Attached files

file filename
EXCEL - IDEA: XBRL DOCUMENT - Western Refining, Inc.Financial_Report.xls
EX-3.2 - EXHIBIT - Western Refining, Inc.wnr63014ex32.htm
EX-3.1 - EXHIBIT - Western Refining, Inc.wnr63014ex31.htm
EX-31.2 - EXHIBIT - Western Refining, Inc.wnr63014ex312.htm
EX-32.1 - EXHIBIT - Western Refining, Inc.wnr63014ex321.htm
EX-31.1 - EXHIBIT - Western Refining, Inc.wnr63014ex311.htm
EX-32.2 - EXHIBIT - Western Refining, Inc.wnr63014ex322.htm

 
 
 
 
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the quarterly period ended June 30, 2014
OR
o
 
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
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
 
 
 
123 W. Mills Ave., Suite 200
 
79901
El Paso, Texas
 
(Zip Code)
(Address of principal executive offices)
 
 
Registrant’s telephone number, including area code: (915) 534-1400
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 whether 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.
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
As of August 1, 2014, there were 101,087,370 shares outstanding, par value $0.01, of the registrant’s common stock.
 
 
 
 
 



WESTERN REFINING, INC. AND SUBSIDIARIES
INDEX

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 EX-3.1
 EX-3.2
 EX-31.1
 EX-31.2
 EX-32.1
 EX-32.2
 EX-101





Forward-Looking Statements
As provided by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, certain statements included throughout this Quarterly Report on Form 10-Q and in particular under the section entitled Part I — Item 2, 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. Forward-looking statements give our current expectations; contain projections of results of operations or of financial condition or forecasts of future events. These forward-looking statements relate to matters such as our industry, business strategy, future operations, our expectations for margins and crack spreads, the discount between West Texas Intermediate Cushing ("WTI") crude oil and Brent crude oil as well as the discount between WTI and WTI Midland crude oils, cost advantages of Bakken Shale and Canadian crude oil, attractiveness of our refined product locations, new and proposed additions to inland crude oil pipeline capacity, 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 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," "intend," "may," "plan," "potential," "forecast," "position," "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. 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 consider the risk factors and other cautionary statements in this report and in the other reports to which we have referred you. Actual results may vary materially. You are cautioned not to place undue reliance on any forward-looking statements. You should also understand that it is not possible to predict or identify all such factors and should not consider the following list to be a complete statement of all potential risks and uncertainties.
Actual events, results and outcomes may differ materially from our expectations due to a variety of factors. Although it is not possible to identify all of these factors, they include, among others, the following:
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 Brent crude oil and between WTI crude oil and WTI Midland crude oil;
effects of and exposure to risks related to our commodity hedging strategies, transactions and other risk management programs;
availability and costs of renewable fuels for blending and RINs to meet Renewable Fuel Standards ("RFS") obligations;
availability, costs and price volatility of crude oil, other refinery feedstocks and refined products;
construction of new, or expansion of existing, product or crude oil pipelines, including in the Permian Basin and at Cushing, Oklahoma;
changes in the underlying demand for our refined products;
instability and volatility in the financial markets;
changes in general economic and political conditions;
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;

i


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 on our operations;
contractual creditworthiness of, and performance by, our counterparties;
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 in our Annual Report on Form 10-K for the year ended December 31, 2013 ("2013 10‑K") 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 do not undertake any obligation to (and expressly disclaim any obligation to) update any forward-looking statements to reflect events or circumstances after the date such statements were made, or to reflect the occurrence of unanticipated events.




ii


Part I
Financial Information
Item 1.
Financial Statements
WESTERN REFINING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share and per share data)
 
June 30,
2014
 
December 31,
2013
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
531,813

 
$
468,070

Accounts receivable, trade, net of a reserve for doubtful accounts of $571 and $906, respectively
717,172

 
599,930

Inventories
546,472

 
557,388

Prepaid expenses
190,996

 
112,137

Other current assets
134,792

 
110,211

Total current assets
2,121,245

 
1,847,736

Equity method investment
99,142

 
101,560

Property, plant and equipment, net
2,127,719

 
2,125,029

Goodwill
1,297,043

 
1,297,043

Intangible assets, net
76,741

 
78,098

Other assets, net
74,878

 
63,499

Total assets
$
5,796,768

 
$
5,512,965

LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
969,385

 
$
879,019

Accrued liabilities
269,698

 
275,915

Deferred income tax liability, net
37,262

 
30,493

Current portion of long-term debt
5,706

 
213,642

Total current liabilities
1,282,051

 
1,399,069

Long-term liabilities:
 
 
 
Long-term debt, less current portion
1,169,875

 
1,172,965

Lease financing obligations
24,590

 
24,910

Deferred income tax liability, net
301,865

 
252,489

Other liabilities
36,747

 
92,945

Total long-term liabilities
1,533,077

 
1,543,309

Commitments and contingencies


 


Equity:
 
 
 
Western shareholders' equity:
 
 
 
Common stock, par value $0.01, 240,000,000 shares authorized; 102,632,884 and 91,827,731 shares issued, respectively
1,026

 
918

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

 

Additional paid-in capital
485,594

 
625,825

Retained earnings
824,981

 
624,213

Accumulated other comprehensive loss, net of tax
(313
)
 
(350
)
Treasury stock, 453,332 and 12,102,169 shares, respectively at cost
(17,271
)
 
(356,554
)
Total Western shareholders' equity
1,294,017

 
894,052

Non-controlling interest
1,687,623

 
1,676,535

Total equity
2,981,640

 
2,570,587

Total liabilities and equity
$
5,796,768

 
$
5,512,965


The accompanying notes are an integral part of these condensed consolidated financial statements.
1




WESTERN REFINING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2014
 
2013
 
2014
 
2013
Net sales
$
4,351,290

 
$
2,429,962

 
$
8,076,433

 
$
4,616,179

Operating costs and expenses:
 
 
 
 
 
 
 
Cost of products sold (exclusive of depreciation and amortization)
3,731,169

 
1,986,883

 
6,891,906

 
3,784,067

Direct operating expenses (exclusive of depreciation and amortization)
203,463

 
113,861

 
401,812

 
235,721

Selling, general and administrative expenses
54,640

 
29,450

 
113,372

 
56,002

Affiliate severance costs
3,479

 

 
12,878

 

Loss on disposal of assets, net
119

 

 
1,005

 

Maintenance turnaround expense

 
35

 
46,446

 
43,203

Depreciation and amortization
47,848

 
27,143

 
94,258

 
51,475

Total operating costs and expenses
4,040,718

 
2,157,372

 
7,561,677

 
4,170,468

Operating income
310,572

 
272,590

 
514,756

 
445,711

Other income (expense):
 
 
 
 
 
 
 
Interest income
221

 
235

 
416

 
386

Interest expense and other financing costs
(25,722
)
 
(14,681
)
 
(52,582
)
 
(32,669
)
Amortization of loan fees
(2,079
)
 
(1,515
)
 
(4,176
)
 
(3,119
)
Loss on extinguishment of debt
(1
)
 
(24,719
)
 
(9
)
 
(46,766
)
Other, net
983

 
101

 
2,465

 
298

Income before income taxes
283,974

 
232,011

 
460,870

 
363,841

Provision for income taxes
(93,407
)
 
(82,752
)
 
(142,606
)
 
(130,863
)
Net income
190,567

 
149,259

 
318,264

 
232,978

Less net income attributed to non-controlling interests
33,871

 

 
76,022

 

Net income attributable to Western Refining, Inc.
$
156,696

 
$
149,259

 
$
242,242

 
$
232,978

 
 
 
 
 
 
 
 
Net earnings per share:
 
 
 
 
 
 
 
Basic
$
1.88

 
$
1.81

 
$
2.97

 
$
2.74

Diluted
1.56

 
1.46

 
2.44

 
2.26

Weighted average common shares outstanding:
 
 
 
 
 
 
 
Basic
83,556

 
82,390

 
81,653

 
84,546

Diluted
102,657

 
104,729

 
102,655

 
106,942

 
 
 
 
 
 
 
 
Cash dividends declared per common share
$
0.26

 
$
0.12

 
$
0.52

 
$
0.24






The accompanying notes are an integral part of these condensed consolidated financial statements.
2




WESTERN REFINING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In thousands)
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2014
 
2013
 
2014
 
2013
Net income
$
190,567

 
$
149,259

 
$
318,264

 
$
232,978

Other comprehensive income items:
 
 
 
 
 
 
 
Benefit plans:
 
 
 
 
 
 
 
Amortization of net prior service cost

 

 
81



Pension plan termination adjustment

 
217

 

 
217

Reclassification of loss to income
5

 
13

 
10

 
25

Other comprehensive income before tax
5

 
230

 
91

 
242

Income tax
(2
)
 
(87
)
 
(4
)
 
(92
)
Other comprehensive income, net of tax
3

 
143

 
87

 
150

Comprehensive income
190,570

 
149,402

 
318,351

 
233,128

Less comprehensive income attributable to non-controlling interests
33,871

 

 
76,072

 

Comprehensive income attributable to Western Refining, Inc.
$
156,699

 
$
149,402

 
$
242,279

 
$
233,128




The accompanying notes are an integral part of these condensed consolidated financial statements.
3




WESTERN REFINING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
 
Six Months Ended
 
June 30,
 
2014
 
2013
Cash flows from operating activities:
 
 
 
Net income
$
318,264

 
$
232,978

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
94,258

 
51,475

Changes in fair value of commodity hedging instruments
(119,350
)
 
(57,968
)
Reserve for doubtful accounts
294

 
77

Amortization of loan fees and original issue discount
11,285

 
11,014

Loss on extinguishment of debt
9

 
46,766

Stock-based compensation expense
13,142

 
3,102

Deferred income taxes
56,145

 
30,306

Excess tax benefit from stock-based compensation
(1,099
)
 
8,146

Loss from equity method investment
939

 

Loss on disposal of assets, net
1,005

 
55

Changes in operating assets and liabilities:
 
 
 

Accounts receivable
(117,536
)
 
(78,913
)
Inventories
10,916

 
75,399

Prepaid expenses
(78,859
)
 
(49,505
)
Other assets
9,568

 
18,209

Accounts payable and accrued liabilities
80,557

 
(30,868
)
Other long-term liabilities
(1,151
)
 
(949
)
Net cash provided by operating activities
278,387

 
259,324

Cash flows from investing activities:
 
 
 
Capital expenditures
(90,619
)
 
(101,854
)
Return of capital from equity method investment
1,360

 

Proceeds from the sale of assets
810

 
434

Net cash used in investing activities
(88,449
)
 
(101,420
)
Cash flows from financing activities:
 
 
 
Additions to long-term debt

 
350,000

Payments on long-term debt
(3,116
)
 
(325,157
)
Debt retirement fees

 
(24,396
)
Deferred financing costs

 
(12,445
)
Purchase of treasury stock
(5,930
)
 
(198,789
)
Distribution to non-controlling interest holders
(75,964
)
 

Dividends paid
(41,475
)
 
(20,479
)
Convertible debt redemption
(809
)
 
(124
)
Excess tax benefit from stock-based compensation
1,099

 
(8,146
)
Net cash used in financing activities
(126,195
)
 
(239,536
)
Net increase (decrease) in cash and cash equivalents
63,743

 
(81,632
)
Cash and cash equivalents at beginning of period
468,070

 
453,967

Cash and cash equivalents at end of period
$
531,813

 
$
372,335



The accompanying notes are an integral part of these condensed consolidated financial statements.
4




WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. Organization
"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 and is incorporated in Delaware.
We are an independent crude oil refiner and marketer of refined products. We market refined products on a wholesale basis in Arizona, Colorado, California, the Mid-Atlantic region, New Mexico, the Upper Great Plains region and West Texas through bulk and rack marketing networks and we sell refined products through two retail networks with a total of 474 company-owned and franchised retail sites in the U.S. We produce refined products at three refineries: one in El Paso, Texas, one near Gallup in the Four Corners region of northern New Mexico and one in St. Paul Park, Minnesota.
During 2013, we formed Western Refining Logistics, LP ("WNRL") and acquired control of Northern Tier Energy LP ("NTI") through our acquisition of Northern Tier Energy GP LLC, NTI's general partner. WNRL gathers, transports and stores crude oil and refined product through its pipeline and gathering assets and terminalling, transportation, asphalt and storage assets, primarily for the benefit of Western. NTI's assets are located in the Upper Great Plains region and include one refinery and supporting assets in St. Paul Park, Minnesota and retail convenience stores. Both WNRL and NTI are publicly traded limited partnerships.
Our operations include five business segments: refining, wholesale, retail, WNRL and NTI. See Note 3, Segment Information, for further discussion of our business segments.
2. Basis of Presentation, Significant Accounting Policies and Recent Accounting Pronouncements
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2014, are not necessarily indicative of the results that may be expected for the year ending December 31, 2014, or for any other period.
The Condensed Consolidated Balance Sheet at December 31, 2013, has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements. The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2013.
The condensed consolidated financial statements include the accounts of Western Refining, Inc. and subsidiaries in which we have a controlling interest. We own a 65.3% limited partner interest in WNRL and a 38.7% limited partner interest in NTI. We own 100% of WNRL's and NTI's respective general partners. As the general partner of WNRL and NTI, we have the ability to direct the activities of WNRL and NTI that most significantly impact their respective economic performance.
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 2013 and continuing into 2014, the volatility in crude oil prices and refining margins contributed to the variability of our results of operations.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Western and subsidiaries in which we have a controlling interest. All intercompany accounts and transactions have been eliminated for all periods presented. Investments in significant non-controlled entities are accounted for using the equity method.
We have reported non-controlling interests for WNRL and NTI of $325.9 million and $1,361.7 million, respectively, in our Condensed Consolidated Balance Sheet as of June 30, 2014. We have reported non-controlling interest for WNRL and NTI of $326.2 million and $1,350.4 million, respectively, in our Condensed Consolidated Balance Sheet as of December 31, 2013.

5

WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Revenue Recognition
Revenues for products, crude oil and feedstocks sold are recorded upon delivery of the products, crude oil or feedstocks 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.
Goodwill and Other Unamortizable Intangible Assets
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 and other unamortizable intangible assets for impairment annually at June 30, or more frequently if indications of impairment exist.
We conducted our annual goodwill and intangible asset valuation analysis as of June 30, 2014, noting no indications of impairment.
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. Wholesale cost of products sold includes the cost of fuel and lubricants, transportation and distribution costs and service parts and labor. 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.
Refining direct operating expenses include direct costs of labor, maintenance materials and services, chemicals and catalysts, natural gas, utilities and other direct operating expenses. 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 operating and maintenance expenses include labor costs, maintenance materials and services, natural gas, additives, utilities, insurance expense, property taxes and other operating expenses. NTI's direct operating expenses include direct costs of labor, maintenance materials and services, outside services, bank charges, rent expense, chemicals and catalysts, natural gas, utilities and other direct operating expenses.
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.
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.
Recent Accounting Pronouncements
Recent changes in the accounting and reporting requirements for disposals when such disposal represents a strategic shift that will have a significant impact on the entity’s operations and financial results are effective for the first interim or annual period beginning after December 15, 2014. Among other new disclosure requirements, an entity will be required to make certain disclosures for individually material disposal transactions that do not meet the definition of a discontinued operation. These new requirements will be applied prospectively. Early adoption is permitted provided the disposal was not previously disclosed. Our adoption of these changes is not expected to have a material impact on our financial position, results of operations or cash flows.
The accounting provisions covering the recognition and reporting of revenues 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

6

WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

be entitled in exchange for those goods or services. These provisions are effective for the first interim or annual period beginning after December 15, 2016, and are to be applied retrospectively, with early adoption not permitted. We do not expect the adoption of this guidance to materially affect our financial position, results of operations or cash flows.
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 believe that other recently issued accounting pronouncements and other authoritative guidance for which the effective date is in the future either will not have an impact on our accounting or reporting or that such impact will not be material to our financial position, results of operations or cash flows when implemented.
3. Segment Information
Our operations are organized into five reportable 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, wholesale, retail, WNRL and NTI. A description of each segment's activities and 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 128,000 barrels 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 through our wholesale and retail segments, other independent wholesalers and retailers, commercial accounts and sales and exchanges with major oil companies.
Wholesale. Our wholesale segment includes the operations of several lubricant and bulk petroleum distribution plants, unmanned fleet fueling operations and a fleet of refined product and lubricant delivery trucks. Our wholesale segment distributes commercial wholesale petroleum products primarily in Arizona, California, Colorado, Maryland, Nevada, New Mexico, Texas and Virginia. The wholesale segment purchases petroleum fuels and lubricants from our refining segment and from third-party suppliers. We have an exclusive supply and marketing agreement with a third party covering activities related to our refined product supply, hedging and sales in the Mid-Atlantic region. We recorded $1.5 million in liabilities and $2.3 million in assets at June 30, 2014, and December 31, 2013, respectively, related to this supply agreement in our Condensed Consolidated Balance Sheets. The revenues and costs recorded under the supply agreement included $9.5 million and $9.4 million in net hedging losses and $4.9 million and $2.3 million in net hedging gains for the three and six months ended June 30, 2014 and 2013, respectively.
Retail. Through retail convenience stores, our retail segment sells various grades of gasoline, diesel fuel, convenience store merchandise and beverage and food products to the general public. Our wholesale segment 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 June 30, 2014, the retail segment operated 229 service stations and convenience stores or kiosks located in Arizona, Colorado, New Mexico and Texas compared to 222 service stations and convenience stores or kiosks at June 30, 2013.
WNRL. WNRL was formed to own, operate, develop and acquire logistics assets and related businesses. WNRL's assets consist of pipeline and gathering assets and terminalling, transportation and storage assets in the Southwestern portion of the U.S., including approximately 300 miles of pipelines and approximately 7.9 million barrels of active storage capacity, as well as other assets. 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. WNRL began its operations in October 2013. WNRL's accounting predecessor's operations were historically included in our refining segment's operations and were not considered to be a separate reporting segment prior to October 2013.
NTI. Through our acquisition of Northern Tier Energy GP LLC, NTI's general partner, Western acquired control of NTI during November 2013. NTI is an independent crude oil refiner and marketer of refined products with one 96,500 bpd refinery and also operates a network of retail convenience stores selling various grades of gasoline, diesel fuel and convenience store merchandise in the Upper Great Plains region. NTI's operations are separate from those of Western. The refined products are sold primarily in the Upper Great Plains region. As of June 30, 2014, NTI included the operations of 164 retail convenience stores and supported 81 franchised retail convenience stores. These convenience stores are located primarily in Minnesota and Wisconsin. NTI's refinery supplies the majority of the gasoline and diesel sold through these convenience stores. NTI's results of operations for the three and six months ended June 30, 2014, includes severance payments totaling $3.5 million and $12.9 million, respectively, related to Western's acquisition of NTI's general partner.

7

WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

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; maintenance turnaround expense and depreciation and amortization. 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 "last-in, first-out" ("LIFO") and lower of cost or market inventory adjustments. Intersegment revenues are reported at prices that approximate market.
Activities of our business that are not included in the five 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 five operating segments. We do not allocate certain items of other income and expense, including income taxes, to the individual segments. WNRL and NTI 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 total assets of the corporate operations are cash and cash equivalents; various net accounts receivable; prepaid expenses; other current assets; net deferred income tax items; net property, plant and equipment and other long-term assets.
Disclosures regarding our reportable segments with reconciliations to consolidated totals for the three and six months ended June 30, 2014 and 2013, are presented below:
 
Three Months Ended June 30, 2014
 
Refining
 
Wholesale
 
Retail
 
WNRL
 
NTI
 
Other
 
Consolidated
 
(In thousands)
Net sales to external customers
$
2,085,190

 
$
465,343

 
$
310,877

 
$
657

 
$
1,489,223

 
$

 
$
4,351,290

Intersegment sales (1)
344,811

 
842,279

 
5,138

 
34,324

 
10,098

 

 
 
Operating income (loss) (2)
$
250,848

 
$
5,726

 
$
1,558

 
$
11,417

 
$
58,606

 
$
(17,583
)
 
$
310,572

Other income (expense), net
 
 
 
 
 
 
 
 
 
 
 
 
(26,598
)
  Income before income taxes
 
 
 
 
 
 
 
 
 
 
 
 
$
283,974

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Depreciation and amortization
$
20,397

 
$
1,248

 
$
2,616

 
$
3,467

 
$
19,362

 
$
758

 
$
47,848

Capital expenditures
21,924

 
1,234

 
2,030

 
2,773

 
11,209

 
851

 
40,021

(1)
Intersegment sales of $1,236.7 million have been eliminated in consolidation.
(2)
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. Refining cost of products sold includes $49.1 million in net realized and unrealized economic hedging gains. NTI cost of products sold includes $1.9 million in net realized and unrealized economic hedging losses.

8

WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

 
Six Months Ended June 30, 2014
 
Refining
 
Wholesale
 
Retail
 
WNRL
 
NTI
 
Other
 
Consolidated
 
(In thousands)
Net sales to external customers
$
3,310,684

 
$
1,433,233

 
$
585,541

 
$
1,358

 
$
2,745,617

 
$

 
$
8,076,433

Intersegment sales (1)
1,160,516

 
1,046,807

 
10,051

 
66,380

 
11,082

 

 
 
Operating income (loss) (2)
$
386,584

 
$
16,233

 
$
(545
)
 
$
22,820

 
$
125,936

 
$
(36,272
)
 
$
514,756

Other income (expense), net
 
 
 
 
 
 
 
 
 
 
 
 
(53,886
)
  Income before income taxes
 
 
 
 
 
 
 
 
 
 
 
 
$
460,870

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Depreciation and amortization
$
39,865

 
$
2,420

 
$
5,348

 
$
6,711

 
$
38,347

 
$
1,567

 
$
94,258

Capital expenditures
55,544

 
3,709

 
3,371

 
8,677

 
18,390

 
928

 
90,619

Goodwill at June 30, 2014

 

 

 

 
1,297,043

 

 
1,297,043

Total assets at June 30, 2014
1,780,957

 
265,022

 
194,692

 
228,662

 
2,965,655

 
361,780

 
5,796,768

(1)
Intersegment sales of $2,294.8 million have been eliminated in consolidation.
(2)
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. Refining cost of products sold includes $139.7 million in net realized and unrealized economic hedging gains. NTI cost of products sold includes $2.8 million in net realized and unrealized economic hedging losses.
 
Three Months Ended June 30, 2013
 
Refining
 
Wholesale
 
Retail
 
WNRL (3)
 
Other
 
Consolidated
 
(In thousands)
Net sales to external customers
$
1,094,854

 
$
1,023,208

 
$
311,608

 
$
292

 
$

 
$
2,429,962

Intersegment sales (1)
905,329

 
219,123

 
5,312

 
1,007

 

 
 
Operating income (loss) (2)
$
296,277

 
$
9,161

 
$
5,872

 
$
(21,241
)
 
$
(17,479
)
 
$
272,590

Other income (expense), net
 
 
 
 
 
 
 
 
 
 
(40,579
)
Income before income taxes
 
 
 
 
 
 
 
 
 
 
$
232,011

 
 
 
 
 
 
 
 
 
 
 
 
Depreciation and amortization
$
19,625

 
$
1,000

 
$
2,685

 
$
2,886

 
$
947

 
$
27,143

Capital expenditures
16,741

 
2,171

 
2,517

 
13,941

 
859

 
36,229

(1)
Intersegment sales of $1,130.8 million have been eliminated in consolidation.
(2)
The effect of our economic hedging activity is included within operating income of our refining segment as a component of cost of products sold. Refining cost of products sold includes $78.0 million in net realized and unrealized economic hedging gains.
(3)
The financial data for WNRL includes WNRL's predecessor historical financial results for the period beginning January 1, 2013, through June 30, 2013.

9

WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

 
Six Months Ended June 30, 2013
 
Refining
 
Wholesale
 
Retail
 
WNRL (3)
 
Other
 
Consolidated
 
(In thousands)
Net sales to external customers
$
2,073,309

 
$
1,950,202

 
$
592,149

 
$
519

 
$

 
$
4,616,179

Intersegment sales (1)
1,701,821

 
425,846

 
10,324

 
1,919

 

 
 
Operating income (loss) (2)
$
496,174

 
$
17,920

 
$
3,718

 
$
(39,640
)
 
$
(32,461
)
 
$
445,711

Other income (expense), net
 
 
 
 
 
 
 
 
 
 
(81,870
)
Income before income taxes
 
 
 
 
 
 
 
 
 
 
$
363,841

 
 
 
 
 
 
 
 
 
 
 
 
Depreciation and amortization
$
36,949

 
$
1,965

 
$
5,357

 
$
5,816

 
$
1,388

 
$
51,475

Capital expenditures
55,716

 
3,835

 
3,375

 
36,004

 
2,924

 
101,854

Total assets at June 30, 2013
1,657,222

 
265,052

 
193,058

 

 
395,559

 
2,510,891

(1)
Intersegment sales of $2,139.9 million have been eliminated in consolidation.
(2)
The effect of our economic hedging activity is included within operating income of our refining segment as a component of cost of products sold. Refining cost of products sold includes $47.5 million in net realized and unrealized economic hedging gains.
(3)
The financial data for WNRL includes WNRL's predecessor historical financial results for the period beginning January 1, 2013, through June 30, 2013.
4. Fair Value Measurement
We utilize the market approach when measuring fair value of 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 in which 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, accounts receivable, accounts payable and accrued liabilities, all of which we consider Level 1 assets and liabilities, approximated their fair values at June 30, 2014, and December 31, 2013, due to their short-term maturities. Our fair value assessment incorporates a variety of considerations, including the short-term duration of the instruments (less than one percent of our account receivables and payables are outstanding for greater than 90 days) and the expected future insignificance of bad debt expense that includes an evaluation of counterparty credit risk.
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 13, Crude Oil and Refined Product Risk Management, for further discussion of master netting arrangements.

10

WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The following tables represent our assets and liabilities measured at fair value on a recurring basis as of June 30, 2014 and December 31, 2013 and the basis for that measurement:
 
Carrying Value at June 30, 2014
 
Fair Value Measurement Using
 
Netting Adjustments
 
Net Fair Value at June 30, 2014
 
 
Level 1
 
Level 2
 
Level 3
 
 
 
(In thousands)
Gross financial assets:
 
 
 
 
 
 
 
 
 
 
 
Other current assets - commodity hedging contracts
$
53,134


$


$
49,554


$
3,580


$
(5,332
)

$
47,802

Other assets - commodity hedging contracts
16,229




16,064


165


(540
)

15,689

Gross financial liabilities:
 

 

 

 




Accrued liabilities - commodity hedging contracts
(13,650
)



(13,650
)



5,332


(8,318
)
Other long-term liabilities - commodity hedging contracts
(819
)



(819
)



540


(279
)
 
$
54,894

 
$

 
$
51,149

 
$
3,745

 
$

 
$
54,894


 
Carrying Value at December 31, 2013
 
Fair Value Measurement Using
 
Netting Adjustments
 
Net Fair Value at December 31, 2013
 
 
Level 1
 
Level 2
 
Level 3
 
 
 
(In thousands)
Gross financial assets:
 
 
 
 
 
 
 
 
 
 
 
Other current assets - commodity hedging contracts
$
14,344


$


$
14,082


$
262


$
(5,553
)

$
8,791

Other assets - commodity hedging contracts
183




183




(176
)

7

Gross financial liabilities:
 

 

 

 




Accrued liabilities - commodity hedging contracts
(22,939
)



(22,215
)

(724
)

5,553


(17,386
)
Other long-term liabilities - commodity hedging contracts
(56,045
)



(54,572
)

(1,473
)

176


(55,869
)
 
$
(64,457
)
 
$

 
$
(62,522
)
 
$
(1,935
)
 
$

 
$
(64,457
)
Commodity hedging contracts designated as Level 3 financial assets consist 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 Condensed 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 Condensed 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.

11

WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The following table presents the changes in fair value of our Level 3 assets and liabilities (all related to commodity price swap contracts) for the three and six months ended June 30, 2014 and 2013.
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2014
 
2013
 
2014
 
2013
 
(In thousands)
Asset (liability) balance at beginning of period
$
3,232

 
$
(2,536
)
 
$
(1,935
)
 
$
(1,647
)
Change in fair value
2,226

 
4,982

 
5,987

 
4,093

Fair value of trades entered into during the period
(238
)
 

 
(238
)
 

Fair value reclassification from Level 3 to Level 2
(1,475
)
 

 
(69
)
 

Asset balance at end of period
$
3,745

 
$
2,446

 
$
3,745

 
$
2,446

A hypothetical change of 10% to the estimated future cash flows attributable to our Level 3 commodity price swaps would result in a $0.4 million change in the estimated fair value.
As of June 30, 2014 and December 31, 2013, the carrying amount and estimated fair value of our debt was as follows:
 
June 30,
2014
 
December 31,
2013
 
(In thousands)
Carrying amount
$
1,175,581

 
$
1,386,607

Fair value
1,220,554

 
2,156,075

The carrying amount of our debt is the amount reflected in the Condensed 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:
 
June 30,
2014
 
December 31,
2013
 
(In thousands)
Refined products (1)
$
271,660

 
$
275,865

Crude oil and other raw materials
219,608

 
227,187

Lubricants
16,687

 
16,032

Retail store merchandise
38,517

 
38,304

Inventories
$
546,472

 
$
557,388

(1)
Includes $23.0 million and $24.1 million of inventory valued using the first-in, first-out ("FIFO") valuation method at June 30, 2014, and December 31, 2013, respectively.
We value our refinery inventories of crude oil, other raw materials and asphalt inventories at the lower of cost or market under the LIFO valuation method. Other than refined products inventories held by our wholesale and retail segments, refined products inventories are valued under the LIFO valuation method. Lubricants and retail store merchandise are valued under the FIFO valuation method.
As of June 30, 2014, and December 31, 2013, refined products valued under the LIFO method and crude oil and other raw materials totaled 7.1 million barrels and 6.8 million barrels, respectively. At June 30, 2014, and December 31, 2013, the excess of the current cost of these crude oil, refined product and other feedstock and blendstock inventories over LIFO cost was $219.7 million and $193.6 million, respectively.

12

WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

During the three months ended June 30, 2014 and 2013, cost of products sold included net non-cash charges of $7.5 million and $18.5 million, respectively, from changes in our LIFO reserves. During the six months ended June 30, 2014, and 2013, cost of products sold included net non-cash charges of $26.2 million and $59.2 million, respectively, from changes in our LIFO reserves.
Average LIFO cost per barrel of our refined products and crude oil and other raw materials inventories as of June 30, 2014, and December 31, 2013, was as follows:
 
June 30, 2014
 
December 31, 2013
 
Barrels
 
LIFO Cost
 
Average
LIFO
Cost Per
Barrel
 
Barrels
 
LIFO Cost
 
Average
LIFO
Cost Per
Barrel
 
(In thousands, except cost per barrel)
Refined products
3,314

 
$
248,674

 
$
75.04

 
3,320

 
$
251,763

 
$
75.83

Crude oil and other
3,769

 
219,608

 
58.27

 
3,517

 
227,187

 
64.60

 
7,083

 
$
468,282

 
66.11

 
6,837

 
$
478,950

 
70.05

6. Equity Method Investment
NTI owns a 17% common equity interest in Minnesota Pipe Line Company, LLC ("MPL"). The carrying value of this equity method investment was $99.1 million and $101.6 million at June 30, 2014, and December 31, 2013, respectively.
Distributions from MPL during the three and six months ended June 30, 2014, were $1.4 million. Equity income from MPL for the three months ended March 31, 2014, was $1.5 million and equity loss from MPL for the three months ended June 30, 2014, was $2.4 million resulting in net equity loss from MPL of $0.9 million for the six months ended June 30, 2014. Equity income (loss) has been included in other, net in the accompanying Condensed Consolidated Statement of Operations for the three and six months ended June 30, 2014.
7. Property, Plant and Equipment, Net
Property, plant and equipment, net was as follows:
 
June 30,
2014
 
December 31,
2013
 
(In thousands)
Property, plant and equipment
$
2,863,859

 
$
2,773,653

Accumulated depreciation
(736,140
)
 
(648,624
)
Property, plant and equipment, net
$
2,127,719

 
$
2,125,029

Depreciation expense was $46.8 million and $92.2 million for the three and six months ended June 30, 2014, respectively, and $26.4 million and $49.9 million for the three and six months ended June 30, 2013, respectively. Depreciation expense included $19.1 million and $37.9 million, respectively, of depreciation related to NTI for the three and six months ended June 30, 2014.

13

WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

8. Intangible Assets, Net
Intangible assets, net was as follows:
 
June 30, 2014
 
December 31, 2013
 
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

 
$
(11,355
)
 
$
9,072

 
$
20,427

 
$
(10,558
)
 
$
9,869

 
5.8
Customer relationships
7,551

 
(3,088
)
 
4,463

 
7,551

 
(2,810
)
 
4,741

 
8.0
Rights-of-way and other
5,990

 
(3,266
)
 
2,724

 
5,922

 
(2,916
)
 
3,006

 
4.2
 
33,968

 
(17,709
)
 
16,259

 
33,900

 
(16,284
)
 
17,616

 
 
Unamortizable assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
Franchise rights and trademarks
42,900

 

 
42,900

 
42,900

 

 
42,900

 
 
Liquor licenses
17,582

 

 
17,582

 
17,582

 

 
17,582

 
 
Intangible assets, net
$
94,450

 
$
(17,709
)
 
$
76,741

 
$
94,382

 
$
(16,284
)
 
$
78,098

 
 
Intangible asset amortization expense for the three and six months ended June 30, 2014, was $0.7 million and $1.4 million, respectively, based on estimated useful lives ranging from 1 to 23 years. Intangible asset amortization expense for the three and six months ended June 30, 2013 was $0.7 million and $1.4 million, respectively, based on estimated useful lives ranging from 2 to 23 years.
Estimated amortization expense for the indicated periods is as follows (in thousands):
Remainder of 2014
$
1,480

2015
2,415

2016
2,244

2017
2,303

2018
2,303

2019
1,658



14

WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

9. Long-Term Debt
Long-term debt was as follows:
 
June 30,
2014
 
December 31,
2013
 
(In thousands)
Western obligations:
 
 
 
Revolving Credit Facility
$

 
$

Term Loan Credit Facility due 2020
547,250

 
550,000

6.25% Senior Unsecured Notes due 2021
350,000

 
350,000

5.75% Convertible Senior Unsecured Notes due 2014, net of conversion feature of $7,362 for 2013

 
207,925

5.50% promissory note due 2015
206

 
313

Total Western obligations
897,456

 
1,108,238

WNRL obligations:
 
 
 
Revolving Credit Facility due 2018

 

Total WNRL obligations

 

NTI obligations:
 
 
 
Revolving Credit Facility due 2017

 

7.125% Senior Secured Notes due 2020
278,125

 
278,369

Total NTI obligations
278,125

 
278,369

Long-term debt
1,175,581

 
1,386,607

Current portion of long-term debt
(5,706
)
 
(213,642
)
Long-term debt, net of current portion
$
1,169,875

 
$
1,172,965

Outstanding amounts under Revolving Credit Agreements, if any, are included in the current portion of long-term debt.
Interest expense and other financing costs were as follows:
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2014
 
2013
 
2014
 
2013
 
(In thousands)
 
 
Contractual interest:
 
 
 
 
 
 
 
Western obligations
$
14,778

 
$
9,773

 
$
30,044

 
$
22,082

WNRL obligations
227

 

 
452

 

NTI obligations
5,372

 

 
10,708

 

 
20,377

 
9,773

 
41,204

 
22,082

Amortization of original issuance discount
3,308

 
3,581

 
7,352

 
7,891

Other interest expense
2,148

 
1,651

 
4,353

 
3,575

Capitalized interest
(111
)
 
(324
)
 
(327
)
 
(879
)
Interest expense and other financing costs
$
25,722

 
$
14,681

 
$
52,582

 
$
32,669

We amortize original issue discounts and financing fees using the effective interest method over the respective term of the debt.
Western Obligations
Our payment of dividends is limited under the terms of our Revolving Credit Agreement, our Senior Unsecured Notes and our Term Loan Credit Facility, and in part, depends on our ability to satisfy certain financial covenants.

15

WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Revolving Credit Facility
On April 11, 2013, we entered into the Second Amended and Restated Revolving Credit Agreement ("Western Revolving Credit Facility"). Lenders under the Western 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 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 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 Revolving Credit Facility is secured by our cash and cash equivalents, accounts receivable and inventory.
As of June 30, 2014, we had no direct borrowings under the Revolving Credit Agreement, with gross availability of $851.4 million, of which $164.2 million was used for outstanding letters of credit.
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 2.25% or the Eurodollar Rate (as defined in the Western 2020 Term Loan Credit Facility) plus 3.25% (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.
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. 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.
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.

16

WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

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 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. 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. WNRL creditors under the WNRL Revolving Credit Facility have no recourse to Western's assets, except to the extent of the assets of Western Refining Logistic GP, LLC, the general partner of WNRL that Western wholly owns. 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. WNRL had no direct or swing line borrowings or outstanding letters of credit under the revolving credit facility as of June 30, 2014.
The WNRL 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.
NTI Obligations
NTI’s creditors have no recourse to Western or WNRL assets. Western or WNRL creditors have no recourse to the assets of NTI or its consolidated subsidiaries.
Revolving Credit Facility
On July 17, 2012, NTI amended its $300.0 million senior secured Revolving Credit Facility, (the "NTI Revolving Credit Facility"). The NTI Revolving Credit Facility, which matures on July 17, 2017, provides for up to $150.0 million for the issuance of letters of credit and up to $30.0 million for short-term borrowings. The NTI Revolving Credit Facility may be increased up to a maximum aggregate principal amount of $450.0 million, subject to borrowing base availability. 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 GP LLC, 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) an alternative base rate plus an applicable margin (ranging between 1.00% and 1.50%) or (b) a LIBOR rate plus an applicable margin (ranging between 2.00% and 2.50%). The alternative base rate is the greater of (a) the prime rate, (b) the Federal Funds Effective Rate plus 50 basis points or (c) the one-month LIBOR rate plus 100 basis points and a spread of up to 150 basis points based upon percentage utilization of this facility. In addition to paying interest on outstanding borrowings, NTI is also required to pay an annual commitment fee ranging from 0.375% to 0.500% and letter of credit fees.
As of June 30, 2014, the availability under the NTI Revolving Credit Facility was $244.0 million. This availability is net of $35.2 million in outstanding letters of credit. NTI had no borrowings under the NTI Revolving Credit Facility at June 30, 2014.
7.125% Secured Notes
On November 8, 2012, Northern Tier Energy LLC, its wholly owned subsidiary ("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"). 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 recourse to Northern Tier Energy GP LLC, its general partner, and is guaranteed by NTI and certain of their subsidiaries.

17

WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

10. Equity
Changes to equity during the six months ended June 30, 2014, were as follows:
 
Western Shareholders' Equity
 
Non-controlling Interest
 
Total Equity
 
(In thousands)
Balance at December 31, 2013
$
894,052

 
$
1,676,535

 
$
2,570,587

Net income
242,242

 
76,022

 
318,264

Convertible debt redemption
(809
)
 

 
(809
)
Convertible debt settlement - treasury stock issuance in additional paid-in capital
(142,640
)
 

 
(142,640
)
Other comprehensive income, net of tax
37

 
50

 
87

Dividends
(41,475
)
 

 
(41,475
)
Stock-based compensation
2,228

 
10,914

 
13,142

Excess tax benefit from stock-based compensation
1,099

 

 
1,099

Distributions to non-controlling interest

 
(75,964
)
 
(75,964
)
Offering costs

 
66

 
66

Treasury stock purchases
(18,325
)
 

 
(18,325
)
Treasury stock issuance
357,608

 

 
357,608

Balance at June 30, 2014
$
1,294,017

 
$
1,687,623

 
$
2,981,640

Since 2012, our board of directors has approved three 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 January of 2014 (the "January 2014 Program"). The January 2014 Program will expire on January 28, 2015, and through August 1, 2014, we have used $61.5 million of the authorized amount. Since the inception of the initial share repurchase program in July 2012 through June 30, 2014, we purchased 11.9 million shares of our common stock under the programs. Between March 26, 2014, and June 16, 2014, in connection with the settlement of conversions of the Western Convertible Notes, we utilized 12.1 million shares of treasury stock, consisting of treasury shares acquired prior to the three share repurchase programs and shares purchased under the programs through June 10, 2014, to satisfy a portion of these conversions.
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.
The following table summarizes our share repurchase activity for the January 2014 Program:
 
Number of shares purchased
 
Cost of share purchases (In thousands)
Shares purchased at December 31, 2013

 
$

Shares purchased during Q1, 2014

 

Shares purchased at March 31, 2014

 
$

Shares purchased during Q2, 2014 (1)
480,362

 
18,325

Shares purchased at June 30, 2014
480,362

 
$
18,325

(1) The shares purchased during the second quarter of 2014 included 27,030 shares that we subsequently used to settle conversions of the Convertible Notes.
As of June 30, 2014, we had $181.7 million remaining in authorized expenditures under the January 2014 Program. Through August 1, 2014, we purchased an additional 1,092,182 shares under the January 2014 Program at a cost of $43.2 million.

18

WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

11. Income Taxes
Compared to the federal statutory rate of 35%, our effective tax rates for the three and six months ended June 30, 2014, were 32.9% and 30.9%, respectively. The effective tax rates for the three and six months ended June 30, 2014, were lower than the statutory rate primarily due to the reduction of taxable income associated with the non-controlling interests in WNRL and NTI. Compared to the federal statutory rate of 35%, our effective tax rates for the three and six months ended June 30, 2013, were 35.7% and 36.0%, respectively, primarily due to state tax obligations offset by the Domestic Production Activity Deduction.
The Internal Revenue Service (the "IRS") has finalized an examination of our tax year ending December 31, 2011, with no material adjustments. The IRS has completed examinations of our tax years ending December 31, 2010, 2009, 2008 and 2007. For these years, we have agreed to all IRS adjustments. Due to statutory requirements, the tax years ending December 31, 2007 and 2008 require a review by the U.S. Joint Committee of Taxation prior to finalizing the audits. We do not believe the results of any of these examinations will have a material effect on our financial position, results of operations or cash flows, but the timing and the results of final determinations on these matters remains uncertain.
We believe that it is more likely than not that the benefit from certain state net operating loss ("NOL") carryforwards related to the Yorktown refinery will not be realized. Accordingly, a valuation allowance of $23.7 million was provided against the deferred tax assets relating to these NOL carryforwards at June 30, 2014. There was no change in the valuation allowance for the Yorktown NOL carryforwards from December 31, 2013.
As of June 30, 2014, we have recorded a liability of $10.1 million for unrecognized tax benefits, of which $10.1 million would affect our effective tax rate if recognized. We recognized $0.1 million and $0.2 million in interest and penalties for the three and six months ended June 30, 2014, respectively.
12. Retirement Plans
We fully recognize the obligations associated with single-employer defined benefit pension, retiree healthcare and other postretirement plans in our financial statements.
Pensions
The net periodic benefit cost associated with our pension plans for the three and six months ended June 30, 2014 and 2013 was $0.5 million, $1.1 million, $0.8 million and $0.8 million, respectively.
Postretirement Obligations
The net periodic benefit cost associated with our postretirement medical benefit plans for both the three and six months ended June 30, 2014 and 2013 was $0.2 million, $0.4 million, $0.1 million and $0.2 million, respectively.
Our benefit obligation at December 31, 2013 for our postretirement medical benefit plans was $5.8 million. We fund our medical benefit plans on an as-needed basis.
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 Condensed Consolidated Statements of Operations.
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2014
 
2013
 
2014
 
2013
 
(In thousands)
 
 
 
 
Beginning of period balance
$
(316
)
 
$
(1,167
)
 
$
(350
)
 
$
(1,174
)
Current period changes
3

 
143

 
37

 
150

End of period balance
$
(313
)
 
$
(1,024
)
 
$
(313
)
 
$
(1,024
)
Defined Contribution Plan
Western sponsors 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. For the three and six months ended June 30, 2014 and 2013, we expensed $2.3 million, $3.9 million, $2.3 million and $4.3 million, respectively, in connection with this plan.

19

WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NTI sponsors qualified defined contribution plans for eligible employees. For the three and six months ended June 30, 2014, NTI expensed $1.7 million and $4.1 million, respectively, in connection with its qualified defined contribution plans.
13. Crude Oil and Refined Product Risk Management
We enter into crude oil forward contracts to facilitate the supply of crude oil to the refineries. During the six months ended June 30, 2014, 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 also 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 gasoline and distillate production. The physical volumes are not exchanged; 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. 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.
The fair value of these contracts is reflected in the Condensed Consolidated Balance Sheets and the related net gain or loss is recorded within cost of products sold in the Condensed 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 and six months ended June 30, 2014 and 2013 and open commodity hedging positions as of June 30, 2014, and December 31, 2013:
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2014
 
2013
 
2014
 
2013
 
(In thousands)
Economic hedging results
 
 
 
 
 
 
 
Realized hedging gain (loss), net
$
1,812

 
$
18,329

 
$
17,556

 
$
(10,489
)
Unrealized hedging gain, net
45,379

 
59,691

 
119,350

 
57,968

Total hedging gain, net
$
47,191

 
$
78,020

 
$
136,906

 
$
47,479

 
June 30,
2014
 
December 31,
2013
 
(In thousands)
Open commodity hedging instruments (barrels)
 
 
 
Crude oil and refined product futures, net (short) long positions
945

 
(768
)
Refined product crack spread swaps, net short positions
(19,693
)
 
(25,721
)
Total open barrels commodity hedging instruments, net short positions
(18,748
)
 
(26,489
)
 
 
 
 
Fair value of outstanding contracts, net
 
 
 
Other current assets
$
47,802

 
$
8,791

Other assets
15,689

 
7

Accrued liabilities
(8,318
)
 
(17,386
)
Other long-term liabilities
(279
)
 
(55,869
)
Fair value of outstanding contracts - unrealized gain (loss), net
$
54,894

 
$
(64,457
)
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 Condensed Consolidated Balance Sheets. We have posted margin collateral with various counterparties

20

WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

to support hedging and trading activities. The margin collateral posted is required by counterparties as collateral deposits and cannot be offset against the fair value of open contracts except in the event of default.
The following table presents offsetting information regarding Western's derivative instruments as of June 30, 2014, and December 31, 2013:
 
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 June 30, 2014
 
 
 
(In thousands)
Gross financial assets:
 
 
 
 
 
Current assets - commodity hedging contracts
$
53,134

 
$
(5,332
)
 
$
47,802

Other assets - commodity hedging contracts
16,229

 
(540
)
 
15,689

Gross financial liabilities:
 
 
 
 
 
Accrued liabilities - commodity hedging contracts
(13,650
)
 
5,332

 
(8,318
)
Other long-term liabilities - commodity hedging contracts
(819
)
 
540

 
(279
)
 
$
54,894

 
$

 
$
54,894

 
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, 2013
 
 
 
(In thousands)
Gross financial assets:
 
 
 
 
 
Current assets - commodity hedging contracts
$
14,344

 
$
(5,553
)
 
$
8,791

Other assets - commodity hedging contracts
183

 
(176
)
 
7

Gross financial liabilities:
 
 
 
 
 
Accrued liabilities - commodity hedging contracts
(22,939
)
 
5,553

 
(17,386
)
Other long-term liabilities - commodity hedging contracts
(56,045
)
 
176

 
(55,869
)
 
$
(64,457
)
 
$

 
$
(64,457
)
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 June 30, 2014, 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 were an average of $18.90 per contract. Settlement prices for our distillate crack spread swaps range from $26.28 to $28.74 per contract. The information below 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
 
2014
 
2015
 
2016
Inventory positions (futures and swaps):
 
 
 
 
 
Crude oil and refined products — net short positions
(722
)
 

 

Natural gas futures — net (short) long positions
(69
)
 
1,077

 
659

Refined product positions (crack spread swaps):
 
 
 
 
 
Distillate — net short positions
(927
)
 
(12,036
)
 
(6,030
)
Unleaded gasoline — net short positions
(700
)
 

 


21

WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

14. Stock-Based Compensation
The Western Refining 2006 Long-Term Incentive Plan (the "2006 LTIP") and the 2010 Incentive Plan of Western Refining (the "2010 Incentive Plan") allow for restricted share awards and restricted share unit awards. As of June 30, 2014, there were 14,311 and 2,887,778 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 and their market value at the date of the grant is amortized over the restricted period on a straight-line basis.
As of June 30, 2014, there were 382,526 unvested restricted share units 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:
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2014
 
2013
 
2014
 
2013
 
(In thousands)
Direct operating expenses
$