Western Refining Announces Third Quarter 2016 Results
October 31, 2016 - 11:45 PM EDT
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Western Refining Announces Third Quarter 2016 Results
EL PASO, Texas, Oct. 31, 2016 (GLOBE NEWSWIRE) -- Western Refining, Inc. (NYSE:WNR) today reported third quarter 2016 net income attributable to Western of $38.6 million, or $0.35 per diluted share, as compared to net income attributable to Western of $153.3 million, or $1.61 per diluted share for the third quarter of 2015. Net income attributable to Western, excluding special items, was $50.0 million, or $0.46 per diluted share. This compares to third quarter 2015 net income, excluding special items, of $160.2 million, or $1.69 per diluted share. A reconciliation of reported earnings and description of special items can be found in the accompanying financial tables.
Jeff Stevens, Western's Chief Executive Officer, said, "We just completed the first full quarter since the acquisition of Northern Tier and the integration is going well. During the quarter, our refineries ran well and St. Paul Park initiated a successful crude unit turnaround. Margins continued to be volatile in the quarter and were down significantly compared to 2015. However, the location of our refineries, with access to attractive product regions, and our integrated refining and marketing model allow us to remain profitable in the current refining economic environment."
Excluding WNRL, Western finished the third quarter with cash of $445 million, including $195 million in restricted cash, compared to $182 million at the end of the second quarter. Free cash flow was approximately $65 million after interest, taxes, capital spending, and turnaround obligations during the third quarter.
Western paid a dividend of $0.38 per share of common stock to shareholders in the third quarter. In October, Western's Board of Directors also approved a $0.38 per share dividend for the fourth quarter. Including the fourth quarter dividend, Western will have returned approximately $228 million to shareholders through dividends and share repurchases in 2016.
Looking forward, Stevens said, "The fourth quarter has started off well. We completed a number of capital investments during the St. Paul Park turnaround which allows us to increase our crude oil throughout by 4,000 barrels per day and should improve our distillate yield by two percent. Our crude oil throughput capacity at St. Paul Park is currently 102,000 barrels per day. With the two new desalters, we have also added greater optionality in our crude oil slate for the refinery. These investments position us well for future profitability."
Conference Call Information
A conference call is scheduled for Tuesday, November 1, 2016, at 11:00 am ET to discuss Western's financial results for the third quarter ended September 30, 2016. A slide presentation, which includes our quarterly guidance, will be available for reference during the conference call. The call, press release and slide presentation can be accessed on the Investor Relations section on Western's website, www.wnr.com. The call can also be heard by dialing (866) 566-8590 or (702) 224-9819, passcode: 83400618. The audio replay will be available two hours after the end of the call through November 15, 2016, by dialing (800) 585-8367 or (404) 537-3406, passcode: 83400618.
Non-GAAP Financial Measures
In a number of places in the press release and related tables, we have excluded certain income and expense items from GAAP measures. The excluded items are generally non-cash in nature such as unrealized net gains and losses from commodity hedging activities; however, other items that have a cash impact, such as gains or losses on disposal of assets are also excluded. We believe it is useful for investors and financial analysts to understand our financial performance excluding such items so that they can see the operating trends underlying our business. Readers of this press release should not consider these non-GAAP measures in isolation from, or as a substitute for, the financial information that we report in accordance with GAAP.
About Western Refining Western Refining, Inc. is an independent refining and marketing company headquartered in El Paso, Texas. The Company operates refineries in El Paso, Gallup, New Mexico and St. Paul Park, Minnesota. The Company’s retail operations includes retail service stations and convenience stores in Arizona, Colorado, Minnesota, New Mexico, Texas, and Wisconsin, operating primarily through the Giant, Howdy’s, and SuperAmerica brands.
Western Refining, Inc. also owns the general partner and approximately 53% of the limited partnership interest of Western Refining Logistics, LP (NYSE:WNRL).
More information about Western Refining is available at www.wnr.com.
Cautionary Statement on Forward-Looking Statements
This press release contains forward-looking statements which are protected by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements reflect Western’s current expectations regarding future events, results or outcomes. The forward-looking statements contained herein include statements about: Western’s integration with Northern Tier Energy LP; Western’s access to attractive product regions; Western’s ability to remain profitable in the current economic environment; Western’s performance in the fourth quarter of 2016; Western’s ability to increase crude oil throughput, improve distillate yield, and realize greater optionality with its crude oil slate at St. Paul Park refinery; and Western’s positioning for future profitability. These statements are subject to the general risks inherent in Western’s business. These expectations may or may not be realized. Some of these expectations may be based upon assumptions or judgments that prove to be incorrect. In addition, Western’s business and operations involve numerous risks and uncertainties, many of which are beyond its control, which could result in Western’s expectations not being realized, or otherwise materially affect Western’s financial condition, results of operations, and cash flows. Additional information relating to the uncertainties affecting Western's business is contained in its filings with the Securities and Exchange Commission to which you are referred. The forward-looking statements are only as of the date made. Except as required by law, Western does not undertake any obligation to (and expressly disclaims any obligation to) update any forward-looking statements to reflect events or circumstances after the date such statements were made, or to reflect the occurrence of unanticipated events.
Consolidated Financial Data
We report our operating results in three reportable segments, refining, WNRL and retail, based on manufacturing and marketing processes, the nature of our products and services and each segment's respective customer base. Prior to the Merger on June 23, 2016, we also reported NTI as a separate reportable segment. Following the completion of the Merger, NTI became a wholly-owned subsidiary of Western and, as a result, we have moved its assets and operations into our other reportable segments. Beginning on July 1, 2016, our management team, led by our chief operating decision maker, began monitoring our business and allocating resources based on these three reportable segments. The St. Paul Park refinery and related operations are now included in the refining segment and the SuperAmerica retail and bakery assets and operations are now included in the retail segment. We have retrospectively adjusted the historical segment financial data for the periods presented to reflect our revised segment presentation.
Our refining segment owns and operates three refineries that process crude oil and other feedstocks primarily into gasoline, diesel fuel, jet fuel and asphalt. We market refined products to a diverse customer base including wholesale distributors and retail chains. The refining segment also sells refined products in the Mid-Atlantic region and Mexico.
WNRL owns and operates terminal, storage, transportation and wholesale assets in the Southwest and terminal and transportation assets in the Upper Great Plains region. WNRL's Southwest wholesale assets consist of a fleet of crude oil, asphalt and refined product truck transports and wholesale petroleum product operations. WNRL's primary customer is our refining segment. WNRL purchases its wholesale product supply from the refining segment and third-party suppliers.
Our retail segment operates retail convenience stores and unmanned commercial fleet fueling ("cardlock") locations located in the Southwest ("Southwest Retail") and Upper Great Plains ("SuperAmerica") regions. The retail convenience stores sell gasoline, diesel fuel and convenience store merchandise.
The following tables set forth our unaudited summary historical financial and operating data for the periods indicated below:
Three Months Ended
Nine Months Ended
September 30,
September 30,
2016
2015
2016
2015
(Unaudited)
(In thousands, except per share data)
Statements of Operations Data
Net sales (1)
$
2,065,076
$
2,569,090
$
5,627,888
$
7,716,712
Operating costs and expenses:
Cost of products sold (exclusive of depreciation and amortization) (1)
1,607,010
1,895,772
4,256,999
5,814,969
Direct operating expenses (exclusive of depreciation and amortization)
232,553
234,440
687,307
674,474
Selling, general and administrative 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:
