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 our refineries in El Paso, Texas, Gallup, New Mexico and St. Paul Park, Minnesota. We sell refined products in Arizona, Colorado, Minnesota, New Mexico, Wisconsin, West Texas, the Mid-Atlantic region and Mexico. Our product sales occur through bulk distribution terminals, wholesale marketing networks and
two
retail networks with a total of
545
company-owned and franchised retail sites in the United States.
As of
September 30, 2016
, we own
100%
of the limited partner interest in Northern Tier Energy LP ("NTI") and
100%
of its general partner.
We entered into an Agreement and Plan of Merger dated as of December 21, 2015 (the “Merger Agreement”), with Western Acquisition Co, LLC (“MergerCo”) which is a wholly-owned subsidiary of Western, NTI and Northern Tier Energy GP LLC, to acquire all of NTI’s outstanding common units not already held by us (the “Merger”). On June 23, 2016, following the approval of the Merger Agreement by NTI common unitholders, all closing conditions to the Merger were satisfied, and the Merger was successfully completed.
We incurred
$500 million
of additional secured indebtedness under our amended term loan credit agreement to partially fund the Merger consideration.
See
Note 9, Long-Term Debt
, and
Note 21, Acquisitions
, for further discussion.
At
September 30, 2016
, we owned a
52.6%
limited partner interest in Western Refining Logistics, LP ("WNRL" or the "Partnership") and the public held a
47.4%
limited partner interest. We control WNRL through our
100%
ownership of its general partner and we own the majority of WNRL's limited partnership interests. WNRL owns and operates logistics assets consisting of pipeline and gathering, terminalling, storage and transportation assets as well a wholesale business that operates primarily in the Southwest. WNRL operates its logistics assets primarily for the benefit of the Company.
On
September 15, 2016
, we sold certain assets consisting of terminals, transportation and storage assets and the related land located on site at our St. Paul Park refinery and Cottage Grove tank farm to WNRL. These assets primarily receive, store and distribute crude oil, feedstock and refined products associated with the St. Paul Park refinery (the "
St. Paul Park Logistics Assets
"). WNRL acquired these assets from us in exchange for
$195.0 million
in cash and
628,224
common units representing limited partner interests in WNRL. We refer to this transaction as the "
St. Paul Park Logistics Transaction
."
On
September 7, 2016
, WNRL entered into an underwriting agreement relating to the issuance and sale of
7,500,000
of its common units representing limited partner interests in the Partnership. The closing of the offering occurred on September 13, 2016. WNRL also granted the underwriter an option to purchase
additional common units on the same terms which was exercised in full and closed on September 30, 2016
, for
1,125,000
additional common units.
On May 16, 2016, WNRL entered into an underwriting agreement relating to the issuance and sale by WNRL of
3,750,000
common units representing limited partner interests in WNRL. The closing of the offering occurred on May 20, 2016. WNRL also granted the underwriter an option to purchase up to
562,500
additional WNRL common units on the same terms. The underwriter fully exercised the option on June 1, 2016.
On October 30, 2015, we sold a
375
mile segment of the TexNew Mex Pipeline system to WNRL. This segment of the TexNew Mex Pipeline extends from WNRL's crude oil station in Star Lake, New Mexico, in the Four Corners region to its T station in Eddy County, New Mexico (the "
TexNew Mex Pipeline System
"). We also sold an
80,000
barrel crude oil storage tank located at WNRL's crude oil pumping station in Star Lake, New Mexico and certain other related assets. WNRL acquired these assets from us in exchange for
$170 million
in cash,
421,031
common units representing limited partner interests in WNRL and
80,000
units of a newly created class of limited partner interests in WNRL, referred to as the "TexNew Mex Units." We refer to this transaction as the "
TexNew Mex Pipeline Transaction
."
The WNRL financial and operational data presented includes the historical results of all assets acquired from Western in the
St. Paul Park Logistics Transaction
and the TexNew Mex Pipeline Transaction. The acquisitions from Western were a transfer of assets between entities under common control. Accordingly, the financial information contained herein for WNRL has been retrospectively adjusted, to include the historical results of the assets acquired, for periods prior to the effective date of the transactions.
During the third quarter of 2016, we changed our reportable segments due to changes in our organization. Our operations include
three
business segments: refining, WNRL and retail. See
Note 3, Segment Information
, for further discussion of our business segments.
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 management's opinion, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the
three and nine
months ended
September 30, 2016
, are not necessarily indicative of the results that may be expected for the year ending
December 31, 2016
, or for any other period.
The Condensed Consolidated Balance Sheet at
December 31, 2015
, 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, 2015
.
Principles of Consolidation
The accompanying condensed consolidated financial statements include the accounts of Western and our subsidiaries. We own
100%
of NTI's general partner and, subsequent to the Merger, we own
100%
of the limited partner interest in NTI. We own a
52.6%
limited partner interest in WNRL and
100%
of WNRL's general partner. As the general partner of WNRL, we have the ability to direct the activities of WNRL that most significantly impact their respective economic performance. We have reported a non-controlling interest for WNRL as of
September 30, 2016
, of
$602.0 million
and non-controlling interests for NTI and WNRL of
$1,646.6 million
as of
December 31, 2015
, in our Condensed Consolidated Balance Sheets. All intercompany accounts and transactions have been eliminated for all periods presented. Investments in significant non-controlled entities over which we have the ability to exercise significant influence are accounted for using the equity method.
Variable Interest Entity
WNRL is a variable interest entity ("VIE") as defined under GAAP. A VIE is a legal entity whose equity owners do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support or, as a group, the equity holders lack the power, through voting rights, to direct the activities that most significantly impact the entity's financial performance, the obligation to absorb the entity's expected losses or rights to expected residual returns. As the general partner of WNRL, we have the sole ability to direct the activities of WNRL that most significantly impact WNRL's financial performance, and therefore we consolidate WNRL. See
Note 22, WNRL
, for further discussion.
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.
The risk of goodwill and intangible asset impairment losses may increase to the extent that results of operations or cash flows decline at our St. Paul Park refinery or SuperAmerica operating segments. Impairment losses may result in a material, non-cash write-down of goodwill or intangible assets. Furthermore, impairment losses could have a material adverse effect on the Company’s results of operations and shareholders’ equity.
Use of Estimates and Seasonality
The preparation of financial statements, in accordance with GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the respective 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, 2015 and continuing into 2016, the volatility in crude oil prices and refining margins contributed to the variability of our results of operations.
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Recent Accounting Pronouncements
Effective January 1, 2016, we adopted the revised accounting and reporting requirements included in the Accounting Standards Codification ("ASC") for consolidation of limited partnerships or similar entities. We have applied the new standards retrospectively. The adoption of these revised standards did not result in any change to our consolidation conclusions or impact our financial position, results of operations or cash flows. We have added disclosures for WNRL as required for entities not previously included in the reporting entity as a variable interest entity.
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 condensed consolidated financial statements.
|
|
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|
•
|
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. The revised standard also addresses principal versus agent considerations and indicators related to transfer of control over specified goods. These provisions are effective January 1, 2018, and are to be applied retrospectively, with early adoption permitted for periods beginning after December 15, 2016, and interim periods thereafter.
|
|
|
|
|
•
|
Lease accounting - the requirements were amended with regard to recognizing lease assets and lease liabilities on the balance sheet and disclosing information about leasing arrangements. The core principle is that a lessee should recognize the assets and liabilities that arise from leases. These provisions are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted.
|
|
|
|
|
•
|
Employee share-based payment accounting - the requirements involve several aspects of accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, classification in the statement of cash flows and forfeiture rate calculations. These provisions are effective for annual periods beginning after December 15, 2016, including interim periods within those annual periods. Early adoption is permitted in any interim or annual period.
|
|
|
|
|
•
|
Cash flow statement - the requirements address certain classification issues related to the statement of cash flows. These provisions are effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. Early adoption is permitted in any interim or annual period.
|
|
|
|
|
•
|
Recognition of breakage for certain prepaid stored-value products - the requirements align recognition of the financial liabilities related to prepaid stored-value products with the revenue recognition standard discussed above for non-financial liabilities. Certain of these liabilities may be extinguished proportionally in earnings as redemptions occur, or when redemption is remote if issuers are not entitled to the unredeemed stored value. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017 with early adoption permitted subject to certain requirements.
|
|
|
|
|
•
|
Contingent put and call options in debt instruments - the requirements will reduce diversity of practice in identifying embedded derivatives in debt instruments and clarify the nature of an exercise contingency is not subject to the “clearly and closely” criteria for purposes of assessing whether the call or put option must be separated from the debt instrument and accounted for separately as a derivative. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, with early adoption permitted subject to certain requirements.
|
3. Segment Information
We have organized our operations into
three
segments, refining, WNRL and retail, based on manufacturing and marketing processes, the nature of our products and services and each segment's respective customer base. Prior to the Merger on June 23, 2016, we also reported NTI as a separate reportable segment. Following the completion of the Merger, NTI became a wholly-owned subsidiary of Western and, as a result, we have moved its assets and operations into our other reportable segments. Beginning on July 1, 2016, our management team, led by our chief operating decision maker, began monitoring our business and allocating resources based on these
three
reportable segments. The St. Paul Park refinery and related operations are now included in the refining segment and the SuperAmerica retail and bakery assets and operations are now included in the retail
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
segment. We have retrospectively adjusted the historical segment financial data for the periods presented to reflect our revised segment presentation.
We treated the
St. Paul Park Logistics Assets
and the
TexNew Mex Pipeline System
that we sold to WNRL as a transfer of assets between entities under common control. Accordingly, we have retrospectively adjusted the financial information for the affected reporting segments to include or exclude the historical results of the transferred assets for periods prior to the effective date of the transaction. We moved the
St. Paul Park Logistics Assets
and the
TexNew Mex Pipeline System
from the refining segment to the WNRL segment.
Business Segments and Principal Products
Refining
. Our refining segment includes the operations of
three
refineries. The El Paso refinery in El Paso, Texas, has a throughput capacity of
131,000
barrels per day ("bpd"), the Gallup refinery, near Gallup, New Mexico has a
25,000
bpd capacity and the St. Paul Park refinery, in St. Paul Park, Minnesota has a
98,000
bpd capacity. Our refineries produce 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 third-party suppliers. We also acquire refined products through exchange agreements and from third-party suppliers to supplement supply to our customers. We sell these products to WNRL, to our retail segment, to other independent wholesalers and retailers, through 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
$4.0 million
and
$1.8 million
in
assets
at
September 30, 2016
and
December 31, 2015
, respectively, related to this supply agreement in our Condensed Consolidated Balance Sheets. The revenues and costs recorded under the supply agreement included
$6.1 million
and
$23.3 million
in net hedging
gains
for the three months ended
September 30, 2016
and
2015
, respectively, and
gains
of
$32.1 million
and
$39.3 million
for the
nine
months ended
September 30, 2016
and
2015
, respectively.
This supply agreement is due to expire at the end of 2016.
WNRL.
WNRL owns and operates pipeline and gathering, terminalling, storage and transportation assets that provide logistics services to our refining segment in the Southwest and Upper Great Plains regions, including
692
miles of pipelines and
12.4 million
barrels of active storage capacity. The majority of WNRL's logistics assets are integral to the operations of the El Paso, Gallup and St. Paul Park refineries.
WNRL also owns a wholesale business that operates primarily in the Southwest. WNRL's wholesale business includes the operations of several lubricant and bulk petroleum distribution plants and a fleet of crude oil, refined product, asphalt 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 operates retail networks located in the Southwest region ("
Southwest Retail
") and the Upper Great Plains region of the U.S. ("
SuperAmerica
"). Each of our retail networks sell various grades of gasoline, diesel fuel, convenience store merchandise and beverage and food products to the general public through retail convenience stores.
Southwest Retail
obtains the majority of its gasoline and diesel fuel supply from WNRL and purchases general merchandise and beverage and food products from various third-party suppliers. At
September 30, 2016
, Southwest Retail operated
260
service stations and convenience stores located in Arizona, Colorado, New Mexico and Texas compared to
261
service stations and convenience stores at
September 30, 2015
. In addition to its service stations and convenience stores, Southwest Retail sells various grades of gasoline and diesel fuel to commercial vehicle fleets through unmanned fleet fueling sites ("cardlocks"). At
September 30, 2016
and
2015
, respectively, Southwest Retail operated
51
and
52
cardlocks located in Arizona, California, Colorado, New Mexico and Texas.
As of
September 30, 2016
, SuperAmerica operated
170
retail convenience stores and supported the operations of
115
franchised retail convenience stores primarily in Minnesota and Wisconsin, compared to
165
and
102
at
September 30, 2015
.
SuperAmerica
obtains the majority of its gasoline and diesel for its Minnesota and Wisconsin retail convenience stores from the St. Paul Park refinery.
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 segment also includes costs related to periodic maintenance turnaround activities. Cost of products sold includes net realized and unrealized gains and losses related to our commodity hedging activities and reflects current costs adjusted, where appropriate, for "last-in, first-out" ("LIFO") and lower of cost or market ("LCM") inventory adjustments. Intersegment revenues are reported at prices that approximate market.
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Activities of our business that are not included in the
three
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
three
operating segments. We do not allocate certain items of other income and expense, including income taxes, to the individual segments.
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 nine
months ended
September 30, 2016
and
2015
, are presented below:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
(In thousands)
|
|
Operating Results:
|
|
|
|
|
|
|
|
|
Refining (2)
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
1,835,327
|
|
|
$
|
2,318,048
|
|
|
$
|
5,012,283
|
|
|
$
|
6,958,443
|
|
|
Intersegment eliminations
|
736,020
|
|
|
843,674
|
|
|
2,075,758
|
|
|
2,403,438
|
|
|
Net refining sales to external customers
|
1,099,307
|
|
|
1,474,374
|
|
|
2,936,525
|
|
|
4,555,005
|
|
|
WNRL (2)
|
|
|
|
|
|
|
|
|
Net sales
|
569,261
|
|
|
680,670
|
|
|
1,615,902
|
|
|
2,023,970
|
|
|
Intersegment eliminations
|
183,154
|
|
|
216,959
|
|
|
513,101
|
|
|
607,249
|
|
|
Net WNRL sales to external customers
|
386,107
|
|
|
463,711
|
|
|
1,102,801
|
|
|
1,416,721
|
|
|
Retail
|
|
|
|
|
|
|
|
|
Net sales
|
597,621
|
|
|
633,793
|
|
|
1,610,033
|
|
|
1,753,503
|
|
|
Intersegment eliminations
|
17,959
|
|
|
2,788
|
|
|
21,471
|
|
|
8,517
|
|
|
Net retail sales to external customers
|
579,662
|
|
|
631,005
|
|
|
1,588,562
|
|
|
1,744,986
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net sales to external customers
|
$
|
2,065,076
|
|
|
$
|
2,569,090
|
|
|
$
|
5,627,888
|
|
|
$
|
7,716,712
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
|
|
|
|
|
|
Refining (1) (2)
|
$
|
89,158
|
|
|
$
|
312,602
|
|
|
$
|
338,803
|
|
|
$
|
900,405
|
|
|
WNRL (2)
|
13,271
|
|
|
18,424
|
|
|
43,056
|
|
|
41,454
|
|
|
Retail
|
11,832
|
|
|
24,937
|
|
|
21,193
|
|
|
36,356
|
|
|
Other
|
(27,318
|
)
|
|
(23,365
|
)
|
|
(74,010
|
)
|
|
(74,231
|
)
|
|
Operating income from segments
|
86,943
|
|
|
332,598
|
|
|
329,042
|
|
|
903,984
|
|
|
Other income (expense), net
|
(30,935
|
)
|
|
(22,383
|
)
|
|
(73,804
|
)
|
|
(67,062
|
)
|
|
Consolidated income before income taxes
|
$
|
56,008
|
|
|
$
|
310,215
|
|
|
$
|
255,238
|
|
|
$
|
836,922
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
Refining (2)
|
$
|
37,265
|
|
|
$
|
35,400
|
|
|
$
|
111,601
|
|
|
$
|
105,916
|
|
|
WNRL (2)
|
10,579
|
|
|
8,963
|
|
|
29,470
|
|
|
25,816
|
|
|
Retail
|
5,710
|
|
|
5,846
|
|
|
17,622
|
|
|
17,257
|
|
|
Other
|
767
|
|
|
1,168
|
|
|
2,638
|
|
|
3,457
|
|
|
Consolidated depreciation and amortization
|
$
|
54,321
|
|
|
$
|
51,377
|
|
|
$
|
161,331
|
|
|
$
|
152,446
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
|
|
|
|
|
Refining (2)
|
$
|
65,909
|
|
|
$
|
61,399
|
|
|
$
|
200,681
|
|
|
$
|
127,914
|
|
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
(In thousands)
|
|
WNRL (2)
|
8,530
|
|
|
10,648
|
|
|
24,378
|
|
|
52,150
|
|
|
Retail
|
3,593
|
|
|
3,903
|
|
|
8,528
|
|
|
13,175
|
|
|
Other
|
305
|
|
|
481
|
|
|
1,510
|
|
|
2,737
|
|
|
Consolidated capital expenditures
|
$
|
78,337
|
|
|
$
|
76,431
|
|
|
$
|
235,097
|
|
|
$
|
195,976
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
|
|
|
|
|
|
Refining (2) (including $1,267,455 of goodwill)
|
|
|
|
|
$
|
4,394,967
|
|
|
$
|
3,574,746
|
|
|
WNRL (2)
|
|
|
|
|
528,554
|
|
|
601,215
|
|
|
Retail (including $21,988 of goodwill)
|
|
|
|
|
430,363
|
|
|
430,147
|
|
|
Other
|
|
|
|
|
361,241
|
|
|
1,234,285
|
|
|
Consolidated total assets
|
|
|
|
|
$
|
5,715,125
|
|
|
$
|
5,840,393
|
|
|
|
|
|
(1)
|
The effect of our economic hedging activity is included within the operating income of our refining segment as a component of cost of products sold. The cost of products sold within our refining segment included
$0.1 million
in net realized and unrealized economic hedging
gains
for the three months ended
September 30, 2016
,
$8.6 million
in net realized and unrealized economic hedging
losses
for the
nine
months ended
September 30, 2016
, respectively, and
$27.2 million
and
$10.3 million
in net realized and unrealized economic hedging
gains
for the
three and nine
months ended
September 30, 2015
, respectively. Also included within cost of products sold for our refining segment is the net effect of non-cash LCM recoveries of
$15.2 million
and
$102.5 million
for the
three and nine
months ended
September 30, 2016
, respectively, charges of
$36.8 million
for the three months ended
September 30, 2015
and recoveries of
$17.1 million
for the
nine
months ended
September 30, 2015
.
|
|
|
|
|
(2)
|
WNRL's financial data includes its historical financial results and an allocated portion of corporate general and administrative expenses, previously reported as Other, for the
three and nine
months ended
September 30, 2015
. The information contained herein for WNRL has been retrospectively adjusted, to include the historical results of the
St. Paul Park Logistics Assets
and the
TexNew Mex Pipeline System
.
|
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 that one or more significant inputs or value drivers are unobservable and cannot be corroborated by market data or other entity-specific inputs.
|
The carrying amounts of cash and cash equivalents, which we consider Level 1 assets and liabilities, approximated their fair values at
September 30, 2016
and
December 31, 2015
, 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
$0.02 million
and
$70.1 million
consisting of short-term money market deposits and commercial paper were included in the Condensed Consolidated Balance Sheets as of
September 30, 2016
and
December 31, 2015
, respectively.
We maintain cash deposits with various counterparties in support of our hedging and trading activities. These deposits are required by counterparties as collateral and cannot be offset against the fair value of open contracts except in the event of default. Certain of our commodity derivative contracts under master netting arrangements include both asset and liability
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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.
The following tables represent our assets and liabilities for our commodity hedging contracts measured at fair value on a recurring basis as of
September 30, 2016
and
December 31, 2015
, and the basis for that measurement:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Value at September 30, 2016
|
|
Fair Value Measurement Using
|
|
Netting Adjustments
|
|
Recorded Value at September 30, 2016
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
|
|
(In thousands)
|
|
Gross financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current assets
|
$
|
34,060
|
|
|
$
|
—
|
|
|
$
|
34,060
|
|
|
$
|
—
|
|
|
$
|
(7,303
|
)
|
|
$
|
26,757
|
|
|
Other assets
|
4,455
|
|
|
—
|
|
|
4,455
|
|
|
—
|
|
|
(1,604
|
)
|
|
2,851
|
|
|
Gross financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities
|
(10,449
|
)
|
|
—
|
|
|
(9,688
|
)
|
|
(761
|
)
|
|
5,992
|
|
|
(4,457
|
)
|
|
Other long-term liabilities
|
(3,068
|
)
|
|
—
|
|
|
(3,068
|
)
|
|
—
|
|
|
2,915
|
|
|
(153
|
)
|
|
|
$
|
24,998
|
|
|
$
|
—
|
|
|
$
|
25,759
|
|
|
$
|
(761
|
)
|
|
$
|
—
|
|
|
$
|
24,998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Value at December 31, 2015
|
|
Fair Value Measurement Using
|
|
Netting Adjustments
|
|
Recorded Value at December 31, 2015
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
|
|
(In thousands)
|
|
Gross financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current assets
|
$
|
95,062
|
|
|
$
|
—
|
|
|
$
|
95,062
|
|
|
$
|
—
|
|
|
$
|
(16,937
|
)
|
|
$
|
78,125
|
|
|
Other assets
|
11,881
|
|
|
—
|
|
|
11,881
|
|
|
—
|
|
|
—
|
|
|
11,881
|
|
|
Gross financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities
|
(21,454
|
)
|
|
—
|
|
|
(15,698
|
)
|
|
(5,756
|
)
|
|
11,181
|
|
|
(10,273
|
)
|
|
Other long-term liabilities
|
(5,756
|
)
|
|
—
|
|
|
(5,756
|
)
|
|
—
|
|
|
5,756
|
|
|
—
|
|
|
|
$
|
79,733
|
|
|
$
|
—
|
|
|
$
|
85,489
|
|
|
$
|
(5,756
|
)
|
|
$
|
—
|
|
|
$
|
79,733
|
|
Commodity hedging contracts designated as Level 3 financial assets consisted of jet fuel crack spread swaps. Ultra-low sulfur diesel ("ULSD") pricing has had a strong historical correlation to jet fuel crack spread swaps. We estimate the fair value of our Level 3 instruments based on the differential between quoted market settlement prices on ULSD futures and quoted market settlement prices on jet fuel futures for settlement dates corresponding to each of our outstanding Level 3 jet fuel crack spread swaps. As quoted prices for similar assets or liabilities in an active market are available, we reclassify the underlying financial asset or liability and designate them as Level 2 prior to final settlement.
Carrying amounts of commodity hedging contracts reflected as financial assets are included in both current and non-current other assets in the 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.
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, excluding goodwill (all related to commodity price swap contracts) for the
three and nine
months ended
September 30, 2016
and
2015
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
(In thousands)
|
|
Asset (liability) balance at beginning of period
|
$
|
(1,951
|
)
|
|
$
|
1,614
|
|
|
$
|
(5,756
|
)
|
|
$
|
330
|
|
|
Change in fair value
|
237
|
|
|
(2,505
|
)
|
|
537
|
|
|
—
|
|
|
Fair value of trades entered into during the period
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,262
|
)
|
|
Fair value reclassification from Level 3 to Level 2
|
953
|
|
|
(288
|
)
|
|
4,458
|
|
|
(247
|
)
|
|
Liability balance at end of period
|
$
|
(761
|
)
|
|
$
|
(1,179
|
)
|
|
$
|
(761
|
)
|
|
$
|
(1,179
|
)
|
A hypothetical change of 10% to the estimated future cash flows attributable to our Level 3 commodity price swaps would result in a
$0.1 million
change in the estimated fair value at
September 30, 2016
.
As of
September 30, 2016
and
December 31, 2015
, the carrying amount and estimated fair value of our debt was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2016
|
|
December 31,
2015
|
|
|
(In thousands)
|
|
Western obligations:
|
|
|
|
|
Carrying amount
|
$
|
1,383,625
|
|
|
$
|
889,000
|
|
|
Fair value
|
1,380,125
|
|
|
867,178
|
|
|
NTI obligations:
|
|
|
|
|
Carrying amount
|
$
|
402,000
|
|
|
$
|
350,000
|
|
|
Fair value
|
412,500
|
|
|
360,500
|
|
|
WNRL obligations:
|
|
|
|
|
Carrying amount
|
$
|
320,300
|
|
|
$
|
445,000
|
|
|
Fair value
|
330,800
|
|
|
439,000
|
|
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).
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. Inventories
Inventories were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2016
|
|
December 31,
2015
|
|
|
(In thousands)
|
|
Refined products (1)
|
$
|
259,125
|
|
|
$
|
201,928
|
|
|
Crude oil and other raw materials
|
348,109
|
|
|
288,403
|
|
|
Lubricants
|
11,118
|
|
|
14,996
|
|
|
Retail store merchandise
|
42,386
|
|
|
42,211
|
|
|
Inventories
|
$
|
660,738
|
|
|
$
|
547,538
|
|
|
|
|
|
(1)
|
Includes
$15.8 million
and
$14.5 million
of refined products inventory valued using the first-in, first-out ("FIFO") valuation method at
September 30, 2016
and
December 31, 2015
, respectively.
|
We value our refinery inventories of crude oil, other raw materials and asphalt at the lower of cost or market under the LIFO valuation method. Other than refined products inventories held by WNRL and in Southwest Retail, refined 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. In our retail segment, refined product inventory is valued using the FIFO inventory valuation method for Southwest Retail and the LIFO inventory valuation method for SuperAmerica. Retail merchandise inventory is valued using the retail inventory method.
As of
September 30, 2016
and
December 31, 2015
, refined products valued under the LIFO method and crude oil and other raw materials totaled
10.4 million
barrels and
10.0 million
barrels, respectively. At
September 30, 2016
and
December 31, 2015
,
the excess of the LIFO cost over the current cost of these crude oil, refined product and other feedstock and blendstock inventories was
$193.3 million
and
$198.4 million
, respectively.
During the three months ended
September 30, 2016
and
2015
, cost of products sold included net non-cash
recoveries
of
$79.5 million
and
$105.0 million
, respectively, from changes in our LIFO reserves. During the
nine
months ended
September 30, 2016
and
2015
, cost of products sold included net non-cash
charges
of
$5.1 million
and net non-cash
recoveries
of
$129.0 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
$72.6 million
and
$175.1 million
at
September 30, 2016
and
December 31, 2015
, respectively. These non-cash LCM recoveries decreased cost of products sold by
$15.2 million
and
$102.5 million
for the
three and nine
months ended
September 30, 2016
, respectively, and by
$17.1 million
for the
nine
months ended
September 30, 2015
. The non-cash LCM charge for the three months ended
September 30, 2015
, increased cost of products sold by
$36.8 million
.
Average LIFO cost per barrel of our refined products and crude oil and other raw materials inventories as of
September 30, 2016
and
December 31, 2015
, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
December 31, 2015
|
|
|
Barrels
|
|
LIFO Cost
|
|
Average
LIFO
Cost Per
Barrel
|
|
Barrels
|
|
LIFO Cost
|
|
Average
LIFO
Cost Per
Barrel
|
|
|
(In thousands, except cost per barrel)
|
|
Refined products
|
4,033
|
|
|
$
|
279,917
|
|
|
$
|
69.41
|
|
|
3,536
|
|
|
$
|
259,722
|
|
|
$
|
73.45
|
|
|
Crude oil and other
|
6,348
|
|
|
384,067
|
|
|
60.50
|
|
|
6,490
|
|
|
391,237
|
|
|
60.28
|
|
|
|
10,381
|
|
|
$
|
663,984
|
|
|
63.96
|
|
|
10,026
|
|
|
$
|
650,959
|
|
|
64.93
|
|
6. Equity Method Investment
We own a
17%
common equity interest in Minnesota Pipe Line Company, LLC ("MPL"). The carrying value of this equity method investment was
$98.2 million
and
$97.5 million
at
September 30, 2016
and
December 31, 2015
, respectively.
As of
September 30, 2016
and
December 31, 2015
, the carrying amount of the equity method investment was
$21.2 million
and
$21.3 million
, respectively, higher than the underlying net assets of the investee. We are amortizing this
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
difference over the remaining life of MPL’s primary asset (the fixed asset life of the pipeline). There is no market for the common units of MPL and, accordingly,
no
quoted market price is available.
We received distributions from MPL during the
three and nine
months ended
September 30, 2016
and
2015
, of
$10.2 million
,
$14.5 million
,
$4.2 million
and
$10.0 million
, respectively. Equity income from MPL for the
three and nine
months ended
September 30, 2016
and
2015
, was
$5.3 million
,
$15.3 million
,
$4.2 million
and
$12.0 million
, respectively. Equity income has been included in other, net in the accompanying Condensed Consolidated Statements of Operations.
7. Property, Plant and Equipment, Net
Property, plant and equipment, net was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2016
|
|
December 31,
2015
|
|
|
(In thousands)
|
|
Refinery facilities and related equipment
|
$
|
2,198,560
|
|
|
$
|
2,113,650
|
|
|
Pipelines, terminals and transportation equipment
|
553,402
|
|
|
427,854
|
|
|
Retail facilities and related equipment
|
327,898
|
|
|
324,686
|
|
|
Wholesale facilities and related equipment
|
53,190
|
|
|
59,875
|
|
|
Corporate
|
52,105
|
|
|
50,607
|
|
|
|
3,185,155
|
|
|
2,976,672
|
|
|
Accumulated depreciation
|
(1,070,501
|
)
|
|
(923,415
|
)
|
|
|
2,114,654
|
|
|
2,053,257
|
|
|
Construction in progress
|
242,637
|
|
|
251,914
|
|
|
Property, plant and equipment, net
|
$
|
2,357,291
|
|
|
$
|
2,305,171
|
|
Depreciation expense was
$53.3 million
and
$158.1 million
for the
three and nine
months ended
September 30, 2016
, respectively, and
$50.4 million
and
$149.3 million
for the
three and nine
months ended
September 30, 2015
, respectively.
8. Intangible Assets, Net
Intangible assets, net was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
December 31, 2015
|
|
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
|
|
|
$
|
(14,913
|
)
|
|
$
|
5,514
|
|
|
$
|
20,427
|
|
|
$
|
(13,729
|
)
|
|
$
|
6,698
|
|
|
3.5
|
|
Customer relationships
|
7,172
|
|
|
(4,102
|
)
|
|
3,070
|
|
|
7,551
|
|
|
(3,921
|
)
|
|
3,630
|
|
|
5.8
|
|
Rights-of-way and other
|
7,889
|
|
|
(2,388
|
)
|
|
5,501
|
|
|
6,839
|
|
|
(1,797
|
)
|
|
5,042
|
|
|
5.5
|
|
|
35,488
|
|
|
(21,403
|
)
|
|
14,085
|
|
|
34,817
|
|
|
(19,447
|
)
|
|
15,370
|
|
|
|
|
Unamortizable assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franchise rights and trademarks
|
50,500
|
|
|
—
|
|
|
50,500
|
|
|
50,500
|
|
|
—
|
|
|
50,500
|
|
|
|
|
Liquor licenses
|
19,958
|
|
|
—
|
|
|
19,958
|
|
|
19,075
|
|
|
—
|
|
|
19,075
|
|
|
|
|
Intangible assets, net
|
$
|
105,946
|
|
|
$
|
(21,403
|
)
|
|
$
|
84,543
|
|
|
$
|
104,392
|
|
|
$
|
(19,447
|
)
|
|
$
|
84,945
|
|
|
|
Intangible asset amortization expense for the
three and nine
months ended
September 30, 2016
, was
$0.7 million
and
$2.2 million
, respectively, based on estimated useful lives ranging from
1
to
35
years. Intangible asset amortization expense for the
three and nine
months ended
September 30, 2015
, was
$0.7 million
and
$2.1 million
, respectively, based on estimated useful lives ranging from
1
to
23
years.
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Estimated amortization expense for the indicated periods is as follows (in thousands):
|
|
|
|
|
|
|
|
Remainder of 2016
|
$
|
720
|
|
|
2017
|
2,880
|
|
|
2018
|
2,880
|
|
|
2019
|
2,212
|
|
|
2020
|
1,268
|
|
|
2021
|
980
|
|
9. Long-Term Debt
Long-term debt was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2016
|
|
December 31,
2015
|
|
|
(In thousands)
|
|
Western obligations:
|
|
|
|
|
Revolving Credit Facility due 2019
|
$
|
—
|
|
|
$
|
—
|
|
|
Term Loan - 5.25% Credit Facility due 2020
|
534,875
|
|
|
539,000
|
|
|
6.25% Senior Unsecured Notes due 2021
|
350,000
|
|
|
350,000
|
|
|
Term Loan - 5.50% Credit Facility due 2023
|
498,750
|
|
|
—
|
|
|
Total Western obligations
|
1,383,625
|
|
|
889,000
|
|
|
NTI obligations:
|
|
|
|
|
Revolving Credit Facility due 2019
|
52,000
|
|
|
—
|
|
|
7.125% Senior Secured Notes due 2020
|
350,000
|
|
|
350,000
|
|
|
Total NTI obligations
|
402,000
|
|
|
350,000
|
|
|
WNRL obligations:
|
|
|
|
|
Revolving Credit Facility due 2018
|
20,300
|
|
|
145,000
|
|
|
7.5% Senior Notes due 2023
|
300,000
|
|
|
300,000
|
|
|
Total WNRL obligations
|
320,300
|
|
|
445,000
|
|
|
Less unamortized discount, premium and debt issuance costs
|
50,245
|
|
|
33,606
|
|
|
Long-term debt
|
2,055,680
|
|
|
1,650,394
|
|
|
Current portion of long-term debt
|
(10,500
|
)
|
|
(5,500
|
)
|
|
Long-term debt, net of current portion
|
$
|
2,045,180
|
|
|
$
|
1,644,894
|
|
As of
September 30, 2016
, annual maturities of long-term debt for the remainder of 2016 are
$2.6 million
. For 2017, 2018, 2019 and 2020, long-term debt maturities are
$10.5 million
,
$30.8 million
,
$62.5 million
and
$872.0 million
, respectively. Thereafter, total long-term debt maturities are
$1,127.5 million
.
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Interest and debt expense
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
(In thousands)
|
|
Contractual interest:
|
|
|
|
|
|
|
|
|
Western obligations
|
$
|
20,475
|
|
|
$
|
12,150
|
|
|
$
|
45,606
|
|
|
$
|
36,250
|
|
|
NTI obligations
|
6,918
|
|
|
6,970
|
|
|
20,707
|
|
|
20,173
|
|
|
WNRL obligations
|
6,039
|
|
|
5,854
|
|
|
19,144
|
|
|
15,481
|
|
|
|
33,432
|
|
|
24,974
|
|
|
85,457
|
|
|
71,904
|
|
|
Amortization of loan fees
|
2,479
|
|
|
1,932
|
|
|
6,395
|
|
|
5,630
|
|
|
Amortization of original issuance discount
|
381
|
|
|
—
|
|
|
410
|
|
|
—
|
|
|
Other interest expense
|
1,287
|
|
|
747
|
|
|
3,727
|
|
|
2,973
|
|
|
Capitalized interest
|
(3,123
|
)
|
|
(757
|
)
|
|
(7,924
|
)
|
|
(1,338
|
)
|
|
Interest and debt expense
|
$
|
34,456
|
|
|
$
|
26,896
|
|
|
$
|
88,065
|
|
|
$
|
79,169
|
|
We amortize original issue discounts and financing fees using the effective interest method over the respective term of the debt. Our creditors have no recourse to the assets owned by either of NTI or WNRL, and the creditors of NTI and WNRL have no recourse to our assets or those of our other subsidiaries.
Western Obligations
Revolving Credit Facility
On May 27, 2016, we entered into the Second Amendment to the Third Amended and Restated Revolving Credit Agreement (the "Western 2019 Revolving Credit Facility"). The Revolving Credit Amendment amended the Western 2019 Revolving Credit Facility by, among other things, (i) permitting us to incur up to
$500.0 million
of additional secured indebtedness secured on a pari passu basis with the loans under the Western 2020 Term Loan Credit Facility (in the form of incremental term loans or bonds secured on a pari passu basis with the term loans) beyond what was permitted under the Western 2019 Revolving Credit Facility and (ii) modifying several triggers and thresholds based on borrowing availability under the Western 2019 Revolving Credit Facility.
On October 2, 2014, we entered into the Third Amended and Restated Revolving Credit Agreement. 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
nine
month period ended
September 30, 2016
, we had
no
direct borrowings under the Western 2019 Revolving Credit Facility, with availability of
$257.0 million
at
September 30, 2016
. This availability is net of
$100.1 million
in outstanding letters of credit.
Term Loan Credit Agreement -
5.25%
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
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
outstanding due on the maturity date. On May 27, 2016, the Company entered into a third amendment of the Western 2020 Term Loan Credit Facility. The revised terms under the amendment provide for additional capacity to make restricted payments including dividends and repurchase of the Company’s outstanding common stock, inclusion of equity interests of master limited partnership subsidiaries as “replacement assets” for purposes of asset sale mandatory prepayment and changes to the use of proceeds of the incremental term loan available under the Term Loan. The third amendment also increased the incremental availability under the Western 2020 Term Loan Credit Facility from
$200.0 million
, prior to the amendment, to
$700.0 million
.
Following the third amendment, 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 LIBOR Rate (as defined in the Western 2020 Term Loan Credit Facility) plus
4.25%
(subject to a LIBOR Rate floor of
1.00%
). The current interest rate based on these criteria is
5.25%
. Our effective rate of interest, including contractual interest and amortization of loan fees, for the Western 2020 Term Loan Credit Facility was
5.80%
as of
September 30, 2016
.
The Western 2020 Term Loan Credit Facility is secured by the El Paso and Gallup refineries and the equity of NT InterHoldCo LLC, a wholly-owned subsidiary of Western, and is fully and unconditionally guaranteed on a joint and several basis by certain of Western's material wholly-owned subsidiaries. The Western 2020 Term Loan Credit Facility contains customary restrictive covenants including limitations on 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 certain 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. The effective rate of interest, including contractual interest and amortization of loan fees, for the Western 2021 Senior Unsecured Notes was
6.52%
as of
September 30, 2016
. See
Note 20, Condensed Consolidating Financial Information
for further discussion.
Term Loan Credit Agreement -
5.50%
On June 23, 2016, as an incremental supplement to the Western 2020 Term Loan Credit Facility, we incurred
$500.0 million
in new term debt that matures on June 23, 2023 (the "
Western 2023 Term Loan Credit Facility
"). The proceeds from the
Western 2023 Term Loan Credit Facility
were net of original issue discount and other fees totaling
$17.0 million
. We used these proceeds to partially fund the cash portion of the Merger consideration. The
Western 2023 Term Loan Credit Facility
provides for quarterly principal payments of
$1.3 million
payable on the last business day of each March, June, September and December, with the remaining principal amount due on June 23, 2023. The Western 2023 Term Loan Credit Facility is secured by both the El Paso and Gallup refineries and by the equity of NT InterHoldCo LLC and is fully and unconditionally guaranteed on a joint and several basis by certain of Western's material wholly-owned subsidiaries. The Western 2023 Term Loan Credit Facility bears interest at a rate based either on the base rate plus
3.50%
or the LIBOR Rate plus
4.50%
(subject to a LIBOR Rate floor of
1.00%
). The effective rate of interest, including contractual interest and amortization of original issue discount and other loan fees, for the Western 2023 Term Loan Credit Facility was
5.99%
as of
September 30, 2016
.
NTI Obligations
Revolving Credit Facility
On September 29, 2014, certain subsidiaries of NTI entered into the Amended and Restated Revolving Credit Agreement (the "NTI Revolving Credit Facility"), increasing the aggregate principal amount available prior to the amendment and restatement from
$300.0 million
to
$500.0 million
. The NTI Revolving Credit Facility, which matures on
September 29, 2019
, incorporates a borrowing base tied to eligible accounts receivable and inventory and provides for up to
$500.0 million
for the issuance of letters of credit and up to
$45.0 million
for swing line loans. The NTI Revolving Credit Facility may be increased up to a maximum aggregate principal amount of
$750.0 million
, subject to certain conditions (including the agreement of financial institutions, in their sole discretion, to provide such additional commitments). Obligations under the NTI Revolving Credit Facility are secured by substantially all of NTI’s assets. Indebtedness under the NTI Revolving Credit Facility is recourse to its general partner, Northern Tier Energy GP LLC ("NTI LLC"), and certain of its subsidiaries that are borrowers thereunder and is guaranteed by NTI and certain of its subsidiaries. Borrowings under the NTI Revolving Credit Facility bear interest at either (a) a base rate plus an applicable margin (ranging between
0.50%
and
1.00%
) or (b) a
LIBOR
rate plus an applicable margin (ranging between
1.50%
and
2.00%
), in each case subject to adjustment based upon the average historical excess availability. In addition to paying interest on outstanding borrowings, NTI is also required to pay a quarterly
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
commitment fee ranging from
0.250%
to
0.375%
subject to adjustment based upon the average utilization ratio and letter of credit fees ranging from
1.50%
to
2.00%
subject to adjustment based upon the average historical excess availability. The NTI Revolving Credit Facility contains certain covenants, including but not limited to, limitations on debt, investments and dividends and the maintenance of a minimum fixed charge coverage ratio in certain circumstances.
At
September 30, 2016
, the availability under the NTI Revolving Credit Facility was
$205.7 million
. This availability is net of
$52.0 million
in direct borrowings and
$47.6 million
in outstanding letters of credit. The effective rate of interest, including contractual interest and amortization of loan fees, for the NTI Revolving Credit Facility was
5.91%
as of
September 30, 2016
.
7.125%
Secured Notes
On November 8, 2012, NTI LLC and Northern Tier Finance Corporation (together with NTI LLC, the "NTI 2020 Notes Issuers"), issued
$275.0 million
in aggregate principal amount of
7.125%
senior secured notes due 2020 (the "
NTI 2020 Secured Notes
"). On October 17, 2016, NTI commenced a tender offer to repurchase for cash up to
$195.0 million
aggregate principal amount of the
NTI 2020 Secured Notes
. The tender offer expires on November 15, 2016.
NTI increased the principal amount of the NTI 2020 Secured Notes in September 2014, by an additional
$75.0 million
in principal value at a premium of
$4.2 million
. This additional offering was issued under the same indenture as the existing NTI 2020 Secured Notes and the new notes issued have the same terms as the existing notes. The offering generated cash proceeds of
$79.2 million
including an issuance premium of
$4.2 million
. The issuance premium will be amortized to interest expense over the remaining life of the notes. The effective rate of interest, including contractual interest and amortization of debt premium and of loan fees, for the NTI 2020 Secured Notes was
6.91%
as of
September 30, 2016
.
The obligations under the NTI 2020 Secured Notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by NTI 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 its subsidiaries.
WNRL Obligations
Revolving Credit Facility
On October 16, 2013, WNRL entered into a
$300.0 million
senior secured revolving credit facility (the "WNRL Revolving Credit Facility"). On September 15, 2016, in connection with the
St. Paul Park Logistics Transaction
, WNRL entered into an agreement to increase the total commitment of the WNRL Revolving Credit Facility (the "Amendment") to
$500.0 million
. WNRL has the ability to increase the total commitment of the WNRL Revolving Credit Facility by up to
$150.0 million
for a total facility size of up to
$650.0 million
, subject to receiving increased commitments from lenders and to the satisfaction of certain conditions. The WNRL Revolving Credit Facility includes a
$25.0 million
sub-limit for standby letters of credit and a
$10.0 million
sub-limit for swing line loans. Obligations under the WNRL Revolving Credit Facility and certain cash management and hedging obligations are guaranteed by all of WNRL's subsidiaries and, with certain exceptions, will be guaranteed by any formed or acquired subsidiaries. Obligations under the WNRL Revolving Credit Facility are secured by a first priority lien on substantially all of WNRL's and its subsidiaries' significant assets. The WNRL Revolving Credit Facility will mature on
October 16, 2018
. Borrowings under the WNRL Revolving Credit Facility bear interest at either a base rate plus an applicable margin ranging from
0.75%
to
1.75%
, or at
LIBOR
plus an applicable margin ranging from
1.75%
to
2.75%
. The applicable margin will vary based upon WNRL's Consolidated Total Leverage Ratio, as defined in the WNRL Revolving Credit Facility.
In addition to the increased facility size, the Amendment amended the WNRL Revolving Credit Facility by, among other things, (a) adding an anti-cash hoarding provision and (b) permitting WNRL to increase the total leverage ratio permitted thereunder from
4.50
:
1.00
to
5.00
:
1.00
following any material permitted acquisition through the last day of the second full fiscal quarter following such acquisition. The incremental commitments established by the Amendment benefit from the same covenants, events of default, guarantees and security as the existing commitments under the WNRL Revolving Credit Facility.
On October 15, 2014, to partially fund the purchase of certain assets from Western, WNRL borrowed
$269.0 million
under the WNRL Revolving Credit Facility and WNRL repaid its outstanding direct borrowings under the WNRL Revolving Credit Facility on February 11, 2015, with a portion of the proceeds from the issuance of its
7.5%
Senior Notes due 2023 (the "
7.5%
Senior Notes"), discussed below. On October 30, 2015, WNRL borrowed
$145.0 million
under the WNRL Revolving
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Credit Facility to partially fund the purchase of the TexNew Mex Pipeline System from Western. During the
nine
months ended
September 30, 2016
, WNRL repaid
$179.1 million
of its outstanding direct borrowings under the WNRL Revolving Credit Facility using the proceeds generated through our equity issuances during the period. On
September 15, 2016
, to partially fund the purchase of the
St. Paul Park Logistics Assets
, WNRL borrowed
$20.3 million
under the WNRL Revolving Credit Facility.
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. At
September 30, 2016
, the availability under the WNRL Revolving Credit Facility was
$479.0 million
, net of
$20.3 million
in direct borrowings and
$0.7 million
in outstanding letters of credit. WNRL had
no
swing line borrowings outstanding under the WNRL Revolving Credit Facility as of
September 30, 2016
. The interest rate for the borrowings under the WNRL Revolving Credit Facility was
4.50%
as of
September 30, 2016
. The effective rate of interest, including contractual interest and amortization of loan fees, for the WNRL Revolving Credit Facility was
3.34%
as of
September 30, 2016
.
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 the Partnership (“Finance Corp.” and together with the Partnership, the “Issuers”), the Guarantors named therein and U.S. Bank National Association, as trustee (the “Trustee”) under which the Issuers issued
$300.0 million
in aggregate principal amount of
7.5%
Senior Notes due 2023. The Partnership will pay interest on the
7.5%
Senior Notes semi-annually in cash in arrears on February 15 and August 15 of each year, beginning on August 15, 2015. The
7.5%
Senior Notes will mature on February 15, 2023. WNRL used the proceeds from the notes to repay the full balance due under the WNRL Revolving Credit Facility on February 11, 2015. The effective rate of interest, including contractual interest and amortization of loan fees, for the
7.5%
Senior Notes was
7.78%
as of
September 30, 2016
.
The WNRL Indenture contains covenants that limit WNRL’s and its restricted subsidiaries’ ability to, among other things, (i) incur, assume or guarantee additional indebtedness or issue preferred units, (ii) create liens to secure indebtedness, (iii) pay distributions on equity securities, repurchase equity securities or redeem subordinated indebtedness, (iv) make investments, (v) restrict distributions, loans or other asset transfers from the Partnership’s restricted subsidiaries, (vi) consolidate with or merge with or into, or sell substantially all of the Partnership’s properties to, another person, (vii) sell or otherwise dispose of assets, including equity interests in subsidiaries and (viii) enter into transactions with affiliates. These covenants are subject to a number of important limitations and exceptions. The WNRL Indenture also provides for events of default, which, if any of them occurs, would permit or require the principal, premium, if any, and interest on all the then outstanding
7.5%
Senior Notes to be due and payable immediately.
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
10. Equity
Changes to equity during the
nine
months ended
September 30, 2016
, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Western Shareholders' Equity
|
|
Non-controlling Interest
|
|
Total Equity
|
|
|
(In thousands)
|
|
Balance at December 31, 2015
|
$
|
1,299,297
|
|
|
$
|
1,646,609
|
|
|
$
|
2,945,906
|
|
|
Net income
|
134,528
|
|
|
52,229
|
|
|
186,757
|
|
|
Other comprehensive loss, net of tax
|
(52
|
)
|
|
(70
|
)
|
|
(122
|
)
|
|
Dividends
|
(111,555
|
)
|
|
—
|
|
|
(111,555
|
)
|
|
Stock-based compensation
|
6,264
|
|
|
5,203
|
|
|
11,467
|
|
|
Tax deficiency from stock-based compensation
|
(434
|
)
|
|
—
|
|
|
(434
|
)
|
|
Distributions to non-controlling interests
|
—
|
|
|
(49,906
|
)
|
|
(49,906
|
)
|
|
NTI merger
|
(14,020
|
)
|
|
(1,329,348
|
)
|
|
(1,343,368
|
)
|
|
Transaction costs for NTI merger
|
(11,741
|
)
|
|
—
|
|
|
(11,741
|
)
|
|
Issuance of WNRL common units
|
—
|
|
|
277,751
|
|
|
277,751
|
|
|
Offering costs for issuance of WNRL common units
|
—
|
|
|
(477
|
)
|
|
(477
|
)
|
|
Treasury stock issuance
|
438,168
|
|
|
—
|
|
|
438,168
|
|
|
Treasury stock purchases
|
(75,000
|
)
|
|
—
|
|
|
(75,000
|
)
|
|
Balance at September 30, 2016
|
$
|
1,665,455
|
|
|
$
|
601,991
|
|
|
$
|
2,267,446
|
|
Changes to equity during the
nine
months ended
September 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
|
393,211
|
|
|
213,722
|
|
|
606,933
|
|
|
Other comprehensive income, net of tax
|
65
|
|
|
66
|
|
|
131
|
|
|
Dividends
|
(93,612
|
)
|
|
—
|
|
|
(93,612
|
)
|
|
Stock-based compensation
|
3,216
|
|
|
8,814
|
|
|
12,030
|
|
|
Excess tax benefit from stock-based compensation
|
879
|
|
|
—
|
|
|
879
|
|
|
Distributions to non-controlling interests
|
—
|
|
|
(176,289
|
)
|
|
(176,289
|
)
|
|
Treasury stock purchases
|
(105,000
|
)
|
|
—
|
|
|
(105,000
|
)
|
|
Other
|
—
|
|
|
(221
|
)
|
|
(221
|
)
|
|
Balance at September 30, 2015
|
$
|
1,318,467
|
|
|
$
|
1,714,028
|
|
|
$
|
3,032,495
|
|
Share Issuance
Pursuant to the Merger Agreement, we issued
17.1 million
shares of Western common stock including
11.6 million
treasury shares on June 23, 2016. See
Note 21, Acquisitions
, for further discussion of the Merger.
Share Repurchase Programs
Our board of directors has periodically approved various share repurchase programs authorizing us to repurchase up to
$200 million
of our outstanding common stock, per program. Our board of directors approved our current share repurchase program in September of 2015 ("September 2015 Program"). The September 2015 program is scheduled to expire on December 31, 2016. Our common stock repurchase programs are subject to discontinuance by our board of directors at any time.
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table summarizes our share repurchase activity for the September 2015 Program:
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares purchased
|
|
Cost of share purchases
(In thousands)
|
|
Shares purchased at December 31, 2015
|
—
|
|
|
$
|
—
|
|
|
Shares purchased during Q1, 2016
|
2,462,350
|
|
|
75,000
|
|
|
Shares purchased at March 31, 2016
|
2,462,350
|
|
|
75,000
|
|
|
Shares purchased during Q2, 2016
|
—
|
|
|
—
|
|
|
Shares purchased at June 30, 2016
|
2,462,350
|
|
|
75,000
|
|
|
Shares purchased during Q3, 2016
|
—
|
|
|
—
|
|
|
Shares purchased at September 30, 2016
|
2,462,350
|
|
|
$
|
75,000
|
|
As of
September 30, 2016
, we had
$125.0 million
remaining in authorized purchases under the September 2015 Program.
Dividends
The table below summarizes our
2016
cash dividend declarations, payments and scheduled payments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Declaration Date
|
|
Record Date
|
|
Payment Date
|
|
Dividend per Common Share
|
|
Total Payment
(In thousands)
|
|
First quarter
|
January 6
|
|
January 20
|
|
February 4
|
|
$
|
0.38
|
|
|
$
|
35,601
|
|
|
Second quarter
|
April 8
|
|
April 18
|
|
May 2
|
|
0.38
|
|
|
34,685
|
|
|
Third quarter
|
July 15
|
|
July 25
|
|
August 9
|
|
0.38
|
|
|
41,202
|
|
|
Fourth quarter (1)
|
October 13
|
|
October 24
|
|
November 8
|
|
0.38
|
|
|
—
|
|
|
Total
|
|
|
|
|
|
|
|
|
$
|
111,488
|
|
(1) The fourth quarter 2016 cash dividend of
$0.38
per common share will result in an estimated aggregate payment of
$41.2 million
.
NTI Distributions
The table below summarizes NTI's
2016
quarterly distribution declarations and payments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Declaration Date
|
|
Record Date
|
|
Payment Date
|
|
Distribution per Unit
|
|
February 3, 2016
|
|
February 12, 2016
|
|
February 19, 2016
|
|
$
|
0.38
|
|
|
June 13, 2016
|
|
June 23, 2016
|
|
June 23, 2016
|
|
0.18
|
|
|
Total
|
|
$
|
0.56
|
|
WNRL Distributions
The table below summarizes WNRL's
2016
quarterly distribution declarations, payments and scheduled payments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Declaration Date
|
|
Record Date
|
|
Payment Date
|
|
Distribution per Common and Subordinated Unit
|
|
February 1, 2016
|
|
February 11, 2016
|
|
February 26, 2016
|
|
$
|
0.3925
|
|
|
April 25, 2016
|
|
May 13, 2016
|
|
May 27, 2016
|
|
0.4025
|
|
|
July 26, 2016
|
|
August 12, 2016
|
|
August 26, 2016
|
|
0.4125
|
|
|
October 24, 2016
|
|
November 7, 2016
|
|
November 23, 2016
|
|
0.4225
|
|
|
Total
|
|
$
|
1.6300
|
|
In addition to its quarterly distributions, WNRL paid incentive distributions of
$1.2 million
,
$2.9 million
,
$0.3 million
and
$0.5 million
for the
three and nine
months ended
September 30, 2016
and
2015
, respectively, to Western as its general partner and holder of its incentive distribution rights.
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 nine
months ended
September 30, 2016
and
2015
, were
20.9%
,
26.8%
,
29.7%
and
27.5%
, respectively. The effective tax rates for the
three and nine
months ended
September 30, 2016
and
2015
, were lower than the statutory rate primarily due to the reduction of taxable income associated with the non-controlling interests in NTI and WNRL. In addition, we released reserves related to uncertain tax positions during the third quarter of 2016. As of June 23, 2016, all of NTI's taxable income became subject to income taxes at the Western consolidated level.
We are subject to examination by the Internal Revenue Service for tax years ended December 31, 2013, or after and by various state and local taxing jurisdictions for tax years ended December 31, 2012, 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 previously provided against the deferred tax assets relating to these NOL carryforwards at
September 30, 2016
. There was
no
change in the valuation allowance for the Yorktown NOL carryforwards from
December 31, 2015
.
As of
September 30, 2016
, we have recorded a liability of
$34.5 million
for unrecognized tax benefits, of which
$18.7 million
would affect our effective tax rate if recognized. There was
a decrease
of
$6.7 million
and
$5.7 million
, respectively, in our unrecognized tax benefits for the
three and nine
months ended
September 30, 2016
. We believe that it is reasonably possible that a decrease of up to
$5.6 million
in unrecognized tax benefits, resulting from the expiration of statutes of limitations in various tax jurisdictions, may be necessary within the coming year. We also recognized
$0.4 million
,
$0.9 million
,
$0.1 million
and
$0.3 million
in interest and penalties for
three and nine
months ended
September 30, 2016
and
2015
, respectively.
12. Retirement Plans
We fully recognize the obligations associated with our retiree healthcare and other postretirement plans and single-employer defined benefit cash balance plan in our financial statements.
Pensions
The net periodic benefit cost associated with our cash balance plan for both the
three and nine
months ended
September 30, 2016
and
2015
, was
$0.6 million
,
$1.8 million
,
$0.7 million
and
$1.9 million
, respectively.
Postretirement Obligations
The net periodic benefit cost associated with our postretirement medical benefit plans for the
three and nine
months ended
September 30, 2016
and
2015
, was
$0.03 million
,
$0.1 million
,
$0.2 million
and
$0.7 million
, respectively.
Our benefit obligation at
December 31, 2015
, for our postretirement medical benefit plans was
$6.2 million
. We fund our medical benefit plans on an as-needed basis.
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table presents cumulative changes in other comprehensive income (loss) 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
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
(In thousands)
|
|
Beginning of period balance
|
$
|
599
|
|
|
$
|
(1,234
|
)
|
|
$
|
651
|
|
|
$
|
(1,291
|
)
|
|
Amortization of net prior service cost
|
—
|
|
|
—
|
|
|
(63
|
)
|
|
41
|
|
|
Reclassification of loss to income
|
—
|
|
|
13
|
|
|
11
|
|
|
38
|
|
|
Income tax
|
—
|
|
|
(5
|
)
|
|
—
|
|
|
(14
|
)
|
|
End of period balance
|
$
|
599
|
|
|
$
|
(1,226
|
)
|
|
$
|
599
|
|
|
$
|
(1,226
|
)
|
Defined Contribution Plan
Western sponsors defined contribution plans under which Western, NTI and WNRL participants may contribute a percentage of their eligible compensation to various investment choices offered by these plans. For the
three and nine
months ended
September 30, 2016
and
2015
, we expensed
$4.5 million
,
$13.6 million
,
$4.2 million
and
$12.8 million
, respectively, in connection with these plans.
13. Crude Oil and Refined Product Risk Management
We enter into crude oil forward contracts primarily to facilitate the supply of crude oil to our refineries. During the
nine
months ended
September 30, 2016
, we entered into net forward, fixed-price contracts to physically receive and deliver crude oil that qualify as normal purchases and normal sales and are exempt from derivative reporting requirements.
We use crude oil, refined products and natural gas futures, swap contracts or options to mitigate the change in value for a portion of our LIFO inventory and refinery fuel gas volumes subject to market price fluctuations. We enter into swap contracts to fix differentials on a portion of our future crude oil purchases and to fix margins 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 nine
months ended
September 30, 2016
and
2015
, and open commodity hedging positions as of
September 30, 2016
and
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
(In thousands)
|
|
Economic hedging results
|
|
|
|
|
|
|
|
|
Realized hedging gain, net
|
$
|
27,757
|
|
|
$
|
26,949
|
|
|
$
|
46,110
|
|
|
$
|
52,325
|
|
|
Unrealized hedging gain (loss), net
|
(27,616
|
)
|
|
271
|
|
|
(54,698
|
)
|
|
(42,073
|
)
|
|
Total hedging gain (loss), net
|
$
|
141
|
|
|
$
|
27,220
|
|
|
$
|
(8,588
|
)
|
|
$
|
10,252
|
|
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2016
|
|
December 31,
2015
|
|
|
(In thousands)
|
|
Open commodity hedging instruments (barrels)
|
|
|
|
|
Crude oil differential swaps, net long positions
|
5,622
|
|
|
5,155
|
|
|
Crude oil futures, net short positions
|
(687
|
)
|
|
(562
|
)
|
|
Refined product price and crack spread swaps, net short positions
|
(3,902
|
)
|
|
(5,645
|
)
|
|
Total open commodity hedging instruments, net long (short) positions
|
1,033
|
|
|
(1,052
|
)
|
|
|
|
|
|
|
Fair value of outstanding contracts, net
|
|
|
|
|
Other current assets
|
$
|
26,757
|
|
|
$
|
78,125
|
|
|
Other assets
|
2,851
|
|
|
11,881
|
|
|
Accrued liabilities
|
(4,457
|
)
|
|
(10,273
|
)
|
|
Other long-term liabilities
|
(153
|
)
|
|
—
|
|
|
Fair value of outstanding contracts - unrealized gain, net
|
$
|
24,998
|
|
|
$
|
79,733
|
|
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 or received margin collateral with various counterparties in support of our hedging and trading activities. The margin collateral posted or received is required by counterparties as collateral deposits and cannot be offset against the fair value of open contracts except in the event of default.
The following table presents offsetting information regarding Western's commodity hedging contracts as of
September 30, 2016
and
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amounts of Recognized Assets (Liabilities)
|
|
Gross Amounts Offset in the Condensed Consolidated Balance Sheet
|
|
Net Amounts of Assets (Liabilities) Presented in the Condensed Consolidated Balance Sheet
|
|
As of September 30, 2016
|
|
|
|
|
(In thousands)
|
|
Financial assets:
|
|
|
|
|
|
|
Current assets
|
$
|
34,060
|
|
|
$
|
(7,303
|
)
|
|
$
|
26,757
|
|
|
Other assets
|
4,455
|
|
|
(1,604
|
)
|
|
2,851
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
Accrued liabilities
|
(10,449
|
)
|
|
5,992
|
|
|
(4,457
|
)
|
|
Other long-term liabilities
|
(3,068
|
)
|
|
2,915
|
|
|
(153
|
)
|
|
|
$
|
24,998
|
|
|
$
|
—
|
|
|
$
|
24,998
|
|
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amounts of Recognized Assets (Liabilities)
|
|
Gross Amounts Offset in the Condensed Consolidated Balance Sheet
|
|
Net Amounts of Assets (Liabilities) Presented in the Condensed Consolidated Balance Sheet
|
|
As of December 31, 2015
|
|
|
|
|
(In thousands)
|
|
Financial assets:
|
|
|
|
|
|
|
Current assets
|
$
|
95,062
|
|
|
$
|
(16,937
|
)
|
|
$
|
78,125
|
|
|
Other assets
|
11,881
|
|
|
—
|
|
|
11,881
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
Accrued liabilities
|
(21,454
|
)
|
|
11,181
|
|
|
(10,273
|
)
|
|
Other long-term liabilities
|
(5,756
|
)
|
|
5,756
|
|
|
—
|
|
|
|
$
|
79,733
|
|
|
$
|
—
|
|
|
$
|
79,733
|
|
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
September 30, 2016
, we had the following outstanding crude oil and refined product hedging instruments that were entered into as economic hedges. Settlement prices for our distillate crack spread swaps range from
$13.72
to
$16.86
per contract. The information presents the notional volume of outstanding contracts by type of instrument and year of maturity (volumes in thousands of barrels):
|
|
|
|
|
|
|
|
|
|
|
Notional Contract Volumes by Year of Maturity
|
|
|
2016
|
|
2017
|
|
Inventory positions (futures and swaps):
|
|
|
|
|
Crude oil differential swaps, net long positions
|
3,042
|
|
|
2,580
|
|
|
Crude oil futures, net short positions
|
(687
|
)
|
|
—
|
|
|
Distillate - net short positions
|
(137
|
)
|
|
—
|
|
|
Refined products - net short positions
|
(315
|
)
|
|
(875
|
)
|
|
Natural gas futures - net long positions
|
151
|
|
|
329
|
|
|
Refined product positions (crack spread swaps):
|
|
|
|
|
Distillate - net short positions
|
(850
|
)
|
|
(1,680
|
)
|
|
Unleaded gasoline - net short positions
|
(525
|
)
|
|
—
|
|
14. Stock-Based Compensation
Western Incentive Plans
The Western Refining 2006 Long-Term Incentive Plan (the "2006 LTIP") and the Amended and Restated 2010 Incentive Plan of Western Refining (the "2010 Incentive Plan") allow for restricted share unit awards ("RSUs") among other forms of awards. As of
September 30, 2016
, there were
19,856
and
2,391,711
shares of common stock reserved for future grants under the 2006 LTIP and the 2010 Incentive Plan, respectively. Awards granted under both plans vest over a scheduled vesting period of either
one
,
three
or
five
years and their market value at the date of the grant is amortized over the vesting period on a straight-line basis. Effective March 25, 2015, our board of directors approved administrative amendments to the 2010 Incentive Plan.
As of
September 30, 2016
, there were
658,506
unvested RSUs outstanding. We recorded stock compensation of
$1.8 million
,
$4.5 million
,
$1.1 million
and
$3.2 million
for the
three and nine
months ended
September 30, 2016
and
2015
, respectively, which is included in selling, general and administrative expenses.
As of
September 30, 2016
, the aggregate grant date fair value of outstanding RSUs was
$21.2 million
. The aggregate intrinsic value of outstanding RSUs was
$17.4 million
. The unrecognized compensation cost of unvested RSUs was
$16.6 million
. Unrecognized compensation costs for RSUs will be recognized over a weighted-average period of
2.63
years.
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The tax deficiency related to the RSUs that vested during the
nine
months ended
September 30, 2016
, was
$0.4 million
using a statutory blended rate of
38.1%
. There was
no
RSU vesting activity during the three months ended
September 30, 2016
. The aggregate grant date fair value of the RSUs that vested during the
nine
months ended
September 30, 2016
, was
$4.1 million
. The related aggregate intrinsic value of these RSUs was
$3.0 million
at the vesting date.
The excess tax benefit related to the RSUs that vested during the
three and nine
months ended
September 30, 2015
, was
$0.03 million
and
$0.9 million
, respectively, using a statutory blended rate of
38.1%
. The aggregate grant date fair value of the RSUs that vested during the
three and nine
months ended
September 30, 2015
, was
$0.1 million
and
$3.7 million
, respectively. The related aggregate intrinsic value of these RSUs was
$0.2 million
and
$6.0 million
, respectively, at the vesting date.
The following table summarizes our RSU activity for the
nine
months ended
September 30, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
Number
of Units
|
|
Weighted Average
Grant Date
Fair Value
|
|
Not vested at December 31, 2015
|
399,214
|
|
|
$
|
37.43
|
|
|
Awards granted
|
375,774
|
|
|
28.52
|
|
|
Awards vested
|
(109,634
|
)
|
|
37.63
|
|
|
Awards forfeited
|
(6,848
|
)
|
|
43.81
|
|
|
Not vested at September 30, 2016
|
658,506
|
|
|
32.25
|
|
Amended and Restated Northern Tier Energy LP 2012 Long-Term Incentive Plan
Effective upon the closing of the Merger, Western adopted and assumed NTI's equity compensation plan and amended and renamed the plan as the Amended and Restated Northern Tier Energy LP 2012 Long-Term Incentive Plan ("NTI LTIP"). Modifications to the NTI LTIP include, among other things, a change to the unit of equity from an NTI common unit to a share of Western common stock. The amendment changes the administrator of the NTI LTIP from the board of directors of NTI's general partner to Western's board of directors or its applicable committee. Consistent with the terms of the Merger Agreement, all unvested equity awards at the time of the Merger were exchanged for Western phantom stock awards and performance cash awards under the NTI LTIP.
We incurred equity-based compensation expense of
$3.0 million
,
$11.0 million
,
$2.4 million
and
$7.9 million
for the
three and nine
months ended
September 30, 2016
and
2015
, respectively.
The NTI LTIP provides, among other awards, for grants of stock options, restricted stock, phantom stock, dividend equivalent rights, stock appreciation rights and other awards that derive their value from the market price of Western's common stock. As of
September 30, 2016
, there was
255,560
common share equivalents reserved for future grants under the NTI LTIP.
We determined the fair value of the phantom stock based on the closing price of Western common stock on the grant date. We amortize the estimated fair value of the phantom stock on a straight-line basis over the scheduled vesting periods of individual awards.
The aggregate grant date fair value of non-vested phantom stock outstanding as of
September 30, 2016
, was
$16.7 million
. The aggregate intrinsic value of such phantom stock was
$21.8 million
. Total unrecognized compensation cost related to unvested phantom stock totaled
$11.4 million
as of
September 30, 2016
, that is expected to be recognized over a weighted-average period of
1.5 years
. The excess tax benefit related to the phantom stock that vested during the
three and nine
months ended
September 30, 2016
, was
$0.01 million
using a statutory blended rate of
38.1%
. The aggregate grant date fair value of the phantom stock that vested during the
three and nine
months ended
September 30, 2016
, was
$0.3 million
. The related aggregate intrinsic value of the vested phantom stock was
$0.3 million
at the vesting date.
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A summary of our phantom stock award activity under the NTI LTIP for the
nine
months ended
September 30, 2016
, is set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
Number of Phantom Stock
|
|
Weighted Average
Grant Date
Fair Value
|
|
Not vested at December 31, 2015
|
—
|
|
|
$
|
—
|
|
|
Awards granted
|
848,267
|
|
|
20.25
|
|
|
Awards vested
|
(13,817
|
)
|
|
20.25
|
|
|
Awards forfeited
|
(12,132
|
)
|
|
20.25
|
|
|
Not vested at September 30, 2016
|
822,318
|
|
|
20.25
|
|
Western Refining Logistics, LP 2013 Long-Term Incentive Plan
The Western Refining Logistics, LP 2013 Long-Term Incentive Plan (the "WNRL LTIP") provides, among other awards, for grants of phantom units and distribution equivalent rights. As of
September 30, 2016
, there were
4,098,368
phantom units reserved for future grants under the WNRL LTIP.
The fair value of the phantom units is determined based on the closing price of WNRL common units on the grant date. The estimated fair value of the phantom units is amortized on a straight-line basis over the scheduled vesting periods of individual awards. WNRL incurred unit-based compensation expense of
$0.7 million
,
$2.0 million
,
$0.6 million
and
$1.5 million
for the
three and nine
months ended
September 30, 2016
and
2015
, respectively.
The aggregate grant date fair value of non-vested phantom units outstanding as of
September 30, 2016
, was
$7.5 million
. The aggregate intrinsic value of such phantom units was
$6.6 million
. Total unrecognized compensation cost related to unvested phantom units totaled
$6.2 million
as of
September 30, 2016
, that is expected to be recognized over a weighted-average period of
2.60
years.
A summary of WNRL's common and phantom unit award activity for the
nine
months ended
September 30, 2016
, is set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
Number of Phantom Units
|
|
Weighted Average
Grant Date
Fair Value
|
|
Not vested at December 31, 2015
|
279,787
|
|
|
$
|
28.06
|
|
|
Awards granted
|
101,955
|
|
|
22.69
|
|
|
Awards vested
|
(86,406
|
)
|
|
25.80
|
|
|
Awards forfeited
|
(10,181
|
)
|
|
31.87
|
|
|
Not vested at September 30, 2016
|
285,155
|
|
|
26.42
|
|
15. Earnings per Share
We follow the provisions related to the accounting treatment of certain participating securities for the purpose of determining earnings per share. These provisions address share-based payment awards that have not vested and that contain nonforfeitable rights to dividend equivalents and state that they are participating securities and should be included in the computation of earnings per share pursuant to the two-class method.
Diluted earnings per common share includes the effects of potentially dilutive shares that consist of unvested RSUs and phantom stock. These awards are non-participating securities due to the forfeitable nature of their associated dividend equivalent rights, prior to vesting and we do not consider the RSUs or phantom stock in the two-class method when calculating earnings per share.
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The computation of basic and diluted earnings per share under the two-class method is presented as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
(In thousands, except per share data)
|
|
Basic earnings per common share:
|
|
|
|
|
|
|
|
|
Allocation of earnings:
|
|
|
|
|
|
|
|
|
Net income attributable to Western Refining, Inc.
|
$
|
38,575
|
|
|
$
|
153,303
|
|
|
$
|
134,528
|
|
|
$
|
393,211
|
|
|
Distributed earnings
|
(41,269
|
)
|
|
(32,498
|
)
|
|
(111,555
|
)
|
|
(93,612
|
)
|
|
Undistributed income (loss) attributable to Western Refining, Inc.
|
$
|
(2,694
|
)
|
|
$
|
120,805
|
|
|
$
|
22,973
|
|
|
$
|
299,599
|
|
|
Weighted-average number of common shares outstanding
|
108,424
|
|
|
94,826
|
|
|
97,802
|
|
|
95,308
|
|
|
Basic earnings per common share:
|
|
|
|
|
|
|
|
|
Distributed earnings per share
|
$
|
0.38
|
|
|
$
|
0.34
|
|
|
$
|
1.14
|
|
|
$
|
0.98
|
|
|
Undistributed earnings (loss) per share
|
(0.02
|
)
|
|
1.27
|
|
|
0.23
|
|
|
3.14
|
|
|
Basic earnings per common share
|
$
|
0.36
|
|
|
$
|
1.61
|
|
|
$
|
1.37
|
|
|
$
|
4.12
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share:
|
|
|
|
|
|
|
|
|
Net income attributable to Western Refining, Inc.
|
$
|
38,575
|
|
|
$
|
153,303
|
|
|
$
|
134,528
|
|
|
$
|
393,211
|
|
|
Weighted-average diluted common shares outstanding
|
108,734
|
|
|
94,924
|
|
|
98,110
|
|
|
95,408
|
|
|
Diluted earnings per common share
|
$
|
0.35
|
|
|
$
|
1.61
|
|
|
$
|
1.37
|
|
|
$
|
4.12
|
|
The computation of the weighted average number of diluted shares outstanding is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
(In thousands)
|
|
Weighted-average number of common shares outstanding
|
108,424
|
|
|
94,826
|
|
|
97,802
|
|
|
95,308
|
|
|
Restricted share units and phantom stock
|
310
|
|
|
98
|
|
|
308
|
|
|
100
|
|
|
Weighted-average number of diluted shares outstanding
|
108,734
|
|
|
94,924
|
|
|
98,110
|
|
|
95,408
|
|
A shareholder's interest in our common stock could become diluted as a result of vestings of RSUs and phantom stock. In calculating our fully diluted earnings per common share, we consider the impact of RSUs and phantom stock that have not vested. We include unvested awards in our diluted earnings calculation when the trading price of our common stock equals or exceeds the per share or per share unit grant price.
16. Cash Flows
Restricted Cash
Restricted cash reported in our Condensed Consolidated Balance Sheet at
September 30, 2016
, related to net proceeds from the sale of the
St. Paul Park Logistics Assets
to WNRL. This cash is restricted until the earlier of a) use of the cash to invest in capital assets to replace the collateral assets that were sold, b) acceptance by holders of the
NTI 2020 Secured Notes
of an offer to repurchase such notes at par or c) expiration of an offer to repurchase the
NTI 2020 Secured Notes
. NTI commenced a tender offer to repurchase for cash up to
$195.0 million
aggregate principal amount the
NTI 2020 Secured Notes
on October 17, 2016, and such offer expires on November 15, 2016. Any cash remaining after the offer to repurchase expires will become unrestricted and available for general corporate purposes.
Restricted cash reported in our Condensed Consolidated Balance Sheet at
December 31, 2015
, related to net proceeds from the sale of Western's TexNew Mex Pipeline System to WNRL. This cash was used to invest in capital assets.
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Supplemental Cash Flow Information
Supplemental disclosures of cash flow information were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
September 30,
|
|
|
2016
|
|
2015
|
|
|
(In thousands)
|
|
Non-cash operating activities were as follows:
|
|
|
|
|
Income taxes paid
|
$
|
40,562
|
|
|
$
|
210,656
|
|
|
Interest paid, excluding amounts capitalized
|
83,156
|
|
|
62,216
|
|
|
Non-cash investing activities were as follows:
|
|
|
|
|
Assets acquired through capital lease obligations
|
$
|
4,644
|
|
|
$
|
24,578
|
|
|
Accrued capital expenditures
|
33,111
|
|
|
31,744
|
|
|
PP&E derecognized from sale leaseback continuing involvement release
|
2,799
|
|
|
1,773
|
|
|
Transfer of capital spares from fixed asset to inventory
|
—
|
|
|
1,490
|
|
|
Transfer of capital spares from fixed assets to other assets
|
699
|
|
|
—
|
|
|
Transfer of capital spares from other assets to fixed assets
|
161
|
|
|
—
|
|
|
Non-cash financing activities were as follows:
|
|
|
|
|
Reduction of long-term debt proceeds from original issuance discount
|
$
|
10,250
|
|
|
$
|
—
|
|
|
Treasury stock issuance
|
438,168
|
|
|
—
|
|
|
Distributions accrued on unvested equity awards
|
—
|
|
|
2,602
|
|
|
Distributions receivable from equity method investee
|
—
|
|
|
4,250
|
|
|
Accrued offering costs for issuance of WNRL common units
|
60
|
|
|
—
|
|
17. Leases and Other Commitments
We have commitments under various operating leases with initial terms greater than one year for retail convenience stores, office space, warehouses, cardlocks, railcars and other facilities, some of which have renewal options and rent escalation clauses. These leases have terms that will expire on various dates through
2040
. We expect that in the normal course of business, these leases will be renewed or replaced by other leases. Certain of our lease agreements provide for the fair value purchase of the leased asset at the end of the lease. Rent expense for operating leases that provide for periodic rent escalations or rent holidays over the term of the lease and for renewal periods that are reasonably assured at the inception of the lease are recognized on a straight-line basis over the term of the lease.
In the normal course of business, we also have long-term commitments to purchase products and services, such as natural gas, electricity, water and transportation services for use by our refineries and logistic assets at market-based rates. We are also party to various refined product and crude oil supply and exchange agreements.
Under a sulfuric acid regeneration and sulfur gas processing agreement with Veolia North America, Inc. (“Veolia”), Veolia owns and operates two sulfuric acid regeneration units on property we lease to Veolia within our El Paso refinery. Our annual estimated cost for processing sulfuric acid and sulfur gas under this agreement is
$15.7 million
through March of 2028.
In November 2007, we entered into a
ten
-year lease agreement for office space in downtown El Paso, Texas. The building serves as our headquarters. In December 2007, we entered into an
eleven
-year lease agreement for an office building in Tempe, Arizona. The building centralized our operational and administrative offices in the Phoenix area.
We are party to
38
capital leases, with initial terms of
20
years, expiring in
2017
through
2036
. The current portion of our capital lease obligation of
$1.3 million
and
$1.0 million
is included in accrued liabilities and the non-current portion of
$54.5 million
and
$53.2 million
is included in lease financing obligations in the accompanying Condensed Consolidated Balance Sheets as of
September 30, 2016
and
December 31, 2015
, respectively. The capital lease obligations include a deferred gain of
$0.3 million
. These capital leases were discounted using annual rates from
3.24%
to
10.51%
. Total remaining interest related to these leases was
$41.0 million
and
$44.1 million
at
September 30, 2016
and
December 31, 2015
, respectively. Average annual payments, including interest, for the next five years are
$5.5 million
with the remaining
$73.0 million
due through
2036
.
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table presents our future minimum lease commitments under capital leases and non-cancelable operating leases that have lease terms of one year or more (in thousands) as of
September 30, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
Capital
|
|
Remaining 2016
|
$
|
14,021
|
|
|
$
|
1,380
|
|
|
2017
|
54,078
|
|
|
5,419
|
|
|
2018
|
50,739
|
|
|
5,444
|
|
|
2019
|
45,648
|
|
|
5,553
|
|
|
2020
|
41,467
|
|
|
5,744
|
|
|
2021 and thereafter
|
346,889
|
|
|
73,027
|
|
|
Total minimum lease payments
|
$
|
552,842
|
|
|
96,567
|
|
|
Less amount that represents interest
|
|
|
40,951
|
|
|
Present value of net minimum capital lease payments
|
|
|
$
|
55,616
|
|
Total rental expense was
$17.9 million
,
$53.9 million
,
$16.2 million
and
$47.8 million
for the
three and nine
months ended
September 30, 2016
and
September 30, 2015
, respectively. Contingent rentals and subleases were not significant in any period.
18. Commitments and Contingencies
Environmental Matters
Similar to other petroleum refiners, our operations are subject to extensive and periodically changing federal and state environmental regulations governing air emissions, wastewater discharges and solid and hazardous waste management activities. Many of these regulations are becoming increasingly stringent and the cost of compliance can be expected to increase over time. Our policy is to accrue environmental and clean-up related costs of a non-capital nature when it is probable that a liability has been incurred and the amount can be reasonably estimated. Such estimates may be subject to revision in the future as regulations and other conditions change.
Periodically, we receive communications from various federal, state and local governmental authorities asserting violations of environmental laws and/or regulations. These governmental entities may also propose or assess fines or require corrective action for these asserted violations. We intend to respond in a timely manner to all such communications and to take appropriate corrective action. We do not anticipate that any such matters currently asserted will have a material impact on our financial condition, results of operations or cash flows. As of
September 30, 2016
and
December 31, 2015
, we had consolidated environmental accruals of
$18.0 million
and
$18.3 million
, respectively.
El Paso Refinery
Prior spills, releases and discharges of petroleum or hazardous substances have impacted the groundwater and soils in certain areas at and adjacent to our El Paso refinery. We are currently remediating, in conjunction with Chevron U.S.A., Inc. ("Chevron"), these areas in accordance with certain agreed administrative orders with the Texas Commission on Environmental Quality (the "TCEQ"). Pursuant to our purchase of the north side of the El Paso refinery from Chevron, Chevron retained responsibility to remediate its solid waste management units in accordance with its Resource Conservation Recovery Act ("RCRA") permit that Chevron has fulfilled. Chevron also retained control of and liability for certain groundwater remediation responsibilities that are ongoing.
In May 2000, we entered into an Agreed Order with the TCEQ for remediation of the south side of our El Paso refinery property. We purchased a non-cancelable Pollution and Legal Liability and Clean-Up Cost Cap Insurance policy that covers environmental clean-up costs related to contamination that occurred prior to December 31, 1999, including the costs of the Agreed Order activities. The insurance provider assumed responsibility for all environmental clean-up costs related to the Agreed Order up to
$20.0 million
, of which
$6.5 million
remained as of
September 30, 2016
. In addition, a subsidiary of Chevron is obligated under a settlement agreement to pay
60%
of any Agreed Order environmental clean-up costs that exceed the
$20.0 million
policy coverage.
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Four Corners Refineries
Four Corners 2005 Consent Agreements.
In July 2005, as part of the EPA Initiative, Giant Industries, Inc., our wholly-owned subsidiary, reached an administrative settlement with the New Mexico Environment Department (the "NMED") and the EPA in the form of consent agreements that resolved certain alleged violations of air quality regulations at the Gallup and Bloomfield refineries in the Four Corners area of New Mexico. In January 2009 and June 2012, we and the NMED agreed to amendments of the 2005 administrative settlement (the "2005 NMED Amended Agreement") that altered certain deadlines and allowed for alternative air pollution controls.
We incurred
$50.8 million
in total capital expenditures between 2009 and 2013 to address the requirements of the 2005 NMED Amended Agreement. These capital expenditures were primarily for installation of emission controls on the heaters, boilers and Fluid Catalytic Cracking Unit ("FCCU") and for reducing sulfur in fuel gas to reduce emissions of sulfur dioxide, NOx and particulate matter from our Gallup refinery. During the first quarter of 2016, we completed the capital expenditures required by the 2005 NMED Amended Agreement to implement one or more FCCU emission offset projects prior to the end of 2017. We incurred
$0.1 million
and
$1.9 million
, respectively, for the years ended December 31, 2015 and 2014, and
$0.1 million
for the
nine
months ended
September 30, 2016
, to implement an FCC emission offset project. We paid penalties between 2009 and 2012 totaling
$2.7 million
. For 2017, we have budgeted capital projects specifically designed to address our compliance with the 2005 NMED Amended Agreement regarding air emissions from waste handling at our Gallup refinery.
Bloomfield 2007 NMED Remediation Order.
In July 2007, we received a final administrative compliance order from the NMED alleging that releases of contaminants and hazardous substances that have occurred at the Bloomfield refinery over the course of its operations prior to June 1, 2007, have resulted in soil and groundwater contamination. Among other things, the order requires that we investigate the extent of such releases, perform interim remediation measures and implement corrective measures. Prior to July 2007, with the approval of the NMED and the New Mexico Oil Conservation Division, we placed into operation certain remediation measures that remain operational.
St. Paul Park Refinery
At
September 30, 2016
and
December 31, 2015
, liabilities for remediation and closure obligations and related operations at the St. Paul Park refinery totaled
$7.6 million
and
$8.6 million
, respectively, of which
$2.4 million
and
$2.6 million
, respectively, are recorded on a discounted basis. These discounted liabilities are expected to be settled over at least the next
21
years. At
September 30, 2016
, the estimated future cash flows to settle these discounted liabilities totaled
$2.9 million
and are discounted at a rate of
2.03%
. Receivables for recoverable costs from the state, under programs to assist companies in clean-up efforts related to underground storage tanks at retail marketing outlets, and others were
$0.1 million
and
$0.2 million
at
September 30, 2016
and
December 31, 2015
, respectively.
On June 3, 2014, the St. Paul Park refinery was issued a National Pollutant Discharge Elimination Permit/State Disposal System Permit by the Minnesota Pollution Control Agency ("MPCA") relating to its upgraded wastewater treatment plant at its St. Paul Park refinery. This permit required the refinery to conduct additional testing of its remaining lagoon. The testing was completed in the fourth quarter of 2014, following the review of the test results and additional discussions with MPCA, we plan to close the remaining lagoon. At
September 30, 2016
and
December 31, 2015
, we estimated the remediation and closure costs to be
$5.2 million
and
$6.0 million
, respectively. In connection with NTI's December 2010 acquisition of the St. Paul Park refinery, among other assets, from the Marathon Petroleum Company LP ("Marathon"), we entered into an agreement with Marathon that required Marathon to share in the future remediation costs of this lagoon, should they be required. During the third quarter of 2015, we entered into a settlement and release agreement with Marathon and received
$3.5 million
pursuant to this settlement that we recorded as a reduction of direct operating expenses.
Legal Matters
On August 24, 2016, an alleged NTI unitholder (“Plaintiff”) filed a purported class action lawsuit against Western, NTI, NTI GP, members of the NTI GP board of directors at the time of the Merger, Evercore Group, L.L.C. (“Evercore”), and MergerCo (collectively, “Defendants”) (the “Merger Litigation”). The Merger Litigation appears to challenge the adequacy of disclosures made in connection with the Merger. Plaintiff seeks monetary damages and attorneys’ fees. The Merger Litigation is in the earliest stages of litigation. Western believes the Merger Litigation is without merit and intends to vigorously defend against it.
Other Matters
The EPA has issued Renewable Fuels Standards ("RFS"), that require refiners to blend renewable fuels into the refined products produced at their refineries. Annually, the EPA is required to establish a volume of renewable fuels that refineries must blend into their refined petroleum fuels. To the extent we are unable to blend at the rate necessary to satisfy the EPA mandated volume, we purchase Renewable Identification Numbers ("RIN"). The purchase price for RINs is volatile and may vary
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
significantly from period to period. The net cost of meeting our estimated renewable volume obligations, including sales and purchases of RINs, was
$15.8 million
,
$51.9 million
,
$13.1 million
and
$25.8 million
for the
three and nine
months ended
September 30, 2016
and
2015
, respectively. The supply and demand environment for RINs is uncertain and we cannot predict the impact of RIN purchases on our results of operations in any given period.
In addition, the EPA has investigated and brought enforcement actions against companies it believes produced invalid RINs. We have purchased RINs that the EPA determined were invalid. Previously, we have entered into settlements and entered into another settlement in May 2015, with the EPA regarding RINs we purchased that the EPA ultimately determined were invalid. While we do not know if the EPA will determine that other RINs we have purchased are invalid, at this time we do not expect any settlements we would enter into with the EPA would have a material effect on our financial condition, results of operations or cash flows.
We are party to various other claims and legal actions arising in the normal course of business. We believe that the resolution of these matters will not have a material effect on our financial condition, results of operations or cash flows.
19. Related Party Transactions
We lease office space in a building located in El Paso, Texas that is owned by an entity controlled by a member of our board of directors who is also an officer. The lease agreement expires in May 2017. Under the terms of the lease, we make annual payments of
$0.2 million
. For the
three and nine
months ended
September 30, 2016
and
2015
, we made rental payments under this lease to the related party of
$0.06 million
,
$0.18 million
,
$0.06 million
and
$0.18 million
. We have
no
amounts due as of
September 30, 2016
, related to this lease agreement.
Beginning on September 30, 2014, we began paying MPL for transportation services at published tariff rates. During the
three and nine
months ended
September 30, 2016
and
2015
, we paid
$12.3 million
,
$41.1 million
,
$13.9 million
and
$41.3 million
, respectively, in crude transportation costs with MPL. Western's President and Chief Operating Officer is a member of MPL's board of managers.
20. Condensed Consolidating Financial Information
Separate condensed consolidating financial information of Western Refining, Inc. (the "Parent"), subsidiary guarantors and non-guarantors is presented below. At
September 30, 2016
, the Parent and certain subsidiary guarantors have fully and unconditionally guaranteed our Western 2021 Senior Unsecured Notes on a joint and several basis. NTI and WNRL are subsidiaries that have not guaranteed the Western 2021 Senior Unsecured Notes. As a result of the Parent and certain subsidiaries' guarantee arrangements, we are required to present the following condensed consolidating financial information that should be read in conjunction with the accompanying condensed consolidated financial statements and notes thereto.
Due to the retrospective adjustments of financial position, results of operations and cash flows from the guarantor to the non-guarantor entities resulting from the
St. Paul Park Logistics Transaction
and the TexNew Mex Pipeline Transaction, we have made corresponding retrospective adjustments to the condensed consolidating financial information for all periods presented. See
Note 1, Organization
, for additional information on this transaction.
As of
September 30, 2016
, we owned a
100%
limited partnership interest in NTI and a
52.6%
limited partnership interest in WNRL, and the non-financial general partner interests of both entities. We are the primary beneficiary of WNRL's earnings and cash flows. We exercise control of WNRL through our
100%
ownership of its general partner. Accordingly, NTI and WNRL are consolidated with the other accounts of Western.
NTI's long-term debt is comprised of the NTI 2020 Secured Notes and the NTI Revolving Credit Facility. NTI creditors under the NTI 2020 Secured Notes and the NTI Revolving Credit Facility have no recourse to the Parent's assets except to the extent of the assets of Northern Tier Energy GP LLC, the general partner of NTI that we wholly own. Any recourse to NTI’s general partner would be limited to the extent of the general partner’s assets that other than its investment in NTI are not significant. Furthermore, the Parent's creditors have no recourse to the assets of NTI's general partner, NTI and its consolidated subsidiaries. See
Note 9, Long-Term Debt
, for a description of NTI’s debt obligations.
WNRL generates revenues by charging fees and tariffs for transporting crude oil through its pipelines; for transporting crude oil and asphalt through its truck fleet; for transporting refined and other products through its terminals and pipelines, for providing storage in its storage tanks and at its terminals and selling refined products through its wholesale distribution network. We do not provide financial or equity support through any liquidity arrangements and/or debt guarantees to WNRL.
WNRL's long-term debt is comprised of the WNRL 2023 Senior Notes and the WNRL Revolving Credit Facility. With the exception of the assets of Western Refining Logistic GP, LLC, the general partner of WNRL, creditors have no recourse to our
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
assets. Any recourse to WNRL’s general partner would be limited to the extent of Western Refining Logistic GP, LLC’s assets which, other than its investment and incentive distribution rights in WNRL, are not significant. Furthermore, our creditors have no recourse to the assets of WNRL and its consolidated subsidiaries. See
Note 9, Long-Term Debt
, for a description of WNRL’s debt obligations.
The following condensed consolidating financial information is provided as an alternative to providing separate financial statements for guarantor subsidiaries. Separate financial statements of Western’s subsidiary guarantors are not included because the guarantees are full and unconditional and these subsidiary guarantors are 100% owned and jointly and severally liable for the Parent’s outstanding debt. The information is presented using the equity method of accounting for investments in subsidiaries.
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
CONDENSED CONSOLIDATING BALANCE SHEETS
As of
September 30, 2016
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Guarantor Subsidiaries
|
|
Non-Guarantors
|
|
Eliminations
|
|
Consolidated
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
21
|
|
|
$
|
234,970
|
|
|
$
|
31,105
|
|
|
$
|
—
|
|
|
$
|
266,096
|
|
|
Restricted cash
|
—
|
|
|
—
|
|
|
195,000
|
|
|
—
|
|
|
195,000
|
|
|
Accounts receivable, trade, net of a reserve for doubtful accounts
|
—
|
|
|
137,775
|
|
|
309,552
|
|
|
—
|
|
|
447,327
|
|
|
Accounts receivable, affiliate
|
15,778
|
|
|
71,656
|
|
|
3,378
|
|
|
(90,812
|
)
|
|
—
|
|
|
Inventories
|
—
|
|
|
380,161
|
|
|
280,577
|
|
|
—
|
|
|
660,738
|
|
|
Prepaid expenses
|
—
|
|
|
104,195
|
|
|
24,943
|
|
|
—
|
|
|
129,138
|
|
|
Other current assets
|
—
|
|
|
83,042
|
|
|
38,539
|
|
|
—
|
|
|
121,581
|
|
|
Total current assets
|
15,799
|
|
|
1,011,799
|
|
|
883,094
|
|
|
(90,812
|
)
|
|
1,819,880
|
|
|
Equity method investment
|
—
|
|
|
—
|
|
|
98,185
|
|
|
—
|
|
|
98,185
|
|
|
Property, plant and equipment, net
|
—
|
|
|
1,114,593
|
|
|
1,242,698
|
|
|
—
|
|
|
2,357,291
|
|
|
Goodwill
|
—
|
|
|
—
|
|
|
1,289,443
|
|
|
—
|
|
|
1,289,443
|
|
|
Intangible assets, net
|
—
|
|
|
31,947
|
|
|
52,596
|
|
|
—
|
|
|
84,543
|
|
|
Investment in subsidiaries
|
5,462,120
|
|
|
—
|
|
|
—
|
|
|
(5,462,120
|
)
|
|
—
|
|
|
Due from affiliate
|
—
|
|
|
2,460,977
|
|
|
—
|
|
|
(2,460,977
|
)
|
|
—
|
|
|
Other assets, net
|
—
|
|
|
32,195
|
|
|
33,588
|
|
|
—
|
|
|
65,783
|
|
|
Total assets
|
$
|
5,477,919
|
|
|
$
|
4,651,511
|
|
|
$
|
3,599,604
|
|
|
$
|
(8,013,909
|
)
|
|
$
|
5,715,125
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accounts payable, trade
|
$
|
—
|
|
|
$
|
306,033
|
|
|
$
|
328,683
|
|
|
$
|
—
|
|
|
$
|
634,716
|
|
|
Accounts payable, affiliate
|
—
|
|
|
—
|
|
|
90,812
|
|
|
(90,812
|
)
|
|
—
|
|
|
Accrued liabilities
|
10,960
|
|
|
107,907
|
|
|
97,302
|
|
|
—
|
|
|
216,169
|
|
|
Current portion of long-term debt
|
10,500
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10,500
|
|
|
Total current liabilities
|
21,460
|
|
|
413,940
|
|
|
516,797
|
|
|
(90,812
|
)
|
|
861,385
|
|
|
Long-term liabilities:
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, less current portion
|
1,330,027
|
|
|
—
|
|
|
715,153
|
|
|
—
|
|
|
2,045,180
|
|
|
Due to affiliate
|
2,460,977
|
|
|
—
|
|
|
—
|
|
|
(2,460,977
|
)
|
|
—
|
|
|
Lease financing obligations
|
—
|
|
|
45,333
|
|
|
9,208
|
|
|
—
|
|
|
54,541
|
|
|
Deferred income tax liability, net
|
—
|
|
|
380,508
|
|
|
36,443
|
|
|
—
|
|
|
416,951
|
|
|
Deficit in subsidiaries
|
—
|
|
|
497,548
|
|
|
—
|
|
|
(497,548
|
)
|
|
—
|
|
|
Other liabilities
|
—
|
|
|
59,349
|
|
|
10,273
|
|
|
—
|
|
|
69,622
|
|
|
Total long-term liabilities
|
3,791,004
|
|
|
982,738
|
|
|
771,077
|
|
|
(2,958,525
|
)
|
|
2,586,294
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
|
|
Equity - Western
|
1,665,455
|
|
|
3,254,833
|
|
|
1,709,739
|
|
|
(4,964,572
|
)
|
|
1,665,455
|
|
|
Equity - Non-controlling interests
|
—
|
|
|
—
|
|
|
601,991
|
|
|
—
|
|
|
601,991
|
|
|
Total equity
|
1,665,455
|
|
|
3,254,833
|
|
|
2,311,730
|
|
|
(4,964,572
|
)
|
|
2,267,446
|
|
|
Total liabilities and equity
|
$
|
5,477,919
|
|
|
$
|
4,651,511
|
|
|
$
|
3,599,604
|
|
|
$
|
(8,013,909
|
)
|
|
$
|
5,715,125
|
|
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
CONDENSED CONSOLIDATING BALANCE SHEETS
As of
December 31, 2015
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Guarantor Subsidiaries
|
|
Non-Guarantors
|
|
Eliminations
|
|
Consolidated
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
21
|
|
|
$
|
656,966
|
|
|
$
|
115,515
|
|
|
$
|
—
|
|
|
$
|
772,502
|
|
|
Accounts receivable, trade, net of a reserve for doubtful accounts
|
—
|
|
|
122,593
|
|
|
236,644
|
|
|
—
|
|
|
359,237
|
|
|
Accounts receivable, affiliate
|
—
|
|
|
55,550
|
|
|
3,505
|
|
|
(59,055
|
)
|
|
—
|
|
|
Inventories
|
—
|
|
|
311,589
|
|
|
235,949
|
|
|
—
|
|
|
547,538
|
|
|
Prepaid expenses
|
—
|
|
|
55,699
|
|
|
17,514
|
|
|
—
|
|
|
73,213
|
|
|
Other current assets
|
—
|
|
|
135,139
|
|
|
34,589
|
|
|
—
|
|
|
169,728
|
|
|
Total current assets
|
21
|
|
|
1,337,536
|
|
|
643,716
|
|
|
(59,055
|
)
|
|
1,922,218
|
|
|
Restricted cash
|
—
|
|
|
69,106
|
|
|
—
|
|
|
—
|
|
|
69,106
|
|
|
Equity method investment
|
—
|
|
|
—
|
|
|
97,513
|
|
|
—
|
|
|
97,513
|
|
|
Property, plant and equipment, net
|
—
|
|
|
1,099,787
|
|
|
1,205,384
|
|
|
—
|
|
|
2,305,171
|
|
|
Goodwill
|
—
|
|
|
—
|
|
|
1,289,443
|
|
|
—
|
|
|
1,289,443
|
|
|
Intangible assets, net
|
—
|
|
|
31,401
|
|
|
53,544
|
|
|
—
|
|
|
84,945
|
|
|
Investment in subsidiaries
|
3,791,084
|
|
|
—
|
|
|
—
|
|
|
(3,791,084
|
)
|
|
—
|
|
|
Due from affiliate
|
—
|
|
|
1,623,553
|
|
|
—
|
|
|
(1,623,553
|
)
|
|
—
|
|
|
Other assets, net
|
—
|
|
|
42,166
|
|
|
22,831
|
|
|
—
|
|
|
64,997
|
|
|
Total assets
|
$
|
3,791,105
|
|
|
$
|
4,203,549
|
|
|
$
|
3,312,431
|
|
|
$
|
(5,473,692
|
)
|
|
$
|
5,833,393
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accounts payable, trade
|
$
|
—
|
|
|
$
|
262,550
|
|
|
$
|
291,407
|
|
|
$
|
—
|
|
|
$
|
553,957
|
|
|
Accounts payable, affiliate
|
920
|
|
|
—
|
|
|
58,135
|
|
|
(59,055
|
)
|
|
—
|
|
|
Accrued liabilities
|
5,508
|
|
|
142,257
|
|
|
100,630
|
|
|
—
|
|
|
248,395
|
|
|
Current portion of long-term debt
|
5,500
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,500
|
|
|
Total current liabilities
|
11,928
|
|
|
404,807
|
|
|
450,172
|
|
|
(59,055
|
)
|
|
807,852
|
|
|
Long-term liabilities:
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, less current portion
|
856,327
|
|
|
—
|
|
|
788,567
|
|
|
—
|
|
|
1,644,894
|
|
|
Due to affiliate
|
1,623,553
|
|
|
—
|
|
|
—
|
|
|
(1,623,553
|
)
|
|
—
|
|
|
Lease financing obligations
|
—
|
|
|
42,168
|
|
|
11,064
|
|
|
—
|
|
|
53,232
|
|
|
Deferred income tax liability, net
|
—
|
|
|
275,634
|
|
|
37,280
|
|
|
—
|
|
|
312,914
|
|
|
Deficit in subsidiaries
|
—
|
|
|
287,761
|
|
|
—
|
|
|
(287,761
|
)
|
|
—
|
|
|
Other liabilities
|
—
|
|
|
63,674
|
|
|
4,921
|
|
|
—
|
|
|
68,595
|
|
|
Total long-term liabilities
|
2,479,880
|
|
|
669,237
|
|
|
841,832
|
|
|
(1,911,314
|
)
|
|
2,079,635
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
|
|
Equity - Western
|
1,299,297
|
|
|
3,129,505
|
|
|
373,818
|
|
|
(3,503,323
|
)
|
|
1,299,297
|
|
|
Equity - Non-controlling interests
|
—
|
|
|
—
|
|
|
1,646,609
|
|
|
—
|
|
|
1,646,609
|
|
|
Total equity
|
1,299,297
|
|
|
3,129,505
|
|
|
2,020,427
|
|
|
(3,503,323
|
)
|
|
2,945,906
|
|
|
Total liabilities and equity
|
$
|
3,791,105
|
|
|
$
|
4,203,549
|
|
|
$
|
3,312,431
|
|
|
$
|
(5,473,692
|
)
|
|
$
|
5,833,393
|
|
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
Three Months Ended September 30, 2016
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Guarantor Subsidiaries
|
|
Non-Guarantors
|
|
Eliminations
|
|
Consolidated
|
|
Net sales
|
$
|
—
|
|
|
$
|
1,970,512
|
|
|
$
|
1,637,091
|
|
|
$
|
(1,542,527
|
)
|
|
$
|
2,065,076
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold (exclusive of depreciation and amortization)
|
—
|
|
|
1,733,544
|
|
|
1,415,993
|
|
|
(1,542,527
|
)
|
|
1,607,010
|
|
|
Direct operating expenses (exclusive of depreciation and amortization)
|
—
|
|
|
113,416
|
|
|
119,137
|
|
|
—
|
|
|
232,553
|
|
|
Selling, general and administrative expenses
|
46
|
|
|
29,887
|
|
|
27,387
|
|
|
—
|
|
|
57,320
|
|
|
Gain on disposal of assets, net
|
—
|
|
|
(217
|
)
|
|
(62
|
)
|
|
—
|
|
|
(279
|
)
|
|
Maintenance turnaround expense
|
—
|
|
|
366
|
|
|
26,842
|
|
|
—
|
|
|
27,208
|
|
|
Depreciation and amortization
|
—
|
|
|
27,286
|
|
|
27,035
|
|
|
—
|
|
|
54,321
|
|
|
Total operating costs and expenses
|
46
|
|
|
1,904,282
|
|
|
1,616,332
|
|
|
(1,542,527
|
)
|
|
1,978,133
|
|
|
Operating income (loss)
|
(46
|
)
|
|
66,230
|
|
|
20,759
|
|
|
—
|
|
|
86,943
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of subsidiaries
|
61,069
|
|
|
1,125
|
|
|
—
|
|
|
(62,194
|
)
|
|
—
|
|
|
Interest income
|
—
|
|
|
100
|
|
|
41
|
|
|
—
|
|
|
141
|
|
|
Interest and debt expense
|
(22,448
|
)
|
|
(788
|
)
|
|
(11,220
|
)
|
|
—
|
|
|
(34,456
|
)
|
|
Other, net
|
—
|
|
|
(1,301
|
)
|
|
4,681
|
|
|
—
|
|
|
3,380
|
|
|
Income (loss) before income taxes
|
38,575
|
|
|
65,366
|
|
|
14,261
|
|
|
(62,194
|
)
|
|
56,008
|
|
|
Provision for income taxes
|
—
|
|
|
(11,418
|
)
|
|
(282
|
)
|
|
—
|
|
|
(11,700
|
)
|
|
Net income (loss)
|
38,575
|
|
|
53,948
|
|
|
13,979
|
|
|
(62,194
|
)
|
|
44,308
|
|
|
Less net income attributable to non-controlling interests
|
—
|
|
|
—
|
|
|
5,733
|
|
|
—
|
|
|
5,733
|
|
|
Net income (loss) attributable to Western Refining, Inc.
|
$
|
38,575
|
|
|
$
|
53,948
|
|
|
$
|
8,246
|
|
|
$
|
(62,194
|
)
|
|
$
|
38,575
|
|
|
Comprehensive income attributable to Western Refining, Inc.
|
$
|
38,575
|
|
|
$
|
53,948
|
|
|
$
|
8,246
|
|
|
$
|
(62,194
|
)
|
|
$
|
38,575
|
|
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
Nine Months Ended September 30, 2016
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Guarantor Subsidiaries
|
|
Non-Guarantors
|
|
Eliminations
|
|
Consolidated
|
|
Net sales
|
$
|
—
|
|
|
$
|
4,466,234
|
|
|
$
|
3,881,556
|
|
|
$
|
(2,719,902
|
)
|
|
$
|
5,627,888
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold (exclusive of depreciation and amortization)
|
—
|
|
|
3,780,557
|
|
|
3,196,344
|
|
|
(2,719,902
|
)
|
|
4,256,999
|
|
|
Direct operating expenses (exclusive of depreciation and amortization)
|
—
|
|
|
333,556
|
|
|
353,751
|
|
|
—
|
|
|
687,307
|
|
|
Selling, general and administrative expenses
|
139
|
|
|
82,283
|
|
|
84,235
|
|
|
—
|
|
|
166,657
|
|
|
Gain on disposal of assets, net
|
—
|
|
|
(208
|
)
|
|
(973
|
)
|
|
—
|
|
|
(1,181
|
)
|
|
Maintenance turnaround expense
|
—
|
|
|
891
|
|
|
26,842
|
|
|
—
|
|
|
27,733
|
|
|
Depreciation and amortization
|
—
|
|
|
79,620
|
|
|
81,711
|
|
|
—
|
|
|
161,331
|
|
|
Total operating costs and expenses
|
139
|
|
|
4,276,699
|
|
|
3,741,910
|
|
|
(2,719,902
|
)
|
|
5,298,846
|
|
|
Operating income (loss)
|
(139
|
)
|
|
189,535
|
|
|
139,646
|
|
|
—
|
|
|
329,042
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of subsidiaries
|
184,428
|
|
|
5,689
|
|
|
—
|
|
|
(190,117
|
)
|
|
—
|
|
|
Interest income
|
—
|
|
|
317
|
|
|
119
|
|
|
—
|
|
|
436
|
|
|
Interest and debt expense
|
(49,761
|
)
|
|
(2,284
|
)
|
|
(36,020
|
)
|
|
—
|
|
|
(88,065
|
)
|
|
Other, net
|
—
|
|
|
(208
|
)
|
|
14,033
|
|
|
—
|
|
|
13,825
|
|
|
Income (loss) before income taxes
|
134,528
|
|
|
193,049
|
|
|
117,778
|
|
|
(190,117
|
)
|
|
255,238
|
|
|
Provision for income taxes
|
—
|
|
|
(67,721
|
)
|
|
(760
|
)
|
|
—
|
|
|
(68,481
|
)
|
|
Net income (loss)
|
134,528
|
|
|
125,328
|
|
|
117,018
|
|
|
(190,117
|
)
|
|
186,757
|
|
|
Less net income attributable to non-controlling interests
|
—
|
|
|
—
|
|
|
52,229
|
|
|
—
|
|
|
52,229
|
|
|
Net income (loss) attributable to Western Refining, Inc.
|
$
|
134,528
|
|
|
$
|
125,328
|
|
|
$
|
64,789
|
|
|
$
|
(190,117
|
)
|
|
$
|
134,528
|
|
|
Comprehensive income attributable to Western Refining, Inc.
|
$
|
134,528
|
|
|
$
|
125,328
|
|
|
$
|
64,737
|
|
|
$
|
(190,117
|
)
|
|
$
|
134,476
|
|
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
Three Months Ended September 30, 2015
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Guarantor Subsidiaries
|
|
Non-Guarantors
|
|
Eliminations
|
|
Consolidated
|
|
Net sales
|
$
|
—
|
|
|
$
|
1,846,297
|
|
|
$
|
1,478,695
|
|
|
$
|
(755,902
|
)
|
|
$
|
2,569,090
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold (exclusive of depreciation and amortization)
|
—
|
|
|
1,476,431
|
|
|
1,175,243
|
|
|
(755,902
|
)
|
|
1,895,772
|
|
|
Direct operating expenses (exclusive of depreciation and amortization)
|
—
|
|
|
111,871
|
|
|
122,569
|
|
|
—
|
|
|
234,440
|
|
|
Selling, general and administrative expenses
|
48
|
|
|
28,061
|
|
|
26,356
|
|
|
—
|
|
|
54,465
|
|
|
Gain on disposal of assets, net
|
—
|
|
|
(6
|
)
|
|
(46
|
)
|
|
—
|
|
|
(52
|
)
|
|
Maintenance turnaround expense
|
—
|
|
|
490
|
|
|
—
|
|
|
—
|
|
|
490
|
|
|
Depreciation and amortization
|
—
|
|
|
24,830
|
|
|
26,547
|
|
|
—
|
|
|
51,377
|
|
|
Total operating costs and expenses
|
48
|
|
|
1,641,677
|
|
|
1,350,669
|
|
|
(755,902
|
)
|
|
2,236,492
|
|
|
Operating income (loss)
|
(48
|
)
|
|
204,620
|
|
|
128,026
|
|
|
—
|
|
|
332,598
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of subsidiaries
|
166,608
|
|
|
6,647
|
|
|
—
|
|
|
(173,255
|
)
|
|
—
|
|
|
Interest income
|
—
|
|
|
106
|
|
|
80
|
|
|
—
|
|
|
186
|
|
|
Interest and debt expense
|
(13,257
|
)
|
|
(703
|
)
|
|
(12,936
|
)
|
|
—
|
|
|
(26,896
|
)
|
|
Other, net
|
—
|
|
|
(6
|
)
|
|
4,333
|
|
|
—
|
|
|
4,327
|
|
|
Income (loss) before income taxes
|
153,303
|
|
|
210,664
|
|
|
119,503
|
|
|
(173,255
|
)
|
|
310,215
|
|
|
Provision for income taxes
|
—
|
|
|
(92,114
|
)
|
|
(3
|
)
|
|
—
|
|
|
(92,117
|
)
|
|
Net income (loss)
|
153,303
|
|
|
118,550
|
|
|
119,500
|
|
|
(173,255
|
)
|
|
218,098
|
|
|
Less net income attributable to non-controlling interests
|
—
|
|
|
—
|
|
|
64,795
|
|
|
—
|
|
|
64,795
|
|
|
Net income (loss) attributable to Western Refining, Inc.
|
$
|
153,303
|
|
|
$
|
118,550
|
|
|
$
|
54,705
|
|
|
$
|
(173,255
|
)
|
|
$
|
153,303
|
|
|
Comprehensive income attributable to Western Refining, Inc.
|
$
|
153,303
|
|
|
$
|
118,558
|
|
|
$
|
54,705
|
|
|
$
|
(173,255
|
)
|
|
$
|
153,311
|
|
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
Nine Months Ended September 30, 2015
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Guarantor Subsidiaries
|
|
Non-Guarantors
|
|
Eliminations
|
|
Consolidated
|
|
Net sales
|
$
|
—
|
|
|
$
|
5,611,815
|
|
|
$
|
4,372,591
|
|
|
$
|
(2,267,694
|
)
|
|
$
|
7,716,712
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold (exclusive of depreciation and amortization)
|
—
|
|
|
4,612,431
|
|
|
3,470,232
|
|
|
(2,267,694
|
)
|
|
5,814,969
|
|
|
Direct operating expenses (exclusive of depreciation and amortization)
|
—
|
|
|
331,423
|
|
|
343,051
|
|
|
—
|
|
|
674,474
|
|
|
Selling, general and administrative expenses
|
142
|
|
|
87,486
|
|
|
82,180
|
|
|
—
|
|
|
169,808
|
|
|
Loss (gain) on disposal of assets, net
|
—
|
|
|
444
|
|
|
(601
|
)
|
|
—
|
|
|
(157
|
)
|
|
Maintenance turnaround expense
|
—
|
|
|
1,188
|
|
|
—
|
|
|
—
|
|
|
1,188
|
|
|
Depreciation and amortization
|
—
|
|
|
74,457
|
|
|
77,989
|
|
|
—
|
|
|
152,446
|
|
|
Total operating costs and expenses
|
142
|
|
|
5,107,429
|
|
|
3,972,851
|
|
|
(2,267,694
|
)
|
|
6,812,728
|
|
|
Operating income (loss)
|
(142
|
)
|
|
504,386
|
|
|
399,740
|
|
|
—
|
|
|
903,984
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of subsidiaries
|
433,921
|
|
|
8,576
|
|
|
—
|
|
|
(442,497
|
)
|
|
—
|
|
|
Interest income
|
—
|
|
|
308
|
|
|
242
|
|
|
—
|
|
|
550
|
|
|
Interest and debt expense
|
(40,568
|
)
|
|
(1,943
|
)
|
|
(36,658
|
)
|
|
—
|
|
|
(79,169
|
)
|
|
Other, net
|
—
|
|
|
(519
|
)
|
|
12,076
|
|
|
—
|
|
|
11,557
|
|
|
Income (loss) before income taxes
|
393,211
|
|
|
510,808
|
|
|
375,400
|
|
|
(442,497
|
)
|
|
836,922
|
|
|
Provision for income taxes
|
—
|
|
|
(229,635
|
)
|
|
(354
|
)
|
|
—
|
|
|
(229,989
|
)
|
|
Net income (loss)
|
393,211
|
|
|
281,173
|
|
|
375,046
|
|
|
(442,497
|
)
|
|
606,933
|
|
|
Less net income attributable to non-controlling interests
|
—
|
|
|
—
|
|
|
213,722
|
|
|
—
|
|
|
213,722
|
|
|
Net income (loss) attributable to Western Refining, Inc.
|
$
|
393,211
|
|
|
$
|
281,173
|
|
|
$
|
161,324
|
|
|
$
|
(442,497
|
)
|
|
$
|
393,211
|
|
|
Comprehensive income attributable to Western Refining, Inc.
|
$
|
393,211
|
|
|
$
|
281,197
|
|
|
$
|
161,365
|
|
|
$
|
(442,497
|
)
|
|
$
|
393,276
|
|
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Nine Months Ended September 30, 2016
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Guarantor Subsidiaries
|
|
Non-Guarantors
|
|
Eliminations
|
|
Consolidated
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
$
|
(42,552
|
)
|
|
$
|
226,792
|
|
|
$
|
141,120
|
|
|
$
|
(47,483
|
)
|
|
$
|
277,877
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
—
|
|
|
(113,533
|
)
|
|
(121,804
|
)
|
|
240
|
|
|
(235,097
|
)
|
|
Return of capital from equity method investment
|
13,537
|
|
|
—
|
|
|
—
|
|
|
(13,537
|
)
|
|
—
|
|
|
Increase in restricted cash
|
—
|
|
|
—
|
|
|
(195,000
|
)
|
|
—
|
|
|
(195,000
|
)
|
|
Use of restricted cash
|
—
|
|
|
69,106
|
|
|
—
|
|
|
—
|
|
|
69,106
|
|
|
Contributions to affiliate
|
—
|
|
|
(603,987
|
)
|
|
(20,286
|
)
|
|
624,273
|
|
|
—
|
|
|
Proceeds from the sale of assets
|
—
|
|
|
348
|
|
|
3,804
|
|
|
(240
|
)
|
|
3,912
|
|
|
Net cash provided by (used in) investing activities
|
13,537
|
|
|
(648,066
|
)
|
|
(333,286
|
)
|
|
610,736
|
|
|
(357,079
|
)
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
Additions to long-term debt
|
500,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
500,000
|
|
|
Payments on long-term debt and capital lease obligations
|
(5,375
|
)
|
|
(748
|
)
|
|
(1,027
|
)
|
|
—
|
|
|
(7,150
|
)
|
|
Borrowings on revolving credit facility
|
—
|
|
|
—
|
|
|
393,900
|
|
|
—
|
|
|
393,900
|
|
|
Repayments on revolving credit facility
|
—
|
|
|
—
|
|
|
(466,600
|
)
|
|
—
|
|
|
(466,600
|
)
|
|
Payments for NTI units related to merger
|
(859,893
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(859,893
|
)
|
|
Transaction costs for NTI merger
|
(11,741
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(11,741
|
)
|
|
Proceeds from issuance of WNRL common units
|
—
|
|
|
—
|
|
|
277,751
|
|
|
—
|
|
|
277,751
|
|
|
Offering costs for issuance of WNRL common units
|
—
|
|
|
—
|
|
|
(417
|
)
|
|
—
|
|
|
(417
|
)
|
|
Deferred financing costs
|
(11,408
|
)
|
|
—
|
|
|
(1,002
|
)
|
|
—
|
|
|
(12,410
|
)
|
|
Distribution to affiliate
|
—
|
|
|
—
|
|
|
(61,020
|
)
|
|
61,020
|
|
|
—
|
|
|
Purchases of common stock for treasury
|
(75,000
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(75,000
|
)
|
|
Distribution to non-controlling interest holders
|
—
|
|
|
—
|
|
|
(54,115
|
)
|
|
—
|
|
|
(54,115
|
)
|
|
Dividends paid
|
(111,555
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(111,555
|
)
|
|
Contributions from affiliates
|
603,987
|
|
|
—
|
|
|
20,286
|
|
|
(624,273
|
)
|
|
—
|
|
|
Distribution to Western Refining, Inc.
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Excess tax benefit from stock-based compensation
|
—
|
|
|
26
|
|
|
—
|
|
|
—
|
|
|
26
|
|
|
Net cash provided by (used in) financing activities
|
29,015
|
|
|
(722
|
)
|
|
107,756
|
|
|
(563,253
|
)
|
|
(427,204
|
)
|
|
Net decrease in cash and cash equivalents
|
—
|
|
|
(421,996
|
)
|
|
(84,410
|
)
|
|
—
|
|
|
(506,406
|
)
|
|
Cash and cash equivalents at beginning of year
|
21
|
|
|
656,966
|
|
|
115,515
|
|
|
—
|
|
|
772,502
|
|
|
Cash and cash equivalents at end of year
|
$
|
21
|
|
|
$
|
234,970
|
|
|
$
|
31,105
|
|
|
$
|
—
|
|
|
$
|
266,096
|
|
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Nine Months Ended September 30, 2015
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Guarantor Subsidiaries
|
|
Non-Guarantors
|
|
Eliminations
|
|
Consolidated
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
$
|
67,772
|
|
|
$
|
345,293
|
|
|
$
|
383,762
|
|
|
$
|
(131,163
|
)
|
|
$
|
665,664
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
—
|
|
|
(108,988
|
)
|
|
(88,545
|
)
|
|
1,557
|
|
|
(195,976
|
)
|
|
Use of restricted cash
|
—
|
|
|
154,681
|
|
|
—
|
|
|
—
|
|
|
154,681
|
|
|
Return of capital from equity method investment
|
—
|
|
|
—
|
|
|
5,780
|
|
|
—
|
|
|
5,780
|
|
|
Contributions to affiliate
|
—
|
|
|
(158,652
|
)
|
|
(18,457
|
)
|
|
177,109
|
|
|
—
|
|
|
Proceeds from the sale of assets
|
—
|
|
|
2,028
|
|
|
590
|
|
|
(1,557
|
)
|
|
1,061
|
|
|
Net cash provided by (used in) investing activities
|
—
|
|
|
(110,931
|
)
|
|
(100,632
|
)
|
|
177,109
|
|
|
(34,454
|
)
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
Additions to long-term debt
|
—
|
|
|
—
|
|
|
300,000
|
|
|
—
|
|
|
300,000
|
|
|
Payments on long-term debt and capital lease obligations
|
(4,125
|
)
|
|
(658
|
)
|
|
(776
|
)
|
|
—
|
|
|
(5,559
|
)
|
|
Repayments on revolving credit facility
|
—
|
|
|
—
|
|
|
(269,000
|
)
|
|
—
|
|
|
(269,000
|
)
|
|
Distribution to affiliate
|
—
|
|
|
—
|
|
|
(131,163
|
)
|
|
131,163
|
|
|
—
|
|
|
Deferred financing costs
|
—
|
|
|
—
|
|
|
(6,820
|
)
|
|
—
|
|
|
(6,820
|
)
|
|
Purchases of common stock for treasury
|
(105,000
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(105,000
|
)
|
|
Distribution to non-controlling interest holders
|
—
|
|
|
—
|
|
|
(173,687
|
)
|
|
—
|
|
|
(173,687
|
)
|
|
Dividends paid
|
(93,612
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(93,612
|
)
|
|
Contributions from affiliates
|
134,965
|
|
|
—
|
|
|
42,144
|
|
|
(177,109
|
)
|
|
—
|
|
|
Excess tax benefit from stock-based compensation
|
—
|
|
|
879
|
|
|
—
|
|
|
—
|
|
|
879
|
|
|
Net cash provided by (used in) financing activities
|
(67,772
|
)
|
|
221
|
|
|
(239,302
|
)
|
|
(45,946
|
)
|
|
(352,799
|
)
|
|
Net increase in cash and cash equivalents
|
—
|
|
|
234,583
|
|
|
43,828
|
|
|
—
|
|
|
278,411
|
|
|
Cash and cash equivalents at beginning of year
|
21
|
|
|
288,986
|
|
|
142,152
|
|
|
—
|
|
|
431,159
|
|
|
Cash and cash equivalents at end of year
|
$
|
21
|
|
|
$
|
523,569
|
|
|
$
|
185,980
|
|
|
$
|
—
|
|
|
$
|
709,570
|
|
21. Acquisitions
Description of the Transaction
On December 21, 2015, Western entered into the Merger Agreement, by and among Western, MergerCo, NTI and Northern Tier Energy GP LLC, the general partner of NTI and a wholly-owned subsidiary of Western (“NTI GP”). On June 23, 2016, following the approval of the Merger by NTI common unitholders, all closing conditions to the Merger were satisfied, and the Merger was successfully completed. Upon the terms and subject to the conditions set forth in the Merger Agreement, MergerCo merged with and into NTI, the separate limited liability company existence of MergerCo ceased and NTI continued to exist as a limited partnership under Delaware law and as an indirect wholly-owned subsidiary of Western and as the surviving entity in the Merger.
Prior to the Merger, NT InterHoldCo LLC, a Delaware limited liability company and wholly-owned subsidiary of Western ("NT InterHoldCo"), owned
100%
of the membership interests in NTI GP and
38.3%
of NTI’s outstanding common units representing limited partner interests in NTI (“NTI Common Units”). NT InterHoldCo also owned
100%
of the membership interests in Western Acquisition Holdings, LLC, a Delaware limited liability company and holder of
100%
of the membership interests in MergerCo (“MergerCo HoldCo”). Following the Merger, NTI GP remained the sole general partner of NTI, the NTI Common Units held by Western and its subsidiaries were unchanged and remained issued and outstanding, and, by virtue of the Merger, all of the membership interests in MergerCo automatically converted into the number of NTI Common Units (excluding any NTI Common Units owned by Western and its subsidiaries) issued and outstanding immediately prior to the
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
effective time of the Merger. Consequently, NT InterHoldCo and its wholly-owned subsidiary, MergerCo HoldCo, became the sole limited partners of NTI.
Pursuant to the Merger Agreement, we paid
$859.9 million
in cash and issued
17.1 million
shares of Western common stock adjusted slightly for cash paid in lieu of fractional shares. We incurred transaction costs related to the Merger of
$11.7 million
.
The Merger involved a change in WNR’s ownership interest in its subsidiary, NTI, due to the purchase of the remaining ownership interests not already owned by WNR and was accounted for under Accounting Standards Codification 810-10-45-23,
Consolidation
, which indicates that increases in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary shall be accounted for as an equity transaction. Therefore,
no
gain or loss was realized as a result of the Merger. Any difference between the consideration paid and the amount by which the non-controlling interest is adjusted was recognized in Western shareholders' equity.
NTI common unitholders made consideration elections that resulted in the following allocation of cash and Western common stock among NTI common unitholders.
|
|
|
|
•
|
NTI common unitholders who made a valid “Mixed Election” (as defined in the Merger Agreement), or who made no election, received
$15.00
in cash and
0.2986
of a share of Western common stock for each such NTI common unit held.
|
|
|
|
|
•
|
NTI common unitholders who made a valid “Cash Election” (as defined in the Merger Agreement) received
$15.357
in cash and
0.28896
of a share of Western common stock as prorated in accordance with the Merger Agreement for each such NTI common unit held.
|
|
|
|
|
•
|
NTI common unitholders who made a valid “Stock Election” (as defined in the Merger Agreement) received
0.7036
of a share of Western common stock for each such NTI common unit held.
|
The consolidated statements of operations include the results of the Merger beginning on June 23, 2016. The following unaudited pro forma information assumes that (i) the Merger occurred on January 1, 2015; (ii)
$500.0 million
was borrowed to fund the Merger consideration on January 1, 2015, resulting in increased interest and debt expense of
$17.0 million
for the
nine
months ended
September 30, 2016
and
$9.1 million
and
$27.1 million
for the
three and nine
months ended
September 30, 2015
, respectively; and (iii) income tax expense increased as a result of the increased net income attributable to Western Refining, Inc. offset by increased interest and debt expense of
$7.0 million
for the
nine
months ended
September 30, 2016
and
$19.1 million
and
$64.9 million
, for the
three and nine
months ended
September 30, 2015
, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited Pro Forma for the
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2015
|
|
2016
|
|
2015
|
|
|
(In thousands)
|
|
Net sales
|
$
|
2,569,090
|
|
|
$
|
5,627,888
|
|
|
$
|
7,716,712
|
|
|
Operating income
|
332,598
|
|
|
329,042
|
|
|
903,984
|
|
|
Net income
|
189,905
|
|
|
162,768
|
|
|
514,874
|
|
|
Net income attributable to Western Refining, Inc.
|
184,319
|
|
|
145,862
|
|
|
498,715
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
$
|
1.65
|
|
|
$
|
1.35
|
|
|
$
|
4.43
|
|
|
Diluted earnings per share
|
1.65
|
|
|
1.34
|
|
|
4.43
|
|
Merger and Reorganization Expenses
We incurred professional service fees in connection with the Merger transaction. Additionally, we incurred costs associated with initiating a plan of reorganization for various positions during the third quarter of 2016. In relation to this reorganization plan, it was determined that certain employees would be terminated during 2016 and 2017. We recognized
$2.8 million
and
$4.0 million
of expense during the three and
nine
months ended
September 30, 2016
, respectively, which included compensation related to the severance of employment and retention bonuses for selected employees. These costs have been included in Other, net in the accompanying Condensed Consolidated Statements of Operations. All reorganization and
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
related costs are recognized in the Other category. We recognize these costs ratably from September 1, 2016, the effective date of the agreements, through the remaining service period, which varies for each employee, but in no case is later than September 1, 2017. As of
September 30, 2016
, we anticipate that these costs will continue to be recognized through the third quarter of 2017 and for the expenses to be completely paid out by December 31, 2017.
The following table summarizes the expense activity related to the Merger and Reorganization for the three and
nine
months ended
September 30, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
(In thousands)
|
|
Beginning liability for merger and reorganization costs
|
$
|
452
|
|
|
$
|
470
|
|
|
$
|
189
|
|
|
$
|
808
|
|
|
Third-party professional service fees
|
178
|
|
|
—
|
|
|
1,321
|
|
|
—
|
|
|
Reorganization and related personnel costs incurred during period
|
2,666
|
|
|
—
|
|
|
2,666
|
|
|
—
|
|
|
Cash payments to third-party professional service providers
|
(442
|
)
|
|
—
|
|
|
(1,133
|
)
|
|
—
|
|
|
Cash payments made to severed employees
|
(1,487
|
)
|
|
(112
|
)
|
|
(1,676
|
)
|
|
(450
|
)
|
|
Ending liability for merger and reorganization costs
|
$
|
1,367
|
|
|
$
|
358
|
|
|
$
|
1,367
|
|
|
$
|
358
|
|
22. WNRL
WNRL is a publicly held master limited partnership that owns and operates logistic assets that consist of pipeline and gathering, terminalling, storage and transportation assets, providing related services to our refining segment, including
692
miles of pipelines and
12.4 million
barrels of active storage capacity. The majority of WNRL's logistics assets are integral to the operations of the El Paso, Gallup and St. Paul Park refineries.
WNRL also owns a wholesale business that operates primarily in the Southwest. WNRL's wholesale business includes the operations of several lubricant and bulk petroleum distribution plants and a fleet of crude oil, asphalt, 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.
As of
September 30, 2016
, we owned a
52.6%
interest in WNRL and a
100%
general partner interest. As the general partner of WNRL, we have the sole ability to direct the activities that most significantly impact WNRL's financial performance, and therefore we consolidate WNRL.
We are WNRL’s primary logistics customer and a significant wholesale customer through our retail business. WNRL generates revenues by charging tariffs and fees for transporting petroleum products and crude oil though its pipelines, by charging fees for terminalling refined products and other hydrocarbons, and storing and providing other services at its storage tanks and terminals. Additionally, WNRL sells various finished petroleum products to us and other third-party customers. Under our long-term agreements with WNRL (discussed below), we accounted for
32.2%
,
31.8%
,
31.9%
and
30.0%
of WNRL’s total revenues for the
three and nine
month periods ended
September 30, 2016
and
2015
, respectively. We do not provide financial or equity support through any liquidity arrangements and/or debt guarantees to WNRL.
WNRL has outstanding debt under a senior secured revolving credit facility and its senior notes. Excluding assets held by WNRL, WNRL’s creditors have no recourse to our assets. Any recourse to WNRL’s general partner would be limited to the extent of Western Refining Logistics GP LLC’s assets that other than its investment in WNRL, are not significant.
Our creditors have no recourse to the assets of WNRL and its consolidated subsidiaries.
WNRL provides us with various pipeline transportation, terminal distribution and storage services under long-term, fee-based commercial agreements. These agreements contain minimum volume commitments. Each agreement has fees that are indexed for inflation and provides us with options to renew for two additional five-year terms.
In addition to commercial agreements, we are also party to an omnibus agreement with WNRL that among other things provides for reimbursement to us for various general and administrative services provided to WNRL. We are also party to an operational services agreement with WNRL, under which we are reimbursed for personnel services provided by Western in support of WNRL's operations of its pipelines, terminals and storage facilities.
WESTERN REFINING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
WNRL has risk associated with its operations. If a major customer of WNRL were to terminate its contracts or fail to meet desired shipping or throughput levels for an extended period of time, revenue would be reduced and WNRL could suffer substantial losses to the extent that a new customer is not found. In the event that WNRL incurs a loss, our operating results will reflect WNRL’s loss, net of intercompany eliminations, to the extent of our ownership interest in WNRL at that point in time.