 52,334     $ 52,714  
NTI 20,238     19,515     40,207     38,880  
WNRL 7,325     4,737     14,469     9,475  
Depreciation and amortization expense $ 54,359     $ 51,143     $ 107,010     $ 101,069  
Capital Expenditures              
Western, excluding NTI and WNRL $ 43,172     $ 47,345     $ 87,970     $ 85,953  
NTI 26,471     11,155     54,461     17,828  
WNRL 8,088     7,850     14,329     15,764  
Capital expenditures $ 77,731     $ 66,350     $ 156,760     $ 119,545  
Balance Sheet Data (at end of period)              
Cash and cash equivalents              
Western, excluding NTI and WNRL         $ 156,085     $ 337,462  
NTI         24,637     127,924  
WNRL         17,562     78,550  
Cash and cash equivalents         $ 198,284     $ 543,936  
Total debt              
Western, excluding NTI and WNRL         $ 1,340,678     $ 861,406  
NTI         358,044     351,572  
WNRL         313,152     291,775  
Total debt         $ 2,011,874     $ 1,504,753  
Total working capital              
Western, excluding NTI and WNRL         $ 569,311     $ 736,521  
NTI         166,130     302,256  
WNRL         (4,833 )   66,782  
Total working capital         $ 730,608     $ 1,105,559  

Refining Segment

El Paso and Gallup Refineries and Related Operations

  Three Months Ended   Six Months Ended
  June 30,   June 30,
  2016   2015   2016   2015
   (In thousands, except per barrel data)
Statement of Operations Data (Unaudited):              
Net sales (including intersegment sales) (1) $ 1,315,609     $ 1,817,629     $ 2,201,929     $ 3,309,070  
Operating costs and expenses:              
Cost of products sold (exclusive of depreciation and amortization) (2) 1,117,071     1,527,952     1,839,085     2,763,408  
Direct operating expenses (exclusive of depreciation and amortization) 79,338     76,676     152,826     153,474  
Selling, general and administrative expenses 7,384     7,133     14,654     16,702  
Loss on disposal of assets, net 35     78     35     495  
Maintenance turnaround expense 400     593     525     698  
Depreciation and amortization 22,386     19,951     43,671     40,435  
Total operating costs and expenses 1,226,614     1,632,383     2,050,796     2,975,212  
Operating income $ 88,995     $ 185,246     $ 151,133     $ 333,858  
Key Operating Statistics              
Total sales volume (bpd) (1) (3) 218,791     233,653     204,866     233,564  
Total refinery production (bpd) 157,981     160,266     160,574     162,539  
Total refinery throughput (bpd) (4) 159,778     162,001     162,573     164,635  
Per barrel of refinery throughput:              
Refinery gross margin (2) (5) (6) $ 13.55     $ 19.62     $ 12.15     $ 18.21  
Direct operating expenses (7) 5.46     5.20     5.17     5.15  
Mid-Atlantic sales volume (bbls) 1,971     2,513     3,702     4,453  
Mid-Atlantic margin per barrel $ 0.76     $ 0.32     $ 0.94     $ 0.75  

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

El Paso and Gallup Refineries

  Three Months Ended   Six Months Ended
  June 30,   June 30,
  2016   2015   2016   2015
Key Operating Statistics              
Refinery product yields (bpd):              
Gasoline 88,058     86,034     89,035     87,607  
Diesel and jet fuel 60,687     63,188     62,414     64,143  
Residuum 2,479     5,140     2,849     5,039  
Other 6,757     5,904     6,276     5,750  
Total refinery production (bpd) 157,981     160,266     160,574     162,539  
Refinery throughput (bpd):              
Sweet crude oil 128,024     132,230     125,988     131,709  
Sour crude oil 22,703     22,068     25,601     22,649  
Other feedstocks and blendstocks 9,051     7,703     10,984     10,277  
Total refinery throughput (bpd) (4) 159,778     162,001     162,573     164,635  

El Paso Refinery

  Three Months Ended   Six Months Ended
  June 30,   June 30,
  2016   2015   2016   2015
Key Operating Statistics              
Refinery product yields (bpd):              
Gasoline 70,740     68,289     72,990     69,981  
Diesel and jet fuel 52,746     55,032     55,515     55,874  
Residuum 2,479     5,140     2,849     5,039  
Other 5,261     4,504     4,939     4,244  
Total refinery production (bpd) 131,226     132,965     136,293     135,138  
Refinery throughput (bpd):              
Sweet crude oil 102,647     106,601     103,767     106,481  
Sour crude oil 22,703     22,068     25,601     22,649  
Other feedstocks and blendstocks 7,292     5,646     8,481     7,665  
Total refinery throughput (bpd) (4) 132,642     134,315     137,849     136,795  
Total sales volume (bpd) (3) 149,784     149,561     145,773     150,680  
Per barrel of refinery throughput:              
Refinery gross margin (2) (5) $ 14.14     $ 20.01     $ 10.65     $ 18.72  
Direct operating expenses (7) 4.26     4.17     3.86     4.13  

Gallup Refinery

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

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

(2)  Cost of products sold for the combined refining segment includes the net realized and net non-cash unrealized hedging activity shown in the table below. The hedging gains and losses are also included in the combined gross profit and refinery gross margin but are not included in those measures for our individual refineries.

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

(3)  Sales volume includes sales of refined products sourced primarily from our refinery production as well as refined products purchased from third parties. We purchase additional refined products from third parties to supplement supply to our customers. These products are similar to the products that we currently manufacture and represented 8.4%, 8.4%, 10.7% and 10.0% of our total consolidated sales volumes for the three and six months ended June 30, 2016 and 2015, respectively. The majority of the purchased refined products are distributed through our refined product sales activities in the Mid-Atlantic region where we satisfy our refined product customer sales requirements through a third-party supply agreement.

(4)  Total refinery throughput includes crude oil, other feedstocks and blendstocks.

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

Our calculation of refinery gross margin excludes the sales and costs related to our Mid-Atlantic business that we report within the refining segment. The following table reconciles the sales and cost of sales used to calculate refinery gross margin with the total sales and cost of sales reported in the refining statement of operations data above:

  Three Months Ended   Six Months Ended
  June 30,   June 30,
  2016   2015   2016   2015
  (Unaudited)
  (In thousands)
Refinery net sales (including intersegment sales) $ 1,190,042     $ 1,611,573     $ 1,990,960     $ 2,967,092  
Mid-Atlantic sales 125,567     206,056     210,969     341,978  
Net sales (including intersegment sales) $ 1,315,609     $ 1,817,629     $ 2,201,929     $ 3,309,070  
               
Refinery cost of products sold (exclusive of depreciation and amortization) $ 992,994     $ 1,322,364     $ 1,631,582     $ 2,424,458  
Mid-Atlantic cost of products sold 124,077     205,588     207,503     338,950  
Cost of products sold (exclusive of depreciation and amortization) $ 1,117,071     $ 1,527,952     $ 1,839,085     $ 2,763,408  

The following table reconciles combined gross profit for our refineries to combined gross margin for our refineries for the periods presented:

  Three Months Ended   Six Months Ended
  June 30,   June 30,
  2016   2015   2016   2015
  (Unaudited)
   (In thousands, except per barrel data)
Refinery net sales (including intersegment sales) $ 1,190,042     $ 1,611,573     $ 1,990,960     $ 2,967,092  
Refinery cost of products sold (exclusive of depreciation and amortization) 992,994     1,322,364     1,631,582     2,424,458  
Depreciation and amortization 22,386     19,951     43,671     40,435  
Gross profit 174,662     269,258     315,707     502,199  
Plus depreciation and amortization 22,386     19,951     43,671     40,435  
Refinery gross margin $ 197,048     $ 289,209     $ 359,378     $ 542,634  
Refinery gross margin per throughput barrel $ 13.55     $ 19.62     $ 12.15     $ 18.21  
Gross profit per throughput barrel $ 12.01     $ 18.26     $ 10.67     $ 16.85  

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

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

(7)  Refinery direct operating expenses per throughput barrel is calculated by dividing direct operating expenses by total throughput volumes for the respective periods presented. Direct operating expenses do not include any depreciation or amortization.

NTI

The following table sets forth the summary operating results for NTI.

  Three Months Ended   Six Months Ended
  June 30,   June 30,
  2016   2015   2016   2015
  (Unaudited)
  (In thousands, except per barrel data)
Net sales $ 700,351     $ 852,820     $ 1,197,824     $ 1,550,596  
Operating costs and expenses:              
Cost of products sold (exclusive of depreciation and amortization) (1) 512,734     608,799     880,505     1,089,262  
Direct operating expenses (exclusive of depreciation and amortization) 79,995     76,348     158,139     146,053  
Selling, general and administrative expenses 22,546     23,319     46,025     43,590  
Gain on disposal of assets, net (5 )   (296 )   (10 )   (311 )
Depreciation and amortization 20,238     19,515     40,207     38,880  
Total operating costs and expenses 635,508     727,685     1,124,866     1,317,474  
Operating income $ 64,843     $ 125,135     $ 72,958     $ 233,122  
               
Key Operating Statistics              
Total sales volume (bpd) 113,304     103,778     106,199     101,144  
Total refinery production (bpd) 99,243     98,722     100,018     96,529  
Total refinery throughput (bpd) (2) 99,149     98,954     99,878     96,544  
Per barrel of throughput:              
Refinery gross margin (1) (3) $ 11.67     $ 18.00     $ 9.87     $ 18.66  
Direct operating expenses (4) 4.64     4.68     4.71     4.64  
               
Refinery product yields (bpd):              
Gasoline 48,573     46,605     49,312     45,786  
Distillate (7) 32,341     34,744     32,818     34,005  
Residuum 12,254     12,040     11,958     11,072  
Other (8) 6,075     5,333     5,930     5,666  
Total refinery production (bpd) 99,243     98,722     100,018     96,529  
Refinery throughput (bpd):              
Crude oil 97,324     97,027     96,836     94,299  
Other feedstocks (9) 1,825     1,927     3,042     2,245  
Total refinery throughput (bpd) (2) 99,149     98,954     99,878     96,544  
               
Retail fuel gallons sold (in thousands) 78,458     77,398     151,548     149,259  
Retail fuel margin per gallon (5) $ 0.23     $ 0.22     $ 0.23     $ 0.21  
Merchandise sales 96,235     95,799     180,428     178,413  
Merchandise margin (6) 26.1 %   25.9 %   26.1 %   25.9 %
Company-operated retail outlets at period end         170     165  
Franchised retail outlets at period end         114     99  

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

  Three Months Ended   Six Months Ended
  June 30,   June 30,
  2016   2015   2016   2015
  (Unaudited)
  (In thousands)
Realized hedging loss, net $ (8,323 )   $ (2,863 )   $ (12,789 )   $ (2,765 )
Unrealized hedging gain, net 6,090     508     9,877     1,633  
Total hedging loss, net $ (2,233 )   $ (2,355 )   $ (2,912 )   $ (1,132 )

(2)  Total refinery throughput includes crude oil, other feedstocks and blendstocks.

(3)  Refinery gross margin is a per barrel measurement calculated by dividing the difference between net sales and cost of products sold by the refinery's total throughput volumes for the respective periods presented. Refinery net sales include $3.2 million, $6.7 million, $37.2 million and $59.0 million related to crude oil sales during the three and six months ended June 30, 2016 and 2015, respectively. Refinery gross margin is a non-GAAP performance measure that we believe is useful in evaluating refinery performance as a general indication of the excess of the refined product sales amount over the related cost of products sold. Each of the components used in this calculation (net sales and cost of products sold) can be reconciled to corresponding amounts included in the statement of operations. Our calculation of refinery gross margin may differ from similar calculations of other companies in our industry, thereby limiting its usefulness as a comparative measure. NTI's refinery cost of products sold for the three and six months ended June 30, 2016 and 2015 excludes non-cash lower of cost or market adjustments to state refining inventory values at the lower of cost or market prices.

The following table reconciles gross profit to gross margin for the St. Paul Park refinery for the periods presented:  

  Three Months Ended   Six Months Ended
  June 30,   June 30,
  2016   2015   2016   2015
  (Unaudited)
  (In thousands, except per barrel data)
Net refinery sales (including intersegment sales) $ 693,589     $ 839,876     $ 1,188,865     $ 1,529,406  
Refinery cost of products sold (exclusive of depreciation and amortization) 588,280     677,819     1,009,446     1,203,313  
Refinery depreciation and amortization 17,674     17,255     35,083     34,368  
Gross profit 87,635     144,802     144,336     291,725  
Plus depreciation and amortization 17,674     17,255     35,083     34,368  
Refinery gross margin $ 105,309     $ 162,057     $ 179,419     $ 326,093  
Refinery gross margin per refinery throughput barrel $ 11.67     $ 18.00     $ 9.87     $ 18.66  
Gross profit per refinery throughput barrel $ 9.71     $ 16.08     $ 7.94     $ 16.69  

(4)  NTI's direct operating expenses per throughput barrel are calculated by dividing refining direct operating expenses by total throughput volumes for the respective periods presented. Direct operating expenses do not include any depreciation or amortization.

(5)  Retail fuel margin per gallon is a measurement calculated by dividing the difference between retail fuel sales and retail fuel cost of products sold by the number of gallons sold. Retail fuel margin per gallon is a measure frequently used in the retail industry to measure operating results related to fuel sales.

(6)  Merchandise margin is a measurement calculated by dividing the difference between merchandise sales and merchandise cost of products sold by merchandise sales. Merchandise margin is a measure frequently used in the retail industry to measure operating results related to merchandise sales.

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

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

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

WNRL

WNRL's financial and operational data presented includes the historical results of all assets acquired from Western in the TexNew Mex Pipeline Transaction. This transaction was a transfer of assets between entities under common control. We have retrospectively adjusted historical financial and operational data of WNRL, for all periods presented, to reflect the purchase and consolidation of the TexNew Mex Pipeline System into WNRL.

  Three Months Ended   Six Months Ended
  June 30,   June 30,
  2016   2015   2016   2015
  (Unaudited)
  (In thousands)
Statement of Operations Data:              
Net sales $ 578,602     $ 735,904     $ 1,046,641     $ 1,343,300  
Operating costs and expenses:              
Cost of products sold 504,256     664,026     899,846     1,205,727  
Direct operating expenses 37,574     38,058     76,475     74,429  
Selling, general and administrative expenses 5,758     6,279     10,823     12,234  
Gain on disposal of assets, net (802 )   (160 )   (901 )   (244 )
Depreciation and amortization 7,325     6,670     14,469     12,562  
Total operating costs and expenses 554,111     714,873     1,000,712     1,304,708  
Operating income $ 24,491     $ 21,031     $ 45,929     $ 38,592  
  Three Months Ended   Six Months Ended
  June 30,   June 30,
  2016   2015   2016   2015
  (Unaudited)
  (In thousands, except key operating statistics)
Key Operating Statistics              
Pipeline and gathering (bpd):              
Mainline movements:              
Permian/Delaware Basin system 55,953     43,873     52,719     40,213  
Four Corners system (1) 58,047     51,486     55,257     48,679  
TexNew Mex system 10,375     3,398     11,460     1,708  
Gathering (truck offloading):              
Permian/Delaware Basin system 17,823     24,019     19,178     23,316  
Four Corners system 11,133     12,950     11,947     11,812  
Terminalling, transportation and storage (bpd):              
Shipments into and out of storage (includes asphalt) 393,037     389,220     390,647     390,263  
Wholesale:              
Fuel gallons sold (in thousands) 311,486     310,811     626,429     614,242  
Fuel gallons sold to retail (included in fuel gallons sold above) (in thousands) 83,721     79,023     163,562     154,286  
Fuel margin per gallon (2) $ 0.025     $ 0.037     $ 0.027     $ 0.032  
Lubricant gallons sold (in thousands) 1,846     3,014     4,047     5,971  
Lubricant margin per gallon (3) $ 0.89     $ 0.78     $ 0.78     $ 0.72  
Asphalt trucking volume (tons) 4,876     —     3,875     —  
Crude oil trucking volume (bpd) 42,092     48,992     38,801     46,037  
Average crude oil revenue per barrel $ 2.17     $ 2.51     $ 2.20     $ 2.63  

(1)  Some barrels of crude oil in route to Western's Gallup refinery and Permian/Delaware Basin are transported on more than one mainline. Mainline movements for the Four Corners and Delaware Basin systems include each barrel transported on each mainline.

(2)  Fuel margin per gallon is a measurement calculated by dividing the difference between fuel sales, net of transportation charges, and cost of fuel sales for our wholesale business by the number of gallons sold. Fuel margin per gallon is a measure frequently used in the petroleum products wholesale industry to measure operating results related to fuel sales.

(3)  Lubricant margin per gallon is a measurement calculated by dividing the difference between lubricant sales, net of transportation charges, and lubricant cost of products sold by the number of gallons sold. Lubricant margin is a measure frequently used in the petroleum products wholesale industry to measure operating results related to lubricant sales.

Retail Segment

  Three Months Ended   Six Months Ended
  June 30,   June 30,
  2016   2015   2016   2015
  (Unaudited)
  (In thousands, except per gallon data)
Statement of Operations Data              
Net sales (including intersegment sales) $ 290,068     $ 318,072     $ 521,254     $ 576,674  
Operating costs and expenses:              
Cost of products sold (exclusive of depreciation and amortization) 245,889     272,643     435,389     492,818  
Direct operating expenses (exclusive of depreciation and amortization) 34,262     33,641     67,314     65,995  
Selling, general and administrative expenses 3,016     3,109     5,914     6,373  
Gain on disposal of assets, net —     (9 )   (26 )   (45 )
Depreciation and amortization 3,882     4,031     7,212     7,317  
Total operating costs and expenses 287,049     313,415     515,803     572,458  
Operating income (loss) $ 3,019     $ 4,657     $ 5,451     $ 4,216  
Key Operating Statistics              
Retail fuel gallons sold 98,550     90,339     190,019     174,163  
Average retail fuel sales price per gallon, net of excise taxes $ 1.76     $ 2.20     $ 1.60     $ 2.02  
Average retail fuel cost per gallon, net of excise taxes) 1.61     2.03     1.45     1.86  
Retail fuel margin per gallon (1) 0.14     0.17     0.15     0.16  
Merchandise sales $ 85,069     $ 79,981     161,036     150,868  
Merchandise margin (2) 29.2 %   29.9 %   29.4 %   29.6 %
Operating retail outlets at period end         259     262  
Cardlock fuel gallons sold 16,515     16,903     31,768     33,023  
Cardlock fuel margin per gallon $ 0.118     $ 0.160     $ 0.123     $ 0.173  
Operating cardlocks at period end         52     52  
  Three Months Ended   Six Months Ended
  June 30,   June 30,
  2016   2015   2016   2015
  (Unaudited)
  (In thousands, except per gallon data)
Net Sales              
Retail fuel sales, net of excise taxes $ 173,258     $ 199,166     $ 304,083     $ 351,711  
Merchandise sales 85,069     79,981     161,036     150,868  
Cardlock sales 28,527     35,782     49,260     67,776  
Other sales 3,214     3,143     6,875     6,319  
Net sales $ 290,068     $ 318,072     $ 521,254     $ 576,674  
Cost of Products Sold              
Retail fuel cost of products sold, net of excise taxes $ 159,096     $ 183,471     $ 276,316     $ 324,593  
Merchandise cost of products sold 60,227     56,104     113,746     106,169  
Cardlock cost of products sold 26,480     33,004     45,181     61,936  
Other cost of products sold 86     64     146     120  
Cost of products sold $ 245,889     $ 272,643     $ 435,389     $ 492,818  
Retail fuel margin per gallon (1) $ 0.14     $ 0.17     $ 0.15     $ 0.16  

(1)  Retail fuel margin per gallon is a measurement calculated by dividing the difference between retail fuel sales and cost of retail fuel sales for our retail segment by the number of gallons sold. Retail fuel margin per gallon is a measure frequently used in the convenience store industry to measure operating results related to retail fuel sales.

(2)  Merchandise margin is a measurement calculated by dividing the difference between merchandise sales and merchandise cost of products sold by merchandise sales. Merchandise margin is a measure frequently used in the convenience store industry to measure operating results related to merchandise sales.

Reconciliation of Special Items

We present certain additional financial measures below that are non-GAAP measures within the meaning of Regulation G under the Securities Exchange Act of 1934.

We present these non-GAAP measures to provide investors with additional information to analyze our performance from period to period. We believe it is useful for investors to understand our financial performance excluding these special items so that investors can see the operating trends underlying our business. Investors should not consider these non-GAAP measures in isolation from, or as a substitute for, the financial information that we report in accordance with GAAP. These non-GAAP measures reflect subjective determinations by management and may differ from similarly titled non-GAAP measures presented by other companies.

  Three Months Ended
  June 30,
  2016   2015
  (Unaudited)
  (In thousands, except per share data)
Reported diluted earnings per share $ 0.70     $ 1.40  
Income before income taxes $ 141,016     $ 292,302  
Special items:      
Unrealized loss on commodity hedging transactions, net (1) 14,598     22,287  
Gain on disposal of assets, net (772 )   (387 )
Net change in lower of cost or market inventory reserve (2) (35,619 )   (38,204 )
Earnings before income taxes excluding special items 119,223     275,998  
Recomputed income taxes excluding special items (3) (38,805 )   (80,847 )
Net income excluding special items 80,418     195,151  
Net income attributable to non-controlling interests 13,888     57,138  
Net income attributable to Western excluding special items $ 66,530     $ 138,013  
Diluted earnings per share excluding special items $ 0.72     $ 1.44  

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

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

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