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:
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limit our ability to use our cash flows, or obtain additional financing, for future working capital, capital expenditures, acquisitions or other general corporate purposes;
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restrict our ability to pay dividends;
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require a substantial portion of our cash flows from operations to make debt service payments;
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limit our flexibility to plan for, or react to, changes in our business and industry conditions;
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place us at a competitive disadvantage compared to our less leveraged competitors; and
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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:
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creating liens;
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engaging in mergers, consolidations and sales of assets;
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incurring additional indebtedness;
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providing guarantees;

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•
engaging in different businesses;
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making investments;
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making certain dividend, debt and other restricted payments;
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engaging in certain transactions with affiliates; and
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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:
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natural disasters;
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weather-related disruptions;
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fires;
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explosions;
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pipeline ruptures and spills;
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third-party interference;
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disruption of natural gas deliveries;
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disruptions of electricity deliveries;

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disruption of sulfur gas processing by Chemours at our El Paso refinery; and
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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.

28

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,
 
2015
 
2014
 
2013
Key Operating Statistics
 
 
 
 
 
Refinery product yields (bpd):
 
 
 
 
 
Gasoline
17,066

 
17,027

 
16,675

Diesel and jet fuel
7,994

 
8,858

 
6,980

Other
1,303

 
1,443

 
758

Total refinery production (bpd)
26,363

 
27,328

 
24,413

Refinery throughput (bpd):
 
 
 
 
 
Sweet crude oil
24,071

 
25,130

 
23,635

Other feedstocks and blendstocks
2,659

 
2,653

 
1,457

Total refinery throughput (bpd) (4)
26,730

 
27,783

 
25,092

Total sales volume (bpd) (3)
33,005

 
34,300

 
34,759

Per barrel of throughput:
 
 
 
 
 
Refinery gross margin (2) (5)
$
18.34

 
$
16.55

 
$
18.94

Direct operating expenses (7)
8.38

 
8.40

 
10.13

(1)
Refining net sales for the years ended December 31, 2015 and 2014, include $975.8 million and $1,489.6 million representing a period average of 55,152 bpd and 44,124 bpd in crude oil sales to third parties, respectively, without comparable activity in 2013. The majority of the crude oil sales resulted from the purchase of barrels in excess of what was required for production purposes in the El Paso and Gallup refineries.

46

(2)
Cost of products sold for the combined refining segment includes the net realized and net non-cash unrealized hedging activity shown in the table below. The hedging gains and losses are also included in the combined gross profit and refinery gross margin but are not included in those measures for the individual refineries.
 
Year Ended
 
December 31,
 
2015
 
2014
 
2013
 
(In thousands)
Realized hedging gain, net
$
92,137

 
$
82,937

 
$
17,714

Unrealized hedging gain (loss), net
(45,470
)
 
197,223

 
(16,898
)
Total hedging gain, net
$
46,667

 
$
280,160

 
$
816

(3)
Sales volume includes sales of refined products sourced primarily from our refinery production as well as refined products purchased from third parties. We purchase additional refined products from third parties to supplement supply to our customers. These products are similar to the products that we currently manufacture and represented 9.1%, 9.8% and 14.4% of our total consolidated sales volumes for the years ended December 31, 2015, 2014 and 2013, respectively. The majority of the purchased refined products are distributed through our refined product sales activities in the Mid-Atlantic region where we satisfy our refined product customer sales requirements through a third-party supply agreement.
(4)
Total refinery throughput includes crude oil, other feedstocks and blendstocks.
(5)
Refinery gross margin is a per barrel measurement calculated by dividing the difference between net sales and cost of products sold by our refineries’ total throughput volumes for the respective periods presented. Net realized and net non-cash unrealized economic hedging gains and losses included in the combined refining segment gross margin are not allocated to the individual refineries. Cost of products sold does not include any depreciation or amortization. Refinery gross margin is a non-GAAP performance measure that we believe is important to investors in evaluating our refinery performance as a general indication of the amount above our cost of products that we are able to sell refined products. Each of the components used in this calculation (net sales and cost of products sold) can be reconciled directly to our statement of operations. Our calculation of refinery gross margin may differ from similar calculations of other companies in our industry, thereby limiting its usefulness as a comparative measure. Refinery gross margin in the current year is not entirely comparable to the prior year as a result of a full year of fees paid by our refining segment to WNRL compared to 2013 fees paid only for the period after the Offering through December 31, 2013.
Our calculation of refinery gross margin excludes the sales and costs related to our Mid-Atlantic business that we report within the refining segment. The following table reconciles the sales and cost of sales used to calculate refinery gross margin with the total sales and cost of sales reported in the refining statement of operations data above:
 
Year Ended
 
December 31,
 
2015
 
2014
 
2013
 
(In thousands)
Refinery net sales (including intersegment sales)
$
5,633,384

 
$
8,496,576

 
$
7,689,640

Mid-Atlantic sales
599,946

 
989,158

 
1,176,522

Net sales (including intersegment sales)
$
6,233,330

 
$
9,485,734

 
$
8,866,162

 
 
 
 
 
 
Refinery cost of products sold (exclusive of depreciation and amortization)
$
4,638,664

 
$
7,188,928

 
$
6,656,778

Mid-Atlantic cost of products sold
596,115

 
986,404

 
1,171,917

Cost of products sold (exclusive of depreciation and amortization)
$
5,234,779

 
$
8,175,332

 
$
7,828,695


47

The following table reconciles combined gross profit for our refineries to combined gross margin for our refineries for the periods presented:
 
Year Ended
 
December 31,
 
2015
 
2014
 
2013
 
(in thousands, except per barrel data)
Net sales (including intersegment sales)
$
5,633,384

 
$
8,496,576

 
$
7,689,640

Cost of products sold (exclusive of depreciation and amortization)
4,638,664

 
7,188,928

 
6,656,778

Depreciation and amortization
81,180

 
78,911

 
74,801

Gross profit
913,540

 
1,228,737

 
958,061

Plus depreciation and amortization
81,180

 
78,911

 
74,801

Refinery gross margin
$
994,720

 
$
1,307,648

 
$
1,032,862

Refinery gross margin per refinery throughput barrel
$
16.84

 
$
23.11

 
$
18.81

Gross profit per refinery throughput barrel
$
15.47

 
$
21.72

 
$
17.45

(6)
Cost of products sold for the combined refining segment includes changes in the lower of cost or market inventory reserve shown in the table below. The reserve changes are also included in the combined refinery gross margin but are not included in those measures for the individual refineries. The following table calculates the refinery gross margin per refinery throughput barrel excluding changes in the lower of cost or market inventory reserve:
 
Year Ended
 
December 31,
 
2015
 
2014
 
2013
 
(in thousands, except per barrel data)
Refinery gross margin
$
994,720

 
$
1,307,648

 
$
1,032,862

Net change in lower of cost or market inventory reserve
35,806

 
4,883

 
—

Refinery gross margin, excluding LCM adjustment
$
1,030,526

 
$
1,312,531

 
$
1,032,862

Refinery gross margin, excluding LCM adjustment, per refinery throughput barrel
$
17.45

 
$
23.20

 
$
18.81

(7)
Refinery direct operating expenses per throughput barrel is calculated by dividing direct operating expenses by total throughput volumes for the respective periods presented. Direct operating expenses do not include any depreciation or amortization.
Gross Margin
Refinery gross margin is a function of net sales (including intersegment sales) less cost of products sold (exclusive of depreciation and amortization). Refinery gross margin decreased from 2014 to 2015 due primarily to a lower net gain on hedging activities, discussed in detail below. Excluding the impact of our hedging activities, refining margin per throughput barrel declined slightly from 2014 to 2015, reflective of the negative margin impact from our non-cash lower of cost or market inventory adjustment of $35.8 million, or $0.61 per throughput barrel, in 2015 compared to $4.9 million, or $0.09 per throughput barrel, in 2014. Refining cost of products sold also includes the net effect of inventory reductions that resulted in the liquidation of LIFO inventory levels. These LIFO liquidations resulted in a negative impact to refining gross margin of $16.1 million in 2015 compared to a positive impact of $1.1 million in 2014. These negative impacts to our refining margins were somewhat offset by higher benchmark refining margins. The decrease in sales and cost of sales was primarily due to lower selling prices of refined products and lower crude costs, respectively, in the year ended December 31, 2015.
The Gulf Coast benchmark 3:2:1 crack spread increased from $15.81 in 2014 to $18.24 in 2015. While lower crude oil costs throughout the industry produced a widening effect on the Gulf Coast crack spread, there was also a negative offset produced by the lower year over year discount of WTI crude oil to Brent crude oil, which declined from $5.66 per barrel in 2014 to $3.68 in 2015, reflective of the decline in global and domestic crude oil prices.
Compared to 2014, our El Paso refinery margins were negatively impacted by the pricing differential between WTI Midland crude oil and WTI Cushing crude oil (the "WTI Midland/Cushing differential"). The WTI Midland/Cushing differential averaged a discount of $0.37 per barrel for 2015 compared to $6.92 in 2014. This discount has been volatile and fluctuates based on local crude oil production, expanded crude oil takeaway capacity in the Permian Basin, crude oil outflow at Cushing and regional refining throughput volumes.

48

Refinery gross margin increased from 2013 to 2014 due primarily to a higher net gain on hedging activities. Excluding the impact of our hedging activities, refining margin per throughput barrel declined slightly from 2013 to 2014, reflective of lower refining industry margins. The Gulf Coast benchmark 3:2:1 crack spread decreased from $19.97 in 2013 to $15.81 in 2014. The Gulf Coast crack spread was negatively impacted by the lower discount of WTI crude oil to Brent crude oil, which declined from $10.67 per barrel in 2013 to $5.66 in 2014, reflective of the initial decline of global and domestic crude oil prices that began in 2014. However, during 2014, refining margins at our El Paso refinery benefited from the positive impact of the discount of WTI Midland crude oil to WTI Cushing crude oil. The WTI Midland/Cushing differential averaged $6.92 per barrel for 2014 compared to $2.63 in 2013. This discount has been volatile and fluctuates based on local crude oil production, crude oil outflow at Cushing and regional refining throughput volumes.
During 2015, we recognized a net realized and unrealized gain from economic hedging activities of $46.7 million compared to a gain of $280.2 million in 2014 and a gain of $0.8 million in 2013. We enter into hedge contracts to manage our exposure to commodity price risks or to fix sales margins on future gasoline and distillate production. Unrealized mark-to-market gains and losses related to our economic hedging instruments are the result of differences between forward crack spreads and the fixed margins from our hedge contracts. We incur unrealized commodity hedging losses when forward spreads are in excess of our fixed contract margins. Hedging gains or losses are included within cost of product sold, directly impacting our refining gross margin. We also recognized the negative margin impact of the greater net cost of purchased RINs. RIN costs were $35.5 million, $28.2 million and $30.5 million for the years ended December 31, 2015, 2014 and 2013, respectively. The increase in 2015 is primarily due to revised Renewable Fuel Standard blending requirements increased by the EPA in the fourth quarter of 2015 for the 2014 and 2015 calendar years.
Total refinery throughput increased from 2013 to 2014, and from 2014 to 2015 primarily due to El Paso refinery operational efficiencies gained from the turnarounds in 2013 and 2014. Also, our refined product sales volume was 86.5 million, 79.4 million and 64.5 million barrels in December 31, 2015, 2014 and 2013, respectively.
Direct Operating Expenses
The increase in direct operating expenses from 2014 to 2015 is primarily due to increases in employee expenses of $6.0 million primarily generated by increased headcount, railcar lease expense of $3.6 million due to new short term leases in 2015, property tax expense of $1.7 million, outside support services expense of $1.5 million and maintenance expense of $1.3 million due to maintenance projects at the El Paso refinery. A partial offset to these increases was a decrease in energy expense of $12.0 million due to decreased natural gas prices.
The increase in direct operating expenses from 2013 through 2014 was primarily due to greater maintenance expense at our El Paso refinery ($16.7 million), property tax expense due to a 2013 refund of a 2012 property tax expense resulting from a corrected property appraisal ($10.8 million), energy expenses due to an increase in price and volume of natural gas ($8.4 million) and outside support services ($4.1 million).
Selling, General and Administrative Expenses
Selling, general and administrative expense increased from 2014 to 2015 primarily due to increased employee expenses ($1.0 million) due to greater incentive compensation expenses, professional and legal costs ($0.7 million) and information technology expenses ($0.6 million).
Selling, general and administrative expense increased from 2013 to 2014 primarily due to increased information technology expenses ($1.5 million).
Maintenance Turnaround Expenses
We reported minimal turnaround expenses during the year ended December 31, 2015. During the year ended December 31, 2014, we incurred turnaround expenses of $48.5 million for a turnaround of the south side units of the El Paso refinery, compared to 2013 turnaround expenses of $50.2 million, mainly related to turnaround activity at the north side units at El Paso.
Depreciation and Amortization
Depreciation and amortization increased from 2014 to 2015 due to additional depreciation at our El Paso refinery primarily resulting from assets capitalized during the first quarter of 2014 in El Paso and additional depreciation associated with recently capitalized assets.
Depreciation and amortization increased from 2013 to 2014 due to additional depreciation at our El Paso refinery primarily resulting from assets capitalized during the first quarter of 2013 and 2014 in El Paso.


49

NTI
The following table sets forth the summary operating results for NTI. The selected historical financial data for the 2013 period presented below represents the financial results from the period beginning November 12, 2013, through the period ended December 31, 2013.
 
Period Ended December 31,
 
2015
 
2014
 
2013
 
(In thousands, except key operating statistics)
Statement of Operations Data:
 
 
 
 
 
Net sales
$
3,002,156

 
$
5,159,657

 
$
686,824

Operating costs and expenses:
 
 
 
 
 
Cost of products sold (exclusive of depreciation and amortization) (1)
2,213,325

 
4,439,512

 
591,942

Direct operating expenses (exclusive of depreciation and amortization)
305,648

 
298,104

 
35,123

Selling, general and administrative expenses
82,355

 
91,482

 
11,651

Affiliate severance costs
—

 
12,878

 
—

Loss (gain) and impairments on disposal of assets, net
(291
)
 
(92
)
 
10

Depreciation and amortization
78,737

 
76,544

 
10,740

Total operating costs and expenses
2,679,774

 
4,918,428

 
649,466

Operating income
$
322,382

 
$
241,229

 
$
37,358

Key Operating Statistics:
 
 
 
 
 
Total sales volume (bpd)
101,349

 
98,016

 
84,028

Total refinery production (bpd)
96,506

 
93,838

 
82,758

Total refinery throughput (bpd) (2)
96,515

 
93,525

 
82,261

Per barrel of throughput:
 
 
 
 
 
Refinery gross margin (1) (3) (4)
$
17.16

 
$
15.91

 
$
18.06

Direct operating expenses (5)
4.71

 
4.77

 
5.05

 
 
 
 
 
 
Retail fuel gallons sold (in thousands)
304,484

 
306,777

 
40,031

Retail fuel margin per gallon (6)
$
0.23

 
$
0.22

 
$
0.17

Merchandise sales
366,401

 
349,145

 
27,958

Merchandise margin (7)
25.6
%
 
25.9
%
 
25.0
%
Company-operated retail outlets at period end
168

 
165

 
164

Franchised retail outlets at period end
109

 
89

 
75

(1)
Cost of products sold for NTI includes the net realized and net non-cash unrealized hedging activity shown in the table below. The hedging losses are also included in the combined gross profit and refinery gross margin.
 
Period Ended December 31,
 
2015
 
2014
 
2013
 
(In thousands)
Realized hedging gain (loss), net
$
1,562

 
$
12,394

 
$
(1,846
)
Unrealized hedging loss, net
(4,763
)
 
(2,800
)
 
—

Total hedging gain (loss), net
$
(3,201
)
 
$
9,594

 
$
(1,846
)
(2)
Total refinery throughput includes crude oil, other feedstocks and blendstocks.
(3)
Refinery gross margin is a per barrel measurement calculated by dividing the difference between net sales and cost of products sold by our refinery's total throughput volumes for the respective period presented. The net realized and net non‑cash unrealized economic hedging losses included in NTI's gross margin are not allocated to the refinery. Cost of products sold does not include any depreciation or amortization. Refinery net sales and cost of products sold, respectively, include crude oil sales of $102.5 million, $1,194.7 million and $118.5 million for the years ended December 31, 2015, 2014 and 2013, respectively. Refinery gross margin is a non-GAAP performance measure that we believe is important to investors in evaluating our refinery performance as a general indication of the amount above our cost of products that we

50

are able to sell refined products. Each of the components used in this calculation (net sales and cost of products sold) can be reconciled directly to our statement of operations. Our calculation of refinery gross margin may differ from similar calculations of other companies in our industry, thereby limiting its usefulness as a comparative measure.
The following table reconciles gross profit for the St. Paul Park refinery to gross margin for the St. Paul Park refinery for the period presented:
 
Period Ended December 31,
 
2015
 
2014
 
2013
 
(In thousands, except per barrel data)
Net sales (including intersegment sales)
$
2,936,758

 
$
5,097,634

 
$
633,201

Cost of products sold (exclusive of depreciation and amortization)
2,332,166

 
4,554,658

 
557,453

Depreciation and amortization
69,394

 
67,538

 
9,485

Gross profit
535,198

 
475,438

 
66,263

Plus depreciation and amortization
69,394

 
67,538

 
9,485

Refinery gross margin
$
604,592

 
$
542,976

 
$
75,748

Refinery gross margin per refinery throughput barrel
$
17.16

 
$
15.91

 
$
18.06

Gross profit per refinery throughput barrel
$
15.19

 
$
13.93

 
$
15.79

(4)
Cost of products sold for NTI includes changes in the lower of cost or market inventory reserve shown in the table below. The following table calculates the refinery gross margin per refinery throughput barrel excluding changes in the lower of cost or market inventory reserve:
 
Year Ended
 
December 31,
 
2015
 
2014
 
2013
 
(in thousands, except per barrel data)
Refinery gross margin
$
604,592

 
$
542,976

 
$
75,748

Net change in lower of cost or market inventory reserve
60,029

 
72,235

 
—

Refinery gross margin, excluding LCM adjustment
$
664,621

 
$
615,211

 
$
75,748

Refinery gross margin, excluding LCM adjustment, per refinery throughput barrel
$
18.87

 
$
18.04

 
$
18.06

(5)
NTI's direct operating expenses per throughput barrel is calculated by dividing direct operating expenses by total throughput volumes for the respective periods presented. Direct operating expenses do not include any depreciation or amortization.
(6)
Retail fuel margin per gallon is a measurement calculated by dividing the difference between retail fuel sales and retail fuel cost of products sold by the number of retail gallons sold. Retail fuel margin per gallon is a measure frequently used in the retail industry to measure operating results related to retail fuel sales.
(7)
Merchandise margin is a measurement calculated by dividing the difference between merchandise sales and merchandise cost of products sold by merchandise sales. Merchandise margin is a measure frequently used in the retail industry to measure operating results related to merchandise sales.
Gross Margin
Gross margin is calculated as net sales (including intersegment sales) less cost of products sold (exclusive of depreciation and amortization). NTI gross margin increased primarily due to a 7.9% increase in gross margin per barrel sold, which is attributable to higher Group 3 benchmark 3:2:1 crack spreads in the year ended December 31, 2015. Additionally, gross margin increased due to 3.4% greater sales volumes resulting from increased throughput in the year ended December 31, 2015. The decrease in sales and cost of sales was primarily due to lower selling prices of refined products and lower crude costs, respectively, in the year ended December 31, 2015. Gross margin for the year ended December 31, 2015, includes a non-cash lower of cost or market inventory reserve adjustment of $60.7 million as a result of falling feedstocks and finished product prices. Additionally, NTI recognized a net realized and unrealized loss from economic hedging activities of $3.2 million during 2015 and $1.8 million in 2013 compared to a gain of $9.6 million in 2014.

51

Direct Operating Expenses
Direct operating expenses increased due to higher personnel costs caused by higher staffing levels and increases in Minnesota's minimum wage. These increases were partially offset by lower natural gas costs, the effect of a $5.8 million estimated loss for environmental matters in 2014 and a $3.5 million favorable cost-sharing settlement related to the remediation of NTI's wastewater lagoon during the year ended December 31, 2015.
Selling, General and Administrative Expenses
This decrease relates primarily to lower insurance and legal expenses, partially offset by greater equity-based compensation expense.
Affiliate Severance Costs
The severance costs incurred during the year ended December 31, 2014, relate to severance payments resulting from Western's acquisition of NTI's general partner.
Depreciation and Amortization
Depreciation and amortization increased primarily due to increased refining assets placed in service, the most significant of which was NTI's waste water treatment plant.

52

WNRL
The WNRL financial and operational data presented includes the historical results of all assets acquired from Western in the Wholesale Acquisition and the TexNew Mex Pipeline Transaction. These acquisitions from Western were transfers of assets between entities under common control. Accordingly, the financial information contained herein for the WNRL Predecessor and WNRL has been retrospectively adjusted, to include the historical results of the WRW assets acquired, for periods prior to the effective date of the Wholesale Acquisition. The financial information includes the historical results of the WNRL Predecessor, retrospectively adjusted due to the Wholesale Acquisition, for periods prior to October 16, 2013, and the results of WNRL, retrospectively adjusted for the Wholesale Acquisition and the TexNew Mex Pipeline Acquisition beginning October 16, 2013, the date WNRL commenced operations.
 
Year Ended
 
December 31,
 
2015
 
2014
 
2013
 
(In thousands)
Statement of Operations Data:
 
 
 
 
 
Net sales, net of excise taxes
$
2,599,867

 
$
3,501,888

 
$
3,407,128

Operating costs and expenses:
 

 
 
 
 
Cost of products sold, net of excise taxes
2,308,137

 
3,244,919

 
3,279,717

Direct operating expenses
154,267

 
143,702

 
135,684

Selling, general and administrative expenses
24,116

 
22,628

 
17,672

Loss (gain) and impairments on disposal of assets, net
(278
)
 
157

 
—

Depreciation and amortization
26,912

 
20,187

 
16,515

Total operating costs and expenses
2,513,154

 
3,431,593

 
3,449,588

Operating income (loss)
$
86,713

 
$
70,295

 
$
(42,460
)
 
Year Ended
 
December 31,
 
2015
 
2014
 
2013
 
(In thousands, except per gallon/barrel data)
Key Operating Statistics:
 
 
 
 
 
Pipeline and gathering (bpd) (1):
 
 
 
 
 
Mainline movements:
 
 
 
 
 
Permian/Delaware Basin system
47,368

 
24,644

 
3,258

TexNew Mex system
12,302

 
—

 
—

Four Corners system
56,079

 
45,232

 
38,091

Gathering (truck offloading) (bpd):
 
 
 
 
 
Permian/Delaware Basin system
23,617

 
24,166

 
10,169

Four Corners system
13,438

 
11,550

 
8,814

Terminalling, transportation and storage (bpd):
 
 
 
 
 
Shipments into and out of storage (includes asphalt)
391,842

 
381,371

 
367,208

Wholesale:
 
 
 
 
 
Fuel gallons sold
1,237,994

 
1,147,860

 
1,073,538

Fuel gallons sold to retail (included in fuel gallons sold, above)
314,604

 
268,148

 
254,907

Fuel margin per gallon (2)
$
0.030

 
$
0.022

 
$
0.026

Lubricant gallons sold
11,697

 
12,082

 
11,793

Lubricant margin per gallon (3)
$
0.73

 
$
0.86

 
$
0.89

Crude oil trucking volume (bpd)
45,337

 
36,314

 
12,603

Average crude oil trucking revenue per barrel
$
2.53

 
$
2.90

 
$
2.24


53

(1)
Some barrels of crude oil movements to Western’s Gallup refinery are transported on more than one of our mainlines. Mainline movements for the Four Corners system include each barrel transported on each mainline. During the second quarter, we began shipping crude oil from the Four Corners system, through the TexNew Mex Pipeline System, to the Permian/Delaware system. Additional activity resulting from the opening of the TexNew Mex Pipeline System caused us to re-evaluate our method for measuring average Four Corners mainline movements. As such, we have adjusted our 2014 average daily activity on the Four Corners system for consistency with our 2015 method.
(2)
Fuel margin per gallon is a function of the difference between fuel sales and cost of fuel sales divided by the number of total gallons sold less gallons sold to our retail segment. Fuel margin per gallon is a measure frequently used in the petroleum products wholesale industry to measure operating results related to fuel sales.
(3)
Lubricant margin per gallon is a measurement calculated by dividing the difference between lubricant sales, net of transportation charges, and lubricant cost of products sold by lubricant sales. Lubricant margin is a measure frequently used in the petroleum products wholesale industry to measure operating results related to lubricant sales.
Gross Profit
Net sales are comprised of fee based revenues and product sale revenues. WNRL gross profit is a function of total revenues, net of excise taxes, less cost of products sold, net of excise taxes. WNRL gross profit increased by $34.8 million from 2014 to 2015. This increase was primarily due to increased fee based revenue of $23.6 million resulting from increasing certain pipeline, terminal and other service fee rates over 2014 rates. Also contributing to the increase were greater wholesale fuel margins of $9.9 million and greater truck freight revenue from crude oil gathering activity in the Permian Basin area of $3.5 million. Wholesale sales based revenues decreased due to a lower average price per gallon sold in 2015 of $1.80 compared to $2.83 in 2014.
WNRL gross profit increased by $129.6 million from 2013 to 2014 primarily because of only a partial year of comparative 2013 activity since WNRL commenced operations in October of that year. WNRL recognizes revenue for crude oil pipeline transportation and for crude oil and refined petroleum product terminalling and storage based on contractual rates and agreements. WNRL derived a substantial portion of its revenue from service revenues charged to Western. Prior to the Offering, Western did not charge or record revenue for intercompany gathering, pipeline transportation, terminalling and storage services. Also contributing to this increase were WNRL's wholesale increased revenue of $28.1 million due to truck freight revenue from crude oil gathering activity in the Permian Basin.
Direct Operating Expenses
WNRL's direct operating expenses increased from 2014 through 2015 primarily due to higher employee expenses ($7.7 million) resulting from an increase in the number of drivers in our truck fleet, outside support services ($2.3 million) due to in-line inspections for pipeline segments and various tank repairs, maintenance expenses ($1.6 million) and increased energy expense ($0.8 million) specifically due to chemical additives used in the pipeline transportation process, partially offset by lower fuel expense for our transportation department ($3.6 million).
Direct operating expenses expenses increased from 2013 through 2014 primarily due to increased employee expense ($11.5 million), higher maintenance and higher materials and supplies due to equipment additions to certain transportation assets ($3.1 million) and addition of new property leases and increased rents for existing property leases ($1.6 million). Partially offsetting the increases was a decrease in WNRL logistics maintenance expense ($6.3 million).
WNRL's logistics maintenance costs are generally cyclical in nature. WNRL's terminal facilities are subject to recurring maintenance for normal wear and related maintenance costs are generally consistent from period to period. Routine service cycle for tank inspections and maintenance at WNRL's storage facilities is generally every 10 years. Pipelines are also subject to routine periodic inspections. When WNRL changes the service use of a storage tank, maintenance costs will generally be higher due to increased costs of tank cleaning and hazardous material disposal. The cost of WNRL's maintenance is dependent upon the level of repairs deemed necessary as a result of the inspection of the specified asset.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased from 2014 to 2015 primarily due to increased corporate overhead related to the TexNew Mex Pipeline Acquisition ($1.6 million).
The increase in selling, general and administrative expenses from 2013 to 2014 primarily due to increased corporate overhead related to the Wholesale Acquisition ($5.8 million).
Depreciation and Amortization
The increase in depreciation and amortization from 2014 through 2015 was primarily due to TexNew Mex Pipeline depreciation and the ongoing expansion of WNRL's Delaware Basin logistics system.

54

The increase in depreciation and amortization from 2013 through 2014 was primarily due to TexNew Mex Pipeline depreciation, the ongoing expansion of WNRL's Delaware Basin logistics system and the addition of crude oil tanker trailers during the latter half of 2013 and 2014.
Retail
 
Year Ended
 
December 31,
 
2015
 
2014
 
2013
 
(In thousands, except per gallon data)
Statement of Operations Data:
 
 
 
 
 
Net sales (including intersegment sales)
$
1,173,842

 
$
1,395,903

 
$
1,402,564

Operating costs and expenses:
 
 
 
 
 
Cost of products sold (exclusive of depreciation and amortization)
987,045

 
1,233,632

 
1,254,212

Direct operating expenses (exclusive of depreciation and amortization)
135,310

 
118,468

 
111,320

Selling, general and administrative expenses
12,949

 
11,461

 
9,796

Loss (gain) and impairments on disposal of assets, net
125

 
(154
)
 
—

Depreciation and amortization
14,692

 
11,733

 
12,382

Total operating costs and expenses
1,150,121

 
1,375,140

 
1,387,710

Operating income
$
23,721

 
$
20,763

 
$
14,854

Key Operating Statistics:
 
 
 
 
 
Retail fuel gallons sold
357,835

 
309,884

 
302,759

Average retail fuel sales price per gallon, net of excise taxes
$
2.02

 
$
3.31

 
$
3.41

Average retail fuel cost per gallon, net of excise taxes
1.82

 
3.11

 
3.23

Retail fuel margin per gallon (1)
0.20

 
0.20

 
0.18

Merchandise sales
$
311,654

 
$
266,677

 
$
253,096

Merchandise margin (2)
29.4
%
 
28.8
%
 
28.8
%
Operating retail outlets at period end
258

 
230

 
228

Cardlock gallons sold
65,508

 
67,420

 
67,803

Cardlock margin per gallon
$
0.163

 
$
0.178

 
$
0.153

Operating cardlocks at period end
52

 
50

 
53

 
Year Ended
 
December 31,
 
2015
 
2014
 
2013
 
(In thousands, except per gallon data)
Net Sales
 
 
 
 
 
Retail fuel sales, net of excise taxes
$
722,722

 
$
903,948

 
$
914,463

Merchandise sales
311,654

 
266,677

 
253,096

Cardlock sales
127,413

 
214,714

 
225,466

Other sales
12,053

 
10,564

 
9,539

Net sales
$
1,173,842

 
$
1,395,903

 
$
1,402,564

Cost of Products Sold
 
 
 
 
 
Retail fuel cost of products sold, net of excise taxes
$
650,327

 
$
840,811

 
$
858,574

Merchandise cost of products sold
219,976

 
189,957

 
180,284

Cardlock cost of products sold
116,506

 
202,489

 
215,082

Other cost of products sold
236

 
375

 
272

Cost of products sold
$
987,045

 
$
1,233,632

 
$
1,254,212

Retail fuel margin per gallon (1)
$
0.20

 
$
0.20

 
$
0.18


55

(1)
Retail fuel margin per gallon is a measurement calculated by dividing the difference between retail fuel sales and cost of retail fuel sales for our retail segment by the number of gallons sold. Retail fuel margin per gallon is a measure frequently used in the convenience store industry to measure operating results related to retail fuel sales.
(2)
Merchandise margin is a measurement calculated by dividing the difference between merchandise sales and merchandise cost of products sold by merchandise sales. Merchandise margin is a measure frequently used in the convenience store industry to measure operating results related to merchandise sales.
Gross Margin
Retail gross margin is a function of net sales (including intersegment sales) less cost of products sold (exclusive of depreciation and amortization). The increase in gross margin was primarily due to the retail outlets added from 2014 to 2015. 32 new retail outlets were added during the first half of 2015. The effect of the new retail outlets was an increase in retail gross margin from 2014 to 2015 of $19.5 million including an increase in merchandise margin ($10.0 million) and retail fuel margin($8.0 million). The increase in gross margin was also the result of higher same store fuel sales volumes and increased same store merchandise gross margin ($5.0 million).
The increase in retail gross margin from 2013 to 2014 was primarily the result of a 2.4% increase in fuel volumes from 2013 to 2014 and an increase of 5.4% in merchandise gross margin from 2013 to 2014. Contributing to the increase in gross margin was the retail outlets added from 2013 to 2014. The number of stores increased from 228 in 2013 to 230 in 2014.
Direct Operating Expenses
The increase in direct operating expenses from 2014 to 2015 was primarily due to the addition of the new retail outlets during 2015 which generated an additional $16.2 million in current year expenses. The addition of the new outlets resulted in increased employee expense ($7.0 million), lease expense ($3.0 million), credit card processing fees resulting from an increase in credit sales ($1.8 million), maintenance expense ($1.1 million) and utilities expense ($1.1 million).
The increase in direct operating expenses from 2013 to 2014 was primarily due to expenses generated by retail outlets added mid-November 2013 and during 2014. The addition of the new outlets resulted in increased employee expense, credit card processing fees resulting from an increase in credit sales, property taxes, lease expense and utilities.
Selling, General and Administrative Expenses
The increase in selling, general and administrative expenses from 2014 to 2015 in selling, general and administrative expenses was primarily due to increased cardlock employee expenses ($1.8 million) due to increased administrative headcount and greater incentive compensation.
The increase in selling, general and administrative expenses from 2013 to 2014 was primarily due to increased outside support services resulting from outsourcing store audit services starting in May 2014.
Depreciation and Amortization
The increase in depreciation and amortization expense was primarily due to the addition of the new retail outlets that resulted in an additional $1.8 million in depreciation expense. This increase 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, accelerated depreciation of retail's existing point of sale system and accelerated depreciation for four closed outlets.
Depreciation and amortization remained relatively consistent from 2013 to 2014. The majority of the retail outlets added from 2013 to 2014 were through operating leases and were therefore not depreciated.
Outlook
Our refining margins, excluding hedging activities, were stronger in 2015 compared to 2014. The Gulf Coast benchmark 3:2:1 crack spread increased from an average of $15.81 in 2014 to an average of $18.24 in 2015. Both Western and NTI base our crude oil purchases on pricing tied to WTI. In recent years, the discount relationship between WTI crude oil compared to Brent crude oil (the "WTI/Brent discount") has had a positive impact on refining margins at both Western and NTI. During 2015 the WTI/Brent discount declined to an average of $3.68 for the year ended December 31, 2015, compared to $5.66 in 2014, reflective of the ongoing volatility in domestic and international crude oil pricing. Additionally, the 2015 average WTI Midland/Cushing discount of $0.37 per barrel was a benefit to our El Paso refining margins, although not to the level realized in 2014, when this discount averaged $6.92 per barrel.
Thus far in 2016, the Gulf Coast benchmark 3:2:1 crack spread has averaged $10.11, year-to-date, and the WTI/Brent discount has averaged $0.35, year to date, through February 19, respectively. The Midland/Cushing premium has averaged $0.15 through February 19, 2016. The prices of crude oil and refined products have continued to decline thus far in the first

56

quarter of 2016. A continued decline in these prices may negatively impact the carrying value of our inventories and result in additional lower of cost or market inventory adjustments.
The growth of gathering activity on our Delaware Basin Logistics System continues to positively impact our refining margins through increased deliveries of advantaged crude oil to our El Paso refinery. Also, NTI’s location allows for direct pipeline access to advantaged crude oil from the Bakken Shale in North Dakota and other Canadian crude oils that may price at substantial discounts to WTI. We expect continued volatility in crude oil pricing differentials and crack spreads given the significant continuing decline in Brent and WTI crude oil prices.
The Merger with NTI is expected to close in the first half of 2016, pending the satisfaction of certain conditions, including the approval of the Merger at a special meeting of NTI unitholders. Upon completion of the transaction, NTI will continue to exist as a limited partnership under Delaware law and as an indirect wholly-owned subsidiary of WNR.
Liquidity and Capital Resources
Our primary sources of liquidity are from cash from operations, cash on hand and Western Revolving Credit Facility availability. To a lesser extent, we also generate liquidity from the issuance of securities.
As of December 31, 2015, we had cash and cash equivalents of $772.5 million, including NTI cash of $70.9 million and WNRL cash of $44.6 million, restricted cash of $69.1 million and no direct borrowings under the Western and NTI revolving credit facilities. Western had $973.6 million in total liquidity as of December 31, 2015, defined as Western’s cash and cash equivalents plus net availability under the Western Revolving Credit Facility. Western, NTI and WNRL had net availability under their revolving credit facilities of $247.5 million, $152.7 million and $154.3 million, respectively.
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. See Note 15, Long-Term Debt in the Notes to Consolidated Financial Statements included in this annual report for detailed information regarding our financing.
On December 21, 2015, we entered into the Merger Agreement to acquire all of NTI's remaining outstanding publicly held common units. At the effective time of the Merger, each of the outstanding NTI common units held by 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 WNR’s common stock, (ii) $26.06 in cash without interest or (iii) 0.7036 of a share of WNR common stock. We expect to fund the cash portion of the Merger consideration, approximately $858.2 million, with a combination of cash on hand, bank debt or capital markets debt, including a portion of which that 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 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 our financial position, results of operations and cash flows. See Note 30, NTI, in the Notes to Consolidated Financial Statements for additional information on this transaction.
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.
Cash Flows
The following table sets forth our cash flows for the periods indicated:
 
Year Ended December 31,
 
2015
 
2014
 
2013
 
(In thousands)
Cash flows provided by operating activities
$
843,083

 
$
737,633

 
$
441,153

Cash flows used in investing activities
(191,846
)
 
(380,864
)
 
(895,885
)
Cash flows provided by (used in) financing activities
(309,894
)
 
(393,680
)
 
468,835

Net increase (decrease) in cash and cash equivalents
$
341,343

 
$
(36,911
)
 
$
14,103

The increase in net cash from operating activities from 2014 to 2015 was primarily the result of our commodity hedging activity as discussed above offset by changes in our working capital as disclosed in our Consolidated Statements of Cash Flows for the years ended December 31, 2015 and 2014. Working capital increased by $301.7 million primarily due to decreases in accounts payable and accrued liabilities resulting from the timing of crude oil payments and the price of crude oil.
Cash flows provided by operating activities for the year ended December 31, 2015, combined with $300.0 million and $145.0 million from the issuance of long-term debt and borrowings under WNRL's revolving credit facility, respectively, and an increase in restricted cash of $170.0 million were primarily used for the following investing and financing activities:

57

•Fund capital expenditures ($290.9 million) including the use of $267.9 million of restricted cash;
•Repayment of WNRL's revolving credit facility debt ($269.0 million);
•Payment of distributions to NTI and WNRL non-controlling interest holders ($238.4 million);
•Payment of cash dividends ($129.2 million);
•Purchases of common stock for treasury ($105.0 million);
•Payments on long-term debt and capital lease obligations ($7.4 million); and
•Payment of deferred financing costs ($6.8 million).
The increase in net cash from operating activities from 2013 to 2014 was primarily the result of the increase in net income and the results of our commodity hedging activity as discussed above offset by changes in our working capital as disclosed in our Consolidated Statements of Cash Flows for the years ended December 31, 2014 and 2013. The change in working capital was an increase of $482.6 million and was primarily due to increases in cash, inventories and accounts payable and accrued liabilities and decreases in prepaid expenses. The increase in inventories was primarily due to the termination of a crude oil intermediation agreement with JPM CCC and purchase of the related crude oil inventories at NTI. The decrease in prepaid expenses was primarily due to the timing of prepayments for crude oil to certain of our suppliers. The change in accounts payable and accrued liabilities was a matter of timing primarily due to accruals related to the El Paso refinery turnaround during the first quarter of 2014. The changes in deferred income taxes resulted primarily from the change in our net unrealized hedging activity between periods.
Cash flows provided by operating activities for the year ended December 31, 2014 combined with $269.0 million from borrowings under WNRL's Revolving Credit Facility and $79.2 million from the issuance of long-term debt were primarily used for the following investing and financing activities:
•Payment of cash dividends ($293.7 million);
•Purchases of common stock for treasury ($259.2 million);
•Fund capital expenditures ($223.3 million); and
•Repayment of debt ($6.1 million).
Working Capital
Total working capital at December 31, 2015 was $1,114.4 million, consisting of $1,922.2 million in current assets and $807.9 million in current liabilities. Working capital at December 31, 2014 was $812.7 million, consisting of $1,768.5 million in current assets and $955.8 million in current liabilities. Our working capital at December 31, 2015 and 2014 was as follows:
 
December 31,
 
2015
 
2014
 
(In thousands)
Western
$
920,822

 
$
566,165

NTI
156,875

 
203,647

WNRL
36,669

 
42,899

Total
$
1,114,366

 
$
812,711


58

Indebtedness
Our capital structure at December 31, 2015 and 2014 was as follows:
 
December 31,
 
2015
 
2014
 
(In thousands)
Debt, including current maturities:
 
 
 
Western obligations:
 
 
 
Revolving Credit Facility due 2019
$
—

 
$
—

Term Loan Credit Facility due 2020, net of unamortized financing costs of $9,442 and $11,382, respectively
529,558

 
533,118

6.25% Senior Unsecured Notes due 2021, net of unamortized financing costs of $4,938 and $5,877, respectively
345,062

 
344,123

Total Western obligations
874,620

 
877,241

NTI obligations:
 
 
 
Revolving Credit Facility due 2019
—

 
—

7.125% Senior Secured Notes, due November 2020, net of unamortized financing costs of $2,032 and $2,345 and unamortized premium of $5,925 and $7,037, respectively
353,893

 
354,692

Total NTI obligations
353,893

 
354,692

WNRL obligations:
 
 
 
Revolving Credit Facility due 2018
145,000

 
269,000

7.5% Senior Notes due 2023, net of unamortized financing costs of $6,072 for 2015
293,928

 
—

Total WNRL obligations
438,928

 
269,000

Unamortized financing costs, revolving credit facilities
(17,047
)
 
(20,768
)
     Long-term debt
1,650,394

 
1,480,165

Equity
2,945,906

 
2,787,644

Total capitalization
$
4,596,300

 
$
4,267,809

See Note 15, Long-Term Debt in the Notes to Consolidated Financial Statements included in this annual report for detailed information regarding our indebtedness.
Capital Spending
Capital expenditures totaled $290.9 million for the year ended December 31, 2015 and included improvement and regulatory projects for our refining group, WNRL projects and several smaller projects for our retail and corporate groups. Capital expenditures included $1.8 million of capitalized interest for 2015.
The following table summarizes our budgeted capital expenditures for 2016:
 
Western (1)
 
NTI
 
WNRL
 
Totals
 
(In thousands)
Sustaining
$
63,692

 
$
27,300

 
$
12,919

 
$
103,911

Discretionary
99,993

 
65,300

 
41,580

 
206,873

Regulatory
33,127

 
7,400

 
2,833

 
43,360

Total
$
196,812

 
$
100,000

 
$
57,332

 
$
354,144

(1)
Western's capital expenditure budget for 2016 is $196.8 million, of which $175.6 million is for our refining segment, $17.3 million for our retail segment and $3.9 million for other general projects.
Sustaining Projects. Sustaining maintenance capital expenditures are those related to minor replacement of assets, refurbishing and replacement of components, fire protection, process safety management and other recurring and safety related capital expenditures.
Discretionary Projects. Discretionary capital expenditures are those primarily related to the economic returns and growth. Our discretionary projects include crude oil logistics projects, such as the new 60 mile crude oil pipeline project connecting Wink, Texas to Crane, Texas in the Permian Basin. WNRL’s discretionary projects include improvement projects at the on-site

59

refined product distribution terminals at the El Paso and Gallup refineries and the continued expansion of the Mason Station pipeline system.
Regulatory Projects. Regulatory projects are undertaken to comply with various regulatory requirements, including those related to environmental, health and safety matters. Our low sulfur fuel and low benzene gasoline projects are regulatory investments affected primarily by fuels regulations. EPA regulation allows the one-time use of credits to extend the June 2012 deadline by up to 24 months. The 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. We completed the following regulatory projects in 2013: EPA Initiative projects at our El Paso refinery, low benzene gasoline project at our Gallup refinery, upgraded wastewater treatment plant project at our Gallup refinery and expansion of our El Paso diesel hydrotreater.
Our capital spending on regulatory projects has decreased since 2013 due primarily to the completion of EPA initiative projects and other upgrades at our El Paso and Gallup refineries. The actual capital expenditures for the regulatory projects described above for the past three years are summarized in the table below:
 
2015
 
2014
 
2013
 
(In millions)
EPA Initiative projects
$
—

 
$
—

 
$
3.8

Low benzene gasoline
—

 
—

 
0.1

Wastewater Treatment Plant
—

 
—

 
0.7

DHT expansion in El Paso
—

 
0.5

 
2.6

Flare Ja upgrades - El Paso and Gallup
7.9

 
1.3

 
—

Tier III low sulfur gasoline - El Paso
0.6

 
—

 
—

Total
$
8.5

 
$
1.8

 
$
7.2

The estimated capital expenditures for the regulatory projects described above and for other regulatory requirements for the next three years are summarized in the table below:
 
2016
 
2017
 
2018
 
(In millions)
Control room upgrades - El Paso and Gallup
$
16.4

 
$
—

 
$
—

Flare systems upgrades - Gallup
0.2

 
7.0

 
7.0

Tier III Low sulfur gasoline - Gallup
1.5

 
10.0

 
10.0

Fire suppression - Gallup
8.2

 
8.0

 
4.0

Various other projects
6.8

 
5.8

 
5.8

Total
$
33.1

 
$
30.8

 
$
26.8

Contractual Obligations and Commercial Commitments
Information regarding our contractual obligations of the types described below as of December 31, 2015, is set forth in the following table:
 
Payments Due by Period
 
Totals
 
2016
 
2017 and 2018
 
2019 and 2020
 
2021 and Beyond
 
(In thousands)
Long-term debt obligations (1)
$
2,206,289

 
$
101,275

 
$
346,041

 
$
1,047,254

 
$
711,719

Capital lease obligations
96,144

 
5,256

 
10,084

 
10,515

 
70,289

Operating lease obligations
585,879

 
58,885

 
102,323

 
84,625

 
340,046

Purchase obligations (2)
1,869,120

 
539,164

 
915,086

 
414,870

 
—

Environmental reserves (3)
18,294

 
10,099

 
6,306

 
444

 
1,445

Uncertain tax positions (4)
42,049

 
42,049

 
—

 
—

 
—

Other obligations (5)(6)
205,306

 
16,797

 
32,932

 
147,610

 
7,967

Total obligations (7)
$
5,023,081

 
$
773,525

 
$
1,412,772

 
$
1,705,318

 
$
1,131,466

(1)
Includes minimum principal payments and interest calculated using interest rates at December 31, 2015.

60

(2)
Purchase obligations include agreements to buy crude oil and other raw materials. Amounts included in the table were calculated using the pricing at December 31, 2015 multiplied by the contract volumes.
(3)
Our environmental liabilities are discussed in Note 23, Contingencies, in the Notes to Consolidated Financial Statements included elsewhere in this annual report.
(4)
Includes accrued interest and penalties.
(5)
Other commitments include agreements for sulfuric acid regeneration and sulfur gas processing, throughput and distribution, storage services and professional consulting. The minimum payment commitments are included in the table.
(6)
We are obligated to make future expenditures related to our pension and postretirement obligations. These payments are not fixed and are subject to change based upon future events. Our pension and postretirement obligations are discussed in Note 17, Retirement Plans, in the Notes to Consolidated Financial Statements included elsewhere in this annual report.
(7)
Total contractual obligations include $809.5 million related to NTI including long-term debt, capital leases, operating leases and environmental reserves.
Dividends and Distributions
We anticipate paying future quarterly dividends, subject to the board of directors' approval and compliance with the restrictions in our outstanding financing agreements. See Note 20, Equity, in the Notes to Consolidated Financial Statements included in this annual report for detailed information regarding our dividends and for distribution information for NTI and WNRL, respectively.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Item 7A.
Quantitative and Qualitative Disclosure About Market Risk
Commodity price fluctuation is our primary source of market risk.
Commodity Price Risk
We are exposed to market risks related to the volatility of crude oil and refined product prices, as well as volatility in the price of natural gas used in our refinery operations. Our financial results can be affected significantly by fluctuations in these prices that depend on many factors, including demand for crude oil, gasoline and other refined products; changes in the economy; worldwide and domestic production levels; worldwide inventory levels; and governmental regulatory initiatives. Our risk management strategy identifies circumstances in which we may utilize the commodity futures market to manage risk associated with these price fluctuations or to fix sales margins on future gasoline and distillate production.
In order to manage the uncertainty relating to inventory price volatility, we have generally applied a policy of maintaining inventories at or below a targeted operating level. In the past, circumstances have occurred, such as turnaround schedules or shifts in market demand, that have resulted in variances between our actual inventory level and our desired target level. We may utilize the commodity futures market to manage these anticipated inventory variances.
We maintain inventories of crude oil, other feedstocks and blendstocks and refined products with values that are subject to wide fluctuations in market prices driven by worldwide economic conditions, regional and global inventory levels and seasonal conditions.
At December 31, 2015, we held approximately 10.0 million barrels of crude oil, refined product and other inventories valued under the LIFO valuation method with an average cost of $64.93 per barrel. At December 31, 2015, the excess of the current cost of our crude oil, refined product and other feedstock and blendstock inventories over aggregated LIFO costs was $198.4 million.
At December 31, 2014, we held approximately 9.3 million barrels of crude oil, refined product and other inventories valued under the LIFO valuation method with an average cost of $68.81 per barrel. At December 31, 2014, the excess of the current cost of our crude oil, refined product and other feedstock and blendstock inventories over aggregated LIFO costs was $28.4 million.
All commodity futures contracts, price swaps and options are recorded at fair value and any changes in fair value between periods are recorded under cost of products sold in our Consolidated Statements of Operations.
We selectively utilize commodity hedging instruments to manage our price exposure to our LIFO inventory positions or to fix margins on certain future sales volumes. The commodity hedging instruments may take the form of futures contracts, price and crack spread swaps or options and are entered into with counterparties that we believe to be creditworthy. The financial instruments used to fix margins on future sales volumes do not qualify for hedge accounting. Therefore, changes in

61

the fair value of these hedging instruments are included in income in the period of change. Net gains or losses associated with these transactions are reflected within cost of products sold at the end of each period.
The following tables summarize our economic hedging activity recognized within cost of products sold for the three years ended December 31, 2015, and open commodity hedging positions as of December 31, 2015, and December 31, 2014:
 
Year Ended December 31,
 
2015
 
2014
 
2013
 
(In thousands)
Economic hedging activities recognized within cost of products sold
 
 
 
 
 
Realized hedging gain, net
$
93,699

 
$
95,331

 
$
15,868

Unrealized hedging gain (loss), net
(50,233
)
 
194,423

 
(16,898
)
Total hedging gain (loss), net
$
43,466

 
$
289,754

 
$
(1,030
)
 
December 31,
2015
 
December 31,
2014
 
(In thousands)
Open commodity hedging instruments (bbls)
 
 
 
Crude futures
4,593

 
(864
)
Refined product price and crack spread swaps
(5,645
)
 
(8,781
)
Total open commodity hedging instruments
(1,052
)
 
(9,645
)
 
 
 
 
Fair value of outstanding contracts, net
 
 
 
Other current assets
$
78,125

 
$
79,722

Other assets
11,881

 
56,533

Accrued liabilities
(10,273
)
 
(4,889
)
Other long-term liabilities
—

 
(1,400
)
Fair value of outstanding contracts - unrealized gain, net
$
79,733

 
$
129,966

During the three years ended December 31, 2015, we did not have any commodity derivative instruments that were designated or accounted for as hedges.


62

Item 8.
Financial Statements and Supplementary Data

Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
•
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and dispositions of the assets;
•
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and the receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
•
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2015, for Western Refining, Inc. and its subsidiaries. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in the 2013 Internal Control-Integrated Framework. Based on its assessment, our management believes that, as of December 31, 2015, our internal control over financial reporting is effective based on those criteria.
Our independent registered public accounting firm, Deloitte & Touche LLP, has issued an audit report on our internal control over financial reporting. This report appears on page 64 of this annual report.

63

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of
Western Refining, Inc.
El Paso, Texas


We have audited the internal control over financial reporting of Western Refining, Inc. and subsidiaries (the "Company") as of December 31, 2015, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Management's Report on Internal Control Over Financial Reporting”. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2015 of the Company and our report dated February 26, 2016 expressed an unqualified opinion on those financial statements.


/s/ DELOITTE & TOUCHE LLP

Phoenix, Arizona
February 26, 2016



64

INDEX TO FINANCIAL STATEMENTS



65


Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of
Western Refining, Inc.
El Paso, Texas

We have audited the accompanying consolidated balance sheets of Western Refining, Inc. and subsidiaries (the “Company”) as of December 31, 2015 and 2014, and the related consolidated statements of operations, comprehensive income, changes in equity, and cash flows for each of the three years in the period ended December 31, 2015. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Western Refining, Inc., and subsidiaries at December 31, 2015 and 2014, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2015, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2015, based on the criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 26, 2016 expressed an unqualified opinion on the Company’s internal control over financial reporting.


/s/ DELOITTE & TOUCHE LLP

Phoenix, Arizona
February 26, 2016





66

WESTERN REFINING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
 
As of December 31,
 
2015

2014
ASSETS
 
 
 
Current assets:
 

 
 

Cash and cash equivalents
$
772,502

 
$
431,159

Accounts receivable, trade, net of a reserve for doubtful accounts of $169 and $484, respectively
359,237

 
467,527

Inventories
547,538

 
629,237

Prepaid expenses
73,213

 
88,415

Other current assets
169,728

 
152,125

Total current assets
1,922,218

 
1,768,463

Restricted cash
69,106

 
167,009

Equity method investment
97,513

 
96,080

Property, plant and equipment, net
2,305,171

 
2,153,189

Goodwill
1,289,443

 
1,289,443

Intangible assets, net
84,945

 
85,952

Other assets, net
64,997

 
82,050

Total assets
$
5,833,393

 
$
5,642,186

LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 

 
 

Accounts payable
$
553,957

 
$
681,803

Accrued liabilities
248,395

 
268,449

Current portion of long-term debt
5,500

 
5,500

Total current liabilities
807,852

 
955,752

Long-term liabilities:
 

 
 

Long-term debt, less current portion
1,644,894

 
1,474,665

Lease financing obligation
53,232

 
27,489

Deferred income tax liability, net
312,914

 
354,809

Other liabilities
68,595

 
41,827

Total long-term liabilities
2,079,635

 
1,898,790

Commitments and contingencies


 


Equity:
 

 
 

Western shareholders' equity:
 
 
 
Common stock, par value $0.01, 240,000,000 shares authorized; 102,773,705 and 102,642,540 shares issued, respectively
1,028

 
1,026

Preferred stock, par value $0.01, 10,000,000 shares authorized; no shares issued and outstanding
—

 
—

Additional paid-in capital
492,848

 
487,748

Retained earnings
1,167,938

 
890,393

Accumulated other comprehensive income (loss), net of tax
651

 
(1,291
)
Treasury stock, 9,089,623 and 6,441,883 shares, respectively at cost
(363,168
)
 
(258,168
)
Total Western shareholders' equity
1,299,297

 
1,119,708

Non-controlling interest
1,646,609

 
1,667,936

Total equity
2,945,906

 
2,787,644

Total liabilities and equity
$
5,833,393

 
$
5,642,186

The accompanying notes are an integral part of these consolidated financial statements.

67

WESTERN REFINING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)

 
Year Ended December 31,
 
2015
 
2014
 
2013
Net sales
$
9,787,036

 
$
15,153,573

 
$
10,086,070

Operating costs and expenses:
 

 
 

 
 

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

 
12,719,963

 
8,690,222

Direct operating expenses (exclusive of depreciation and amortization)
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
207,675

 
150,146

 
23,560

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

 
$
559,926

 
$
275,994

 
 
 
 
 
 
Net earnings per share:
 

 
 

 
 

Basic
$
4.28

 
$
6.17

 
$
3.35

Diluted
$
4.28

 
$
5.61

 
$
2.79

Weighted average common shares outstanding:
 

 
 

 
 

Basic
94,899

 
90,708

 
82,248

Diluted
94,999

 
101,190

 
104,904


The accompanying notes are an integral part of these consolidated financial statements.

68

WESTERN REFINING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
 
Year Ended December 31,
 
2015
 
2014
 
2013
Net income
$
614,431

 
$
710,072

 
$
299,554

Other comprehensive income items:
 

 
 

 
 

Benefit plans:
 

 
 

 
 

Amortization of net prior service cost
215

 
161

 
—

Reclassification of loss to income
50

 
21

 
47

Pension plan termination adjustment
—

 
—

 
217

Actuarial gain (loss)
1,683

 
(2,157
)
 
1,195

Net prior service credit
2,463

 
—

 
—

Other comprehensive income before tax
4,411

 
(1,975
)
 
1,459

Income tax
(403
)
 
295

 
(418
)
Other comprehensive income, net of tax
4,008

 
(1,680
)
 
1,041

Comprehensive income
618,439

 
708,392

 
300,595

Less comprehensive income attributed to non-controlling interests
209,741

 
149,407

 
23,777

Comprehensive income attributable to Western Refining, Inc.
$
408,698

 
$
558,985

 
$
276,818


The accompanying notes are an integral part of these consolidated financial statements.


69

WESTERN REFINING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands, except share data)
 
 
 
 
 
 
 
 
 
Accumulated
 
 
 
 
 
 
 
 
 
Common Stock
 
 
 
Other
 
 
 
 
 
 
 
 
 
 
 
 
 
Additional
 
 
 
Comprehensive
 
 
 
 
 
Non-
 
 
 
Shares
 
Par
 
 Paid-In
 
Retained
 
 Loss,
 
Treasury Stock
 
Controlling
 
 
 
Issued
 
Value
 
Capital
 
Earnings
 
Net of Tax
 
Shares
 
Cost
 
Interest
 
Total
Balance at December 31, 2012
90,960,640

 
$
910

 
$
612,339

 
$
400,708

 
$
(1,174
)
 
(4,022,141
)
 
$
(103,713
)
 
$
—

 
$
909,070

Net proceeds from issuance of common units - WNRL
—

 
—

 
—

 
—

 
—

 
—

 
—

 
323,146

 
323,146

Stock-based compensation
—

 
—

 
5,489

 
—

 
—

 
—

 
—

 
484

 
5,973

Restricted share and share unit vesting
867,091

 
8

 
(8
)
 
—

 
—

 
—

 
—

 
—

 
—

Excess tax benefit from stock-based compensation
—

 
—

 
8,362

 
—

 
—

 
—

 
—

 
—

 
8,362

Cash dividends declared of $0.64 per share
—

 
—

 
—

 
(52,489
)
 
—

 
—

 
—

 
—

 
(52,489
)
Net income
—

 
—

 
—

 
275,994

 
—

 
—

 
—

 
23,560

 
299,554

Other comprehensive loss, net of tax benefit of $418
—

 
—

 
—

 
—

 
824

 
—

 
—

 
217

 
1,041

Convertible debt redemption
—

 
—

 
(357
)
 
—

 
—

 
—

 
—

 
—

 
(357
)
Acquisition of non-controlling interest in NTI
—

 
—

 
—

 
—

 
—

 
—

 
—

 
1,357,703

 
1,357,703

Distribution to non-controlling interest holders
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(28,575
)
 
(28,575
)
Treasury stock, at cost
—

 
—

 
—

 
—

 
—

 
(8,080,028
)
 
(252,841
)
 
—

 
(252,841
)
Balance at December 31, 2013
91,827,731

 
918

 
625,825

 
624,213

 
(350
)
 
(12,102,169
)
 
(356,554
)
 
1,676,535

 
2,570,587

Stock-based compensation
—

 
—

 
4,338

 
—

 
—

 
—

 
—

 
15,565

 
19,903

Offering costs
—

 
—

 
—

 
—

 
—

 
—

 
—

 
66

 
66

Restricted share and share unit vesting
184,765

 
2

 
(2
)
 
—

 
—

 
—

 
—

 
—

 
—

Excess tax benefit from stock-based compensation
—

 
—

 
1,144

 
—

 
—

 
—

 
—

 
—

 
1,144

Cash dividends declared of $3.08 per share
—

 
—

 
—

 
(293,746
)
 
—

 
—

 
—

 
—

 
(293,746
)
Net income
—

 
—

 
—

 
559,926

 
—

 
—

 
—

 
150,146

 
710,072

Other comprehensive loss, net of tax of $295
—

 
—

 
—

 
—

 
(941
)
 
—

 
—

 
(739
)
 
(1,680
)
Convertible debt redemption
10,630,044

 
106

 
(143,557
)
 
—

 
—

 
12,129.199

 
357,608

 
—

 
214,157

Distribution to non-controlling interest holders
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(173,637
)
 
(173,637
)
Treasury stock, at cost
—

 
—

 
—

 
—

 
—

 
(6,468,913
)
 
(259,222
)
 
—

 
(259,222
)
Balance at December 31, 2014
102,642,540

 
1,026

 
487,748

 
890,393

 
(1,291
)
 
(6,441,883
)
 
(258,168
)
 
1,667,936

 
2,787,644

Stock-based compensation
—

 
—

 
4,231

 
—

 
—

 
—

 
—

 
11,729

 
15,960

Restricted share unit vesting
131,165

 
2

 
(2
)
 
—

 
—

 
—

 
—

 
—

 
—

Excess tax benefit from stock-based compensation
—

 
—

 
871

 
—

 
—

 
—

 
—

 
—

 
871

Cash dividends declared of $1.36 per share
—

 
—

 
—

 
(129,211
)
 
—

 
—

 
—

 
—

 
(129,211
)
Net income
—

 
—

 
—

 
406,756

 
—

 
—

 
—

 
207,675

 
614,431

Other comprehensive income, net of tax of $403
—

 
—

 
—

 
—

 
1,942

 
—

 
—

 
2,066

 
4,008

Distribution to non-controlling interest holders
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(242,576
)
 
(242,576
)
Treasury stock, at cost
—

 
—

 
—

 
—

 
—

 
(2,647,740
)
 
(105,000
)
 
—

 
(105,000
)
Other
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(221
)
 
(221
)
Balance at December 31, 2015
102,773,705

 
$
1,028

 
$
492,848

 
$
1,167,938

 
$
651

 
(9,089,623
)
 
$
(363,168
)
 
$
1,646,609

 
$
2,945,906


The accompanying notes are an integral part of these consolidated financial statements.


70

WESTERN REFINING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
 
Year Ended December 31,
 
2015
 
2014
 
2013
Cash flows from operating activities:
 

 
 

 
 

Net income
$
614,431

 
$
710,072

 
$
299,554

Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

 
 

Depreciation and amortization
205,291

 
190,566

 
117,848

Changes in fair value - commodity hedging instruments
50,233

 
(194,423
)
 
16,899

Reserve for doubtful accounts
(315
)
 
296

 
1,015

Amortization of loan fees and original issue discount
6,450

 
14,496

 
21,975

Loss on extinguishment of debt
—

 
9


46,773

Stock-based compensation expense
16,505

 
19,903

 
5,973

Deferred income taxes
(41,895
)
 
71,827

 
(64,347
)
Excess tax benefit from stock-based compensation
(871
)
 
(1,144
)
 
(8,362
)
Income from equity method investment, net of dividends
(1,672
)
 
(2,238
)
 
—

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

 
8,530

 
(4,989
)
Changes in operating assets and liabilities:
 

 
 

 
 

Accounts receivable
108,604

 
132,107

 
(129,531
)
Inventories
81,699

 
(71,849
)
 
37,803

Prepaid expenses
15,202

 
23,722

 
(23,342
)
Other assets
(41,187
)
 
22,312

 
(4,020
)
Accounts payable and accrued liabilities
(198,707
)
 
(190,209
)
 
126,120

Other long-term liabilities
29,264

 
3,656

 
1,784

Net cash provided by operating activities
843,083

 
737,633

 
441,153

Cash flows from investing activities:
 

 
 

 
 

Capital expenditures
(290,863
)
 
(223,271
)
 
(205,677
)
Proceeds from the sale of assets
1,114

 
1,936

 
7,475

Return of capital on equity method investment
—

 
7,480

 
1,140

Northern Tier Energy acquisition, net of cash acquired
—

 
—

 
(698,823
)
Increase in restricted cash
(170,000
)
 
(320,000
)
 
—

Use of restricted cash
267,903

 
152,991

 
—

Net cash used in investing activities
(191,846
)
 
(380,864
)
 
(895,885
)
Cash flows from financing activities:
 

 
 

 
 

Additions to long-term debt
300,000

 
79,311

 
900,000

Payments on long-term debt and capital lease obligations
(7,368
)
 
(6,072
)
 
(325,369
)
Borrowings on revolving credit facility
145,000

 
269,000

 
—

Repayments of revolving credit facility
(269,000
)
 
—

 
(50,000
)
Distribution to non-controlling interest holders
(238,366
)
 
(173,637
)
 
(28,575
)
Debt retirement fees
—

 
—

 
(24,396
)
Deferred financing costs
(6,820
)
 
(9,649
)
 
(28,646
)
Purchases of common stock for treasury
(105,000
)
 
(259,222
)
 
(252,841
)
Dividends paid
(129,211
)
 
(293,746
)
 
(52,489
)
Convertible debt redemption
—

 
(809
)
 
(357
)
Net proceeds from issuance of WNRL common units
—

 
—

 
323,146

Excess tax benefit from stock-based compensation
871

 
1,144

 
8,362

Net cash provided by (used in) financing activities
(309,894
)
 
(393,680
)
 
468,835

Net increase (decrease) in cash and cash equivalents
341,343

 
(36,911
)
 
14,103

Cash and cash equivalents at beginning of year
431,159

 
468,070

 
453,967

Cash and cash equivalents at end of year
$
772,502

 
$
431,159

 
$
468,070


The accompanying notes are an integral part of these consolidated financial statements.

71

WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Basis of Presentation
"Western," "we," "us," "our," and the "Company" refer to Western Refining, Inc. and, unless the context otherwise requires, our subsidiaries. Western Refining, Inc. was formed on September 16, 2005, as a holding company prior to our initial public offering and is incorporated in Delaware.
We produce refined products at three refineries: one in El Paso, Texas, one near Gallup, New Mexico and one in St. Paul Park, Minnesota. We sell refined products in Arizona, Colorado, Minnesota, New Mexico, Wisconsin, West Texas, the Mid-Atlantic region and Mexico. Our product sales occur through bulk distribution terminals, wholesale marketing networks and two retail networks with a total of 535 company-owned and franchised retail sites in the U.S.
At December 31, 2015, we owned a 38.4% limited partner interest in Northern Tier Energy LP ("NTI") and the public held a 61.6% limited partner interest. We control NTI through our 100% ownership of its general partner. NTI owns and operates a refinery in St. Paul Park, Minnesota and has a retail-marketing network of 277 convenience stores; 109 of which operate through franchise agreements. NTI's primary areas of operation include Minnesota and Wisconsin.
We entered into an Agreement and Plan of Merger dated as of December 21, 2015 (the “Merger Agreement”) with Western Acquisition Co, LLC, NTI and Northern Tier Energy GP LLC, a wholly-owned subsidiary of Western (“MergerCo”), to acquire all of NTI’s outstanding common units not already held by us (the “Merger”). 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 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, for additional information.
During 2013, we formed WNRL as a Delaware master limited partnership to own, operate, develop and acquire terminals, storage tanks, pipelines and other logistics assets and related businesses. WNRL completed its initial public offering (the "Offering") on October 16, 2013. At December 31, 2015, we owned a 66.4% limited partner interest in Western Refining Logistics, LP ("WNRL") and the public held a 33.6% limited partner interest. We control WNRL through our 100% ownership of its general partner and we own the majority of WNRL's limited partnership interests. WNRL owns and operates logistics assets consisting of pipeline and gathering, terminalling, storage and transportation assets as well as a wholesale business that operates primarily in the Southwest. WNRL operates its logistics assets primarily for the benefit of the Company.
On October 15, 2014, in connection with a Contribution, Conveyance and Assumption Agreement (the "Contribution Agreement") dated September 25, 2014, we sold all of the outstanding limited liability company interests of Western Refining Wholesale, LLC ("WRW") to WNRL. The sale of WRW to WNRL was a reorganization of entities under common control. See Note 29, Western Refining Logistics, LP, for additional information on this transaction.
On October 30, 2015, we sold to WNRL a 375 mile segment of the TexNew Mex Pipeline system that extends from WNRL's crude oil station in Star Lake, New Mexico, in the Four Corners region to its T station in Eddy County, New Mexico (the "TexNew Mex Pipeline System"). We also sold an 80,000 barrel crude oil storage tank located at WNRL's crude oil pumping station in Star Lake, New Mexico and certain other related assets. WNRL acquired these assets from us in exchange for $170 million in cash, 421,031 common units representing limited partner interests in WNRL and 80,000 units of a newly created class of limited partner interests in WNRL, referred to as the "TexNew Mex Units". We refer to this transaction as the "TexNew Mex Pipeline Transaction".

72
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The WNRL financial and operational data presented includes the historical results of all assets acquired from Western in the Wholesale Acquisition and the TexNew Mex Pipeline Transaction. These acquisitions from Western were transfers of assets between entities under common control. Accordingly, the financial information contained herein for the WNRL Predecessor and WNRL has been retrospectively adjusted, to include the historical results of the WRW assets acquired, for periods prior to the effective date of the Wholesale Acquisition. The financial information includes the historical results of the WNRL Predecessor, retrospectively adjusted due to the Wholesale Acquisition, for periods prior to October 16, 2013, and the results of WNRL, retrospectively adjusted for the Wholesale Acquisition and the TexNew Mex Pipeline Acquisition beginning October 16, 2013, the date WNRL commenced operations.
Our operations include four business segments: refining, NTI, WNRL and retail. See Note 3, Segment Information, for further discussion of our business segments.
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 2015, the volatility in crude oil prices and refining margins also contributed to the variability of our results of operations for the four calendar quarters.
The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for financial information and with the instructions to Form 10-K and Article 10 of Regulation S-X as it relates to quarterly information included in Note 28, Quarterly Financial Information.

2. Summary of Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Western and our subsidiaries. All intercompany accounts and transactions have been eliminated for all periods presented.
Our consolidated financial statements include NTI and WNRL, neither wholly-owned. As the general partner of NTI and WNRL, we have the sole ability to direct the activities of NTI and WNRL that most significantly impact their respective economic performance.
NTI is an independent crude oil refiner and marketer of refined products and also operates retail convenience stores that sell various grades of gasoline, diesel fuel and convenience store merchandise in the Upper Great Plains region. NTI also owns and operates various storage and transportation assets, including a light products terminal, a heavy products terminal, storage tanks, rail loading/unloading facilities and a Mississippi River dock. NTI also owns a 17% interest in Minnesota Pipe Line Company, LLC ("MPL") that owns and operates the Minnesota Pipeline and a 465,000 bpd crude oil pipeline system that transports crude oil from the Enbridge pipeline hub at Clearbrook, Minnesota to NTI's St. Paul Park refinery. NTI's operations are separate from those of Western.
WNRL gathers, transports and stores crude oil and refined product through their pipeline and gathering assets and terminalling, transportation, asphalt and storage assets. We are WNRL's primary beneficiary for accounting purposes.
We have non-controlling interests for NTI and WNRL of $1,646.6 million and $1,667.9 million in our Consolidated Balance Sheets as of December 31, 2015 and 2014, respectively.
Cash Equivalents
We consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash equivalents are stated at cost, which approximates market value. See Note 4, Fair Value Measurement for further information.
Restricted Cash
Restricted cash reported in our Consolidated Balance Sheet at December 31, 2015 relates to net proceeds from the sale of Western's TexNew Mex Pipeline System to WNRL. This cash is restricted through October 30, 2016 and must be used to reinvest in assets used in our business or as an offer of prepayment to lenders under the Western 2020 Term Loan Credit Facility.
Restricted cash reported in our Consolidated Balance Sheet at December 31, 2014 relates to net proceeds from the sale of Western wholesale assets to WNRL. This cash was used to invest in capital assets.

73
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Accounts Receivable
Accounts receivable are due from a diverse customer base including companies in the petroleum industry, railroads, airlines and the federal government and is stated at the original invoice amount net of an allowance for uncollectible accounts as determined by historical experience and adjusted for economic uncertainties or known trends. Credit is extended based on an evaluation of our customer’s financial condition. In addition, a portion of the sales at our retail stores are on credit terms generally through major credit card companies. Past due or delinquency status of our trade accounts receivable are generally based on contractual arrangements with our customers.
Uncollectible accounts receivable are charged against the reserve for doubtful accounts when all reasonable efforts to collect the amounts due have been exhausted. Reserves for doubtful accounts related to trade receivables were $0.2 million, $0.5 million and $0.9 million for the years ended December 31, 2015, 2014 and 2013, respectively. Additions, deductions and balances for the reserve for doubtful accounts for the three years ended December 31, 2015, are presented below:
 
Year Ended December 31,
 
2015
 
2014
 
2013
 
(In thousands)
Balance at January 1
$
484

 
$
906

 
$
1,166

Additions (1)
367

 
3,095

 
1,015

Reductions
(682
)
 
(3,517
)
 
(1,275
)
Balance at December 31
$
169

 
$
484

 
$
906

(1) Includes $0.2 million of additions to reserve for doubtful accounts for NTI as of December 31, 2013.
Inventories
Crude oil, refined product and other feedstock and blendstock inventories are carried at the lower of cost or market ("LCM"). Cost is determined principally under the last-in, first-out (“LIFO”) valuation method to reflect a better matching of costs and revenues for 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.
WNRL's wholesale 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 refined product (fuel) inventory values are determined using the FIFO inventory valuation method. Retail merchandise inventory value is determined under the retail inventory method.
Equity Method Investment
NTI's common equity interest in MPL is accounted for using the equity method of accounting. Equity income from MPL represents our proportionate share of net income available to common equity owners generated by MPL.
The equity method investment is assessed for impairment whenever changes in facts or circumstances indicate a loss in value has occurred. When the loss is deemed to be other than temporary, the carrying value of the equity method investment is written down to fair value, and the amount of the write-down is included in net income. See Note 8, Equity Method Investment, for further disclosures.
MPL Investments Inc. ("MPLI") owns all of the preferred membership units of MPL. NTI's 17% interest in MPLI provides NTI no significant influence over MPLI and is accounted for as a cost method investment. The investment in MPLI was carried at a cost of $7.9 million as of December 31, 2015 and 2014, respectively, and is included in other non-current assets in our Consolidated Balance Sheets.

74
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Property, Plant and Equipment
Property, plant and equipment are stated at cost. We capitalize interest on expenditures for capital projects in process greater than one year and greater than $5 million until such projects are ready for their intended use.
Depreciation is provided on the straight-line method at rates based upon the estimated useful lives of the various classes of depreciable assets. The lives used in computing depreciation for such assets are as follows:
Refinery facilities and related equipment
3
—
25
years
Pipelines, terminals and transportation equipment
5
—
20
years
Wholesale facilities and related equipment
3
—
20
years
Retail facilities and related equipment
3
—
30
years
Other
3
—
10
years
Leasehold improvements are depreciated on the straight-line method over the shorter of the lease term or the improvement’s estimated useful life.
Expenditures for periodic maintenance and repair costs, including major turnaround expenses, are expensed when incurred. Such expenses are reported in direct operating expenses in our Consolidated Statements of Operations.
Goodwill
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.
See Note 10, Goodwill, for further disclosures.
Intangible Assets
Intangible assets, net, consist of both amortizable intangible assets, net of accumulated amortization, and intangible assets with indefinite lives. These intangible assets are primarily comprised of licenses, permits and rights-of-way related to our refining and retail operations. We amortize our intangible assets, such as rights-of-way, licenses and permits over their estimated 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 evaluate the remaining useful lives of our intangible assets with indefinite lives at least annually at June 30. If events or circumstances no longer support an indefinite useful life, the intangible asset is tested for impairment and prospectively amortized over its remaining useful life.
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. 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 an amortizable intangible asset is not recoverable, an impairment loss is recognized in an amount that its carrying amount exceeds its fair value generally based on discounted estimated net cash flows.

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In order to test amortizable intangible assets 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.
The risk of intangible asset impairment losses may increase to the extent that our results of operations or cash flows decline. Impairment losses may result in a material, non-cash write-down of intangible assets. Furthermore, impairment losses could have a material effect on our results of operations and shareholders’ equity.
Other Assets
Other assets consist primarily of commodity hedging activities receivable, loan origination fees and various other assets that are related to our general operation and are stated at cost. Amortization of loan origination fees is provided on a straight‑line basis over the term of the agreement that approximates the effective interest method.
Impairment of Long-Lived Assets
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 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 volumes, margins, 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.
The risk of long-lived asset impairment losses may increase to the extent that our results of operations or cash flows decline. Impairment losses may result in a material, non-cash write-down of long-lived assets or intangible assets. Furthermore, impairment losses could have a material effect on our results of operations and shareholders’ equity.
For assets to be disposed of, we report long-lived assets at the lower of carrying amount or fair value less cost to sell.
Revenue Recognition
We record sales revenues for refined products and crude oil upon delivery to customers; the point at which title is transferred, the customer has the assumed risk of loss and when payment has been received or collection is reasonably assured. Transportation, shipping and handling costs incurred are included in cost of products sold. Excise and other taxes collected from customers and remitted to governmental authorities are not included in revenues. 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 our corresponding purchase price within cost of products sold.
We enter into certain purchase and sale arrangements with the same counterparty that are deemed to be made in contemplation of one another. We combine these transactions and, as a result, revenues and cost of sales are not recognized in connection with these arrangements. We also enter into refined product exchange transactions to fulfill sales contracts with our customers by accessing refined products in markets where we do not operate our own refineries. These refined product exchanges are accounted for as exchanges of non-monetary assets, and no revenues are recorded on these transactions.
Cost Classifications
Refining cost of products sold includes cost of crude oil, other feedstocks and blendstocks, the costs of purchased refined products, transportation and distribution costs and realized and unrealized gains and losses related to our commodity hedging activities. WNRL's wholesale cost of products sold includes the cost of fuel and lubricants, transportation and distribution costs, service parts and labor and realized gains and losses related to our commodity hedging activities. Retail cost of products sold includes costs for motor fuels and for merchandise. Motor fuel cost of products sold represents net cost for purchased fuel. Net cost of purchased fuel excludes transportation and motor fuel taxes. Merchandise cost of products sold includes merchandise purchases, net of merchandise rebates and inventory shrinkage.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Refining direct operating expenses include direct costs of labor, maintenance materials and services, chemicals and catalysts, natural gas, utilities and other direct operating expenses. WNRL's wholesale direct operating expenses include direct costs of labor, transportation expense, maintenance materials and services, utilities and other direct operating expenses. Retail direct operating expenses include direct costs of labor, maintenance materials and services, outside services, bank charges, rent expense, utilities and other direct operating expenses. WNRL logistics operating and maintenance expenses include direct costs of labor, maintenance materials and services, natural gas, additives, utilities, insurance expense, property taxes and other direct operating expenses. NTI's direct operating expenses include employee and contract labor, maintenance and energy expenses consisting primarily of natural gas and electricity.
Maintenance Turnaround Expense
Refinery process units require periodic maintenance and repairs that are 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. Turnaround costs are expensed as incurred.
Stock-Based Compensation
The cost of employee services received in exchange for an award of equity instruments granted under the Western Refining 2006 Long-Term Incentive Plan and 2010 Incentive Plan of Western Refining, Inc. is measured based on the grant date fair value of the award. Awards may be in the form of restricted shares or restricted share units. The fair value of each restricted share or restricted share unit awarded was measured based on the market price of a share at closing as of the measurement date and is amortized on a straight-line basis over the respective vesting periods.
Recipients of restricted shares have voting and dividend rights on these shares from the date of grant.
Recipients of restricted share units do not have voting or dividend rights on the shares underlying these units until the units have vested, and if applicable, the underlying shares have been issued. Upon vesting, the recipient will be entitled to receive, at the Compensation Committee’s election, the number of shares underlying the restricted share units, a cash payment equal to the share value at the vesting date or a combination of both.
WNRL's general partner provides unit-based compensation to officers, non-employee directors and employees of its general partner or its affiliates. The fair value of WNRL's phantom units are measured based on the fair market value of the underlying common unit on the date of grant based on the closing price of the common units on the grant date. The estimated fair value of the phantom units is amortized over the vesting period using the straight-line method. Awards vest over a one or three year service period. The phantom unit awards may be settled in common units, cash or a combination of both at the option of the compensation committee of WNRL's board of directors. Expenses related to unit-based compensation are included in general and administrative expenses.
NTI recognizes compensation expense for equity-based awards issued under it 2012 Long-Term Incentive Plan ("NTI LTIP") over the requisite service period. Equity-based compensation costs are measured at the date of grant, based on the fair value of the award. The NTI LTIP permits the award of unit options, restricted units, phantom units, unit appreciation rights and other awards that derive their value from the market price of NTI LP’s common units. The restricted units are contingent upon NTI's achievement of a “cash available for distribution” target (as defined in the award agreement). The number of units ultimately issued under these grants can fluctuate above or below the target units (as defined in the award agreement) depending on actual cash available for distribution during the period.
Financial Instruments and Fair Value
Financial instruments that potentially subject us to concentrations of credit risk primarily consist of accounts receivable. We believe that our credit risk is minimized as a result of the credit quality of our customer base. Our financial instruments include cash equivalents, restricted cash, accounts receivable, accounts payable, accrued liabilities, debt, capital lease obligations and commodity derivative contracts. The estimated fair values of these financial instruments approximate their carrying amounts, except for certain debt as discussed in Note 4, Fair Value Measurement.
We enter into crude oil forward contracts to facilitate the supply of crude oil to the refinery. These contracts qualify for the normal purchases and normal sales exception because we physically receive and deliver the crude oil under the contracts and when we enter into these contracts, the quantities are expected to be used or sold over a reasonable period of time in the normal course of business. These transactions are reflected in cost of products sold in the period that delivery of the crude oil takes place.
In addition, we use crude oil and refined products futures, swap contracts, or options to mitigate the change in value for a portion of our LIFO inventory volumes subject to market price fluctuations and swap contracts to fix the margin on a portion of

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

our future gasoline and distillate production. The physical volumes are not exchanged, and these contracts are net settled with cash. 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. 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.
We do not believe that there is significant credit risk associated with our commodity hedging instruments that are transacted through counterparties meeting established credit criteria. We may be required to collateralize any mark-to-market losses on outstanding commodity hedging contracts. Generally, we do not require collateral from counterparties, but may in the future.
See Note 4, Fair Value Measurement; Note 17, Retirement Plans and Note 18, Crude Oil and Refined Product Risk Management for further fair value disclosures.
Pension and Other Postretirement Obligations
Pension and other postretirement plan expenses and liabilities are determined on an actuarial basis and are affected by the market value of plan assets, estimates of the expected return on plan assets and assumed discount rates and demographic data.
Pension and 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 pension and other postretirement liabilities and costs. 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. See Note 17, Retirement Plans.
Asset Retirement Obligations
We recognize the fair value of a liability for an asset retirement obligation (“ARO”) in the period that it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. The increase in the ARO due to the passage of time is recorded as an operating expense (accretion expense). See Note 14, Asset Retirement Obligations.
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. 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. 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 another, the lower end of the range is used. See Note 23, Contingencies.
Liabilities for future remediation costs are recorded when environmental remedial efforts are probable and the costs can be reasonably estimated, generally on an undiscounted basis. Environmental liabilities acquired in a business combination may be discounted dependent upon specific circumstances related to each environmental liability acquired. The majority of our environmental obligations are recorded on an undiscounted basis. The timing and magnitude of these accruals generally are based on the completion of investigations or other studies or a commitment to a formal plan of action. Current regulations are applied in determining environmental liabilities and are based on best estimates of probable undiscounted future costs over the estimated period of time expected to complete the remediation activities using currently available technology as well as our internal environmental policies. Environmental liabilities are difficult to assess and estimate due to uncertainties related to the magnitude of possible remediation and the timing of such remediation. Such estimates are subject to change due to many factors, including the identification of new sites requiring remediation, changes in environmental laws and regulations and their interpretation, additional information related to the extent and nature of remediation efforts and potential improvements in remediation technologies. Amounts recorded for environmental liabilities are not reduced by possible recoveries from third parties. Recoveries of environmental remediation costs from other parties are recorded as assets when we deem their receipt probable.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized to reflect temporary differences between the basis of assets and liabilities for financial reporting purposes and income tax purposes. Generally, deferred tax assets represent future income tax reductions while deferred tax liabilities represent income taxes that we expect to pay in the future. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The ultimate realization of our deferred tax assets depends upon generating sufficient future taxable income during the periods that the temporary differences become deductible or before any net operating loss and tax credit carryforwards expire. If recovery of deferred tax assets is not likely, our provision for taxes is increased by recording a valuation allowance against the deferred tax assets that management estimates will not ultimately be recoverable. As changes occur in management's assessments regarding our ability to recover our deferred tax assets, the tax provision is increased in any period that we determine that the recovery is not probable. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
We recognize the benefit of a tax position if that position will more likely than not be sustained in an audit, based on the technical merits of the position. If the tax position meets the more likely than not recognition threshold, the tax effect is recognized at the largest amount of the benefit that has greater than a fifty percent likelihood of being realized upon ultimate settlement. Liabilities created for unrecognized tax benefits are presented as a separate liability and are not combined with deferred tax liabilities or assets. We classify interest to be paid on an underpayment of income taxes and any related penalties as income tax expense.
We consolidate 100% of the activity of NTI and WNRL due to our ownership of the respective general partners. NTI and WNRL are both publicly held master limited partnerships, neither of which is taxable for federal income tax. We record income taxes on the portion of income or loss attributable to our respective ownership of NTI and WNRL.
Use of Estimates
The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
We applied acquisition accounting for the November 12, 2013, initial acquisition of NTI (the "2013 NTI Acquisition"), with Western as the accounting acquirer. In accordance with the acquisition method of accounting, the price we paid for NTI has been allocated to the assets acquired and liabilities assumed based upon their estimated fair values at the date of the acquisition. The excess of the purchase price over fair value of the net assets acquired represents goodwill that was allocated at the reporting unit level.
We performed our purchase price allocation for the 2013 NTI Acquisition on November 12, 2013. The estimated fair values of the assets acquired and liabilities assumed were based on the valuation of an independent appraisal as well as management’s evaluations of those assets and liabilities. See Note 30, NTI, for a summary of the purchase price allocation.
Reclassifications
We have reclassified certain balances from the prior year financial information in order to conform to our current presentation. We report these reclassified prior year balances in Note 3, Segment Information, Note 12, Other Assets, Net, Note 15, Long-Term Debt, Note 16, Income Taxes and Note 27, Condensed Consolidating Financial Information.
Recent Accounting Pronouncements
Effective January 1, 2015, we adopted the accounting and reporting requirements included in the Accounting Standards Codification ("ASC") for disposals when such disposal represents a strategic shift that will have a significant impact on the entity’s operations and financial results. These requirements have been applied prospectively. Our adoption of these changes, effective January 1, 2015, had no impact on our financial position, results of operations or cash flows.
Effective December 31, 2015, we adopted the accounting and reporting requirements included in the ASC for balance sheet classification of deferred taxes requiring deferred tax assets and liabilities to be classified as noncurrent. We have applied these requirements retrospectively. Accordingly, the reclassified presentation of our December 31, 2014 Consolidated Balance Sheet includes $57.9 million, previously reported as current deferred income tax liabilities, within the balance of $354.8 million in noncurrent deferred income tax liabilities as of December 31, 2014. The adoption of these accounting and reporting requirements had no impact on our results of operations or cash flows.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Effective December 31, 2015, we adopted the accounting and reporting requirements included in the ASC for balance sheet classification of debt issuance costs requiring debt issuance costs to be presented as an offset to the related debt. We have applied these requirements retrospectively. Accordingly, the reclassified presentation of our December 31, 2014 Consolidated Balance Sheet includes $40.4 million, previously reported as debt issuance costs included in other assets, as an offset to the long-term debt, less current portion, balance of $1,474.7 million as of December 31, 2014. The adoption of these accounting and reporting requirements had no impact on our results of operations or cash flows.
For interim and annual periods beginning after December 15, 2015, the requirements related to the evaluation of limited partnerships or similar entities as variable interest entities ("VIE") were modified. The revised requirements may affect the method of consolidation for reporting entities involved with such entities. Application of the revised standards may follow the retrospective approach or a modified retrospective approach. The updated guidance is effective as of January 1, 2016. The adoption of these revised standards will not result in any change to our consolidation conclusions or impact our financial position, results of operations or cash flows. Additional disclosure is required for entities not previously included in the reporting entity as a VIE.
From time to time, new accounting pronouncements are issued by various standard setting bodies that may have an impact on our accounting and reporting. We are currently evaluating the effect that certain of these new accounting requirements may have on our accounting and related reporting and disclosures in our consolidated financial statements.
Recognition and reporting of revenues - the requirements were amended to remove inconsistencies in revenue requirements and to provide a more complete framework for addressing revenue issues across a broad range of industries and transaction types. The revised standard’s core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. These provisions are effective January 1, 2018, and are to be applied retrospectively, with early adoption permitted for periods beginning after December 15, 2016, and interim periods thereafter.
Lease accounting - the requirements were amended to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and requiring disclosure of key leasing arrangement information. The main difference of the revised guidance to existing guidance is the recognition of lease assets and liabilities for leases currently classified as operating leases. These provisions are effective for fiscal years beginning after December 15, 2018, and may be applied either retrospectively or under a modified retrospective approach.  The modified retrospective approach includes a number of practical expedients related to the identification and classification of leases entered into before the effective date of the revised guidance. Early adoption is permitted.

3. Segment Information
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 24, Concentration of Risk, for a discussion on significant customers.
We treated the TexNew Mex Pipeline System assets we sold to WNRL in the TexNew Mex Pipeline Transaction as a transfer of assets between entities under common control. Accordingly, we have retrospectively adjusted the financial information for the affected reporting segments to include or exclude the historical results of the transferred assets for periods prior to the effective date of the transaction. The TexNew Mex Pipeline System was moved from the refining segment to the WNRL segment.

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WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

A description of each segment and the principal products follows:
Refining. We report the operations of two refineries in our refining segment: one in El Paso, Texas (the "El Paso refinery") with a 131,000 barrel per day ("bpd") capacity and one near Gallup, New Mexico (the "Gallup refinery") with a 25,000 bpd capacity. Our refineries make various grades of gasoline, diesel fuel and other products from crude oil, other feedstocks and blending components. We purchase crude oil, other feedstocks and blending components from various third-party suppliers. We also acquire refined products through exchange agreements and from various third-party suppliers to supplement supply to our customers. 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. 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 our El Paso refinery.
We have an exclusive supply and marketing agreement with a third party covering activities related to our refined product supply, sales and hedging in the Mid-Atlantic region. We recorded $1.8 million and $0.1 million in assets at December 31, 2015, and 2014, respectively, related to this supply agreement in our Consolidated Balance Sheets. The revenues and costs recorded under the supply agreement included $48.7 million and $34.6 million in net hedging gains for the year ended December 31, 2015, and 2014, respectively and $3.9 million in net hedging losses for the year ended December 31, 2013.
NTI. NTI is an independent crude oil refiner and marketer of refined products with a 98,000 bpd refinery in St. Paul Park, Minnesota and a network of retail convenience stores selling various grades of gasoline, diesel fuel and convenience store merchandise, primarily in Minnesota and Wisconsin. NTI's operations are separate from those of Western. As of December 31, 2015, NTI included the operations of 168 retail convenience stores and supported 109 franchised retail convenience stores. NTI's refinery supplies the majority of the gasoline and diesel sold through these convenience stores. NTI's results of operations for the year ended December 31, 2014, includes severance payments totaling $12.9 million related to Western's acquisition of NTI's general partner. See Note 30, NTI, for additional information on this transaction.
WNRL. WNRL owns and operates certain logistics assets that consist of pipeline and gathering, terminalling, storage and transportation assets, providing related services to our refining segment in the Southwest, including approximately 685 miles of pipelines and approximately 8.2 million barrels of active storage capacity. The majority of WNRL's logistics assets are integral to the operations of the El Paso and Gallup refineries.
WNRL also owns a wholesale business that operates primarily in the Southwest. WNRL's wholesale business includes the operations of several lubricant and bulk petroleum distribution plants and a fleet of crude oil, refined product and lubricant delivery trucks. WNRL distributes commercial wholesale petroleum products primarily in Arizona, California, Colorado, Nevada, New Mexico and Texas. WNRL purchases petroleum fuels and lubricants from our refining segment and from third-party suppliers.
Retail. Our retail segment located in the Southwest sells various grades of gasoline, diesel fuel, convenience store merchandise and beverage and food products to the general public through retail convenience stores and various grades of gasoline and diesel fuel to commercial vehicle fleets through cardlocks. WNRL supplies the majority of gasoline and diesel fuel that our retail segment sells. We purchase general merchandise and beverage and food products from various third-party suppliers. At December 31, 2015, the retail segment operated 258 service stations and convenience stores or kiosks located in Arizona, Colorado, New Mexico and Texas compared to 230 and 228 service stations and convenience stores or kiosks at December 31, 2014 and 2013, respectively. The additional stores were added primarily under various operating and capital leases. At December 31, 2015, the retail segment operated 52 cardlocks located in Arizona, California and New Mexico compared to 50 and 53 cardlocks at December 31, 2014 and 2013, respectively.
Segment Accounting Principles. Operating income for each segment consists of net revenues less cost of products sold; direct operating expenses; selling, general and administrative expenses; net impact of the disposal of assets and depreciation and amortization. The refining and NTI segments also include costs related to periodic maintenance turnaround activities. Cost of products sold includes net realized and unrealized gains and losses related to our commodity hedging activities and reflects current costs adjusted, where appropriate, for LIFO and LCM inventory adjustments. Intersegment revenues are reported at prices that approximate market.
Activities of our business that are not included in the four segments mentioned above are included in the "Other" category. These activities consist primarily of corporate staff operations and other items that are not specific to the normal business of any one of our four operating segments. We do not allocate certain items of other income and expense, including income taxes, to the individual segments. NTI and WNRL are primarily pass-through entities with respect to income taxes.
The total assets of each segment consist primarily of cash and cash equivalents; inventories; net accounts receivable; net property, plant and equipment and other assets directly associated with the individual segment’s operations. Included in the

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WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

total assets of the corporate operations are cash and cash equivalents; various net accounts receivable; prepaid expenses; other current assets; net property, plant and equipment and other long-term assets.
Disclosures regarding our reportable segments with reconciliations to consolidated totals for the three years ended December 31, 2015, are presented below:
 
Year Ended
 
December 31,
2015
 
December 31,
2014
 
December 31,
2013
 
(In thousands)
Operating Results:
 
 
 
 
 
Refining (2)
 
 
 
 
 
Net sales
$
6,233,330

 
$
9,485,734

 
$
8,866,162

Intersegment eliminations
2,377,195

 
3,334,526

 
3,374,208

Net refining sales to external customers
3,856,135

 
6,151,208

 
5,491,954

NTI (3)
 
 
 
 
 
Net sales
3,002,156

 
5,159,657

 
686,824

Intersegment eliminations
48,006

 
25,039

 
—

Net NTI sales to external customers
2,954,150

 
5,134,618

 
686,824

WNRL (2)
 
 
 
 
 
Net sales
2,599,867

 
3,501,888

 
3,407,128

Intersegment eliminations
786,324

 
1,011,575

 
882,533

Net WNRL sales to external customers
1,813,543

 
2,490,313

 
2,524,595

Retail
 
 
 
 
 
Net sales
1,173,842

 
1,395,903

 
1,402,564

Intersegment eliminations
10,634

 
19,575

 
21,069

Net retail sales to external customers
1,163,208

 
1,376,328

 
1,381,495

Other
 
 
 
 
 
Other revenue, net
—

 
1,106

 
1,202

Intersegment eliminations
—

 
—

 
—

Net other sales to external customers
—

 
1,106

 
1,202

 
 
 
 
 
 
Consolidated net sales to external customers
$
9,787,036

 
$
15,153,573

 
$
10,086,070

 
 
 
 
 
 
Operating income (loss)
 
 
 
 
 
Refining (1)(2)
$
575,267

 
$
841,071

 
$
637,255

NTI (1)(3)
322,382

 
241,229

 
37,358

WNRL (2)
86,713

 
70,295

 
(42,460
)
Retail
23,721

 
20,763

 
14,854

Other
(77,958
)
 
(76,845
)
 
(75,134
)
Operating income
930,125

 
1,096,513

 
571,873

Other income (expense), net
(91,739
)
 
(93,837
)
 
(118,394
)
Consolidated income before income taxes
$
838,386

 
$
1,002,676

 
$
453,479

 
 
 
 
 
 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

 
Year Ended
 
December 31,
2015
 
December 31,
2014
 
December 31,
2013
 
(In thousands)
Depreciation and amortization
 
 
 
 
 
Refining (2)
$
81,180

 
$
78,911

 
$
74,801

NTI (3)
78,737

 
76,544

 
10,740

WNRL (2)
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

 
 
 
 
 
 
Capital expenditures
 
 
 
 
 
Refining (2)
$
141,663

 
$
84,058

 
$
99,637

NTI (3)
72,257

 
44,895

 
7,884

WNRL (2)
61,005

 
79,172

 
84,825

Retail
13,183

 
13,285

 
8,234

Other
2,755

 
1,861

 
5,097

Consolidated capital expenditures
$
290,863

 
$
223,271

 
$
205,677

 
 
 
 
 
 
Total assets
 
 
 
 
 
Refining (2)
$
1,556,871

 
$
1,606,496

 
$
1,632,212

NTI (including $1,289,443, $1,289,443 and $1,297,043 of goodwill, respectively)
2,308,896

 
2,230,689

 
2,109,705

WNRL (2)
456,938

 
439,471

 
434,761

Retail
244,986

 
224,271

 
207,008

Other
1,265,702

 
1,141,259

 
1,091,413

Consolidated total assets
$
5,833,393

 
$
5,642,186

 
$
5,475,099

(1)
The effect of our economic hedging activity is included within operating income of our refining and NTI segments as a component of cost of products sold. The cost of products sold within our refining segment included $46.7 million, $280.2 million and $0.8 million in net realized and unrealized economic hedging gains for the three years ended December 31, 2015, respectively. NTI cost of products sold included $3.2 million and $1.8 million in net realized and unrealized economic hedging losses for the years ended December 31, 2015 and 2013, respectively, and $9.6 million in net realized and unrealized economic hedging gains for the year ended December 31, 2014.
(2)
WNRL's financial data includes its historical financial results and an allocated portion of corporate general and administrative expenses, previously reported as Other, for the three years ended December 31, 2015. WNRL operating results include activity of the TexNew Mex Pipeline System that was previously recorded within our refining segment. The WNRL Predecessor includes the historical financial results of the TexNew Mex Pipeline System. The information contained herein for WNRL has been retrospectively adjusted, to include the historical results of the TexNew Mex Pipeline System, for periods between the Offering and the effective date of the transaction.
(3)
The financial data for NTI represents the financial results for the period beginning November 12, 2013, through December 31, 2013.


83
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

4. Fair Value Measurement
We utilize the market approach when measuring fair value for our financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.
The fair value hierarchy consists of the following three levels:
Level 1
Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2
Inputs are quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable and market-corroborated inputs that are derived principally from or corroborated by observable market data.
Level 3
Inputs are derived from valuation techniques that one or more significant inputs or value drivers are unobservable and cannot be corroborated by market data or other entity-specific inputs.
The carrying amounts of cash and cash equivalents, which we consider Level 1 assets and liabilities, approximated their fair values at December 31, 2015, and December 31, 2014, due to their short-term maturities. Our fair value assessment incorporates a variety of considerations, including the short-term duration of the instruments and an evaluation of counterparty credit risk. Cash equivalents totaling $70.1 million and $70.0 million consisting of short-term money market deposits and commercial paper were included in the Consolidated Balance Sheets as of December 31, 2015 and 2014, respectively.
We maintain cash deposits with various counterparties in support of our hedging and trading activities. These deposits are required by counterparties as collateral and cannot be offset against the fair value of open contracts except in the event of default. Certain of our commodity derivative contracts under master netting arrangements include both asset and liability positions. We have elected to offset the fair value amounts recognized for multiple similar derivative instruments executed with the same counterparty under the column "Netting Adjustments" below; however, fair value amounts by hierarchy level are presented on a gross basis in the tables below. See Note 18, Crude Oil and Refined Product Risk Management, for further discussion of master netting arrangements.
The following tables represent our assets and liabilities for our commodity hedging contracts measured at fair value on a recurring basis as of December 31, 2015 and 2014, and the basis for that measurement:
 
Carrying Value at
December 31, 2015
 
Fair Value Measurement at
December 31, 2015 Using
 
Netting Adjustments
 
Recorded Value at December 31, 2015
 
 
Level 1
 

Level 2
 

Level 3
 
 
 
(In thousands)
Gross financial assets:
 

 
 

 
 

 
 

 
 
 
 
Other current assets
$
95,062

 
$
—

 
$
95,062

 
$
—

 
$
(16,937
)
 
$
78,125

Other assets
11,881

 
—

 
11,881

 
—

 
—

 
11,881

Gross financial liabilities:
 

 
 

 
 

 
 

 
 
 
 
Accrued liabilities
(21,454
)
 
—

 
(15,698
)
 
(5,756
)
 
11,181

 
(10,273
)
Other long-term liabilities
(5,756
)
 
—

 
(5,756
)
 
—

 
5,756

 
—

 
$
79,733

 
$
—

 
$
85,489

 
$
(5,756
)
 
$
—

 
$
79,733



84
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

 
Carrying Value at
December 31, 2014
 
Fair Value Measurement at
December 31, 2014 Using
 
Netting Adjustments
 
Recorded Value at December 31, 2014
 
 
Level 1
 

Level 2
 

Level 3
 
 
 
(In thousands)
Gross financial assets:
 

 
 

 
 

 
 

 
 
 
 
Other current assets
$
86,659

 
$
—

 
$
86,329

 
$
330

 
$
(6,937
)
 
$
79,722

Other assets
58,182

 
—

 
58,182

 
—

 
(1,649
)
 
56,533

Gross financial liabilities:
 

 
 

 
 

 
 

 
 
 
 
Accrued liabilities
(11,826
)
 
—

 
(11,826
)
 
—

 
6,937

 
(4,889
)
Other long-term liabilities
(3,049
)
 
—

 
(3,049
)
 
—

 
1,649

 
(1,400
)
 
$
129,966

 
$
—

 
$
129,636

 
$
330

 
$
—

 
$
129,966

Commodity hedging contracts designated as Level 3 financial assets consisted of jet fuel crack spread swaps. Ultra-low sulfur diesel ("ULSD") pricing has had a strong historical correlation to jet fuel crack spread swaps. We estimate the fair value of our Level 3 instruments based on the differential between quoted market settlement prices on ULSD futures and quoted market settlement prices on jet fuel futures for settlement dates corresponding to each of our outstanding Level 3 jet fuel crack spread swaps. As quoted prices for similar assets or liabilities in an active market are available, we reclassify the underlying financial asset or liability and designate them as Level 2 prior to final settlement.
Carrying amounts of commodity hedging contracts reflected as financial assets are included in both current and non-current other assets in the Consolidated Balance Sheets. Carrying amounts of commodity hedging contracts reflected as financial liabilities are included in both accrued and other long-term liabilities in the Consolidated Balance Sheets. Fair value adjustments referred to as credit valuation adjustments ("CVA") are included in the carrying amounts of commodity hedging contracts. CVAs are intended to adjust the fair value of counterparty contracts as a function of a counterparty's credit rating and reflect the credit quality of each counterparty to arrive at contract fair values.
The following table presents the changes in fair value of our Level 3 assets and liabilities, excluding goodwill (all related to commodity price swap contracts) for the years ended December 31, 2015 and 2014.
 
December 31,
 
2015
 
2014
 
(In thousands)
Asset (liability) balance at beginning of period
$
330

 
$
(1,935
)
Change in fair value of Level 3 trades open at the beginning of the period
—

 
3,240

Fair value of trades entered into during the period
(5,756
)
 
(1,437
)
Fair value reclassification from Level 3 to Level 2
(330
)
 
462

Asset (liability) balance at end of period
$
(5,756
)
 
$
330

A hypothetical change of 10% to the estimated future cash flows attributable to our Level 3 commodity price swaps would result in a $0.6 million change in the estimated fair value.

85
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

As of December 31, 2015 and 2014, the carrying amount and estimated fair value of our debt was as follows:
 
December 31,
 
2015
 
2014
 
(In thousands)
Western obligations:
 
 
 
Carrying amount
$
874,620

 
$
877,241

Fair value
867,178

 
878,360

NTI obligations:
 
 
 
Carrying amount
$
353,893

 
$
354,692

Fair value
360,500

 
351,313

WNRL obligations:
 
 
 
Carrying amount
$
438,928

 
$
269,000

Fair value
439,000

 
269,000

The carrying amount of our debt is the amount reflected in the Consolidated Balance Sheets, including the current portion. The fair value of the debt was determined using Level 2 inputs.
There have been no transfers between assets or liabilities whose fair value is determined through the use of quoted prices in active markets (Level 1) and those determined through the use of significant other observable inputs (Level 2).

5. Inventories
Inventories were as follows:
 
December 31,
 
2015
 
2014
 
(In thousands)
Refined products (1)
$
201,928

 
$
257,476

Crude oil and other raw materials
288,403

 
318,565

Lubricants
14,996

 
14,265

Retail store merchandise
42,211

 
38,931

Inventories
$
547,538

 
$
629,237

(1)
Includes $14.5 million and $18.2 million of inventory valued using the FIFO valuation method at December 31, 2015 and 2014, respectively.
As of December 31, 2015 and 2014, refined products valued under the LIFO method and crude oil and other raw materials totaled 10.0 million barrels and 9.3 million barrels, respectively. At December 31, 2015 and 2014, the excess of the current cost of our crude oil, refined product and other feedstock and blendstock inventories over LIFO cost was $198.4 million and $28.4 million, respectively. The non-cash impact of changes in our LIFO reserves decreased our cost of products sold for the years ended December 31, 2015 and 2014, by $170.0 million and $222.0 million, respectively, and increased our cost of products sold for the year ended December 31, 2013, by $65.4 million.
In order to state our inventories at market values that were lower than our LIFO costs, we reduced the carrying values of our inventory through non-cash LCM inventory adjustments of $175.1 million and $78.6 million at December 31, 2015 and 2014, respectively.

86
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The net effect of inventory reductions that resulted in the liquidation of LIFO inventory levels are summarized in the table below:
 
Year Ended December 31,
 
2015
 
2014
 
2013
 
(In thousands, except per share amount)
Increase (decrease) in operating income
$
(16,111
)
 
$
1,097

 
$
3,207

Increase (decrease) in net income
(11,808
)
 
777

 
2,119

Increase (decrease) in earnings per diluted share
$
(0.12
)
 
$
0.01

 
$
0.02

Average LIFO cost per barrel of our refined products and crude oil and other raw materials inventories as of December 31, 2015 and 2014, was as follows:
 
December 31,
 
2015
 
2014
 
Barrels
 
LIFO Cost
 
Average
LIFO
Cost Per
Barrel
 
Barrels
 
LIFO Cost
 
Average
LIFO
Cost Per
Barrel
 
(In thousands, except cost per barrel)
Refined products
3,536

 
$
259,722

 
$
73.45

 
3,707

 
$
283,333

 
$
76.43

Crude oil and other
6,490

 
391,237

 
60.28

 
5,577

 
355,470

 
63.74

 
10,026

 
$
650,959

 
64.93

 
9,284

 
$
638,803

 
68.81


6. Prepaid Expenses
Prepaid expenses were as follows:
 
December 31,
 
2015
 
2014
 
(In thousands)
Prepaid crude oil and other raw materials inventories
$
23,793

 
$
55,223

Prepaid insurance and other
49,420

 
33,192

Prepaid expenses
$
73,213

 
$
88,415


7. Other Current Assets
Other current assets were as follows:
 
December 31,
 
2015
 
2014
 
(In thousands)
Unrealized hedging gains
$
78,125

 
$
79,722

Material and chemical inventories
54,053

 
49,433

Excise and other taxes receivable
21,801

 
17,461

Exchange and other receivables
15,749

 
5,509

Other current assets
$
169,728

 
$
152,125



87
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

8. Equity Method Investment
NTI owns a 17% common equity interest in MPL. The carrying value of this equity method investment was $97.5 million and $96.1 million at December 31, 2015 and 2014, respectively.
Summarized financial information for MPL for the years ended December 31, 2015, 2014 and 2013 and as of December 31, 2015 and 2014, was as follows:
 
Year Ended December 31,

 
2015
 
2014
 
2013
 
(In thousands)
Revenues
$
206,195

 
$
184,712

 
$
24,082

Operating costs and expenses
88,909

 
141,250

 
12,524

Income from operations
117,286

 
43,462

 
11,558

Net income
96,485

 
22,821

 
9,524

Net income attributable to MPL unitholders
86,832

 
13,168

 
8,174

 
December 31,
2015
 
December 31,
2014
 
(In thousands)
Current assets
$
24,020

 
$
9,578

Noncurrent assets
441,825

 
450,662

Total assets
$
465,845

 
$
460,240

 
 
 
 
Current liabilities
$
17,658

 
$
21,887

Noncurrent liabilities
—

 
—

Total liabilities
$
17,658

 
$
21,887

 
 
 
 
Equity
$
448,187

 
$
438,353

As of December 31, 2015 and 2014, respectively, the carrying amount of the equity method investment was $21.3 million and $21.6 million higher than the underlying net assets of the investee. We are amortizing this difference over the remaining life of MPL’s primary asset (the fixed asset life of the pipeline). There is no market for the common units of MPL and, accordingly, no quoted market price is available.
Distributions received from MPL were $13.1 million, $7.5 million and $2.6 million, respectively, for the years ended December 31, 2015, 2014 and 2013. Equity income from MPL was $14.8 million, $2.2 million and $1.4 million, respectively, for the years ended December 31, 2015, 2014 and 2013, and has been included in other, net in the accompanying Consolidated Statement of Operations.


88
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

9. Property, Plant and Equipment, Net
Property, plant and equipment, net was as follows:
 
December 31,
 
2015
 
2014
 
(In thousands)
Refinery facilities and related equipment
$
2,348,663

 
$
2,217,013

Pipelines, terminals and transportation equipment
533,040

 
369,080

Retail facilities and related equipment
328,419

 
288,338

Wholesale facilities and related equipment
61,133

 
57,158

Corporate
50,812

 
48,871

 
3,322,067

 
2,980,460

Accumulated depreciation
(1,016,896
)
 
(827,271
)
Property, plant and equipment, net
$
2,305,171

 
$
2,153,189

Depreciation expense was $201.2 million, $187.1 million and $114.7 million for the years ended December 31, 2015, 2014 and 2013, respectively. Depreciation expense for the years ended December 31, 2015, 2014 and 2013, included $78.7 million, $76.5 million and $10.7 million, respectively, of depreciation related to NTI.

10. Goodwill
At December 31, 2015 and 2014, we had goodwill of $1,289.4 million, respectively, relating to the 2013 NTI Acquisition. Declines in NTI's market capitalization could be an indication that goodwill may become impaired in the future.
We test goodwill for impairment annually or more frequently if indications of impairment exist. Our testing for impairment of goodwill is based on the estimated fair value of the related 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. Various market-based methods including market capitalization, EBITDA multiples and refining complexity barrels are considered. The estimates and assumptions used in determining fair value of each 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 NTI's traded unit price. The EBITDA and complexity barrel models are 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.

11. Intangible Assets, Net
A summary of intangible assets, net is presented in the table below:
 
December 31, 2015
 
December 31, 2014
 
Weighted Average
Amortization
Period (Years)
 
Gross
Carrying
Value
 
Accumulated
Amortization
 
Net
Carrying
Value
 
Gross
Carrying
Value
 
Accumulated
Amortization
 
Net
Carrying
Value
 
 
(In thousands)
 
 
Amortizable assets:
 

 
 

 
 

 
 

 
 

 
 

 
 
Licenses and permits
$
20,427

 
$
(13,729
)
 
$
6,698

 
$
20,427

 
$
(12,148
)
 
$
8,279

 
4.3
Customer relationships
7,551

 
(3,921
)
 
3,630

 
7,551

 
(3,366
)
 
4,185

 
6.5
Rights-of-way and other
6,839

 
(1,797
)
 
5,042

 
7,878

 
(3,613
)
 
4,265

 
7.8
 
34,817

 
(19,447
)
 
15,370

 
35,856

 
(19,127
)
 
16,729

 
 
Unamortizable assets:
 

 
 

 
 

 
 

 
 

 
 

 
 
Franchise rights and trademarks
50,500

 
—

 
50,500

 
50,500

 
—

 
50,500

 
 
Liquor licenses
19,075

 
—

 
19,075

 
18,723

 
—

 
18,723

 
 
Intangible assets, net
$
104,392

 
$
(19,447
)
 
$
84,945

 
$
105,079

 
$
(19,127
)
 
$
85,952

 
 

89
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Intangible asset amortization expense was $2.9 million, $2.8 million and $2.8 million for the years ended December 31, 2015, 2014 and 2013, respectively, based upon estimates of useful lives ranging from 1 to 35 years. Estimated amortization expense for the next five fiscal years is as follows (in thousands):
2016
$
2,739

2017
2,798

2018
2,798

2019
2,130

2020
1,186


12. Other Assets, Net
Other assets, net of amortization, were as follows:
 
December 31,
 
2015
 
2014
 
(In thousands)
Purchase agreement
$
16,067

 
$
—

Unrealized hedging gains
11,881

 
56,533

Cost method investment
7,872

 
7,884

Other
29,177

 
17,633

Other assets, net of amortization
$
64,997

 
$
82,050


13. Accrued and Other Long-Term Liabilities
Accrued liabilities were as follows:
 
December 31,
 
2015
 
2014
 
(In thousands)
Payroll and related costs
$
77,482

 
$
70,949

Excise and other taxes
67,932

 
58,556

Professional and other
28,093

 
32,237

Property taxes
20,175

 
17,567

Interest
17,093

 
9,251

Margin and other customer deposits
17,059

 
17,142

Fair value of open commodity hedging positions, net
10,273

 
4,889

Environmental reserves
10,099

 
8,377

Banking fees and other financing
189

 
1,311

Income taxes
—

 
48,170

Accrued liabilities
$
248,395

 
$
268,449


90
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Other long-term liabilities were as follows:
 
December 31,
 
2015
 
2014
 
(In thousands)
Unrecognized tax benefits
$
42,049

 
$
12,000

Retiree plan obligations and other
10,529

 
10,802

Environmental reserves
8,195

 
10,086

Asset retirement obligations
7,822

 
7,539

Fair value of open commodity hedging positions, net
—

 
1,400

Other long-term liabilities
$
68,595

 
$
41,827

The table below summarizes changes in our environmental liability accruals:
 
December 31,
2014
 
Increase
(Decrease)
 
Payments
 
December 31,
2015
 
(In thousands)
Discounted liabilities
$
2,902

 
$
1,697

 
$
(966
)
 
$
3,633

Undiscounted liabilities
15,561

 
303

 
(1,203
)
 
14,661

Total environmental liabilities
$
18,463

 
$
2,000

 
$
(2,169
)
 
$
18,294

See Note 23, Contingencies, for further information regarding our environmental liabilities.

14. Asset Retirement Obligations
We determine the estimated fair value of our AROs based on the estimated current cost escalated by an inflation rate and discounted at a credit adjusted risk free rate. This liability is capitalized as part of the cost of the related asset and amortized using the straight-line method. The liability accretes until we have accrued the total estimated retirement obligation or we settle the liability.
We have identified the following AROs:
Crude Pipelines. Our rights-of-way agreements generally require that pipeline properties be returned to their original condition when the agreements are no longer in effect. This means that the pipeline surface facilities must be dismantled and removed and certain site reclamation performed. We do not believe these rights-of-way agreements will require us to remove the underground pipe upon taking the pipeline permanently out of service. However, certain regulatory requirements may mandate that we purge out of service underground pipe at the time we take the pipelines permanently out of service.
Storage Tanks. We have a legal obligation under applicable law to remove or close in place certain underground and aboveground storage tanks, both on owned property and leased property, once they are taken out of service. Under some lease arrangements, we have also committed to restore the leased property to its original condition.
Other. We have certain refinery piping and heaters as a conditional ARO since we have the legal obligation to properly remove or dispose of materials that contain asbestos that surround certain refinery piping and heaters.

91
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The following table reconciles the beginning and ending aggregate carrying amount of our AROs for the three years ended December 31, 2015:
 
December 31,
 
2015
 
2014
 
2013
 
(In thousands)
Liability, beginning of period
$
7,539

 
$
7,327

 
$
5,088

Liabilities incurred
58

 
17

 
11

Liabilities acquired
—

 
—

 
1,786

Liabilities settled
(187
)
 
(313
)
 
(145
)
Accretion expense
412

 
508

 
587

Liability, end of period
$
7,822

 
$
7,539

 
$
7,327

NTI's ARO liability excludes $0.2 million and $0.1 million of ARO classified as other accrued liabilities as of December 31, 2015 and 2014, respectively.

15. Long-Term Debt
Long-term debt was as follows:
 
December 31,
 
2015
 
2014
 
(In thousands)
Western obligations:
 
 
 
Revolving Credit Facility due 2019
$
—

 
$
—

Term Loan Credit Facility due 2020, net of unamortized financing costs of $9,442 and $11,382, respectively
529,558

 
533,118

6.25% Senior Unsecured Notes due 2021, net of unamortized financing costs of $4,938 and $5,877, respectively
345,062

 
344,123

Total Western obligations
874,620

 
877,241

NTI obligations:
 
 
 
Revolving Credit Facility due 2018
—

 
—

7.125% Senior Secured Notes, due November 2020, net of unamortized financing costs of $2,032 and $2,345 and unamortized premium of $5,925 and $7,037, respectively
353,893

 
354,692

Total NTI obligations
353,893

 
354,692

WNRL obligations:
 
 
 
Revolving Credit Facility due 2018
145,000

 
269,000

7.5% Senior Notes due 2023, net of unamortized financing costs of $6,072 for 2015
293,928

 
—

Total WNRL obligations
438,928

 
269,000

Unamortized financing costs, revolving credit facilities
(17,047
)
 
(20,768
)
     Long-term debt
1,650,394

 
1,480,165

Current portion of long-term debt
(5,500
)
 
(5,500
)
     Long-term debt, net of current portion
$
1,644,894

 
$
1,474,665

As of December 31, 2015, annual long-term debt maturities through 2017 are $5.5 million. In 2018, 2019 and 2020, long-term debt maturities are $150.5 million, $5.5 million and $867.0 million, respectively. Thereafter, total long-term debt maturities are $650.0 million.

92
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Interest expense and other financing costs were as follows:
 
Year Ended December 31,
 
2015
 
2014
 
2013
 
(In thousands)
Contractual interest:
 

 
 

 
 

Western obligations
$
45,248

 
$
51,114

 
$
42,768

NTI obligations
24,474

 
20,342

 
4,883

WNRL obligations
21,079

 
1,096

 
—

 
90,801

 
72,552

 
47,651

Amortization of loan fees
7,561

 
7,786

 
6,541

Amortization of original issuance discount
—

 
7,352

 
15,502

Other interest expense
9,059

 
11,717

 
6,835

Capitalized interest
(1,818
)
 
(2,345
)
 
(1,948
)
Interest expense and other financing costs
$
105,603

 
$
97,062

 
$
74,581

We amortize original issue discounts and financing fees using the effective interest method over the respective term of the debt. Our creditors have no recourse to the assets owned by either of NTI or WNRL, and the creditors of NTI and WNRL have no recourse to our assets or those of our other subsidiaries.
Western Obligations
Revolving Credit Facility
On April 11, 2013, we entered into the Second Amended and Restated Revolving Credit Agreement ("Western 2018 Revolving Credit Facility"). Lenders under the Western 2018 Revolving Credit Facility extended $900.0 million in commitments that mature on April 11, 2018 and incorporate a borrowing base tied to eligible accounts receivable and inventory. The Western 2018 Revolving Credit Facility also provides for letters of credit and swing line loans and provides for a quarterly commitment fee ranging from 0.25% to 0.50% per annum subject to adjustment based upon the average utilization ratio and letter of credit fees ranging from 1.75% to 2.25% per annum, payable quarterly, subject to adjustment based upon the average excess availability. Borrowings can be either base rate loans plus a margin ranging from 0.75% to 1.25% or LIBOR loans plus a margin ranging from 1.75% to 2.25%, in each case subject to adjustment based upon the average excess availability under the Western 2018 Revolving Credit Facility. The majority of Western's restricted subsidiaries fully and unconditionally guarantee the Western Revolving Credit Facility on a joint and several basis. The Western 2018 Revolving Credit Facility is secured by our cash and cash equivalents, accounts receivable and inventory.
On October 2, 2014, we entered into the Third Amended and Restated Revolving Credit Agreement ("Western 2019 Revolving Credit Facility"). Lenders committed $900.0 million, all of which will mature on October 2, 2019. The commitments under the Western 2019 Revolving Credit Facility may be increased in the future to $1.4 billion, subject to certain conditions (including the agreement of financial institutions, in their sole discretion, to provide such additional commitments). The amended terms of the agreement include revised borrowing rates. Borrowings can be either base rate loans plus a margin ranging from 0.50% to 1.00% or LIBOR loans plus a margin ranging from 1.50% to 2.00%, subject to adjustment based upon the average excess availability. The Western 2019 Revolving Credit Facility also provides for a quarterly commitment fee ranging from 0.250% to 0.375% per annum, subject to adjustment based upon the average utilization ratio, and letter of credit fees ranging from 1.50% to 2.00% per annum payable quarterly, subject to adjustment based upon the average excess availability. Borrowing availability under the Western 2019 Revolving Credit Facility is tied to the amount of our and our restricted subsidiaries' eligible accounts receivable and inventory. The Western 2019 Revolving Credit Facility is guaranteed, on a joint and several basis, by certain of our subsidiaries and will be guaranteed by certain newly acquired or formed subsidiaries, subject to certain limited exceptions. The Western 2019 Revolving Credit Facility is secured by our cash and cash equivalents, accounts receivable and inventory, but not our fixed assets. The Western 2019 Revolving Credit Facility contains certain covenants, including but not limited to, limitations on debt, investments, and dividends and the maintenance of a minimum fixed charge coverage ratio in certain circumstances.
As of December 31, 2015, we had no direct borrowings under the Revolving Credit Agreement, and we had net availability under the Western 2019 Revolving Credit Facility of $247.5 million. This availability is net of $64.4 million in outstanding letters of credit.

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WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Term Loan Credit Agreement
On November 12, 2013, we entered into a term loan credit agreement (the "Western 2020 Term Loan Credit Facility"). The Western 2020 Term Loan Credit Facility provides for loans of $550.0 million, matures on November 12, 2020 and provides for quarterly principal payments of $1.4 million until September 30, 2020, with the remaining balance then outstanding due on the maturity date. The Western 2020 Term Loan Credit Facility bears interest at a rate based either on the base rate (as defined in the Western 2020 Term Loan Credit Facility) plus 2.50% or the Eurodollar Rate (as defined in the Western 2020 Term Loan Credit Facility) plus 3.50% (with a Euro dollar rate floor of 1.00%). The Western 2020 Term Loan Credit Facility is secured by both the El Paso and Gallup refineries and is fully and unconditionally guaranteed on a joint and several basis by substantially all of Western's material subsidiaries. The Western 2020 Term Loan Credit Facility contains customary restrictive covenants including limitations of debt, investments and dividends, and does not contain any financial maintenance covenants.
11.25% Senior Secured Notes
During the first and second quarters of 2013, we redeemed or otherwise purchased and canceled all outstanding Western Senior Secured Notes for $349.4 million, including $24.4 million in redemption fees, resulting in a loss on extinguishment of debt of $46.7 million including the write-off of $4.2 million of unamortized loan fees.
6.25% Senior Unsecured Notes
On March 25, 2013, we entered into an indenture (the "Western 2021 Indenture") for the issuance of $350.0 million in aggregate principal amount of 6.25% Senior Unsecured Notes due 2021 (the "Western 2021 Senior Unsecured Notes"). The Western 2021 Senior Unsecured Notes are guaranteed on a senior unsecured basis by each of our wholly-owned domestic restricted subsidiaries that guarantee any of our indebtedness under our (a) Western 2019 Revolving Credit Facility or (b) any other Credit Facilities (as each such term is defined in the Western 2021 Indenture), or any capital markets debt, in the case of clause (b), in a principal amount of at least $150.0 million. The Western 2021 Senior Unsecured Notes and guarantees are our and each guarantor's general obligations and rank equally and ratably with all of our existing and future senior indebtedness and senior to our and the guarantors' subordinated indebtedness. The Western 2021 Senior Unsecured Notes are effectively subordinated in right of payment to all secured indebtedness (including secured indebtedness under the Western 2019 Revolving Credit Facility) to the extent of the value of the collateral securing such indebtedness. We pay interest on the Western 2021 Senior Unsecured Notes semi-annually in arrears on April 1 and October 1 of each year. The Western 2021 Senior Unsecured Notes mature on April 1, 2021.
The Western 2021 Indenture contains covenants that limit our ability to, among other things: pay dividends or make other distributions in respect of our capital stock or make other restricted payments; make certain investments; sell certain assets; incur additional debt or issue certain preferred shares; create liens on certain assets to secure debt; consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; restrict dividends or other payments from restricted subsidiaries; and enter into certain transactions with our affiliates. The Western 2021 Indenture also provides for events of default that if any of them occur would permit or require the principal, premium, if any, and interest on all the then outstanding Western 2021 Senior Unsecured Notes to be due and payable immediately.
5.75% Convertible Senior Unsecured Notes
On March 7, 2014, we provided notice to the Trustee and the holders (the “Noteholders”) of our 5.75% Convertible Senior Unsecured Notes (the "Western Convertible Notes") informing the Trustee and the Noteholders of our election, with respect to all conversions requested by Noteholders in accordance with the terms of the indenture received by the conversion agent on or after March 20, 2014, to settle conversions of the Western Convertible Notes through the issuance of shares of our common stock. On various dates between March 26, 2014, and June 2, 2014, we delivered an aggregate of 9,155 shares of common stock to Noteholders to satisfy the conversion of $87,000 aggregate principal amount of Western Convertible Notes based on conversion rates, dependent on conversion date, of 105.2394 or 105.8731 shares of common stock for each $1,000 of principal amount of Western Convertible Notes converted. On June 16, 2014, we delivered 22,750,088 shares of common stock to Noteholders, to satisfy the conversion of $214,881,000 aggregate principal amount of Western Convertible Notes, based on a conversion rate of 105.8731 shares of common stock for each $1,000 of principal amount of Western Convertible Notes converted.
In addition to these conversions, we paid cash for the remainder of the outstanding amount of the Western Convertible Notes with a nominal loss on extinguishment of debt.
Our payment of dividends is limited under the terms of the Western 2019 Revolving Credit Facility, the Western 2021 Indenture and the Western 2020 Term Loan Credit Facility, and in part, depends on our ability to satisfy certain financial

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WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

covenants. Note guarantors will be released if they cease to be a Restricted Subsidiary as the result of a transaction permitted under the terms of the indenture, including through the disposition of capital stock of the guarantor.
NTI Obligations
Revolving Credit Facility
On September 29, 2014, certain subsidiaries of NTI entered into the Amended and Restated Revolving Credit Agreement (the "NTI Revolving Credit Facility"), increasing the aggregate principal amount available prior to the amendment and restatement from $300.0 million to $500.0 million. The NTI Revolving Credit Facility, which matures on September 29, 2019, incorporates a borrowing base tied to eligible accounts receivable and inventory and provides for up to $500.0 million for the issuance of letters of credit and up to $45.0 million for swing line loans. The NTI Revolving Credit Facility may be increased up to a maximum aggregate principal amount of $750.0 million, subject to certain conditions (including the agreement of financial institutions, in their sole discretion, to provide such additional commitments). Obligations under the NTI Revolving Credit Facility are secured by substantially all of NTI’s assets. Indebtedness under the NTI Revolving Credit Facility is recourse to Northern Tier Energy LLC ("NTI LLC") and certain of its subsidiaries that are borrowers thereunder, its general partner, and is guaranteed by NTI and certain of its subsidiaries. Borrowings under the NTI Revolving Credit Facility bear interest at either (a) a base rate plus an applicable margin (ranging between 0.50% and 1.00%) or (b) a LIBOR rate plus an applicable margin (ranging between 1.50% and 2.00%), in each case subject to adjustment based upon the average historical excess availability. In addition to paying interest on outstanding borrowings, NTI is also required to pay a quarterly commitment fee ranging from 0.250% to 0.375% subject to adjustment based upon the average utilization ration and letter of credit fees ranging from 1.50% to 2.00% subject to adjustment based upon the average historical excess availability. The NTI Revolving Credit Facility contains certain covenants, including but not limited to, limitations on debt, investments and dividends and the maintenance of a minimum fixed charge coverage ratio in certain circumstances. NTI incurred financing costs of $3.0 million associated with the amended and restated NTI Revolving Credit Facility.
As of December 31, 2015, the availability under the NTI Revolving Credit Facility was $152.7 million. This availability is net of $46.3 million in outstanding letters of credit. There were no borrowings under the NTI Revolving Credit Facility at December 31, 2015.
7.125% Secured Notes
On November 8, 2012, NTI LLC, and Northern Tier Finance Corporation (together with NTI LLC, the "NTI 2020 Notes Issuers"), issued $275.0 million in aggregate principal amount of 7.125% senior secured notes due 2020 (the "NTI 2020 Secured Notes").
NTI increased the principal amount of the 2020 Secured Notes in September 2014 by an additional $75.0 million in principal value at a premium of $4.2 million. This additional offering was issued under the same indenture as the existing 2020 Secured Notes and the new notes issued have the same terms as the existing notes. The offering generated cash proceeds of $79.2 million including an issuance premium of $4.2 million. NTI incurred financing costs of $2.5 million associated with this offering. The issuance premium will be amortized to interest expense over the remaining life of the notes.
The obligations under the NTI 2020 Secured Notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by Northern Tier Energy LP and on a senior secured basis by (i) all of NTI LLC’s restricted subsidiaries that borrow, or guarantee obligations, under the NTI Revolving Credit Facility or any other indebtedness of NTI LLC or another subsidiary of NTI LLC that guarantees the NTI 2020 Secured Notes and (ii) all other material wholly-owned domestic subsidiaries of NTI LLC. The indenture governing the NTI 2020 Secured Notes contains covenants that limit or restrict dividends or other payments from restricted subsidiaries. Indebtedness under the NTI 2020 Secured Notes is guaranteed by NTI and certain of their subsidiaries.

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WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

WNRL Obligations
Revolving Credit Facility
On October 16, 2013, WNRL entered into a $300.0 million senior secured revolving credit facility ("WNRL Revolving Credit Facility"). WNRL has the ability to increase the total commitment of the revolving credit facility by up to $200.0 million for a total facility size of up to $500.0 million, subject to receiving increased commitments from lenders and to the satisfaction of certain conditions. The WNRL Revolving Credit Facility includes a $25.0 million sub-limit for standby letters of credit and a $10.0 million sub-limit for swing line loans. Obligations under the WNRL Revolving Credit Facility and certain cash management and hedging obligations are guaranteed by all of WNRL's subsidiaries and, with certain exceptions, will be guaranteed by any formed or acquired subsidiaries. Obligations under the WNRL Revolving Credit Facility are secured by a first priority lien on substantially all of WNRL's and its subsidiaries' significant assets. The WNRL Revolving Credit Facility will mature on October 16, 2018. Borrowings under the WNRL Revolving Credit Facility bear interest at either a base rate plus an applicable margin ranging from 0.75% to 1.75%, or at LIBOR plus an applicable margin ranging from 1.75% to 2.75%. The applicable margin will vary based upon WNRL's Consolidated Total Leverage Ratio, as defined in the WNRL Revolving Credit Facility.
On October 15, 2014, to partially fund the purchase of certain assets from Western, WNRL borrowed $269.0 million under the WNRL Revolving Credit Facility. On February 11, 2015, WNRL repaid its outstanding direct borrowings under the WNRL Revolving Credit Facility with a portion of the proceeds from the issuance of its 7.5% Senior Notes, discussed below. On October 30, 2015, WNRL borrowed $145.0 million under the WNRL Revolving Credit Facility to partially fund the purchase of the TexNew Mex Pipeline System from Western.
The WNRL Revolving Credit Facility contains covenants that limit or restrict WNRL's ability to make cash distributions. WNRL is required to maintain certain financial ratios that are tested on a quarterly basis for the immediately preceding four quarter period. As of December 31, 2015, the availability under the WNRL Revolving Credit Facility was $154.3 million, net of $145.0 million direct borrowings and $0.7 million in outstanding letters of credit.
7.5% Senior Notes
On February 11, 2015, WNRL entered into an indenture (the “WNRL Indenture”) among the Partnership, WNRL Finance Corp., a Delaware corporation and wholly-owned subsidiary of the Partnership (“Finance Corp.” and together with the Partnership, the “Issuers”), the Guarantors named therein and U.S. Bank National Association, as trustee (the “Trustee”) under which the Issuers issued $300.0 million in aggregate principal amount of 7.5% Senior Notes due 2023. The Partnership will pay interest on the 7.5% Senior Notes semi-annually in cash in arrears on February 15 and August 15 of each year, beginning on August 15, 2015. The 7.5% Senior Notes will mature on February 15, 2023. WNRL used the proceeds from the notes to repay the full balance due under the WNRL Revolving Credit Facility on February 11, 2015.
The WNRL Indenture contains covenants that limit WNRL’s and its restricted subsidiaries’ ability to, among other things: (i) incur, assume or guarantee additional indebtedness or issue preferred units, (ii) create liens to secure indebtedness, (iii) pay distributions on equity securities, repurchase equity securities or redeem subordinated indebtedness, (iv) make investments, (v) restrict distributions, loans or other asset transfers from the Partnership’s restricted subsidiaries, (vi) consolidate with or merge with or into, or sell substantially all of the Partnership’s properties to, another person, (vii) sell or otherwise dispose of assets, including equity interests in subsidiaries and (viii) enter into transactions with affiliates. These covenants are subject to a number of important limitations and exceptions. The WNRL Indenture also provides for events of default, which, if any of them occurs, would permit or require the principal, premium, if any, and interest on all the then outstanding Notes to be due and payable immediately.

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WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


16. Income Taxes
The following is an analysis of our consolidated income tax expense for the three years ended December 31, 2015:
 
Year Ended December 31,
 
2015
 
2014
 
2013
 
(In thousands)
Current:
 

 
 

 
 

Federal
$
228,457

 
$
187,320

 
$
193,719

State
30,222

 
32,581

 
25,578

Total current
258,679

 
219,901

 
219,297

Deferred:
 

 
 

 
 

Federal
(27,876
)
 
63,182

 
(62,954
)
State
(6,848
)
 
9,521

 
(2,418
)
Total deferred
(34,724
)
 
72,703

 
(65,372
)
Provision for income taxes
$
223,955

 
$
292,604

 
$
153,925

We paid income tax, net of refunds, of $283.3 million, $228.0 million and $223.6 million for the years ended December 31, 2015, 2014 and 2013, respectively.
The following is a reconciliation of total income tax expense to income taxes computed by applying the 35% statutory federal income tax rate to income before income taxes for the three years ended December 31, 2015:
 
Year Ended December 31,
 
2015
 
2014
 
2013
 
(In thousands)
Taxes at the federal statutory rate
$
293,435

 
$
350,937

 
$
158,718

State income taxes, net of federal tax benefit (2)
13,637

 
31,477

 
17,666

Valuation allowance for state net operating losses
—

 
(2,887
)
 
(2,776
)
Domestic Activity Production deduction
(14,000
)
 
(11,900
)
 
(12,763
)
Non-controlling interests
(70,214
)
 
(50,044
)
 
(8,383
)
Federal tax credit for production of ultra low sulfur diesel
—

 
(15,486
)
 
—

Federal tax credit for increasing research activities (1)
38

 
(4,522
)
 
(999
)
Other, net
1,059

 
(4,971
)
 
2,462

Total income tax expense
$
223,955

 
$
292,604

 
$
153,925

(1)
The federal tax credit for increasing research activities includes $0.04 million, $4.5 million and $1.0 million in unrecognized tax benefits for the years ended December 31, 2015, 2014 and 2013, respectively.
(2)
State income taxes, net of federal tax benefit, include $5.0 million and $0.8 million in unrecognized tax benefits for the years ended December 31, 2015 and 2014, respectively.
The effective tax rates for 2015, 2014 and 2013 were 26.7%, 29.2% and 33.9%, respectively, as compared to the federal statutory rate of 35% in all years.


97
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The following is a reconciliation of unrecognized tax benefits for the three years ended December 31, 2015:
 
December 31,
 
2015

2014

2013
 
(In thousands)
Unrecognized tax benefits at beginning of year
$
13,762

 
$
10,571

 
$
9,572

Increases related to current year tax positions
1,100

 
1,500

 
999

Increases related to prior year tax positions
26,329

 
3,845

 
—

Decreases related to prior year tax positions
(1,017
)
 
(2,154
)
 
—

Decreases resulting from the expiration of the statute of limitations
—

 
—

 
—

Unrecognized tax benefits at end of year
$
40,174

 
$
13,762

 
$
10,571

We recorded unrecognized tax benefits as of December 31, 2015 of $40.2 million, of which $26.4 million would affect our effective tax rate if recognized. We believe that it is reasonably possible that a decrease of up to $16.9 million in unrecognized tax benefits related to federal exposures may be necessary within the coming year. We had accrued interest or penalties of $1.7 million with respect to the unrecognized tax benefit.
The Internal Revenue Service (the "IRS") has finalized examinations of our tax years ending December 31, 2007, 2008, 2009, 2010 and 2011. We are subject to examination by the IRS for tax years ending December 31, 2012, or after, and by the major state tax jurisdictions (Arizona, California, Maryland, Minnesota, New Mexico, Texas and Virginia) for tax years ending December 31, 2011, or after.
The tax effects of significant temporary differences representing deferred income tax assets and liabilities were as follows:
 
December 31,
 
2015
 
2014
 
Assets
 
Liabilities
 
Net
 
Assets
 
Liabilities
 
Net
 
(In thousands)
Inventories
$
—

 
$
(28,411
)
 
$
(28,411
)
 
$
—

 
$
(41,713
)
 
$
(41,713
)
Stock-based compensation
1,614

 
—

 
1,614

 
1,468

 
—

 
1,468

Property, plant and equipment
—

 
(261,476
)
 
(261,476
)
 
—

 
(298,100
)
 
(298,100
)
Investment in WNRL
77,824

 
—

 
77,824

 
81,453

 
—

 
81,453

Investment in NTI


 
(81,789
)
 
(81,789
)
 
—

 
(64,013
)
 
(64,013
)
Postretirement obligations
2,595

 
—

 
2,595

 
3,175

 
—

 
3,175

Commodity hedging activities
—

 
(33,260
)
 
(33,260
)
 
—

 
(50,850
)
 
(50,850
)
Environmental and retirement obligations
3,742

 
—

 
3,742

 
3,489

 
—

 
3,489

Other, net
6,247

 
—

 
6,247

 
10,282

 
—

 
10,282

Net operating loss and tax credit carryforwards
20,828

 
—

 
20,828

 
20,828

 
—

 
20,828

Valuation allowance
(20,828
)
 
—

 
(20,828
)
 
(20,828
)
 
—

 
(20,828
)
Net deferred taxes
$
92,022

 
$
(404,936
)
 
$
(312,914
)
 
$
99,867

 
$
(454,676
)
 
$
(354,809
)

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WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

At December 31, 2015, we had the following credits and net operating loss (“NOL”) carryforwards:
Type of Credit
Gross Amount
 
Tax Effected Amount
 
Expiration
 
(In thousands)
State NOL carryforwards:
 

 
 

 
 
Virginia and Maryland
$
(6,108
)
 
$
(260
)
 
2023
Virginia and Maryland
(17,860
)
 
(760
)
 
2024
Virginia and Maryland
(522
)
 
(22
)
 
2026
Virginia and Maryland
(32,417
)
 
(1,380
)
 
2027
Virginia and Maryland
(59,019
)
 
(2,512
)
 
2028
Virginia and Maryland
(102,088
)
 
(4,345
)
 
2029
Virginia and Maryland
(137,669
)
 
(5,860
)
 
2030
Virginia and Maryland
(134,468
)
 
(5,689
)
 
2031
Total state NOL carryforwards
(490,151
)
 
(20,828
)
 
 
Less valuation allowance for operating loss carryforwards
490,151

 
20,828

 
 
Total credits and NOL carryforwards
$
—

 
$
—

 
 
In assessing the realizability of deferred tax assets, we determined that a valuation allowance of $20.8 million was appropriate against the deferred tax assets relating to the NOL carryforwards for Virginia and Maryland at December 31, 2015. There was no change to our valuation allowance during the year ended December 31, 2015.

17. Retirement Plans
We fully recognize the obligations associated with our retiree healthcare and other postretirement plans and NTI's single-employer defined benefit cash balance plan in our financial statements.
Pensions
Through December 31, 2013, we had distributed $25.7 million ($0.02 million in 2013, $5.7 million in 2012, $7.2 million in 2011 and $12.8 million in 2010) from plan assets to plan participants as a result of the idling of Yorktown refining operations in 2010 and resultant termination of several participants of the Yorktown cash balance plan. We received regulatory approval to terminate the defined benefit plan covering certain previous Yorktown refinery employees and did so during the second quarter of 2013. We recorded a termination loss of $1.8 million, including $0.6 million reclassified from other comprehensive income during 2013.

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WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The following tables set forth significant information about our pension plan for certain previous employees of the Yorktown refinery. The reconciliation of the benefit obligation, plan assets, funded status and significant assumptions are based upon an annual measurement date of December 31:
 
Year Ended December 31, 2013
 
(In thousands)
Net periodic benefit cost includes:
 

Interest cost
$
10

Expected return on assets
(3
)
Amortization of net actuarial loss
2

Recognized settlement expense
—

Net periodic benefit cost
$
9

Pre-tax unrecognized net loss included in accumulated other comprehensive loss at beginning of year
$
219

Net actuarial loss
563

Recognition of loss due to settlement
(780
)
Amortization of net actuarial loss
(2
)
Pre-tax unrecognized net loss included in accumulated other comprehensive loss at end of year
$
—

 
Year Ended December 31,
 
2013
Weighted average assumptions used to determine benefit obligations at December 31:
 

Discount rate
3.79
%
Rate of compensation increase
—

Weighted average assumptions used to determine net periodic benefit cost:
 

Discount rate
3.79

Expected long-term return on assets
1.90

Rate of compensation increase
—

NTI
NTI sponsors a defined benefit cash balance pension plan (the “Cash Balance Plan”) for eligible employees. Employer contributions are made to the cash account of the participants equal to 5.0% of eligible compensation. Participants’ cash accounts also receive interest credits each year based upon the average thirty year United States Treasury bond rate published in September preceding the respective plan year. Participants become fully vested in their accounts after three years of service.
NTI also sponsors a plan to provide retirees with health care benefits prior to age 65 (the “Retiree Medical Plan”) for eligible employees. Eligible employees may participate in the health care benefits after retirement subject to cost-sharing features. To be eligible for the Retiree Medical Plan, employees must have completed at least 10 years of service and be between the ages of 55 and 65 years old.

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WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The following tables set forth significant information about the Cash Balance Plan and the Retiree Medical Plan (the "Plans"). The reconciliation of the benefit obligation, plan assets, funded status and significant assumptions are based upon an annual measurement date of December 31, 2015:
 
Cash Balance Plan
 
Retiree Medical Plan
 
As of December 31,
 
2015
 
2014
 
2015
 
2014
 
(In thousands)
Benefit obligation at beginning of period
$
6,965

 
$
4,560

 
$
3,098

 
$
2,113

Service cost
2,326

 
2,054

 
315

 
231

Interest cost
366

 
327

 
135

 
116

Actuarial (gain) loss
(151
)
 
612

 
(697
)
 
675

Plan amendments
—

 
—

 
(2,463
)
 
—

Plan participants' contributions
—

 
—

 
26

 
18

Benefits paid
(579
)
 
(588
)
 
(69
)
 
(55
)
Benefit obligation at end of period
$
8,927

 
$
6,965

 
$
345

 
$
3,098

Fair value of plan assets at beginning of period
$
4,319

 
$
4,566

 
$
—

 
$
—

Employer contribution
2,200

 
200

 
43

 
37

Actual return on plan assets
(8
)
 
141

 
—

 
—

Benefits paid
(579
)
 
(588
)
 
(69
)
 
(55
)
Plan participants' contributions
—

 
—

 
26

 
18

Fair value of plan assets at end of period
$
5,932

 
$
4,319

 
$
—

 
$
—

Current liabilities
—

 
—

 
61

 
69

Non-current liabilities
2,995

 
2,646

 
284

 
3,029

Unfunded status recognized in the consolidated balance sheets
$
2,995

 
$
2,646

 
$
345

 
$
3,098

Accumulated benefit obligation
$
8,927

 
$
6,965

 
$
345

 
$
3,098

 
Cash Balance Plan
 
Retiree Medical Plan
 
As of December 31,
 
2015
 
2014
 
2013
 
2015
 
2014
 
2013
 
(In thousands)
Net periodic benefit cost includes:
 

 
 
 
 
 
 
 
 
 
 
Service cost
$
2,326

 
$
2,054

 
$
1,914

 
$
315

 
$
231

 
$
288

Interest cost
366

 
327

 
169

 
135

 
116

 
106

Expected return on assets
(165
)
 
(218
)
 
(115
)
 
—

 
—

 
—

Recognized net actuarial loss
22

 
—

 
40

 
32

 
—

 
—

Amortization of prior service cost
24

 
25

 
—

 
137

 
137

 
161

Net periodic benefit cost
$
2,573

 
$
2,188

 
$
2,008

 
$
619

 
$
484

 
$
555

Changes recognized in other comprehensive income:


 
 
 
 
 
 
 
 
 
 
Prior service cost amortization
$
(24
)
 
$
(24
)
 
$
—

 
$
(137
)
 
$
(137
)
 
$
—

Recognized net actuarial loss
—

 
—

 
—

 
(32
)
 
—

 
—

Net prior service credit
—

 
—

 
—

 
(2,463
)
 
—

 
—

Net actuarial loss (gain)
22

 
687

 
(354
)
 
(697
)
 
675

 
—

Pre-tax unrecognized net loss included in accumulated other comprehensive income at end of period
$
(2
)
 
$
663

 
$
(354
)
 
$
(3,329
)
 
$
538

 
$
—


101
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

 
Cash Balance Plan
 
Retiree Medical Plan
 
As of December 31,
 
2015
 
2014
 
2013
 
2015
 
2014
 
2013
Weighted average assumptions used to determine
benefit obligations at December 31:
 

 
 
 
 
 
 
 
 
 
 
Discount rate
4.50
%
 
4.00
%
 
5.00
%
 
2.50
%
 
4.00
%
 
5.00
%
Rate of compensation increase
3.00

 
3.00

 
4.00

 
N/A

 
N/A

 
N/A

Weighted average assumptions used to determine
net periodic benefit cost:
 

 
 

 
 
 
 
 
 
 
 
Discount rate
4.00

 
5.00

 
4.00

 
4.00

 
5.00

 
4.00

Expected long-term return on assets
3.75

 
4.75

 
4.25

 
N/A

 
N/A

 
N/A

Rate of compensation increase
3.00

 
4.00

 
4.00

 
N/A

 
N/A

 
N/A

The health care cost trend rate for the Retiree Medical Plan for 2015 is 7.50% trending to 5.00% in five years. The assumptions used in the determination of our obligations and benefit cost are based upon management’s best estimates as of the annual measurement date. The discount rate utilized was based upon bond portfolio curves over a duration similar to the Cash Balance Plan’s and Retiree Medical Plan’s respective expected future cash flows as of the measurement date. The expected long-term rate of return on plan assets is the weighted average rate of earnings expected of the funds invested or to be invested based upon the targeted investment strategy for the plan. The assumed average rate of compensation increase is the average annual compensation increase expected over the remaining employment periods for the participating employees.
Employer contributions to the Cash Balance Plan of $2.2 million, $0.2 million and $2.5 million were made during the period ended December 31, 2015, 2014 and 2013, respectively. These contributions were invested into equity and bond mutual funds and money market funds that are deemed Level 1 assets as described in Note 4, Fair Value Measurement. NTI expects funding requirements of approximately $2.5 million during the year ended December 31, 2016.
The following benefit payments (in thousands) are expected to be paid in the years indicated:
 
Cash Balance Plan
 
Retiree Medical Plan
2016
$
343

 
$
61

2017
391

 
65

2018
531

 
46

2019
695

 
49

2020
859

 
31

2021 - 2025
6,495

 
126


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WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Postretirement Obligations
The following tables set forth significant information about our retiree medical plans for certain El Paso and Yorktown employees. Unlike the pension plans, we are not required to fund the retiree medical plans on an annual basis. Based on an annual measurement date of December 31, and discount rates of 4.43% and 4.09% at December 31, 2015 and 2014, respectively, to determine the benefit obligation, the components of the postretirement obligation were:
 
As of December 31,
 
2015
 
2014
 
(In thousands)
Benefit obligation at beginning of year
$
6,735

 
$
5,793

Service cost
124

 
92

Interest cost
251

 
264

Benefits paid
(182
)
 
(206
)
Actuarial (gain) loss
(1,035
)
 
792

Benefit obligation at end of year
$
5,893

 
$
6,735

Unfunded status
$
(5,893
)
 
$
(6,735
)
Current liabilities
$
(202
)
 
$
(300
)
Non-current liabilities
(5,691
)
 
(6,435
)
Unfunded status recognized in the consolidated balance sheets
$
(5,893
)
 
$
(6,735
)
 
Year Ended December 31,
 
2015
 
2014
 
2013
 
(In thousands)
Net periodic benefit cost includes:
 

 
 

 
 

Service cost
$
124

 
$
92

 
$
115

Interest cost
251

 
264

 
254

Amortization of net actuarial loss
23

 
20

 
34

Net periodic benefit cost
$
398

 
$
376

 
$
403

Pre-tax unrecognized net loss included in accumulated other comprehensive gain at beginning of year
$
1,596

 
$
784

 
$
1,670

Net actuarial (gain) loss
(1,035
)
 
792

 
(852
)
Amortization of net actuarial loss
(23
)
 
20

 
(34
)
Pre-tax unrecognized net loss included in accumulated other comprehensive gain at end of year
$
538

 
$
1,596

 
$
784

The weighted average discount rates used to determine net periodic benefit costs were 4.09%, 4.88% and 4.14% for 2015, 2014 and 2013, respectively. The following benefit payments (in thousands) are expected to be paid in the year indicated:
2016
$
206

2017
211

2018
218

2019
226

2020
238

2021 - 2025
1,346


103
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The health care cost trend rate for the plan covering El Paso employees for 2015 and future years is capped at 4.00%. The health care cost trend rate for the plan covering Yorktown employees for 2015 is 4.50% trending to 4.50% in 2016. A 1%-point change in the assumed health care cost trend rate for both plans will have the following effect:
 
1%-points
 
Increase (1)
 
Decrease
 
(In thousands)
Effect on total service cost and interest cost
$
1

 
$
(53
)
Effect on accumulated benefit obligation
19

 
(604
)
(1)
There is no impact for a 1%-point increase in the El Paso plan because the plan covers up to a 4% increase per year. Any increase in health care costs in excess of 4% is absorbed by the participant.
The following table presents cumulative changes in other comprehensive income related to our benefit plans included as a component of equity for the periods presented, net of income tax. The related expenses are included in direct operating expenses in the Consolidated Statements of Operations.
 
Year Ended December 31,
 
2015
 
2014
 
2013
 
(In thousands)
Beginning of period balance
$
(1,291
)
 
$
(350
)
 
$
(1,174
)
Amortization of net prior service cost
83

 
63

 
—

Net prior service credit
945

 
—

 
—

Reclassification of loss to income
50

 
21

 
47

Pension plan termination adjustment
—

 
—

 
217

Actuarial gain (loss)
1,267

 
(1,320
)
 
978

Income tax
(403
)
 
295

 
(418
)
End of period balance
$
651

 
$
(1,291
)
 
$
(350
)
Defined Contribution Plans
We sponsor a 401(k) defined contribution plan under which participants may contribute a percentage of their eligible compensation to various investment choices offered by the plan. We make a Safe Harbor matching contribution to the account of each participant who is covered under the collective bargaining agreement with the International Union of Operating Engineers in El Paso and has completed 12 months of service equal to 250% of the first 4% of compensation beginning February 1, 2012. For all other employees, we matched 1% up to a maximum of 4% of eligible compensation for each 1% of eligible compensation contributed provided the participant had a minimum of one year of service with Western. We expensed $10.0 million, $9.1 million and $8.5 million in connection with this plan for the years ended December 31, 2015, 2014 and 2013, respectively.
NTI sponsors two qualified defined contribution plans (collectively, the “NTI Retirement Savings Plans”) for eligible employees. Eligibility is based upon a minimum age requirement and a minimum level of service. Participants may make contributions for a percentage of their annual compensation subject to Internal Revenue Service limits. For certain participant groups, NTI provides a matching contribution at the rate of 100% of up to 6.0% of a participant’s contribution and a non-matching contribution of 3.0% of eligible compensation. For other participant groups, NTI provides a non-elective fixed annual contribution of 3.5% of eligible compensation. Total contributions to the NTI Retirement Savings Plans were $7.4 million, $7.1 million and $6.1 million for the year ended December 31, 2015, 2014 and 2013, respectively.
18. Crude Oil and Refined Product Risk Management
We enter into crude oil forward contracts to facilitate the supply of crude oil to our refineries. During 2015, 2014 and 2013, we entered into net forward, fixed-price contracts to physically receive and deliver crude oil that qualify as normal purchases and normal sales and are exempt from derivative reporting requirements.
We use crude oil and refined products futures, swap contracts or options to mitigate the change in value for a portion of our LIFO inventory volumes subject to market price fluctuations and swap contracts to fix the margin on a portion of our future

104
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

gasoline and distillate production. The physical volumes are not exchanged; these contracts are net settled with cash. These hedging activities do not qualify for hedge accounting treatment.
The fair value of these contracts is reflected in the Consolidated Balance Sheets and the related net gain or loss is recorded within cost of products sold in the Consolidated Statements of Operations. Quoted prices for similar assets or liabilities in active markets (Level 2) are considered to determine the fair values of the majority of the contracts for the purpose of marking to market the hedging instruments at each period end.
The following tables summarize our economic hedging activity recognized within cost of products sold for the three years ended December 31, 2015, and open commodity hedging positions as of December 31, 2015, and December 31, 2014:
 
Year Ended December 31,
 
2015
 
2014
 
2013
 
(In thousands)
Economic hedging activities recognized within cost of products sold:
 
 
 
 
 
Realized hedging gain, net
$
93,699

 
$
95,331

 
$
15,868

Unrealized hedging gain (loss), net
(50,233
)
 
194,423

 
(16,898
)
Total hedging gain (loss), net
$
43,466

 
$
289,754

 
$
(1,030
)
 
December 31,
2015
 
December 31,
2014
 
(In thousands)
Open commodity hedging instruments (bbls):
 
 
 
Crude futures
4,593

 
(864
)
Refined product price and crack spread swaps
(5,645
)
 
(8,781
)
Total open commodity hedging instruments
(1,052
)
 
(9,645
)
 
 
 
 
Fair value of outstanding contracts, net:
 
 
 
Other current assets
$
78,125

 
$
79,722

Other assets
11,881

 
56,533

Accrued liabilities
(10,273
)
 
(4,889
)
Other long-term liabilities
—

 
(1,400
)
Fair value of outstanding contracts - unrealized gain, net
$
79,733

 
$
129,966

Offsetting Assets and Liabilities
Western's derivative financial instruments are subject to master netting arrangements to manage counterparty credit risk associated with derivatives; however, Western does not offset the fair value amounts recorded for derivative instruments under these agreements in the Consolidated Balance Sheets. We have posted or received margin collateral with various counterparties in support of our hedging and trading activities. The margin collateral posted or received is required by counterparties as collateral deposits and cannot be offset against the fair value of open contracts except in the event of default.

105
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The following table presents offsetting information regarding Western's commodity hedging contracts as of December 31, 2015 and 2014:
 
Gross Amounts of Recognized Assets (Liabilities)
 
Gross Amounts Offset in the Consolidated Balance Sheet
 
Net Amounts of Assets (Liabilities) Presented in the Consolidated Balance Sheet
As of December 31, 2015
 
 
 
(In thousands)
Gross financial assets:
 
 
 
 
 
Other current assets
$
95,062

 
$
(16,937
)
 
$
78,125

Other assets
11,881

 
—

 
11,881

Gross financial liabilities:
 
 
 
 
 
Accrued liabilities
(21,454
)
 
11,181

 
(10,273
)
Other long-term liabilities
(5,756
)
 
5,756

 
—

 
$
79,733

 
$
—

 
$
79,733

 
Gross Amounts of Recognized Assets (Liabilities)
 
Gross Amounts Offset in the Consolidated Balance Sheet
 
Net Amounts of Assets (Liabilities) Presented in the Consolidated Balance Sheet
As of December 31, 2014
 
 
 
(In thousands)
Gross financial assets:
 
 
 
 
 
Other current assets
$
86,659

 
$
(6,937
)
 
$
79,722

Other assets
58,182

 
(1,649
)
 
56,533

Gross financial liabilities:
 
 
 
 
 
Accrued liabilities
(11,826
)
 
6,937

 
(4,889
)
Other long-term liabilities
(3,049
)
 
1,649

 
(1,400
)
 
$
129,966

 
$
—

 
$
129,966

Our commodity hedging activities are initiated within guidelines established by management and approved by our board of directors. Due to mark-to-market accounting during the term of the various commodity hedging contracts, significant unrealized, non-cash net gains and losses could be recorded in our results of operations. Additionally, we may be required to collateralize any mark-to-market losses on outstanding commodity hedging contracts.
As of December 31, 2015, we had the following outstanding crude oil and refined product hedging instruments that were entered into as economic hedges. Settlement prices for our unleaded gasoline crack spread swaps range from $14.61 to $17.13 per contract. Settlement prices for our distillate crack spread swaps range from $7.08 to $12.19 per contract. The information presents the notional volume of outstanding contracts by type of instrument and year of maturity (volumes in thousands of barrels):
 
Notional Contract Volumes by Year of Maturity
 
2016
 
2017
 
2018
Inventory positions (futures and swaps):
 
 
 
 
 
Crude oil and refined products - net long positions
3,982

 
—

 
—

Natural gas - net long positions
793

 
—

 
—

Refined product positions (crack spread swaps):
 
 
 
 
 
Distillate - net short positions
(2,247
)
 
(1,305
)
 
—

Unleaded gasoline - net short positions
(2,275
)
 
—

 
—



106
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

19. Stock-Based Compensation
The Western Refining 2006 Long-Term Incentive Plan (the “2006 LTIP”) and the Amended and Restated 2010 Incentive Plan of Western Refining, Inc. (the “2010 Incentive Plan”) allow for restricted share unit awards ("RSU") among other forms of awards. As of December 31, 2015, there were 19,856 and 2,730,269 shares of common stock reserved for future grants under the 2006 LTIP and the 2010 Incentive Plan, respectively. Awards granted under both plans vest over a scheduled vesting period of either one, three or five years and their market value at the date of the grant is amortized over the vesting period on a straight-line basis. Effective March 25, 2015, our board of directors approved administrative amendments to the 2010 Incentive Plan.
As of December 31, 2015, there were 399,214 unvested RSUs outstanding. The final vesting for remaining restricted share awards occurred during the first quarter of 2014.
The components of stock compensation expense were as follows:
 
Year Ended December 31,
 
2015
 
2014
 
2013
 
(In thousands)
Direct operating expenses
$
—

 
$
—

 
$
61

Selling, general and administrative expenses
4,231

 
4,338

 
5,428

Total stock compensation expense
$
4,231

 
$
4,338

 
$
5,489

As of December 31, 2015, the aggregate fair value at grant date of outstanding RSUs was $14.9 million. The aggregate intrinsic value of RSUs was $14.2 million. The unrecognized compensation cost of outstanding RSUs was $10.7 million. Unrecognized compensation cost for RSUs will be recognized over a weighted average period of approximately 3.43 years.
The excess tax benefit related to the RSUs that vested during the year ended December 31, 2015 was $0.9 million using a statutory blended rate of 38.1%. The aggregate fair value at the grant date of the RSUs that vested during the year ended December 31, 2015 was $3.8 million. The related aggregate intrinsic value of these RSUs was $6.1 million at the vesting date.
The excess tax benefit related to the RSUs and restricted shares that vested during the year ended December 31, 2014 was $1.1 million and $0.03 million, respectively, using a statutory blended rate of 38.3%. The aggregate fair value at the grant date of the RSUs and restricted shares that vested during the year ended December 31, 2014 was $4.2 million and $0.1 million, respectively. The related aggregate intrinsic value of these RSUs and restricted shares was $7.1 million and $0.1 million, respectively, at the vesting date.
The excess tax benefit related to the RSUs and restricted shares that vested during the year ended December 31, 2013 was $0.9 million and $7.5 million, respectively, using a statutory blended rate of 37.8%. The aggregate fair value at the grant date of the RSUs and restricted shares that vested during the year ended December 31, 2013 was $3.2 million and $4.1 million, respectively. The related aggregate intrinsic value of these RSUs and restricted shares was $5.6 million and $23.8 million, respectively, at the vesting date.

107
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The following table summarizes our RSU and restricted share activity for the three years ended December 31, 2015:
 
Restricted Share Units
 
Restricted Shares
 
Number of Units
 
Weighted Average
Grant Date
Fair Value
 
Number of Shares
 
Weighted Average
Grant Date
Fair Value
Not vested at December 31, 2012
440,860

 
$
18.24

 
694,622

 
$
5.93

Awards granted
178,338

 
34.37

 
—

 
—

Awards vested
(176,311
)
 
18.16

 
(690,780
)
 
5.87

Awards forfeited
—

 
—

 
—

 
—

Not vested at December 31, 2013
442,887

 
24.79

 
3,842

 
16.78

Awards granted
124,276

 
39.08

 
—

 
—

Awards vested
(180,923
)
 
23.29

 
(3,842
)
 
16.78

Awards forfeited
(5,545
)
 
26.69

 
—

 
—

Not vested at December 31, 2014
380,695

 
30.14

 
—

 
—

Awards granted
155,828

 
48.26

 
—

 
—

Awards vested
(131,165
)
 
29.19

 
—

 
—

Awards forfeited
(6,144
)
 
36.76

 
—

 
—

Not vested at December 31, 2015
399,214

 
37.43

 
—

 
—

NTI 2012 Long-Term Incentive Plan
Approximately 7.4 million NTI common units are reserved for issuance under the NTI LTIP. NTI has awarded both restricted units and phantom units under the NTI LTIP. The NTI LTIP permits the award of unit options, restricted units, phantom units, distribution equivalent rights, unit appreciation rights and other awards that derive their value from the market price of NTI's common units. As of December 31, 2015, approximately 1.0 million units were outstanding under the NTI LTIP. NTI recognizes the expense on all NTI LTIP awards ratably from the grant date until all units become unrestricted or vest. Awards generally vest ratably over a three-year period beginning on the award's first anniversary date. Compensation expense related to these restricted units is based on the grant date fair value as determined by the closing market price on the grant date, reduced by the fair value of estimated forfeitures. For awards to employees, NTI estimates a forfeiture rate that is subject to revision depending on the actual forfeiture experience.
NTI incurred $10.3 million, $14.0 million and $0.4 million of unit-based compensation expense for the years ended December 31, 2015, 2014 and 2013, respectively.
Restricted Common Units
As of December 31, 2015, NTI had 0.2 million restricted common units outstanding. Upon vesting, these common units will no longer be restricted. All restricted common units participate in distributions on an equal basis with NTI common units and must be paid no later than 30 days after the distribution date to common unitholders. For restricted common unit awards outstanding at December 31, 2015, the forfeiture rates on NTI LTIP awards ranged from zero to 30%, depending on the employee classification and the length of the award's vesting period. NTI has one restricted common unit award with a clause stating distributions are to be accrued until the underlying units vest, at which time the accrued distributions applicable to those units will be paid to the award holder. The accrued distributions on that award at December 31, 2015 and 2014, were $0.7 million and $0.4 million, respectively.
Phantom Common Units
Service-based Awards
During 2014, NTI began awarding service-based phantom common units to key employees. As of December 31, 2015, NTI had 0.6 million service-based phantom common units outstanding. Upon vesting, NTI may settle these units in NTI common units or cash at the discretion of NTI's board of directors or its Compensation Committee. Like the restricted common units, the phantom common units participate in distributions on an equal basis with common units. However, distributions on phantom common units are accrued until the underlying units vest at which time the distributions are paid in cash. In the event that unvested phantom common units are forfeited or canceled, any accrued distributions on the underlying units are forfeited by the grantee. As of December 31, 2015 and 2014, NTI had $2.5 million and $0.8 million, respectively, in accrued service-

108
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

based phantom common unit distributions included in accrued liabilities and other liabilities in the Consolidated Balance Sheets. For phantom common unit awards outstanding at December 31, 2015, the forfeiture rates on NTI LTIP awards ranged from zero to 20%, depending on the employee classification.
Performance-based Phantom Units
In January 2015, NTI granted 0.3 million Performance-based Phantom Units ("NTI Performance LTIPs"), under the NTI LTIP. Assuming a threshold EBITDA is achieved, participants are entitled to an award under the NTI Performance LTIPs based on NTI’s achievement of two criteria compared to the performance peer group over the performance period: (a) return on capital employed, referred to as a performance condition and (b) total unitholder return, referred to as a market condition. NTI accounts for the performance conditions and market conditions in each NTI Performance LTIPs as separate awards. Each of the performance condition awards and market condition awards represent the right to receive NTI common units or cash, or a combination of both, at the discretion of NTI's board of directors or its Compensation Committee, at the end of a three-year performance period, in an amount ranging from 0% to 200% of the original number of units granted depending on NTI’s achievement of the performance conditions and market conditions, respectively.
Performance Condition Awards. The 0.3 million NTI Performance LTIPs include 0.2 million performance condition awards. The fair value of performance condition awards is estimated using the market price of NTI's common units on the grant date and NTI management's assessment of the probability of the number of performance condition awards that will ultimately be awarded. The estimated fair value of these performance condition awards is amortized over a three-year vesting period using the straight-line method. On a quarterly basis, NTI estimates the ultimate payout percentage, relative to target, and adjusts compensation expense accordingly. At December 31, 2015, NTI estimates that 200% of the target unit count will be achieved at the end of the vesting term.
Market Condition Awards. The 0.3 million NTI Performance LTIPs include 0.1 million market condition awards. The estimated fair value for market condition awards is estimated using a Monte Carlo simulation model as of the grant date and the related expense is amortized over a three-year vesting period using the straight-line method. The compensation expense relating to the market condition awards is determined at the award's date and expensed ratably at a fixed rate over the vesting term. However, for purposes of the phantom common unit activity table below, NTI estimates at December 31, 2015, that 88.2% of the target unit count will be achieved at the end of the vesting term.
Expected volatilities are based on the historical volatility over the most recent three-year period. The risk-free rate is based on the U.S. Treasury yield curve in effect at the date of valuation. The assumptions used in the Monte Carlo simulation used to value NTI's market condition awards as of December 31, 2015, are presented below:
Expected volatility
34.10
%
Risk-free interest rate
0.84
%
As of December 31, 2015, NTI had $1.0 million in accrued performance-based phantom common unit distributions included in accrued liabilities in the Consolidated Balance Sheet.

109
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

A summary of the LTIP common unit activity is set forth below:
 
Restricted Units
 
Phantom Units
 
 
Service-Based Units
 
Performance-Based Units
 
Total
 
Weighted Average
Grant Date
Fair Value
 
Number of Units
 
Weighted Average
Grant Date
Fair Value
 
Number of Units
 
Number of Units
 
 
Not vested at November 12, 2013
323,392

 
$
26.99

 
—

 
—

 
—

 
$
—

Awards granted
1,000

 
24.60

 
—

 
—

 
—

 
—

Awards vested
(17,873
)
 
26.38

 
—

 
—

 
—

 
—

Awards forfeited
—

 
—

 
—

 
—

 
—

 
—

Not vested at December 31, 2013
306,519

 
27.02

 
—

 
—

 
—

 
—

Awards granted
486,893

 
24.31

 
351,470

 
—

 
351,470

 
26.99

Awards vested
(390,109
)
 
25.99

 
(923
)
 
—

 
(923
)
 
27.01

Awards forfeited
(7,194
)
 
25.21

 
(12,854
)
 
—

 
(12,854
)
 
27.01

Not vested at December 31, 2014
396,109

 
24.73

 
337,693

 
—

 
337,693

 
26.99

Awards granted
1,026

 
24.90

 
447,880

 
182,354

 
630,234

 
23.37

Incremental performance units
—

 
—

 
—

 
80,418

 
80,418

 
23.06

Awards vested
(205,711
)
 
24.71

 
(112,446
)
 
—

 
(112,446
)
 
27.02

Awards forfeited
—

 
—

 
(91,245
)
 
(2,082
)
 
(93,327
)
 
26.22

Not vested at December 31, 2015
191,424

 
24.75

 
581,882

 
260,690

 
842,572

 
24.00

As of December 31, 2015 and 2014, the total unrecognized compensation cost for NTI LTIP units was $16.1 million and $12.1 million, respectively.
Western Refining Logistics, LP 2013 Long-Term Incentive Plan
The Western Refining Logistics, LP 2013 Long-Term Incentive Plan (the "WNRL LTIP") provides, among other awards, for grants of phantom units and distribution equivalent rights ("DERs"). As of December 31, 2015, there were 4.2 million phantom units reserved for future grants under the WNRL LTIP.
The fair value of the phantom units is determined based on the closing price of WNRL common units on the grant date. The estimated fair value of the phantom units is amortized on a straight-line basis over the scheduled vesting periods of individual awards. WNRL incurred unit-based compensation expense of $2.0 million and $1.6 million for the years ended December 31, 2015 and 2014, respectively, and a nominal amount for the year ended December 31, 2013.
The fair value at grant date of non-vested phantom units outstanding as of December 31, 2015, was $7.9 million. The aggregate intrinsic value of phantom units was $6.9 million. Total unrecognized compensation cost related to our non-vested phantom units totaled $6.2 million as of December 31, 2015, that is expected to be recognized over a weighted-average period of approximately 3.37 years.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

A summary of WNRL's unit award activity for the three years ended December 31, 2015, is set forth below:
 
Number of Phantom Units
 
Weighted Average
Grant Date
Fair Value
Not vested at December 31, 2012
—

 
$
—

Awards granted
10,908

 
22.00

Awards vested
—

 
—

Awards forfeited
—

 
—

Not vested at December 31, 2013
10,908

 
22.00

Awards granted
293,810

 
28.52

Awards vested
(10,908
)
 
22.00

Awards forfeited
(13,559
)
 
33.02

Not vested at December 31, 2014
280,251

 
28.30

Awards granted
72,005

 
28.33

Awards vested
(60,556
)
 
28.95

Awards forfeited
(11,913
)
 
30.78

Not vested at December 31, 2015
279,787

 
28.06


20. Equity
On January 24, 2006, we completed an initial public offering of 18,750,000 shares of our common stock at an aggregate offering price of $318.8 million. We received approximately $297.2 million in net proceeds from the initial public offering.
On June 10, 2009, we issued an additional 20,000,000 shares of our common stock, par value $0.01 per share at an aggregate offering price of $180.0 million. The net proceeds of this issuance were $170.4 million, net of underwriting discounts of $9.0 million and $0.6 million in issuance costs related to this offering. In addition, during June and July 2009, we issued and sold $215.5 million in Convertible Senior Notes and recorded additional paid-in capital of $36.3 million, net of deferred income taxes of $22.6 million and transaction costs of $2.0 million related to the equity portion of this convertible debt.
Prior to 2010, we repurchased 698,006 shares of our common stock to cover payroll withholding taxes for certain employees pursuant to the vesting of restricted shares awarded under the Western Refining Long-Term Incentive Plan. The aggregate cost paid for these shares was $21.4 million. We recorded these repurchases as treasury stock.
On various dates between March 26, 2014, and June 16, 2014, we delivered an aggregate of 22,759,243 shares of common stock to Noteholders to satisfy the conversion of the aggregate principal amount of Western Convertible Notes. See Note 15, Long-Term Debt, for additional information.
Between July 18, 2012 and December 31, 2015, our board of directors has approved five separate share repurchase programs authorizing us to repurchase up to $200 million, per program, of our outstanding common stock. Our board of directors approved our current share repurchase program in September of 2015 (the "September 2015 Program"). The November 2014 share repurchase program expired on November 3, 2015. The September 2015 program is scheduled to expire on December 31, 2016. Our common stock repurchase programs are subject to discontinuance by our board of directors at any time. As of December 31, 2015, we had not repurchased any shares of our common stock under the September 2015 Program.

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The following table summarizes our share repurchase activity for our share repurchase programs.
 
July 2012 Program
 
April 2013 Program
 
January 2014 Program
 
November 2014 Program
 
Number of shares purchased
 
Cost of share purchases (In thousands)
 
Number of shares purchased
 
Cost of share purchases (In thousands)
 
Number of shares purchased
 
Cost of share purchases (In thousands)
 
Number of shares purchased
 
Cost of share purchases (In thousands)
Shares purchased at December 31, 2012
3,324,135

 
$
82,270

 
—

 
$
—

 
—

 
$
—

 
—

 
$
—

Shares purchased during 2013
3,462,230

 
117,730

 
4,617,798

 
135,111

 
—

 
—

 
—

 
—

Shares purchased at December 31, 2013
6,786,365

 
200,000

 
4,617,798

 
135,111

 
—

 
—

 
—

 
—

Shares purchased during 2014 (1)
—

 
—

 
—

 
—

 
4,976,039

 
200,000

 
1,492,874

 
59,222

Shares purchased at December 31, 2014
6,786,365

 
200,000

 
4,617,798

 
135,111

 
4,976,039

 
200,000

 
1,492,874

 
59,222

Shares purchased during 2015
—

 
—

 
—

 
—

 
—

 
—

 
2,647,740

 
105,000

Shares purchased at December 31, 2015
6,786,365

 
$
200,000

 
4,617,798

 
$
135,111

 
4,976,039

 
$
200,000

 
4,140,614

 
$
164,222

(1)
The shares purchased during 2014 included 27,030 shares that we subsequently used to settle conversions of the Convertible Notes.
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 20.5 million shares of our common stock under our share repurchase programs. As of February 19, 2016, we had $125.0 million remaining in authorized expenditures under the September 2015 Program.
Dividends
Our ability to pay dividends to our shareholders is subject to certain restrictions in our Revolving Credit Agreement, Term Loan Credit Agreement and the indenture governing our Senior Unsecured Notes, including pro forma compliance with a fixed charge coverage ratio test and an excess availability test under our Revolving Credit Agreement and compliance with an incurrence-based test subject to a formula-based maximum under the indenture governing our Senior Unsecured Notes. These factors 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.
The table below summarizes our 2015 cash dividend declarations, payments and scheduled payments through December 31, 2015:
 
Declaration Date
 
Record Date
 
Payment Date
 
Dividend per common share
 
Total Payment (in thousands)
First quarter
February 6
 
February 20
 
March 6
 
$
0.30

 
$
28,638

Second quarter
April 21
 
May 5
 
May 20
 
0.34

 
32,476

Third quarter
July 17
 
July 27
 
August 12
 
0.34

 
32,498

Fourth quarter
October 16
 
October 27
 
November 12
 
0.38

 
35,599

Total
 
 
 
 
 
 
 
 
$
129,211

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 $35.6 million that was paid on February 4, 2016 to holders of record on January 20, 2016.

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NTI Distributions
The table below summarizes NTI's 2015 quarterly distribution declarations, payments and scheduled payments through December 31, 2015:
Declaration Date
 
Record Date
 
Payment Date
 
Distribution per Unit
February 5
 
February 21
 
February 27
 
$
0.49

May 5
 
May 18
 
May 29
 
1.08

August 4
 
August 17
 
August 28
 
1.19

November 3
 
November 16
 
November 25
 
1.04

Total
 
 
 
 
 
$
3.80

On February 3, 2016, NTI declared a quarterly distribution of $0.38 per unit to common unitholders of record on February 12, 2016, payable on February 19, 2016.
WNRL Distributions
The table below summarizes WNRL's 2015 quarterly distribution declarations, payments and scheduled payments through December 31, 2015:
Declaration Date
 
Record Date
 
Payment Date
 
Distribution per Common and Subordinated Unit
January 30
 
February 13
 
February 23
 
$
0.3325

May 1
 
May 15
 
May 26
 
0.3475

July 31
 
August 14
 
August 24
 
0.3650

October 30
 
November 13
 
November 23
 
0.3825

 
 
 
 
 
 
$
1.4275

In addition to its quarterly distributions, WNRL paid incentive distributions of $1.1 million for the year ended December 31, 2015 to Western as its General Partner and holder of its incentive distribution rights.
On February 1, 2016, WNRL declared a quarterly distribution of $0.3925 per unit to common unitholders of record on February 11, 2016, payable on February 26, 2016.

21. Earnings per Share
We follow the provisions related to the accounting treatment of certain participating securities for the purpose of determining earnings per share. These provisions address share-based payment awards that have not vested and that contain nonforfeitable rights to dividend equivalents and state that they are participating securities and should be included in the computation of earnings per share pursuant to the two-class method. As discussed in Note 19, Stock-Based Compensation, we granted shares of restricted stock to certain employees and outside directors. Although ownership of these shares did not transfer to the recipients until the shares vested, recipients had voting and nonforfeitable dividend rights on these shares from the date of grant. Accordingly, we utilize the two-class method to determine our earnings per share. The final vesting for remaining restricted stock awards occurred during the first quarter of 2014.
Diluted earnings per common share includes the effects of potentially dilutive shares that consist of unvested RSUs. These awards are non-participating securities due to the forfeitable nature of their associated dividend equivalent rights, prior to vesting and we do not consider the RSUs in the two-class method when calculating earnings per share.

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The computation of basic and diluted earnings per share under the two-class method is presented below:
 
Year Ended December 31,
 
2015
 
2014
 
2013
 
(In thousands, except per share data)
Basic earnings per common share:
 
 
 
 
 
Allocation of earnings:
 

 
 

 
 

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

 
$
559,926

 
$
275,994

Distributed earnings
(129,211
)
 
(293,746
)
 
(52,489
)
Income allocated to participating securities
—

 
(3
)
 
(814
)
Distributed earnings allocated to participating securities
—

 
3

 
191

Undistributed income available to Western Refining, Inc.
$
277,545

 
$
266,180

 
$
222,882

Weighted average number of common shares outstanding (1)
94,899

 
90,708

 
82,248

Basic earnings per common share:
 

 
 

 
 

Distributed earnings per share
$
1.36

 
$
3.24

 
$
0.64

Undistributed earnings per share
2.92

 
2.93

 
2.71

Basic earnings per common share
$
4.28

 
$
6.17

 
$
3.35

(1)
Excludes the weighted average number of common shares outstanding associated with participating securities of 884 shares and 300,490 shares for the years ended December 31, 2014 and 2013, respectively.
 
Year Ended December 31,
 
2015
 
2014
 
2013
 
(In thousands, except per share data)
Diluted earnings per common share:
 
 
 
 
 
Net income attributable to Western Refining, Inc.
$
406,756

 
$
559,926

 
$
275,994

Tax effected interest related to convertible debt
—

 
8,010

 
16,864

Net income available to Western Refining, Inc., assuming dilution
$
406,756

 
$
567,936

 
$
292,858

Weighted average number of diluted shares outstanding
94,999

 
101,190

 
104,904

Diluted earnings per common share
$
4.28

 
$
5.61

 
$
2.79

The computation of the weighted average number of diluted shares outstanding is presented below:
 
Year Ended December 31,
 
2015
 
2014
 
2013
 
(In thousands)
Weighted average number of common shares outstanding
94,899

 
90,708

 
82,248

Common equivalent shares from Convertible Senior Notes
—

 
10,349

 
22,500

Restricted shares and share units
100

 
133

 
156

Weighted average number of diluted shares outstanding
94,999

 
101,190

 
104,904

A shareholder's interest in our common stock could become diluted as a result of vestings of RSUs and, prior to the settlement of the Western Convertible Notes during the second quarter of 2014 (see Note 15, Long-Term Debt for further discussion), conversion of the Western Convertible Notes through issuance of shares of our common stock. In calculating our fully diluted earnings per common share, we consider the impact of RSUs that have not vested and common equivalent shares related to the Western Convertible Notes. We include unvested RSUs in our diluted earnings calculation when the trading price of our common stock equals or exceeds the per share or per share unit grant price. Common equivalent shares from the Western Convertible Notes are generally included in our diluted earnings calculation when net income exceeds certain thresholds above which the effect of the shares becomes dilutive. The Western Convertible Notes were converted into actual shares of our common stock during the first six months of 2014.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

22. Cash Flows
Supplemental disclosures of cash flow information were as follows:
 
Year Ended December 31,
 
2015
 
2014
 
2013
 
(In thousands)
Income taxes paid
$
283,330

 
$
227,953

 
$
223,594

Interest paid, excluding amounts capitalized
95,012

 
83,943

 
48,751

 
 
 
 
 
 
Non-cash investing and financing activities were as follows:

 
 
 
 
 
Issuance of common shares for redemption of Western Convertible Notes
—

 
357,608

 
—

Accrued capital expenditures
53,361

 
9,189

 
—

Assets acquired through capital lease obligations
29,082

 
—

 
—

PP&E derecognized from sale leaseback continuing involvement release
1,773

 
—

 
—

Transfer of capital spares from fixed asset to inventory
1,490

 
—

 
—

Distributions accrued on unvested NTI equity awards
4,210

 
—

 
—


23. Contingencies
Environmental Matters
Similar to other petroleum refiners, our operations are subject to extensive and periodically changing federal and state environmental regulations governing air emissions, wastewater discharges and solid and hazardous waste management activities. Many of these regulations are becoming increasingly stringent and the cost of compliance can be expected to increase over time. Our policy is to accrue environmental and clean-up related costs of a non-capital nature when it is probable that a liability has been incurred and the amount can be reasonably estimated. Such estimates may be subject to revision in the future as regulations and other conditions change.
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 action. We do not anticipate that any such matters currently asserted will have a material impact on our financial condition, results of operations or cash flows. As of December 31, 2015, and 2014, we had consolidated environmental accruals of $18.3 million and $18.5 million, respectively.
El Paso Refinery
Prior spills, releases and discharges of petroleum or hazardous substances have impacted the groundwater and soils in certain areas at and adjacent to our El Paso refinery. We are currently remediating, in conjunction with Chevron U.S.A., Inc. ("Chevron"), these areas in accordance with certain agreed administrative orders with the Texas Commission on Environmental Quality (the "TCEQ"). Pursuant to our purchase of the north side of the El Paso refinery from Chevron, Chevron retained responsibility to remediate its solid waste management units in accordance with its Resource Conservation Recovery Act ("RCRA") permit that Chevron has fulfilled. Chevron also retained control of and liability for certain groundwater remediation responsibilities that are ongoing.
In May 2000, we entered into an Agreed Order with the TCEQ for remediation of the south side of our El Paso refinery property. We purchased a non-cancelable Pollution and Legal Liability and Clean-Up Cost Cap Insurance policy that covers environmental clean-up costs related to contamination that occurred prior to December 31, 1999, including the costs of the Agreed Order activities. The insurance provider assumed responsibility for all environmental clean-up costs related to the Agreed Order up to $20.0 million, of which approximately $6.6 million remained as of December 31, 2015. In addition, a subsidiary of Chevron is obligated under a settlement agreement to pay 60% of any Agreed Order environmental clean-up costs that exceed the $20.0 million policy coverage.
In September 2011, we and the U.S. Environmental Protection Agency (the “EPA”) entered into a Consent Decree under the Petroleum Refinery Enforcement Initiative (“EPA Initiative”). Under the EPA Initiative, the EPA is investigating industry-

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wide non-compliance with certain Clean Air Act rules. The EPA Initiative has resulted in many refiners entering into similar consent decrees typically requiring penalties and substantial capital expenditures for additional air pollution control equipment. The Consent Decree does not require any soil or groundwater remediation or clean-up.
We have completed our capital expenditures to address the Consent Decree issues totaling $43.2 million, including $15.2 million for the installation of a flare gas recovery system completed in 2007 and $28.0 million for nitrogen oxides (“NOx”) emission controls on heaters and boilers completed in 2013. Under the terms of the Consent Decree, we paid a civil penalty of $1.5 million in September 2011.
In April 2014, we entered two Agreed Orders with the TCEQ to settle unresolved air enforcement at our El Paso refinery between 2004 and April 2008. We paid $0.2 million in penalties in May 2014 that included funding a Supplemental Environmental Project benefiting El Paso County.
Four Corners Refineries
Four Corners 2005 Consent Agreements. In July 2005, as part of the EPA Initiative, Giant Industries, Inc., our wholly-owned subsidiary, reached an administrative settlement with the New Mexico Environment Department (the "NMED") and the EPA in the form of consent agreements that resolved certain alleged violations of air quality regulations at the Gallup and Bloomfield refineries in the Four Corners area of New Mexico. In January 2009 and June 2012, we and the NMED agreed to amendments of the 2005 administrative settlement (the "2005 NMED Amended Agreement") that altered certain deadlines and allowed for alternative air pollution controls.
We incurred $50.8 million in total capital expenditures between 2009 and 2013 to address the requirements of the 2005 NMED Amended Agreement. These capital expenditures were primarily for installation of emission controls on the heaters, boilers and Fluid Catalytic Cracking Unit ("FCCU") and for reducing sulfur in fuel gas to reduce emissions of sulfur dioxide, NOx and particulate matter from our Gallup refinery. We will incur additional capital expenditures to implement one or more FCCU emission offset projects to be completed by the end of 2017. We incurred $0.1 million and $1.9 million for the years ended December 31, 2015 and 2014, respectively, to implement an FCC emission offset project. We paid penalties between 2009 and 2012 totaling $2.7 million.
Bloomfield 2007 NMED Remediation Order.In July 2007, we received a final administrative compliance order from the NMED alleging that releases of contaminants and hazardous substances that have occurred at the Bloomfield refinery over the course of its operation prior to June 1, 2007, have resulted in soil and groundwater contamination. Among other things, the order requires that we investigate the extent of such releases, perform interim remediation measures and implement corrective measures. Prior to July 2007, with the approval of the NMED and the New Mexico Oil Conservation Division, we placed into operation certain remediation measures that remain operational. As of December 31, 2015, we have expended $4.5 million and have accrued the remaining estimated costs of $3.5 million for implementing the investigation, interim measures and the reasonably known corrective actions of the order.
Gallup 2007 Resource Conservational Recovery Act (“RCRA”) Inspection. In September 2007, the Gallup refinery was inspected jointly by the EPA and the NMED to determine compliance with the EPA’s hazardous waste regulations promulgated pursuant to the RCRA. We reached a final settlement with the agencies in August 2009 and paid a penalty of $0.7 million in October 2009. Between September 2010 and July 2012, the EPA demanded and we paid penalties totaling $0.2 million in accordance with the settlement. Implementation of the requirements in the final settlement will not result in any additional soil or groundwater remediation or clean-up costs not otherwise required. We incurred a total of $38.6 million in capital expenditures, between 2010 and 2013, to upgrade the wastewater treatment plant at the Gallup refinery in accordance with the requirements and there are no further capital requirements, under the final settlement.
Gallup 2013 Risk Management Plan General Duty Settlement. In July 2013, we entered a final settlement with the EPA for five alleged violations of the Clean Air Act Risk Management Plan 112(r) General Duty clause at our Gallup refinery and paid a total penalty of $0.2 million. No capital expenditures are required under the settlement.
Gallup 2014 Environment Protection Division of NMED Settlement. In March 2014, we received a revised notice of violation and offer of settlement from the NMED Air Quality Bureau for alleged violations of the Clean Air Act. We agreed to settle and paid a penalty of $0.1 million in May 2014. No capital expenditures are required under the settlement.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

NTI
At December 31, 2015, and 2014, liabilities for remediation and closure obligations by NTI totaled $8.6 million and $8.7 million, respectively, of which $2.6 million and $2.9 million, respectively, are recorded on a discounted basis. These discounted liabilities are expected to be settled over at least the next 22 years. At December 31, 2015, the estimated future cash flows to settle these discounted liabilities totaled $3.2 million and are discounted at a rate of 2.74%. Receivables for recoverable costs from the state, under programs to assist companies in clean-up efforts related to underground storage tanks at retail marketing outlets, and others were $0.1 million and $0.2 million at December 31, 2015, and 2014, respectively.
On June 3, 2014, the St. Paul Park refinery was issued a National Pollutant Discharge Elimination Permit/State Disposal System Permit by the Minnesota Pollution Control Agency ("MPCA") relating to its upgraded wastewater treatment plant at its St. Paul Park refinery. This permit required the refinery to conduct additional testing of its remaining lagoon. The testing was completed in the fourth quarter of 2014, following NTI's review of the test results and additional discussions with MPCA, NTI now regards the likelihood of future remediation and closure costs related to the lagoon as probable. At December 31, 2015 and 2014, NTI estimated the remediation and closure costs to be approximately $6.0 million and $5.8 million, respectively, subject to further engineering and methodology studies. In connection with NTI's December 2010 acquisition of the St. Paul Park refinery, among other assets, from the Marathon Petroleum Company LP ("Marathon"), NTI entered into an agreement with Marathon that required Marathon to share in the future remediation costs of this lagoon, should they be required. During the third quarter of 2015, NTI entered into a settlement and release agreement with Marathon and received $3.5 million pursuant to this settlement that NTI recorded as a reduction of direct operating expenses.
Tax Matters
See Note 16, Income Taxes, to these consolidated financial statements for additional information on tax examinations.
Union Matters
During 2014, we successfully negotiated a collective bargaining agreement covering employees at the Gallup refinery that expires in 2020. During 2015, We successfully negotiated a new collective bargaining agreement covering employees at the El Paso refinery that is scheduled to expire in April of 2021. While all of the 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 adverse effect on our business, financial condition and results of operations.
NTI's refining business has 185 employees associated with its operations that are covered by a collective bargaining agreement that expires in December 2016. NTI's retail business has 25 employees associated with its operations that are covered by a collective bargaining agreement that expires in August 2017.
Other Matters
The EPA has issued Renewable Fuels Standards ("RFS"), that require us and other refiners to blend renewable fuels into the refined products produced at our refineries. Annually, the EPA is required to establish a volume of renewable fuels that refineries must blend into their refined petroleum fuels. However, the EPA has not established the final renewable blending volume level for 2014 or 2015. To the extent we are unable to blend at the rate necessary to satisfy the EPA mandated volume, we purchase Renewable Identification Numbers ("RINs"). The purchase price for RINs is volatile and may vary significantly from period to period. Historically, the cost of purchased RINs has not had a significant impact on our operating results. We anticipate that 2014 and 2015 will be consistent with this history. The net cost of meeting our estimated renewable volume obligations, including sales and purchases of RINs, was $35.5 million, $28.2 million and $30.5 million for the year ended December 31, 2015, 2014 and 2013, respectively.
In addition, the EPA has investigated and brought enforcement actions against companies it believes produced invalid RINs. We may have purchased RINs that the EPA will determine are invalid. Previously, we have entered into settlements and entered into another settlement in May 2015, with the EPA regarding RINs we purchased that the EPA ultimately determined were invalid. While we do not know if the EPA will determine that other RINs we have purchased are invalid, at this time we do not expect any settlements we would enter into with the EPA would have a material effect on our financial condition, results of operations or cash flows.
We are party to various other claims and legal actions arising in the normal course of business. We believe that the resolution of these matters will not have a material effect on our financial condition, results of operations or cash flows.


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24. Concentration of Risk
We sell a variety of refined products to a diverse customer base. Our total sales to Kroger Company accounted for 11.4% of consolidated net sales for the year ended December 31, 2013. No single customer accounted for more than 10% of consolidated net sales for the years ended December 31, 2015 and 2014.
All sales were domestic sales in the United States, except for sales of gasoline and diesel fuel for export into Mexico. 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 consolidated sales during the years ended December 31, 2015, 2014 and 2013, respectively.

25. Leases and Other Commitments
We have commitments under various operating leases with initial terms greater than one year for retail convenience stores, office space, warehouses, cardlocks, railcars and other facilities; some of which have renewal options and rent escalation clauses. These leases have terms that will expire on various dates through 2036. We expect that in the normal course of business, these leases will be renewed or replaced by other leases. Certain of our lease agreements provide for the fair value purchase of the leased asset at the end of the lease. Rent expense for operating leases that provide for periodic rent escalations or rent holidays over the term of the lease and for renewal periods that are reasonably assured at the inception of the lease is recognized on a straight-line basis over the term of the lease.
In the normal course of business, we also have long-term commitments to purchase products and services, such as natural gas, electricity, water and transportation services for use by our refineries and logistics assets at market-based rates. We are also party to various refined product and crude oil supply and exchange agreements.
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 leased to Chemours within our El Paso refinery. Our annual estimated cost for processing sulfuric acid and sulfur gas under this agreement is $15.7 million through March of 2028.
In November 2007, we entered into a ten-year lease agreement for office space in downtown El Paso, Texas. The building serves as our headquarters. In December 2007, we entered into an eleven-year lease agreement for an office building in Tempe, Arizona. The building centralized our operational and administrative offices in the Phoenix area.
We are party to 37 capital leases, with initial terms of 20 years, expiring in 2017 through 2035. The current portion of our capital lease obligation of $1.0 million and $0.6 million is included in accrued liabilities and the non-current portion of $53.2 million and $27.5 million is included in lease financing obligations in the accompanying Consolidated Balance Sheets as of December 31, 2015 and 2014, respectively. The capital lease obligations include a deferred gain of $2.3 million. These capital leases were discounted using annual rates of 3.24% to 10.51%. Total remaining interest related to these leases was $44.1 million and $21.6 million at December 31, 2015, and 2014, respectively. Annual payments, including interest, for the next five years are approximately $5.2 million annually with the remaining $70.3 million due through 2035. Of the 37 capital leases, 18 are NTI obligations with annual lease payments, including interest, that average $1.3 million annually through the end of 2020 with the remaining $13.5 million due through 2035. There is no recourse to Western on the NTI capital leases. The remaining nineteen capital leases are held by our retail segment and make up the balance of the annual payments for the periods noted above.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The following table presents our future minimum lease commitments under capital leases and non-cancelable operating leases that have lease terms of one year or more (in thousands) as of December 31, 2015:
 
Operating
 
Capital
2016
$
58,885

 
$
5,256

2017
52,828

 
5,030

2018
49,495

 
5,054

2019
44,407

 
5,164

2020
40,218

 
5,351

2021 and thereafter
340,046

 
70,289

Total minimum lease payments
$
585,879

 
96,144

Less amount that represents interest
 
 
44,134

Present value of net minimum capital lease payments
 
 
$
52,010

Total rental expense was $64.7 million, $53.7 million and $23.6 million for the years ended December 31, 2015, 2014 and 2013, respectively. Contingent rentals and subleases were not significant in any year.

26. Related Party Transactions
We lease office space in a building located in El Paso, Texas that is owned by an entity controlled by one of our officers. The lease agreement expires in May 2017. Under the terms of the lease, we make annual payments of $0.2 million. For the years ended December 31, 2015, 2014 and 2013, we made rental payments under this lease to the related party of $0.2 million. We have no amounts due as of December 31, 2015, related to this lease agreement.
Beginning on September 30, 2014, NTI began paying MPL for transportation services at published tariff rates. During the year ended December 31, 2015, NTI incurred $55.4 million and $12.6 million in crude transportation costs with MPL for the years ended December 31, 2015 and 2014, respectively. Prior to September 30, 2014, NTI had a crude oil supply and logistics agreement with a third-party and had no direct supply transactions with MPL prior to this date. NTI's Chief Executive Officer is a member of MPL's board of managers.

27. Condensed Consolidating Financial Information
Separate condensed consolidating financial information of Western Refining, Inc. (the “Parent”), subsidiary guarantors and non-guarantors are presented below. At December 31, 2015, the Parent and certain subsidiary guarantors have fully and unconditionally guaranteed our Western 2021 Senior Unsecured Notes on a joint and several basis. NTI and WNRL are subsidiaries that have not guaranteed the Western 2021 Senior Unsecured Notes. As a result of the Parent and certain subsidiaries' guarantee arrangements, we are required to present the following condensed consolidating financial information that should be read in conjunction with the accompanying consolidated financial statements and notes thereto.
Due to the retrospective adjustments of financial position, results of operations and cash flows from the guarantor to the non-guarantor entities resulting from the TexNew Mex Pipeline Transaction, we have revised the condensed consolidating financial information for all periods presented. See Note 1, Organization and Basis of Presentation, and Note 29, Western Refining Logistics, LP, for additional information on this transaction. Additionally, the condensed consolidating financial information has been revised for the retrospective adoption of accounting standards. See Note 2, Summary of Accounting Policies, for additional information on these recent accounting pronouncements.
NTI and WNRL are publicly held master limited partnerships. As of December 31, 2015, we owned a 38.4% limited partnership interest in NTI and a 66.4% limited partnership interest in WNRL, and the non-financial general partner interests of both entities. We are the primary beneficiary of WNRL's earnings and cash flows. We exercise control of both NTI and WNRL through our 100% ownership of the respective general partners. Accordingly, NTI and WNRL are consolidated with the other accounts of Western.
Our transactions with WNRL, including fees paid under our pipeline, terminalling and services agreements, are eliminated and have no impact on our condensed consolidated financial statements. All intercompany accounts and transactions with NTI and WNRL are eliminated in our condensed consolidated financial statements.
NTI's long-term debt is comprised of its NTI 2020 Secured Notes and the NTI Revolving Credit Facility. NTI creditors under the NTI 2020 Secured Notes and the NTI Revolving Credit Facility have no recourse to the Parent's assets except to the

119
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

extent of the assets of Northern Tier Energy GP LLC, the general partner of NTI that we wholly own. Any recourse to NTI’s general partner would be limited to the extent of the general partner’s assets that other than its investment in NTI are not significant. Furthermore, the Parent's creditors have no recourse to the assets of NTI's general partner, NTI and its consolidated subsidiaries. See Note 15, Long-Term Debt, for a description of NTI’s debt obligations.
WNRL generates revenues by charging fees and tariffs for transporting crude oil through its pipelines and truck fleet, for transporting refined and other products through its terminals and pipelines, for providing storage in its storage tanks and at its terminals and selling refined products through its wholesale distribution network. We do not provide financial or equity support through any liquidity arrangements and/or debt guarantees to WNRL.
WNRL's long-term debt is comprised of the WNRL 2023 Senior Notes and the WNRL Revolving Credit Facility. With the exception of the assets of Western Refining Logistic GP, LLC, the general partner of WNRL, creditors have no recourse to our assets. Any recourse to WNRL’s general partner would be limited to the extent of Western Refining Logistic GP, LLC’s assets which, other than its investment and incentive distribution rights in WNRL, are not significant. Furthermore, our creditors have no recourse to the assets of WNRL and its consolidated subsidiaries. See Note 15, Long-Term Debt, for a description of WNRL’s debt obligations.
NTI and WNRL have risks associated with their respective operations. NTI’s risks, while similar to ours because it experiences similar industry dynamics, are not associated with our operations. WNRL’s risks are directly associated with our operations. If we suffer significant decreases in our throughput or fail to meet desired shipping or throughput levels for an extended period of time, WNRL revenues would be reduced and WNRL could suffer substantial losses.
In the event that NTI or WNRL incur a loss, our operating results will reflect NTI's or WNRL’s loss, net of intercompany eliminations, to the extent of our ownership interests in NTI and WNRL at that point in time.
The following condensed consolidating financial information is provided as an alternative to providing separate financial statements for guarantor subsidiaries. Separate financial statements of Western’s subsidiary guarantors are not included because the guarantees are full and unconditional and these subsidiary guarantors are 100% owned and jointly and severally liable for the Parent’s outstanding debt. The information is presented using the equity method of accounting for investments in subsidiaries.





120
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

CONDENSED CONSOLIDATING BALANCE SHEETS
As of December 31, 2015
(In thousands)
 
Parent
 
Guarantor Subsidiaries
 
Non-Guarantors
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
21

 
$
656,966

 
$
115,515

 
$
—

 
$
772,502

Accounts receivable, trade, net of a reserve for doubtful accounts
—

 
122,593

 
236,644

 
—

 
359,237

Accounts receivable, affiliate
—

 
55,550

 
3,505

 
(59,055
)
 
—

Inventories
—

 
311,589

 
235,949

 
—

 
547,538

Prepaid expenses
—

 
55,699

 
17,514

 
—

 
73,213

Other current assets
—

 
135,139

 
34,589

 
—

 
169,728

Total current assets
21

 
1,337,536

 
643,716

 
(59,055
)
 
1,922,218

Restricted cash
—

 
69,106

 
—

 
—

 
69,106

Equity method investment
—

 
—

 
97,513

 
—

 
97,513

Property, plant and equipment, net
—

 
1,099,787

 
1,205,384

 
—

 
2,305,171

Goodwill
—

 
—

 
1,289,443

 
—

 
1,289,443

Intangible assets, net
—

 
31,401

 
53,544

 
—

 
84,945

Investment in subsidiaries
3,964,578

 
—

 
—

 
(3,964,578
)
 
—

Due from affiliate
—

 
1,797,047

 
—

 
(1,797,047
)
 
—

Other assets, net
—

 
42,166

 
22,831

 
—

 
64,997

Total assets
$
3,964,599

 
$
4,377,043

 
$
3,312,431

 
$
(5,820,680
)
 
$
5,833,393

LIABILITIES AND EQUITY
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable, trade
$
—

 
$
262,550

 
$
291,407

 
$
—

 
$
553,957

Accounts payable, affiliate
920

 
—

 
58,135

 
(59,055
)
 
—

Accrued liabilities
5,508

 
142,257

 
100,630

 
—

 
248,395

Current portion of long-term debt
5,500

 
—

 
—

 
—

 
5,500

Total current liabilities
11,928

 
404,807

 
450,172

 
(59,055
)
 
807,852

Long-term liabilities:
 
 
 
 
 
 
 
 
 
Long-term debt, less current portion
856,327

 
—

 
788,567

 
—

 
1,644,894

Due to affiliate
1,797,047

 
—

 
—

 
(1,797,047
)
 
—

Lease financing obligation
—

 
42,168

 
11,064

 
—

 
53,232

Deferred income tax liability, net
—

 
275,634

 
37,280

 
—

 
312,914

Deficit in subsidiaries
—

 
395,774

 
—

 
(395,774
)
 
—

Other liabilities
—

 
63,674

 
4,921

 
—

 
68,595

Total long-term liabilities
2,653,374

 
777,250

 
841,832

 
(2,192,821
)
 
2,079,635

Equity:
 
 
 
 
 
 
 
 
 
Equity - Western
1,299,297

 
3,194,986

 
373,818

 
(3,568,804
)
 
1,299,297

Equity - Non-controlling interest
—

 
—

 
1,646,609

 
—

 
1,646,609

Total equity
1,299,297

 
3,194,986

 
2,020,427

 
(3,568,804
)
 
2,945,906

Total liabilities and equity
$
3,964,599

 
$
4,377,043

 
$
3,312,431

 
$
(5,820,680
)
 
$
5,833,393


121
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

CONDENSED CONSOLIDATING BALANCE SHEETS
As of December 31, 2014
(In thousands)
 
Parent
 
Guarantor Subsidiaries
 
Non-Guarantors
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
21

 
$
288,986

 
$
142,152

 
$
—

 
$
431,159

Accounts receivable, trade, net of a reserve for doubtful accounts
—

 
178,786

 
288,741

 
—

 
467,527

Accounts receivable, affiliate
5,035

 
1,710,103

 
2,045

 
(1,717,183
)
 
—

Inventories
—

 
379,563

 
249,674

 
—

 
629,237

Prepaid expenses
—

 
69,580

 
18,835

 
—

 
88,415

Other current assets
—

 
128,564

 
23,561

 
—

 
152,125

Total current assets
5,056

 
2,755,582

 
725,008

 
(1,717,183
)
 
1,768,463

Restricted cash
—

 
167,009

 
—

 
—

 
167,009

Equity method investment
—

 
—

 
96,080

 
—

 
96,080

Property, plant and equipment, net
—

 
983,562

 
1,169,627

 
—

 
2,153,189

Goodwill
—

 
—

 
1,289,443

 
—

 
1,289,443

Intangible assets, net
—

 
31,586

 
54,366

 
—

 
85,952

Investment in subsidiaries
3,637,607

 
—

 
—

 
(3,637,607
)
 
—

Other assets, net
—

 
67,652

 
14,398

 
—

 
82,050

Total assets
$
3,642,663

 
$
4,005,391

 
$
3,348,922

 
$
(5,354,790
)
 
$
5,642,186

LIABILITIES AND EQUITY
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable, trade
$
—

 
$
347,133

 
$
334,670

 
$
—

 
$
681,803

Accounts payable, affiliate
1,656,412

 
—

 
60,771

 
(1,717,183
)
 
—

Accrued liabilities
5,506

 
179,922

 
83,021

 
—

 
268,449

Current portion of long-term debt
5,500

 
—

 
—

 
—

 
5,500

Total current liabilities
1,667,418

 
527,055

 
478,462

 
(1,717,183
)
 
955,752

Long-term liabilities:
 
 
 
 
 
 
 
 
 
Long-term debt, less current portion
855,537

 
—

 
619,128

 
—

 
1,474,665

Lease financing obligation
—

 
18,860

 
8,629

 
—

 
27,489

Deferred income tax liability, net
—

 
317,530

 
37,279

 
—

 
354,809

Deficit in subsidiaries
—

 
248,375

 
—

 
(248,375
)
 
—

Other liabilities
—

 
36,530

 
5,297

 
—

 
41,827

Total long-term liabilities
855,537

 
621,295

 
670,333

 
(248,375
)
 
1,898,790

Equity:
 
 
 
 
 
 
 
 
 
Equity - Western
1,119,708

 
2,857,041

 
532,191

 
(3,389,232
)
 
1,119,708

Equity - Non-controlling interest
—

 
—

 
1,667,936

 
—

 
1,667,936

Total equity
1,119,708

 
2,857,041

 
2,200,127

 
(3,389,232
)
 
2,787,644

Total liabilities and equity
$
3,642,663

 
$
4,005,391

 
$
3,348,922

 
$
(5,354,790
)
 
$
5,642,186



122
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
For the Year Ended December 31, 2015
(In thousands)
 
Parent
 
Guarantor Subsidiaries
 
Non-Guarantors
 
Eliminations
 
Consolidated
Net sales
$
—

 
$
7,543,712

 
$
5,602,023

 
$
(3,358,699
)
 
$
9,787,036

Operating costs and expenses:
 
 
 
 
 
 
 
 
 
Cost of products sold (exclusive of depreciation and amortization)
—

 
6,358,612

 
4,521,462

 
(3,358,699
)
 
7,521,375

Direct operating expenses (exclusive of depreciation and amortization)
—

 
443,010

 
459,915

 
—

 
902,925

Selling, general and administrative expenses
189

 
118,585

 
106,471

 
—

 
225,245

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

 
620

 
(569
)
 
—

 
51

Maintenance turnaround expense
—

 
2,024

 
—

 
—

 
2,024

Depreciation and amortization
—

 
99,642

 
105,649

 
—

 
205,291

Total operating costs and expenses
189

 
7,022,493

 
5,192,928

 
(3,358,699
)
 
8,856,911

Operating income (loss)
(189
)
 
521,219

 
409,095

 
—

 
930,125

Other income (expense):
 
 
 
 
 
 
 
 
 
Equity in earnings (loss) of subsidiaries
461,049

 
42,470

 
—

 
(503,519
)
 
—

Interest income
—

 
389

 
314

 
—

 
703

Interest expense and other financing costs
(54,104
)
 
(2,717
)
 
(48,782
)
 
—

 
(105,603
)
Other, net
—

 
492

 
12,669

 
—

 
13,161

Income (loss) before income taxes
406,756

 
561,853

 
373,296

 
(503,519
)
 
838,386

Provision for income taxes
—

 
(223,908
)
 
(47
)
 
—

 
(223,955
)
Net income (loss)
406,756

 
337,945

 
373,249

 
(503,519
)
 
614,431

Less net income attributed to non-controlling interests
—

 
—

 
207,675

 
—

 
207,675

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

 
$
337,945

 
$
165,574

 
$
(503,519
)
 
$
406,756

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

 
$
338,600

 
$
166,861

 
$
(503,519
)
 
$
408,698





123
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
For the Year Ended December 31, 2014
(In thousands)
 
Parent
 
Guarantor Subsidiaries
 
Non-Guarantors
 
Eliminations
 
Consolidated
Net sales
$
—

 
$
11,004,242

 
$
8,749,303

 
$
(4,599,972
)
 
$
15,153,573

Operating costs and expenses:
 
 
 
 
 
 
 
 
 
Cost of products sold (exclusive of depreciation and amortization)
—

 
9,531,146

 
7,772,189

 
(4,583,372
)
 
12,719,963

Direct operating expenses (exclusive of depreciation and amortization)
—

 
425,428

 
441,806

 
(16,600
)
 
850,634

Selling, general and administrative expenses
186

 
114,080

 
111,754

 
—

 
226,020

Affiliate severance costs
—

 
—

 
12,878

 
—

 
12,878

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

 
8,465

 
65

 
—

 
8,530

Maintenance turnaround expense
—

 
48,469

 
—

 
—

 
48,469

Depreciation and amortization
—

 
93,835

 
96,731

 
—

 
190,566

Total operating costs and expenses
186

 
10,221,423

 
8,435,423

 
(4,599,972
)
 
14,057,060

Operating income (loss)
(186
)
 
782,819

 
313,880

 
—

 
1,096,513

Other income (expense):
 
 
 
 
 
 
 
 
 
Equity in earnings (loss) of subsidiaries
630,407

 
51,747

 
—

 
(682,154
)
 
—

Interest income
—

 
795

 
393

 
—

 
1,188

Interest expense and other financing costs
(70,286
)
 
(1,044
)
 
(25,732
)
 
—

 
(97,062
)
Loss on extinguishment of debt
(9
)
 
—

 
—

 
—

 
(9
)
Other, net
—

 
(604
)
 
2,650

 
—

 
2,046

Income (loss) before income taxes
559,926

 
833,713

 
291,191

 
(682,154
)
 
1,002,676

Provision for income taxes
—

 
(292,145
)
 
(459
)
 
—

 
(292,604
)
Net income (loss)
559,926

 
541,568

 
290,732

 
(682,154
)
 
710,072

Less net income attributed to non-controlling interests
—

 
—

 
150,146

 
—

 
150,146

Net income (loss) attributable to Western Refining, Inc.
$
559,926

 
$
541,568

 
$
140,586

 
$
(682,154
)
 
$
559,926

Comprehensive income attributable to Western Refining, Inc.
$
559,926

 
$
541,091

 
$
140,122

 
$
(682,154
)
 
$
558,985











124
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
For the Year Ended December 31, 2013
(In thousands)
 
Parent
 
Guarantor Subsidiaries
 
Non-Guarantors
 
Eliminations
 
Consolidated
Net sales
$
—

 
$
10,387,943

 
$
4,351,217

 
$
(4,653,090
)
 
$
10,086,070

Operating costs and expenses:
 
 
 
 
 
 
 
 
 
Cost of products sold (exclusive of depreciation and amortization)
—

 
9,201,577

 
4,128,924

 
(4,640,279
)
 
8,690,222

Direct operating expenses (exclusive of depreciation and amortization)
—

 
365,840

 
170,807

 
(12,811
)
 
523,836

Selling, general and administrative expenses
185

 
110,727

 
26,119

 
—

 
137,031

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

 
(4,999
)
 
10

 
—

 
(4,989
)
Maintenance turnaround expense
—

 
50,249

 
—

 
—

 
50,249

Depreciation and amortization
—

 
90,593

 
27,255

 
—

 
117,848

Total operating costs and expenses
185

 
9,813,987

 
4,353,115

 
(4,653,090
)
 
9,514,197

Operating income (loss)
(185
)
 
573,956

 
(1,898
)
 
—

 
571,873

Other income (expense):
 
 
 
 
 
 
 
 
 
Equity in earnings (loss) of subsidiaries
391,526

 
(42,479
)
 
—

 
(349,047
)
 
—

Interest income
—

 
697

 
49

 
—

 
746

Interest expense and other financing costs
(68,574
)
 
(802
)
 
(5,205
)
 
—

 
(74,581
)
Loss on extinguishment of debt
(46,773
)
 
—

 
—

 
—

 
(46,773
)
Other, net
—

 
392

 
1,822

 
—

 
2,214

Income (loss) before income taxes
275,994

 
531,764

 
(5,232
)
 
(349,047
)
 
453,479

Provision for income taxes
—

 
(153,830
)
 
(95
)
 
—

 
(153,925
)
Net income (loss)
275,994

 
377,934

 
(5,327
)
 
(349,047
)
 
299,554

Less net income attributed to non-controlling interests
—

 
—

 
23,560

 
—

 
23,560

Net income (loss) attributable to Western Refining, Inc.
$
275,994

 
$
377,934

 
$
(28,887
)
 
$
(349,047
)
 
$
275,994

Comprehensive income (loss) attributable to Western Refining, Inc.
$
275,994

 
$
378,621

 
$
(28,750
)
 
$
(349,047
)
 
$
276,818








125
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2015
(In thousands)
 
Parent
 
Guarantor Subsidiaries
 
Non-Guarantors
 
Eliminations
 
Consolidated
Cash flows from operating activities:
 
 
 
 
 
 
 
 
 
Net cash provided by (used in) operating activities
$
87,364

 
$
433,863

 
$
502,676

 
$
(180,820
)
 
$
843,083

Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
Capital expenditures
—

 
(157,600
)
 
(134,820
)
 
1,557

 
(290,863
)
Contributions to affiliate
—

 
(178,243
)
 
—

 
178,243

 
—

Proceeds from the sale of assets
—

 
2,028

 
643

 
(1,557
)
 
1,114

Increase in restricted cash
—

 
(170,000
)
 
—

 
—

 
(170,000
)
Use of restricted cash
—

 
267,903

 
—

 
—

 
267,903

Net cash provided by (used in) investing activities
—

 
(235,912
)
 
(134,177
)
 
178,243

 
(191,846
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
Additions to long-term debt
—

 
—

 
300,000

 
—

 
300,000

Payments on long-term debt and capital lease obligations
(5,500
)
 
(842
)
 
(1,026
)
 
—

 
(7,368
)
Borrowings on revolving credit facility
—

 
—

 
145,000

 
—

 
145,000

Repayments of revolving credit facility
—

 
—

 
(269,000
)
 
—

 
(269,000
)
Contributions from affiliate
152,347

 
—

 
25,896

 
(178,243
)
 
—

Distribution to non-controlling interest holders
—

 
—

 
(238,366
)
 
—

 
(238,366
)
Deferred financing costs
—

 
—

 
(6,820
)
 
—

 
(6,820
)
Distribution to affiliate
—

 
—

 
(180,820
)
 
180,820

 
—

Purchases of common stock for treasury
(105,000
)
 
—

 
—

 
—

 
(105,000
)
Dividends paid
(129,211
)
 
—

 
—

 
—

 
(129,211
)
Convertible debt redemption
—

 
—

 
—

 
—

 
—

Distribution to Western Refining, Inc.
—

 
170,000

 
(170,000
)
 
—

 
—

Excess tax benefit from stock-based compensation
—

 
871

 
—

 
—

 
871

Net cash provided by (used in) financing activities
(87,364
)
 
170,029

 
(395,136
)
 
2,577

 
(309,894
)
Net increase (decrease) in cash and cash equivalents
—

 
367,980

 
(26,637
)
 
—

 
341,343

Cash and cash equivalents at beginning of year
21

 
288,986

 
142,152

 
—

 
431,159

Cash and cash equivalents at end of year
$
21

 
$
656,966

 
$
115,515

 
$
—

 
$
772,502



126
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2014
(In thousands)
 
Parent
 
Guarantor Subsidiaries
 
Non-Guarantors
 
Eliminations
 
Consolidated
Cash flows from operating activities:
 
 
 
 
 
 
 
 
 
Net cash provided by (used in) operating activities
$
(54,846
)
 
$
520,972

 
$
403,087

 
$
(131,580
)
 
$
737,633

Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
Capital expenditures
—

 
(99,204
)
 
(124,067
)
 
—

 
(223,271
)
Proceeds from the sale of assets
—

 
1,260

 
676

 
—

 
1,936

Return of capital from equity method investment
—

 
—

 
7,480

 
—

 
7,480

Contributions to affiliate
—

 
(678,628
)
 
(93,546
)
 
772,174

 
—

Increase in restricted cash
—

 
(320,000
)
 
—

 
—

 
(320,000
)
Use of restricted cash
—

 
152,991

 
—

 
—

 
152,991

Net cash provided by (used in) investing activities
—

 
(943,581
)
 
(209,457
)
 
772,174

 
(380,864
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
Additions to long-term debt
—

 
—

 
79,311

 
—

 
79,311

Payments on long-term debt and capital lease obligations
(5,759
)
 
—

 
(313
)
 
—

 
(6,072
)
Borrowings on revolving credit facility
—

 
—

 
269,000

 
—

 
269,000

Contributions from affiliate
618,564

 
93,546

 
60,064

 
(772,174
)
 
—

Distribution to non-controlling interest holders
—

 
—

 
(173,637
)
 
—

 
(173,637
)
Deferred financing costs
(4,182
)
 
—

 
(5,467
)
 
—

 
(9,649
)
Distribution to affiliate
—

 
—

 
(131,580
)
 
131,580

 
—

Purchases of common stock for treasury
(259,222
)
 
—

 
—

 
—

 
(259,222
)
Dividends paid
(293,746
)
 
—

 
—

 
—

 
(293,746
)
Convertible debt redemption
(809
)
 
—

 
—

 
—

 
(809
)
Distribution to Western Refining, Inc.
—

 
320,000

 
(320,000
)
 
—

 
—

Excess tax benefit from stock-based compensation
—

 
1,144

 
—

 
—

 
1,144

Net cash provided by (used in) financing activities
54,846

 
414,690

 
(222,622
)
 
(640,594
)
 
(393,680
)
Net decrease in cash and cash equivalents
—

 
(7,919
)
 
(28,992
)
 
—

 
(36,911
)
Cash and cash equivalents at beginning of year
21

 
296,905

 
171,144

 
—

 
468,070

Cash and cash equivalents at end of year
$
21

 
$
288,986

 
$
142,152

 
$
—

 
$
431,159



127
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2013
(In thousands)
 
Parent
 
Guarantor Subsidiaries
 
Non-Guarantors
 
Eliminations
 
Consolidated
Cash flows from operating activities:
 
 
 
 
 
 
 
 
 
Net cash provided by (used in) operating activities
$
541,738

 
$
(149,406
)
 
$
48,821

 
$
—

 
$
441,153

Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
Capital expenditures
—

 
(112,968
)
 
(92,709
)
 
—

 
(205,677
)
Proceeds from the sale of assets
—

 
7,439

 
36

 
—

 
7,475

Return of capital from equity method investment
—

 
—

 
1,140

 
—

 
1,140

Northern Tier Energy acquisition, net of cash acquired
(775,000
)
 
—

 
76,177

 
—

 
(698,823
)
Contributions to affiliate
—

 
(155,347
)
 
—

 
155,347

 
—

Net cash provided by (used in) investing activities
(775,000
)
 
(260,876
)
 
(15,356
)
 
155,347

 
(895,885
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
Additions to long-term debt
900,000

 
—

 
—

 
—

 
900,000

Payments on long-term debt and capital lease obligations
(325,163
)
 
—

 
(206
)
 
—

 
(325,369
)
Repayments of revolving credit facility
—

 
—

 
(50,000
)
 
—

 
(50,000
)
Distribution to non-controlling interest holders
—

 
—

 
(28,575
)
 
—

 
(28,575
)
Debt retirement fees
(24,396
)
 
—

 
—

 
—

 
(24,396
)
Deferred financing costs
(26,030
)
 
—

 
(2,616
)
 
—

 
(28,646
)
Contributions from affiliate
14,538

 
—

 
140,809

 
(155,347
)
 
—

Purchases of common stock for treasury
(252,841
)
 
—

 
—

 
—

 
(252,841
)
Dividends paid
(52,489
)
 
—

 
—

 
—

 
(52,489
)
Convertible debt redemption
(357
)
 
—

 
—

 
—

 
(357
)
Net proceeds from issuance of WNRL common units
—

 
—

 
323,146

 
—

 
323,146

Distribution to Western Refining, Inc.
—

 
244,884

 
(244,884
)
 
—

 
—

Excess tax benefit from stock-based compensation
—

 
8,362

 
—

 
—

 
8,362

Net cash provided by (used in) financing activities
233,262

 
253,246

 
137,674

 
(155,347
)
 
468,835

Net increase (decrease) in cash and cash equivalents
—

 
(157,036
)
 
171,139

 
—

 
14,103

Cash and cash equivalents at beginning of year
21

 
453,941

 
5

 
—

 
453,967

Cash and cash equivalents at end of year
$
21

 
$
296,905

 
$
171,144

 
$
—

 
$
468,070



128
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Due to the change in the guarantor structure resulting from the TexNew Mex Pipeline Transaction, we have revised the condensed consolidating financial information for all periods presented. See Note 29, Western Refining Logistics, LP, for additional information on this transaction. The application of this adjustment to the prior year condensed consolidating financial information is summarized as follows:
CONDENSED CONSOLIDATING BALANCE SHEETS
As of December 31, 2014
(In thousands)
 
As Previously Reported
 
Adjustment
 
Revised
Parent
$
3,637,607

 
$
—

 
$
3,637,607

Guarantor subsidiaries
(354,686
)
 
106,311

 
(248,375
)
Non-guarantor subsidiaries
—

 
—

 
—

Eliminations
(3,282,921
)
 
(106,311
)
 
(3,389,232
)
Investment (deficit) in subsidiaries
$
—

 
$
—

 
$
—

 
 
 
 
 
 
Parent
$
3,676,126

 
$
(33,463
)
 
$
3,642,663

Guarantor subsidiaries
4,118,796

 
(113,405
)
 
4,005,391

Non-guarantor subsidiaries
3,242,338

 
106,584

 
3,348,922

Eliminations
(5,354,702
)
 
(88
)
 
(5,354,790
)
Total assets
$
5,682,558

 
$
(40,372
)
 
$
5,642,186

 
 
 
 
 
 
Parent
$
2,556,418

 
$
(33,463
)
 
$
2,522,955

Guarantor subsidiaries
1,261,755

 
(113,405
)
 
1,148,350

Non-guarantor subsidiaries
1,148,522

 
273

 
1,148,795

Eliminations
(2,071,781
)
 
106,223

 
(1,965,558
)
Total liabilities
$
2,894,914

 
$
(40,372
)
 
$
2,854,542

 
 
 
 
 
 
Parent
$
1,119,708

 
$
—

 
$
1,119,708

Guarantor subsidiaries
2,857,041

 
—

 
2,857,041

Non-guarantor subsidiaries
2,093,816

 
106,311

 
2,200,127

Eliminations
(3,282,921
)
 
(106,311
)
 
(3,389,232
)
Total equity
$
2,787,644

 
$
—

 
$
2,787,644



129
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
For the Year Ended December 31, 2014
(In thousands)
 
As Previously Reported
 
Adjustment
 
Revised
Parent
$
630,407

 
$
—

 
$
630,407

Guarantor subsidiaries
55,944

 
(4,197
)
 
51,747

Non-guarantor subsidiaries
—

 
—

 
—

Eliminations
(686,351
)
 
4,197

 
(682,154
)
Equity in earnings (loss) of subsidiaries
$
—

 
$
—

 
$
—

 
 
 
 
 
 
Parent
559,926

 
—

 
559,926

Guarantor subsidiaries
541,568

 
—

 
541,568

Non-guarantor subsidiaries
144,783

 
(4,197
)
 
140,586

Eliminations
(686,351
)
 
4,197

 
(682,154
)
Net income (loss) attributable to Western Refining, Inc.
$
559,926

 
$
—

 
$
559,926

 
 
 
 
 
 
Parent
$
559,926

 
$
—

 
$
559,926

Guarantor subsidiaries
541,091

 
—

 
541,091

Non-guarantor subsidiaries
144,319

 
(4,197
)
 
140,122

Eliminations
(686,351
)
 
4,197

 
(682,154
)
Comprehensive income attributable to Western Refining, Inc.
$
558,985

 
$
—

 
$
558,985


CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
For the Year Ended December 31, 2013
(In thousands)
 
As Previously Reported
 
Adjustment
 
Revised
Parent
$
391,526

 
$
—

 
$
391,526

Guarantor subsidiaries
(41,546
)
 
(933
)
 
(42,479
)
Non-guarantor subsidiaries
—

 
—

 
—

Eliminations
(349,980
)
 
933

 
(349,047
)
Equity in earnings (loss) of subsidiaries
$
—

 
$
—

 
$
—

 
 
 
 
 
 
Parent
275,994

 
—

 
275,994

Guarantor subsidiaries
377,934

 
—

 
377,934

Non-guarantor subsidiaries
(27,954
)
 
(933
)
 
(28,887
)
Eliminations
(349,980
)
 
933

 
(349,047
)
Net income (loss) attributable to Western Refining, Inc.
$
275,994

 
$
—

 
$
275,994

 
 
 
 
 
 
Parent
$
275,994

 
$
—

 
$
275,994

Guarantor subsidiaries
378,621

 
—

 
378,621

Non-guarantor subsidiaries
(27,817
)
 
(933
)
 
(28,750
)
Eliminations
(349,980
)
 
933

 
(349,047
)
Comprehensive income attributable to Western Refining, Inc.
$
276,818

 
$
—

 
$
276,818



130
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2014
(In thousands)
 
As Previously Reported
 
Adjustment
 
Revised
Parent
$
(54,846
)
 
$
—

 
$
(54,846
)
Guarantor subsidiaries
517,756

 
3,216

 
520,972

Non-guarantor subsidiaries
406,303

 
(3,216
)
 
403,087

Eliminations
(131,580
)
 
—

 
(131,580
)
Net cash provided by (used in) operating activities
$
737,633

 
$
—

 
$
737,633

 
 
 
 
 
 
Parent
—

 
—

 
—

Guarantor subsidiaries
(940,365
)
 
(3,216
)
 
(943,581
)
Non-guarantor subsidiaries
(152,609
)
 
(56,848
)
 
(209,457
)
Eliminations
712,110

 
60,064

 
772,174

Net cash provided by (used in) investing activities
$
(380,864
)
 
$
—

 
$
(380,864
)
 
 
 
 
 
 
Parent
$
54,846

 
$
—

 
$
54,846

Guarantor subsidiaries
414,690

 
—

 
414,690

Non-guarantor subsidiaries
(282,686
)
 
60,064

 
(222,622
)
Eliminations
(580,530
)
 
(60,064
)
 
(640,594
)
Net cash provided by (used in) financing activities
$
(393,680
)
 
$
—

 
$
(393,680
)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2013
(In thousands)
 
As Previously Reported
 
Adjustment
 
Revised
Parent
$
541,154

 
$
584

 
$
541,738

Guarantor subsidiaries
(152,532
)
 
3,126

 
(149,406
)
Non-guarantor subsidiaries
52,531

 
(3,710
)
 
48,821

Eliminations
—

 
—

 
—

Net cash provided by (used in) operating activities
$
441,153

 
$
—

 
$
441,153

 
 
 
 
 
 
Parent
(775,000
)
 
—

 
(775,000
)
Guarantor subsidiaries
(257,750
)
 
(3,126
)
 
(260,876
)
Non-guarantor subsidiaries
(2,929
)
 
(12,427
)
 
(15,356
)
Eliminations
139,794

 
15,553

 
155,347

Net cash provided by (used in) investing activities
$
(895,885
)
 
$
—

 
$
(895,885
)
 
 
 
 
 
 
Parent
$
233,846

 
$
(584
)
 
$
233,262

Guarantor subsidiaries
253,246

 
—

 
253,246

Non-guarantor subsidiaries
121,537

 
16,137

 
137,674

Eliminations
(139,794
)
 
(15,553
)
 
(155,347
)
Net cash provided by (used in) financing activities
$
468,835

 
$
—

 
$
468,835



131
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

28. Quarterly Financial Information (Unaudited)
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 2015 and 2014, the volatility in crude oil prices and refining margins also contributed to the variability of our results of operations for the four calendar quarters.
The quarterly financial data for the years ended December 31, 2015, and 2014 is presented below.
 
Year Ended December 31, 2015
 
Quarter
 
First
 
Second
 
Third
 
Fourth
 
(Unaudited)
(In thousands, except for per share data)
Net sales
$
2,318,730

 
$
2,828,892

 
$
2,569,090

 
$
2,070,324

Operating costs and expenses:
 

 
 

 
 

 
 

Cost of products sold (exclusive of depreciation and amortization)
1,741,310

 
2,177,887

 
1,895,772

 
1,706,406

Direct operating expenses (exclusive of depreciation and amortization)
215,311

 
224,723

 
234,440

 
228,451

Selling, general and administrative expenses
55,803

 
59,540

 
54,465

 
55,437

Loss (gain) and impairments on disposal of assets, net
282

 
(387
)
 
(52
)
 
208

Maintenance turnaround expense
105

 
593

 
490

 
836

Depreciation and amortization
49,926

 
51,143

 
51,377

 
52,845

Total operating costs and expenses
2,062,737

 
2,513,499

 
2,236,492

 
2,044,183

Operating income
255,993

 
315,393

 
332,598

 
26,141

Other income (expense):
 

 
 

 
 

 
 

Interest income
163

 
201

 
186

 
153

Interest expense and other financing costs
(24,957
)
 
(27,316
)
 
(26,896
)
 
(26,434
)
Other, net
3,206

 
4,024

 
4,327

 
1,604

Income before income taxes
234,405

 
292,302

 
310,215

 
1,464

Provision for income taxes
(59,437
)
 
(78,435
)
 
(92,117
)
 
6,034

Net income
174,968

 
213,867

 
218,098

 
7,498

Less net income (loss) attributed to non-controlling interests
68,979

 
79,948

 
64,795

 
(6,047
)
Net income attributable to Western Refining, Inc.
$
105,989

 
$
133,919

 
$
153,303

 
$
13,545

Basic earnings per common share
$
1.11

 
$
1.40

 
$
1.61

 
$
0.14

Diluted earnings per common share
$
1.11

 
$
1.40

 
$
1.61

 
$
0.14




132
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

 
Year Ended December 31, 2014
 
Quarter
 
First
 
Second
 
Third
 
Fourth
 
(Unaudited)
(In thousands, except for per share data)
Net sales
$
3,725,143

 
$
4,351,290

 
$
4,052,324

 
$
3,024,816

Operating costs and expenses:
 

 
 

 
 

 
 

Cost of products sold (exclusive of depreciation and amortization)
3,160,737

 
3,731,169

 
3,379,555

 
2,448,502

Direct operating expenses (exclusive of depreciation and amortization)
198,349

 
203,463

 
218,183

 
230,639

Selling, general and administrative expenses
58,732

 
54,640

 
57,206

 
55,442

Affiliate severance costs
9,399

 
3,479

 
—

 
—

Loss (gain) and impairments on disposal of assets, net
886

 
119

 
(66
)
 
7,591

Maintenance turnaround expense
46,446

 
—

 
1,883

 
140

Depreciation and amortization
46,410

 
47,848

 
46,910

 
49,398

Total operating costs and expenses
3,520,959

 
4,040,718

 
3,703,671

 
2,791,712

Operating income
204,184

 
310,572

 
348,653

 
233,104

Other income (expense):
 

 
 

 
 

 
 

Interest income
195

 
221

 
483

 
289

Interest expense and other financing costs
(28,957
)
 
(27,801
)
 
(18,250
)
 
(22,054
)
Loss on extinguishment of debt
(8
)
 
(1
)
 
—

 
—

Other, net
1,482

 
983

 
(2,816
)
 
2,397

Income before income taxes
176,896

 
283,974

 
328,070

 
213,736

Provision for income taxes
(49,199
)
 
(93,407
)
 
(80,713
)
 
(69,285
)
Net income
127,697

 
190,567

 
247,357

 
144,451

Less net income attributed to non-controlling interests
42,151

 
33,871

 
60,608

 
13,516

Net income attributable to Western Refining, Inc.
$
85,546

 
$
156,696

 
$
186,749

 
$
130,935

Basic earnings per common share
$
1.07

 
$
1.88

 
$
1.85

 
$
1.34

Diluted earnings per common share
$
0.88

 
$
1.56

 
$
1.84

 
$
1.33


29. Western Refining Logistics, LP
WNRL is a publicly traded limited partnership that owns, operates, develops and acquires logistics assets and related businesses. WNRL's assets consist of pipeline and gathering assets and terminalling, transportation and storage assets, including approximately 685 miles of pipelines and approximately 8.2 million barrels of active storage capacity, as well as other assets in the Southwestern portion of the U.S. The majority of WNRL's assets are integral to the operations of Western's refineries located in El Paso, Texas and near Gallup, New Mexico.
At December 31, 2015, we held a 66.4% limited partner interest in WNRL including a non-economic general partner interest. This interest included 8,579,623 common partnership units and 22,811,000 subordinated partnership units. All intercompany transactions with WNRL are eliminated upon consolidation.
WNRL generates revenue by charging fees for gathering, transporting and storing crude oil on their pipeline systems and for terminalling, transporting and storing crude oil and refined products at their terminals. We do not provide financial or equity support through any liquidity arrangements or financial guarantees to WNRL.
WNRL provides us with various pipeline transportation, terminal distribution and storage services under long-term, fee-based commercial agreements expiring in 2023. These agreements contain minimum volume commitments. Each agreement has fees that are indexed for inflation and provides us with options to renew for two additional five-year terms.
In addition to commercial agreements, we are also party to an omnibus agreement with WNRL that among other things provides for reimbursement to us for various general and administrative services provided to WNRL. We are also party to an

133
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

operational services agreement with WNRL, under which we are reimbursed for personnel services provided by Western in support of WNRL's operations of its pipelines, terminals and storage facilities.
WNRL entered into a credit agreement that provides for a $300 million senior secured revolving credit facility, expiring October 16, 2018. The revolving credit facility is available to fund working capital, acquisitions, distributions, capital expenditures and for other general partnership purposes.
Initial Public Offering
On October 10, 2013, the common partnership units of WNRL began trading on the New York Stock Exchange under the symbol "WNRL." On October 16, 2013, WNRL completed its initial public offering of 15,812,500 common units representing limited partner interests at a price of $22.00 per unit.
On October 16, 2013, in exchange for assets contributed at historical cost, Western received:
•
6,998,500 common partnership units and 22,811,000 subordinated partnership units, representing an aggregate 65.3% limited partner interest;
•
All WNRL's incentive distribution rights; and
•
An aggregate cash distribution of $244.9 million to certain of Western's wholly-owned subsidiaries.
A summary of the proceeds received and the use of proceeds was as follows (in thousands):
Proceeds received from sale of common units
$
347,875

 
 
Use of proceeds:
 
Underwriting discounts and commissions
$
20,873

Structuring fees
1,739

Offering expenses
2,117

Retained for working capital
75,683

Distributed to Western Refining, Inc.
244,884

Revolving credit agreement closing costs
2,579

Total
$
347,875

Wholesale Acquisition
On October 15, 2014, pursuant to the terms of the Contribution Agreement, Western sold all of the outstanding limited liability company interests of WRW to WNRL, in exchange for consideration of $320 million in cash and 1,160,092 common units representing limited partner interests in WNRL. Western sold substantially all of its southwest wholesale assets including assets and related inventories of WRW's lubricant distribution, southwest bulk petroleum fuels distribution, and crude oil and products transportation businesses to WNRL.
The cash portion of the consideration consisted of $269.0 million in direct borrowings under the WNRL Revolving Credit Facility and $51.0 million from cash on-hand. We did not recognize a gain from the sale of WRW's assets to WNRL as the sale of assets was treated as a reorganization of entities under common control.
We entered into the following agreements with WNRL that each have initial ten year terms in connection with the Contribution Agreement:
•
Product Supply Agreement – Western will supply and WNRL will purchase approximately 79,000 barrels per day of refined products for sale to WNRL’s wholesale customers. The agreement includes product pricing based upon OPIS or Platts indices on the day of delivery.
•
Fuel Distribution and Supply Agreement – Western will purchase a minimum of 645,000 barrels per month of branded and unbranded motor fuels for our retail and cardlock sites at a price equal to WNRL’s product cost at each terminal, plus actual transportation costs, plus a margin of $0.03 per gallon.
•
Crude Oil Trucking Transportation Services Agreement – Western will utilize WNRL’s crude oil trucks to haul a minimum of 1.525 million barrels of crude oil each month. Western will pay a flat rate per barrel based on the

134
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

distance between the applicable pick-up and delivery points plus monthly fuel adjustments and customary applicable surcharges.
TexNew Mex Pipeline System Acquisition
On October 30, 2015, we sold to WNRL a 375 mile segment of the TexNew Mex Pipeline System that extends from WNRL's crude oil station in Star Lake, New Mexico, in the Four Corners region to its T station in Eddy County, New Mexico. We also sold an 80,000 barrel crude oil storage tank located at WNRL's crude oil pumping station in Star Lake, New Mexico and certain other related assets. WNRL acquired these assets from us in exchange for $170 million in cash and 421,031 common units representing limited partner interests in WNRL and 80,000 TexNew Mex Units.
In connection with the closing, we 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 Contributed TexNew Mex Pipeline for 10 years from the date of the Amendment to the Pipeline Agreement. We also amended our limited partnership agreement with WNRL whereby WNRL will issue us a new class of WNRL partnership interests, in connection with the acquisition, that entitle us to 80% of the economics resulting from crude oil throughput on the Contributed TexNew Mex Pipeline above 13,000 bpd. WNRL will be entitled to 20% of the economics resulting from crude oil throughput on the Contributed TexNew Mex Pipeline above our 13,000 bpd minimum volume commitment.
WNRL funded the cash consideration through $145.0 million in new borrowings under its Revolving Credit Facility and $25.0 million from cash on hand. As required for accounting purposes, WNRL recorded the acquired assets at the historical book value as the asset transaction was between entities under common control.
 
30. NTI
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 NTI and 35,622,500 common units representing a 38.7% limited partner interest in NTI for a purchase price of $775 million. The purchase price, including transaction expenses, was funded by a $550 million term loan and $242 million in cash.
NTI's assets are located in the Upper Great Plains region and include a refinery in St. Paul Park, Minnesota that has a 98,000 barrel per day refining capacity. Refining operations include crude fractionation, catalytic cracking, hydrotreating, reforming, alkylation, sulfur recovery and a hydrogen plant. The refinery processes predominately North Dakota and Canadian crude oils into products such as gasoline, diesel, jet fuel, kerosene, asphalt, propane, propylene and sulfur. The refined products are sold to markets primarily located in the Upper Great Plains of the United States. NTI also operates convenience stores under the SuperAmerica brand that are primarily located in Minnesota and Wisconsin and sells gasoline, merchandise and in some locations, diesel fuel.
The allocation of the purchase price of NTI is summarized as follows (in thousands):
Net working capital
$
95,937

Property, plant and equipment
916,705

Intangible assets
45,800

Other assets
114,000

Long-term debt
(278,438
)
Other liabilities
(50,743
)
Non-controlling interest
(1,357,704
)
Fair value of net assets acquired
(514,443
)
Goodwill
1,289,443

Purchase price
$
775,000


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WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The consolidated statements of operations include the results of NTI’s operations beginning on November 12, 2013. The following unaudited pro forma information assumes that (i) the acquisition of NTI occurred on January 1, 2013; (ii) $550.0 million was borrowed to fund the 2013 NTI Acquisition on January 1, 2013, resulting in increased financing costs of $23.9 million for the year ended December 31, 2013; (iii) $36.7 million increased depreciation and amortization expense for the year ended December 31, 2013 for the increased estimated fair values of assets acquired beginning January 1, 2013; and (iv) income tax expense increased as a result of the increased operating income offset by increased depreciation, amortization and interest expense of $22.1 million for the year ended December 31, 2013.
 
Unaudited Pro Forma for the Year Ended December 31, 2013
 
(In thousands, except per share data)
Net sales
$
14,044,131

Operating income
746,699

Net income
413,375

 
 
Basic earnings per share
$
3.56

Diluted earnings per share
2.96

NTI Merger Agreement
On December 21, 2015, Western entered into the Merger Agreement, by and among Western, Western Acquisition Co, LLC, a Delaware limited liability company and wholly-owned subsidiary of Western (“MergerCo”), NTI and Northern Tier Energy GP LLC, the general partner of NTI and a wholly-owned subsidiary of Western (“NTI GP”). Upon the terms and subject to the conditions set forth in the Merger Agreement, MergerCo will merge with and into NTI, 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 an indirect wholly-owned subsidiary of Western, as the surviving entity in the Merger.
NT InterHoldCo LLC, a Delaware limited liability company and wholly-owned subsidiary of Western (“NT InterHoldCo”), owns 100% of the membership interests in NTI GP and approximately 38.4% of NTI’s outstanding common units representing limited partner interests in NTI (“NTI Common Units”). NT InterHoldCo also owns 100% of the membership interests in Western Acquisition Holdings, LLC, a Delaware limited liability company and holder of 100% of the membership interests in MergerCo (“MergerCo HoldCo”). Following the Merger, NTI GP will remain the sole general partner of NTI, the NTI Common Units held by Western and its subsidiaries will be unchanged and remain issued and outstanding, and, by virtue of the Merger, all of the membership interests in MergerCo will automatically be converted into the number of NTI Common Units (excluding any NTI Common Units owned by Western and its subsidiaries) issued and outstanding immediately prior to the effective time of the Merger (the “Effective Time”). Consequently, NT InterHoldCo and its wholly-owned subsidiary, MergerCo HoldCo, will become the sole limited partners of NTI. At the Effective Time, each of the outstanding NTI Common Units held by 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 Western’s common stock, par value $0.01 per share (“Western Common Stock”) (the “Standard Mix of Consideration”), (ii) $26.06 in cash without interest (the “Cash Election”), or (iii) 0.7036 of a share of Western Common Stock (the “Stock Election”). The Cash and Stock Elections will be subject to proration to ensure that the total amount of cash paid and the total number of shares of Western Common Stock issued and delivered (which may include shares of Western Common Stock held in treasury by Western and reissued) in the Merger to NTI Public Unitholders as a whole are equal to the total amount of cash and number of shares of Western Common Stock that would have been paid and issued if all NTI Public Unitholders received the Standard Mix of Consideration. The transaction is expected to result in the payment and delivery of approximately $858.2 million in cash and 17.1 million shares of Western Common Stock to the NTI Public Unitholders.
The parties anticipate that the Merger will close in the first half of 2016, pending the satisfaction of certain customary conditions thereto. Pursuant to the terms of the Merger Agreement, with respect to the quarter in which the closing date of the Merger (the "Closing Date") occurs, NTI will, to the extent it generates available cash in such quarter, make a prorated quarterly cash distribution to all NTI common unitholders, including NT InterHoldCo, for the portion of the quarter that NTI Public Unitholders own NTI Common Units prior to the Closing Date, in the event that NTI Public Unitholders who receive

136
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Western Common Stock in the Merger would not receive a dividend with respect to the Western Common Stock received in the Merger, due to the record date for such dividend occurring before the Closing Date.
The Merger Agreement contains customary representations, warranties, covenants and agreements by each of the parties. Completion of the Merger is conditioned upon, among other things: (1) approval of the Merger Agreement and the transactions contemplated by the Merger Agreement, including the Merger (the “Merger Transactions”), by the affirmative vote of NTI common unitholders, as of the record date for the NTI special meeting, holding a majority of the outstanding NTI Common Units; (2) any waiting period applicable to the Merger Transactions under the Hart-Scott-Rodino Antitrust Act of 1976, as amended (the “HSR Act”) having been terminated or expired; (3) all filings, consents, approvals, permits and authorizations required to be made or obtained prior to the Effective Time in connection with the Merger Transactions having been made or obtained; (4) the absence of legal injunctions or impediments prohibiting the Merger Transactions; (5) the effectiveness of a registration statement on Form S-4 (the “Registration Statement”) with respect to the issuance of new shares of Western Common Stock in the Merger; and (6) approval of the listing on the New York Stock Exchange, subject to official notice of issuance, of the new shares of Western Common Stock to be issued and delivered (or, to the extent held in treasury by Western, delivered but not issued) in the Merger. On January 29, 2016, the United States Federal Trade Commission granted early termination of the waiting periods applicable to the Merger Transactions under the HSR Act. Pursuant to the Merger Agreement, Western has agreed to vote the NTI common units owned beneficially or of record by it or any of its subsidiaries in favor of the adoption and approval of the Merger Agreement and the Merger Transactions.
The Board of Directors of Western has approved the Merger Agreement and the Merger Transactions. The NTI GP Conflicts Committee, acting for NTI GP in its capacity as the general partner of NTI, approved the Merger Agreement and the Merger Transactions, and determined that the Merger Agreement and the Merger Transactions are fair and reasonable to NTI and the holders of NTI Common Units other than NTI GP and its affiliates (the “NTI Unaffiliated Unitholders”) and are not adverse to the interests of NTI or the interests of the NTI Unaffiliated Unitholders.
On January 19, 2016, Western filed a preliminary registration statement on Form S-4 (the “Preliminary S-4”) to register the shares of Western Common Stock to be issued and delivered (or, to the extent held in treasury by Western, delivered but not issued) in the Merger. The Preliminary S-4 is subject to future amendments depending on review and comments by the Securities and Exchange Commission (the “SEC”). On that same date, the parties to the Merger Agreement jointly filed a transaction statement on Schedule 13E-3, which discloses the material terms of the Merger Transactions and is also subject to future amendments.




137

Item 9.
Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
None.

Item 9A.
Controls and Procedures
Evaluation of disclosure controls and procedures. Our chief executive officer and chief financial officer, after evaluating the effectiveness of our “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of December 31, 2015 (the “Evaluation Date”), concluded that as of the Evaluation Date, our disclosure controls and procedures were effective.
Management’s Report on Internal Control Over Financial Reporting. Included herein under the caption "Management’s Report on Internal Control Over Financial Reporting" on page 63 of this report.
Attestation Report of the Registered Public Accounting Firm. Included herein under the caption "Report of Independent Registered Public Accounting Firm" on page 64 of this report.
Changes in internal control over financial reporting. There were no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2015, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B.
Other Information
None.

PART III
Certain information required in this Part III is incorporated by reference to Western Refining, Inc.’s Definitive Proxy Statement (the "Proxy Statement") to be filed with the Securities and Exchange Commission in accordance to Regulation 14A within 120 days after the end of the fiscal year covered by this report.

Item 10.
Directors, Executive Officers and Corporate Governance
The information required by this item is incorporated by reference to the information contained in Western Refining, Inc.’s Definitive Proxy Statement under the headings “Election of Directors” and “Executive Compensation and Other Information.”

Item 11.
Executive Compensation
The information required by this item is incorporated by reference to the information contained in Western Refining, Inc.’s Definitive Proxy Statement under the heading “Executive Compensation and Other Information.”


138

Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Security Ownership of Certain Beneficial Owners and Management
The information required by this item is incorporated by reference to the information contained in Western Refining, Inc.’s Definitive Proxy Statement under the heading “Security Ownership of Certain Beneficial Owners and Management.”
Securities Authorized for Issuance Under Equity Compensation Plans
Plan Category
(a)
Number of
securities to be
issued upon
exercise of
outstanding
options, warrants and rights (1)
 
(b)
Weighted average
exercise price of
outstanding
options, warrants and rights (2)
 
(c)
Number of
securities
remaining available
for future issuance
under equity
compensation plans
(excluding
securities
reflected in column (a))
Equity compensation plans approved by security holders
399,214

 
—

 
2,750,125

Equity compensation plans not approved by security holders
—

 
—

 
—

Total
399,214

 
—

 
2,750,125

(1)
Represents 399,214 shares underlying restricted share unit awards.
(2)
Restricted share unit awards do not have an exercise price.

Item 13.
Certain Relationships and Related Transactions and Director Independence
The information required by this item is incorporated by reference to the information contained in Western Refining, Inc.’s Definitive Proxy Statement under the heading “Certain Relationships and Related Transactions.”

Item 14.
Principal Accountant Fees and Services
The information required by this item is incorporated by reference to the information contained in Western Refining, Inc.’s Definitive Proxy Statement under the heading “Proposal 2: Ratification of Independent Auditor.”


139

PART IV

Item 15.
Exhibits and Financial Statement Schedules
(a) Financial Statements:
See Index to Financial Statements included in Item 8.
(b) The following exhibits are filed herewith (or incorporated by reference herein):
Exhibit Index***
Number
Exhibit Title
 
 
2.1
Agreement and Plan of Merger, dated August 26, 2006, by and among Western Refining, Inc., New Acquisition Corporation and Giant Industries, Inc. (incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K, filed with the SEC on August 28, 2006).
2.2
Amendment No. 1 to the Agreement and Plan of Merger, dated November 12, 2006, by and among Western Refining, Inc., New Acquisition Corporation and Giant Industries, Inc. (incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K, filed with the SEC on November 13, 2006).
2.3
Contribution, Conveyance and Assumption Agreement, dated as of October 16, 2013, by and among Western Refining Logistics, LP, Western Refining GP, LLC, Western Refining Southwest, Inc., San Juan Refining Company, LLC, Western Refining Pipeline, LLC, Western Refining Terminals, LLC, Western Refining Company, L.P. and Western Refining, Inc. (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K, filed with the SEC on October 22, 2013).
2.4
Contribution, Conveyance and Assumption Agreement, dated as of September 25, 2014, by and among Western Refining, Inc., Western Refining Southwest, Inc., Western Refining Logistics GP, LLC and Western Refining Logistics, LP (incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K, filed with the SEC on October 1, 2014).
2.5
Amendment No. 1 to the Contribution, Conveyance and Assumption Agreement, dated as of October 15, 2014, by and among Western Refining, Inc., Western Refining Southwest, Inc., Western Refining Logistics GP, LLC and Western Refining Logistics, LP (incorporated by reference to Exhibit 2.2 to the Company's Quarterly Report on Form 10-Q, filed with the SEC on November 6, 2014).
2.6
Contribution, Conveyance and Assumption Agreement, dated as of October 30, 2015, by and among Western Refining, Inc., Western Refining Southwest, Inc., Western Refining Logistics GP, LLC and Western Refining Logistics, LP (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed with the SEC on November 2, 2015).
2.7
Agreement and Plan of Merger dated as of December 21, 2015, by and among Western Refining, Inc., Western Acquisition Co, LLC, Northern Tier Energy LP and Northern Tier Energy GP LLC (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed with the SEC on December 22, 2015).
3.1
Certificate of Incorporation, as amended, of Western Refining, Inc. as currently in effect (incorporated by reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q, filed with the SEC on August 7, 2014).
3.2
Bylaws, as amended, of Western Refining, Inc. as currently in effect (incorporated by reference to Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q, filed with the SEC on August 7, 2014).
4.1
Specimen of Western Refining, Inc. Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-1/A (File No. 333-128629), filed with the SEC on December 5, 2005).
4.2
Registration Rights Agreement, dated January 24, 2006, by and between Western Refining, Inc. and each of the stockholders listed on the signature pages thereto (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K, filed with the SEC on January 25, 2006).
4.3
Indenture dated March 25, 2013 among Western Refining, Inc., the Guarantors named therein and U.S. Bank National Association, as trustee, paying agent, registrar and transfer agent (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K, filed with the SEC on March 25, 2013).
4.4
Form of 6.25% Senior Note (included in Exhibit 4.6).
4.5
Registration Rights Agreement dated March 25, 2013 among Western Refining, Inc. and Deutsche Bank Securities Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Credit Suisse Securities (USA) LLC, Goldman, Sachs & Co., RBS Securities Inc., Barclays Capital Inc., Credit Agricole Securities (USA) Inc., PNC Capital Markets, RB International Markets (USA) LLC, Regions Securities LLC, SunTrust Robinson Humphrey, Inc. and U.S. Bancorp Investments, Inc. as the Initial Purchasers (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed with the SEC on March 25, 2013).

140

Number
Exhibit Title
4.6
Indenture, dated as of November 8, 2012, by and among Northern Tier Energy LLC, Northern Tier Finance Corporation, Northern Tier Energy LP, the subsidiary guarantors party thereto and Deutsche Bank Trust Company Americas (incorporated by reference to Exhibit 4.1 of Northern Tier Energy LP's Current Report on Form 8-K (File No. 001-35612), filed with the SEC on November 13, 2012).
4.7
Form of 7.125% Senior Secured Note (included in Exhibit 4.9).
4.8
Supplemental Indenture, dated September 29, 2014, by and among Northern Tier Energy LLC, Northern Tier Finance Corporation, Northern Tier Energy LP, the subsidiary guarantors party thereto and Deutsche Bank Trust Company Americas (incorporated by reference to Exhibit 4.1 of Northern Tier Energy LP's Current Report on Form 8-K (File No. 001-35612), filed with the SEC on October 3, 2014).
4.9
Indenture, dated February 11, 2015, among Western Refining Logistics, LP, WNRL Finance Corp., the Guarantors named therein and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 of Western Refining Logistics, LP's Current Report on Form 8-K (File No. 001-36114), filed with the SEC on February 11, 2015).
4.10
Form of 7.50% Senior Note (included in Exhibit 4.12).
10.1
Second Amended and Restated Revolving Credit Agreement, dated as of April 11, 2013 by and among Western Refining, Inc., the several lenders from time to time party thereto and Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed with the SEC on April 15, 2013).
10.2
Third Amended and Restated Revolving Credit Agreement, dated October 2, 2014 by and among Western Refining, Inc., the several lenders from time to time party thereto and Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed with the SEC on October 6, 2014).
10.3
Term Loan Credit Agreement dated as of November 12, 2013, by and among Western Refining, Inc., Bank of America, N.A., as administrative agent, and the lenders party thereto (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K, filed with the SEC on November 14, 2013).
10.4
First Amendment to the Credit Agreement, dated as of July 17, 2012, by and among the financial institutions party thereto, as the lenders, J.P. Morgan Chase Bank, N.A., as administrative agent and collateral agent, Bank of America, N.A., as syndication agent, and Macquarie Capital (USA) Inc. and SunTrust Bank, as co-documentation agents, and Northern Tier Energy LLC and certain subsidiaries of Northern Tier Energy LLC party thereto (incorporated by reference to Exhibit 10.13 to Amendment No. 6 to Northern Tier Energy LP’s Registration Statement on Form S-1 (File No. 333-178457), filed with the SEC on July 18, 2012).
10.5
Credit Agreement, dated September 29, 2014, among Northern Tier Energy LLC, each subsidiary of Northern Tier Energy LLC party thereto, the several lenders and issuing banks party thereto and J.P. Morgan Chase Bank, N.A. as Administrative Agent and Collateral Agent (incorporated by reference to Exhibit 10.1 to Northern Tier Energy LP's Current Report on Form 8-K (File No. 001-35612), filed with the SEC on October 3, 2014).
10.6
Credit Agreement, dated as of October 16, 2013, by and among Western Refining Logistics, LP, the lenders from time to time party thereto and Well Fargo Bank, National Association, as Administrative Agent, Swingline Lender and L/C Issuer (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K (File No. 001-36114), filed with the SEC on October 22, 2013).
10.7
Purchase Agreement, dated as of November 12, 2013, by and between Northern Tier Investors LLC and Western Refining, Inc. (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed with the SEC on November 14, 2013).
10.8
Operating Agreement, dated May 6, 1993, by and between Western Refining LP and Chevron U.S.A. Inc. (incorporated by reference to Exhibit 10.10 to the Company's Registration Statement on Form S-1/A, filed with the SEC on November 3, 2005).
10.9
Purchase and Sale Agreement, dated May 29, 2003, by and among Chevron U.S.A. Inc., Chevron Pipe Line Company, Western Refining LP and Kaston Pipeline Company, L.P. (incorporated by reference to Exhibit 10.11 to the Company's Registration Statement on Form S-1/A (File No. 333-128629), filed with the SEC on November 3, 2005).
10.10
Asset Purchase Agreement, dated November 30, 2011, by and among Western Refining Yorktown, Inc., and Western Refining Yorktown Holding Company as Seller and Plains Marketing, L.P., as Buyer (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed with the SEC on December 2, 2011).
10.11
Asset Purchase Agreement, dated November 30, 2011, by and among Western Refining Pipeline Company as Seller and Plains Pipeline, L.P., as Buyer (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K, filed with the SEC on December 2, 2011).
10.12
Omnibus Agreement, dated October 16, 2013, by and among Western Refining Logistics, LP, Western Refining Logistics GP LLC, the Company, Western Refining Southwest, Inc., Western Refining Company, L.P. and Western Refining Wholesale, Inc. (incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K, filed with the SEC on October 22, 2013).

141

Number
Exhibit Title
10.13
Operational Services Agreement, dated October 16, 2013, by and among Western Refining Logistics, LP, Western Refining Company, L.P. and Western Refining Southwest, Inc. (incorporated by reference to Exhibit 10.4 to the Company's Current Report on Form 8-K, filed with the SEC on October 22, 2013).
10.14††
Pipeline and Gathering Services Agreement, dated October 16, 2013, by and among Western Refining Company, L.P., Western Refining Southwest, Inc. and Western Refining Pipeline, LLC (incorporated by reference to Exhibit 10.5 to the Company's Current Report on Form 8-K, filed with the SEC on October 22, 2013).
10.14.1††
Amendment No. 1 to the Pipeline and Gathering Services Agreement, dated October 30, 2015, by and among Western Refining Company, L.P., Western Refining Southwest, Inc. and Western Refining Pipeline, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 001-32721), filed with the SEC on November 2, 2015).
10.15††
Terminalling, Transportation and Storage Services Agreement, dated October 16, 2013, by and among Western Refining Company, L.P., Western Refining Southwest, Inc. and Western Refining Terminals, LLC (incorporated by reference to Exhibit 10.6 to the Company's Current Report on Form 8-K, filed with the SEC on October 22, 2013).
10.16††
Product Supply Agreement, dated October 15, 2014, by and among Western Refining Southwest, Inc., Western Refining Company, L.P. and Western Refining Wholesale, LLC (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed with the SEC on October 16, 2014).
10.17††
Fuel Distribution and Supply Agreement, dated October 15, 2014, by and between Western Refining Wholesale, LLC and Western Refining Southwest, Inc. (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K, filed with the SEC on October 16, 2014).
10.18††
Crude Oil Trucking Transportation Services Agreement, dated October 15, 2014, by and among Western Refining Wholesale, LLC, Western Refining Company, L.P. and Western Refining Southwest, Inc. (incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K, filed with the SEC on October 16, 2014).
10.19†
Employment Agreement, dated January 24, 2006, by and between Western Refining GP, LLC and Paul L. Foster (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed with the SEC on January 25, 2006).
10.19.1†
First Amendment to the Employment Agreement referred to in Exhibit 10.19, dated December 28, 2006 (incorporated by reference to Exhibit 10.1.1 to the Company's Annual Report on Form 10-K, filed with the SEC on March 8, 2007).
10.19.2†
Second Amendment to the Employment Agreement referred to in Exhibit 10.19, dated December 31, 2008 (incorporated by reference to Exhibit 10.1.2 to the Company's Annual Report on Form 10-K, filed with the SEC on March 13, 2009).
10.19.3†
Termination of Employment Agreement referred to in Exhibit 10.19, dated February 27, 2015, by and between Western Refining GP, LLC and Paul L. Foster (incorporated by reference to Exhibit 10.19.3 to the Company's Annual Report on Form 10-K, filed with the SEC on March 2, 2015).
10.20†
Employment Agreement, dated January 24, 2006, by and between Western Refining GP, LLC and Jeff A. Stevens (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K, filed with the SEC on January 25, 2006).
10.20.1†
First Amendment to the Employment Agreement referred to in Exhibit 10.20, dated December 28, 2006 (incorporated by reference to Exhibit 10.2.1 to the Company's Annual Report on Form 10-K, filed with the SEC on March 8, 2007).
10.20.2†
Second Amendment to the Employment Agreement referred to in Exhibit 10.20, dated December 31, 2008 (incorporated by reference to Exhibit 10.2.2 to the Company's Annual Report on Form 10-K, filed with the SEC on March 13, 2009).
10.21†
Employment Agreement, dated January 24, 2006, by and between Western Refining GP, LLC and Gary R. Dalke (incorporated by reference to Exhibit 10.5 to the Company's Current Report on Form 8-K, filed with the SEC on January 25, 2006).
10.21.1†
First Amendment to the Employment Agreement referred to in Exhibit 10.21, dated December 31, 2008 (incorporated by reference to Exhibit 10.4.1 to the Company's Annual Report on Form 10-K, filed with the SEC on March 13, 2009).
10.22†
Employment Agreement, dated January 24, 2006, by and between Western Refining GP, LLC and Lowry Barfield (incorporated by reference to Exhibit 10.6 to the Company's Current Report on Form 8-K, filed with the SEC on January 25, 2006).
10.22.1†
First Amendment to the Employment Agreement referred to in Exhibit 10.22, dated December 31, 2008 (incorporated by reference to Exhibit 10.5.1 to the Company's Annual Report on Form 10-K, filed with the SEC on March 13, 2009).
10.23†
Employment agreement, effective August 28, 2006, made by and between Western Refining GP, LLC and Mark J. Smith (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed with the SEC on August 16, 2006).

142

Number
Exhibit Title
10.23.1†
First Amendment to the Employment Agreement referred to in Exhibit 10.23, dated December 31, 2008 (incorporated by reference to Exhibit 10.27.1 to the Company's Annual Report on Form 10-K, filed with the SEC on March 13, 2009).
10.24†
Employment agreement, dated November 4, 2008, made by and between Western Refining GP, LLC and William R. Jewell (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q, filed with the SEC on November 7, 2008).
10.25†
Employment agreement, dated March 9, 2010, made by and between Western Refining GP, LLC and Jeffrey S. Beyersdorfer (incorporated by reference to Exhibit 10.31 to the Company's Annual Report on Form 10-K, filed with the SEC on March 12, 2010).
10.26†
Form of Indemnification Agreement, by and between the Company and each director and officer of the Company party thereto (incorporated by reference to Exhibit 10.7 to the Company's Current Report on Form 8-K, filed with the SEC on January 25, 2006).
10.27†
Western Refining Long-Term Incentive Plan (incorporated by reference to Exhibit 10.17 to the Company's Annual Report on Form 10-K, filed with the SEC on March 24, 2006).
10.27.1†
First Amendment to the Western Refining Long-Term Incentive Plan referred to in Exhibit 10.27, dated December 4, 2007 (incorporated by reference to Exhibit 10.19.1 to the Company's Annual Report on Form 10-K, filed with the SEC on March 13, 2009).
10.27.2†
Second Amendment to the Western Refining Long-Term Incentive Plan referred to in Exhibit 10.27, dated November 20, 2008 (incorporated by reference to Exhibit 10.19.2 to the Company's Annual Report on Form 10-K, filed with the SEC on March 13, 2009).
10.28†
Form of Restricted Stock Grant Agreement under the Western Refining Long-Term Incentive Plan (incorporated by reference to Exhibit 10.20 to the Company's Registration Statement on Form S-1/A (File No.333-128629), filed with the SEC on December 5, 2005).
10.29†
Form of Nonqualified Stock Option Agreement under the Western Refining Long-Term Incentive Plan (incorporated by reference to Exhibit 10.21 to the Company's Registration Statement on Form S-1/A (File No.333-128629), filed with the SEC on December 5, 2005).
10.30†
Amended and Restated 2010 Incentive Plan of Western Refining, Inc. (incorporated by reference to Appendix A of the Company's Proxy Statement, filed with the SEC on April 22, 2015).
10.31†
Form of Performance Unit Award Agreement between the Company and Participant under the 2010 Incentive Plan of Western Refining, Inc. (incorporated by reference to Exhibit 10.32 to the Company's Annual Report on Form 10-K, filed with the SEC on March 8, 2011).
10.32†
Form of Western Refining, Inc. Restricted Share Unit Award Agreement between the Company and Participant under the 2010 Incentive Plan of Western Refining, Inc. (incorporated by reference to Exhibit 10.33 to the Company's Annual Report on Form 10-K, filed with the SEC on March 8, 2011).
10.33†
Form of Western Refining, Inc. Restricted Share Unit Award Agreement between the Company and Non-Employee Director under the 2010 Incentive Plan of Western Refining, Inc. (incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q, filed with the SEC on May 6, 2013).
10.34†
Form No. 2 of Western Refining, Inc. Restricted Share Unit Award Agreement between the Company and Participant under the 2010 Incentive Plan of Western Refining, Inc. (incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q, filed with the SEC on May 6, 2013).
10.35†
Form of Western Refining, Inc. Restricted Share Unit Award Agreement (DE) between the Company and Non-Employee Director under the 2010 Incentive Plan of Western Refining, Inc. (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q, filed with the SEC on November 4, 2013).
10.36†
Western Refining, Inc. Non-Employee Director Deferred Compensation Plan (incorporated by reference to Exhibit 10.25 to the Company's Annual Report on Form 10-K, filed with the SEC on March 1, 2013).
10.36.1†
Western Refining, Inc. Non-Employee Director Deferred Compensation Plan Adoption Agreement, dated as of January 1, 2009 (incorporated by reference to Exhibit 10.26 to the Company's Annual Report on Form 10-K, filed with the SEC on March 1, 2013).
10.37†
Northern Tier Energy LP 2012 Long Term Incentive Plan (incorporated by reference to Exhibit 10.2 to Northern Tier Energy LP’s Current Report on Form 8-K (File No. 001-35612), filed on July 30, 2012).
10.38†
Form of Northern Tier Energy LP 2012 Long Term Incentive Plan Restricted Unit Agreement (incorporated by reference to Exhibit 10.1 to Northern Tier Energy LP’s Current Report on Form 8-K (File No. 001-35612), filed on December 17, 2012).
10.39†
Form of Phantom Unit Award Agreement (time-based vesting) (incorporated by reference to Exhibit 10.1 to Northern Tier Energy LP’s Current Report on Form 8-K (File No. 001-35612), filed wih the SEC on May 2, 2014).
10.40†
Form of Phantom Unit Agreement (performance-based vesting) (incorporated by reference to Exhibit 10.2 to Northern Tier Energy LP’s Current Report on Form 8-K (File No. 001-35612), filed wih the SEC on December 8, 2014).   

143

Number
Exhibit Title
10.41†
Western Refining Logistics, LP 2013 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.7 to the Company's Current Report on Form 8-K (File No. 001-36114), filed with the SEC on October 22, 2013).
10.42†
Form of Phantom Unit Award Agreement (time-based vesting) (incorporated by reference to Exhibit 10.8 to Western Refining Logistics, LP’s Form S-1 Registration Statement (File No. 333-190135), filed with the SEC on September 27, 2013).
10.43†
Form of Phantom Unit Award Agreement (performance-based vesting) (incorporated by reference to Exhibit 10.9 to Western Refining Logistics, LP’s Form S-1 Registration Statement (File No. 333-190135), filed with the SEC on September 27, 2013).
10.44†
Form of Phantom Unit Award Agreement (time-based vesting) (incorporated by reference to Exhibit 10.1 to Western Refining Logistics, LP’s Quarterly Report on Form 10-Q (File No. 001-36114), filed with the SEC on May 12, 2014).                  
10.45††
Amendment No. 1 to the Pipeline and Gathering Services Agreement, dated October 30, 2015, by and among Western Refining Company, L.P., Western Refining Southwest, Inc. and Western Refining Pipeline, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 001-32721), filed with the SEC on November 2, 2015).
12.1*
Statements of Computation of Ratio of Earnings to Fixed Charges.
21.1*
List of Subsidiaries of the Company.
23.1*
Consent of Deloitte & Touche LLP, dated February 26, 2016.
31.1*
Certification Statement of Chief Executive Officer of the Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*
Certification Statement of Chief Financial Officer of the Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**
Certification Statement of Chief Executive Officer of the Company pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**
Certification Statement of Chief Financial Officer of the Company pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101*
Interactive Data Files.
_______________________________________
* 
 
Filed herewith.
**
 
Furnished herewith.
***
 
Reports filed by the Company under the Securities Exchange Act of 1934, as amended (including Form 10-K, Form 10-Q and Form 8-K), are filed under File No. 001-32721.
†
 
Management contract or compensatory plan or arrangement.
††
 
The SEC has granted confidential treatment for certain portions of this Exhibit pursuant to a confidential treatment order. Such portions have been omitted and filed separately with the SEC.
(c)
All financial statement schedules are omitted because the required information is not present or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements or notes thereto.
Our 2015 Annual Report is available upon request. Stockholders may obtain a copy of any exhibits to this Form 10-K at a charge of $0.10 per page. Requests should be made to: Investor Relations, Western Refining, Inc., 123 W. Mills Ave., Suite 200, El Paso, Texas 79901.

144

SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
WESTERN REFINING, INC.
Signature
 
Title
 
Date
/s/ Jeff A. Stevens
 
Chief Executive Officer and
 
February 26, 2016
Jeff A. Stevens
 
 President
 
 
________________________________________________________________________________________________________________________

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
 
Title
 
Date
/s/ Jeff A. Stevens
 
Chief Executive Officer, President and Director
 
February 26, 2016
Jeff A. Stevens
 
 (Principal Executive Officer)
 
 
 
 
 
 
 
/s/ Gary R. Dalke
 
Chief Financial Officer
 
February 26, 2016
Gary R. Dalke
 
(Principal Financial Officer)
 
 
 
 
 
 
 
/s/ Paul L. Foster
 
Executive Chairman and Director
 
February 26, 2016
Paul L. Foster
 
 
 
 
 
 
 
 
 
/s/ Scott D. Weaver
 
Vice President and Director
 
February 26, 2016
Scott D. Weaver
 
 
 
 
 
 
 
 
 
/s/ William R. Jewell
 
Chief Accounting Officer
 
February 26, 2016
William R. Jewell
 
(Principal Accounting Officer)
 
 
 
 
 
 
 
/s/ Sigmund L. Cornelius
 
Director
 
February 26, 2016
Sigmund L. Cornelius
 
 
 
 
 
 
 
 
 
/s/ L. Frederick Francis
 
Director
 
February 26, 2016
L. Frederick Francis
 
 
 
 
 
 
 
 
 
/s/ Robert J. Hassler
 
Director
 
February 26, 2016
Robert J. Hassler
 
 
 
 
 
 
 
 
 
/s/ Brian J. Hogan
 
Director
 
February 26, 2016
Brian J. Hogan
 
 
 
 
 
 
 
 
 
/s/ William D. Sanders
 
Director
 
February 26, 2016
William D. Sanders
 
 
 
 


145