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EX-32.2 - EXHIBIT 32.2 - Western Refining, Inc.exhibit322-wnrx63015.htm
EX-31.1 - EXHIBIT 31.1 - Western Refining, Inc.exhibit311-wnrx63015.htm
EX-31.2 - EXHIBIT 31.2 - Western Refining, Inc.exhibit312-wnrx63015.htm
EX-32.1 - EXHIBIT 32.1 - Western Refining, Inc.exhibit321-wnrx63015.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, 2015
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 July 31, 2015, there were 95,583,528 shares outstanding, par value $0.01, of the registrant’s common stock.
 
 
 
 
 



WESTERN REFINING, INC. AND SUBSIDIARIES
INDEX

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 3. Defaults Upon Senior Securities
 
 
Item 4. Mine Safety Disclosures
 
 
Item 5. Other Information
 
 
 
 
 
 
 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 should be deemed forward-looking statements that represent management’s beliefs and assumptions based upon currently available information. These forward-looking statements relate to matters such as our industry, including the regulation of our industry, business strategy, future operations, our expectations for margins and crack spreads, 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, volatility of crude oil prices, additions to pipeline capacity in the Permian Basin and at Cushing, Oklahoma, 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 and maintenance 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 upon 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 quarterly report on Form 10-Q. 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:
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;
availability, costs and price volatility of crude oil, other refinery feedstocks and refined products;
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;
construction of new, or expansion of existing, product or crude oil pipelines, including in the Permian Basin, in 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 in Europe;
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;

i


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 in our Annual Report on Form 10-K for the year ended December 31, 2014 ("2014 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 upon 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 upon assumptions made by us based upon 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.





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,
2015
 
December 31,
2014
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
543,936

 
$
431,159

Accounts receivable, trade, net of a reserve for doubtful accounts of $574 and $484, respectively
590,162

 
467,527

Inventories
687,074

 
629,237

Prepaid expenses
110,445

 
88,415

Other current assets
152,565

 
152,125

Total current assets
2,084,182

 
1,768,463

Restricted cash
68,275

 
167,009

Equity method investment
97,976

 
96,080

Property, plant and equipment, net
2,209,784

 
2,153,189

Goodwill
1,289,443

 
1,289,443

Intangible assets, net
84,984

 
85,952

Other assets, net
118,905

 
122,422

Total assets
$
5,953,549

 
$
5,682,558

LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
725,388

 
$
681,803

Accrued liabilities
247,735

 
268,449

Deferred income tax liability, net
42,338

 
57,949

Current portion of long-term debt
5,500

 
5,500

Total current liabilities
1,020,961

 
1,013,701

Long-term liabilities:
 
 
 
Long-term debt, less current portion
1,542,740

 
1,515,037

Lease financing obligations
49,397

 
27,489

Deferred income tax liability, net
304,934

 
296,860

Other liabilities
37,931

 
41,827

Total long-term liabilities
1,935,002

 
1,881,213

Commitments and contingencies


 


Equity:
 
 
 
Western shareholders' equity:
 
 
 
Common stock, par value $0.01, 240,000,000 shares authorized; 102,766,270 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 or outstanding

 

Additional paid-in capital
490,742

 
487,748

Retained earnings
1,069,187

 
890,393

Accumulated other comprehensive loss, net of tax
(1,234
)
 
(1,291
)
Treasury stock, 7,182,742 and 6,441,883 shares, respectively at cost
(283,168
)
 
(258,168
)
Total Western shareholders' equity
1,276,555

 
1,119,708

Non-controlling interests
1,721,031

 
1,667,936

Total equity
2,997,586

 
2,787,644

Total liabilities and equity
$
5,953,549

 
$
5,682,558


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,
 
2015
 
2014
 
2015
 
2014
Net sales
$
2,828,892

 
$
4,351,290

 
$
5,147,622

 
$
8,076,433

Operating costs and expenses:
 
 
 
 
 
 
 
Cost of products sold (exclusive of depreciation and amortization)
2,177,887

 
3,731,169

 
3,919,197

 
6,891,906

Direct operating expenses (exclusive of depreciation and amortization)
224,723

 
203,463

 
440,034

 
401,812

Selling, general and administrative expenses
59,540

 
54,640

 
115,343

 
113,372

Affiliate severance costs

 
3,479

 

 
12,878

Loss (gain) on disposal of assets, net
(387
)
 
119

 
(105
)
 
1,005

Maintenance turnaround expense
593

 

 
698

 
46,446

Depreciation and amortization
51,143

 
47,848

 
101,069

 
94,258

Total operating costs and expenses
2,513,499

 
4,040,718

 
4,576,236

 
7,561,677

Operating income
315,393

 
310,572

 
571,386

 
514,756

Other income (expense):
 
 
 
 
 
 
 
Interest income
201

 
221

 
364

 
416

Interest expense and other financing costs
(27,316
)
 
(27,801
)
 
(52,273
)
 
(56,758
)
Loss on extinguishment of debt

 
(1
)
 

 
(9
)
Other, net
4,024

 
983

 
7,230

 
2,465

Income before income taxes
292,302

 
283,974

 
526,707

 
460,870

Provision for income taxes
(78,435
)
 
(93,407
)
 
(137,872
)
 
(142,606
)
Net income
213,867

 
190,567

 
388,835

 
318,264

Less net income attributable to non-controlling interests
79,948

 
33,871

 
148,927

 
76,022

Net income attributable to Western Refining, Inc.
$
133,919

 
$
156,696

 
$
239,908

 
$
242,242

 
 
 
 
 
 
 
 
Net earnings per share:
 
 
 
 
 
 
 
Basic
$
1.40

 
$
1.88

 
$
2.51

 
$
2.97

Diluted
1.40

 
1.56

 
2.51

 
2.44

Weighted average common shares outstanding:
 
 
 
 
 
 
 
Basic
95,539

 
83,556

 
95,553

 
81,653

Diluted
95,626

 
102,657

 
95,654

 
102,655

 
 
 
 
 
 
 
 
Cash dividends declared per common share
$
0.34

 
$
0.26

 
$
0.64

 
$
0.52






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,
 
2015
 
2014
 
2015
 
2014
Net income
$
213,867

 
$
190,567

 
$
388,835

 
$
318,264

Other comprehensive income items:
 
 
 
 
 
 
 
Benefit plans:
 
 
 
 
 
 
 
Amortization of net prior service cost
107

 

 
107

 
81

Reclassification of loss to income
12

 
5

 
25

 
10

Other comprehensive income before tax
119

 
5

 
132

 
91

Income tax
(4
)
 
(2
)
 
(9
)
 
(4
)
Other comprehensive income, net of tax
115

 
3

 
123

 
87

Comprehensive income
213,982

 
190,570

 
388,958

 
318,351

Less comprehensive income attributable to non-controlling interests
80,014

 
33,871

 
148,993

 
76,072

Comprehensive income attributable to Western Refining, Inc.
$
133,968

 
$
156,699

 
$
239,965

 
$
242,279




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,
 
2015
 
2014
Cash flows from operating activities:
 
 
 
Net income
$
388,835

 
$
318,264

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
101,069

 
94,258

Changes in fair value of commodity hedging instruments
42,344

 
(119,350
)
Reserve for doubtful accounts
90

 
294

Amortization of loan fees and original issue discount
3,151

 
11,285

Loss on extinguishment of debt

 
9

Stock-based compensation expense
8,541

 
13,142

Deferred income taxes
(7,537
)
 
56,145

Excess tax benefit from stock-based compensation
(848
)
 
(1,099
)
Income from equity method investment
(7,793
)
 
939

Loss (gain) on disposal of assets, net
(105
)
 
1,005

Changes in operating assets and liabilities:
 
 
 

Accounts receivable
(122,725
)
 
(117,536
)
Inventories
(57,837
)
 
10,916

Prepaid expenses
(22,030
)
 
(78,859
)
Other assets
(34,472
)
 
9,568

Accounts payable and accrued liabilities
4,999

 
80,557

Other long-term liabilities
(3,638
)
 
(1,151
)
Net cash provided by operating activities
292,044

 
278,387

Cash flows from investing activities:
 
 
 
Capital expenditures
(119,545
)
 
(90,619
)
Decrease in restricted cash
98,735

 

Return of capital from equity method investment
5,780

 
1,360

Proceeds from the sale of assets
897

 
810

Net cash used in investing activities
(14,133
)
 
(88,449
)
Cash flows from financing activities:
 
 
 
Additions to long-term debt
300,000

 

Payments on long-term debt and capital lease obligations
(3,761
)
 
(3,116
)
Payments on revolving credit facility
(269,000
)
 

Deferred financing costs
(6,820
)
 

Purchase of treasury stock
(25,000
)
 
(5,930
)
Distribution to non-controlling interest holders
(100,287
)
 
(75,964
)
Dividends paid
(61,114
)
 
(41,475
)
Convertible debt redemption

 
(809
)
Excess tax benefit from stock-based compensation
848

 
1,099

Net cash used in financing activities
(165,134
)
 
(126,195
)
Net increase in cash and cash equivalents
112,777

 
63,743

Cash and cash equivalents at beginning of period
431,159

 
468,070

Cash and cash equivalents at end of period
$
543,936

 
$
531,813



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 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 primarily 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 526 company-owned and franchised retail sites in the U.S.
At June 30, 2015, we owned a 38.4% limited partner interest in Northern Tier Energy LP ("NTI"). We control NTI through our 100% ownership of its general partner. NTI owns and operates a refinery in St. Paul Park, Minnesota. NTI has a retail-marketing network of 264 convenience stores. NTI directly operates 165 of these stores and supports 99 stores through franchise agreements. NTI's primary areas of operation include Minnesota and Wisconsin.
At June 30, 2015, we owned a 66.1% limited partner interest in Western Refining Logistics, LP ("WNRL") and the public held a 33.9% limited partner interest. We control WNRL through our 100% ownership of the general partner of WNRL and our majority ownership of WNRL's limited partnership interests. WNRL owns and operates a wholesale business that operates primarily in the Southwest as well as logistics assets consisting of pipeline and gathering, terminalling, storage and transportation assets. 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. We have retrospectively adjusted the historical financial and operational data of WNRL, for all periods presented, to reflect the purchase and consolidation of WRW into WNRL. We refer to this transaction as the "Wholesale Acquisition."
We changed our reportable segments during the fourth quarter of 2014 due to changes in our organization. Our operations include four business segments: refining, NTI, WNRL and retail. See Note 3, Segment Information, for further discussion of our business segments.
2. Basis of Presentation and Significant Accounting Policies
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim consolidated financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these unaudited condensed consolidated financial statements 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, 2015, are not necessarily indicative of the results that may be expected for the year ending December 31, 2015, or for any other period.
The Condensed Consolidated Balance Sheet at December 31, 2014, 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, 2014.
The condensed consolidated financial statements include the accounts of Western Refining, Inc. and subsidiaries in which we have a controlling interest. We own a 38.4% limited partner interest in NTI and a 66.1% limited partner interest in WNRL. We own 100% of NTI's and WNRL's respective general partners. As the general partner of NTI and WNRL, we have the ability to direct the activities of NTI and WNRL that most significantly impact their respective economic performance.
Principles of Consolidation
The accompanying condensed 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.

5

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

We have reported non-controlling interests for NTI and WNRL of $1,721.0 million and $1,667.9 million in our Condensed Consolidated Balance Sheets as of June 30, 2015 and December 31, 2014, respectively.
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, 2015, and we found no indications of impairment.
Use of Estimates and Seasonality
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.
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 continuing into 2015, the volatility in crude oil prices and refining margins contributed to the variability of our results of operations.
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.
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.
Evaluation of going concern - management of an entity is required to evaluate whether there is substantial doubt about the entity’s ability to continue as a going concern and to provide related footnote disclosures. The new requirements will become effective for annual periods beginning after December 15, 2016, and interim periods thereafter with early application permitted. The changed requirements are intended to reduce diversity in the timing and content of footnote disclosures.
Consolidation considerations - reporting entities are required to evaluate whether certain legal entities should be consolidated effective for interim and annual periods beginning after December 15, 2015.
Presentation of debt issuance costs - debt issuance costs are presented as an offset to the related debt and will become effective for interim and annual periods beginning after December 15, 2015.
Accounting for internal use software licenses - entities will be required to evaluate their accounting for hosted software licenses and service contracts effective for interim and annual periods beginning after December 15, 2015.

6

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

3. Segment Information
We changed our reportable segments during the fourth quarter of 2014 due to changes in our organization. We treated the assets that we sold to WNRL in the Wholesale Acquisition 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 WRW assets for periods prior to the effective date of the transaction. The primary effects of this reporting change were:
The wholesale segment moved into the WNRL segment, except for unmanned fleet fueling ("cardlock") operations and product sales activity in the Mid-Atlantic region;
Mid-Atlantic region product sales activity moved into the refining segment; and
Cardlock related activity moved into the retail segment.
Our operations are organized into four reportable segments based on manufacturing and marketing criteria, the nature of our products and services, our production processes and our types of customers. Our reportable segments are refining, NTI, WNRL and retail.
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, other independent wholesalers and retailers, commercial accounts and sales and exchanges with major oil companies.
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 $0.3 million in liabilities and $0.1 million in assets at June 30, 2015 and December 31, 2014, respectively, related to this supply agreement in our Condensed Consolidated Balance Sheets. The revenues and costs recorded under the supply agreement included $5.5 million and $9.5 million in net hedging losses for the three months ended June 30, 2015 and 2014, respectively, and $16.0 million in net hedging gains and $9.4 million in net hedging losses for the six months ended June 30, 2015 and 2014, respectively.
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. At June 30, 2015, NTI included the operations of 165 retail convenience stores and supported 99 franchised retail convenience stores. NTI's refinery supplies the majority of the gasoline and diesel fuel sold through its retail convenience stores.
WNRL. WNRL owns and operates certain logistics assets that consist of pipeline and gathering, terminalling, storage and transportation assets, providing related services primarily to our refining segment in the Southwest, including approximately 300 miles of pipelines and 8.1 million barrels of active storage capacity. WNRL also owns a wholesale business that operates primarily in the Southwest. The majority of WNRL's logistics assets are integral to the operations of the El Paso and Gallup refineries. 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 June 30, 2015, the retail segment operated 262 service stations and convenience stores or kiosks located in Arizona, Colorado, New Mexico and Texas compared to 229 service stations and convenience stores or kiosks at June 30, 2014. The additional stores were added under various operating and capital leases. At June 30, 2015, the retail segment included 52 cardlocks located in Arizona, California and New Mexico compared to 52 cardlocks at June 30, 2014.
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

7

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

current costs adjusted, where appropriate, for "last-in, first-out" ("LIFO") and lower of cost or market ("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 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 and six months ended June 30, 2015 and 2014, are presented below:
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2015
 
2014 (3)
 
2015
 
2014 (3)
 
(In thousands)
Operating Results:
 
 
 
 
 
 
 
Refining
 
 
 
 
 
 
 
Net sales
$
1,819,032

 
$
2,742,701

 
$
3,310,473

 
$
5,068,515

Intersegment eliminations (1)
665,814

 
947,693

 
1,208,356

 
1,763,398

Net refining sales to external customers
1,153,218

 
1,795,008

 
2,102,117

 
3,305,117

NTI
 
 
 
 
 
 
 
Net sales
852,820

 
1,499,321

 
1,550,596

 
2,756,699

Intersegment eliminations (1)
16,056

 
10,098

 
29,046

 
11,082

Net NTI sales to external customers
836,764

 
1,489,223

 
1,521,550

 
2,745,617

WNRL
 
 
 
 
 
 
 
Net sales
734,501

 
970,337

 
1,341,897

 
1,834,947

Intersegment eliminations (1)
210,638

 
273,721

 
388,887

 
510,305

Net WNRL sales to external customers
523,863

 
696,616

 
953,010

 
1,324,642

Retail
 
 
 
 
 
 
 
Net sales
318,072

 
375,232

 
576,674

 
710,516

Intersegment eliminations (1)
3,025

 
5,138

 
5,729

 
10,051

Net retail sales to external customers
315,047

 
370,094

 
570,945

 
700,465

Other
 
 
 
 
 
 
 
Net sales

 
349

 

 
592

Intersegment eliminations (1)

 

 

 

Net other sales to external customers

 
349

 

 
592

 
 
 
 
 
 
 
 
Consolidated net sales to external customers
$
2,828,892

 
$
4,351,290

 
$
5,147,622

 
$
8,076,433

 
 
 
 
 
 
 
 

8

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

 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2015
 
2014 (3)
 
2015
 
2014 (3)
Operating income (loss)
 
 
 
 
 
 
 
Refining (2)
$
184,013

 
$
248,254


$
330,737

 
$
387,261

NTI (2)
125,135

 
58,606

 
233,122

 
125,936

WNRL
22,293

 
17,474

 
41,766

 
34,235

Retail
4,657

 
3,375

 
4,216

 
2,545

Other
(20,705
)
 
(17,137
)
 
(38,455
)
 
(35,221
)
Operating income from segments (2)
315,393

 
310,572

 
571,386

 
514,756

Other income (expense), net
(23,091
)
 
(26,598
)
 
(44,679
)
 
(53,886
)
Income before income taxes
$
292,302

 
$
283,974

 
$
526,707

 
$
460,870

 
 
 
 
 
 
 
 
Depreciation and amortization
 
 
 
 
 
 
 
Refining
$
21,884

 
$
20,397

 
$
43,522

 
$
39,865

NTI
19,515

 
19,362

 
38,880

 
38,347

WNRL
4,737

 
4,454

 
9,475

 
8,606

Retail
4,031

 
2,817

 
7,317

 
5,752

Other
976

 
818

 
1,875

 
1,688

Consolidated depreciation and amortization
$
51,143

 
$
47,848

 
$
101,069

 
$
94,258

 
 
 
 
 
 
 
 
Capital expenditures
 
 
 
 
 
 
 
Refining
$
41,980

 
$
21,924

 
$
77,888

 
$
55,544

NTI
11,155

 
11,209

 
17,828

 
18,390

WNRL
7,850

 
3,708

 
15,764

 
12,087

Retail
4,717

 
2,329

 
6,119

 
3,670

Other
648

 
851

 
1,946

 
928

Consolidated capital expenditures
$
66,350

 
$
40,021

 
$
119,545

 
$
90,619

 
 
 
 
 
 
 
 
Total assets
 
 
 
 
 
 
 
Refining
 
 
 
 
$
1,853,598

 
$
1,863,784

NTI (including $1,289,443 and $1,297,043 of goodwill, respectively)
 
 
 
 
2,402,056

 
2,965,655

WNRL
 
 
 
 
382,028

 
394,224

Retail
 
 
 
 
251,977

 
210,127

Other
 
 
 
 
1,063,890

 
362,978

Consolidated total assets (including $1,289,443 and $1,297,043 of goodwill, respectively)


 


 
$
5,953,549

 
$
5,796,768


9

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

(1)
Intersegment sales of $895.5 million, $1,632.0 million, $1,236.7 million and $2,294.8 million have been eliminated in consolidation for the three and six months ended June 30, 2015 and 2014, respectively.
(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. The cost of products sold within our refining segment includes $12.1 million and $15.8 million in net realized and unrealized economic hedging losses for the three and six months ended June 30, 2015, respectively, and $49.1 million and $139.7 million in net realized and unrealized economic hedging gains for the three and six months ended June 30, 2014, respectively. NTI cost of products sold includes $2.4 million, $1.1 million, $1.9 million and $2.8 million in net realized and unrealized economic hedging losses for the three and six months ended June 30, 2015 and 2014, respectively.
(3)
WNRL's financial data includes the Predecessor's historical financial results and an allocated portion of corporate general and administrative expenses, previously reported as Other, for the three and six months ended June 30, 2014. Refining operating results include activity of our Mid-Atlantic business that was previously recorded within our wholesale segment. Net sales to external customers and intersegment sales for our retail segment include the operating results of cardlock stations that were formerly recorded in our wholesale segment. Other operating results include activity of the wholesale fleet service department that was previously recorded within our wholesale segment.
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, which we consider Level 1 assets and liabilities, approximated their fair values at June 30, 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 $70.0 million consisting of short-term money market deposits and commercial paper, were included in the Condensed Consolidated Balance Sheets as of June 30, 2015 and December 31, 2014.
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 for Western's commodity hedging contracts measured at fair value on a recurring basis as of June 30, 2015 and December 31, 2014, and the basis for that measurement:
 
Carrying Value at June 30, 2015
 
Fair Value Measurement Using
 
Netting Adjustments
 
Net Fair Value at June 30, 2015
 
 
Level 1
 
Level 2
 
Level 3
 
 
 
(In thousands)
Gross financial assets:
 
 
 
 
 
 
 
 
 
 
 
Other current assets
$
78,285


$


$
77,364


$
921


$
(15,027
)

$
63,258

Other assets
28,656




27,963


693


(625
)

28,031

Gross financial liabilities:
 

 

 

 




Accrued liabilities
(17,202
)



(17,202
)



14,582


(2,620
)
Other long-term liabilities
(2,117
)



(2,117
)



1,070


(1,047
)
 
$
87,622

 
$

 
$
86,008

 
$
1,614

 
$

 
$
87,622

 
Carrying Value at December 31, 2014
 
Fair Value Measurement Using
 
Netting Adjustments
 
Net Fair 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 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, 2015 and 2014.
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2015
 
2014
 
2015
 
2014
 
(In thousands)
Asset (liability) balance at beginning of period
$
1,710

 
$
3,232

 
$
330

 
$
(1,935
)
Change in fair value
43

 
2,226

 
(1
)
 
5,987

Fair value of trades entered into during the period

 
(238
)
 
1,450

 
(238
)
Fair value reclassification from Level 3 to Level 2
(139
)
 
(1,475
)
 
(165
)
 
(69
)
Asset balance at end of period
$
1,614

 
$
3,745

 
$
1,614

 
$
3,745

A hypothetical change of 10% to the estimated future cash flows attributable to our Level 3 commodity price swaps would result in a $0.2 million change in the estimated fair value.
As of June 30, 2015 and December 31, 2014, the carrying amount and estimated fair value of our debt was as follows:
 
June 30,
2015
 
December 31,
2014
 
(In thousands)
Western obligations:
 
 
 
Carrying amount
$
891,750

 
$
894,500

Fair value
895,532

 
878,360

NTI obligations:
 
 
 
Carrying amount
$
356,490

 
$
357,037

Fair value
365,750

 
351,313

WNRL obligations:
 
 
 
Carrying amount
$
300,000

 
$
269,000

Fair value
312,000

 
269,000

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,
2015
 
December 31,
2014
 
(In thousands)
Refined products (1)
$
283,827

 
$
257,476

Crude oil and other raw materials
344,429

 
318,565

Lubricants
16,035

 
14,265

Retail store merchandise
42,783

 
38,931

Inventories
$
687,074

 
$
629,237

(1)
Includes $17.7 million and $18.2 million of inventory valued using the first-in, first-out ("FIFO") valuation method at June 30, 2015 and December 31, 2014, 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 WNRL and our retail segment, refined

12

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

products inventories are valued under the LIFO valuation method. WNRL's wholesale refined product, lubricants and related inventories are valued using the FIFO inventory valuation method. Retail refined product inventory is valued using the FIFO inventory valuation method. Retail merchandise inventory is valued using the retail inventory method.
As of June 30, 2015 and December 31, 2014, refined products valued under the LIFO method and crude oil and other raw materials totaled 9.4 million barrels and 9.3 million barrels, respectively. At June 30, 2015 and December 31, 2014, the excess of the LIFO cost over the current cost of these crude oil, refined product and other feedstock and blendstock inventories was $52.4 million and $28.4 million, respectively.
During the three months ended June 30, 2015 and 2014, cost of products sold included net non-cash charges of $89.6 million and $7.5 million, respectively, from changes in our LIFO reserves. During the six months ended June 30, 2015 and 2014, cost of products sold included net non‑cash credits of $24.0 million and $26.2 million, respectively, from changes in our LIFO reserves. 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 $24.6 million and $78.6 million at June 30, 2015 and December 31, 2014, respectively.
Average LIFO cost per barrel of our refined products and crude oil and other raw materials inventories as of June 30, 2015 and December 31, 2014, was as follows:
 
June 30, 2015
 
December 31, 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
3,774

 
$
279,824

 
$
74.15

 
3,707

 
$
283,333

 
$
76.43

Crude oil and other
5,632

 
355,329

 
63.09

 
5,577

 
355,470

 
63.74

 
9,406

 
$
635,153

 
67.53

 
9,284

 
$
638,803

 
68.81

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 $98.0 million and $96.1 million at June 30, 2015 and December 31, 2014, respectively.
As of June 30, 2015 and December 31, 2014, the carrying amount of the equity method investment was $21.4 million and $21.6 million greater, respectively, 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).
NTI recognized distributions from MPL during the three and six months ended June 30, 2015, of $2.1 million and $5.8 million, respectively. Distributions from MPL during the three and six months ended June 30, 2014, were each $1.4 million. Equity income (loss) from MPL for the three and six months ended June 30, 2015 and 2014, was $4.2 million, $7.8 million, $(2.4) million and $(0.9) million, respectively. Equity income has been included in other, net in the accompanying Condensed Consolidated Statements of Operations.

13

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

7. Property, Plant and Equipment, Net
Property, plant and equipment, net was as follows:
 
June 30,
2015
 
December 31,
2014
 
(In thousands)
Refinery facilities and related equipment
$
2,252,330

 
$
2,217,013

Pipelines, terminals and transportation equipment
451,044

 
369,080

Retail facilities and related equipment
318,516

 
288,338

Wholesale facilities and related equipment
59,235

 
57,158

Corporate
50,210

 
48,871

 
3,131,335

 
2,980,460

Accumulated depreciation
(921,551
)
 
(827,271
)
Property, plant and equipment, net
$
2,209,784

 
$
2,153,189

Depreciation expense was $50.1 million and $99.0 million for the three and six months ended June 30, 2015, respectively, and $46.8 million and $92.2 million for the three and six months ended June 30, 2014, respectively.
8. Intangible Assets, Net
Intangible assets, net was as follows:
 
June 30, 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

 
$
(12,938
)
 
$
7,489

 
$
20,427

 
$
(12,148
)
 
$
8,279

 
4.8
Customer relationships
7,551

 
(3,643
)
 
3,908

 
7,551

 
(3,366
)
 
4,185

 
7.0
Rights-of-way and other
7,946

 
(3,934
)
 
4,012

 
7,878

 
(3,613
)
 
4,265

 
7.6
 
35,924

 
(20,515
)
 
15,409

 
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
$
105,499

 
$
(20,515
)
 
$
84,984

 
$
105,079

 
$
(19,127
)
 
$
85,952

 
 
Intangible asset amortization expense for the three and six months ended June 30, 2015, 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, 2014, was $0.7 million and $1.4 million, respectively, based on estimated useful lives ranging from 1 to 23 years.
Estimated amortization expense for the indicated periods is as follows (in thousands):
Remainder of 2015
$
1,360

2016
2,620

2017
2,679

2018
2,678

2019
2,011

2020
1,066


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,
2015
 
December 31,
2014
 
(In thousands)
Western obligations:
 
 
 
Revolving Credit Facility due 2019
$

 
$

Term Loan Credit Facility due 2020
541,750

 
544,500

6.25% Senior Unsecured Notes due 2021
350,000

 
350,000

Total Western obligations
891,750

 
894,500

NTI obligations:
 
 
 
Revolving Credit Facility due 2018

 

7.125% Senior Secured Notes due 2020, net of unamortized premium of $6,490 and $7,037, respectively
356,490

 
357,037

Total NTI obligations
356,490

 
357,037

WNRL obligations:
 
 
 
Revolving Credit Facility due 2018

 
269,000

7.5% Senior Notes due 2023
300,000

 

Total WNRL obligations
300,000

 
269,000

Long-term debt
1,548,240

 
1,520,537

Current portion of long-term debt
(5,500
)
 
(5,500
)
Long-term debt, net of current portion
$
1,542,740

 
$
1,515,037

As of June 30, 2015, annual maturities of long-term debt for the remainder of 2015 are $2.8 million. From 2016 through 2019, long-term debt maturities are $5.5 million. Thereafter, total long-term debt maturities are $1,517.0 million.
Interest expense and other financing costs were as follows:
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2015
 
2014
 
2015
 
2014
 
(In thousands)
Contractual interest:
 
 
 
 
 
 
 
Western obligations
$
12,093

 
$
14,778

 
$
24,100

 
$
30,044

NTI obligations
6,612

 
5,372

 
13,203

 
10,708

WNRL obligations
5,901

 
227

 
9,627

 
452

 
24,606

 
20,377

 
46,930

 
41,204

Amortization of loan fees
1,912

 
2,079

 
3,698

 
4,176

Amortization of original issuance discount

 
3,308

 

 
7,352

Other interest expense
1,151

 
2,148

 
2,226

 
4,353

Capitalized interest
(353
)
 
(111
)
 
(581
)
 
(327
)
Interest expense and other financing costs
$
27,316

 
$
27,801

 
$
52,273

 
$
56,758

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.

15

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

Western Obligations
Revolving Credit Facility
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 0.25% 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. 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 and during the six month period ended June 30, 2015, we had no direct borrowings under the Western 2019 Revolving Credit Facility, with availability of $419.5 million. This availability is net of $71.6 million in 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 Eurodollar 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.
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.

16

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

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 Senior Unsecured Notes and the Western 2020 Term Loan Credit Facility, and in part, depends on our ability to satisfy certain financial 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, NTI amended its senior secured Revolving Credit Facility (the "NTI Revolving Credit Facility"), increasing the aggregate principal amount available prior to the amendment 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. 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 0.50% and 1.00%) or (b) a LIBOR rate plus an applicable margin (ranging between 1.50% and 2.00%), in each case based upon the average excess availability. In addition to paying interest on outstanding borrowings, NTI is also required to pay quarterly commitment fees ranging from 0.250% to 0.375% and letter of credit fees ranging from 1.50% to 2.00%. 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 NTI Revolving Credit Facility.
As of June 30, 2015, the availability under the NTI Revolving Credit Facility was $253.5 million. This availability is net of $30.6 million in outstanding letters of credit. There were no borrowings under the NTI Revolving Credit Facility during the six month period ended June 30, 2015.
7.125% Secured Notes
On November 8, 2012, Northern Tier Energy LLC, its wholly owned subsidiary ("NTI LLC"), and Northern Tier Finance Corporation 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 NTI 2020 Secured Notes in September 2014 through issuance of a private placement of an additional $75.0 million in principal value. This offering was issued under the same indenture and under the same terms as the existing NTI 2020 Secured Notes. The offering generated total 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 and financing costs 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.

17

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 WNRL 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 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 Logistics 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.
During the six months ended June 30, 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, resulting in no direct or swing line borrowings under the WNRL Revolving Credit Facility as of June 30, 2015. As of June 30, 2015, the availability under the WNRL Revolving Credit Facility was $299.3 million. This availability is net of $0.7 million in outstanding letters of credit.
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.
7.5% Senior Notes
On February 11, 2015, WNRL entered into an indenture (the “WNRL Indenture”) among WNRL, WNRL Finance Corp., a Delaware corporation and wholly-owned subsidiary of WNRL (“Finance Corp.” and together with WNRL, the “Issuers”), the guarantors named therein and U.S. Bank National Association, as trustee under which the Issuers issued $300.0 million in aggregate principal amount of 7.5% Senior Notes due 2023 (the "WNRL 2023 Senior Notes"). WNRL will pay interest on the WNRL 2023 Senior Notes semi-annually in cash in arrears on February 15 and August 15 of each year, beginning on August 15, 2015. The WNRL 2023 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) effect distributions, loans or other asset transfers from WNRL’s restricted subsidiaries, (vi) consolidate with or merge with or into, or sell substantially all of WNRL’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 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 WNRL 2023 Senior Notes to be due and payable immediately.

18

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

10. Equity
Changes to equity during the six months ended June 30, 2015, were as follows:
 
Western Shareholders' Equity
 
Non-controlling Interest
 
Total Equity
 
(In thousands)
Balance at December 31, 2014
$
1,119,708

 
$
1,667,936

 
$
2,787,644

Net income
239,908

 
148,927

 
388,835

Other comprehensive income, net of tax
57

 
66

 
123

Dividends
(61,114
)
 

 
(61,114
)
Stock-based compensation
2,148

 
5,851

 
7,999

Excess tax benefit from stock-based compensation
848

 

 
848

Distributions to non-controlling interests

 
(101,528
)
 
(101,528
)
Treasury stock purchases
(25,000
)
 

 
(25,000
)
Other

 
(221
)
 
(221
)
Balance at June 30, 2015
$
1,276,555

 
$
1,721,031

 
$
2,997,586

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 interests

 
(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

Share Repurchase Programs
Our board of directors approved our current share repurchase program in November 2014 (the "November 2014 Program") authorizing us to repurchase up to $200 million of our outstanding common stock. 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. The November 2014 Program will expire in November 2015 and is subject to discontinuance by our board of directors at any time.

19

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

The following table summarizes our share repurchase activity for the November 2014 Program:
 
Number of shares purchased
 
Cost of share purchases (In thousands)
Shares purchased at December 31, 2014
1,492,874

 
$
59,222

Shares purchased during Q1, 2015
740,859

 
25,000

Shares purchased at March 31, 2015
2,233,733

 
84,222

Shares purchased during Q2, 2015

 

Shares purchased at June 30, 2015
2,233,733

 
$
84,222

As of June 30, 2015, we had $115.8 million remaining in authorized expenditures under the November 2014 Program.
Dividends
The table below summarizes our 2015 cash dividend declarations, payments and scheduled payments:
 
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 (1)
July 17
 
July 27
 
August 12
 
0.34

 

Total
 
 
 
 
 
 
 
 
$
61,114

(1) The third quarter 2015 cash dividend of $0.34 per common share will result in an aggregate payment of approximately $32.5 million.
Total dividends declared were $0.34, $0.64, $0.26 and $0.52 per common share, including those declared related to participating securities, for the three and six months ended June 30, 2015 and 2014, respectively.
NTI Distributions
The table below summarizes NTI's 2015 quarterly distribution declarations, payments and scheduled payments:
Declaration Date
 
Record Date
 
Payment Date
 
Distribution per Unit
February 5, 2015
 
February 21, 2015
 
February 27, 2015
 
$
0.49

May 5, 2015
 
May 18, 2015
 
May 29, 2015
 
1.08

August 4, 2015
 
August 17, 2015
 
August 28, 2015
 
1.19

Total
 
$
2.76

WNRL Distributions
The table below summarizes WNRL's 2015 quarterly distribution declarations, payments and scheduled payments:
Declaration Date
 
Record Date
 
Payment Date
 
Distribution per Common and Subordinated Unit
January 30, 2015
 
February 13, 2015
 
February 23, 2015
 
$
0.3325

May 1, 2015
 
May 15, 2015
 
May 26, 2015
 
0.3475

July 31, 2015
 
August 14, 2015
 
August 24, 2015
 
0.3650

Total
 
$
1.0450

In addition to its quarterly distributions, WNRL paid incentive distributions of $0.14 million and $0.16 million for the three and six months ended June 30, 2015, respectively, to Western as its General Partner and holder of its incentive distribution rights.

20

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, 2015 and 2014, were 26.8%, 26.2%, 32.9% and 30.9%, respectively. The effective tax rates for the three and six months ended June 30, 2015 and 2014, were lower than the statutory rate primarily due to the reduction of taxable income associated with the non-controlling interests in NTI and WNRL.
We are subject to examination by the Internal Revenue Service for tax years ending December 31, 2012, or after and by various state and local taxing jurisdictions for tax years ending December 31, 2011, or after.
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 $20.8 million was provided against the deferred tax assets relating to these NOL carryforwards at June 30, 2015. There was no change in the valuation allowance for the Yorktown NOL carryforwards from December 31, 2014.
As of June 30, 2015, we have recorded a liability of $13.8 million for unrecognized tax benefits, of which $13.8 million would affect our effective tax rate if recognized. We recognized a net change of $0.1 million and $0.2 million for unrecognized benefits that includes $0.1 million and $0.2 million in interest and penalties for the three and six months ended June 30, 2015, respectively.
12. 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
The net periodic benefit cost associated with NTI's cash balance plan for the three and six months ended June 30, 2015 and 2014, was $0.7 million, $1.3 million, $0.5 million and $1.1 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, 2015 and 2014, was $0.2 million, $0.5 million, $0.2 million and $0.4 million, respectively.
Our benefit obligation at December 31, 2014, for our postretirement medical benefit plans was $9.8 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,
 
2015
 
2014
 
2015
 
2014
 
(In thousands)
Beginning of period balance
$
(1,283
)
 
$
(316
)
 
$
(1,291
)
 
$
(350
)
Amortization of net prior service cost
41

 

 
41

 
31

Reclassification of loss to income
12

 
5

 
25

 
10

Income tax
(4
)
 
(2
)
 
(9
)
 
(4
)
End of period balance
$
(1,234
)
 
$
(313
)
 
$
(1,234
)
 
$
(313
)
Defined Contribution Plan
Western sponsors a 401(k) defined contribution plan under which Western and WNRL 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, 2015 and 2014, we expensed $2.6 million, $4.6 million, $2.3 million and $3.9 million, respectively, in connection with this plan.
NTI sponsors qualified defined contribution plans for eligible employees. For the three and six months ended June 30, 2015 and 2014, NTI expensed $1.8 million, $4.0 million, $1.7 million and $4.1 million, respectively, in connection with its qualified defined contribution plans.

21

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

13. 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 the six months ended June 30, 2015, 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. These hedging activities 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 the hedging instruments to market 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, 2015 and 2014, and open commodity hedging positions as of June 30, 2015 and December 31, 2014:
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2015
 
2014
 
2015
 
2014
 
(In thousands)
Economic hedging results
 
 
 
 
 
 
 
Realized hedging gain, net
$
7,823

 
$
1,812

 
$
25,376

 
$
17,556

Unrealized hedging gain (loss), net
(22,287
)
 
45,379

 
(42,344
)
 
119,350

Total hedging gain (loss), net
$
(14,464
)
 
$
47,191

 
$
(16,968
)
 
$
136,906

 
June 30,
2015
 
December 31,
2014
 
(In thousands)
Open commodity hedging instruments (barrels)
 
 
 
Crude oil and refined product futures, net long (short) positions
2,907

 
(864
)
Refined product crack spread swaps, net short positions
(10,827
)
 
(8,781
)
Total open barrels commodity hedging instruments, net short positions
(7,920
)
 
(9,645