UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________________________
FORM 10-Q
þ
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2015
OR
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
FOR THE TRANSITION PERIOD FROM __________TO __________ 

Commission file number: 001-32567
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 July 31, 2015, was 70,783,704.

 
 



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)
 
June 30,
2015
 
December 31,
2014
 
(unaudited)
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
263,830

 
$
214,961

Accounts and other receivables, net
162,834

 
153,859

Income tax receivable

 
9,196

Inventories
117,367

 
122,803

Deferred income tax asset
11,353

 
11,228

Prepaid expenses and other current assets
24,625

 
26,315

Total current assets
580,009

 
538,362

Equity method investments
26,650

 
25,376

Property, plant and equipment, net
1,352,199

 
1,372,344

Goodwill
101,913

 
101,913

Other assets, net
150,789

 
162,879

Total assets
$
2,211,560

 
$
2,200,874

LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
309,928

 
$
292,217

Accrued liabilities
101,035

 
104,391

Current portion of long-term debt
15,086

 
15,089

Total current liabilities
426,049

 
411,697

Other non-current liabilities
174,919

 
182,659

Long-term debt
524,127

 
548,598

Deferred income tax liability
372,155

 
384,142

Total liabilities
1,497,250

 
1,527,096

Commitments and contingencies (Note 16)

 

Stockholders’ equity:
 
 
 
Preferred stock, par value $0.01, 15,000,000 shares authorized; 0 and 68,180 shares issued and outstanding at June 30, 2015 and December 31, 2014, respectively

 
682

Common stock, par value $0.01, 150,000,000 shares authorized; 70,567,357 and 69,606,944 shares issued and outstanding at June 30, 2015 and December 31, 2014, respectively
706

 
696

Additional paid-in capital
519,234

 
517,127

Accumulated other comprehensive loss, net of tax
(16,132
)
 
(8,458
)
Retained earnings
172,801

 
126,851

Total stockholders’ equity
676,609

 
636,898

Non-controlling interest in subsidiaries
37,701

 
36,880

Total equity
714,310

 
673,778

Total liabilities and equity
$
2,211,560

 
$
2,200,874


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 Six Months Ended
 
June 30,
 
June 30,
 
2015
 
2014
 
2015
 
2014
Net sales (1)
$
1,301,341

 
$
1,742,883

 
$
2,404,581

 
$
3,426,128

Operating costs and expenses:
 
 
 
 
 
 
 
Cost of sales
1,069,931

 
1,580,447

 
1,964,419

 
3,086,992

Direct operating expenses
62,856

 
67,630

 
127,061

 
138,308

Selling, general and administrative expenses
49,193

 
46,333

 
94,789

 
85,722

Depreciation and amortization
31,267

 
29,453

 
63,229

 
59,331

Total operating costs and expenses
1,213,247

 
1,723,863

 
2,249,498

 
3,370,353

Gain (loss) on disposition of assets

 
(88
)
 
572

 
2,117

Operating income
88,094

 
18,932

 
155,655

 
57,892

Interest expense
(18,217
)
 
(29,256
)
 
(39,254
)
 
(57,271
)
Equity earnings of investees
1,828

 
1,278

 
1,274

 
819

Other income, net
13

 
638

 
59

 
621

Income (loss) before income tax expense (benefit)
71,718

 
(8,408
)
 
117,734

 
2,061

Income tax expense (benefit)
23,856

 
(1,971
)
 
35,817

 
123

Net income (loss)
47,862

 
(6,437
)
 
81,917

 
1,938

Net income attributable to non-controlling interest
11,452

 
1,080

 
18,568

 
8,670

Net income (loss) available to stockholders
$
36,410

 
$
(7,517
)
 
$
63,349

 
$
(6,732
)
Earnings (loss) per share, basic
$
0.52

 
$
(0.11
)
 
$
0.91

 
$
(0.10
)
Weighted average shares outstanding, basic (in thousands)
69,684

 
68,851

 
69,584

 
68,734

Earnings (loss) per share, diluted
$
0.50

 
$
(0.11
)
 
$
0.87

 
$
(0.10
)
Weighted average shares outstanding, diluted (in thousands)
72,501

 
68,851

 
72,395

 
68,734

Cash dividends per share
$
0.15

 
$
0.06

 
$
0.25

 
$
0.12

___________
(1)
Includes excise taxes on sales by the retail segment of $19,369 and $19,101 for the three months and $37,425 and $36,911 for the six months ended June 30, 2015 and 2014, 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 Six Months Ended
 
June 30,
 
June 30,
 
2015
 
2014
 
2015
 
2014
Net income (loss)
$
47,862

 
$
(6,437
)
 
$
81,917

 
$
1,938

Other comprehensive income (loss):
 
 
 
 
 
 
 
Interest rate derivatives designated as cash flow hedges:
 
 
 
 
 
 
 
Unrealized holding gain (loss) arising during period
89

 
(802
)
 
(841
)
 
(802
)
Loss reclassified to earnings - interest expense
97

 
14

 
112

 
14

Net gain (loss), before tax
186

 
(788
)
 
(729
)
 
(788
)
Income tax expense (benefit)
69

 
(290
)
 
(270
)
 
(290
)
Net gain (loss), net of tax
117

 
(498
)
 
(459
)
 
(498
)
Commodity contracts designated as cash flow hedges:
 
 
 
 
 
 
 
Unrealized holding gain arising during period

 
8,925

 
6,070

 
32,507

Amortization of unrealized (gain) loss on de-designated cash flow hedges - cost of sales
(9,955
)
 
2,153

 
(17,937
)
 
10,428

Net gain (loss), before tax
(9,955
)
 
11,078

 
(11,867
)
 
42,935

Income tax expense (benefit)
(3,683
)
 
4,098

 
(4,391
)
 
15,885

Net gain (loss), net of tax
(6,272
)
 
6,980

 
(7,476
)
 
27,050

Total other comprehensive income (loss), net of tax
(6,155
)
 
6,482

 
(7,935
)
 
26,552

Comprehensive income
41,707

 
45

 
73,982

 
28,490

Comprehensive income attributable to non-controlling interest
11,291

 
1,261

 
18,307

 
9,538

Comprehensive income (loss) attributable to stockholders
$
30,416

 
$
(1,216
)
 
$
55,675

 
$
18,952



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 Six Months Ended
 
June 30,
 
2015
 
2014
Cash flows from operating activities:
 
 
 
Net income
$
81,917

 
$
1,938

Adjustments to reconcile net income to cash provided by operating activities:
 
 
 
Depreciation and amortization
63,229

 
59,331

Stock compensation
3,767

 
3,540

Deferred income taxes
(7,451
)
 
(825
)
Equity earnings of investees
(1,274
)
 

Amortization of debt issuance costs
1,667

 
2,124

Amortization of original issuance discount
3,070

 
3,309

Write-off of unamortized debt issuance costs

 
253

Write-off of unamortized original issuance discount

 
254

Gain on disposition of assets
(572
)
 
(2,117
)
Unrealized (gain) loss on commodity swaps
(7,925
)
 
9,510

Changes in operating assets and liabilities:
 
 
 
Accounts and other receivables, net
(9,264
)
 
49,314

Income tax receivable
9,196

 
8,510

Inventories
5,436

 
(41,744
)
Prepaid expenses and other current assets
1,690

 
(10,926
)
Other assets, net
(293
)
 
147

Accounts payable
(12,424
)
 
(31,459
)
Accrued liabilities
(6,409
)
 
(25,458
)
Other non-current liabilities
(8,469
)
 
5,941

Net cash provided by operating activities
115,891

 
31,642

Cash flows from investing activities:
 
 
 
Capital expenditures
(31,051
)
 
(54,655
)
Capital expenditures for turnarounds and catalysts
(4,363
)
 
(26,269
)
Contribution to equity method investment

 
(597
)
Dividends from investees, net of equity earnings

 
181

Proceeds from disposition of assets
1,469

 
40,333

Net cash used in investing activities
(33,945
)
 
(41,007
)
Cash flows from financing activities:
 
 
 
Dividends paid to stockholders
(17,384
)
 
(8,221
)
Dividends paid to non-controlling interest
(260
)
 
(389
)
Distributions paid to non-controlling interest in the Partnership
(16,224
)
 
(10,010
)
Inventory agreement transactions
30,135

 
(25,200
)
Deferred debt issuance costs
(1,800
)
 
(2,062
)
Revolving credit facilities, net
(20,000
)
 

Additions to long-term debt

 
145,000

Payments on long-term debt
(7,544
)
 
(117,101
)
Net cash used in financing activities
(33,077
)
 
(17,983
)
Net increase (decrease) in cash and cash equivalents
48,869

 
(27,348
)
Cash and cash equivalents, beginning of period
214,961

 
224,499

Cash and cash equivalents, end of period
$
263,830

 
$
197,151

Supplemental cash flow information:
 
 
 
Cash paid for interest, net of capitalized interest
$
35,660

 
$
57,906

Cash paid (refunds received) for income tax
$
17,853

 
$
(6,740
)
Supplemental disclosure of non-cash activity:
 
 
 
Capital expenditures included in accounts payable and accrued liabilities
$

 
$
32,522


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 six months ended June 30, 2015 are not necessarily indicative of the operating results that may be realized for the year ending December 31, 2015.
Our consolidated balance sheet as of December 31, 2014 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, 2014.
New Accounting Standards
In May 2014, the Financial Accounting Standards Board (“FASB”) 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 standard allows for either full retrospective adoption or modified retrospective adoption. In July 2015, the FASB voted to approve a one-year deferral of the effective date for the new revenue standard, making the requirements of the standard effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted for interim and annual periods beginning after December 15, 2016. We are evaluating the guidance to determine the method of adoption and the impact this standard will have on our consolidated financial statements.
In February 2015, the FASB issued an accounting standards update making targeted changes to the current consolidation guidance. The new standard changes the way certain decisions are made related to substantive rights, related parties, and decision making fees when applying the variable interest entity consolidation model and eliminates certain guidance for limited partnerships and similar entities under the voting interest consolidation model. The requirements from the updated standard are effective for interim and annual periods beginning after December 15, 2015, and early adoption is permitted. We are evaluating the effect that adopting the updated guidance will have on our consolidated financial statements and related disclosures.
In April 2015, the FASB issued an accounting standards update simplifying the presentation of debt issuance costs. The new standard requires that certain costs incurred to issue debt be presented in the balance sheet as a direct deduction from the carrying value of the debt. The requirements from the updated standard are effective for interim and annual periods beginning after December 15, 2015, and early adoption is permitted. We currently have debt issuance costs included as deferred charges in our consolidated balance sheets, which will be reclassified as a reduction of debt when we adopt the updated guidance.
In April 2015, the FASB issued an accounting standards update that provides a practical expedient for the measurement date of entities’ defined benefit pension or other postretirement plans. For an entity with a fiscal year-end that does not coincide with a month-end, the guidance allows the entity to measure the defined benefit plan assets and obligations using the month-end that is closest to the entity’s fiscal year-end. For an entity that has a significant event in an interim period that calls for a remeasurement, the guidance allows an entity to remeasure the defined benefit plan assets and obligations using the month-end that is closest to the date of the significant event. The requirements from the updated standard are effective for interim and annual periods beginning after December 15, 2015, and early adoption is permitted. The adoption of this guidance will not have a material effect on our financial position or results of operations.

5

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


In July 2015, the FASB issued an accounting standards update simplifying the measurement of certain inventory. This updated standard simplifies the measurement of inventory by requiring certain inventory to be measured at the lower of cost or net realizable value. The amendments in this accounting standards update are effective for interim and annual periods beginning after December 15, 2016. This accounting standards update does not apply to the subsequent measurement of inventory measured using the last-in, first-out (“LIFO”) or retail inventory method, therefore the adoption of this guidance will not have a material effect on our financial position or results of operations.
(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 June 30, 2015, the 11,510,039 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 consolidated statements of operations in net income attributable to non-controlling interest and in our consolidated balance sheets 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. The per unit amount of available cash to be distributed each quarter, if any, will be distributed within 60 days following the end of such quarter.
During the six months ended June 30, 2015, the Partnership paid the following cash distributions:
Date Paid
 
Distribution Amount Per Unit
 
Total Distribution Amount
 
Distribution Paid to Non-Affiliated Common Unitholders
March 2, 2015
 
$
0.70

 
$
43,755

 
$
8,055

May 26, 2015
 
0.71

 
44,380

 
8,169

(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 a sour crude oil refinery located in Big Spring, Texas, a light sweet crude oil refinery located in Krotz Springs, Louisiana and heavy crude oil refineries located in Paramount, Bakersfield and Long Beach, California (the “California refineries”). Our refineries have a combined crude oil throughput capacity of approximately 217,000 barrels per day (“bpd”). We refine crude oil into petroleum products including various grades of gasoline, diesel, jet fuel, petrochemicals, petrochemical feedstocks, asphalt and other petroleum-based products, which are marketed primarily in the South Central, Southwestern and Western United States. Our California refineries did not process crude oil during the six months ended June 30, 2015 and 2014 due to the high cost of crude oil relative to product yield and low asphalt demand.
We supply gasoline and diesel to 640 Alon branded retail sites, including our retail segment convenience stores. During 2015, approximately 56% of the gasoline and 23% 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 67 licensed locations that are not under fuel supply agreements.

6

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


(b)Asphalt Segment
We own or operate 10 asphalt terminals located in Texas (Big Spring), Washington (Richmond Beach), California (Paramount, Long Beach, Elk Grove, Bakersfield and Mojave), 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. 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 294 convenience stores located in Central and West Texas and New Mexico. These convenience stores typically offer various grades of gasoline, diesel fuel, food products, food service, tobacco products, non-alcoholic and alcoholic beverages, general merchandise as well as money orders to the 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.
Segment data as of and for the three and six month periods ended June 30, 2015 and 2014 are presented below:
 
Refining and
Marketing
 
Asphalt
 
Retail
 
Corporate
 
Consolidated
Total
Three Months Ended June 30, 2015
 
 
 
 
 
 
 
 
 
Net sales to external customers
$
1,024,807

 
$
69,900

 
$
206,634

 
$

 
$
1,301,341

Intersegment sales (purchases)
101,233

 
(7,925
)
 
(93,308
)
 

 

Depreciation and amortization
26,692

 
1,207

 
2,943

 
425

 
31,267

Operating income (loss)
83,581

 
(1,723
)
 
6,837

 
(601
)
 
88,094

Total assets
1,848,273

 
115,184

 
226,387

 
21,716

 
2,211,560

Turnarounds, catalysts and capital expenditures
14,500

 
238

 
6,202

 
1,392

 
22,332

 
Refining and
Marketing
 
Asphalt
 
Retail
 
Corporate
 
Consolidated
Total
Three Months Ended June 30, 2014
 
 
 
 
 
 
 
 
 
Net sales to external customers
$
1,372,547

 
$
117,677

 
$
252,659

 
$

 
$
1,742,883

Intersegment sales (purchases)
148,777

 
(9,233
)
 
(139,544
)
 

 

Depreciation and amortization
24,713

 
1,162

 
2,983

 
595

 
29,453

Operating income (loss)
16,765

 
(3,889
)
 
6,826

 
(770
)
 
18,932

Total assets
1,888,299

 
122,506

 
200,510

 
22,792

 
2,234,107

Turnarounds, catalysts and capital expenditures
43,081

 
1,501

 
2,841

 
494

 
47,917

 
Refining and
Marketing
 
Asphalt
 
Retail
 
Corporate
 
Consolidated
Total
Six Months Ended June 30, 2015
 
 
 
 
 
 
 
 
 
Net sales to external customers
$
1,901,410

 
$
120,552

 
$
382,619

 
$

 
$
2,404,581

Intersegment sales (purchases)
184,122

 
(18,856
)
 
(165,266
)
 

 

Depreciation and amortization
54,003

 
2,352

 
5,980

 
894

 
63,229

Operating income (loss)
159,228

 
(16,154
)
 
13,827

 
(1,246
)
 
155,655

Total assets
1,848,273

 
115,184

 
226,387

 
21,716

 
2,211,560

Turnarounds, catalysts and capital expenditures
21,239

 
1,644

 
9,518

 
3,013

 
35,414


7

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


 
Refining and
Marketing
 
Asphalt
 
Retail
 
Corporate
 
Consolidated
Total
Six Months Ended June 30, 2014
 
 
 
 
 
 
 
 
 
Net sales to external customers
$
2,738,373

 
$
213,848

 
$
473,907

 
$

 
$
3,426,128

Intersegment sales (purchases)
287,869

 
(26,216
)
 
(261,653
)
 

 

Depreciation and amortization
50,081

 
2,362

 
5,697

 
1,191

 
59,331

Operating income (loss)
56,769

 
(7,094
)
 
9,759

 
(1,542
)
 
57,892

Total assets
1,888,299

 
122,506

 
200,510

 
22,792

 
2,234,107

Turnarounds, catalysts and capital expenditures
70,124

 
3,219

 
6,222

 
1,359

 
80,924

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.
(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 are our only assets and liabilities measured at fair value on a recurring basis.

8

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


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 June 30, 2015 and December 31, 2014:
 
Level 1
 
Level 2
 
Level 3
 
Total
As of June 30, 2015
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Commodity contracts (swaps)
$

 
$
38,797

 
$

 
$
38,797

Fair value hedges

 
20,113

 

 
20,113

Liabilities:
 
 
 
 
 
 
 
Commodity contracts (futures and forwards)
18

 

 

 
18

Interest rate swaps

 
1,967

 

 
1,967

 
 
 
 
 
 
 
 
As of December 31, 2014
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Commodity contracts (swaps)
$

 
$
42,740

 
$

 
$
42,740

Fair value hedges

 
24,903

 

 
24,903

Liabilities:
 
 
 
 
 
 
 
Commodity contracts (futures and forwards)
333

 

 

 
333

Interest rate swaps

 
1,238

 

 
1,238

(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, which we refer to as futures and forwards. Futures represent trades executed on the New York Mercantile Exchange which have not been closed or settled at the end of the reporting period. 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.
We also have economic hedges in the form of swap contracts that fix price differentials between different types of crude oil and the crack spreads between certain refined products and the crude oil that we use at our refineries. At June 30, 2015, these swap contracts had aggregate volumes of 17,230 thousand barrels of crude oil and refined products with contract terms through December 2016.
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.
We have certain commodity contracts associated with the Supply and Offtake Agreements discussed in Note 7 that have been accounted for as fair value hedges, which had purchase volumes of 678 thousand barrels of crude oil as of June 30, 2015.
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 hedged item. This assessment, which is updated at least quarterly, is generally based on the most recent relevant historical correlation between the derivative and the hedged item. If, during the term of the derivative, the hedge is determined to be no longer highly effective, hedge accounting is

9

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


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 June 30, 2015, we did not have any commodity swap contracts accounted for as cash flow hedges. In January 2015, we elected to de-designate the commodity swap contracts that were previously designated as cash flow hedges. As of June 30, 2015, these commodity swap contracts were accounted for as economic hedges, as mentioned above. As of June 30, 2015, unrealized gains of $24,010 were classified in other comprehensive income (“OCI”) that related to the application of hedge accounting prior to de-designation, which will be reclassified into earnings as the underlying transactions occur through the remainder of 2015. During the three and six months ended June 30, 2015, we reclassified gains of $9,955 and $17,937, respectively, from OCI into cost of sales related to these de-designated cash flow hedges. During the three and six months ended June 30, 2014, we reclassified losses of $2,153 and $10,428, respectively, from OCI into cost of sales related to previously de-designated cash flow hedges that settled in 2014.
Related to commodity swap cash flow hedges in OCI, we recognized unrealized gains (losses) of $(9,955) and $11,078 for the three months ended and $(11,867) and $42,935 for the six months ended June 30, 2015 and 2014, respectively.
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 feature within the retail credit agreement. These interest rate swaps have been accounted for as cash flow hedges. 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 June 30, 2015, the outstanding principal of the term loan was $99,000. The interest rate swaps lock in an average fixed interest rate of 0.60% in 2015; 1.47% in 2016; 2.35% in 2017; 3.09% in 2018 and 3.28% in 2019.
Related to interest rate swap cash flow hedges in OCI, we recognized unrealized gains (losses) of $186 and $(788) for the three months ended and $(729) and $(788) for the six months ended June 30, 2015 and 2014, respectively.
For the three and six months ended June 30, 2015 and 2014, 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 June 30, 2015, we have net unrealized gains of $22,043 classified in OCI related to cash flow hedges, including amounts related to the de-designated cash flow hedges. Assuming interest rates remain unchanged, unrealized gains of $23,602 will be reclassified from OCI into earnings over the next twelve-month period as the underlying transactions occur.
The following tables present the effect of derivative instruments on the consolidated balance sheets:
 
As of June 30, 2015
 
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
 
$
656

 
Accrued liabilities
 
$
674

Commodity contracts (swaps)
Accounts receivable
 
30,829

 
 
 

Commodity contracts (swaps)
Other assets
 
7,968

 
 
 

Total derivatives not designated as hedging instruments
 
 
39,453

 
 
 
674

 
 
 
 
 
 
 
 
Derivatives designated as hedging instruments:
 
 
 
 
 
 
 
Interest rate swaps
 
 
$

 
Other non-current liabilities
 
$
1,967

Fair value hedges
Other assets
 
20,113

 
 
 

Total derivatives designated as hedging instruments
 
 
20,113

 
 
 
1,967

Total derivatives
 
 
$
59,566

 
 
 
$
2,641


10

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


 
As of December 31, 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
 
$
7,168

 
Accrued liabilities
 
$
7,501

Commodity contracts (swaps)
Accounts receivable
 
6,809

 
 
 

Commodity contracts (swaps)
Other assets
 
11,622

 
 
 

Total derivatives not designated as hedging instruments
 
 
25,599

 
 
 
7,501

 
 
 
 
 
 
 
 
Derivatives designated as hedging instruments:
 
 
 
 
 
 
 
Commodity contracts (swaps)
Accounts receivable
 
$
24,309

 
 
 
$

Interest rate swaps
 
 

 
Other non-current liabilities
 
1,238

Fair value hedges
Other assets
 
24,903

 
 
 

Total derivatives designated as hedging instruments
 
 
49,212

 
 
 
1,238

Total derivatives
 
 
$
74,811

 
 
 
$
8,739

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 June 30, 2015
 
 
 
 
 
 
 
 
Commodity contracts (swaps)
 
$
(9,955
)
 
Cost of sales
 
$
9,955

 
 
 
$

Interest rate swaps
 
186

 
Interest expense
 
(97
)
 
 
 

Total derivatives
 
$
(9,769
)
 
 
 
$
9,858

 
 
 
$

 
 
 
 
 
 
 
 
 
 
 
For the Three Months Ended June 30, 2014
 
 
 
 
 
 
 
 
Commodity contracts (swaps)
 
$
11,078

 
Cost of sales
 
$
(2,153
)
 
 
 
$

Interest rate swaps
 
(788
)
 
Interest expense
 
(14
)
 
 
 

Total derivatives
 
$
10,290

 
 
 
$
(2,167
)
 
 
 
$


11

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


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 Six Months Ended June 30, 2015
 
 
 
 
 
 
 
 
Commodity contracts (swaps)
 
$
(11,867
)
 
Cost of sales
 
$
17,937

 
 
 
$

Interest rate swaps
 
(729
)
 
Interest expense
 
(112
)
 
 
 

Total derivatives
 
$
(12,596
)
 
 
 
$
17,825

 
 
 
$

 
 
 
 
 
 
 
 
 
 
 
For the Six Months Ended June 30, 2014
 
 
 
 
 
 
 
 
Commodity contracts (swaps)
 
$
42,935

 
Cost of sales
 
$
(10,428
)
 
 
 
$

Interest rate swaps
 
(788
)
 
Interest expense
 
(14
)
 
 
 

Total derivatives
 
$
42,147

 
 
 
$
(10,442
)
 
 
 
$

Derivatives in fair value hedging relationships:
 
 
 
Gain (Loss) Recognized in Income
 
 
 
For the Three Months Ended
 
For the Six Months Ended
 
 
 
June 30,
 
June 30,
 
Location
 
2015
 
2014
 
2015
 
2014
Fair value hedges (1)
Interest expense
 
$
(10,578
)
 
$
(4,444
)
 
$
(4,790
)
 
$
(7,051
)
Total derivatives
 
 
$
(10,578
)
 
$
(4,444
)
 
$
(4,790
)
 
$
(7,051
)
___________
(1)
Changes in the fair value hedges are substantially offset by changes in the hedged items.
Derivatives not designated as hedging instruments:
 
 
 
Gain (Loss) Recognized in Income
 
 
 
For the Three Months Ended
 
For the Six Months Ended
 
 
 
June 30,
 
June 30,
 
Location
 
2015
 
2014
 
2015
 
2014
Commodity contracts (futures and forwards)
Cost of sales
 
$
1,688

 
$
(5,133
)
 
$
(3,670
)
 
$
(6,118
)
Commodity contracts (swaps)
Cost of sales
 
(2,443
)
 
(236
)
 
19,418

 
1,801

Total derivatives
 
 
$
(755
)
 
$
(5,369
)
 
$
15,748

 
$
(4,317
)

12

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


Offsetting Assets and Liabilities
Our derivative 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 June 30, 2015 and December 31, 2014:
 
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 June 30, 2015
 
 
 
 
 
 
 
 
 
 
 
Derivative Assets:
 
 
 
 
 
 
 
 
 
 
 
Commodity contracts (futures and forwards)
$
1,175

 
$
(519
)
 
$
656

 
$
(656
)
 
$

 
$

Commodity contracts (swaps)
46,213

 
(7,416
)
 
38,797

 

 

 
38,797

Fair value hedges
20,113

 

 
20,113

 

 

 
20,113

Derivative Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Commodity contracts (futures and forwards)
$
1,193

 
$
(519
)
 
$
674

 
$
(656
)
 
$

 
$
18

Commodity contracts (swaps)
7,416

 
(7,416
)
 

 

 

 

Interest rate swaps
1,967

 

 
1,967

 

 

 
1,967

 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2014
 
 
 
 
 
 
 
 
 
 
 
Derivative Assets:
 
 
 
 
 
 
 
 
 
 
 
Commodity contracts (futures and forwards)
$
8,508

 
$
(1,340
)
 
$
7,168

 
$
(7,168
)
 
$

 
$

Commodity contracts (swaps)
49,204

 
(6,464
)
 
42,740

 

 

 
42,740

Fair value hedges
24,903

 

 
24,903

 

 

 
24,903

Derivative Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Commodity contracts (futures and forwards)
$
8,841

 
$
(1,340
)
 
$
7,501

 
$
(7,168
)
 
$

 
$
333

Commodity contracts (swaps)
6,464

 
(6,464
)
 

 

 

 

Interest rate swaps
1,238

 

 
1,238

 

 

 
1,238

Compliance Program Market Risk
We are obligated by government regulations to blend a certain percentage of biofuels into the products that we produce and 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 renewable identification number, or 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. Alternatively, if we have a RINs surplus, some of those RINs could be sold. Any such sales would be subject to our normal credit evaluation process.
We are exposed to market risk related to the volatility in the price of credits needed to comply with these governmental and regulatory programs. 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 $10,394 and $4,573 for the three months ended and $23,090 and $12,354 for the six months ended June 30, 2015 and 2014, respectively. These amounts are reflected in cost of sales in the consolidated statements of operations.

13

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


(6)
Inventories
Carrying value of inventories consisted of the following:
 
June 30,
2015
 
December 31,
2014
Crude oil, refined products, asphalt and blendstocks
$
44,291

 
$
48,027

Crude oil consignment inventory (Note 7)
18,861

 
18,350

Materials and supplies
25,316

 
22,269

Store merchandise
22,868

 
27,418

Store fuel
6,031

 
6,739

Total inventories
$
117,367

 
$
122,803

The market value of refined products, asphalt and blendstock inventories exceeded LIFO costs by $9,533 and $7,713 at June 30, 2015 and December 31, 2014, respectively. The market value of crude oil inventories exceeded LIFO costs, net of the fair value hedged items, by $24,994 and $17,754 at June 30, 2015 and December 31, 2014, respectively.
(7)
Inventory Financing Agreements
We have entered into 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 our 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 beginning 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.
In February 2015, the Supply and Offtake Agreements for the Big Spring and Krotz Springs refineries were amended and the initial term was extended to May 2021. J. Aron may elect to terminate the Supply and Offtake Agreements for the Big Spring and Krotz Springs refineries prior to the expiration of the initial term beginning in May 2018 and upon each anniversary thereof, on six months prior notice. We may elect to terminate in May 2020 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.
Associated with the Supply and Offtake Agreements, we have fair value hedges of our inventory purchase commitments with J. Aron and crude oil inventory consigned to J. Aron (“crude oil consignment inventory”). Additionally, financing charges related to the Supply and Offtake Agreements are recorded as interest expense in the consolidated statements of operations.
In connection with the Supply and Offtake Agreement for our Krotz Springs refinery, we have granted a security interest to J. Aron in all of its accounts and inventory to secure its obligations to J. Aron. In addition, we have granted a security interest in all of its real property and equipment to J. Aron to secure its obligations under a commodity hedge and sale agreement in lieu of posting cash collateral and being subject to cash margin calls.
At June 30, 2015 and December 31, 2014, we had net current payables to J. Aron for purchases of $36,963 and $46,303, respectively, and a consignment inventory receivable representing a deposit paid to J. Aron of $26,179 and $26,179, respectively. At June 30, 2015 and December 31, 2014, we had non-current liabilities for the original financing of $39,236 and $39,060, respectively, net of the related fair value hedges.
Additionally, we had net current payables of $602 and $4,212 at June 30, 2015 and December 31, 2014, 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.

14

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


(8)
Property, Plant and Equipment, Net
Property, plant and equipment, net consisted of the following:
 
June 30,
2015
 
December 31,
2014
Refining facilities
$
1,839,394

 
$
1,820,565

Pipelines and terminals
43,439

 
43,439

Retail
208,825

 
200,354

Other
20,959

 
17,988

Property, plant and equipment, gross
2,112,617

 
2,082,346

Accumulated depreciation
(760,418
)
 
(710,002
)
Property, plant and equipment, net
$
1,352,199

 
$
1,372,344

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 allocated goodwill of $4,030. For the six months ended June 30, 2014, a pre-tax gain of $2,014 was recognized and has been included in gain (loss) on disposition of assets in our consolidated statements of operations.
(9)
Additional Financial Information
The following tables provide additional financial information related to the consolidated financial statements.
(a)
Other Assets, Net
 
June 30,
2015
 
December 31,
2014
Deferred turnaround and catalyst cost
$
53,280

 
$
60,753

Environmental receivables (Note 16)
2,655

 
3,030

Deferred debt issuance costs
10,702

 
10,569

Intangible assets, net
7,376

 
7,647

Receivable from supply and offtake agreements (Note 7)
26,179

 
26,179

Commodity contracts
7,968

 
11,622

Fair value hedges (Note 7)
20,113

 
24,903

Other, net
22,516

 
18,176

Total other assets
$
150,789

 
$
162,879


15

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


(b)
Accrued Liabilities and Other Non-Current Liabilities
 
June 30,
2015
 
December 31,
2014
Accrued Liabilities:
 
 
 
Taxes other than income taxes, primarily excise taxes
$
34,967

 
$
47,071

Employee costs
14,883

 
13,297

Commodity contracts
674

 
7,501

Accrued finance charges
1,840

 
1,826

Environmental accrual (Note 16)
8,189

 
8,189

Other
40,482

 
26,507

Total accrued liabilities
$
101,035

 
$
104,391

 
 
 
 
Other Non-Current Liabilities:
 
 
 
Pension and other postemployment benefit liabilities, net
$
53,129

 
$
52,135

Environmental accrual (Note 16)
39,931

 
43,546

Asset retirement obligations
12,599

 
12,328

Consignment inventory obligations (Note 7)
59,349

 
63,963

Interest rate swaps
1,967

 
1,238

Other
7,944

 
9,449

Total other non-current liabilities
$
174,919

 
$
182,659

(10)
Postretirement Benefits
The components of net periodic benefit cost related to our benefit plans for the three and six months ended June 30, 2015 and 2014 consisted of the following:
 
For the Three Months Ended
 
For the Six Months Ended
 
June 30,
 
June 30,
 
2015
 
2014
 
2015
 
2014
Components of net periodic benefit cost:
 
 
 
 
 
 
 
Service cost
$
997

 
$
856

 
$
1,993

 
$
1,712

Interest cost
1,255

 
1,238

 
2,511

 
2,476

Expected return on plan assets
(1,583
)
 
(1,369
)
 
(3,165
)
 
(2,739
)
Amortization of net loss
840

 
595

 
1,679

 
1,191

Net periodic benefit cost
$
1,509

 
$
1,320

 
$
3,018

 
$
2,640

Our estimated contributions to our pension plans during 2015 have not changed significantly from amounts previously disclosed in the consolidated financial statements for the year ended December 31, 2014. For the six months ended June 30, 2015 and 2014, we contributed $2,175 and $2,525, respectively, to our qualified pension plans.
(11)
Indebtedness
Debt consisted of the following:
 
June 30,
2015
 
December 31,
2014
Term loan credit facilities
$
260,817

 
$
264,359

Alon USA, LP Credit Facility
40,000

 
60,000

Convertible senior notes
129,074

 
126,298

Retail credit facilities
109,322

 
113,030

Total debt
539,213

 
563,687

Less: Current portion
15,086

 
15,089

Total long-term debt
$
524,127

 
$
548,598


16

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


(a) Letter of Credit Facility and Alon USA, LP Revolving Credit Facility
We had letters of credit outstanding under our $60,000 letter of credit facility of $44,227 and $54,227 at June 30, 2015 and December 31, 2014, respectively.
We had borrowings of $40,000 and $60,000 and letters of credit of $43,463 and $23,511 outstanding under the Alon USA, LP $240,000 revolving credit facility at June 30, 2015 and December 31, 2014, respectively.
In May 2015, the Alon USA, LP $240,000 revolving credit facility was amended to, among other matters, extend the expiration date to May 2019. Borrowings under the Alon USA, LP $240,000 revolving credit facility now bear interest at the Eurodollar rate plus 3.00% per annum.
(b) Convertible Senior Notes
The conversion rate for our 3.00% unsecured convertible senior notes (“Convertible Notes”) is subject to adjustment upon the occurrence of certain events, including cash dividend adjustments, but will not be adjusted for any accrued and unpaid interest. As of June 30, 2015, the conversion rate was adjusted to 69.482 shares of our common stock per each $1 (in thousands) principal amount of Convertible Notes, equivalent to a conversion price of approximately $14.39 per share, to reflect cash dividend adjustments. The strike price of the options was adjusted to $14.39 per share and the strike price of the warrants was adjusted to $19.55 per share. Upon a potential change of control, we may have to settle the value of the warrants in accordance with the indenture. Any future quarterly cash dividend payments in excess of $0.06 per share will cause further adjustment based on the formula contained in the indenture governing the Convertible Notes. As of June 30, 2015, there have been no conversions of the Convertible Notes.
In May 2015, Delek US Holdings, Inc. (“Delek”) acquired approximately 48% of our common stock from Alon Israel Oil Company, Ltd. Delek agreed to a one year standstill provision limiting Delek’s ability to acquire greater than 49.99% of our outstanding common stock, with additional ownership above this threshold subject to the approval of Alon’s independent directors. If Delek were to acquire greater than 50.00% of our outstanding common stock, it could require us to render a make-whole payment to holders of our Convertible Notes of approximately $15,000 as of June 30, 2015, assuming full conversion of the Convertible Notes. In the event of a conversion, the convertible note options will cover our obligation to render payment under the make-whole provision. Under these circumstances, we could also be required to settle the outstanding warrants, which had a value of approximately $50,000 as of June 30, 2015.
(c) Financial Covenants
We have certain credit agreements that contain maintenance financial covenants. At June 30, 2015, we were in compliance with these covenants.
(12)
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, and non-employee directors of Alon's subsidiaries who are designated by Alon's 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 2015, Alon granted awards of 6,028 restricted shares at a grant date price of $16.59 per share.
In May 2015, Alon granted awards of 255,000 restricted shares to certain executive officers at a grant date price of $16.59 per share. These May 2015 restricted shares will fully vest in May 2016, assuming continued service at vesting.

17

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


The following table summarizes the restricted share activity from January 1, 2015:
 
 
 
 
Weighted
Average
Grant Date
Fair Values
Nonvested Shares
 
Shares
 
(per share)
Nonvested at January 1, 2015
 
643,999

 
$
14.24

Granted
 
261,028

 
16.59

Vested
 
(134,290
)
 
14.97

Forfeited
 

 

Nonvested at June 30, 2015
 
770,737

 
$
14.91

Compensation expense for restricted stock awards amounted to $1,515 and $1,000 for the three months ended June 30, 2015 and 2014, respectively, and $2,314 and $1,488 for the six months ended June 30, 2015 and 2014, respectively. These amounts are included in selling, general and administrative expenses in the consolidated statements of operations. The fair value of shares vested in 2015 was $2,257.
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 vested on March 1, 2015. Compensation expense for restricted stock units amounted to $0 and $374 for the three months ended June 30, 2015 and 2014, respectively, and $249 and $748 for the six months ended June 30, 2015 and 2014, respectively. These amounts are included in selling, general and administrative expenses in the consolidated statements of operations.
Unrecognized Compensation Cost. As of June 30, 2015, there was $6,282 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 1.2 years.
(13)
Equity (share values in dollars)
Changes to equity during the six months ended June 30, 2015 are presented below:
 
 
Total Stockholders’ Equity
 
Non-controlling Interest
 
Total Equity
Balance at December 31, 2014
 
$
636,898

 
$
36,880

 
$
673,778

Other comprehensive loss
 
(7,674
)
 
(261
)
 
(7,935
)
Stock compensation
 
1,424

 
(1,002
)
 
422

Dividends of common stock on preferred stock
 
(4
)
 

 
(4
)
Distributions to non-controlling interest in the Partnership
 

 
(16,224
)
 
(16,224
)
Dividends
 
(17,384
)
 
(260
)
 
(17,644
)
Net income
 
63,349

 
18,568

 
81,917

Balance at June 30, 2015
 
$
676,609

 
$
37,701

 
$
714,310

(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 six months ended June 30, 2015, 329,644 shares of our common stock were issued in exchange for 1,762.24 shares of Alon Assets. At June 30, 2015, 930,778 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 $699 and $608 for the three months ended June 30, 2015 and 2014, respectively, $1,183 and $1,305 for the six months ended June 30, 2015 and 2014, respectively. These amounts are included in selling, general and administrative expenses in the consolidated statements of operations.

18

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


(b)
Preferred Stock
Preferred Stock Conversion. During the six months ended June 30, 2015, the remaining 68,180 shares of our preferred stock were converted to 101,150 shares of our common stock.
(c)
Dividends
Common Stock Dividends. During the six months ended June 30, 2015, we paid the following dividends:
Date Paid
 
Record Date
 
Dividend Amount Per Share
March 16, 2015
 
February 26, 2015
 
$
0.10

June 5, 2015
 
May 19, 2015
 
0.15

Preferred Stock Dividends. During the six months ended June 30, 2015, we issued 771 shares of common stock for payment of the quarterly 8.5% preferred stock dividend to preferred stockholders, prior to the preferred stock conversion into our common stock.
(d)
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, 2014
$
21,330

 
$
(29,788
)
 
$
(8,458
)
Other comprehensive income before reclassifications
3,368

 

 
3,368

Amounts reclassified from accumulated other comprehensive loss
(11,042
)
 

 
(11,042
)
Net current-period other comprehensive loss
(7,674
)
 

 
(7,674
)
Balance at June 30, 2015
$
13,656

 
$
(29,788
)
 
$
(16,132
)
(14)
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 six months ended June 30, 2015 and 2014, is as follows (shares in thousands, per share value in dollars):
 
For the Three Months Ended
 
For the Six Months Ended
 
June 30,
 
June 30,
 
2015
 
2014
 
2015
 
2014
Net income (loss) available to stockholders
$
36,410

 
$
(7,517
)
 
$
63,349

 
$
(6,732
)
Less: preferred stock dividends

 
14

 
15

 
29

Net income (loss) available to common stockholders
36,410

 
(7,531
)
 
63,334

 
(6,761
)
 
 
 
 
 
 
 
 
Weighted average shares outstanding, basic
69,684

 
68,851

 
69,584

 
68,734

Dilutive common stock equivalents
2,817

 

 
2,811

 

Weighted average shares outstanding, diluted
72,501

 
68,851

 
72,395

 
68,734

Earnings (loss) per share, basic
$
0.52

 
$
(0.11
)
 
$
0.91

 
$
(0.10
)
Earnings (loss) per share, diluted
$
0.50

 
$
(0.11
)
 
$
0.87

 
$
(0.10
)
For the three and six months ended June 30, 2015, the weighted average diluted shares includes all potentially dilutive common stock equivalents. For the three and six months ended June 30, 2014, we have excluded 200 and 195 common stock equivalents, respectively, from the weighted average diluted shares outstanding as the effect of including such shares would be anti-dilutive.

19

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


(15)
Related Party Transactions
Delek US Holdings, Inc.
In May 2015, Delek completed the purchase of approximately 48% of our common stock from Alon Israel Oil Company, Ltd. From the transaction date through June 30, 2015, we purchased $1,944 of refined products from Delek. Accounts payable includes a balance outstanding to Delek of $997 at June 30, 2015.
(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 commercial arrangement to resolve the dispute have been unsuccessful to this point. This matter is currently scheduled for trial in October 2015. 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 $48,120 ($8,189 current liability and $39,931 non-current liability) at June 30, 2015, and $51,735 ($8,189 current liability and $43,546 non-current liability) at December 31, 2014.
We have an indemnification agreement with a prior owner for part of the remediation expenses at certain West Coast assets. We have recorded current receivables of $784 and $784 and non-current receivables of $2,655 and $3,030 at June 30, 2015 and December 31, 2014, respectively.
We have an indemnification agreement with a prior owner for remediation expenses at the Bakersfield refinery. We have recorded current receivables of $3,350 at December 31, 2014.
(17)
Subsequent Events
Dividend Declared
On July 30, 2015, our board of directors declared the regular quarterly cash dividend of $0.15 per share on our common stock, payable on September 24, 2015, to holders of record at the close of business on September 8, 2015.

20

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


Partnership Distribution
On July 31, 2015, the board of directors of the General Partner declared a cash distribution to the Partnership’s common unitholders of approximately $65,010, or $1.04 per common unit. The cash distribution will be paid on August 25, 2015 to unitholders of record at the close of business on August 18, 2015. The total cash distribution payable to non-affiliated common unitholders will be approximately $11,970.

21

Table of Contents

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, 2014. In this document, the words “Alon,” “the Company,” “we,” “our” and “us” refer to Alon USA Energy, Inc. and its consolidated 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;
changes in the ownership of our common stock by Delek US Holdings, Inc., which may trigger change of control provisions contained in the agreements and instruments governing our convertible senior notes and the related purchased options and warrant transactions;
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, including the availability, cost and price volatility of renewable identification numbers;

22

Table of Contents

the effects and cost of compliance with current and future state and federal environmental, economic, safety and other laws, policies and regulations;
operating hazards, accidents, fires, severe weather, floods and other natural disasters, casualty losses and other matters beyond our control, which could result in unscheduled downtime;
the effects of seasonality on demand for our products;
the level of competition from other petroleum refiners;
the easing of logistical and infrastructure constraints at Cushing;
the effect of any national or international financial crisis on our business and financial condition; and
the other factors discussed in our Annual Report on Form 10-K for the year ended December 31, 2014 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 and Louisiana and have a combined throughput capacity of approximately 217,000 barrels per day (“bpd”). We are a leading marketer of asphalt, which we distribute primarily through asphalt terminals located predominately in the Southwestern and Western United States. We are the largest 7-Eleven licensee in the United States and operate 294 convenience stores in Central and West Texas and New Mexico.
Refining and Marketing Segment. Our refining and marketing segment includes a sour crude oil refinery located in Big Spring, Texas, a light sweet crude oil refinery located in Krotz Springs, Louisiana and heavy crude oil refineries located in Paramount, Bakersfield and Long Beach, California (“California refineries”). Our refineries have a combined crude oil throughput capacity of approximately 217,000 bpd. We refine crude oil into petroleum products, including various grades of gasoline, diesel, jet fuel, petrochemicals, petrochemical feedstocks, asphalt and other petroleum-based products, which are marketed primarily in the South Central, Southwestern and Western United States. Our California refineries did not process crude oil in 2015 and 2014 due to the high cost of crude oil relative to product yield and low asphalt demand.
We own the Big Spring refinery and wholesale marketing operations through Alon USA Partners, LP (the “Partnership”) (NYSE: ALDW). Our marketing of transportation fuels produced at the Big Spring refinery is focused on West and Central Texas, Oklahoma, New Mexico and Arizona. We refer to our operations in these regions as our “physically integrated system” because our distributors in this region are supplied primarily 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 640 Alon branded retail sites, including our retail segment convenience stores. During 2015, approximately 56% of the gasoline and 23% 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 67 licensed locations that are not under fuel supply agreements.
We market transportation fuel production from our Krotz Springs refinery through bulk sales and exchange channels. These bulk sales and exchange arrangements are entered into with various oil companies and traders and are transported to markets on the Mississippi River and the Atchafalaya River as well as to the Colonial Pipeline.
Asphalt Segment. We own or operate 10 asphalt terminals located in Texas (Big Spring), Washington (Richmond Beach), California (Paramount, Long Beach, Elk Grove, Bakersfield and Mojave), 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. 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.
We purchase non-blended asphalt from third parties in addition to non-blended asphalt produced at the Big Spring refinery. We market asphalt through our terminals as blended and non-blended 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,

23

Table of Contents

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 market asphalt primarily as paving asphalt to road and materials manufacturers and highway construction/maintenance contractors as GTR, polymer modified or emulsion asphalt. Sales of asphalt are seasonal with the majority of sales occurring between May and October.
Retail Segment. Our convenience stores typically offer various grades of gasoline, diesel fuel, food products, food service, tobacco products, non-alcoholic and alcoholic beverages, general merchandise as well as money orders to the 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.
For additional information on each of our operating segments, see Items 1. and 2. “Business and Properties” included in our Annual Report on Form 10-K for the year ended December 31, 2014.
Second Quarter Operational and Financial Highlights
Operating income for the second quarter of 2015 was $88.1 million, compared to $18.9 million in the same period last year. Our operational and financial highlights for the second quarter of 2015 include the following:
Combined refinery average throughput for the second quarter of 2015 was 152,092 bpd, compared to a combined refinery average throughput of 114,869 bpd for the second quarter of 2014. The Big Spring refinery average throughput for the second quarter of 2015 was 75,491 bpd, compared to 38,994 bpd for the second quarter of 2014. The Krotz Springs refinery average throughput for the second quarter of 2015 was 76,601 bpd, compared to 75,875 bpd for the second quarter of 2014. During the second quarter of 2014, refinery throughput at the Big Spring refinery was reduced as we completed both the planned turnaround and the vacuum tower project.
Refinery operating margin at the Big Spring refinery was $17.22 per barrel for the second quarter of 2015 compared to $17.04 per barrel for the same period in 2014. This increase in operating margin was primarily due to improved light product yields, partially offset by the industry margin environment. The contango environment in the second quarter of 2015 created a cost of crude benefit of $1.90 per barrel compared to the backwardated environment creating a cost of crude detriment of $0.93 per barrel for the same period in 2014 (“second quarter 2015 Contango Benefit”).
Refinery operating margin at the Krotz Springs refinery was $7.95 per barrel for the second quarter of 2015 compared to $8.89 per barrel for the same period in 2014. This decrease was primarily due to a lower Gulf Coast 2/1/1 high sulfur diesel crack spread and a narrowing WTI Cushing to WTI Midland spread, partially offset by a widening LLS to WTI Cushing spread and the second quarter 2015 Contango Benefit.
The average Gulf Coast 3/2/1 crack spread was $19.71 per barrel for the second quarter of 2015 compared to $16.42 per barrel for the second quarter of 2014. The average Gulf Coast 2/1/1 high sulfur diesel crack spread for the second quarter of 2015 was $10.21 per barrel compared to $12.47 per barrel for the second quarter of 2014.
The average WTI Cushing to WTS spread for the second quarter of 2015 was $(0.21) per barrel compared to $7.88 per barrel for the same period in 2014. The average WTI Cushing to WTI Midland spread for the second quarter of 2015 was $0.60 per barrel compared to $8.37 per barrel for the same period in 2014. The average LLS to WTI Cushing spread for the second quarter of 2015 was $6.28 per barrel compared to $2.89 per barrel for the same period in 2014.
Asphalt margins in the second quarter of 2015 were $100.92 per ton compared to $67.64 per ton in the second quarter of 2014. This increase was primarily due to lower costs of asphalt purchased during the second quarter of 2015 compared to 2014.
Retail fuel margins increased to 20.3 cents per gallon in the second quarter of 2015</