UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________________________
FORM 10-Q
þ
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2014
OR
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
FOR THE TRANSITION PERIOD FROM __________TO __________ 

Commission file number: 001-32567
ALON USA ENERGY, INC.
(Exact name of Registrant as specified in its charter)
___________________________________________________

Delaware
 
74-2966572
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
12700 Park Central Dr., Suite 1600, Dallas, Texas 75251
(Address of principal executive offices) (Zip Code)

(972) 367-3600
(Registrant’s telephone number, including area code)
___________________________________________________

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes  þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer o
Accelerated filer þ
Non-accelerated filer o
Smaller reporting company o
 
(Do not check if a smaller reporting company)
Indicate by check whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
The number of shares of the Registrant’s common stock, par value $0.01 per share, outstanding as of October 24, 2014, was 69,606,019.

 
 



TABLE OF CONTENTS

 
Page


Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1.
FINANCIAL STATEMENTS

ALON USA ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands except per share data)
 
September 30,
2014
 
December 31,
2013
 
(unaudited)
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
193,568

 
$
224,499

Accounts and other receivables, net
198,871

 
200,398

Income tax receivable

 
16,053

Inventories
147,340

 
128,770

Deferred income tax asset
11,377

 
13,045

Prepaid expenses and other current assets
25,842

 
18,629

Total current assets
576,998

 
601,394

Equity method investments
28,297

 
26,251

Property, plant and equipment, net
1,383,988

 
1,429,342

Goodwill
101,913

 
105,943

Other assets, net
131,956

 
82,210

Total assets
$
2,223,152

 
$
2,245,140

LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
323,331

 
$
336,499

Accrued liabilities
113,052

 
120,858

Current portion of long-term debt
15,083

 
83,174

Total current liabilities
451,466

 
540,531

Other non-current liabilities
175,220

 
189,474

Long-term debt
540,875

 
529,074

Deferred income tax liability
364,346

 
360,657

Total liabilities
1,531,907

 
1,619,736

Commitments and contingencies (Note 16)

 

Stockholders’ equity:
 
 
 
Preferred stock, par value $0.01, 15,000,000 shares authorized; 68,180 shares issued and outstanding at September 30, 2014 and December 31, 2013
682

 
682

Common stock, par value $0.01, 150,000,000 shares authorized; 69,441,197 and 68,641,428 shares issued and outstanding at September 30, 2014 and December 31, 2013, respectively
694

 
686

Additional paid-in capital
515,213

 
509,170

Accumulated other comprehensive loss, net of tax
(6,830
)
 
(37,515
)
Retained earnings
141,540

 
124,936

Total stockholders’ equity
651,299

 
597,959

Non-controlling interest in subsidiaries
39,946

 
27,445

Total equity
691,245

 
625,404

Total liabilities and equity
$
2,223,152

 
$
2,245,140


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

Table of Contents

ALON USA ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, dollars in thousands except per share data)

 
For the Three Months Ended
 
For the Nine Months Ended
 
September 30,
 
September 30,
 
2014
 
2013
 
2014
 
2013
Net sales (1)
$
1,850,097

 
$
1,892,836

 
$
5,276,225

 
$
5,220,627

Operating costs and expenses:
 
 
 
 
 
 
 
Cost of sales
1,608,080

 
1,789,320

 
4,695,072

 
4,665,289

Direct operating expenses
70,356

 
72,035

 
208,664

 
217,703

Selling, general and administrative expenses
44,114

 
40,224

 
129,836

 
125,066

Depreciation and amortization
32,170

 
30,988

 
91,501

 
92,949

Total operating costs and expenses
1,754,720

 
1,932,567

 
5,125,073

 
5,101,007

Gain (loss) on disposition of assets
(1,372
)
 
334

 
745

 
8,846

Operating income (loss)
94,005

 
(39,397
)
 
151,897

 
128,466

Interest expense
(28,202
)
 
(22,263
)
 
(85,473
)
 
(63,816
)
Equity earnings of investees
1,982

 
3,426

 
2,801

 
5,155

Other income, net
20

 
91

 
641

 
220

Income (loss) before income tax expense
67,805

 
(58,143
)
 
69,866

 
70,025

Income tax expense (benefit)
14,331

 
(24,958
)
 
14,454

 
9,617

Net income (loss)
53,474

 
(33,185
)
 
55,412

 
60,408

Net income (loss) attributable to non-controlling interest
14,992

 
(4,476
)
 
23,662

 
23,437

Net income (loss) available to stockholders
$
38,482

 
$
(28,709
)
 
$
31,750

 
$
36,971

Earnings (loss) per share, basic
$
0.56

 
$
(0.47
)
 
$
0.46

 
$
0.56

Weighted average shares outstanding, basic (in thousands)
69,153

 
62,901

 
68,873

 
62,490

Earnings (loss) per share, diluted
$
0.55

 
$
(0.47
)
 
$
0.46

 
$
0.54

Weighted average shares outstanding, diluted (in thousands)
69,556

 
62,901

 
69,261

 
67,989

Cash dividends per share
$
0.10

 
$
0.06

 
$
0.22

 
$
0.32

___________
(1)
Includes excise taxes on sales by the retail segment of $19,012 and $19,307 for the three months and $55,923 and $55,143 for the nine months ended September 30, 2014 and 2013, respectively.

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

Table of Contents

ALON USA ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited, dollars in thousands)

 
For the Three Months Ended
 
For the Nine Months Ended
 
September 30,
 
September 30,
 
2014
 
2013
 
2014
 
2013
Net income (loss)
$
53,474

 
$
(33,185
)
 
$
55,412

 
$
60,408

Other comprehensive income (loss):
 
 
 
 
 
 
 
Interest rate derivatives designated as cash flow hedges:
 
 
 
 
 
 
 
Unrealized holding gain (loss) arising during period
283

 

 
(519
)
 

Loss reclassified to earnings - interest expense
21

 

 
35

 

Net gain (loss), before tax
304

 

 
(484
)
 

Income tax expense (benefit)
111

 

 
(179
)
 

Net gain (loss), net of tax
193

 

 
(305
)
 

Commodity contracts designated as cash flow hedges:
 
 
 
 
 
 
 
Unrealized holding gain arising during period
5,051

 
7,208

 
37,558

 
28,958

Gain reclassified to earnings - cost of sales

 
(11,339
)
 

 
(21,333
)
Amortization of unrealized loss on de-designated cash flow hedges - cost of sales
2,753

 

 
13,181

 

Net gain (loss), before tax
7,804

 
(4,131
)
 
50,739

 
7,625

Income tax expense (benefit)
2,888

 
(1,529
)
 
18,773

 
2,831

Net gain (loss), net of tax
4,916

 
(2,602
)
 
31,966

 
4,794

Total other comprehensive income (loss), net of tax
5,109

 
(2,602
)
 
31,661

 
4,794

Comprehensive income (loss)
58,583

 
(35,787
)
 
87,073

 
65,202

Comprehensive income (loss) attributable to non-controlling interest
15,100

 
(4,555
)
 
24,638

 
23,627

Comprehensive income (loss) attributable to stockholders
$
43,483

 
$
(31,232
)
 
$
62,435

 
$
41,575



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

Table of Contents

ALON USA ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, dollars in thousands)
 
For the Nine Months Ended
 
September 30,
 
2014
 
2013
Cash flows from operating activities:
 
 
 
Net income
$
55,412

 
$
60,408

Adjustments to reconcile net income to cash provided by operating activities:
 
 
 
Depreciation and amortization
91,501

 
92,949

Stock compensation
5,776

 
5,070

Deferred income tax expense (benefit)
(13,237
)
 
613

Equity earnings of investees
(1,449
)
 
(4,286
)
Amortization of debt issuance costs
2,955

 
3,474

Amortization of original issuance discount
4,805

 
2,591

Write-off of unamortized original issuance discount
391

 

Write-off of unamortized debt issuance costs
358

 

Gain on disposition of assets
(745
)
 
(8,846
)
Unrealized loss on commodity swaps
10,774

 

Changes in operating assets and liabilities:
 
 
 
Accounts and other receivables, net
12,604

 
(8,572
)
Income tax receivable
16,053

 

Inventories
(19,554
)
 
(48,667
)
Prepaid expenses and other current assets
(7,213
)
 
3,626

Other assets, net
(773
)
 
5,091

Accounts payable
(19,163
)
 
(24,350
)
Accrued liabilities
8,603

 
14,352

Other non-current liabilities
(2,514
)
 
16,208

Net cash provided by operating activities
144,584

 
109,661

Cash flows from investing activities:
 
 
 
Capital expenditures
(73,796
)
 
(48,311
)
Capital expenditures for turnarounds and catalysts
(51,392
)
 
(6,843
)
Contribution to equity method investment
(597
)
 
(781
)
Proceeds from disposition of assets
41,032

 
25,745

Net cash used in investing activities
(84,753
)
 
(30,190
)
Cash flows from financing activities:
 
 
 
Dividends paid to stockholders
(15,102
)
 
(19,988
)
Dividends paid to non-controlling interest
(389
)
 
(731
)
Distributions paid to non-controlling interest in the Partnership
(11,506
)
 
(31,746
)
Equity issuance costs

 
(1,012
)
Inventory agreement transactions
(200
)
 

Deferred debt issuance costs
(2,079
)
 
(4,126
)
Revolving credit facilities, net
(50,000
)
 
31,000

Additions to long-term debt
145,000

 
150,000

Payments on long-term debt
(156,486
)
 
(12,765
)
Proceeds from issuance of warrants

 
13,230

Payments for purchases of hedges on convertible debt

 
(28,455
)
Net cash provided by (used in) financing activities
(90,762
)
 
95,407

Net increase (decrease) in cash and cash equivalents
(30,931
)
 
174,878

Cash and cash equivalents, beginning of period
224,499

 
116,296

Cash and cash equivalents, end of period
$
193,568

 
$
291,174

Supplemental cash flow information:
 
 
 
Cash paid for interest, net of capitalized interest
$
85,261

 
$
50,534

Cash paid (refunds received) for income tax
$
(6,619
)
 
$
19,101

Supplemental disclosure of non-cash activity:
 
 
 
Capital expenditures included in accounts payable and accrued liabilities
$
4,495

 
$


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

Table of Contents

ALON USA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, dollars in thousands except as noted)
(1)
Basis of Presentation
As used in this report, unless otherwise specified, the terms “Alon,” “we,” “us” or “our” refer to Alon USA Energy, Inc. and its consolidated subsidiaries or to Alon USA Energy, Inc. or an individual subsidiary. The “Partnership,” as used in this report, refers to Alon USA Partners, LP and its consolidated subsidiaries.
These consolidated financial statements and notes are unaudited and have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities Exchange Act of 1934. Accordingly, they do not include all of the information and notes required by GAAP for complete consolidated financial statements.
In the opinion of our management, the information included in these consolidated financial statements reflects all adjustments, consisting of normal and recurring adjustments, which are necessary for a fair presentation of our consolidated financial position and results of operations for the interim periods presented. All significant intercompany balances and transactions have been eliminated in consolidation. Certain prior year balances may have been aggregated or disaggregated in order to conform to the current year presentation. Our results of operations for the three and nine month periods ended September 30, 2014 are not necessarily indicative of the operating results that may be realized for the year ending December 31, 2014.
Our consolidated balance sheet as of December 31, 2013, has been derived from the audited financial statements as of that date. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2013.
New Accounting Standards
In May 2014, the Financial Accounting Standards Board and the International Accounting Standards Board jointly issued a comprehensive new revenue recognition standard that provides accounting guidance for all revenue arising from contracts to provide goods or services to customers. This standard is intended to improve comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets. The requirements from the new standard are effective for interim and annual periods beginning after December 15, 2016, and early adoption is not permitted. The standard allows for either full retrospective adoption or modified retrospective adoption. We are evaluating the guidance to determine the method of adoption and the impact of this standard on our consolidated financial statements.
(2)
Alon USA Partners, LP     
The Partnership (NYSE: ALDW) is a publicly-traded limited partnership that owns the assets and conducts the operations of the Big Spring refinery and the associated wholesale marketing operations. As of September 30, 2014, the 11,506,550 common units held by the public represent 18.4% of the Partnership’s common units outstanding. We own the remaining 81.6% of the Partnership’s common units and Alon USA Partners GP, LLC (the “General Partner”), our wholly-owned subsidiary, owns 100% of the non-economic General Partner interest in the Partnership.
The limited partner interests in the Partnership not owned by us are reflected in the results of operations in net income attributable to non-controlling interest and in our balance sheet in non-controlling interest in subsidiaries. The Partnership is consolidated within the refining and marketing segment.
We have agreements with the Partnership which establish fees for certain administrative and operational services provided by us and our subsidiaries to the Partnership, provide certain indemnification obligations and other matters and establish terms for the supply of products by the Partnership to us.
Partnership Distributions
The Partnership has adopted a policy pursuant to which it will distribute all of the available cash generated each quarter, as defined in the partnership agreement, subject to the approval of the board of directors of the General Partner, within 60 days following the end of such quarter.

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Table of Contents
ALON USA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited, dollars in thousands except as noted)


During the nine months ended September 30, 2014, the Partnership paid the following cash distributions:
Date Paid
 
Distribution Amount Per Unit
 
Total Distribution Amount
 
Distribution Paid to Non-Affiliated Common Unitholders
March 3, 2014
 
$
0.18

 
$
11,250

 
$
2,070

May 21, 2014
 
0.69

 
43,130

 
7,940

August 25, 2014
 
0.13

 
8,126

 
1,496

(3)
Segment Data
Our revenues are derived from three operating segments: (i) refining and marketing, (ii) asphalt and (iii) retail. The reportable operating segments are strategic business units that offer different products and services. The segments are managed separately as each segment requires unique technology, marketing strategies and distinct operational emphasis. Each operating segment’s performance is evaluated primarily based on operating income.
(a)Refining and Marketing Segment
Our refining and marketing segment includes sour and heavy crude oil refineries located in Big Spring, Texas; and Paramount, Bakersfield and Long Beach, California (the “California refineries”); and a light sweet crude oil refinery located in Krotz Springs, Louisiana. Our refineries have a combined throughput capacity of approximately 217,000 barrels per day (“bpd”). At these refineries, we refine crude oil into petroleum products including gasoline, diesel, jet fuel, petrochemicals, petrochemical feedstocks, asphalt and other petroleum-based products, which are marketed primarily in the South Central, Southwestern and Western regions of the United States. During the nine months ended September 30, 2014 and 2013, we did not process crude oil at our California refineries.
We supply gasoline and diesel to 641 Alon branded retail sites, including our retail segment convenience stores. During 2014, approximately 63% of the gasoline and 29% of the diesel produced at our Big Spring refinery was transferred to our branded marketing business at prices substantially determined by wholesale market prices. Additionally, we license the use of the Alon brand name and provide credit card processing services to 75 licensed locations that are not under fuel supply agreements.
(b)Asphalt Segment
Our asphalt segment includes 10 refinery/terminal locations in Texas (Big Spring), California (Paramount, Long Beach, Elk Grove, Bakersfield and Mojave), Washington (Richmond Beach), Arizona (Phoenix and Flagstaff), and Nevada (Fernley) (50% interest) as well as through a 50% interest in Wright Asphalt Products Company, LLC, which specializes in marketing patented tire rubber modified asphalt products. The operations in which we have a 50% interest are recorded under the equity method of accounting and the investments are included as part of total assets in the asphalt segment data. Asphalt produced by our Big Spring refinery is transferred to the asphalt segment at prices substantially determined by reference to the cost of crude oil, which is intended to approximate wholesale market prices.
(c)Retail Segment
Our retail segment operates 296 convenience stores located in Central and West Texas and New Mexico. These convenience stores typically offer various grades of gasoline, diesel fuel, general merchandise and food and beverage products to the general public, primarily under the 7-Eleven and Alon brand names. Substantially all of the motor fuel sold through our retail segment is supplied by our Big Spring refinery.
(d)Corporate
Operations that are not included in any of the three segments are included in the corporate category. These operations consist primarily of corporate headquarters operating and depreciation expenses.

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Table of Contents
ALON USA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited, dollars in thousands except as noted)


Segment data as of and for the three and nine month periods ended September 30, 2014 and 2013 are presented below:
 
Refining and
Marketing
 
Asphalt
 
Retail
 
Corporate
 
Consolidated
Total
Three Months Ended September 30, 2014
 
 
 
 
 
 
 
 
 
Net sales to external customers
$
1,463,985

 
$
136,992

 
$
249,120

 
$

 
$
1,850,097

Intersegment sales (purchases)
153,296

 
(18,846
)
 
(134,450
)
 

 

Depreciation and amortization
27,506

 
1,219

 
2,847

 
598

 
32,170

Operating income (loss)
98,028

 
(10,097
)
 
6,850

 
(776
)
 
94,005

Total assets
1,868,545

 
115,696

 
218,127

 
20,784

 
2,223,152

Turnarounds, catalysts and capital expenditures
36,591

 
1,053

 
5,872

 
748

 
44,264

 
Refining and
Marketing
 
Asphalt
 
Retail
 
Corporate
 
Consolidated
Total
Three Months Ended September 30, 2013
 
 
 
 
 
 
 
 
 
Net sales to external customers
$
1,446,918

 
$
194,230

 
$
251,688

 
$

 
$
1,892,836

Intersegment sales (purchases)
164,339

 
(27,131
)
 
(137,208
)
 

 

Depreciation and amortization
26,255

 
1,588

 
2,538

 
607

 
30,988

Operating income (loss)
(47,587
)
 
1,723

 
7,250

 
(783
)
 
(39,397
)
Total assets
2,032,798

 
145,313

 
209,122

 
23,109

 
2,410,342

Turnarounds, catalysts and capital expenditures
11,754

 
1,556

 
4,369

 
229

 
17,908

 
Refining and
Marketing
 
Asphalt
 
Retail
 
Corporate
 
Consolidated
Total
Nine Months Ended September 30, 2014
 
 
 
 
 
 
 
 
 
Net sales to external customers
$
4,202,358

 
$
350,840

 
$
723,027

 
$

 
$
5,276,225

Intersegment sales (purchases)
441,165

 
(45,062
)
 
(396,103
)
 

 

Depreciation and amortization
77,587

 
3,581

 
8,544

 
1,789

 
91,501

Operating income (loss)
154,797

 
(17,191
)
 
16,609

 
(2,318
)
 
151,897

Total assets
1,868,545

 
115,696

 
218,127

 
20,784

 
2,223,152

Turnarounds, catalysts and capital expenditures
106,715

 
4,272

 
12,094

 
2,107

 
125,188

 
Refining and
Marketing
 
Asphalt
 
Retail
 
Corporate
 
Consolidated
Total
Nine Months Ended September 30, 2013
 
 
 
 
 
 
 
 
 
Net sales to external customers
$
4,006,715

 
$
493,286

 
$
720,626

 
$

 
$
5,220,627

Intersegment sales (purchases)
462,281

 
(68,422
)
 
(393,859
)
 

 

Depreciation and amortization
78,867

 
4,700

 
7,360

 
2,022

 
92,949

Operating income (loss)
112,135

 
(657
)
 
19,554

 
(2,566
)
 
128,466

Total assets
2,032,798

 
145,313

 
209,122

 
23,109

 
2,410,342

Turnarounds, catalysts and capital expenditures
36,993

 
5,947

 
11,546

 
668

 
55,154

Operating income (loss) for each segment consists of net sales less cost of sales, direct operating expenses, selling, general and administrative expenses, depreciation and amortization, and gain (loss) on disposition of assets. Intersegment sales are intended to approximate wholesale market prices. Consolidated totals presented are after intersegment eliminations.
Total assets of each segment consist of net property, plant and equipment, inventories, cash and cash equivalents, accounts and other receivables and other assets directly associated with the segment’s operations. Corporate assets consist primarily of corporate headquarters information technology and administrative equipment.

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ALON USA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited, dollars in thousands except as noted)


(4)
Fair Value
We determine fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We classify financial assets and financial liabilities into the following fair value hierarchy:
Level 1 -     valued based on quoted prices in active markets for identical assets and liabilities;
Level 2 -     valued based on quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability; and
Level 3 -     valued based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
As required, we utilize valuation techniques that maximize the use of observable inputs (levels 1 and 2) and minimize the use of unobservable inputs (level 3) within the fair value hierarchy. We generally apply the “market approach” to determine fair value. This method uses pricing and other information generated by market transactions for identical or comparable assets and liabilities. Assets and liabilities are classified within the fair value hierarchy based on the lowest level (least observable) input that is significant to the measurement in its entirety.
The carrying amounts of our cash and cash equivalents, receivables, payables and accrued liabilities approximate fair value due to the short-term maturities of these assets and liabilities. The reported amounts of long-term debt approximate fair value. Derivative instruments are carried at fair value, which are based on quoted market prices. Derivative instruments and the Renewable Identification Numbers (“RINs”) obligation are our only assets and liabilities measured at fair value on a recurring basis.
The RINs obligation represents the period-end deficit, if any, after considering any RINs acquired or under contract, necessary to meet our requirements to blend biofuels into the products we have produced. The RINs obligation is categorized as level 2 of the fair value hierarchy and is measured at fair value using the market approach based on quoted prices from an independent pricing service.
The following table sets forth the assets and liabilities measured at fair value on a recurring basis, by input level, in the consolidated balance sheets at September 30, 2014 and December 31, 2013:
 
Level 1
 
Level 2
 
Level 3
 
Total
As of September 30, 2014
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Commodity contracts (swaps)
$

 
$
13,068

 
$

 
$
13,068

Liabilities:
 
 
 
 
 
 
 
Commodity contracts (futures and forwards)
2,501

 

 

 
2,501

Interest rate swaps

 
484

 

 
484

Fair value hedges

 
1,740

 

 
1,740

 
 
 
 
 
 
 
 
As of December 31, 2013
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Commodity contracts (futures and forwards)
$
335

 
$

 
$

 
$
335

Liabilities:
 
 
 
 
 
 
 
Commodity contracts (swaps)

 
15,328

 
11,569

 
26,897

Fair value hedges

 
3,339

 

 
3,339

RINs obligation

 
334

 

 
334

Level 3 Financial Instruments
As of December 31, 2013, we had commodity price swap contracts related to forecasted sales of jet fuel and forecasted purchases of crude oil for which quoted forward market prices were not readily available. The forward rate used to value these commodity price swaps was derived using a projected forward rate using quoted market rates for similar products, adjusted for product grade differentials, a level 3 input. In January 2014, quoted forward market prices for these commodities became available, and the related financial liability was reclassified to level 2.

8

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ALON USA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited, dollars in thousands except as noted)


The following table presents the changes in fair value of our level 3 assets and liabilities (all related to commodity price swap contracts) for the nine months ended September 30, 2014:
 
 
For the Nine Months Ended September 30, 2014
Balance at beginning of period
 
$
(11,569
)
Change in fair value of level 3 trades open at the beginning of the period
 

Fair value of trades entered into during the period
 

Fair value of reclassification from level 3 to level 2
 
11,569

Settlement value of contractual maturities - Recognized in cost of sales
 

Balance at end of period
 
$

(5)
Derivative Financial Instruments
We selectively utilize crude oil and refined product commodity derivative contracts to reduce the risk associated with potential price changes on committed obligations as well as to reduce earnings volatility. We also utilize interest rate swaps to manage our exposure to interest rate risk. We do not speculate using derivative instruments. Credit risk on our derivative instruments is mitigated by transacting with counterparties meeting established collateral and credit criteria.
Mark to Market
We have certain contracts that serve as economic hedges, which are derivatives used for risk management but not designated as hedges for financial accounting purposes. All economic hedge transactions are recorded at fair value and any changes in fair value between periods are recognized in earnings.
We have contracts that are used to fix prices on forecasted purchases of inventory. Forwards represent physical trades for which pricing and quantities have been set, but the physical product delivery has not occurred by the end of the reporting period. Futures represent trades executed on the New York Mercantile Exchange which have not been closed or settled at the end of the reporting period.
We also have economic hedges in the form of swap contracts that fix the price differential between Brent crude oil and the crude oil that we process at our refineries. At September 30, 2014, we have swap contracts for 2,160 thousand barrels of crude oil, with contract terms through December 2015.
Fair Value Hedges
Fair value hedges are used to hedge price volatility of certain refining inventories and firm commitments to purchase inventories. The gain or loss on a derivative instrument designated and qualifying as a fair value hedge, as well as the offsetting gain or loss on the hedged item attributable to the hedged risk, is recognized in earnings in the same period.
As of September 30, 2014, we have accounted for certain commodity contracts as fair value hedges with contract purchase volumes of 821 thousand barrels of crude oil with remaining contract terms through May 2019.
Cash Flow Hedges
To designate a derivative as a cash flow hedge, we document at the inception of the hedge the assessment that the derivative will be highly effective in offsetting expected changes in cash flows from the item hedged. This assessment, which is updated at least quarterly, is generally based on the most recent relevant historical correlation between the derivative and the item hedged. If, during the term of the derivative, the hedge is determined to be no longer highly effective, hedge accounting is prospectively discontinued and any remaining unrealized gains or losses, based on the effective portion of the derivative at that date, are reclassified to earnings when the underlying transactions occur.
Commodity Derivatives. As of September 30, 2014, we have accounted for certain commodity swap contracts as cash flow hedges with net contract purchase volumes of 3,600 thousand barrels of crude oil and net contract sales volumes of 3,600 thousand barrels of refined products with the longest remaining contract term of fifteen months. Related to these transactions in other comprehensive income (“OCI”), we recognized unrealized gains (losses) of $7,804 and $(4,131) for the three months and$50,739 and $7,625 for the nine months ended September 30, 2014 and 2013, respectively.
In November 2013 and April 2014, we elected to de-designate certain commodity swap contracts that were previously designated as cash flow hedges. As of September 30, 2014, we have total net unrealized losses of $2,391 classified in OCI that related to the application of hedge accounting prior to de-designation, which will be recorded into earnings as the underlying

9

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ALON USA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited, dollars in thousands except as noted)


transactions occur through the remainder of 2014. During the three and nine months ended September 30, 2014, we reclassified $2,753 and $13,181 of losses, respectively, related to these de-designated cash flow hedges from OCI into cost of sales.
Interest Rate Derivatives. In April 2014, we entered into three interest rate swap agreements, maturing March 2019, that effectively fix the variable LIBOR interest component of the term loan within the Alon Retail Credit Agreement, as defined in Note 12. The aggregate notional amount under these agreements covers approximately 75% of the outstanding principal of the term loan throughout the duration of the interest rate swaps. As of September 30, 2014, the outstanding principal of the term loan was $104,500. The interest rate swaps lock in an average fixed interest rate of 0.25% in 2014; 0.60% in 2015; 1.47% in 2016; 2.35% in 2017; 3.09% in 2018 and 3.28% thereafter. The interest rate swaps have been accounted for as cash flow hedges. Related to these transactions in OCI, we recognized unrealized gains (losses) of $304 and $(484) during the three and nine months ended September 30, 2014, respectively.
For the three and nine months ended September 30, 2014 and 2013, there was no cash flow hedge ineffectiveness recognized in income. No component of our cash flow hedges’ gains or losses was excluded from the assessment of hedge effectiveness.
As of September 30, 2014, we have net unrealized gains of $20,274 classified in OCI related to cash flow hedges. Assuming commodity prices and interest rates remain unchanged, unrealized gains of $14,257 will be reclassified from OCI into earnings as the underlying transactions occur over the next twelve-month period.
The following tables present the effect of derivative instruments on the consolidated statements of financial position:
 
As of September 30, 2014
 
Asset Derivatives
 
Liability Derivatives
 
Balance Sheet Location
 
Fair Value
 
Balance Sheet Location
 
Fair Value
Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
Commodity contracts (futures and forwards)
Accounts receivable
 
$
2,918

 
Accrued liabilities
 
$
5,419

Commodity contracts (swaps)
Accounts receivable
 
1,814

 
Accrued liabilities
 
368

Commodity contracts (swaps)
Other assets, net
 
94

 
Other non-current liabilities
 
51

Total derivatives not designated as hedging instruments
 
 
$
4,826

 
 
 
$
5,838

 
 
 
 
 
 
 
 
Derivatives designated as hedging instruments:
 
 
 
 
 
 
 
Commodity contracts (swaps)
Accounts receivable
 
$
9,263

 
 
 
$

Commodity contracts (swaps)
Other assets, net
 
2,316

 
 
 

Interest rate swaps
 
 

 
Other non-current liabilities
 
484

Fair value hedges
 
 

 
Other non-current liabilities
 
1,740

Total derivatives designated as hedging instruments
 
 
11,579

 
 
 
2,224

Total derivatives
 
 
$
16,405

 
 
 
$
8,062


10

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ALON USA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited, dollars in thousands except as noted)


 
As of December 31, 2013
 
Asset Derivatives
 
Liability Derivatives
 
Balance Sheet Location
 
Fair Value
 
Balance Sheet Location
 
Fair Value
Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
Commodity contracts (futures and forwards)
Accounts receivable
 
$
1,533

 
Accrued liabilities
 
$
1,198

Total derivatives not designated as hedging instruments
 
 
$
1,533

 
 
 
$
1,198

 
 
 
 
 
 
 
 
Derivatives designated as hedging instruments:
 
 
 
 
 
 
 
Commodity contracts (swaps)
 
 
$

 
Accrued liabilities
 
$
15,328

Commodity contracts (swaps)
 
 

 
Other non-current liabilities
 
11,569

Fair value hedges
 
 

 
Other non-current liabilities
 
3,339

Total derivatives designated as hedging instruments
 
 

 
 
 
30,236

Total derivatives
 
 
$
1,533

 
 
 
$
31,434

The following tables present the effect of derivative instruments on the consolidated statements of operations and accumulated other comprehensive income:
Derivatives designated as hedging instruments:
Cash Flow Hedging Relationships
 
Gain (Loss) Recognized
in OCI
 
Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)
 
Gain (Loss) Reclassified
from Accumulated OCI into
Income (Ineffective
Portion and Amount
Excluded from
Effectiveness Testing)
 
 
 
 
Location
 
Amount
 
Location
 
Amount
For the Three Months Ended September 30, 2014
 
 
 
 
 
 
 
 
Commodity contracts (swaps)
 
$
7,804

 
Cost of sales
 
$
(2,753
)
 
 
 
$

Interest rate swaps
 
304

 
Interest expense
 
(21
)
 
 
 

Total derivatives
 
$
8,108

 
 
 
$
(2,774
)
 
 
 
$

 
 
 
 
 
 
 
 
 
 
 
For the Three Months Ended September 30, 2013
 
 
 
 
 
 
 
 
Commodity contracts (swaps)
 
$
(4,131
)
 
Cost of sales
 
$
11,339

 
 
 
$

Total derivatives
 
$
(4,131
)
 
 
 
$
11,339

 
 
 
$

Cash Flow Hedging Relationships
 
Gain (Loss) Recognized
in OCI
 
Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)
 
Gain (Loss) Reclassified
from Accumulated OCI into
Income (Ineffective
Portion and Amount
Excluded from
Effectiveness Testing)
 
 
 
 
Location
 
Amount
 
Location
 
Amount
For the Nine Months Ended September 30, 2014
 
 
 
 
 
 
 
 
Commodity contracts (swaps)
 
$
50,739

 
Cost of sales
 
$
(13,181
)
 
 
 
$

Interest rate swaps
 
(484
)
 
Interest expense
 
(35
)
 
 
 

Total derivatives
 
$
50,255

 
 
 
$
(13,216
)
 
 
 
$

 
 
 
 
 
 
 
 
 
 
 
For the Nine Months Ended September 30, 2013
 
 
 
 
 
 
 
 
Commodity contracts (swaps)
 
$
7,625

 
Cost of sales
 
$
21,333

 
 
 
$

Total derivatives
 
$
7,625

 
 
 
$
21,333

 
 
 
$


11

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ALON USA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited, dollars in thousands except as noted)


Derivatives in fair value hedging relationships:
 
 
 
Gain (Loss) Recognized in Income
 
 
 
For the Three Months Ended
 
For the Nine Months Ended
 
 
 
September 30,
 
September 30,
 
Location
 
2014
 
2013
 
2014
 
2013
Fair value hedges
Cost of sales
 
$
8,650

 
$
(7,888
)
 
$
1,599

 
$
(9,746
)
Total derivatives
 
 
$
8,650

 
$
(7,888
)
 
$
1,599

 
$
(9,746
)
Derivatives not designated as hedging instruments:
 
 
 
Gain (Loss) Recognized in Income
 
 
 
For the Three Months Ended
 
For the Nine Months Ended
 
 
 
September 30,
 
September 30,
 
Location
 
2014
 
2013
 
2014
 
2013
Commodity contracts (futures & forwards)
Cost of sales
 
$
(6,674
)
 
$
(1,757
)
 
$
(12,792
)
 
$
8,762

Commodity contracts (swaps)
Cost of sales
 
1,489

 

 
3,290

 

Total derivatives
 
 
$
(5,185
)
 
$
(1,757
)
 
$
(9,502
)
 
$
8,762

Offsetting Assets and Liabilities
Our commodity derivative financial instruments are subject to master netting arrangements to manage counterparty credit risk associated with derivatives and we offset the fair value amounts recorded for derivative instruments to the extent possible under these agreements on our consolidated balance sheets.
The following table presents offsetting information regarding our derivatives by type of transaction as of September 30, 2014 and December 31, 2013:
 
Gross Amounts of Recognized Assets/Liabilities
 
Gross Amounts offset in the Statement of Financial Position
 
Net Amounts Presented in the Statement of Financial Position
 
Gross Amounts Not offset in the Statement of Financial Position
 
Net Amount
 
 
 
Financial Instruments
 
Cash Collateral Pledged
 
As of September 30, 2014
 
 
 
 
 
 
 
 
 
 
 
Derivative Assets:
 
 
 
 
 
 
 
 
 
 
 
Commodity contracts (futures & forwards)
$
3,240

 
$
(322
)
 
$
2,918

 
$
(2,918
)
 
$

 
$

Commodity contracts (swaps)
13,487

 

 
13,487

 
(419
)
 

 
13,068

Derivative Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Commodity contracts (futures & forwards)
$
5,741

 
$
(322
)
 
$
5,419

 
$
(2,918
)
 
$

 
$
2,501

Commodity contracts (swaps)
419

 

 
419

 
(419
)
 

 

Interest rate swaps
484

 

 
484

 

 

 
484

Fair value hedges
1,740

 

 
1,740

 

 

 
1,740

 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2013
 
 
 
 
 
 
 
 
 
 
 
Derivative Assets:
 
 
 
 
 
 
 
 
 
 
 
Commodity contracts (futures & forwards)
$
2,287

 
$
(754
)
 
$
1,533

 
$
(1,198
)
 
$

 
$
335

Derivative Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Commodity contracts (futures & forwards)
$
1,952

 
$
(754
)
 
$
1,198

 
$
(1,198
)
 
$

 
$

Commodity contracts (swaps)
26,897

 

 
26,897

 

 

 
26,897

Fair value hedges
3,339

 

 
3,339

 

 

 
3,339


12

Table of Contents
ALON USA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited, dollars in thousands except as noted)


Compliance Program Market Risk
We are obligated by government regulations to blend a certain percentage of biofuels into the products we produce that are consumed in the U.S. We purchase biofuels from third parties and blend those biofuels into our products, and each gallon of biofuel purchased includes a RIN. To the degree we are unable to blend biofuels at the required percentage, a RINs deficit is generated and we must acquire that number of RINs by the annual reporting deadline in order to remain in compliance with applicable regulations.
We are exposed to market risk related to the volatility in the price of RINs needed to comply with these government regulations. We manage this risk by purchasing RINs when prices are deemed favorable utilizing fixed price purchase contracts. Some of these contracts are derivative instruments; however, we elect the normal purchase and sale exception and do not record these contracts at their fair values.
The cost of meeting our obligations under these compliance programs was $8,469 and $1,178 for the three months ended and $20,823 and $9,194 for the nine months ended September 30, 2014 and 2013, respectively. These amounts are reflected in cost of sales.
(6)
Inventories
Our inventories (including inventory consigned to others) are stated at the lower of cost or market. Cost is determined under the last-in, first-out (LIFO) method for crude oil, refined products, asphalt, and blendstock inventories. Materials and supplies are stated at average cost. Cost for convenience store merchandise inventories is determined under the retail inventory method and cost for convenience store fuel inventories is determined under the first-in, first-out (FIFO) method.
Carrying value of inventories consisted of the following:
 
September 30,
2014
 
December 31,
2013
Crude oil, refined products, asphalt and blendstocks
$
42,336

 
$
34,326

Crude oil inventory consigned to others
51,336

 
44,081

Materials and supplies
21,853

 
21,685

Store merchandise
23,713

 
20,526

Store fuel
8,102

 
8,152

Total inventories
$
147,340

 
$
128,770

Market values of crude oil, refined products, asphalt and blendstock inventories exceeded LIFO costs by $57,264 and $61,199 at September 30, 2014 and December 31, 2013, respectively.
(7)
Inventory Financing Agreements
Alon has Supply and Offtake Agreements and other associated agreements (together the “Supply and Offtake Agreements”) with J. Aron & Company (“J. Aron”), to support the operations of the Big Spring, Krotz Springs and California refineries and most of our asphalt terminals. Pursuant to the Supply and Offtake Agreements, (i) J. Aron agreed to sell to us, and we agreed to buy from J. Aron, at market prices, crude oil for processing at the refineries and (ii) we agreed to sell, and J. Aron agreed to buy, at market prices, certain refined products produced at the refineries.
The Supply and Offtake Agreements also provided for the sale, at market prices, of our crude oil and certain refined product inventories to J. Aron, the lease to J. Aron of crude oil and refined product storage facilities, and to identify prospective purchasers of refined products on J. Aron’s behalf. The Supply and Offtake Agreements have initial terms that expire in May 2019. J. Aron may elect to terminate the Supply and Offtake Agreements prior to the expiration of the initial term in May 2016 and upon each anniversary thereof, on six months prior notice. We may elect to terminate in May 2018 on six months prior notice.
Following expiration or termination of the Supply and Offtake Agreements, we are obligated to purchase the crude oil and refined product inventories then owned by J. Aron and located at the leased storage facilities at then current market prices. Financing charges related to the Supply and Offtake Agreements are recorded as interest expense in the consolidated statements of operations.
In association with the Supply and Offtake Agreement at the Krotz Springs refinery, we have a secured Credit Agreement (the “Krotz Springs Standby LC Facility”) by and between Alon, as Borrower, and Goldman Sachs Bank USA, as Issuing Bank. The Krotz Springs Standby LC Facility provides for up to $200,000 of letters of credit to be issued to J. Aron. Obligations

13

Table of Contents
ALON USA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited, dollars in thousands except as noted)


under the Krotz Springs Standby LC Facility are secured by a first priority lien on the existing and future accounts receivable and inventory of Alon Refining Krotz Springs, Inc. and its subsidiaries (“ARKS”), our wholly-owned subsidiary. The Krotz Springs Standby LC Facility includes customary events of default and restrictions on the activities of ARKS. The Krotz Springs Standby LC Facility contains no maintenance financial covenants. As of September 30, 2014, there is no further availability under the Krotz Springs Standby LC Facility. The Krotz Springs Standby LC Facility matures in July 2016.
As of September 30, 2014 and December 31, 2013, we had net current payables to J. Aron for purchases of $24,915 and $16,917, respectively, non-current liabilities related to the original financing of $74,222 and $67,889, respectively, and a consignment inventory receivable representing a deposit paid to J. Aron of $26,179 and $26,179, respectively.
Additionally, we had net current payables of $4,799 and $539 at September 30, 2014 and December 31, 2013, respectively, for forward commitments related to month-end consignment inventory target levels differing from projected levels and the associated pricing with these inventory level differences.
(8)
Property, Plant and Equipment, Net
Property, plant and equipment, net consisted of the following:
 
September 30,
2014
 
December 31,
2013
Refining facilities
$
1,811,482

 
$
1,804,445

Pipelines and terminals
43,439

 
43,445

Retail
195,600

 
184,858

Other
17,319

 
15,326

Property, plant and equipment, gross
2,067,840

 
2,048,074

Accumulated depreciation
(683,852
)
 
(618,732
)
Property, plant and equipment, net
$
1,383,988

 
$
1,429,342

Disposition of Assets
In January 2014, we sold our Willbridge, Oregon asphalt terminal for $40,000. The terminal was included in our asphalt segment and at the time of disposition was allocated goodwill of $4,030. For the nine months ended September 30, 2014, a before-tax gain of $1,987 was recognized and has been included in gain (loss) on disposition of assets in our consolidated statements of operations.
(9)
Goodwill
The following table provides a summary of changes to our goodwill balance for the nine months ended September 30, 2014:
Balance at December 31, 2013
$
105,943

Disposition of assets with allocated goodwill
(4,030
)
Balance at September 30, 2014
$
101,913

During the nine months ended September 30, 2014, we sold our Willbridge, Oregon asphalt terminal, which was allocated goodwill of $4,030 at the time of disposition.

14

Table of Contents
ALON USA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited, dollars in thousands except as noted)


(10)
Additional Financial Information
The following tables provide additional financial information related to the consolidated financial statements.
(a)
Other Assets, Net
 
September 30,
2014
 
December 31,
2013
Deferred turnaround and catalyst cost
$
60,300

 
$
12,271

Environmental receivables
1,959

 
4,273

Deferred debt issuance costs
11,368

 
12,602

Intangible assets, net
7,782

 
7,497

Receivable from supply agreements
26,179

 
26,179

Commodity contracts
2,410

 

Other, net
21,958

 
19,388

Total other assets
$
131,956

 
$
82,210

(b)
Accrued Liabilities and Other Non-Current Liabilities
 
September 30,
2014
 
December 31,
2013
Accrued Liabilities:
 
 
 
Taxes other than income taxes, primarily excise taxes
$
32,067

 
$
37,645

Employee costs
14,388

 
13,793

Commodity contracts
5,787

 
16,526

Accrued finance charges
824

 
8,733

Environmental accrual (Note 16)
12,898

 
12,898

Other
47,088

 
31,263

Total accrued liabilities
$
113,052

 
$
120,858

 
 
 
 
Other Non-Current Liabilities:
 
 
 
Pension and other postemployment benefit liabilities, net
$
38,675

 
$
40,351

Environmental accrual (Note 16)
39,930

 
45,484

Asset retirement obligations
12,165

 
12,468

Consignment inventory obligations
74,222

 
67,889

Commodity contracts
51

 
11,569

Other
10,177

 
11,713

Total other non-current liabilities
$
175,220

 
$
189,474

(11)
Postretirement Benefits
The components of net periodic benefit cost related to our benefit plans for the three and nine months ended September 30, 2014 and 2013 consisted of the following:
 
For the Three Months Ended
 
For the Nine Months Ended
 
September 30,
 
September 30,
 
2014
 
2013
 
2014
 
2013
Components of net periodic benefit cost:
 
 
 
 
 
 
 
Service cost
$
856

 
$
1,116

 
$
2,568

 
$
3,348

Interest cost
1,238

 
1,100

 
3,714

 
3,300

Expected return on plan assets
(1,370
)
 
(1,158
)
 
(4,109
)
 
(3,472
)
Amortization of net loss
596

 
1,006

 
1,787

 
3,016

Net periodic benefit cost
$
1,320

 
$
2,064

 
$
3,960

 
$
6,192


15

Table of Contents
ALON USA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited, dollars in thousands except as noted)


Our estimated contributions to our pension plans during 2014 have not changed significantly from amounts previously disclosed in the consolidated financial statements for the year ended December 31, 2013. For the nine months ended September 30, 2014 and 2013, we contributed $5,865 and $5,005, respectively, to our qualified pension plans.
(12)
Indebtedness
Debt consisted of the following:
 
September 30,
2014
 
December 31,
2013
Term loan credit facilities
$
266,134

 
$
244,322

Alon USA, LP revolving credit facility
50,000

 
100,000

Senior secured notes

 
73,706

Convertible senior notes
124,940

 
121,090

Retail credit facilities
114,884

 
73,130

Total debt
555,958

 
612,248

Less: Current portion
15,083

 
83,174

Total long-term debt
$
540,875

 
$
529,074

(a) Alon Energy Term Loan
In March 2014, we entered into a five-year term loan agreement (“Alon Energy Term Loan”) for a principal amount of $25,000, maturing in March 2019. Repayments are monthly, commencing June 2014. Borrowings under this agreement incur interest at an annual rate equal to LIBOR plus a margin of 3.75%. We pledged 2,200,000 of the Partnership’s common units as collateral for the Alon Energy Term Loan. Additionally, Alon Assets, Inc. (“Alon Assets”) guarantees all payments under the Alon Energy Term Loan. The Alon Energy Term Loan contains certain restrictive covenants, including maintenance financial covenants.
Proceeds from the Alon Energy Term Loan were used to purchase equipment for a capital project at the Big Spring refinery.
At September 30, 2014, the Alon Energy Term Loan had an outstanding balance of $23,276.
(b) Retail Credit Facilities
Southwest Convenience Stores, LLC and Skinny’s LLC (“Alon Retail”) were parties to a credit agreement (the “Credit Agreement”) with a maturity in December 2015. At December 31, 2013, the outstanding balance under the Credit Agreement was $72,689. In March 2014, Alon Retail entered into a new credit agreement (“Alon Retail Credit Agreement”) and repaid in full its obligations under the Credit Agreement.
The Alon Retail Credit Agreement will mature in March 2019 and includes a $110,000 term loan and a $10,000 revolving credit loan. The Alon Retail Credit Agreement also includes an accordion feature that provides for incremental term loans up to $30,000 to fund store rebuilds, new builds and acquisitions. Borrowings under the Alon Retail Credit Agreement bear interest at a Eurodollar rate plus an applicable margin between 2.00% and 2.75%, determined quarterly based upon Alon Retail’s leverage ratio. Principal payments are made in quarterly installments based on a 15-year amortization schedule. Obligations under the Alon Retail Credit Agreement are secured by a first lien on substantially all of the assets of Alon Retail. The Alon Retail Credit Agreement also contains certain restrictive covenants including maintenance financial covenants.
Proceeds from the Alon Retail Credit Agreement were used to fully repay the remaining obligations under the Credit Agreement and pay a dividend distribution of $40,000 to Alon Brands, Inc., our wholly-owned subsidiary, with the remainder used for general corporate purposes.
At September 30, 2014, the Alon Retail Credit Agreement had an outstanding balance of $114,500, consisting of a term loan balance of $104,500 and a revolving credit loan balance of $10,000.
(c) Alon USA, LP Revolving Credit Facility and Letters of Credit
We had letters of credit outstanding under the Alon Energy $60,000 letter of credit facility of $58,227 and $56,827 at September 30, 2014 and December 31, 2013, respectively.
We had borrowings of $50,000 and $100,000 and letters of credit of $90,656 and $109,772 outstanding under the Alon USA, LP $240,000 revolving credit facility at September 30, 2014 and December 31, 2013, respectively.

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ALON USA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited, dollars in thousands except as noted)


(d) Senior Secured Notes
During the nine months ended September 30, 2014, we redeemed the remaining principal balance on the 13.50% senior secured notes (“Senior Secured Notes”) due October 2014. As a result of the prepayment of the Senior Secured Notes, write-offs of unamortized original issuance discount and debt issuance costs of $137 and $105, respectively, were charged to interest expense for the three months ended September 30, 2014, and $391 and $358, respectively, for the nine months ended September 30, 2014.
At December 31, 2013, the Senior Secured Notes had an outstanding balance of $73,706.
(e) Convertible Senior Notes
In August 2014, our board of directors increased the regular quarterly cash dividend on our common stock from $0.06 per share to $0.10 per share. This increase prompted an adjustment to the initial conversion price for both the convertible senior notes and the call overlay transactions. The conversion price for the convertible senior notes and convertible note hedge decreased to $14.75 from the initial conversion price of $14.79. The strike price for the warrants decreased to $20.04 from the initial strike price of $20.09. Any future regular quarterly cash dividend payments in excess of $0.06 per share will cause further adjustment based on the formula contained in the indenture.
(f) Financial Covenants
We have certain credit agreements that contain maintenance financial covenants. At September 30, 2014, we were in compliance with these covenants.
(13)
Stock-Based Compensation (share values in dollars)
Our overall executive incentive compensation program permits the granting of awards to our directors, officers and key employees in the form of options to purchase common stock, stock appreciation rights, restricted shares of common stock, restricted common stock units, performance shares, performance units and senior executive plan bonuses.
Restricted Stock. Non-employee directors are awarded an annual grant of $25 in shares of restricted stock, which vest over a period of three years, assuming continued service at vesting. In May 2014, we granted awards to our non-employee directors of 4,965 restricted shares at a grant date price of $15.11 per share.
In May 2014, we granted awards of 255,000 restricted shares to certain executive officers at a grant date price of $15.11 per share. These May 2014 restricted shares will vest as follows:  50% in May 2015 and 50% in May 2016, assuming continued service at vesting.
In August 2014, we granted awards of 69,980 restricted shares to certain executive officers at a grant date price of $13.65 per share. These August 2014 restricted shares will vest as follows: 50% in August 2015 and 50% in August 2019, assuming continued service at vesting.
The following table summarizes the restricted share activity from January 1, 2014:
 
 
 
 
Weighted
Average
Grant Date
Fair Values
Nonvested Shares
 
Shares
 
(per share)
Nonvested at January 1, 2014
 
448,694

 
$
14.64

Granted
 
329,945

 
14.80

Vested
 
(134,640
)
 
16.95

Forfeited
 

 

Nonvested at September 30, 2014
 
643,999

 
$
14.24

Compensation expense for restricted stock awards amounted to $1,308 and $1,117 for the three months ended September 30, 2014 and 2013, respectively, and $2,796 and $2,254 for the nine months ended September 30, 2014 and 2013, respectively, and is included in selling, general and administrative expenses in the consolidated statements of operations. The fair value of shares vested in 2014 was $2,044.
Restricted Stock Units. In 2011, we granted 500,000 restricted stock units to our CEO and President at a grant date fair value of $11.47 per share. Each restricted unit represents the right to receive one share of our common stock upon the vesting of the restricted stock unit. All 500,000 restricted stock units vest on March 1, 2015, assuming continued service at vesting.

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ALON USA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited, dollars in thousands except as noted)


Compensation expense for restricted stock units amounted to $374 and $374 for the three months ended September 30, 2014 and 2013, respectively, and $1,122 and $1,122 for the nine months ended September 30, 2014 and 2013, respectively, and is included in selling, general and administrative expenses in the consolidated statements of operations.
Unrecognized Compensation Cost. As of September 30, 2014, there was $6,245 of total unrecognized compensation cost related to non-vested share-based compensation arrangements, which is expected to be recognized over a weighted-average period of 1.6 years.
(14)
Equity (share values in dollars)
Changes to equity during the nine months ended September 30, 2014 are presented below:
 
 
Total Stockholders’ Equity
 
Non-controlling Interest
 
Total Equity
Balance at December 31, 2013
 
$
597,959

 
$
27,445

 
$
625,404

Other comprehensive income
 
30,685

 
976

 
31,661

Stock compensation
 
6,018

 
(242
)
 
5,776

Dividends of common stock on preferred stock
 
(11
)
 

 
(11
)
Distributions to non-controlling interest in the Partnership
 

 
(11,506
)
 
(11,506
)
Dividends
 
(15,102
)
 
(389
)
 
(15,491
)
Net income
 
31,750

 
23,662

 
55,412

Balance at September 30, 2014
 
$
651,299

 
$
39,946

 
$
691,245

(a)Common Stock
Amended Shareholder Agreement. In 2012, we signed agreements with the remaining non-controlling interest shareholders of Alon Assets whereby the participants would exchange shares of Alon Assets for shares of our common stock. During the nine months ended September 30, 2014, 494,467 shares of our common stock were issued in exchange for 2,643.36 shares of Alon Assets. At September 30, 2014, 1,425,245 shares of our common stock are available to be exchanged for the outstanding shares held by non-controlling interest shareholders of Alon Assets.
We recognized compensation expense associated with the difference in value between the participants' ownership of Alon Assets compared to our common stock of $540 and $561 for the three months ended September 30, 2014 and 2013, respectively, and $1,845 and $2,059 for the nine months ended September 30, 2014 and 2013, respectively. These amounts are included in selling, general and administrative expenses in the consolidated statements of operations.
(b)
Dividends
Common Stock Dividends. During the nine months ended September 30, 2014, we paid the following dividends:
Date Paid
 
Record Date
 
Dividend Amount Per Share
March 14, 2014
 
February 28, 2014
 
$
0.06

June 16, 2014
 
May 30, 2014
 
0.06

September 22, 2014
 
September 8, 2014
 
0.10

Preferred Stock Dividends. During the nine months ended September 30, 2014, we issued 2,267 shares of common stock for payment of the quarterly 8.5% preferred stock dividend to preferred stockholders.

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ALON USA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited, dollars in thousands except as noted)


(c)
Accumulated Other Comprehensive Loss
The following table displays the change in accumulated other comprehensive loss, net of tax:
 
Unrealized Gain (Loss) on Cash Flow Hedges
 
Postretirement Benefit Plans
 
Total
Balance at December 31, 2013
$
(18,248
)
 
$
(19,267
)
 
$
(37,515
)
Other comprehensive income before reclassifications
22,571

 

 
22,571

Amounts reclassified from accumulated other comprehensive loss
8,114

 

 
8,114

Net current-period other comprehensive income
30,685

 

 
30,685

Balance at September 30, 2014
$
12,437

 
$
(19,267
)
 
$
(6,830
)
(15)
Earnings (Loss) Per Share
Basic earnings (loss) per share is calculated as net income (loss) available to common stockholders divided by the average number of participating shares of common stock outstanding. Diluted earnings (loss) per share includes the dilutive effect of granted stock appreciation rights, granted restricted common stock units, granted restricted common stock awards, convertible debt and warrants using the treasury stock method and the dilutive effect of convertible preferred shares using the if-converted method.
The calculation of earnings (loss) per share, basic and diluted, for the three and nine months ended September 30, 2014 and 2013, is as follows (shares in thousands, per share value in dollars):
 
For the Three Months Ended
 
For the Nine Months Ended
 
September 30,
 
September 30,
 
2014
 
2013
 
2014
 
2013
Net income (loss) available to stockholders
$
38,482

 
$
(28,709
)
 
$
31,750

 
$
36,971

Less: preferred stock dividends
15

 
760

 
44

 
2,275

Net income (loss) available to common stockholders
38,467

 
(29,469
)
 
31,706

 
34,696

 
 
 
 
 
 
 
 
Weighted average shares outstanding, basic
69,153

 
62,901

 
68,873

 
62,490

Dilutive common stock equivalents
403

 

 
388

 
5,499

Weighted average shares outstanding, diluted
69,556

 
62,901

 
69,261

 
67,989

Earnings (loss) per share, basic
$
0.56

 
$
(0.47
)
 
$
0.46

 
$
0.56

Earnings (loss) per share, diluted
$
0.55

 
$
(0.47
)
 
$
0.46

 
$
0.54

For the three months ended September 30, 2013, we have excluded 5,419 common stock equivalents from the weighted average diluted shares outstanding as the effect of including such shares would be anti-dilutive. For the three and nine months ended September 30, 2014 and the nine months ended September 30, 2013, the weighted average diluted shares includes all potentially dilutive common stock equivalents.
(16)
Commitments and Contingencies
(a)
Commitments
In the normal course of business, we have long-term commitments to purchase, at market prices, utilities such as natural gas, electricity and water for use by our refineries, terminals, pipelines and retail locations. We are also party to various refined product and crude oil supply and exchange agreements, which are typically short-term in nature or provide terms for cancellation.
(b)
Contingencies
We are involved in various legal actions arising in the ordinary course of business. We believe the ultimate disposition of these matters will not have a material effect on our financial position, results of operations or liquidity.
One of our subsidiaries is a party to a lawsuit alleging breach of contract pertaining to an asphalt supply agreement. We believe that we have valid counterclaims as well as affirmative defenses that will preclude recovery. Attempts to reach a

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ALON USA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited, dollars in thousands except as noted)


commercial arrangement to resolve the dispute have been unsuccessful to this point. This matter currently is not scheduled for trial. Due to the uncertainties of litigation, we cannot predict with certainty the ultimate resolution of this lawsuit.
(c)
Environmental
We are subject to loss contingencies pursuant to federal, state, and local environmental laws and regulations. These laws and regulations govern the discharge of materials into the environment and may require us to incur future obligations to investigate the effects of the release or disposal of certain petroleum, chemical, and mineral substances at various sites; to remediate or restore these sites and to compensate others for damage to property and natural resources. These contingent obligations relate to sites that we own and are associated with past or present operations. We are currently participating in environmental investigations, assessments and cleanups pertaining to our refineries, service stations, pipelines and terminals. We may be involved in additional future environmental investigations, assessments and cleanups. The magnitude of future costs are unknown and will depend on factors such as the nature and contamination at many sites, the timing, extent and method of the remedial actions which may be required, and the determination of our liability in proportion to other responsible parties.
Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefit are expensed. Liabilities for expenditures of a non-capital nature are recorded when environmental assessment and/or remediation is probable, and the costs can be reasonably estimated. Substantially all amounts accrued are expected to be paid out over the next 15 years. The level of future expenditures for environmental remediation obligations cannot be determined with any degree of reliability.
We have accrued environmental remediation obligations of $52,828 ($12,898 current liability and $39,930 non-current liability) at September 30, 2014, and $58,382 ($12,898 current liability and $45,484 non-current liability) at December 31, 2013.
We have an indemnification agreement with a prior owner for remediation expenses at the Bakersfield refinery. We are required to make indemnification claims to the prior owner by March 15, 2015. We have recorded current receivables of $7,586 and $9,100 at September 30, 2014 and December 31, 2013, respectively, and a non-current receivable of $1,774 at December 31, 2013.
In addition to the indemnification agreement related to the Bakersfield refinery, we have an indemnification agreement with a prior owner for part of the remediation expenses at certain other West Coast assets. We have recorded current receivables of $418 and $418 and non-current receivables of $1,959 and $2,499 at September 30, 2014 and December 31, 2013, respectively.
(17)
Subsequent Events
Dividend Declared
On October 28, 2014, our board of directors declared the regular quarterly cash dividend of $0.10 per share and a special non-recurring dividend of $0.21 per share on our common stock, both payable on December 18, 2014, to holders of record at the close of business on December 2, 2014.
Partnership Distribution
On October 27, 2014, the board of directors of the General Partner declared a cash distribution to the Partnership’s common unitholders of approximately $63,760, or $1.02 per common unit. The cash distribution will be paid on November 28, 2014 to unitholders of record at the close of business on November 10, 2014. The total cash distribution payable to non-affiliated common unitholders will be approximately $11,730.

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ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operations should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2013. In this document, the words “Alon,” “the Company,” “we”, “our” and “us” refer to Alon USA Energy, Inc. and its subsidiaries or to Alon USA Energy, Inc. or an individual subsidiary, and not to any other person. Generally, the words “we”, “our” and “us” include Alon USA Partners, LP and its subsidiaries (the “Partnership”) as consolidated subsidiaries of Alon USA Energy, Inc.
Forward-Looking Statements
Certain statements contained in this report and other materials we file with the SEC, or in other written or oral statements made by us, other than statements of historical fact, are “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements relate to matters such as our industry, business strategy, goals and expectations concerning our market position, future operations, margins, profitability, capital expenditures, liquidity and capital resources and other financial and operating information. We have used the words “anticipate,” “assume,” “believe,” “budget,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “will,” “future” and similar terms and phrases to identify forward-looking statements.
Forward-looking statements reflect our current expectations of future events, results or outcomes. These expectations may or may not be realized. Some of these expectations may be based upon assumptions or judgments that prove to be incorrect. In addition, our business and operations involve numerous risks and uncertainties, many of which are beyond our control, which could result in our expectations not being realized or otherwise materially affect our financial condition, results of operations and cash flows.
Actual events, results and outcomes may differ materially from our expectations due to a variety of factors. Although it is not possible to identify all of these factors, they include, among others, the following:
changes in general economic conditions and capital markets;
changes in the underlying demand for our products;
the availability, costs and price volatility of crude oil, other refinery feedstocks and refined products;
changes in the spread between West Texas Intermediate (“WTI”) Cushing crude oil and West Texas Sour (“WTS”) crude oil or WTI Midland crude oil;
changes in the spread between WTI Cushing crude oil and Light Louisiana Sweet (“LLS”) crude oil;
changes in the spread between Brent crude oil and WTI Cushing crude oil;
changes in the spread between Brent crude oil and LLS crude oil;
the effects of transactions involving forward contracts and derivative instruments;
actions of customers and competitors;
termination of our Supply and Offtake Agreements with J. Aron & Company (“J. Aron”), which include all our refineries and most of our asphalt terminals, of which J. Aron is our largest supplier of crude oil and our largest customer of refined products. Additionally upon termination of the Supply and Offtake Agreements, we are obligated to purchase the crude oil and refined product inventories then owned by J. Aron at then current market prices;
changes in fuel and utility costs incurred by our facilities;
disruptions due to equipment interruption, pipeline disruptions or failures at our or third-party facilities;
the execution of planned capital projects;
adverse changes in the credit ratings assigned to our debt instruments;
the effects of and cost of compliance with the renewable fuel standards program (“RFS”), including the availability, cost and price volatility of Renewable Identification Numbers (“RINs”);
the effects and cost of compliance with current and future state and federal environmental, economic, safety and other laws, policies and regulations;
operating hazards, natural disasters, casualty losses and other matters beyond our control;
the effect of any national or international financial crisis on our business and financial condition; and

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the other factors discussed in our Annual Report on Form 10-K for the year ended December 31, 2013 under the caption “Risk Factors.”
Any one of these factors or a combination of these factors could materially affect our future results of operations and could influence whether any forward-looking statements ultimately prove to be accurate. Our forward-looking statements are not guarantees of future performance, and actual results and future performance may differ materially from those suggested in any forward-looking statements. We do not intend to update these statements unless we are required by the securities laws to do so.
Company Overview
We are an independent refiner and marketer of petroleum products operating primarily in the South Central, Southwestern and Western regions of the United States. Our crude oil refineries are located in Texas, California, Oregon and Louisiana and have a combined throughput capacity of approximately 217,000 barrels per day (“bpd”). Our refineries produce petroleum products including various grades of gasoline, diesel fuel, jet fuel, petrochemicals, petrochemical feedstocks, asphalt and other petroleum-based products.
Refining and Marketing Segment. Our refining and marketing segment includes sour and heavy crude oil refineries located in Big Spring, Texas; and Paramount, Bakersfield and Long Beach, California; and a light sweet crude oil refinery located in Krotz Springs, Louisiana. We refer to the Paramount, Bakersfield and Long Beach refineries together as our “California refineries.” The refineries in our refining and marketing segment have a combined throughput capacity of approximately 217,000 bpd. At our refineries, we refine crude oil into petroleum products, including gasoline, diesel fuel, jet fuel, petrochemicals, petrochemical feedstocks, asphalt and other petroleum-based products, which are marketed primarily in the South Central, Southwestern and Western United States. In 2014, we did not process crude oil at our California refineries.
Alon owns the Big Spring refinery and wholesale marketing operations through Alon USA Partners, LP (the “Partnership”) (NYSE: ALDW). Alon markets transportation fuels produced at the Big Spring refinery in West and Central Texas, Oklahoma, New Mexico and Arizona. We refer to our operations in these regions as our “physically integrated system” because it supplies our Alon branded and unbranded distributors in these regions with motor fuels produced at our Big Spring refinery and distributed through a network of pipelines and terminals which we either own or have access to through leases or long-term throughput agreements.
We supply gasoline and diesel to 641 Alon branded retail sites, including our retail segment convenience stores. In 2014, approximately 63% of the gasoline and 29% of the diesel produced at the Big Spring refinery was transferred to our branded marketing business at prices substantially determined by wholesale market prices. Additionally, we license the use of the Alon brand name and provide credit card processing services to 75 licensed locations that are not under fuel supply agreements.
We market refined products produced by our Krotz Springs refinery to other refiners and third parties. The refinery’s location provides access to upriver markets on the Mississippi and Ohio Rivers. The refinery also uses its direct access to the Colonial Pipeline to transport products to markets in the Southern and Eastern United States.
Asphalt Segment. Our asphalt segment includes 10 asphalt refinery/terminal locations in Texas (Big Spring), California (Paramount, Long Beach, Elk Grove, Bakersfield and Mojave), Washington (Richmond Beach), Arizona (Phoenix and Flagstaff) and Nevada (Fernley) (50% interest) as well as through a 50% interest in Wright Asphalt Products Company, LLC, which specializes in patented ground tire rubber modified asphalt products.
As part of our efforts to maximize the return generated by the production of asphalt, we have an exclusive license to use advanced asphalt-blending technology in West Texas, Arizona, New Mexico and Colorado, and a non-exclusive license in Idaho, Montana, Nevada, North Dakota, Utah and Wyoming, with respect to asphalt produced at our Big Spring refinery, and a ground tire rubber (“GTR”) asphalt manufacturing process with respect to asphalt sold in California.
Asphalt produced by our Big Spring refinery is transferred to the asphalt segment at prices substantially determined by reference to the cost of crude oil, which is intended to approximate wholesale market prices. We sell asphalt produced at our Big Spring refinery or purchased from third parties primarily as paving asphalt to road and materials manufacturers and highway construction/maintenance contractors as GTR, polymer modified or emulsion asphalt.
Retail Segment. Our retail segment operates 296 convenience stores located in Central and West Texas and New Mexico. These convenience stores typically offer various grades of gasoline, diesel fuel, general merchandise and food and beverage products to the general public, primarily under the 7-Eleven and Alon brand names. Substantially all of the motor fuel sold through our retail segment is supplied by our Big Spring refinery.

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Third Quarter Operational and Financial Highlights
Operating income for the third quarter of 2014 was $94.0 million, compared to operating loss of $(39.4) million in the same period last year. Our operational and financial highlights for the third quarter of 2014 include the following:
Combined refinery average throughput for the third quarter of 2014 was 151,772 bpd, consisting of 74,838 bpd at the Big Spring refinery and 76,934 bpd at the Krotz Springs refinery, compared to a combined refinery average throughput of 132,159 bpd for the third quarter of 2013, consisting of 63,090 bpd at the Big Spring refinery and 69,069 bpd at the Krotz Springs refinery. The increased refinery throughput at the Big Spring refinery was due to the completion of both the planned turnaround and the vacuum tower project during the second quarter of 2014 and the impact of unplanned downtime at the Big Spring refinery during the third quarter of 2013.
Refinery operating margin at the Big Spring refinery was $19.98 per barrel for the third quarter of 2014 compared to $6.46 per barrel for the same period in 2013. This increase in operating margin was primarily due to a higher Gulf Coast 3/2/1 crack spread as well as a widening of both the WTI Cushing to WTS spread and the WTI Cushing to WTI Midland spread.
Refinery operating margin at the Krotz Springs refinery was $9.48 per barrel for the third quarter of 2014 compared to $1.23 per barrel for the same period in 2013. This increase was primarily due to a higher Gulf Coast 2/1/1 high sulfur diesel crack spread and a widening WTI Cushing to WTI Midland spread, partially offset by a narrowing LLS to WTI Cushing spread. The Krotz Springs refinery operating margin was negatively impacted during the third quarter of 2014 by RINs costs of $6.0 million. The Krotz Springs refinery received an exemption from the RFS requirements for 2013 and as a result did not record costs associated with RINs.
The average Gulf Coast 3/2/1 crack spread was $15.90 per barrel for the third quarter of 2014 compared to $14.23 per barrel for the third quarter of 2013. The average Gulf Coast 2/1/1 high sulfur diesel crack spread for the third quarter of 2014 was $11.07 per barrel compared to $6.58 per barrel for the third quarter of 2013.
The average WTI Cushing to WTS spread for the third quarter of 2014 was $8.14 per barrel compared to $0.08 per barrel for the same period in 2013. The average WTI Cushing to WTI Midland spread for the third quarter of 2014 was $9.93 per barrel compared to $0.27 per barrel for the same period in 2013. The average LLS to WTI Cushing spread for the third quarter of 2014 was $3.41 per barrel compared to $6.60 per barrel for the same period in 2013.