10-K 1 wnr12311510k.htm 10-K 10-K
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
þ
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the Fiscal Year Ended December 31, 2015
OR
¨
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the transition period from            to           
Commission File Number: 001-32721
WESTERN REFINING, INC.
(Exact name of registrant as specified in its charter)
Delaware
 
20-3472415
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
123 W. Mills Ave., Suite 200
El Paso, Texas
(Address of principal executive offices)
 
79901
(Zip Code)
Registrant’s telephone number, including area code:
(915) 534-1400
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
 
Name of Each Exchange on Which Registered
Common Stock
 
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes þ     No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes o     No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ     No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes þ     No o
Indicate by check mark if disclosure of delinquent filers pursuant to rule 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  þ
Indicate by check mark if the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ
 
Accelerated filer o
 
Non-accelerated filer o
 
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o     No þ
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant computed based on the New York Stock Exchange closing price on June 30, 2015 (the last business day of the registrant’s most recently completed second fiscal quarter) was $3,118,296,397.
As of February 19, 2016, there were 91,225,156 shares outstanding, par value $0.01, of the registrant’s common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement relating to the registrant’s 2016 annual meeting of stockholders are incorporated by reference into Part III of this report.



WESTERN REFINING, INC. AND SUBSIDIARIES
INDEX

Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
 
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
 
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
 
Item 15.
 EX-12.1
 EX-21.1
 EX-23.1
 EX-31.1
 EX-31.2
 EX-32.1
 EX-32.2
 EX-101


i


Forward-Looking Statements

As provided by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, certain statements included throughout this Annual Report on Form 10-K and in particular under the sections entitled Item 1. Business, Item 3. Legal Proceedings and Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations relating to matters that are not historical fact are forward-looking statements that represent management’s beliefs and assumptions based on currently available information. These forward-looking statements relate to matters such as our industry, including the regulation of our industry, business strategy, our proposed merger with Northern Tier Energy LP (“NTI”) to acquire all of the publicly-held NTI common units not presently held by us, future operations, our expectations for margins and crack spreads, seasonality, the discount between West Texas Intermediate ("WTI") crude oil and Dated Brent crude oil as well as the discount between WTI Cushing and WTI Midland crude oils, gathering activity, volatility of crude oil prices and refined product inventories, additions to pipeline capacity in the Permian Basin and at Cushing, Oklahoma, pipeline access to advantaged crude oil, expected share repurchases and dividends, volatility in pricing of Renewable Identification Numbers ("RINs"), taxes, capital expenditures, liquidity and capital resources and other financial and operating information. Forward-looking statements also include those regarding the timing of completion of certain operational improvements we are making at our refineries, future operational and refinery efficiencies and cost savings, timing of future maintenance turnarounds, the amount or sufficiency of future cash flows and earnings growth, future expenditures, future contributions related to pension and postretirement obligations, our ability to manage our inventory price exposure through commodity hedging instruments, the impact on our business of existing and future state and federal regulatory requirements, environmental loss contingency accruals, projected remediation costs or requirements and the expected outcomes of legal proceedings in which we are involved. We have used the words “anticipate,” “assume,” “believe,” “budget,” “continue,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “plan,” “position,” “potential,” “predict,” “project,” “strategy,” “will,” “future” and similar terms and phrases to identify forward-looking statements in this report.
Forward-looking statements reflect our current expectations regarding future events, results or outcomes. These expectations may or may not be realized. Some of these expectations may be based upon assumptions or judgments that prove to be incorrect or that are affected by unknown risks or uncertainties. Consequently, no forward-looking statements can be guaranteed. In addition, our business and operations involve numerous risks and uncertainties, many that are beyond our control that could result in our expectations not being realized or otherwise materially affect our financial condition, results of operations and cash flows.
When considering these forward-looking statements, you should keep in mind the risk factors and other cautionary statements in this Form 10-K. Actual events, results and outcomes may differ materially from our expectations due to a variety of factors. Although it is not possible to predict or identify all of these factors, they include, among others, the following:
the possibility that the proposed merger with NTI is not consummated in a timely manner or at all;
the diversion of management in connection with the proposed merger and our ability to realize the anticipated benefits of the proposed merger;
availability, costs and price volatility of crude oil, other refinery feedstocks and refined products;
the successful integration and future performance of acquired assets or businesses, and the possibility that expected synergies may not be achieved;
the impact on us of increased levels and cost of indebtedness used to fund our proposed merger with NTI or the cash portion of the merger consideration and increased cost of existing indebtedness due to the actions taken to consummate the Merger;
our ability to obtain debt or equity financing on satisfactory terms to fund additional acquisitions, expansion projects, working capital requirements and the repayment or refinancing of indebtedness;
changes in crack spreads;
changes in the spread between WTI crude oil and West Texas Sour crude oil, also known as the sweet/sour spread;
changes in the spread between WTI crude oil and Dated Brent crude oil;
changes in the spread between WTI Cushing crude oil and WTI Midland crude oil;
effects of and exposure to risks related to our commodity hedging strategies and transactions;
availability and costs of renewable fuels for blending and RINs to meet Renewable Fuel Standards ("RFS") obligations;

1


construction of new or expansion of existing product or crude pipelines by us or our competitors, including in the Permian Basin, the San Juan Basin and at Cushing, Oklahoma;
changes in the underlying demand for our refined products;
instability and volatility in the financial markets, including as a result of potential disruptions caused by economic uncertainties, commodity price fluctuations and expectations for changes in interest rates;
a potential economic recession in the United States and/or abroad;
adverse changes in the credit ratings assigned to our and our subsidiaries' debt instruments;
changes in the availability and cost of capital;
actions of customers and competitors;
successful integration and future performance of acquired assets, businesses or third-party product supply and processing relationships;
actions of third-party operators, processors and transporters;
changes in fuel and utility costs incurred by our refineries;
the effect of weather-related problems upon our operations;
disruptions due to equipment interruption, pipeline disruptions or failure at our or third-party facilities;
execution of planned capital projects, cost overruns relating to those projects and failure to realize the expected benefits from those projects;
effects of and costs relating to compliance with current and future local, state and federal environmental, economic, climate change, safety, tax and other laws, policies and regulations and enforcement initiatives;
rulings, judgments or settlements in litigation, tax or other legal or regulatory matters, including unexpected environmental remediation costs in excess of any reserves or insurance coverage;
the price, availability and acceptance of alternative fuels and alternative fuel vehicles;
labor relations;
operating hazards, natural disasters, casualty losses, acts of terrorism including cyber-attacks and other matters beyond our control; and
other factors discussed in more detail under Part I. — Item 1A. Risk Factors of this report that are incorporated herein by this reference.
Any one of these factors or a combination of these factors could materially affect our financial condition, results of operations or cash flows and could influence whether any forward-looking statements ultimately prove to be accurate. You are urged to consider these factors carefully in evaluating any forward-looking statements and are cautioned not to place undue reliance on these forward-looking statements.
Although we believe the forward-looking statements we make in this report related to our plans, intentions and expectations are reasonable, we can provide no assurance that such plans, intentions or expectations will be achieved. These statements are based on assumptions made by us based on our experience and perception of historical trends, current conditions, expected future developments and other factors that we believe are appropriate in the circumstances. Such statements are subject to a number of risks and uncertainties, many of which are beyond our control. The forward-looking statements included herein are made only as of the date of this report and we are not required to (and will not) update any information to reflect events or circumstances that may occur after the date of this report, except as required by applicable law.


2


PART I
In this Annual Report on Form 10-K, all references to “Western Refining,” “the Company,” “Western,” “we,” “us” and “our” refer to Western Refining, Inc. ("WNR") and its subsidiaries, unless the context otherwise requires or where otherwise indicated.

Item 1.
Business
Overview
We are an independent crude oil refiner and marketer of refined products incorporated in September 2005 under Delaware law with principal offices located in El Paso, Texas. Our common stock trades on the New York Stock Exchange ("NYSE") under the symbol “WNR.” We own certain operating assets directly; the controlling general partner interest and a 38.4% limited partner interest in NTI and the controlling general partner interest, incentive distribution rights and a 66.4% limited partner interest in Western Refining Logistics, LP (“WNRL”). NTI and WNRL common partnership units trade on the NYSE under the symbols "NTI" and "WNRL," respectively.
We produce refined products at our refineries in El Paso, Texas (131,000 barrels per day, or bpd), near Gallup, New Mexico (25,000 bpd) and NTI's refinery in St. Paul Park, Minnesota (98,000 bpd). We sell refined products primarily in Arizona, Colorado, Minnesota, New Mexico, Wisconsin, West Texas, the Mid-Atlantic region and Mexico through bulk distribution terminals and wholesale marketing networks. We also sell refined products through two retail networks with a total of 535 company-operated and franchised retail sites in the U.S.
We have included NTI and WNRL in our results of operations since the fourth quarter of 2013. We have 100% ownership of the general partners of both NTI and WNRL, giving us effective control of both entities. NTI operates a 98,000 bpd refinery in St. Paul Park, Minnesota and a retail-marketing network of 277 convenience stores, of which 109 are franchisees. NTI's primary area of operations includes Minnesota and Wisconsin. WNRL provides logistical services to our refineries in the Southwest and operates several lubricant and bulk petroleum distribution plants and a fleet of crude oil and refined product delivery trucks. WNRL distributes wholesale petroleum products primarily in Arizona, California, Colorado, Nevada, New Mexico and Texas.
We entered into an Agreement and Plan of Merger dated as of December 21, 2015 (the “Merger Agreement”) with Western Acquisition Co, LLC, a wholly-owned subsidiary of Western (“MergerCo”), NTI and Northern Tier Energy GP LLC to acquire all of NTI’s outstanding common units not already held by us. Each of the outstanding NTI common units held by unitholders other than us (the “NTI Public Unitholders”) will be converted into the right to receive, subject to election by the NTI Public Unitholders and proration, (i) $15.00 in cash without interest and 0.2986 of a share of our common stock (ii) $26.06 in cash without interest or (iii) 0.7036 of a share of our common stock. Upon the terms and subject to the conditions set forth in the Merger Agreement, MergerCo will merge with and into NTI and the separate limited liability company existence of MergerCo will cease and NTI will continue to exist, as a limited partnership under Delaware law and as our indirect wholly-owned subsidiary, as the surviving entity in the merger (the “Merger”). The Merger is expected to close in the first half of 2016, pending the satisfaction of certain customary conditions and the approval of the Merger at a special meeting of NTI unitholders by the affirmative vote of holders of a majority of the outstanding NTI common units (including the NTI common units held by us). The transaction is expected to result in approximately 17.1 million additional shares of WNR common stock outstanding. Upon completion of the transaction, NTI will continue to exist as a limited partnership and will become a wholly-owned limited partnership subsidiary of WNR. See Note 30, NTI, in the Notes to Consolidated Financial Statements included in this annual report for additional information on this transaction.


3


The following simplified diagram depicts the three publicly traded reporting entities in our organizational structure as of December 31, 2015:

Our operations are organized into four operating segments based on manufacturing and marketing criteria and the nature of our products and services, our production processes and our types of customers. The four business segments are: refining, NTI, WNRL and retail.
Refining. Our refining segment owns and operates two refineries in the Southwest 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.
NTI. NTI owns and operates refining and transportation assets and operates and supports retail convenience stores primarily in the Upper Great Plains region of the U.S.
WNRL. WNRL owns and operates terminal, storage, transportation and wholesale assets consisting of a fleet of crude oil and refined product truck transports and wholesale petroleum product operations in the Southwest region. WNRL's primary customer are our refineries in the Southwest. WNRL purchases its wholesale product supply from the refining segment and third-party suppliers.
Retail. Our retail segment operates retail convenience stores and unmanned commercial fleet fueling locations located in the Southwest. The retail convenience stores sell gasoline, diesel fuel and convenience store merchandise.
See Note 3, Segment Information, in the Notes to Consolidated Financial Statements included in this annual report for detailed information on our operating results by business segment. We sell a variety of refined products to a diverse customer base. When aggregated for all of our operating segments, consolidated net sales to Kroger Company accounted for 11.4% for the year ended December 31, 2013 that were primarily attributable to WNRL's wholesale operations. No single customer accounted for more than 10% of consolidated net sales for the years ended December 31, 2015 and 2014.
Refining Segment
Our refining group operates a refinery in El Paso, Texas (the "El Paso refinery") and a refinery near Gallup, New Mexico (the "Gallup refinery"). We supply refined products to the El Paso area via WNRL and other logistics assets adjacent to the El Paso refinery and to other areas including Tucson, Phoenix, Albuquerque and Juarez, Mexico through third-party pipeline systems linked to our El Paso refinery. We supply refined products to the Four Corners region and throughout Northern New Mexico from WNRL operations in Albuquerque, Bloomfield and Gallup, New Mexico. Our refining group also includes our refined products marketing and distribution operations in the Mid-Atlantic region. Prior to our sale of the TexNew Mex Pipeline System (the "TexNew Mex Pipeline Transaction"), our refining segment included the operations of the TexNew Mex Pipeline System, and we have recast historical financial and operational data of the refining segment, for all periods presented, to reflect the sale of the TexNew Mex Pipeline System to WNRL.

4


Principal Products. Our refineries make various grades of gasoline, diesel fuel, jet fuel and other products from crude oil, other feedstocks and blending components. We may acquire refined products through exchange agreements and from various third-party suppliers. We sell these products to WNRL, to our retail segment, to other independent wholesalers and retailers, commercial accounts and sales and exchanges with major oil companies. We also sell crude oil directly or through exchanges with major oil companies. See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations for detail on production by refinery.
The following table summarizes sales percentages by product and crude oil for the years indicated:
 
Year Ended December 31,
 
2015
 
2014
 
2013
Gasoline
41.7
%
 
36.5
%
 
42.3
%
Diesel fuel
21.6

 
25.1

 
35.0

Jet fuel
7.8

 
8.6

 
13.7

Asphalt
3.6

 
2.9

 
3.2

Crude oil and other (1)
25.3

 
26.9

 
5.8

Total sales percentage by type
100.0
%
 
100.0
%
 
100.0
%
(1)
Crude oil sales for the years ended December 31, 2015, 2014 and 2013 were $975.8 million, $1,489.6 million and $51.3 million, respectively.
Customers. We sell a variety of refined products to our diverse customer base and through WNRL's wholesale business. No single third-party customer of our refining group accounted for more than 10% of our consolidated net sales during the years ended December 31, 2015, 2014 and 2013.
Other than sales of gasoline and diesel fuel for export to Juarez and other cities in Northern Mexico, our refining sales were domestic sales in the United States. The sales for export were to PMI Trading Limited, an affiliate of Petroleos Mexicanos, the Mexican state-owned oil company and accounted for approximately 6.3%, 5.5% and 8.5% of our consolidated net sales during the years ended December 31, 2015, 2014 and 2013, respectively.
We also 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 approximately 9.1%, 9.8% and 14.4% of our total sales volumes during the years ended December 31, 2015, 2014 and 2013, respectively. The decrease when comparing 2015 purchases to 2014 and 2013 levels was primarily the result of lower refined product sales activities in the Mid-Atlantic region where we satisfy our refined product customer sales requirements through third-party purchases.
Competition. The refining segment operates primarily in the U.S. Southwest region including Arizona, Colorado, New Mexico, Utah and West Texas. This region is supplied by substantial refining capacity from our refineries, from other regional refineries and from non-regional refineries via interstate pipelines.
Petroleum refining and marketing is highly competitive. Our southwest refineries primarily compete with Valero Energy Corporation, Phillips 66 Company, Alon USA Energy, Inc., HollyFrontier Corporation, Tesoro Corporation, Chevron Products Company ("Chevron") and Suncor Energy, Inc. as well as refineries in other regions of the country that serve the regions we serve through pipelines. Principal competitive factors include costs of crude oil and other feedstocks, our competitors' refined product pricing, refinery efficiency, operating costs, refinery product mix and costs of product distribution and transportation. Due to their geographic diversity, larger and more complex refineries, integrated operations and greater resources, some of our competitors may be better able to withstand volatile market conditions, compete on the basis of price, obtain crude oil in times of shortage and bear the economic risk inherent in all phases of the refining industry.
In the Mid-Atlantic region, we compete with wholesale petroleum products distributors such as Shell Oil Company, BP Oil, CITGO Petroleum Corporation, Valero Energy Corporation and Exxon Mobil Corporation.
Various refined product pipelines supply our refined product distribution areas. Any expansions or additional product supplied by these third-party pipelines could put downward pressure on refined product prices in these areas.
To the extent that climate change legislation passes to impose domestic greenhouse gas restrictions, domestic refiners will be at competitive disadvantage to offshore refineries not subject to the legislation.
El Paso Refinery
Our El Paso refinery has a crude oil throughput capacity of 131,000 bpd with access to WNRL logistics assets including approximately 5.1 million barrels of storage capacity, a refined product terminal and an asphalt plant and terminal. The refinery is well situated to serve two separate geographic areas allowing a diversified market pricing exposure. Tucson and Phoenix

5


typically reflect a West Coast market pricing structure while El Paso, Albuquerque and Juarez, Mexico typically reflect a Gulf Coast market pricing structure.
Process Summary. Our El Paso refinery is a cracking facility that has historically run a high percentage of WTI crude oil to optimize the yields of higher value refined products that currently account for over 90% of our production output. We have the flexibility to process up to 22% West Texas Sour ("WTS") crude oil. Under a sulfuric acid regeneration and sulfur gas processing agreement with The Chemours Company FC, LLC ("Chemours"), Chemours constructed and operates two sulfuric acid regeneration units on property we lease to Chemours within our El Paso refinery.
Power and Natural Gas Supply. A regional electric company supplies electricity to our El Paso refinery via two separate feeders to the refinery's north and south sides. There are several uninterruptible power supply units throughout the plant to maintain computers and controls in the event of a power outage. The refinery receives its natural gas supply via pipeline under two transportation agreements. One transportation agreement is on an interruptible basis while the other is on a firm basis. We purchase our natural gas at market rates or under fixed-price agreements.
Raw Material Supply. The primary inputs for our El Paso refinery are crude oil and isobutane. Our El Paso refinery receives crude oil from a 450 mile crude oil pipeline owned and operated by Kinder Morgan Energy Partners, LP ("Kinder Morgan") under a 30-year crude oil transportation agreement that expires in 2034. The system handles both WTI and WTS crude oil with its main trunkline into El Paso used solely for the supply of crude oil to us on a published tariff. Through the crude oil pipeline, we have access to the majority of the producing fields in the Permian Basin that gives us access to a plentiful supply of WTI and WTS crude oil from fields with long reserve lives. In 2013, we completed construction of a crude oil gathering and storage system in the Delaware Basin portion of the Permian Basin area of West Texas (the "Delaware Basin"). This system connects to the Kinder Morgan pipeline to facilitate delivery of crude oil to El Paso. This system was among the logistics assets that we contributed to WNRL upon completion of its initial public offering. WNRL's crude oil pipeline system also includes the TexNew Mex Pipeline System that facilitates delivery of crude oil to El Paso.
We generally buy our crude oil under contracts with various crude oil providers at market-based pricing. Many of these arrangements are subject to cancellation by either party or have terms of one year or less. In addition, these arrangements are subject to periodic renegotiation that could result in our paying higher or lower relative prices for crude oil.
The following table summarizes the historical feedstocks used by our El Paso refinery for the years indicated:
 
Year Ended December 31,
 
Percentage For Year Ended December 31,
Refinery Feedstocks (bpd)
2015
 
2014
 
2013
 
2015
Crude Oil:
 

 
 

 
 

 
 

Sweet crude oil
105,064

 
96,384

 
93,654

 
77.8
%
Sour crude oil
22,949

 
25,113

 
25,195

 
17.0
%
Total Crude Oil
128,013

 
121,497

 
118,849

 
94.8
%
Other Feedstocks and Blendstocks:
 

 
 

 
 

 
 

Intermediates and other
4,534

 
3,735

 
4,130

 
3.3
%
Blendstocks
2,530

 
2,004

 
2,358

 
1.9
%
Total Other Feedstocks and Blendstocks
7,064

 
5,739

 
6,488

 
5.2
%
Total Crude Oil and Other Feedstocks and Blendstocks
135,077

 
127,236

 
125,337

 
100.0
%
Refined Products Transportation. We supply refined products to the El Paso area via WNRL and logistics assets including the light product distribution terminal and other truck and rail racks located at the El Paso refinery and to other areas including Tucson, Phoenix, Albuquerque and Juarez, Mexico, through third-party pipeline systems linked to our El Paso refinery. We deliver gasoline and distillate products to Tucson and Phoenix through Kinder Morgan's East Line and to Albuquerque and Juarez, Mexico, through pipelines owned by Magellan Midstream Partners, LP ("Magellan").
Both Kinder Morgan’s East Line and Magellan's pipeline to Albuquerque are interstate pipelines regulated by the Federal Energy Regulatory Commission (the "FERC"). The tariff provisions for these pipelines include prorating policies that grant historical shippers line space that is consistent with their prior activities as well as a prorated portion of any expansions.

6


Gallup Refinery
Our Gallup refinery, located near Gallup, New Mexico, has a crude oil throughput capacity of 25,000 bpd and access to WNRL logistics assets including approximately 910,500 barrels of storage capacity. We market refined products from the Gallup refinery primarily in Arizona, Colorado, New Mexico and Utah. Our primary supply of crude oil and natural gas liquids for our Gallup refinery comes from Colorado, New Mexico and Utah.
Process Summary. The Gallup refinery sources all of its crude oil supply from regionally produced Four Corners Sweet crude oil. Each barrel of raw materials processed by our Gallup refinery yielded in excess of 90% of high value refined products, including gasoline and diesel fuel, during the three years ended December 31, 2015.
Power and Natural Gas Supply. A regional electric cooperative supplies electrical power to our Gallup refinery. There are several uninterruptible power supply units throughout the plant to maintain computers and controls in the event of a power outage. We purchase our natural gas at market rates and have two available pipeline sources for natural gas supply to our refinery.
Raw Material Supply. The feedstock for our Gallup refinery is Four Corners Sweet that we source primarily from Northern New Mexico, Colorado and Utah. We receive crude oil through a pipeline gathering system owned and operated by our WNRL segment and through a third-party pipeline connected to WNRL's system.
We supplement the crude oil used at our Gallup refinery with other feedstocks that currently include locally produced natural gas liquids and condensate as well as other feedstocks produced outside of the Four Corners area. WNRL owns and operates a 14-mile pipeline that connects the Gallup refinery to Western's recently purchased Wingate facility that provides additional receiving capacity for natural gas liquids consumed at the Gallup refinery.
The following table summarizes the historical feedstocks used by our Gallup refinery for the years indicated:
 
Year Ended December 31,
 
Percentage For Year Ended December 31,
Refinery Feedstocks (bpd)
2015
 
2014
 
2013
 
2015
Crude Oil:
 

 
 

 
 

 
 

Sweet crude oil
24,071

 
25,130

 
23,635

 
90.1
%
Total Crude Oil
24,071

 
25,130

 
23,635

 
90.1
%
Other Feedstocks and Blendstocks:
 

 
 

 
 

 
 

Intermediates and other
934

 
867

 

 
3.4
%
Blendstocks
1,725

 
1,786

 
1,457

 
6.5
%
Total Other Feedstocks and Blendstocks
2,659

 
2,653

 
1,457

 
9.9
%
Total Crude Oil and Other Feedstocks and Blendstocks
26,730

 
27,783

 
25,092

 
100.0
%
We purchase crude oil from a number of sources, including major oil companies and independent producers, under arrangements that contain market responsive pricing provisions. Many of these arrangements are subject to cancellation by either party or have terms of one year or less. In addition, these arrangements are subject to periodic renegotiation that could result in our paying higher or lower relative prices for crude oil.
Refined Products Transportation. We distribute all gasoline and diesel fuel produced at our Gallup refinery through the truck loading rack owned and operated by our WNRL segment. We supply these refined products to Arizona, Colorado, New Mexico and Utah, primarily via a fleet of refined product trucks operated by WNRL and common carriers.
NTI
St. Paul Park Refinery
NTI's St. Paul Park refinery located in Southeast St. Paul Park, Minnesota, has a crude oil throughput capacity of 98,000 bpd and has the ability to process a variety of light, heavy, sweet and sour crudes into higher value refined products. The St. Paul Park refinery competes directly with Koch Industries’ Flint Hills Resources Refinery in Pine Bend, Minnesota, as well as the other refiners in the region and, to a lesser extent, major U.S. and foreign refiners.
NTI's refinery is an integrated refining operation that includes storage and transportation assets. NTI's transportation assets include a 17% interest in the Minnesota Pipe Line Company, LLC ("MPL"), an eight-bay light product terminal adjacent to the refinery, a seven-bay heavy product loading rack located on the refinery property, rail facilities for shipping liquefied petroleum gas (“LPG”) and asphalt and receiving butane, isobutane and ethanol and a barge dock on the Mississippi River used primarily for shipping vacuum residue and slurry. As of December 31, 2015, NTI's storage assets had an operating capacity of

7


approximately 3.7 million barrels; comprised of 0.8 million barrels of crude oil storage and 2.9 million barrels of feedstock and product storage.
Process Summary. The St. Paul Park refinery is a cracking facility that processes a mix of light sweet, synthetic and heavy sour crude oils, predominately from Canada and North Dakota, into products such as gasoline, diesel, jet fuel, asphalt, kerosene, propane, LPG, propylene and sulfur.
Power and Natural Gas Supply. A regional electric company supplies electricity on a firm basis to the St. Paul Park refinery via five separate feeders to the main refinery areas. Three other utility feeders supply power to the tank farms and barge facilities and the northern turnaround and construction infrastructure. There are several uninterruptible power supply units throughout the plant and one generator to maintain computers and controls in the event of a power outage.
The refinery receives its natural gas supply via pipeline. The supply agreements are on a firm and interruptible basis. NTI purchases natural gas at market rates or under fixed-price agreements.
Raw Material Supply. The following table summarizes the historical feedstocks used by the St. Paul Park refinery. The information presented includes the results of operations of the St. Paul Park refinery beginning November 12, 2013, the date we acquired control of NTI.
 
Period Ended December 31,
 
Percentage For Year Ended December 31,
Refinery Feedstocks (bpd)
2015
 
2014
 
2013
 
2015
Crude Oil Feedstocks:
 
 
 
 
 
 
 
Canadian
38,417

 
34,184

 
37,045

 
41.0
%
Domestic
55,284

 
57,656

 
37,192

 
59.0
%
Total Crude Oil
93,701

 
91,840

 
74,237

 
100.00
%
Crude Oil Feedstocks by Type:
 

 
 

 
 

 


Light and intermediate
68,739

 
73,999

 
56,310

 
73.4
%
Heavy
24,962

 
17,841

 
17,927

 
26.6
%
Total Crude Oil
93,701

 
91,840

 
74,237

 
100.0
%
Other Feedstocks and Blendstocks (1):
 

 
 

 
 

 


Natural gasoline

 
38

 

 
%
Butanes
2,152

 
798

 
597

 
76.5
%
Gasoil

 
351

 
114

 
%
Other
662

 
498

 
516

 
23.5
%
Total Other Feedstocks and Blendstocks
2,814

 
1,685

 
1,227

 
100.0
%
Total Crude Oil and Other Feedstocks and Blendstocks
96,515

 
93,525

 
75,464

 
100.0
%
(1)
Other Feedstocks and Blendstocks includes only feedstocks and blendstocks that are used at the refinery and does not include ethanol and biodiesel. Although NTI purchases ethanol and biodiesel to supplement the fuels produced at the St. Paul Park refinery, these are not included in the table as those items are blended at the terminal adjacent to the refinery or at terminals on the Magellan pipeline system.
Of the crude oils processed at the St. Paul Park refinery for the period ended December 31, 2015, approximately 41% was Canadian crude oil and the remainder was comprised of mostly light sweet crude oil from North Dakota.
In March 2012, NTI entered into an amended and restated crude oil supply and logistics agreement (the "Crude Intermediation Agreement") with J.P. Morgan Commodities Canada Corporation (“JPM CCC”), under which JPM CCC assisted NTI in the purchase of most of the crude oil requirements of NTI's refinery. JPM CCC announced its intention to sell the physical portions of its commodities business (that included JPM CCC) to Mercuria Energy Group Ltd. during the fourth quarter of 2014. In advance of this sale, JPM CCC and NTI mutually agreed to terminate the Crude Intermediation Agreement. Going forward, NTI expects to use existing trade credit agreements with vendors, or letters of credit under a revolving credit facility, to fund the purchase of crude oil.
The Minnesota Pipeline system has a maximum capacity of approximately 465,000 bpd and is the primary supply route for crude oil to the St. Paul Park refinery. The Minnesota Pipeline extends from Clearbrook, Minnesota to the refinery and receives crude oil from Western Canada and North Dakota through connections with various Enbridge pipelines. NTI also

8


purchases ethanol and biodiesel, as well as conventional petroleum based blendstocks, such as natural gasoline, to supplement the fuels produced at the refinery.
Refined Products Transportation. NTI owns various storage and transportation assets, including an eight-bay light products terminal located adjacent to the St. Paul Park refinery, a seven-bay heavy products terminal located on the St. Paul Park refinery's property, storage tanks, rail loading/unloading facilities and a Mississippi river dock. The primary fuel distribution for NTI is through its light products terminal. Approximately 64% of the gasoline and diesel volumes for the year ended December 31, 2015, were sold via NTI's light products terminal to NTI operated and franchised SuperAmerica branded convenience stores, Marathon Petroleum Company LP ("Marathon") branded convenience stores and other resellers. NTI has a contract with Marathon to supply substantially all of the gasoline and diesel requirements for the independently owned and operated Marathon branded convenience stores within the region that NTI supplies. NTI also has a crude oil transportation operation in North Dakota to allow them to purchase crude oil at the wellhead in the Bakken Shale while limiting the impact of rising trucking costs for crude oil in North Dakota.
Light refined products that include gasoline and distillates, are distributed from the St. Paul Park refinery through a pipeline and terminal system owned by Magellan that has facilities throughout the Upper Great Plains. Asphalt and heavy fuel oil are transported from the refinery via truck from NTI's seven-bay heavy products terminal and via rail and barge through its rail facilities and Mississippi River barge dock and are sold to a broad customer base.
NTI's location allows it to distribute refined products throughout the Upper Great Plains of the United States. The St. Paul Park refinery produces refined products including gasoline, diesel, jet fuel and asphalt that are marketed to resellers and consumers primarily in the Petroleum Administration for Defense District II region. NTI sold the majority of its refinery's 2015 gasoline and diesel sales volumes in Minnesota and Wisconsin with the remainder sold primarily in Iowa, Nebraska, Oklahoma and South and North Dakota. The NTI refinery supplied a majority of the gasoline and diesel sold in the NTI operated or franchised convenience stores for the year ended December 31, 2015, as well as supplied the independently owned and operated Marathon branded stores in its marketing area.
NTI owns 17% of the outstanding common interests of MPL and a 17% interest in MPL Investments, Inc. that owns 100% of the preferred interests of MPL. MPL owns the Minnesota Pipeline, a crude oil pipeline system in Minnesota that transports crude oil to the St. Paul area and supplies NTI's crude oil input.
SuperAmerica Retail
NTI has a retail-marketing network of 277 convenience stores, as of December 31, 2015, located throughout Minnesota, Wisconsin and South Dakota. NTI operates 168 stores and supports 109 franchised stores. NTI brands all of its company-operated and franchised convenience stores as SuperAmerica. NTI also owns and operates SuperMom’s Bakery that prepares and distributes baked goods and other prepared items for sale in NTI's retail outlets and for other third parties. Substantially all of the fuel gallons sold at NTI's company operated convenience stores for the period ended December 31, 2015, was supplied by its refinery.
The main competitive factors affecting NTI's retail operations are the location of the stores, brand identification and product price and quality. NTI's retail stores compete with Holiday, Kwik Trip, Marathon and Freedom Valu Centers. Large chains of retailers like BP, Costco Wholesale Corp., Wal-Mart Stores, Inc., Kroger Company and other large grocery retailers compete in the motor fuel retail business. NTI's retail operations are substantially smaller than many of these competitors that are potentially better able to withstand volatile conditions in the fuel market and lower profitability in merchandise sales due to their size.
WNRL
WNRL owns and operates terminal, storage, transportation and wholesale assets. WNRL's primary customers are our refineries in the Southwest. WNRL is a primarily fee-based, Delaware master limited partnership that Western formed during 2013 to own, operate, develop and acquire logistics and related assets and businesses to include terminals, storage tanks, pipelines and other logistics assets related to the terminalling, transportation, storage and distribution of crude oil and refined products. As of December 31, 2015, Western's ownership of WNRL consisted of a 100% interest in WNRL's general partner and a 66.4% interest in a limited partnership that Western controls through the general partner.
Concurrent with the closing of its initial public offering on October 16, 2013, WNRL entered into commercial and service agreements with Western under which it operates assets contributed by Western (the "Contributed Assets") for the purpose of generating fee-based revenues.
On October 15, 2014, Western sold all of the outstanding limited liability company interests of Western Refining Wholesale, LLC ("WRW") to WNRL, in exchange for $320 million and 1,160,092 WNRL common partnership units. WNRL entered into commercial and service agreements with Western under which it operates the WRW assets acquired for the purpose of transporting and reselling refined products purchased from Western and transporting crude oil for Western.

9


On October 30, 2015, Western sold the TexNew Mex Pipeline System to WNRL. In connection with the closing, Western also entered into an amendment to our Pipeline and Gathering Services Agreement with WNRL (the "Amendment to the Pipeline Agreement"). The Amendment to the Pipeline Agreement amends the scope of the existing agreement to include the provision of storage services and a minimum volume commitment of 80,000 barrels of storage at the Star Lake storage tank. In this Amendment to the Pipeline Agreement, we have agreed to provide a minimum volume commitment of 13,000 bpd of crude oil for shipment on the TexNew Mex Pipeline System for 10 years from the date of the Amendment to the Pipeline Agreement. We are entitled to 80% of the distributable cash flows, as defined, resulting from crude oil throughput on the TexNew Mex Pipeline System above our 13,000 bpd minimum volume commitment.
Pipeline and Gathering Assets. WNRL's pipeline and gathering assets consist of approximately 685 miles of crude oil pipelines and gathering systems that serve as the primary source of crude oil for our Gallup refinery and provide access to shale crude oil production in the Delaware Basin and southern New Mexico for shipment to our El Paso refinery through the Kinder Morgan crude oil pipeline. These pipeline systems connect at various points to an aggregate of approximately 828,000 barrels of active crude oil storage located primarily in the Delaware Basin and in the Four Corners area.
Terminalling, Transportation, Asphalt and Storage Assets. WNRL's terminalling, transportation and storage infrastructure consist of on-site refined product distribution terminals at the El Paso and Gallup refineries and stand-alone refined products terminals located in Bloomfield and Albuquerque, New Mexico. The Bloomfield product distribution terminal is permitted to operate at 19,000 bpd with a total storage capacity of approximately 675,900 barrels and a truck loading rack with four loading spots. Western maintains a long-term third-party exchange agreement to supply product through a pipeline connection to the Bloomfield product distribution terminal. WNRL provides additional product deliveries to Bloomfield from its truck fleet. The Albuquerque product distribution terminal is permitted to operate at 27,500 bpd with a refined product storage capacity of approximately 185,700 barrels and a truck loading rack with two loading spots. This terminal receives product deliveries via truck or pipeline, including deliveries from our El Paso and Gallup refineries where, between both locations, our combined active shell storage capacity is approximately 6.1 million barrels. These assets primarily receive, store and distribute crude oil, feedstock and refined products for Western’s Southwest refineries. WNRL also provides fee-based asphalt terminalling and processing services at an asphalt plant and terminal in El Paso and asphalt terminalling services at three stand-alone asphalt terminals in Albuquerque, Phoenix and Tucson that have a combined storage capacity of approximately 473,000 barrels.
Wholesale Assets. WNRL's wholesale assets include several lubricant and bulk petroleum distribution plants and a fleet of crude oil and refined product trucks and lubricant delivery trucks. WNRL distributes wholesale petroleum products primarily in Arizona, California, Colorado, Nevada, New Mexico and Texas. WNRL purchases petroleum fuels and lubricants primarily from the refining segment and from third-party suppliers.
WNRL's principal wholesale customers are retail fuel distributors, our retail segment and the mining, construction, utility, manufacturing, transportation, aviation and agricultural industries. Of the wholesale segment's net sales revenues, 25.7% and 25.1%, were to our retail segment and to Kroger Company, respectively, for the year ended December 31, 2015. WNRL competes with other wholesale petroleum products distributors in the Southwest such as Pro Petroleum, Inc.; Southern Counties Fuels; Synergy Petroleum, LLC; SoCo Group, Inc.; C&R Distributing, Inc.; and Brewer Petroleum Services, Inc.
Retail Segment
Our retail group operates retail stores that sell various grades of gasoline, diesel fuel and convenience store merchandise to the general public. Retail also operates unmanned commercial fueling locations ("cardlocks") that sell various grades of gasoline and diesel fuel to contract customers' vehicle fleets. At December 31, 2015, our retail group operated 258 retail stores located in Arizona, Colorado, New Mexico and Texas and 52 cardlocks located in Arizona, California, Colorado, New Mexico and Texas. We supply the majority of our retail gasoline and diesel fuel inventories through WNRL and purchase general merchandise as well as beverage and food products from various third-party suppliers.
The main competitive factors affecting our retail segment are the location of the stores, brand identification and product price and quality. Our retail stores compete with Alon USA Energy, ampm, Brewer Oil Company, Circle K, Maverik, Murphy Oil, Quik-Trip, Shay Oil, Valero Energy Corporation and 7-2-11 food stores. Large chains of retailers like Costco Wholesale Corp., Wal-Mart Stores, Inc., Kroger Company and other large grocery retailers compete in the motor fuel retail business. Our retail operations are substantially smaller than many of these competitors that are potentially better able to withstand volatile conditions in the fuel market and lower profitability in merchandise sales due to their size.

10


Our retail stores operate under various brands, including Giant, Western, Western Express, Howdy's, Mustang and Sundial. Gasoline brands sold through these stores include Western, Giant, Mustang, Phillips 66 Company, Conoco, 76, Shell Oil Company, Chevron, Mobil and Texaco.
The following table summarizes the ownership and location of Western's retail stores as of December 31, 2015:
Retail Store locations
Owned
 
Leased
 
Total
Arizona
26

 
75

 
101

Colorado
10

 
2

 
12

New Mexico
74

 
43

 
117

Texas

 
28

 
28

 
110

 
148

 
258

The following table summarizes the ownership and location of Western's cardlocks as of December 31, 2015:
Cardlock locations
Owned
 
Leased
 
Private Sites (1)
 
Total
Arizona
14

 
7

 
13

 
34

California
1

 

 

 
1

Colorado
2

 

 

 
2

New Mexico
3

 
1

 
1

 
5

Texas

 
10

 

 
10

 
20

 
18

 
14

 
52

(1)
The private site designation for cardlocks represents tanks and equipment that we own and operate on customer sites for the exclusive use of the customer.
Governmental Regulation
All of our operations and properties are subject to extensive federal, state and local environmental, health and safety regulations governing, among other things, the generation, storage, handling, use and transportation of petroleum and hazardous substances; the emission and discharge of materials into the environment; waste management; characteristics and composition of gasoline, diesel and other fuels; and the monitoring, reporting and control of greenhouse gas emissions. Our operations also require numerous permits and authorizations under various environmental, health and safety laws and regulations. Failure to comply with these permits or environmental, health or safety laws generally could result in fines, penalties, or other sanctions, or a revocation of our permits. We have made significant capital and other expenditures to comply with these environmental, health and safety laws. We anticipate significant capital and other expenditures with respect to continuing compliance with these environmental, health and safety laws. For additional details on our capital expenditures related to regulatory requirements, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Capital Spending.
Periodically, we receive communications from various federal, state and local governmental authorities asserting violations of environmental laws and/or regulations. These governmental entities may also propose or assess fines or require corrective action for these asserted violations. We intend to respond in a timely manner to all such communications and to take appropriate corrective actions. We do not anticipate that any such matters currently asserted will have a material adverse impact on our financial condition, results of operations or cash flows.
See Note 23, Contingencies, in the Notes to Consolidated Financial Statements included in this annual report for detailed information on certain environmental matters.
Regulation of Fuel Quality
The U.S. Environmental Protection Agency ("EPA") finalized Tier III regulations for gasoline sulfur content in 2014. The regulations have lowered gasoline sulfur content to 10 parts per million with an effective date of 2017 for our El Paso and St. Paul Park refineries and 2020 for our Gallup refinery. Meeting these regulations will require capital spending and adjustments to the operations of our refineries.
The EPA has issued Renewable Fuels Standards ("RFS") under the Energy Acts of 2005 and 2007, implementing mandates to blend increasing volumes of renewable fuels into the petroleum fuels produced at obligated refineries through the year 2022. The EPA established its final 2014 and 2015 blending volume requirements in November 2015, after the statutory deadlines. The EPA is required to establish the volume of renewable fuels that refineries must blend into their refined petroleum fuels annually. Obligated refineries, including each of our three refineries, demonstrate compliance with the RFS through the

11


accumulation of RINs, which are unique serial numbers acquired through blending renewable fuels or direct purchase. Our compliance strategy includes blending at our refineries, transferring RINs from blending across our refinery and terminal system and purchasing third-party RINs. Blending renewable fuels into the finished petroleum fuels to comply with federal and state requirements could displace an increasing volume of a refinery’s product pool.
Minnesota law currently requires the use of biofuels in gasoline and diesel sold in the state for combustion in internal combustion engines. Fuels produced at the St. Paul Park refinery are currently blended with the appropriate amounts of ethanol or biodiesel to ensure that they comply with applicable federal and state renewable fuel standards. Industry organizations representing Minnesota truckers and auto dealers, U.S. auto manufacturers and U.S. fuels manufacturers have filed suit to challenge Minnesota's biodiesel mandate claiming it is in conflict with the RFS standards and the final outcome is yet to be determined.
Environmental Remediation
Certain environmental laws hold current or previous owners or operators of real property liable for the costs of cleaning up spills, releases and discharges of petroleum or hazardous substances, even if those owners or operators did not know of and were not responsible for such spills, releases and discharges. These environmental laws also assess liability on any person who arranges for the disposal or treatment of hazardous substances, regardless of whether the affected site is owned or operated by such person. We may face currently unknown liabilities for clean-up costs pursuant to these laws.
In addition to clean-up costs, we may face liability for personal injury or property damage due to exposure to chemicals or other hazardous substances that we may have manufactured, used, handled, disposed of or that are located at or released from our refineries and fueling stations or otherwise related to our current or former operations. We may also face liability for personal injury, property damage, natural resource damage or for clean-up costs for any alleged migration of petroleum or hazardous substances from our facilities or transport operations.

Employees
As of December 31, 2015, our companies employed 7,347 people including 2,961 NTI employees and 562 WNRL employees in its wholesale segment. The collective bargaining agreements covering the El Paso and Gallup refinery employees expire in April 2021 and May 2020, respectively. While all of our collective bargaining agreements contain “no strike” provisions, those provisions are not effective in the event that an agreement expires. Accordingly, we may not be able to prevent a strike or work stoppage in the future and any such work stoppage could have a material effect on our business, financial condition and results of operations. The collective bargaining agreements covering the NTI employees associated with its refining and retail operations expire in December 2016 and August 2017, respectively. Through our control of WNRL's general partner and its affiliate entities, we have seconded 218 full-time employees to WNRL as well as other employees who may provide services to WNRL from time to time.
Available Information
We file reports with the Securities and Exchange Commission (the "SEC"), including annual reports on Form 10-K, quarterly reports on Form 10-Q and other reports from time to time. The public may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. We are an electronic filer and the SEC’s Internet site at http://www.sec.gov contains the reports, proxy and information statements and other information filed electronically. We do not, however, incorporate any information on that website into this Form 10-K.
As required by Section 406 of the Sarbanes-Oxley Act of 2002, we have adopted a code of ethics that applies specifically to our Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer. We have also adopted a Code of Business Conduct and Ethics applicable to all our directors, officers and employees. The codes of ethics are posted on our website. Within the time period required by the SEC and the NYSE, we will post on our website any amendment to our code of ethics and any waiver applicable to any of our Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer. Our website address is: http://www.wnr.com. We make our website content available for informational purposes only. It should not be relied upon for investment purposes, nor is it incorporated by reference in this Form 10-K. We make available on this website under “Investor Relations,” free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports simultaneously to the electronic filings of those materials with, or furnishing of those materials to, the SEC. We also make available to shareholders hard copies of our complete audited financial statements free of charge upon request.
On July 2, 2015, our Chief Executive Officer certified to the NYSE that he was not aware of any violation of the NYSE’s corporate governance listing standards. In addition, attached as Exhibits 31.1 and 31.2 to this Form 10-K are the certifications required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002.


12


Item 1A.
Risk Factors
An investment in our common shares involves risk. In addition to the other information in this report and our other filings with the SEC, you should carefully consider the following risk factors in evaluating us and our business.
Risks Related to Our Proposed Merger with NTI 
The Merger transactions may not be consummated even if NTI common unitholders approve the Merger.
The Merger Agreement contains conditions, some of which are beyond the parties’ control, that, if not satisfied or waived, may delay the Merger or result in the Merger not occurring, even though NTI common unitholders may have voted to approve the Merger. We cannot predict with certainty whether and when any of the conditions to the completion of the Merger will be satisfied. Any delay in completing the Merger could increase our cost or cause us not to realize, or delay realization of, some or all of the benefits that we expect to achieve from the Merger. In addition, we and NTI can agree not to consummate the Merger even if the NTI common unitholders approve the Merger and the conditions to the closing of the Merger are otherwise satisfied.
If the Merger does not occur, we and NTI will not benefit from the expenses that each of us has incurred in the pursuit of the Merger.
The Merger may not be completed. If the Merger is not completed, we and NTI will have incurred substantial expenses for which no ultimate benefit will have been received by either company. The parties currently expect to incur Merger-related expenses of approximately $23.8 million, consisting of independent advisory, legal and accounting fees, and financial printing and other related charges, portions of which may be incurred even if the Merger is not completed. In addition, if the Merger Agreement is terminated under specified circumstances, either we or NTI will be required to pay certain expenses of the other party.
We and NTI may be subject to class action or other lawsuits relating to the Merger, which could materially adversely affect our and NTI’s business, financial condition and operating results.
We, NTI and our respective directors and officers may be subject to class action lawsuits relating to the Merger and other lawsuits that may be filed. Such litigation is very common in connection with acquisitions of public companies, regardless of any merits related to the underlying acquisition. While we and NTI will evaluate and defend against any actions vigorously, the costs of the defense of such lawsuits and other effects of such litigation could have an adverse effect on our and NTI’s business, financial condition and operating results.
One of the conditions to consummating the Merger is that no injunction or other order prohibiting or otherwise preventing the consummation of the Merger transactions shall have been issued by any court or governmental entity of competent jurisdiction in the United States. Consequently, if any lawsuit is filed challenging the Merger and is successful in obtaining an injunction preventing the parties to the Merger Agreement from consummating the Merger, such injunction may prevent the Merger from being completed in the expected timeframe, or at all.
Failure to complete, or significant delays in completing, the Merger could negatively affect the trading prices of our common stock and NTI common units and the future business and financial results of us and NTI.
Completion of the Merger is not assured and is subject to risks, including the risks that approval of the Merger by the NTI common unitholders is not obtained or that other closing conditions are not satisfied. If the Merger is not completed, or if there are significant delays in completing the Merger, the trading prices of our common stock and NTI common units and the respective future business and financial results of us and NTI could be negatively affected, and each of us and NTI will be subject to several risks, including the following:
one party may be liable for damages to the other under the Merger Agreement;
negative reactions from the financial markets, including declines in the prices of our common stock or NTI common units due to the fact that current prices may reflect a market assumption that the Merger will be completed;
having to pay certain significant costs relating to the Merger;
the attention of our and NTI’s management is diverted to the Merger rather than each company’s own operations and pursuit of other beneficial opportunities; and
the uncertainty surrounding the approval of the Merger may adversely affect our or NTI's ability to attract and retain qualified personnel.
The debt that we expect to incur in connection with the Merger could adversely affect our financial position and make us more vulnerable to adverse economic conditions.
We expect the cash portion of the consideration to be paid by us in the Merger to be approximately $858.2 million, a portion of which we expect to finance through the incurrence of new indebtedness. In 2016, debt financing for the energy industry has become increasingly difficult and more expensive. In light of this, the cost we may incur to finance a portion of the

13


cash consideration in the Merger, as well as any increases to the cost of our existing indebtedness in connection with the Merger, could have a material adverse effect on our financial position, results of operations and cash flows.
As of December 31, 2015, we had approximately $889 million of indebtedness outstanding. Further, in connection with the Merger, we expect to incur approximately $380 million of additional indebtedness either in the bank market or debt in capital markets, to pay a portion of the cash portion of the Merger consideration. Following the closing of the Merger, we may determine to seek new financing to terminate NTI’s existing credit facility and/or consummate an exchange offer, tender offer, repurchase offer, consent solicitation, discharge, defeasance, redemption or similar transaction for all or any portion of NTI’s outstanding notes. Interest costs related to our indebtedness could thus be substantial. This level of debt could have important consequences, such as:
limiting our ability to obtain additional financing to fund our working capital, capital expenditures, debt service requirements or potential growth or for other purposes;
increasing the cost of our future borrowings;
limiting our ability to use operating cash flow in other areas of our business or to pay dividends because we must dedicate a substantial portion of these funds to make payments on our debt;
placing us at a competitive disadvantage compared to competitors with less debt; and
increasing our vulnerability to adverse economic and industry conditions.
Our ability to service our debt will depend upon, among other things, our future financial and operating performance, which will be affected by prevailing economic conditions and financial, business, regulatory and other factors, many of which will be beyond our control, and distributions from WNRL. If our operating results are not sufficient to service our indebtedness and any future indebtedness that we may incur, we will be forced to take actions, which may include reducing dividends, reducing or delaying our business activities, acquisitions, investments or capital expenditures, selling assets or seeking additional equity capital. We may not be able to effect any of these actions on satisfactory terms or at all.
Risks Related to Our Business and Industry
The price volatility of crude oil, other feedstocks, refined products and fuel and utility services has had and may continue to have a material adverse effect on our earnings and cash flows.
Our earnings and cash flows from operations depend on the margin above fixed and variable expenses (including the cost of refinery feedstocks such as crude oil) at which we are able to sell refined products. Refining margins historically have been volatile and are likely to continue to be volatile, as a result of a variety of factors, including fluctuations in the prices of crude oil, other feedstocks, refined products and fuel and utility services.
In recent years, the prices of crude oil, other feedstocks and refined products have fluctuated substantially. The NYMEX WTI postings of crude oil for 2015 ranged from $59.81 per barrel in June 2015 to $37.36 per barrel in December 2015 to $29.64 as of February 19, 2016. In addition, the WTI/Brent discount has been volatile and we expect continued volatility in crude oil pricing and crack spreads. It is possible that this volatility in crude oil pricing and crack spreads may continue for prolonged periods of time due to numerous factors beyond our control. Prolonged periods of low crude oil prices could impact production growth of inland crude oil, which could reduce the amount of advantaged crude oil available and/or the discount of such crude oil and thereby impacting the profitability of our refineries. Prices of crude oil, other feedstocks and refined products depend on numerous factors beyond our control, including the supply of and demand for crude oil, other feedstocks, gasoline and other refined products. Such supply and demand are affected by, among other things:
changes in global and local economic and political conditions;
domestic and foreign demand for crude oil and refined products, especially in the U.S., China and India;
worldwide political conditions, particularly in significant oil producing regions such as the Middle East, West Africa Russia and Latin America;
political and geopolitical instability or armed conflict in oil producing regions;
the level of foreign and domestic production of crude oil and refined products and the level of crude oil, feedstocks and refined products imported into the U.S. that can be impacted by accidents, interruptions in transportation, inclement weather or other events affecting producers and suppliers;
U.S. government regulations, including legislation affecting the exportation of domestic crude oil;
utilization rates of U.S. refineries;
changes in fuel specifications required by environmental and other laws;
the ability of the members of the Organization of Petroleum Exporting Countries ("OPEC") to influence oil price and production controls;
commodities speculation;
development and marketing of alternative and competing fuels;
pricing and other actions taken by competitors that impact the market;

14


product pipeline capacity, including the Magellan Southwest System pipeline, Kinder Morgan’s East Line, the Aranco pipeline and the Magellan pipeline system, all of which could increase supply in certain of our service areas and therefore reduce our margins;
accidents, interruptions in transportation, inclement weather or other events that can cause unscheduled shutdowns or otherwise adversely affect our plants, machinery or equipment or those of our suppliers or customers; 
federal and state government regulations and taxes; and
local factors, including market conditions, weather conditions and the level of operations of other refineries and pipelines in our service areas.
Volatility has had, and may continue to further have, a negative effect on our results of operations to the extent that the margin between refined product prices and feedstock prices narrows.
The nature of our business requires us to maintain substantial quantities of crude oil and refined product inventories. Crude oil and refined products are commodities. As a result, we have no control over the changing market value of these inventories. Because our inventory of crude oil and refined product is valued at the lower of cost or market value under the “last-in, first-out” ("LIFO") inventory valuation methodology, if the market value of our inventory were to further decline to an amount less than our LIFO cost, we would record a write-down of inventory and a non-cash charge to cost of products sold, such as we recorded in the fourth quarter of 2015. Due to the volatility in the price of crude oil and other blendstocks, we experienced fluctuations in our LIFO reserves during the past three years. We also experienced LIFO liquidations based on decreased levels in our inventories. These LIFO liquidations resulted in an increase in cost of products sold of $16.1 million for the year ended December 31, 2015 and decreases in cost of products sold of $1.1 million and $3.2 million for the years ended December 31, 2014 and 2013, respectively.
In addition, the volatility in costs of fuel, principally natural gas and other utility services, principally electricity, used by our refineries affects operating costs. Fuel and utility prices have been, and will continue to be, affected by factors outside our control, such as supply and demand for fuel and utility services in both local and regional markets. Natural gas prices have historically been volatile. Typically, electricity prices fluctuate with natural gas prices. Future increases in fuel and utility prices may have a material adverse effect on our business, financial condition, results of operations and cash flows.
If the price of crude oil increases significantly or our credit profile changes, or if we or our subsidiaries are unable to access our respective credit agreements for borrowings or for letters of credit, our liquidity and our ability to purchase enough crude oil to operate our refineries at full capacity could be materially and adversely affected.
We and certain of our subsidiaries rely on borrowings and letters of credit under each of our respective credit agreements to purchase crude oil for our refineries. Changes in our credit profile could affect the way crude oil suppliers view our ability to make payments and induce them to shorten the payment terms of their invoices with us or require additional support such as letters of credit. Due to the large dollar amounts and volume of our crude oil and other feedstock purchases, any imposition by our creditors of more burdensome payment terms on us, or our subsidiaries’ inability to access their credit agreements or other similar arrangements may have a material effect on our liquidity and our ability to make payments to our suppliers that could hinder our ability to purchase sufficient quantities of crude oil to operate our refineries at planned rates. In addition, if the price of crude oil increases significantly, we may not have sufficient capacity under the credit agreements or sufficient cash on hand, to purchase enough crude oil to operate our refineries at planned rates. A failure to operate our refineries at planned rates could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Our hedging transactions may limit our gains and expose us to other risks.
We enter into hedging transactions from time to time to manage our exposure to commodity price risks or to fix sales margins on future gasoline and distillate production. These transactions limit our potential gains if commodity prices rise above the levels established by our hedging instruments. These transactions may also expose us to risks of financial losses, for example, if our production is less than we anticipated at the time we entered into a hedge agreement or if a counterparty to our hedge contracts fails to perform its obligations under the contracts. Some of our hedging agreements also require us to furnish cash collateral, letters of credit or other forms of performance assurance. Mark-to-market calculations that result in settlement obligations by us to the counterparties could impact our liquidity and capital resources.
Compliance with and changes in tax laws could adversely affect our performance.
We are subject to tax liabilities, including federal, state and transactional taxes such as excise, sales/use, payroll, franchise, withholding and ad valorem taxes. New tax laws and regulations and changes in existing tax laws and regulations are continuously being enacted or proposed that could result in increased expenditures for tax liabilities in the future. Certain of these liabilities are subject to periodic audits by the respective taxing authority that could increase our tax liabilities. Subsequent changes to our tax liabilities as a result of these audits may also subject us to interest and penalties.
The present U.S. federal income tax treatment of publicly traded partnerships, including two of our subsidiaries, WNRL and NTI, may be modified by administrative, legislative or judicial changes or differing interpretations at any time. For

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example, a proposal in the Fiscal Year 2016 Budget had recommended that certain publicly traded partnerships earning income from activities related to fossil fuels be taxed as corporations beginning in 2021. From time to time, members of Congress propose and consider such substantive changes to the existing federal income tax laws that affect publicly traded partnerships. If successful, this could result in a material decrease in our income from our interests in those subsidiaries.

In addition, the IRS, on May 5, 2015, issued proposed regulations concerning which activities give rise to qualifying income within the meaning of Section 7704 of the Internal Revenue Code. We do not believe the proposed regulations affect our subsidiaries' ability to qualify as publicly traded partnerships. However, finalized regulations could modify the amount of gross income that they are able to treat as qualifying income for the purposes of the qualifying income requirement.
Any modification to the U.S. federal income tax laws may be applied retroactively and could make it more difficult or impossible for our subsidiaries to meet the exception for certain publicly traded partnerships to be treated as partnerships for U.S. federal income tax purposes. We are unable to predict whether any of these changes or other proposals will ultimately be enacted. Any such changes could negatively impact the value of our investments in such publicly traded partnerships.
Our indebtedness may limit our ability to obtain additional financing and we also may face difficulties complying with the terms of our indebtedness agreements.
Our level of debt may have important consequences to you. Among other things, it may:
limit our ability to use our cash flows, or obtain additional financing, for future working capital, capital expenditures, acquisitions or other general corporate purposes;
restrict our ability to pay dividends;
require a substantial portion of our cash flows from operations to make debt service payments;
limit our flexibility to plan for, or react to, changes in our business and industry conditions;
place us at a competitive disadvantage compared to our less leveraged competitors; and
increase our vulnerability to the impact of adverse economic and industry conditions.
Specific to the Merger, we expect to incur approximately $380 million of additional indebtedness either in the banking or capital markets, to pay a portion of the cash portion of the Merger consideration. Following the closing of the Merger, we may determine to seek new financing to terminate NTI’s existing credit facility and/or consummate an exchange offer, tender offer, repurchase offer, consent solicitation, discharge, defeasance, redemption or similar transaction for all or any portion of NTI’s outstanding notes. Interest costs related to our indebtedness will thus be substantial.
We cannot assure you that we will continue to generate sufficient cash flows or that we and our subsidiaries will be able to borrow funds under certain credit agreements in amounts sufficient to enable us and our subsidiaries to service our debt or meet our working capital and capital expenditure requirements. Our ability to generate sufficient cash flows from our operating activities will continue to be primarily dependent on producing or purchasing and selling sufficient quantities of refined products at margins sufficient to cover fixed and variable expenses. If our margins were to deteriorate significantly, or if our earnings and cash flows were to suffer for any other reason, we and our subsidiaries may be unable to comply with the financial covenants set forth in our and their respective credit facilities. If we or our subsidiaries fail to satisfy these covenants, we and our subsidiaries could be prohibited from borrowing for our working capital needs and issuing letters of credit that would hinder our ability to purchase sufficient quantities of crude oil to operate our refineries at planned rates. To the extent that we and our subsidiaries are unable to generate sufficient cash flows from operations, or if we and our subsidiaries are unable to borrow or issue letters of credit under certain credit agreements, we and our subsidiaries may be required to sell assets, reduce capital expenditures, refinance all or a portion of our existing debt, or obtain additional financing through equity or debt financings. If additional funds are obtained by issuing equity securities, our existing stockholders could be diluted. We cannot assure you that we would be able to refinance our debt, sell assets or obtain additional financing on terms acceptable to us, if at all. In addition, our ability to incur additional debt will be restricted under the covenants contained in credit agreements and our indentures. See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations; Liquidity and Capital Resources; Working Capital and Indebtedness.
Covenants and events of default in our and our subsidiaries’ debt instruments could limit our ability to undertake certain types of transactions and adversely affect our liquidity.
Our and our subsidiaries’ credit agreements and indentures contain covenants and events of default that may limit our financial flexibility and ability to undertake certain types of transactions. For instance, we and our subsidiaries are subject to covenants that restrict our activities, including restrictions on:
creating liens;
engaging in mergers, consolidations and sales of assets;
incurring additional indebtedness;
providing guarantees;

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engaging in different businesses;
making investments;
making certain dividend, debt and other restricted payments;
engaging in certain transactions with affiliates; and
entering into certain contractual obligations.
Debt instruments of our and our subsidiaries are subject to financial covenants. Our ability and that of our subsidiaries to comply with these covenants will depend on factors outside our control, including refined product margins. We cannot assure you that we and our subsidiaries will satisfy these covenants. If we fail to satisfy the covenants set forth in these facilities or an event of default occurs under the applicable facility, the maturity of the debt instruments could be accelerated or we could be prohibited from borrowing for our working capital needs and issuing letters of credit. A similar result could occur if our subsidiaries fail to satisfy the covenants applicable to them in their respective debt instruments. If our and our subsidiaries' obligations under the debt instruments are accelerated and we do not have sufficient cash on hand to pay all amounts due, we could be required to sell assets, to refinance all or a portion of our indebtedness or to obtain additional financing through equity or debt financings. Refinancing may not be possible and additional financing may not be available on commercially acceptable terms, or at all. If we or our subsidiaries cannot borrow or issue letters of credit under our respective credit agreements, we would need to seek additional financing, if available, or curtail our operations.
We have capital needs for which our internally generated cash flows and other sources of liquidity may not be adequate.
The refining business is characterized by high fixed costs resulting from the significant capital outlays associated with refineries, terminals, pipelines and related facilities. We are dependent on the production and sale of quantities of refined products at refined product margins sufficient to cover operating costs, including any increases in costs resulting from future inflationary pressures or market conditions and increases in costs of fuel and power necessary in operating our facilities. Our short-term working capital needs are primarily crude oil purchase requirements that fluctuate with the pricing and sourcing of crude oil. We also have significant long-term needs for cash, including those to support ongoing capital expenditures and other regulatory compliance. Furthermore, future regulatory requirements or competitive pressures could result in additional capital expenditures that may not produce a return on investment. Such capital expenditures may require significant financial resources that may be contingent on our access to capital markets and commercial bank loans. Additionally, other matters, such as regulatory requirements or legal actions, may restrict our access to funds for capital expenditures.
Our refineries consist of many processing units, a number of which have been in operation for many years. Equipment, even if properly maintained, may require significant capital expenditures and expenses to keep it operating at optimum efficiency. One or more of the units may require unscheduled downtime for unanticipated maintenance or repairs that are more frequent than our scheduled turnaround for such units. Scheduled and unscheduled maintenance could reduce our revenues during the period of time that the units are not operating. We have taken significant measures to expand and upgrade units in our refineries by installing new equipment and redesigning older equipment to improve refinery capacity. The installation and redesign of key equipment at our refineries involves significant uncertainties, including the following: our upgraded equipment may not perform at expected throughput levels; the yield and product quality of new equipment may differ from design and/or specifications and redesign or modification of the equipment may be required to correct equipment that does not perform as expected that could require facility shutdowns until the equipment has been redesigned or modified. Any of these risks associated with new equipment, redesigned older equipment or repaired equipment could lead to lower revenues or higher costs or otherwise have a material adverse effect on our business, financial condition, results of operations and cash flows.
The dangers inherent in our operations and our reliance on logistics assets could cause disruptions and could expose us to potentially significant losses, costs or liabilities. Any significant interruptions in the operations of any of our refineries could materially and adversely affect our business, financial condition, results of operations and cash flows.
Our operations are subject to significant hazards and risks inherent in refining operations and in transporting and storing crude oil, intermediate products and refined products. Failure to identify and manage these risks could result in explosions, fires, refinery or pipeline releases of crude oil or refined products or other incidents resulting in personal injury, loss of life, environmental damage, property damage, legal liability, loss of revenue and substantial fines by government authorities. These hazards and risks include, but are not limited to, the following:
natural disasters;
weather-related disruptions;
fires;
explosions;
pipeline ruptures and spills;
third-party interference;
disruption of natural gas deliveries;
disruptions of electricity deliveries;

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disruption of sulfur gas processing by Chemours at our El Paso refinery; and
mechanical failure of equipment at our refineries or third-party facilities.
Any of the foregoing could result in production and distribution difficulties and disruptions, environmental pollution, personal injury or wrongful death claims and other damage to our properties and the properties of others. There is also risk of mechanical failure and equipment shutdowns both in general and following unforeseen events. For example, we may experience unplanned downtime at our El Paso and Gallup refineries or NTI's St. Paul Park refinery due to weather, interruptions to our electrical supply or other causes. In any of these situations, undamaged refinery processing units may be dependent on or interact with damaged process units and, accordingly, may also be subject to being shut down.
Our refineries consist of many processing units, several of which have been in operation for a long time. One or more of the units may require unscheduled downtime for unanticipated maintenance or repairs, or our planned turnarounds may last longer than anticipated. Scheduled and unscheduled maintenance could reduce our revenues and increase our costs during the period of time that our units are not operating.
Our refining activities are conducted at our El Paso refinery in Texas, our Gallup refinery in New Mexico and the St. Paul Park refinery in Minnesota. The refineries constitute a significant portion of our operating assets, and our refineries supply a significant portion of our fuel to our wholesale and retail operations.
In addition, we rely on a variety of logistics assets including but not limited to: rail, pipelines, product terminals, storage tanks and trucks to facilitate the movement of crude oil, feedstocks and refined products within our business. Some of these assets are owned and or operated by WNRL, NTI or third-parties. We could experience an interruption of supply or an increased cost to deliver refined products to market if the ability to utilize these logistics assets is disrupted.
Because of the significance to us of our refining operations and the logistics assets they depend on, the occurrence of any of the events described above could significantly disrupt our production and distribution of refined products and any sustained disruption could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Weather conditions and natural disasters could materially and adversely affect our business and operating results, including the supply of our feedstocks.
The effects of weather conditions and natural disasters can lead to volatility in the costs and availability of crude oil and other feedstocks and/or negatively impact our operations or those of our customers and suppliers, which could have a material adverse effect on our business, financial condition, results of operations and cash flows. Crude oil supplies for our El Paso and Gallup refineries primarily come from the Permian Basin in Texas and New Mexico, other basins in Northern New Mexico and basins in Utah. As a result, our El Paso and Gallup refineries may be disproportionately exposed to the impact of delays or interruptions of supply from these regions caused by natural disasters or adverse weather conditions. In addition, from time to time, we may obtain certain of our feedstocks for the El Paso and Gallup refineries and some refined products we purchase for resale by pipeline from Gulf Coast refineries that are subject to severe weather risks such as hurricanes and other severe events. Crude oil supplies for the St. Paul Park refinery are from the Bakken Shale of North Dakota and from Western Canada. As a result, the St. Paul Park refinery may be disproportionately exposed to the impact of delays or interruptions of supply from that region caused by natural disasters or adverse weather conditions. An interruption to our supply of feedstocks for the El Paso or the St. Paul Park refineries could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Our operations involve environmental risks that could give rise to material liabilities.
Our operations, and those of prior owners or operators of our properties, have previously resulted in spills, discharges, or other releases of petroleum or hazardous substances into the environment, and such spills, discharges or releases could also happen in the future. Past or future spills related to any of our operations, including our refineries, product terminals, convenience stores or transportation of refined products or hazardous substances from those facilities, may give rise to liability (including strict liability, or liability without fault, and clean-up responsibility) to governmental entities or private parties under federal, state, or local environmental laws, as well as under common law. For example, we could be held strictly liable under the Comprehensive Environmental Responsibility, Compensation and Liability Act for contamination of properties that we currently own or operate and facilities to which we transported or arranged for the transportation of wastes or by-products for use, treatment, storage or disposal, without regard to fault or whether our actions were in compliance with law at the time. Our liability could also increase if other responsible parties, including prior owners or operators of our facilities, fail to complete their clean-up obligations. Based on current information, we do not believe these liabilities are likely to have a material adverse effect on our business, financial condition, results of operations or cash flows. In the event that new spills, discharges, or other releases of petroleum or hazardous substances occur or are discovered or there are other changes in facts or in the level of contributions being made by other responsible parties, there could be a material adverse effect on our business, financial condition, results of operations and cash flows.

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In addition, we may face liability for alleged personal injury or property damage due to exposure to chemicals or other hazardous substances located at or released from our facilities or otherwise related to our current or former operations. We may also face liability for personal injury, property damage, natural resource damage, or for clean-up costs for the alleged migration of contamination or other hazardous substances from our facilities to adjacent and other nearby properties.
We may incur significant costs to comply with environmental, health and safety laws and regulations.
Our operations and properties are subject to extensive federal, state and local environmental, health and safety regulations governing, among other things, the generation, storage, handling, use and transportation of petroleum and hazardous substances, the emission and discharge of materials into the environment, waste management, characteristics and composition of gasoline, diesel and other fuels and the monitoring, reporting and control of greenhouse gas emissions. If we fail to comply with these regulations, we may be subject to administrative, civil and criminal proceedings by governmental authorities, as well as civil proceedings by environmental groups and other entities and individuals. A failure to comply, and any related proceedings, including lawsuits, could result in significant costs and liabilities, penalties, judgments against us or governmental or court orders that could alter, limit or stop our operations.
In addition, new environmental laws and regulations, including new regulations relating to alternative energy sources and increased vehicle fuel economy, new state regulations relating to fuel quality, and the risk of global climate change regulation, as well as new interpretations of existing laws and regulations, increased governmental enforcement, or other developments could require us to make additional unforeseen expenditures. Many of these laws and regulations are becoming increasingly stringent, and the cost of compliance with these requirements can be expected to increase over time. We are not able to predict the impact of new or changed laws or regulations or changes in the ways that such laws or regulations are administered, interpreted, or enforced. The requirements to be met, as well as the technology and length of time available to meet those requirements, continue to develop and change. To the extent that the costs associated with meeting any or all of these requirements are substantial and not adequately provided for, there could be a material adverse effect on our business, financial condition, results of operations and cash flows.
The EPA has issued rules pursuant to the Clean Air Act that require refiners to reduce the sulfur content of gasoline and diesel fuel and reduce the benzene content of gasoline by various specified dates. We incurred, and may incur in the future, substantial costs to comply with the EPA’s low sulfur and low benzene rules. Our strategy for complying with low sulfur gasoline and low benzene gasoline regulations at our refineries relies partially on purchasing credits. If credits are not available or are too costly, we may not be able to meet the EPA’s deadlines using a credit strategy. Failure to meet the EPA’s clean fuels mandates could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Various states have proposed and/or enacted low carbon fuel standards (“LCFS”) intended to reduce carbon intensity in transportation fuels. In addition, in 2010 the EPA issued social cost of carbon (“SCC”) estimates used by the EPA and other federal agencies in regulatory cost-benefit analyses to take into account alleged broad economic consequences associated with emissions of greenhouse gases. These estimates were increased in 2013. While the impacts of LCFS and higher SCC in future regulations is not known at this time, either of these may result in increased costs to our operations.
Renewable fuels mandates may reduce demand for the petroleum fuels we produce, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Pursuant to the Energy Policy Act of 2005 and the Energy Independence and Security Act of 2007, the EPA has promulgated the RFS implementing mandates to blend renewable fuels into petroleum fuels produced and sold in the United States. We are subject to the RFS, which requires obligated parties to blend renewable fuels, such as ethanol, into petroleum fuels sold in the United States. A RIN is generated for each gallon of renewable fuel produced under the RFS. At the end of each year, obligated parties must surrender sufficient RINs to meet their renewable fuel obligations under the RFS. The obligated volume increases annually over time until 2022. The obligation for our refineries is met through a combination of blending renewable fuels and purchasing RINs from other parties. We must also purchase waiver credits for cellulosic biofuels from the EPA. Uncertainty surrounding RFS requirements in recent years has resulted in increased volatility in RIN prices. We cannot predict the future prices of RINs or waiver credits, but the costs to obtain the necessary number of RINs and waiver credits could be material.
In 2010 and 2011, the EPA issued partial waivers with conditions allowing a maximum of 15% ethanol to be used in certain vehicles. Future changes to existing laws and regulations could increase the minimum volumes of renewable fuels that must be blended with refined petroleum fuels. Because we do not produce renewable fuels, increasing the volume of renewable fuels that must be blended into our products could displace an increasing volume of our refineries’ product pool, potentially resulting in lower earnings and materially adversely affecting our business, financial condition and results of operations and cash flows.
Certain states, including Minnesota and New Mexico, have renewable fuel mandates that could further displace volume of a refinery's product pool. Minnesota law currently requires that all diesel sold in the state for use in internal combustion

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engines, with limited exceptions, must contain at least 10% biodiesel which may increase to 20% in 2018. Minnesota law also currently requires, with limited exceptions, that all gasoline sold or offered for sale in the state must contain the maximum amount of ethanol allowed under federal law for use in all gasoline powered motor vehicles. New Mexico law currently requires that all diesel sold in the state for use in internal combustion engines, with limited exceptions, must contain at least 5% biodiesel. Although the state has historically waived this mandate due to infrastructure limitations within the state, future waivers are not guaranteed.

If sufficient RINs are unavailable for purchase or if we have to pay a significantly higher price for RINs, or if we are otherwise unable to meet the EPA's RFS mandates, our business, financial condition and results of operations could be materially adversely affected.
Under the RFS, the volume of renewable fuels refineries are obligated to blend into their finished petroleum products is adjusted annually. We currently blend renewable fuels and purchase RINs on the open market, as well as waiver credits for cellulosic biofuels from the EPA, in order to comply with the RFS. Existing laws or regulations could change, and the minimum volumes of renewable fuels that must be blended with refined petroleum products may increase. In the future, we may be required to purchase additional RINs on the open market and waiver credits from the EPA in order to comply with the RFS.
During 2013, the price of RINs was very volatile as the EPA’s proposed renewable fuel volume mandates approached the "blend wall." The blend wall refers to the point at which refiners are required to blend more ethanol into the transportation fuel supply than can be supported by the demand for E10 gasoline (gasoline containing 10 percent ethanol by volume). In November 2013, the EPA published the annual renewable fuel percentage standards for 2014, which acknowledged the blend wall and were generally lower than the volumes for 2013 and lower than statutory mandates. The price of RINs decreased significantly after the 2014 percentage standards were published; however, RIN prices remained volatile and increased subsequently in 2014. In November 2015, the EPA published final notice for RFS obligated volumes for 2014, 2015 and 2016 and Biomass-Based Diesel for 2017. The current standard for 2016 may cause the blend wall to again become an issue affecting the overall supply of RINs.
We cannot predict the future prices of RINs or waiver credits. The cost of RINs is dependent upon a variety of factors, which include EPA regulations, the availability of RINs for purchase, the price at which RINs can be purchased, transportation fuel production levels, the mix of our petroleum products, as well as the fuel blending performed at our refineries, all of which can vary significantly from quarter to quarter. Additionally, because we do not produce renewable fuels, increasing the volume of renewable fuels that must be blended into our products could displace an increasing volume of our refineries' product pool, potentially resulting in lower earnings. If sufficient RINs are unavailable for purchase or if we have to pay a significantly higher price for RINs, or if we are otherwise unable to meet the EPA's RFS mandates, our business, financial condition, results of operations and cash flows could be materially adversely affected.
We could incur significant costs to comply with greenhouse gas emissions regulation or legislation.
The EPA has adopted and implemented regulations to restrict emissions of greenhouse gases under certain provisions of the Clean Air Act. For example, the EPA requires, in certain circumstances, permitting of certain emissions of greenhouse gases from large stationary sources, such as refineries. The EPA has also adopted rules requiring refiners to report greenhouse gas emissions on an annual basis for emissions occurring after January 1, 2010. Further, the United States Congress has considered legislation related to the reduction of greenhouse gases through “cap and trade” programs. In addition, Minnesota is a participant in the Midwest Greenhouse Gas Reduction Accord, a non-binding resolution that could lead to the creation of a regional greenhouse gas cap-and-trade program if the Minnesota legislature and the legislatures of other participating states and province enact implementing legislation. Although the participating states and Canadian province are not currently pursuing this commitment, similar state or regional initiatives may be pursued in the future.

On the international level, on December 12, 2015, 195 nations, including the U.S., finalized the text of an international climate change accord in Paris, France (the “Paris Agreement”). The Paris Agreement calls for countries to set their own GHG emissions targets, make these emissions targets more stringent over time and be transparent about the GHG emissions reporting and the measures each country will use to achieve its GHG emissions targets. Additional U.S. GHG emissions reduction laws, regulations or other initiatives may be required in the future in connection with the Paris Agreement.

To the extent that future legislation, rules and regulations are enacted, our operating costs, including capital expenditures, may increase and additional operating restrictions could be imposed on our business, which could have a material adverse effect on our business, financial condition, results of operations and cash flows. Finally, some scientists have concluded that increasing concentrations of greenhouse gases in the earth’s atmosphere may produce climate changes that may have significant physical effects, such as increased frequency and severity of storms, droughts, floods and other climatic events, which if any

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such event were to occur, it may have a material adverse effect on our business, financial condition, results of operations and cash flows.
Increased regulation of hydraulic fracturing could result in reductions or delays in crude oil production in our existing areas of operation, which could impact our crude oil supply and adversely impact our business.
A significant percentage of the crude oil production in our existing areas of operation is being developed from unconventional sources, such as shale, using hydraulic fracturing. Hydraulic fracturing involves the injection of water, sand and chemicals under pressure into the formation to stimulate production. A number of federal agencies, including the EPA and the U.S. Department of Energy, are analyzing, or have been requested to review, a variety of environmental issues associated with shale development, including hydraulic fracturing. In addition, the EPA has asserted federal regulatory authority over hydraulic fracturing activities under the Safe Drinking Water Act’s Underground Injection Control Program and under the Toxic Substances Control Act of 1976 and in September 2015 issued proposed rules regulating methane emissions from oil and natural gas completion operations, which rules are expected to be finalized in the spring of 2016. Further, some states and municipalities have adopted and other states and municipalities are considering adopting, regulations prohibiting hydraulic fracturing in certain areas or imposing more stringent disclosure. At the same time, certain environmental groups have suggested that additional laws may be needed to more closely and uniformly regulate the hydraulic fracturing process and legislation has been proposed by some members of Congress to provide for such regulation. We cannot predict whether any such legislation will ever be enacted and if so, what its provisions would be. If additional levels of regulation are imposed at the federal, state or local level, this could result in corresponding delays, increased operating costs and process prohibitions for crude oil producers and potentially negatively impact our crude oil supply, which could adversely affect our business, financial condition, results of operations and cash flows.
Our business, financial condition, results of operations and cash flows may be materially adversely affected by an economic downturn.
The domestic economy, economic slowdowns and the scarcity of credit can lead to lack of consumer confidence, increased market volatility and widespread reduction of business activity generally in the United States and abroad. An economic downturn may adversely affect the liquidity, businesses and/or financial conditions of our customers that has resulted, and may result, not only in decreased demand for our products, but also increased delinquencies in our accounts receivable. Disruptions in the financial markets could also lead to a reduction in available trade credit due to counterparties’ liquidity concerns. If we or our subsidiaries are unable to obtain borrowings or letters of credit under our debt instruments, our business, financial condition, results of operations and cash flows could be materially adversely affected.
We could experience business interruptions caused by pipeline shutdown.
Our El Paso refinery is our largest refinery and is dependent on a pipeline owned by Kinder Morgan for the delivery of all of our crude oil. Because our crude oil refining capacity at the El Paso refinery is approaching the delivery capacity of the pipeline, our ability to offset lost production due to disruptions in supply with increased future production is limited due to this crude oil supply constraint. In addition, we will be unable to take advantage of further expansion of the El Paso refinery’s production without securing additional crude oil supplies or pipeline expansion. We also deliver a substantial percentage of the refined products produced at our El Paso refinery through three principal product pipelines.
We also have a pipeline system that delivers crude oil and natural gas liquids to our Gallup refinery. The Gallup refinery is dependent on the crude oil pipeline system for the delivery of the crude oil necessary to run the refinery. If the operation of the pipeline system is disrupted, we may not receive the crude oil necessary to run the refinery. Certain rights-of-way necessary for our crude oil pipeline system to deliver crude oil to our Gallup refinery must be renewed periodically.
NTI’s St. Paul Park refinery receives all of its crude oil and delivers a portion of its refined products through pipelines. NTI distributes a portion of its transportation fuels through pipelines owned and operated by Magellan, including the Aranco Pipeline that Magellan leases from NTI. In addition, NTI is dependent on the Minnesota Pipeline system that is the supply route for crude oil and has transported all of the crude oil used at the refinery. Because NTI only has a minority equity interest in the pipeline, it does not have full control over the performance of the pipeline.
Certain of the pipelines we utilize are subject to common carrier regulatory obligations applicable to interstate oil pipelines that require that capacity must be prorated among shippers in an equitable manner in accordance with the tariff then in effect in the event there are nominations in excess of capacity. Nominations by new shippers or increased nominations by existing shippers may reduce the capacity available to us. Any extended, non-excused downtime at our refineries could, under certain circumstances, cause us to lose line space on the refined products pipelines used by such refinery, if we cannot otherwise utilize our pipeline allocations.

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As a result, we could experience an interruption of supply or delivery, or an increased cost of receiving crude oil and delivering refined products to market, if the ability of these pipelines to transport crude oil, blended stocks or refined products is disrupted because of accidents, weather interruption, governmental regulation, terrorism, other third-party action, or any other events beyond our control. A prolonged inability to receive crude oil or transport refined products on pipelines that we currently utilize could have a material adverse effect on our business, financial condition, results of operations and cash flows.
A material decrease in the supply of crude oil available to our refineries could significantly reduce our production levels.
We continually contract with third-party crude oil suppliers to maintain a sufficient supply of crude oil for production at our refineries. A material decrease in crude oil production from the fields, that supply our refineries as a result of economic, regulatory, or natural influences, availability of equipment, facilities, personnel or services, plant closures for scheduled maintenance, or transportation problems, or an increase in crude oil transport capacities out of the regions that supply our refineries, could result in a decline in the volume of crude oil available to our refineries. In addition, the future growth of our operations may depend in part on whether we can contract for additional supplies of crude oil at a greater rate than the rate of decline in our current supplies. If we are unable to secure sufficient crude oil supplies to our refineries, we may not be able to take full advantage of current and future expansion of our refineries' production capacities. A decline in available crude oil to our refineries or an inability to secure additional crude oil supplies to meet the needs of current or future refinery expansions could result in an overall decline in volumes of refined products produced by our refineries and could have a material adverse effect on our business, financial condition, results of operations and cash flows.
We could incur substantial costs or disruptions in our business if we cannot obtain or maintain necessary permits and authorizations.
Our operations require numerous permits and authorizations under various laws and regulations, including environmental and health and safety laws. These authorizations and permits are subject to revocation, renewal or modification and can require operational changes that may involve significant costs, to limit impacts or potential impacts on the environment, health and safety and/or our and our subsidiaries’ permits and licenses relating to the sale of alcohol and tobacco products. A violation of these authorization or permit conditions or other legal or regulatory requirements could result in substantial fines, criminal sanctions, permit revocations, injunctions and/or refinery shutdowns. In addition, major modifications of our operations could require modifications to our existing permits or expensive upgrades to our existing pollution control equipment that could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Competition in the refining, marketing and retail industries is intense and an increase in competition in the areas in which we sell our refined products could adversely affect our sales and profitability.
We compete with a broad range of refining and marketing companies, including certain multinational oil companies. Because of their geographic diversity, larger and more complex refineries, integrated operations and greater resources, some of our competitors may be better able to withstand volatile market conditions, to compete on the basis of price, to obtain crude oil in times of shortage and to bear the economic risks inherent in all phases of the refining industry.
We are not engaged in the petroleum exploration and production business and therefore do not produce any of our crude oil feedstocks. Certain of our competitors, however, obtain a portion of their feedstocks from their own production. Competitors that have their own production are at times able to offset losses from refining operations with profits from production, and may be better positioned to withstand periods of depressed refining margins or feedstock shortages. In addition, we compete with other industries that provide alternative means to satisfy the energy and fuel requirements of our industrial, commercial and individual consumers. If we are unable to compete effectively with these competitors, both within and outside of our industry, there could be a material adverse effect on our business, financial condition, results of operations and cash flows.
The areas where we sell refined products are also supplied by various refined product pipelines. Any expansions or additional product supplied by these third-party pipelines could put downward pressure on refined product prices in these areas.
Portions of our operations in the areas we operate may be impacted by competitors’ plans, as well as plans of our own, for expansion projects and refinery improvements that could increase the production of refined products. In addition, we anticipate that lower quality crude oils that are typically less expensive to acquire, can and will be processed by our competitors as a result of refinery improvements. These developments could result in increased competition in the areas in which we operate.
Newer or upgraded refineries will often be more efficient than some of our refineries that may put us at a competitive disadvantage. While we have taken measures to maintain and upgrade units in our refineries by installing new equipment and repairing equipment to improve our operations, these actions involve significant uncertainties, since upgraded equipment may not perform at expected throughput levels, the yield and product quality of new equipment may differ from design specifications and modifications may be needed to correct equipment that does not perform as expected. Any of these risks associated with new equipment, redesigned older equipment or repaired equipment could lead to lower revenues or higher costs or otherwise have an adverse effect on our business, financial condition, results of operations and cash flows. Over time, our

22


refineries may become obsolete or be unable to compete because of the construction of new, more efficient facilities by our competitors.
Our retail operations compete with numerous convenience stores, gasoline service stations, supermarket chains, drug stores, fast food operations and other retail outlets. Increasingly, national high-volume grocery and dry-goods retailers are entering the gasoline retailing business. Because of their diversity, integration of operations and greater resources, these companies may be better able to withstand volatile market conditions or levels of low or no profitability. Additionally, our convenience stores could lose market share, relating to both gasoline and merchandise, to these and other retailers that could adversely affect our business, results of operations and cash flows. Our convenience stores compete in large part based on their ability to offer convenience to customers. Consequently, changes in traffic patterns, the type and number and location of competing stores and promotional pricing or discounts by our competitors could result in the loss of customers and reduced sales and profitability at affected stores.
If we and our subsidiaries are unable to make and integrate acquisitions or complete or manage divestitures on economically acceptable terms, our future growth would be limited, and any acquisitions we and our subsidiaries may make may cause our actual growth or results of operations to differ adversely compared with our expectations.
A portion of our strategy to grow our business is dependent on our ability to make selective acquisitions. We actively seek to acquire assets such as refineries, pipelines, terminals and retail fuel and convenience stores that complement our existing assets and/or broaden our geographic presence. For example, on December 21, 2015, we entered into a definitive merger agreement with NTI to acquire all the outstanding publicly-held units of NTI. In addition, during 2013 we formed WNRL to develop and acquire terminals, storage tanks, pipelines and other logistics assets. WNRL’s acquisition strategy is based, in large part, on its expectation of ongoing divestitures of gathering, transportation and storage assets by industry participants, including Western. Any acquisition involves potential risks, including, among other things:
we may not be able to identify attractive acquisition candidates or negotiate acceptable purchase contracts or we are outbid by competitors;
during the acquisition process, we may fail to or be unable to discover some of the liabilities of companies or businesses that we acquire;
we may not be able to obtain financing for these acquisitions on economically acceptable terms;
we may have mistaken assumptions about the overall costs of equity or debt;
as a public company, we are subject to reporting obligations, internal controls and other accounting requirements with respect to any business we acquire, which may prevent or negatively affect the valuation of some acquisitions we might otherwise deem favorable or increase our acquisition costs;
we may have mistaken assumptions about revenues and costs, including synergies;
we may fail to successfully integrate or manage acquired businesses or assets;
any acquisition may cause the diversion of management’s attention from other business concerns;
any acquisition may involve unforeseen difficulties operating in new product areas or new geographic areas; and
we may have customer or key employee losses at the acquired businesses.
We and our subsidiaries may also not be able to complete any divestitures on acceptable terms to us or at all. Further, as divestitures may reduce our and our subsidiaries’ direct control over certain aspects of our business, any failure to maintain good relations with divested businesses may adversely impact our results of operations or performance.
There can be no assurance that any acquisition, including the Merger or any future or pending acquisition or merger, will be successfully integrated into our operations. Furthermore, our capitalization and results of operations may change significantly as a result of any such acquisitions. The occurrence of any of these factors could adversely affect our growth strategy and cause our actual growth or results of operations to differ adversely compared with our expectations.
Our insurance policies do not cover all losses, costs or liabilities that we may experience.
Our insurance coverage does not cover all potential losses, costs or liabilities. We could suffer losses for uninsurable or uninsured risks or in amounts in excess of our existing insurance coverage. Our ability to obtain and maintain adequate insurance may be adversely affected by conditions in the insurance market over which we have no control. In addition, if we experience any more insurable events, our annual premiums could increase further or insurance may not be available at all. The occurrence of an event that is not fully covered by insurance or the loss of insurance coverage could have a material adverse effect on our business, financial condition, results of operations and cash flows.
We could be subject to damages based on claims brought against us by our customers or lose customers as a result of a failure of our products to meet certain quality specifications.
The products we sell are required to meet certain quality specifications. If certain of our quality control measures were to fail, we could supply products to our customers that do not meet these specifications. This type of incident could result in various liability claims regarding damages caused by our products. Any liability claims could impact our ability to retain

23


existing customers or acquire new customers, any of which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
A substantial portion of our refining workforce is unionized and we may face labor disruptions that would interfere with our operations.
As of December 31, 2015, we employed approximately 7,347 people, with collective bargaining agreements covering about 640 of those employees. As of December 31, 2015, NTI employed 2,961 people, including 484 employees associated with its refining operations and 2,413 employees associated with its retail operations. NTI is party to collective bargaining agreements covering approximately 185 of the 484 employees associated with its refining operations and 25 of 2,413 associated with its retail operations. WNRL employs approximately 562 employees in its wholesale segment. During 2011, we successfully renegotiated a collective bargaining agreement covering employees at our Gallup refinery that expires in 2020. We also successfully negotiated a new collective bargaining agreement covering employees at our El Paso refinery, renewing the collective bargaining agreement to expire in April of 2015. We also have collective bargaining agreement that expires in December 2016 associated with the operations of the St. Paul Park refining operations and another collective bargaining agreement associated with NTI’s retail operations that expires in August 2017. While our El Paso and Gallup collective bargaining agreements and the NTI collective bargaining agreements contain “no strike” provisions, those provisions are not effective in the event that an agreement expires. Accordingly, we may not be able to prevent a strike or work stoppage in the future, and any such work stoppage could cause disruptions in our business and have a material adverse effect on our business, financial condition, results of operations and cash flows.
Long-lived and intangible assets comprise a significant portion of our total assets.
Long-lived assets and both amortizable intangible assets and intangible assets with indefinite lives must be tested for recoverability whenever events or changes in circumstances indicate that the carrying amount of those assets may not be recoverable. We evaluate the remaining useful lives of our intangible assets with indefinite lives at least annually. If events or circumstances no longer support an indefinite life, the intangible asset is tested for impairment and prospectively amortized over its estimated remaining useful life. Long-lived and amortizable intangible assets are not recoverable if their carrying amount exceeds the sum of the undiscounted cash flows expected to result from their use and eventual disposition. If a long-lived or amortizable intangible asset is not recoverable, an impairment loss is recognized in an amount by which its carrying amount exceeds its fair value, with fair value determined generally based on discounted estimated net cash flows.
In order to test long-lived and both amortizable intangible assets and intangible assets with indefinite lives for recoverability, management must make estimates of projected cash flows related to the asset being evaluated that include, but are not limited to, assumptions about the use or disposition of the asset, its estimated remaining life and future expenditures necessary to maintain its existing service potential. In order to determine fair value, management must make certain estimates and assumptions including, among other things, an assessment of market conditions, projected volumes, margins, cash flows, investment rates, interest/equity rates and growth rates that could significantly impact the fair value of the asset being tested for impairment.
Our operating results are seasonal and generally lower in the first and fourth quarters of the year.
Demand for gasoline is generally higher during the summer months than during the winter months. As a result, our operating results for the first and fourth calendar quarters are generally lower than those for the second and third calendar quarters of each year. In addition, unseasonably cool weather in summer months and/or unseasonably warm weather in winter months in the regions where we sell our refined products can impact the demand for gasoline and diesel.
Seasonal fluctuations in traffic also affect sales of motor fuels and merchandise in our retail fuel and convenience stores. As a result, the operating results of our retail business are generally lower for the first quarter of the year. Weather conditions in our operating area also have a significant effect on our retail operating results. Customers are more likely to purchase higher profit margin items at our retail fuel and convenience stores, such as fast foods, fountain drinks and other beverages and more gasoline during the spring and summer months, thereby typically generating higher revenues and gross margins for us in these periods. Unfavorable weather conditions during these months and a resulting lack of the expected seasonal upswings in traffic and sales could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Our ability to pay dividends in the future is limited by contractual restrictions and cash generated by operations.
We are a holding company and all of our operations are conducted through our subsidiaries. Consequently, we will rely on dividends or advances from our subsidiaries to fund any dividends. The ability of our operating subsidiaries to pay dividends and our ability to receive distributions from those entities are subject to applicable local law.
WNRL and NTI are dependent upon the earnings and cash flow generated by their respective operations in order to meet their debt service obligations and to allow each of them to make cash distributions to us. The operating and financial restrictions and covenants in their respective debt instruments and any future financing agreements could restrict each of their,

24


and our, ability to finance future operations or capital needs or to expand or pursue business activities, which may in turn limit their ability to make cash distributions to us and our ability to make cash distributions to stockholders. For example, WNRL’s revolving credit facility and the indenture governing its senior notes contain restrictions on its ability to, among other things, make certain cash distributions, incur certain indebtedness, create certain liens, make certain investments, and merge or sell all or substantially all of its assets. NTI’s asset-based revolving credit facility and the indenture governing its 7.125% senior secured notes due 2020 also contain restrictive covenants.
To the extent the ability of our subsidiaries to distribute dividends or other payments to us could be limited in any way, our ability to grow, pursue business opportunities or make acquisitions that could be beneficial to our business, or otherwise fund and conduct our business could be materially limited.
In addition, our ability to pay dividends to our stockholders is subject to certain restrictions in our debt instruments and such restrictions could restrict our ability to pay dividends in the future. In addition, our payment of dividends will depend upon our ability to generate sufficient cash flows. Our board of directors will review our dividend policy periodically in light of the factors referred to above, and we cannot assure you of the amount of dividends, if any, that may be paid in the future.
Our controlling stockholders may have conflicts of interest with other stockholders in the future.
Mr. Paul Foster, our Executive Chairman, and Messrs. Jeff Stevens, our Chief Executive Officer and President and a current director, and Scott Weaver, our Vice President and Assistant Secretary and a current director, own approximately 25.8% of our common stock as of February 19, 2016, and are anticipated to own approximately 21.7% following the completion of the Merger. As a result, Mr. Foster and the other members of this group may strongly influence or effectively control the election of our directors, our corporate and management policies, and determine, without the consent of our other stockholders, the outcome of any corporate transaction or other matter submitted to our stockholders for approval, including potential mergers or acquisitions, asset sales, and other significant corporate transactions. The interests of Mr. Foster and the other members of this group may not coincide with the interests of other holders of our common stock.
Loss of any of our key personnel could negatively impact our ability to manage our business and continue our growth.
Our future performance depends to a significant degree upon the continued contributions of our senior management team, including our executive officers and key technical employees. We do not currently maintain key man life insurance with respect to any member of our senior management team. The loss or unavailability to us of any member of our senior management team or a key technical employee could significantly harm us. We face competition for these professionals from our competitors, our customers and other companies operating in our industry. To the extent that the services of members of our senior management team would be unavailable to us for any reason, we would be required to hire other personnel to manage and operate our companies. We may not be able to locate or employ such qualified personnel on acceptable terms, or at all.
Terrorist attacks, cyber-attacks, threats of war or actual war may negatively affect our operations, financial condition, results of operations, cash flows and prospects.
Terrorist attacks in the U.S. as well as events occurring in response to or in connection with them, may adversely affect our operations, financial condition, results of operations, cash flows and prospects. Energy-related assets (that could include refineries and terminals such as ours or pipelines such as the ones on which we depend for our crude oil supply and refined product distribution) may be at greater risk of future terrorist attacks than other possible targets. A direct attack on our assets or assets used by us could have a material adverse effect on our operations, financial condition, results of operations, cash flows and prospects. In addition, any terrorist attack could have an adverse impact on energy prices, including prices for our crude oil and refined products and an adverse impact on the margins from our refining and marketing operations. In addition, disruption or significant increases in energy prices could result in government imposed price controls. While we currently maintain some insurance that provides coverage against terrorist attacks, such insurance has become increasingly expensive and difficult to obtain. As a result, insurance providers may not continue to offer this coverage to us on terms that we consider affordable, or at all.
We are dependent on technology infrastructure and maintain and rely upon certain critical information systems for the effective operation of our businesses. These information systems include data network and telecommunications, internet access and our websites and various computer hardware equipment and software applications. These information systems are subject to damage or interruption from a number of potential sources including natural disasters, software viruses or other malware, power failures, cyber-attacks and other events. To the extent that these information systems are under our control, we have implemented measures such as virus protection software and emergency recovery processes to address the outlined risks. However, security measures for information systems cannot be guaranteed. Breaches to our networks could lead to such information being accessed, publicly disclosed, lost or stolen, and could result in legal claims or proceedings, liability under laws that protect the privacy of customer information, disrupt the services we provide and damage our reputation, any of which could have a material adverse effect on our business, financial condition, results of operations and cash flows. Any compromise

25


of our data security or our inability to use or access these information systems at critical points in time could unfavorably impact the timely and efficient operation of our business and subject us to additional costs and liabilities.
We have exposure to concentrations of credit risk related to the ability of our counterparties to meet their contractual payment obligations and the potential non-performance of counterparties to deliver contracted commodities or services at the contracted price.
We and our subsidiaries are exposed to credit risk of counterparties with whom we do business. Adverse economic conditions or financial difficulties experienced by these counterparties could impair the ability of these counterparties to pay for our and our subsidiaries’ services or fulfill their contractual obligations, including performance and payment of damages. We and our subsidiaries depend on these counterparties to remit payments and perform services timely. Counterparties could fail or delay the performance of their contractual obligations for a number of reasons, including the effect of regulations on their operations. Any delay or default in payment or performance of contractual obligations and an adverse change in our counterparties’ business, results of operations or financial condition could adversely affect their respective ability to perform each of these obligations that could consequently have a material adverse effect on our business, results of operations or liquidity.
Our operations could be disrupted if our information systems fail, causing increased expenses and loss of sales.
Our business is highly dependent on financial, accounting and other data processing systems and other communications and information systems, including our enterprise resource planning tools and credit and debit card sales at our retail stores and within our wholesale group. We process a large number of transactions and transmit confidential credit and debit card information securely over public networks on a daily basis and rely upon the proper functioning of computer systems. If a key system was to fail or experience unscheduled downtime for any reason, even if only for a short period, our operations and financial results could be affected adversely. These information systems are subject to damage or interruption from a number of potential sources including natural disasters, software viruses or other malware, power failures, cyber-attacks and other events. To the extent that these information systems are under our control, we have implemented measures such as virus protection software, intrusion detection systems and emergency recovery processes to address the outlined risks. However, security measures for information systems cannot be guaranteed to be failsafe. Any security breach could expose us to risks of data loss, litigation and liability and could seriously disrupt our operations and any resulting negative publicity could significantly harm our reputation. Our formal disaster recovery plan may not prevent delays or other complications that could arise from an information systems failure. Further, our business interruption insurance may not compensate us adequately for losses that may occur.
Our pipeline interests are subject to federal and/or state rate regulation that could reduce its profitability.
Certain of our pipelines, are subject to regulation by multiple governmental agencies, and compliance with such regulation increases our cost of doing business and affects our profitability.
Kinder Morgan's East Line, the Plains pipeline to Albuquerque and the Minnesota Pipeline, used by NTI, are common carrier pipelines providing interstate transportation service that is subject to regulation by FERC under the Interstate Commerce Act (the “ICA”). The ICA requires that tariff rates for interstate petroleum pipelines transportation service be just and reasonable and that the rates and terms of service of such pipelines not be unduly discriminatory or unduly preferential. Because NTI currently does not operate the Minnesota Pipeline or control the board of managers of the Minnesota Pipe Line Company, NTI does not control how the Minnesota Pipeline’s tariff is applied.
FERC can also impose conditions it considers appropriate, impose penalties limit or set rates retroactively, declare pipeline-related facilities to be common carrier facilities and require that common carrier access be provided or otherwise alter the terms of service and/or rates of such facilities. Rate regulation or a successful challenge to the rates we charge, including on our regulated pipelines could adversely affect the pipeline revenue we generate. Conversely, reduced rates on our regulated pipelines would reduce the rates for transportation of crude oil into our refineries.
Two of our subsidiaries act as the general partner of two publicly traded master limited partnerships that may involve a higher exposure to legal liability than our historic business operations.
Northern Tier Energy GP, LLC and Western Refining Logistics GP, LLC act as the general partners of NTI and WNRL, two publicly traded master limited partnerships, respectively. Our control of the general partner of NTI and WNRL may increase the possibility of claims of breach of fiduciary duties, including claims of conflicts of interest related to WNRL. Any liability resulting from such claims could have a material adverse effect on our future business, financial condition, results of operations and cash flows.

26


The adoption of financial reform legislation in the United States among other jurisdictions, and the implementing regulations issued thereunder, could have an adverse effect on our ability to use derivative instruments to reduce the effect of commodity price and other risks associated with our business.
We use derivative instruments to manage our commodity price risk. The United States Congress adopted comprehensive financial reform legislation in 2010 that establishes federal oversight and regulation of the market for certain derivatives, termed “swaps” and “security-based swaps,” and entities, such as ours, that participate in that market. The Dodd-Frank Act was signed into law by the President on July 21, 2010. Many of the provisions of the Dodd-Frank Act require implementing regulations by agencies including the Commodity Futures Trading Commission (the “CFTC”) and the SEC. While the SEC’s implementing regulations governing security-based swaps have largely not yet been adopted, the CFTC has implemented the majority of its rules governing swaps, including many commodity swaps.
Of particular importance to us, the CFTC has the authority, under certain findings, to establish position limits for certain futures, options on futures and swap contracts. Certain bona fide hedging transactions or positions would be exempt from these position limits. In 2011, the CFTC adopted position limit rules that were subsequently vacated by the U.S. District Court for the District of Columbia. Starting in November 2013, the CFTC has, through a series of actions, re-proposed position limit rules. The timing of adoption and implementation of these proposed rules and their applicability to and impact on our ability to cost-effectively hedge our commodity risks remain unclear.
The financial reform legislation may also require us to comply with margin requirements and with certain clearing and trade-execution requirements in connection with our derivatives activities. While there are exceptions from the margin, clearing and trade execution requirements that have been implemented to date for commercial end users of swaps like us, whether we choose to use these exceptions for all transactions remains uncertain at this time. The Dodd-Frank Act and its implementing regulations have also required some of the counterparties to our swaps to register with the CFTC and become subject to substantial regulation. These requirements and others, such as those related to trade execution and margin, could significantly increase the cost of derivatives contracts (including through requirements to clear swaps and to post collateral for both cleared and uncleared swaps, each of which could adversely affect our available liquidity), materially alter the terms of derivatives contracts, reduce the availability of derivatives to protect against risks we encounter, reduce our ability to monetize or restructure our existing derivative contracts, and increase our exposure to less creditworthy counterparties. If we reduce our use of derivatives as a result of the legislation and regulations, our results of operations may become more volatile and our cash flows may be less predictable, which could adversely affect our ability to plan for and fund capital expenditures. Our revenues could also be adversely affected if a consequence of the legislation and regulations is to lower commodity prices.
Our retail business is vulnerable to risks including changes in consumer preferences and economic conditions, competitive environment, supplier concentration, franchising operations and other trends and factors that could harm our business, financial condition, results of operations or cash flows.
Our retail business is subject to changes in consumer preferences, national, regional and local economic conditions, demographic trends and consumer confidence in the economy. Upon completion of the Merger with NTI, our results will be further exposed to fluctuations in the retail business. Factors such as traffic patterns, weather conditions, local demographics and the number and locations of competing retail service stations and convenience stores also affect the performance of our retail stores. NTI's retail operations in the Upper Great Plains region depend on one principal supplier for a substantial portion of its merchandise inventory. NTI franchises some of its retail stores and as a result, NTI's retail operations partly depend on the retail store franchisees who are independent business operators that could take actions that harm NTI's brand, reputation or goodwill. Adverse changes in any of these trends or factors could reduce our retail customer traffic or sales, or impose limits on our pricing that could adversely affect our business, financial condition, results of operations and cash flows.

27


Our business depends on the protection of our intellectual property and may suffer if we are unable to adequately protect such intellectual property.
We rely on patent laws, trademark and trade secret protection to protect our intellectual property rights. However, the steps we take to protect our intellectual property rights may be inadequate. There are events that are outside of our control that pose a threat to our intellectual property rights as well as to our products and services. For example, some or all of our and our subsidiaries’ current and future trademarks, service marks and trade dress may not be enforceable, even if registered, against any prior users of similar intellectual property or our competitors who seek to use similar intellectual property in areas where we and our subsidiaries operate or intend to conduct operations. Also, the efforts we have taken to protect our proprietary rights may not be sufficient or effective. Any impairment of our intellectual property rights could harm our business and our ability to compete. Also, protecting our intellectual property rights is costly and time consuming. Any increase in the unauthorized use of our intellectual property could make it more expensive to do business and harm our operating results. In addition, we could encounter claims from prior users of similar intellectual property in areas where we or our subsidiaries operate or intend to conduct operations that could result in additional expenditures and divert our management’s time and attention from our operations. Conversely, competing businesses could infringe on our intellectual property that would necessarily require us to defend our intellectual property possibly at a significant cost to us. Any of these consequences could cause a material adverse effect on our business, financial condition, results of operations and cash flows.

Item 1B.
Unresolved Staff Comments
None.

Item 2.
Properties
Our principal properties are described under Item 1. Business and the information is incorporated herein by reference. As of December 31, 2015, we were a party to a number of cancelable and non-cancelable leases for certain properties, including our corporate headquarters in El Paso and administrative offices in Tempe, Arizona. See Note 25, Leases and Other Commitments, in the Notes to Consolidated Financial Statements included elsewhere in this annual report.

Item 3.
Legal Proceedings
In the ordinary conduct of our business, we are subject to periodic lawsuits, investigations and claims, including environmental claims and employee related matters. Although we cannot predict with certainty the ultimate resolution of lawsuits, investigations and claims asserted against us, we do not believe that any currently pending legal proceeding or proceedings to which we are a party will have a material adverse effect on our business, financial condition, results of operations or cash flows.

Item 4.
Mine Safety Disclosures
Not Applicable.

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PART II

Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our common stock is listed on the NYSE under the symbol “WNR.” As of February 19, 2016, we had 45 holders of record of our common stock. The following table summarizes the high and low sales prices of our common stock as reported on the NYSE Composite Tape for the quarterly periods in the past two fiscal years and dividends declared on our common stock for the same periods:
 
High
 
Low
 
Dividends per
Common Share
2015:
 

 
 

 
 

First quarter
$
51.31

 
$
31.83

 
$
0.30

Second quarter
50.48

 
41.65

 
0.34

Third quarter
50.71

 
38.02

 
0.34

Fourth quarter
47.55

 
34.58

 
0.38

2014:
 

 
 

 
 

First quarter
$
43.00

 
$
35.58

 
$
0.26

Second quarter
45.00

 
36.49

 
0.26

Third quarter
48.36

 
37.61

 
0.26

Fourth quarter (1)
46.89

 
35.29

 
2.30

(1)
Dividends for the fourth quarter of 2014 included a special dividend of $2.00 per common share.
Our payment of dividends is limited under the terms of our Western Revolving Credit Agreement, our Senior Unsecured Notes and our Term Loan Credit Agreement, and in part, depends on our ability to satisfy certain financial covenants. Also, as a holding company, we rely on dividends or advances from our subsidiaries to fund any dividends. The ability of our subsidiaries including NTI and WNRL to pay us dividends is restricted by covenants in their respective debt instruments and any future financing agreements. Throughout 2015, our board of directors approved and we declared quarterly cash dividends totaling $129.2 million paid on various dates throughout the year.
On January 6, 2016, our board of directors approved a cash dividend for the first quarter of 2016 of $0.38 per share of common stock in an aggregate payment of approximately $35.6 million that was paid on February 4, 2016 to holders of record on January 20, 2016.
Securities Authorized for Issuance Under Equity Compensation Plans
See Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Performance Graph
The following performance graph and related information shall not be deemed “soliciting material” or “filed” with the SEC, nor shall such information be incorporated by reference into any further filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, each as amended, except to the extent we specifically incorporate it by reference into such filing.
The following graph compares the cumulative 60-month total stockholder return on our common stock relative to the cumulative total stockholder returns of the Standard & Poor’s ("S&P, 500") index and a customized peer group of six companies that includes: Alon USA Energy, Inc., CVR Energy, Inc., Delek US Holdings Inc., HollyFrontier Corp., Tesoro Corp. and Valero Energy Corp. An investment of $100 (with reinvestment of all dividends) is assumed to have been made in our common stock and peer group on December 31, 2010. The index on December 31, 2015, and its relative performance are tracked through this date. The stock price performance included in this graph is not necessarily indicative of future stock price performance.

29


COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
(Tabular representation of data in graph above)
 
Dec
 
Dec
 
Dec
 
Dec
 
Dec
 
Dec
2010
 
2011
 
2012
 
2013
 
2014
 
2015
Western Refining, Inc. 
$
100.00

 
$
125.61

 
$
295.15

 
$
453.16

 
$
434.63

 
$
422.69

S&P 500
100.00
 
102.11
 
118.45
 
156.82

 
178.28

 
180.75
Peer Group
100.00
 
104.14
 
197.59
 
276.52

 
275.63

 
373.53
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Between July 18, 2012 and December 31, 2015, our board of directors authorized five separate share repurchase programs of up to $200 million, per program, of our outstanding common stock. Our board of directors approved a share repurchase program in September of 2015 (the "September 2015 Program"). As of December 31, 2015, we had $200.0 million remaining in authorized expenditures under the September 2015 Program. Through December 31, 2015, we have purchased approximately 20.5 million shares of our common stock under the share repurchase programs.
Subject to market conditions as well as corporate, regulatory and other considerations, we will repurchase shares from time-to-time through open market transactions, block trades, privately negotiated transactions or otherwise. Our board of directors may discontinue the share repurchase program at any time.




30


The following table presents shares repurchased, by month, during 2015.
 
Total number of shares purchased as part of publicly announced plans or programs (1)
 
Average price paid per share (2)
 
Maximum dollar value of shares that may yet be purchased under the programs (In thousands) (3)
January 1 - January 31
740,859

 
$
33.72

 
$
115,778

February 1 - February 28

 

 
115,778

March 1 - March 31

 

 
115,778

April 1 - April 30

 

 
115,778

May 1 - May 31

 

 
115,778

June 1 - June 30

 

 
115,778

July 1 - July 31

 

 
115,778

August 1 - August 31
1,785,339

 
41.97

 
40,806

September 1 - September 30
121,542

 
41.34

 
235,779

October 1 - October 31

 

 
235,779

November 1 - November 30

 

 
200,000

December 1 - December 31

 

 
200,000

Total
2,647,740

 
$
39.64

 
 
(1)
We do not actively repurchase shares of our common stock outside of our publicly announced repurchase programs.
(2)
Average price per share excludes commissions of $0.02 per share.
(3)
On November 3, 2014, our board of directors authorized a share repurchase program of up to $200 million which expired on November 3, 2015 with $35.8 million in remaining funds authorized under the program. On September 21, 2015, our board of directors approved the September 2015 Program of up to $200 million effective through December 31, 2016.



31


Item 6.
Selected Financial Data
The following tables set forth a summary of our historical financial and operating data for the periods indicated. The summary results of operations and financial position data as of and for the five years ended December 31, 2015, have been derived from the consolidated financial statements of Western Refining, Inc. and its subsidiaries. The information presented includes the results of operations of NTI beginning November 12, 2013, the date of our initial acquisition of NTI (the "2013 NTI Acquisition"). The information presented also includes the financial results for WNRL from October 16, 2013 forward. In addition to the impact of the non-controlling interests in net income of NTI and WNRL, refinery margins have decreased due to additional fees paid by Western to WNRL for logistics services and refining direct operating expenses have decreased for the costs associated with WNRL that are no longer included in refining direct operating costs. Consequently, our results of operations for 2013 are not fully comparable with prior or future periods.
Through various transactions from 2013 through 2015, WNRL has purchased certain operating assets and businesses from Western. In consideration for these assets and businesses, WNRL paid a combination of WNRL partnership units and cash. These purchases began in October 2013 with the sale of pipeline and gathering assets and terminalling, transportation and storage assets. In October 2014, WNRL purchased substantially all of Western's Southwest-based wholesale and crude gathering business. In October 2015, WNRL purchased a 375-mile segment of the TexNew Mex Pipeline that extends from the crude oil station in Star Lake, New Mexico, in the Four Corners region to the T station in Eddy County, New Mexico (the "TexNew Mex Pipeline System") and other related assets. We transferred the businesses and all related net assets to WNRL at Western’s historical cost as these transactions were between entities under common control.
The financial position, results of operations and operating statistics of WNRL’s accounting predecessor for the contributed logistics assets prior to October 16, 2013 are contained herein as part of our historical information. In addition to the logistics assets contributed in conjunction with WNRL’s initial public offering in 2013 (the “Offering”), its accounting predecessor prior to the Offering contains the financial position and results of operations of other logistics assets that were contributed subsequent to the Offering. These assets relate to the historical financial results of the TexNew Mex Pipeline System. We refer to the financial position, results of operations and operating statistics of contributed and non-contributed assets, prior to October 16, 2013 as the WNRL Predecessor.
The information presented below should be read in conjunction with Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and the notes thereto included in Item 8. Financial Statements and Supplementary Data.
 
Year Ended December 31,
 
2015
 
2014
 
2013
 
2012
 
2011
 
(In thousands, except per share data)
Statement of Operations Data
 

 
 

 
 

 
 

 
 

Net sales
$
9,787,036

 
$
15,153,573

 
$
10,086,070

 
$
9,503,134

 
$
9,071,037

Total operating costs and expenses (1)
8,856,911

 
14,057,060

 
9,514,197

 
8,791,239

 
8,687,258

Operating income
930,125

 
1,096,513

 
571,873

 
711,895

 
383,779

 
 
 
 
 
 
 
 
 
 
Net income
614,431

 
710,072

 
299,554

 
398,885

 
132,667

Less net income attributed to non-controlling interests (3)
207,675

 
150,146

 
23,560

 

 

Net income attributable to Western Refining, Inc.
$
406,756

 
$
559,926

 
$
275,994

 
$
398,885

 
$
132,667

 
 
 
 
 
 
 
 
 
 
Basic earnings per share
$
4.28

 
$
6.17

 
$
3.35

 
$
4.42

 
$
1.46

Diluted earnings per share
4.28

 
5.61

 
2.79

 
3.71

 
1.34

Dividends declared per common share
$
1.36

 
$
3.08

 
$
0.64

 
$
2.74

 
$

Weighted average basic shares outstanding
94,899

 
90,708

 
82,248

 
89,270

 
88,981

Weighted average dilutive shares outstanding
94,999

 
101,190

 
104,904

 
111,822

 
109,792



32


 
Year Ended December 31,
 
2015
 
2014
 
2013
 
2012
 
2011
 
(In thousands)
Other Data
 

 
 

 
 

 
 

 
 

Adjusted EBITDA (2)
$
1,298,124

 
$
1,231,443

 
$
754,839

 
$
1,083,669

 
$
786,239

Balance Sheet Data (at end of period)
 

 
 

 
 

 
 

 
 

Cash and cash equivalents
$
772,502

 
$
431,159

 
$
468,070

 
$
453,967

 
$
170,829

Restricted cash
69,106

 
167,009

 

 

 
220,355

Working capital
1,114,366

 
812,711

 
479,160

 
586,923

 
650,536

Total assets
5,833,393

 
5,642,186

 
5,475,099

 
2,457,706

 
2,537,258

Total debt and lease financing obligations
1,703,626

 
1,507,654

 
1,373,651

 
487,320

 
774,241

Total equity
2,945,906

 
2,787,644

 
2,570,587

 
909,070

 
819,828

(1)
The net effect of commodity hedging gains and losses included in cost of products sold for the periods presented was as follows:
 
Year Ended December 31,
 
2015
 
2014
 
2013
 
2012
 
2011
 
(In thousands)
Realized commodity hedging gain (loss), net
$
93,699

 
$
95,331

 
$
15,868

 
$
(144,448
)
 
$
(76,033
)
Unrealized commodity hedging gain (loss), net
(50,233
)
 
194,423

 
(16,898
)
 
(229,672
)
 
183,286

Total realized and unrealized commodity hedging gain (loss), net
$
43,466

 
$
289,754

 
$
(1,030
)
 
$
(374,120
)
 
$
107,253

(2)
Adjusted EBITDA represents earnings before interest expense and other financing costs, amortization of loan fees, 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 United States 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.

33


The following table reconciles net income attributable to Western Refining, Inc. to Adjusted EBITDA for the periods presented:
 
Year Ended December 31,
 
2015
 
2014
 
2013
 
2012
 
2011
 
(In thousands)
Net income attributable to Western Refining, Inc.
$
406,756

 
$
559,926

 
$
275,994

 
$
398,885

 
$
132,667

Net income attributed to non-controlling interests
207,675

 
150,146

 
23,560

 

 

Interest expense and other financing costs
105,603

 
97,062

 
74,581

 
88,209

 
143,527

Provision for income taxes
223,955

 
292,604

 
153,925

 
218,202

 
69,861

Depreciation and amortization
205,291

 
190,566

 
117,848

 
93,907

 
135,895

Maintenance turnaround expense
2,024

 
48,469

 
50,249

 
47,140

 
2,443

Loss (gain) and impairments on disposal of assets, net (a)
51

 
8,530

 
(4,989
)
 

 
450,796

Loss on extinguishment of debt

 
9

 
46,773

 
7,654

 
34,336

Net change in lower of cost or market inventory reserve
96,536

 
78,554

 

 

 

Unrealized loss (gain) on commodity hedging transactions, net (b)
50,233

 
(194,423
)
 
16,898

 
229,672

 
(183,286
)
Adjusted EBITDA
$
1,298,124

 
$
1,231,443

 
$
754,839

 
$
1,083,669

 
$
786,239

(a) The calculation of Adjusted EBITDA for the year ended December 31, 2011, includes the add-back of net gains and losses of $450.8 million incurred from the sale of the Yorktown refining and certain pipeline assets.
(b) Adjusted EBITDA has been adjusted for the impact of net non-cash unrealized gains and losses related to our commodity hedging transactions. We believe the inclusion of this component of net income provides a better representation of Adjusted EBITDA given the non-cash and potentially volatile nature of commodity hedging.
(3)
Net income attributed to non-controlling interests for the years ended December 31, 2015, 2014 and 2013, consisted of income from NTI of $186.5 million, $131.9 million and $20.6 million, respectively. Net income attributed to non-controlling interests for the years ended December 31, 2015, 2014 and 2013, consisted of income from WNRL of $21.2 million, $18.2 million and $3.0 million, respectively.



34


Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion together with the financial statements and the notes thereto included elsewhere in this annual report. This discussion contains forward-looking statements that are based on management’s current expectations, estimates and projections about our business and operations. The cautionary statements made in this report should be read as applying to all related forward-looking statements wherever they appear in this report. Our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements as a result of a number of factors, including those we discuss under Part I — Item 1A. Risk Factors and elsewhere in this report. You should read such Risk Factors and Forward-Looking Statements in this report. In this Item 7, all references to “Western Refining,” “the Company,” “Western,” “we,” “us” and “our” refer to Western Refining, Inc. and its subsidiaries, unless the context otherwise requires or where otherwise indicated.
Company Overview
Through various transactions from 2013 through 2015, WNRL has purchased certain operating assets and businesses from Western. In consideration for these assets and businesses, WNRL paid a combination of WNRL partnership units and cash. These purchases began in October 2013 with the sale of pipeline and gathering assets and terminalling, transportation and storage assets. In October 2014, WNRL purchased substantially all of Western's Southwest-based wholesale and crude gathering business. In October 2015, WNRL purchased a 375-mile segment of the TexNew Mex Pipeline that extends from the crude oil station in Star Lake, New Mexico, in the Four Corners region to the T station in Eddy County, New Mexico (the "TexNew Mex Pipeline System") and other related assets. We transferred the businesses and all related net assets to WNRL at Western’s historical cost as these transactions were between entities under common control.
The financial position, results of operations and operating statistics of WNRL’s accounting predecessor for the contributed logistics assets prior to October 16, 2013 are contained herein as part of our historical information. In addition to the logistics assets contributed in conjunction with WNRL’s initial public offering in 2013 (the “Offering”), its accounting predecessor prior to the Offering contains the financial position and results of operations of other logistics assets that were contributed subsequent to the Offering. These assets relate to the historical financial results of the TexNew Mex Pipeline System. We refer to the financial position, results of operations and operating statistics of contributed and non-contributed assets, prior to October 16, 2013 as the WNRL Predecessor.
See Part I — Item 1. Business included in this annual report for detailed information on our business.

Major Influences on Results of Operations
Summary of 2015 Developments
We averaged total throughput of 135,077 bpd at the El Paso refinery for the year ended December 31, 2015, a 6.2% increase from 2014.
We averaged total throughput of 26,730 bpd at the Gallup refinery for the year ended December 31, 2015, a 3.8% decrease from 2014.
NTI averaged total throughput of 96,515 bpd at the St. Paul Park refinery for the year ended December 31, 2015, a 3.2% increase from 2014.
We sold the TexNew Mex Pipeline System and other related assets to WNRL on October 30, 2015, in exchange for consideration of $170 million in cash, the issuance of approximately 0.4 million WNRL common units and 80,000 TexNew Mex Units. WNRL partially funded the purchase of the TexNew Mex Pipeline System and other related assets using $145.0 million borrowed under the WNRL Revolving Credit Facility.
We purchased 2,647,740 shares under our share repurchase programs at an average price of $39.64 per share.
We added 31 company-operated retail locations in southern Arizona and NTI added 3 company-operated retail locations and 20 franchise locations in the Midwest.
WNRL issued $300.0 million in aggregate principal amount of 7.5% Senior Notes due 2023.
Dividends and distributions declared and paid:
$1.36 per Western common share;
$1.4275 per WNRL common unit; and
$3.80 per NTI common unit.

35


2015 Operating and Financial Highlights
Net income attributable to Western was $406.8 million, or $4.28 per diluted share for the year ended December 31, 2015, compared to $559.9 million, or $5.61 per diluted share for the year ended December 31, 2014. Our operating income decreased $166.4 million from December 31, 2014, to December 31, 2015, as shown by segment in the following table:
 
Year Ended December 31,
 
2015
 
2014
 
Change
 
(In thousands)
Refining
$
575,267

 
$
841,071

 
$
(265,804
)
NTI
322,382

 
241,229

 
81,153

WNRL
86,713

 
70,295

 
16,418

Retail
23,721

 
20,763

 
2,958

Other
(77,958
)
 
(76,845
)
 
(1,113
)
Total operating income
$
930,125

 
$
1,096,513

 
$
(166,388
)
Overview of Segments
Refining. The following items have a significant impact on our overall refinery gross margin, results of operations and
cash flows:
fluctuations in petroleum based commodity values such as refined product prices and the cost of crude oil and other feedstocks;
product yield volumes that are less than total refinery throughput volume, resulting in yield loss and lower refinery gross margin;
the impact of our economic hedging activity;
fluctuations in our direct operating expenses, especially the cost of natural gas and electricity;
planned maintenance turnarounds, generally significant in both downtime and cost, are expensed as incurred;
seasonal fluctuations in demand for refined products; and
unplanned downtime of our refineries generally leads to increased maintenance costs and a temporary increase in working capital investment.
Key factors affecting petroleum based commodities' values include: supply and demand for crude oil, gasoline and other refined products; changes in domestic and foreign economies; weather conditions; domestic and foreign political affairs; crude oil and refined petroleum product production levels; logistics constraints; availability of imports; marketing of competitive fuels; price differentials between heavy and sour crude oils and light sweet crude oils; and government regulation.
We engage in hedging activity primarily to fix the margin on a portion of our future gasoline and distillate production and to protect the value of certain crude oil, refined product and blendstock inventories. We record the results of our hedging activity within cost of products sold which directly impacts our results of operations.
Excise and other taxes collected from customers and remitted to governmental authorities are not included in revenues or cost of products sold. In addition to the crude oil that we purchase to supply our refinery production, we also purchase crude oil quantities that are transported to different locations and sold to third parties. We record these sales on a gross basis with the sales price recorded as revenues and the related costs within cost of products sold. Consolidated cost of products sold for the year ended December 31, 2015 includes $43.5 million of realized and unrealized net gains from our economic hedging activities, including refining segment gains of $46.7 million, offset by NTI losses of $3.2 million. The non-cash unrealized net losses included in the consolidated total were $50.2 million, including unrealized losses of $45.5 million related to Western's refining segment and unrealized losses of $4.8 million related to NTI for the year ended December 31, 2015.
Demand for gasoline is generally higher during the summer months than during the winter months. As a result, our operating results for the first and fourth calendar quarters are generally lower than those for the second and third calendar quarters of each year. During 2014 and 2015, the volatility in crude oil prices and refining margins contributed to the variability of our results of operations.
Safety, reliability and the environmental performance of our refineries’ operations are critical components of our financial performance. Unplanned downtime of our refineries generally results in lost refinery gross margin, increased maintenance costs and a temporary increase in our working capital investment. We attempt to mitigate the financial impact of planned downtime, such as a turnaround or a major maintenance project, through our planning process that considers product availability, the

36


margin environment and the availability of resources to perform the required maintenance. We occasionally experience unplanned downtime due to circumstances outside of our control. Certain of these outages may lead to losses that qualify for reimbursement under our business interruption insurance and we record such reimbursements as revenues when received. Net sales for the years ended December 31, 2014 and 2013, include $5.8 million and $22.2 million, respectively, in business interruption recoveries related to processing outages that occurred during the first and fourth quarters of 2011 at the El Paso refinery.
Under an exclusive supply agreement with a third party, we receive monthly distribution amounts from the supplier equal to one-half of the amount by which our refined product sales in the Mid-Atlantic exceeds the supplier's costs of acquiring, transporting and hedging the refined product related to such sales. To the extent our refined product sales do not exceed the refined product costs during any month, we pay one-half of that amount to the supplier. Our payments to the supplier are limited to an aggregate annual amount of $2.0 million.
NTI. NTI's gross margins, results of operations and cash flows are primarily affected by the following:
Fluctuations in petroleum based commodity values such as refined product prices and the cost of crude oil and other feedstocks resulting from changes in supply and demand;
product yield volumes that are less than total refinery throughput volume, resulting in yield loss and lower refinery gross margin;
adjustments to reflect the lower of cost or market value of crude oil, finished product and retail LIFO inventory values;
fluctuations in its direct operating expenses, especially related to the cost of natural gas and the cost of electricity;
planned maintenance turnarounds, generally significant in both downtime and cost, are expensed as incurred;
seasonal fluctuations in demand for refined products; and
unplanned downtime of its refineries generally leads to increased maintenance costs and a temporary increase in working capital investment.
Demand for gasoline is generally higher during the summer months than during the winter months due to seasonal increases in highway traffic. Decreased demand during the winter months can lower gasoline prices and margins. As a result, NTI's operating results for the first and fourth calendar quarters are generally lower than those for the second and third calendar quarters of each year.
WNRL. WNRL's terminal throughput volumes depend upon the volume of refined and other products produced at Western’s refineries that, in turn, is ultimately dependent on supply and demand for refined product, crude oil and other feedstocks and Western’s response to changes in demand and supply.
Earnings and cash flows from WNRL's wholesale business are primarily affected by the sales volumes and margins of gasoline, diesel fuel and lubricants sold and transportation revenues from crude oil trucking and delivery. These margins are equal to the sales price, net of discounts, less total cost of sales and are measured on a cents per gallon ("cpg") basis. Factors that influence margins include local supply, demand and competition.
Retail. Earnings and cash flows from our retail business are primarily affected by the sales volumes and margins of gasoline and diesel fuel and by the sales and margins of merchandise sold at our retail stores. Margins for gasoline and diesel fuel sales are equal to the sales price less the delivered cost of the fuel and motor fuel taxes and are measured on a cpg basis. Fuel margins are impacted by competition and local and regional supply and demand. Margins for retail merchandise sold are equal to retail merchandise sales less the delivered cost of the merchandise, net of supplier discounts and inventory shrinkage and are measured as a percentage of merchandise sales. Merchandise sales are impacted by convenience or location, branding and competition. Our retail sales reflect seasonal trends such that operating results for the first and fourth calendar quarters are generally lower than those for the second and third calendar quarters of each year primarily driven by lower volumes of fuel being sold. Earnings and cash flows from our cardlock business are primarily affected by the sales volumes and margins of gasoline and diesel fuel sold. These margins are equal to the sales price, net of discounts less the delivered cost of the fuel and motor fuel taxes and are measured on a cpg basis. Factors that influence margins include local supply, demand and competition.

Factors Impacting Comparability of Our Financial Results
Our historical results of operations for the periods presented may not be comparable with prior periods or to our results of operations in the future for the reasons discussed below.

37


WNRL
During 2013, we formed WNRL, a fee-based growth-oriented master limited partnership, to own, operate, develop and acquire terminals, storage tanks, pipelines and other logistics assets. On October 16, 2013, WNRL completed the offering of 15,812,500 common units representing limited partner interests to the public at a price of $22.00 per unit that included a 2,062,500 common partnership unit over-allotment option exercised by the underwriters. Western retained certain assets that are related to the operations of Western Refining Logistics, LP Predecessor, which is WNRL's predecessor as defined for accounting purposes. The retained assets include Western’s NGL storage facility in Jal, New Mexico and portions of the TexNew Mex Pipeline System extending from the crude oil station in Star Lake, New Mexico in the Four Corners area to near Maljamar, New Mexico in the Delaware Basin.
On October 15, 2014, in connection with a Contribution, Conveyance and Assumption Agreement dated September 25, 2014, we sold substantially all of our wholesale business to WNRL.
On October 30, 2015, we sold the TexNew Mex Pipeline System and other related assets to WNRL. WNRL acquired these assets from us in exchange for $170 million in cash, issuance of 421,031 common units that increased our limited partner interests in WNRL and 80,000 TexNew Mex Units.
WNRL provides a portion of our terminalling and storage services and we record the fees we pay to WNRL for its services within cost of products sold. Prior to WNRL's operations, we did not operate our logistics assets for the purpose of generating revenue, therefore, there is no comparable activity prior to WNRL's commencement of operations on October 16, 2013.
See Note 29, Western Refining Logistics, LP, in the Notes to Consolidated Financial Statements included in this annual report for more detailed information.
2013 NTI Acquisition
On November 12, 2013 Western purchased all of the interests in NT InterHoldCo LLC, a wholly-owned subsidiary of Northern Tier Holdings LLC, that holds all of the membership interests in Northern Tier Energy GP LLC, the general partner of Northern Tier Energy LP, and 35,622,500 common units representing a 38.7% limited partner interest in Northern Tier Energy LP for a purchase price of $775 million. Our 2013 results of operations include the period from November 12, 2013 through December 31, 2013. See Note 30, NTI, in the Notes to Consolidated Financial Statements included in this annual report for more detailed information.
Debt Transactions
The following debt transactions occurred during the years ended December 31, 2015, 2014 and 2013:
2015
On February 11, 2015, WNRL entered into an indenture for the issuance of $300.0 million in aggregate principal amount of 7.5% Senior Notes due 2023 and used a portion of the proceeds from issuance of these notes to repay its outstanding direct borrowings under the WNRL 2018 Revolving Credit Facility.
WNRL borrowed $145.0 million under the WNRL 2018 Revolving Credit Facility on October 30, 2015, to partially fund the purchase of Western's TexNew Mex Pipeline System.
2014
We delivered an aggregate of 22,759,243 shares of common stock on various dates between March 26, 2014, and June 16, 2014, to noteholders to satisfy the conversion of aggregate principal amount of 5.75% Convertible Senior Unsecured Notes based on conversion rates.
NTI increased the principal amount of the 2020 Secured Notes in September 2014 through issuance of an additional $75.0 million in principal amount.
WNRL borrowed $269.0 million under the WNRL 2018 Revolving Credit Facility on October 15, 2014, to partially fund the purchase of substantially all of Western's wholesale business.
2013
We redeemed or otherwise purchased and canceled all outstanding 11.25% Senior Secured Notes during the first and second quarters of 2013.
We entered into an indenture for the issuance of $350.0 million in aggregate principal amount of 6.25% Senior Unsecured Notes due 2021 on March 25, 2013.

38


WNRL entered into a senior secured revolving credit facility on October 16, 2013, receiving $300.0 million in commitments maturing in 2018.
We entered into a $550.0 million term loan credit agreement on November 12, 2013, that matures on November 12, 2020.
As a result of the long-term debt redemptions described above, we recognized insignificant losses on extinguishment of debt in 2014 and $46.8 million for the year ended December 31, 2013. These losses are included in Loss on extinguishment of debt in the Consolidated Statements of Operations.
See Note 15, Long-Term Debt, in the Notes to Consolidated Financial Statements included in this annual report for more detailed information regarding our debt transactions.
Equity Transactions
See Part I — Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities included in this annual report and Note 20, Equity, in the Notes to Consolidated Financial Statements included in this annual report for detailed information regarding our share repurchase programs and the issuance of common stock to satisfy conversions of our Convertible Senior Unsecured Notes.
Employee Benefit Plans
See Note 17, Retirement Plans, in the Notes to Consolidated Financial Statements included in this annual report for detailed information regarding our employee benefit plans.
Commodity Hedging Activities, Property Taxes and Other
Our operating results for the years ended December 31, 2015 included realized and unrealized net gains from our commodity hedging activities of $43.5 million, realized and unrealized net gains of $289.8 million for the year ended December 31, 2014 and realized and unrealized net losses of $1.0 million for the year ended December 31, 2013. See Note 18, Crude Oil and Refined Product Risk Management, in the Notes to Consolidated Financial Statements included in this annual report for further discussion on our commodity hedging activities.
We reduced the carrying value of our inventory by $175.1 million and $78.6 million in order to state the value at market prices which were lower than our cost at December 31, 2015 and 2014, respectively. Refined products inventory includes a lower of cost or market non-cash adjustment of $72.3 million and $41.7 million and crude oil and other raw materials inventory includes a lower of cost or market non-cash adjustment of $102.8 million and $36.9 million at December 31, 2015 and 2014, respectively. Global and domestic crude oil prices are expected to remain volatile during 2016, and we cannot estimate any future adjustments to our inventory carrying values.
Our income tax provisions include the effects of a decrease in our valuation allowance of $2.9 million and $2.8 million for the years ended December 31, 2014 and 2013, respectively, against the deferred tax assets for Virginia and Maryland generated through the operations of the Yorktown facility prior to the sale of the facility in December 2011. There was no change to our valuation allowance during the year ended December 31, 2015.
Planned Maintenance Turnaround
During the years ended December 31, 2015, 2014 and 2013, we incurred costs of $2.0 million, $48.5 million and $50.2 million, respectively, for maintenance turnarounds. In the first quarter of 2014, we completed a scheduled maintenance turnaround for the south side units of the El Paso refinery. In the first quarter of 2013, we completed a scheduled maintenance turnaround for the north side units of the El Paso refinery. We also incurred turnaround expense during 2013 in preparation for a planned 2014 turnaround for the south side units at the El Paso refinery. NTI currently plans for a major maintenance turnaround on several of its units in the fall of 2016 at an aggregate budgeted expense of approximately $40.0 million to $45.0 million.

Critical Accounting Policies and Estimates
We prepare our financial statements in conformity with U.S. GAAP. See Note 2, Summary of Accounting Policies to our Consolidated Financial Statements for a summary of our significant accounting policies, many of which require the use of estimates and assumptions. We believe that of our significant accounting policies, the following are noteworthy because they are based on estimates and assumptions that require complex, subjective assumptions by management that can materially impact reported results. Changes in these estimates or assumptions, or actual results that are different, could materially impact our financial condition, results of operations and cash flows.
Inventories. Crude oil, refined product and other feedstock and blendstock inventories are carried at the lower of cost or market. Cost is determined principally under the LIFO valuation method to reflect a better matching of costs and revenues for

39


refining inventories. Costs include both direct and indirect expenditures incurred in bringing an item or product to its existing condition and location, but not unusual/non-recurring costs or research and development costs. Ending inventory costs in excess of market value are written down to net realizable market values and charged to cost of products sold in the period recorded. In subsequent periods, a new LCM determination is made based upon current circumstances. We determine market value inventory adjustments by evaluating crude oil, refined products and other inventories on an aggregate basis by geographic region.
Retail refined product, lubricants and related inventories are determined using the first-in, first-out ("FIFO") inventory valuation method. Refined product inventories originate from either our refineries or from third-party purchases. Retail merchandise inventory value is determined under the retail inventory method.
Maintenance Turnaround Expense. The units at our refineries require periodic maintenance and repairs commonly referred to as “turnarounds.” The required frequency of the maintenance varies by unit but generally is every two to six years depending on the processing unit involved. We expense the cost of maintenance turnarounds when the expense is incurred. These costs are identified as a separate line item in our Consolidated Statements of Operations.
Long-lived Assets. We calculate depreciation and amortization on a straight-line basis over the estimated useful lives of the various classes of depreciable assets. When assets are placed in service, we make estimates of what we believe are their reasonable useful lives. For assets to be disposed of, we report long-lived assets at the lower of carrying amount or fair value less cost of disposal.
We review the carrying values of our long-lived assets for possible impairment whenever events or changes in circumstances indicate that the carrying amount of assets to be held and used may not be recoverable. A long-lived asset is not recoverable if its carrying amount exceeds the sum of the undiscounted cash flows expected to result from its use and eventual disposition. If a long-lived asset is not recoverable, an impairment loss is recognized in an amount that its carrying amount exceeds its fair value.
In order to test our long-lived assets for recoverability, we must make estimates of projected cash flows related to the asset being evaluated that include, but are not limited to, assumptions about the use or disposition of the asset, its estimated remaining life and future expenditures necessary to maintain its existing service potential. In order to determine fair value, we must make certain estimates and assumptions including, among other things, an assessment of market conditions, projected cash flows, investment rates, interest/equity rates and growth rates that could significantly impact the estimated fair value of the asset being tested for impairment.
Goodwill. At both December 31, 2015 and 2014, we had goodwill of $1,289.4 million relating to the 2013 NTI Acquisition that was completed on November 12, 2013. Goodwill represents the excess of the purchase price (cost) over the fair value of the net assets acquired and is carried at cost. We do not amortize goodwill for financial reporting purposes. We test goodwill for impairment at the reporting unit level. The reporting unit or units used to evaluate and measure goodwill for impairment are determined primarily from the manner in which the business is managed.
Our policy is to test goodwill for impairment annually at June 30, or more frequently if indications of impairment exist. The testing of our goodwill for impairment is based on the estimated fair value of our reporting units that is determined based on consideration given to discounted expected future cash flows using a weighted-average cost of capital rate. An assumed terminal value is used to project future cash flows beyond base years. In addition, various market-based methods including market capitalization and earnings before interest, taxes, depreciation and amortization ("EBITDA") multiples are considered. The estimates and assumptions used in determining fair value of a reporting unit require considerable judgment and are based on historical experience, financial forecasts and industry trends and conditions. The discounted cash flow model is sensitive to changes in future cash flow forecasts and the discount rate used. The market capitalization model is sensitive to changes in traded partnership unit price. The EBITDA model is sensitive to changes in recent historical results of operations within the refining industry. We compare and contrast the results of the various valuation models to determine if impairment exists at the end of a reporting period. Any declines in the market capitalization of NTI after December 31, 2015, could be an early indication that goodwill may become impaired in the future.
Intangible Assets. We amortize intangible assets, such as rights-of-way, licenses and permits over their economic useful lives, unless the economic useful lives of the assets are indefinite. If an intangible asset’s economic useful life is determined to be indefinite, then that asset is not amortized. We consider factors such as the asset’s history, our plans for that asset and the market for products associated with the asset when the intangible asset is acquired. We consider these same factors when reviewing the economic useful lives of our existing intangible assets as well. We review the economic useful lives of our intangible assets at least annually.
Environmental and Other Loss Contingencies. We record liabilities for loss contingencies, including environmental remediation costs, when such losses are probable and can be reasonably estimated. Environmental costs are expensed if they relate to an existing condition caused by past operations with no future economic benefit. Estimates of projected environmental

40


costs are made based upon internal and third-party assessments of contamination, available remediation technology and environmental regulations. Loss contingency accruals, including those for environmental remediation, are subject to revision as further information develops or circumstances change and such accruals can take into account the legal liability of other parties.
Certain of our environmental obligations are recorded on a discounted basis. Where the available information is sufficient to estimate the amount of liability, that estimate is used. Where the information is only sufficient to establish a range of probable liability and no point within the range is more likely than other, the lower end of the range is used. Possible recoveries of some of these costs from other parties are not recognized in the financial statements until they become probable. Legal costs associated with environmental remediation are included as part of the estimated liability.
Financial Instruments and Fair Value. We are exposed to various market risks, including changes in commodity prices. We use commodity future contracts, price swaps and options to reduce price volatility, to fix margins for refined products and to protect against price declines associated with our crude oil and blendstock inventories. We recognize all commodity hedge transactions that we enter as either assets or liabilities in the Consolidated Balance Sheets and those instruments are measured at fair value. For instruments used to mitigate the change in value of volumes subject to market prices, we elected not to pursue hedge accounting treatment for financial accounting purposes, generally because of the difficulty of establishing and maintaining the required documentation that would allow for hedge accounting. Moreover, the swap contracts used to fix the margin on a portion of our future gasoline and distillate production do not qualify for hedge accounting treatment. Therefore, changes in the fair value of these commodity hedging instruments are included in income in the period of change. Net gains or losses associated with these transactions are recognized within cost of products sold using mark-to-market accounting.
Other Postretirement Obligations. Other postretirement plan expenses and liabilities are determined based on actuarial valuations. Inherent in these valuations are key assumptions including discount rates, future compensation increases, expected return on plan assets, health care cost trends and demographic data. Changes in our actuarial assumptions are primarily influenced by factors outside of our control and can have a significant effect on our other postretirement liability and cost. A defined benefit postretirement plan sponsor must (a) recognize in its statement of financial position an asset for a plan’s overfunded status or liability for the plan’s underfunded status, (b) measure the plan’s assets and obligations that determine its funded status as of the end of the employer’s fiscal year and (c) recognize, as a component of other comprehensive income, the changes in the funded status of the plan that arise during the year, but are not recognized as components of net periodic benefit cost.
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board or other standard setting bodies that may have an impact on our accounting and reporting. We believe that recently issued accounting pronouncements and other authoritative guidance for which the effective date is in the future either will not have a significant impact on our accounting or reporting or that such impact will not be material to our financial position, results of operations and cash flows when implemented. For further discussion on the impact of recent accounting pronouncements, see Note 2, Summary of Accounting Policies, in the Notes to Consolidated Financial Statements included in this annual report.

41


Results of Operations
A discussion and analysis of our consolidated and operating segment financial data and key operating statistics for the three years ended December 31, 2015, is presented below:
Consolidated
 
Year Ended December 31,
 
2015
 
2014
 
2013 (2)
 
(In thousands, except per share data)
Statement of Operations Data:
 

 
 

 
 

Net sales (1)
$
9,787,036

 
$
15,153,573

 
$
10,086,070

Operating costs and expenses:
 

 
 

 
 

Cost of products sold (exclusive of depreciation and amortization) (1)
7,521,375

 
12,719,963

 
8,690,222

Direct operating expenses (exclusive of depreciation and amortization) (1)
902,925

 
850,634

 
523,836

Selling, general and administrative expenses
225,245

 
226,020

 
137,031

Affiliate severance costs

 
12,878

 

Loss (gain) and impairments on disposal of assets, net
51

 
8,530

 
(4,989
)
Maintenance turnaround expense
2,024

 
48,469

 
50,249

Depreciation and amortization
205,291

 
190,566

 
117,848

Total operating costs and expenses
8,856,911

 
14,057,060

 
9,514,197

Operating income
930,125

 
1,096,513

 
571,873

Other income (expense):
 

 
 

 
 

Interest income
703

 
1,188

 
746

Interest expense and other financing costs
(105,603
)
 
(97,062
)
 
(74,581
)
Loss on extinguishment of debt

 
(9
)
 
(46,773
)
Other, net
13,161

 
2,046

 
2,214

Income before income taxes
838,386

 
1,002,676

 
453,479

Provision for income taxes
(223,955
)
 
(292,604
)
 
(153,925
)
Net income
614,431

 
710,072

 
299,554

Less net income attributed to non-controlling interests (3)
207,675

 
150,146

 
23,560

Net income attributable to Western Refining, Inc.
$
406,756

 
$
559,926

 
$
275,994

 
 
 
 
 
 
Basic earnings per share
$
4.28

 
$
6.17

 
$
3.35

Diluted earnings per share
4.28

 
5.61

 
2.79

Dividends declared per common share
$
1.36

 
$
3.08

 
$
0.64

Weighted average basic shares outstanding
94,899

 
90,708

 
82,248

Weighted average dilutive shares outstanding
94,999

 
101,190

 
104,904

(1)
The information presented excludes $3,222.2 million, $4,390.7 million and $4,277.8 million of intercompany sales and $3,222.2 million, $4,374.1 million and $4,265.0 million of intercompany cost of products sold for the years ended December 31, 2015, 2014 and 2013, respectively, and $16.6 million and $12.8 million of intercompany direct operating expenses for the years ended December 31, 2014 and 2013, respectively, with no comparable activity for the year ended December 31, 2015.
(2)
The information presented includes the results of operations of NTI beginning November 12, 2013, the consummation date of the purchase transaction.
(3)
Net income attributable to non-controlling interests for the years ended December 31, 2015, 2014 and 2013, consisted of net income from NTI of $186.5 million, $131.9 million and $20.6 million, respectively, and net income from WNRL of $21.2 million, $18.2 million and $3.0 million, respectively.

42


Gross Margin
Gross margin is a function of net sales less cost of products sold (exclusive of depreciation and amortization). Our consolidated margins decreased from 2014 through 2015 by 6.9%. This decrease was primarily due to refining margins and economic hedging activities. We discuss refining margins and economic hedging activities under our refining and NTI segments.
Our consolidated margins increased from 2013 through 2014 by 74.3%. Our margin increase was a reflection of the overall industry wide improvement in refining margins year over year. Our increase in margins was also impacted, in part, by the results of our commodity hedging activities in our refining segment. Total gross margin in our other segments increased from 2013 through 2014, in part due to the acquisition of NTI and regional margin environments in the locale of our non-refining operations.
Direct Operating Expenses
The increase in direct operating expenses was primarily due to increases of $18.9 million, $16.8 million, $10.6 million and $7.5 million in our refining, retail, WNRL and NTI segments, respectively.
The increase from 2013 to 2014 in direct operating expenses was primarily due to direct operating expenses associated with NTI ($298.1 million) which was acquired during November 2013 and greater direct operating expenses in our refining segment ($52.5 million).
Selling, General and Administrative Expenses
The decrease in selling, general and administrative expenses from 2014 to 2015 resulted from a decrease of $9.1 million in our NTI segment, partially offset by an increase of $3.5 million, $1.9 million, $1.5 million and $1.5 million in our refining segment, corporate overhead, WNRL segment and retail segment, respectively. The increase in corporate overhead was due to higher employee expenses based primarily on higher incentive compensation expenses in the current period.
The increase in selling, general and administrative expenses from 2013 to 2014 was primarily due to selling, general and administrative expenses associated with NTI ($91.5 million) which was acquired during November 2013.
Affiliate Severance Costs
The severance costs incurred during the year ended December 31, 2014 reflect severance payments related to Western's acquisition of NTI's general partner.
Maintenance Turnaround Expenses
We reported minimal turnaround expenses during the year ended December 31, 2015. During the years ended December 31, 2014 and 2013, we incurred turnaround expenses for a turnaround of the south and north side units of the El Paso refinery, respectively.
Depreciation and Amortization
The increase in depreciation and amortization from 2014 to 2015 was primarily due to TexNew Mex Pipeline depreciation and additional depreciation on logistics assets capitalized through the ongoing expansion of our Delaware Basin logistics system. We also capitalized various assets at our El Paso and St. Paul Park refineries, primarily related to capital projects completed during turnaround activities, resulting in increased depreciation expense in the current period. The increase in depreciation and amortization expense was also due to additional depreciation incurred from major remodels at three retail locations and the capitalization of a new retail point of sale system, increased depreciation of retail's existing point of sale system and of four closed retail outlets to fully depreciate these assets at disposal.
The increase in depreciation and amortization from 2013 to 2014 was primarily due to depreciation associated with the NTI assets acquired during November 2013 ($91.5 million). There was also additional depreciation resulting from assets capitalized during the first quarter of 2013 and 2014, respectively, for the north and south side units of the El Paso refinery and additional depreciation associated with our logistics assets related to the expansion of our Delaware Basin logistics system. 
Other Income (Expense)
The increase in interest expense from prior periods was attributable to interest incurred through WNRL's issuance of $300.0 million in aggregate principal amount of the WNRL 2023 Senior Notes and borrowings under WNRL's revolving credit facility of $145.0 million. This increase was partially offset during the current year by the retirement of our 5.75% Convertible Senior Unsecured Notes during the second quarter of 2014.
The increase in interest expense from prior periods was attributable to higher debt levels resulting from the issuance of senior unsecured notes on March 25, 2013, a term loan agreement entered into on November 12, 2013, additional interest

43


related to the NTI Senior Secured Notes and WNRL's Revolving Credit Facility, partially offset by the retirement of our Convertible Senior Unsecured Notes.
Segment Results
The following tables set forth our consolidating historical financial data for the periods presented below. Our operations are organized into four operating segments based on manufacturing and marketing criteria and the nature of our products and services, our production processes and our types of customers. These segments are refining, NTI, WNRL and retail. See Note 3, Segment Information, in the Notes to Consolidated Financial Statements included in this annual report for more detailed information.
 
Year Ended December 31,
 
2015
 
2014
 
2013
 
(In thousands)
Consolidated Gross Margin by Segment
 
 
 
 
 
Refining
$
998,551

 
$
1,293,802

 
$
1,024,656

NTI
788,831

 
720,145

 
94,882

WNRL
291,730

 
256,969

 
127,411

Retail
186,797

 
162,271

 
148,352

Other
(248
)
 
423

 
547

Consolidated gross margin
$
2,265,661

 
$
2,433,610

 
$
1,395,848

Consolidated Direct Operating Expenses by Segment
 
 
 
 
 
Refining
$
307,617

 
$
288,679

 
$
240,899

NTI
305,648

 
298,104

 
35,123

WNRL
154,267

 
143,702

 
135,684

Retail
135,310

 
118,468

 
111,320

Other
83

 
1,681

 
810

Consolidated direct operating expenses
$
902,925

 
$
850,634

 
$
523,836

Consolidated Depreciation and Amortization by Segment
 
 
 
 
 
Refining
$
81,180

 
$
78,911

 
$
74,801

NTI
78,737

 
76,544

 
10,740

WNRL
26,912

 
20,187

 
16,515

Retail
14,692

 
11,733

 
12,382

Other
3,770

 
3,191

 
3,410

Consolidated depreciation and amortization
$
205,291

 
$
190,566

 
$
117,848

See additional analysis under the refining, NTI, WNRL and retail segments.

44


Refining Segment (El Paso and Gallup refineries and related operations)
 
Year Ended
 
December 31,
 
2015
 
2014
 
2013
 
(In thousands, except per barrel data)
Statement of Operations Data:
 
 
 
 
 
Net sales (including intersegment sales) (1)
$
6,233,330

 
$
9,485,734

 
$
8,866,162

Operating costs and expenses:
 
 
 
 
 
Cost of products sold (exclusive of depreciation and amortization) (2)
5,234,779

 
8,175,332

 
7,828,695

Direct operating expenses (exclusive of depreciation and amortization)
307,617

 
305,279

 
253,710

Selling, general and administrative expenses
31,968

 
28,470

 
26,451

Loss (gain) and impairments on disposal of assets, net
495

 
8,202

 
(4,999
)
Maintenance turnaround expense
2,024

 
48,469

 
50,249

Depreciation and amortization
81,180

 
78,911

 
74,801

Total operating costs and expenses
5,658,063

 
8,644,663

 
8,228,907

Operating income
$
575,267

 
$
841,071

 
$
637,255

Key Operating Statistics:
 
 
 
 
 
Total sales volume (bpd) (1) (3)
237,054

 
217,640

 
176,653

Total refinery production (bpd)
159,691

 
152,942

 
147,793

Total refinery throughput (bpd) (4)
161,807

 
155,019

 
150,429

Per barrel of throughput:
 
 
 
 
 
Refinery gross margin (2) (5) (6)
$
16.84

 
$
23.11

 
$
18.81

Direct operating expenses (7)
5.20

 
5.39

 
4.62

Mid-Atlantic sales volume (bbls)
8,356

 
8,588

 
9,734

Mid-Atlantic margin per barrel
$
0.46

 
$
0.32

 
$
0.47

El Paso and Gallup Refineries
 
Year Ended
 
December 31,
 
2015
 
2014
 
2013
Key Operating Statistics
 
 
 
 
 
Refinery product yields (bpd):
 
 
 
 
 
Gasoline
87,266

 
79,279

 
78,568

Diesel and jet fuel
62,076

 
63,359

 
59,580

Residuum
4,174

 
5,121

 
5,445

Other
6,175

 
5,183

 
4,200

Total refinery production (bpd)
159,691

 
152,942

 
147,793

Refinery throughput (bpd):
 
 
 
 
 
Sweet crude oil
129,135

 
121,514

 
117,289

Sour or heavy crude oil
22,949

 
25,113

 
25,195

Other feedstocks and blendstocks
9,723

 
8,392

 
7,945

Total refinery throughput (bpd) (4)
161,807

 
155,019

 
150,429


45


El Paso Refinery
 
Year Ended
 
December 31,
 
2015
 
2014
 
2013
Key Operating Statistics
 
 
 
 
 
Refinery product yields (bpd):
 
 
 
 
 
Gasoline
70,200

 
62,252

 
61,893

Diesel and jet fuel
54,082

 
54,501

 
52,600

Residuum
4,174

 
5,121

 
5,445

Other
4,872

 
3,740

 
3,442

Total refinery production (bpd)
133,328

 
125,614

 
123,380

Refinery throughput (bpd):
 
 
 
 
 
Sweet crude oil
105,064

 
96,384

 
93,654

Sour crude oil
22,949

 
25,113

 
25,195

Other feedstocks and blendstocks
7,064

 
5,739

 
6,488

Total refinery throughput (bpd) (4)
135,077

 
127,236

 
125,337

Total sales volume (bpd) (3)
148,897

 
139,216

 
141,894

Per barrel of throughput:
 
 
 
 
 
Refinery gross margin (2) (5)
$
16.48

 
$
18.34

 
$
18.74

Direct operating expenses (7)
4.02

 
4.37

 
4.30

Gallup Refinery
 
Year Ended
 
December 31,