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, 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 October 30, 2015, was 70,960,461.

 
 



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,
2015
 
December 31,
2014
 
(unaudited)
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
238,864

 
$
214,961

Accounts and other receivables, net
167,549

 
153,859

Income tax receivable
2,846

 
9,196

Inventories
112,257

 
122,803

Deferred income tax asset
9,555

 
11,228

Prepaid expenses and other current assets
28,242

 
26,315

Total current assets
559,313

 
538,362

Equity method investments
28,139

 
25,376

Property, plant and equipment, net
1,363,166

 
1,372,344

Goodwill
101,913

 
101,913

Other assets, net
167,498

 
162,879

Total assets
$
2,220,029

 
$
2,200,874

LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
257,606

 
$
292,217

Accrued liabilities
123,712

 
104,391

Current portion of long-term debt
16,422

 
15,089

Total current liabilities
397,740

 
411,697

Other non-current liabilities
182,476

 
182,659

Long-term debt
544,403

 
548,598

Deferred income tax liability
355,474

 
384,142

Total liabilities
1,480,093

 
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 September 30, 2015 and December 31, 2014, respectively

 
682

Common stock, par value $0.01, 150,000,000 shares authorized; 70,844,114 and 69,606,944 shares issued and outstanding at September 30, 2015 and December 31, 2014, respectively
708

 
696

Additional paid-in capital
522,804

 
517,127

Accumulated other comprehensive loss, net of tax
(23,684
)
 
(8,458
)
Retained earnings
204,244

 
126,851

Total stockholders’ equity
704,072

 
636,898

Non-controlling interest in subsidiaries
35,864

 
36,880

Total equity
739,936

 
673,778

Total liabilities and equity
$
2,220,029

 
$
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 Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Net sales (1)
$
1,151,204

 
$
1,850,097

 
$
3,555,785

 
$
5,276,225

Operating costs and expenses:
 
 
 
 
 
 
 
Cost of sales
914,193

 
1,608,080

 
2,878,612

 
4,695,072

Direct operating expenses
65,047

 
70,356

 
192,108

 
208,664

Selling, general and administrative expenses
54,100

 
44,114

 
148,889

 
129,836

Depreciation and amortization
31,033

 
32,170

 
94,262

 
91,501

Total operating costs and expenses
1,064,373

 
1,754,720

 
3,313,871

 
5,125,073

Gain (loss) on disposition of assets
23

 
(1,372
)
 
595

 
745

Operating income
86,854

 
94,005

 
242,509

 
151,897

Interest expense
(20,696
)
 
(28,202
)
 
(59,950
)
 
(85,473
)
Equity earnings of investees
3,451

 
1,982

 
4,725

 
2,801

Other income, net
92

 
20

 
151

 
641

Income before income tax expense
69,701

 
67,805

 
187,435

 
69,866

Income tax expense
17,325

 
14,331

 
53,142

 
14,454

Net income
52,376

 
53,474

 
134,293

 
55,412

Net income attributable to non-controlling interest
10,440

 
14,992

 
29,008

 
23,662

Net income available to stockholders
$
41,936

 
$
38,482

 
$
105,285

 
$
31,750

Earnings per share, basic
$
0.60

 
$
0.56

 
$
1.51

 
$
0.46

Weighted average shares outstanding, basic (in thousands)
69,893

 
69,153

 
69,687

 
68,873

Earnings per share, diluted
$
0.58

 
$
0.55

 
$
1.46

 
$
0.46

Weighted average shares outstanding, diluted (in thousands)
72,526

 
69,556

 
72,281

 
69,261

Cash dividends per share
$
0.15

 
$
0.10

 
$
0.40

 
$
0.22

___________
(1)
Includes excise taxes on sales by the retail segment of $20,068 and $19,012 for the three months and $57,493 and $55,923 for the nine months ended September 30, 2015 and 2014, respectively.

The accompanying notes are an integral part of these consolidated financial statements.
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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,
 
2015
 
2014
 
2015
 
2014
Net income
$
52,376

 
$
53,474

 
$
134,293

 
$
55,412

Other comprehensive income (loss):
 
 
 
 
 
 
 
Interest rate derivatives designated as cash flow hedges:
 
 
 
 
 
 
 
Unrealized holding gain (loss) arising during period
(997
)
 
283

 
(1,838
)
 
(519
)
Loss reclassified to earnings - interest expense
107

 
21

 
219

 
35

Net gain (loss), before tax
(890
)
 
304

 
(1,619
)
 
(484
)
Income tax expense (benefit)
(330
)
 
111

 
(600
)
 
(179
)
Net gain (loss), net of tax
(560
)
 
193

 
(1,019
)
 
(305
)
Commodity contracts designated as cash flow hedges:
 
 
 
 
 
 
 
Unrealized holding gain arising during period

 
5,051

 
6,070

 
37,558

Amortization of unrealized (gain) loss on de-designated cash flow hedges - cost of sales
(11,323
)
 
2,753

 
(29,260
)
 
13,181

Net gain (loss), before tax
(11,323
)
 
7,804

 
(23,190
)
 
50,739

Income tax expense (benefit)
(4,189
)
 
2,888

 
(8,580
)
 
18,773

Net gain (loss), net of tax
(7,134
)
 
4,916

 
(14,610
)
 
31,966

Total other comprehensive income (loss), net of tax
(7,694
)
 
5,109

 
(15,629
)
 
31,661

Comprehensive income
44,682

 
58,583

 
118,664

 
87,073

Comprehensive income attributable to non-controlling interest
10,298

 
15,100

 
28,605

 
24,638

Comprehensive income attributable to stockholders
$
34,384

 
$
43,483

 
$
90,059

 
$
62,435



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,
 
2015
 
2014
Cash flows from operating activities:
 
 
 
Net income
$
134,293

 
$
55,412

Adjustments to reconcile net income to cash provided by operating activities:
 
 
 
Depreciation and amortization
94,262

 
91,501

Stock compensation
7,280

 
5,776

Deferred income taxes
(17,815
)
 
(13,237
)
Equity earnings of investees, net of dividends
(2,750
)
 
(1,449
)
Amortization of debt issuance costs
2,620

 
2,955

Amortization of original issuance discount
4,639

 
4,805

Write-off of unamortized debt issuance costs

 
358

Write-off of unamortized original issuance discount

 
391

Gain on disposition of assets
(595
)
 
(745
)
Unrealized (gain) loss on commodity swaps
(9,014
)
 
10,774

Changes in operating assets and liabilities:
 
 
 
Accounts and other receivables, net
(2,595
)
 
12,604

Income tax receivable
6,350

 
16,053

Inventories
11,432

 
(19,554
)
Prepaid expenses and other current assets
(1,927
)
 
(7,213
)
Other assets, net
(15,614
)
 
(773
)
Accounts payable
(44,234
)
 
(19,163
)
Accrued liabilities
11,779

 
8,603

Other non-current liabilities
(1,801
)
 
(2,514
)
Net cash provided by operating activities
176,310

 
144,584

Cash flows from investing activities:
 
 
 
Capital expenditures
(57,262
)
 
(73,796
)
Capital expenditures for turnarounds and catalysts
(11,410
)
 
(51,392
)
Contribution to equity method investment

 
(597
)
Proceeds from disposition of assets
1,570

 
41,032

Acquisition of retail stores
(11,196
)
 

Net cash used in investing activities
(78,298
)
 
(84,753
)
Cash flows from financing activities:
 
 
 
Dividends paid to stockholders
(27,877
)
 
(15,102
)
Dividends paid to non-controlling interest
(260
)
 
(389
)
Distributions paid to non-controlling interest in the Partnership
(28,195
)
 
(11,506
)
Inventory agreement transactions
(8,137
)
 
(200
)
Deferred debt issuance costs
(2,139
)
 
(2,079
)
Revolving credit facilities, net
(10,000
)
 
(50,000
)
Additions to long-term debt
14,049

 
145,000

Payments on long-term debt
(11,550
)
 
(156,486
)
Net cash used in financing activities
(74,109
)
 
(90,762
)
Net increase (decrease) in cash and cash equivalents
23,903

 
(30,931
)
Cash and cash equivalents, beginning of period
214,961

 
224,499

Cash and cash equivalents, end of period
$
238,864

 
$
193,568

Supplemental cash flow information:
 
 
 
Cash paid for interest, net of capitalized interest
$
54,031

 
$
85,261

Cash paid (refunds received) for income tax
$
37,046

 
$
(6,619
)
Supplemental disclosure of non-cash activity:
 
 
 
Capital expenditures included in accounts payable and accrued liabilities
$
4,087

 
$
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 months ended September 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 August 2015, the FASB updated the guidance to include 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. In August 2015, the FASB updated the guidance to clarify that debt issuance costs related to line-of-credit arrangements would not be impacted by the updated standard. 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.

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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)


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 September 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 nine months ended September 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

 
$
44,379

 
$
8,169

August 25, 2015
 
$
1.04

 
$
65,011

 
$
11,971

(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 regions of the United States. Our California refineries did not process crude oil during the nine months ended September 30, 2015 and 2014 due to the high cost of crude oil relative to product yield and low asphalt demand.

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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)


We supply gasoline and diesel to 636 Alon branded retail sites, including our retail segment convenience stores. During 2015, approximately 57% 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 65 licensed locations that are not under fuel supply agreements.
(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 308 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.
In August 2015, we acquired 14 retail stores in the Albuquerque, New Mexico area for $11,196, which included property, plant and equipment and related inventories.
(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 nine month periods ended September 30, 2015 and 2014 are presented below:
 
Refining and
Marketing
 
Asphalt
 
Retail
 
Corporate
 
Consolidated
Total
Three Months Ended September 30, 2015
 
 
 
 
 
 
 
 
 
Net sales to external customers
$
853,912

 
$
88,436

 
$
208,856

 
$

 
$
1,151,204

Intersegment sales (purchases)
97,014

 
(7,247
)
 
(89,767
)
 

 

Depreciation and amortization
26,363

 
1,313

 
3,024

 
333

 
31,033

Operating income (loss)
61,481

 
18,501

 
7,385

 
(513
)
 
86,854

Total assets
1,833,541

 
125,918

 
239,384

 
21,186

 
2,220,029

Turnarounds, catalysts and capital expenditures
25,674

 
840

 
5,365

 
1,379

 
33,258

 
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
1,855,849

 
128,392

 
218,127

 
20,784

 
2,223,152

Turnarounds, catalysts and capital expenditures
36,591

 
1,053

 
5,872

 
748

 
44,264


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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)


 
Refining and
Marketing
 
Asphalt
 
Retail
 
Corporate
 
Consolidated
Total
Nine Months Ended September 30, 2015
 
 
 
 
 
 
 
 
 
Net sales to external customers
$
2,755,322

 
$
208,988

 
$
591,475

 
$

 
$
3,555,785

Intersegment sales (purchases)
281,136

 
(26,103
)
 
(255,033
)
 

 

Depreciation and amortization
80,366

 
3,665

 
9,004

 
1,227

 
94,262

Operating income (loss)
220,709

 
2,347

 
21,212

 
(1,759
)
 
242,509

Total assets
1,833,541

 
125,918

 
239,384

 
21,186

 
2,220,029

Turnarounds, catalysts and capital expenditures
46,913

 
2,484

 
14,883

 
4,392

 
68,672

 
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
1,855,849

 
128,392

 
218,127

 
20,784

 
2,223,152

Turnarounds, catalysts and capital expenditures
106,715

 
4,272

 
12,094

 
2,107

 
125,188

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.

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

 
$
28,564

 
$

 
$
28,564

Fair value hedges

 
33,848

 

 
33,848

Liabilities:
 
 
 
 
 
 
 
Commodity contracts (futures and forwards)
518

 

 

 
518

Interest rate swaps

 
2,857

 

 
2,857

 
 
 
 
 
 
 
 
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 refined products that we use or produce at our refineries. At September 30, 2015, these swap contracts had aggregate volumes of 11,940 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 776 thousand barrels of crude oil as of September 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 September 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 September 30, 2015, these commodity swap contracts were accounted for as economic hedges, as mentioned above. As of September 30, 2015, unrealized gains of $12,688 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 nine months ended September 30, 2015, we reclassified gains of $11,323 and $29,260, respectively, from OCI into cost of sales related to these de-designated cash flow hedges. During the three and nine months ended September 30, 2014, we reclassified losses of $2,753 and $13,181, 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 $(11,323) and $7,804 for the three months ended and $(23,190) and $50,739 for the nine months ended September 30, 2015 and 2014, respectively.
Interest Rate Derivatives. We have four interest rate swap agreements, maturing March 2019, that effectively fix the variable LIBOR interest component of the term loans within the Alon Retail Credit Agreement, as defined in Note 11. 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 loans throughout the duration of the interest rate swaps. As of September 30, 2015, the outstanding principal of the term loans was $107,983. The interest rate swaps lock in an average fixed interest rate of 0.77% through the remainder of 2015; 1.43% in 2016; 2.22% in 2017; 2.89% in 2018 and 3.06% in 2019.
Related to interest rate swap cash flow hedges in OCI, we recognized unrealized gains (losses) of $(890) and $304 for the three months ended and $(1,619) and $(484) for the nine months ended September 30, 2015 and 2014, respectively.
For the three and nine months ended September 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 September 30, 2015, we have net unrealized gains of $9,831 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 $12,042 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 September 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
 
$
269

 
Accrued liabilities
 
$
787

Commodity contracts (swaps)
Accounts receivable
 
24,453

 
 
 

Commodity contracts (swaps)
Other assets
 
4,111

 
 
 

Total derivatives not designated as hedging instruments
 
 
28,833

 
 
 
787

 
 
 
 
 
 
 
 
Derivatives designated as hedging instruments:
 
 
 
 
 
 
 
Interest rate swaps
 
 
$

 
Other non-current liabilities
 
$
2,857

Fair value hedges
Other assets
 
33,848

 
 
 

Total derivatives designated as hedging instruments
 
 
33,848

 
 
 
2,857

Total derivatives
 
 
$
62,681

 
 
 
$
3,644


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 September 30, 2015
 
 
 
 
 
 
 
 
Commodity contracts (swaps)
 
$
(11,323
)
 
Cost of sales
 
$
11,323

 
 
 
$

Interest rate swaps
 
(890
)
 
Interest expense
 
(107
)
 
 
 

Total derivatives
 
$
(12,213
)
 
 
 
$
11,216

 
 
 
$

 
 
 
 
 
 
 
 
 
 
 
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
)
 
 
 
$


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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 Nine Months Ended September 30, 2015
 
 
 
 
 
 
 
 
Commodity contracts (swaps)
 
$
(23,190
)
 
Cost of sales
 
$
29,260

 
 
 
$

Interest rate swaps
 
(1,619
)
 
Interest expense
 
(219
)
 
 
 

Total derivatives
 
$
(24,809
)
 
 
 
$
29,041

 
 
 
$

 
 
 
 
 
 
 
 
 
 
 
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
)
 
 
 
$

Derivatives in fair value hedging relationships:
 
 
 
Gain Recognized in Income
 
 
 
For the Three Months Ended
 
For the Nine Months Ended
 
 
 
September 30,
 
September 30,
 
Location
 
2015
 
2014
 
2015
 
2014
Fair value hedges (1)
Interest expense
 
$
13,735

 
$
8,650

 
$
8,945

 
$
1,599

Total derivatives
 
 
$
13,735

 
$
8,650

 
$
8,945

 
$
1,599

___________
(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 Nine Months Ended
 
 
 
September 30,
 
September 30,
 
Location
 
2015
 
2014
 
2015
 
2014
Commodity contracts (futures and forwards)
Cost of sales
 
$
(1,958
)
 
$
(6,674
)
 
$
(5,628
)
 
$
(12,792
)
Commodity contracts (swaps)
Cost of sales
 
778

 
1,489

 
20,196

 
3,290

Total derivatives
 
 
$
(1,180
)
 
$
(5,185
)
 
$
14,568

 
$
(9,502
)

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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)


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 September 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 September 30, 2015
 
 
 
 
 
 
 
 
 
 
 
Derivative Assets:
 
 
 
 
 
 
 
 
 
 
 
Commodity contracts (futures and forwards)
$
1,109

 
$
(840
)
 
$
269

 
$
(269
)
 
$

 
$

Commodity contracts (swaps)
39,196

 
(10,632
)
 
28,564

 

 

 
28,564

Fair value hedges
33,848

 

 
33,848

 

 

 
33,848

Derivative Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Commodity contracts (futures and forwards)
$
1,627

 
$
(840
)
 
$
787

 
$
(269
)
 
$

 
$
518

Commodity contracts (swaps)
10,632

 
(10,632
)
 

 

 

 

Interest rate swaps
2,857

 

 
2,857

 

 

 
2,857

 
 
 
 
 
 
 
 
 
 
 
 
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 $6,558 and $8,469 for the three months ended and $29,648 and $20,823 for the nine months ended September 30, 2015 and 2014, respectively. These amounts are reflected in cost of sales in the consolidated statements of operations.

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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)


(6)
Inventories
Carrying value of inventories consisted of the following:
 
September 30,
2015
 
December 31,
2014
Crude oil, refined products, asphalt and blendstocks
$
44,403

 
$
48,027

Crude oil consignment inventory (Note 7)
11,403

 
18,350

Materials and supplies
26,039

 
22,269

Store merchandise
24,217

 
27,418

Store fuel
6,195

 
6,739

Total inventories
$
112,257

 
$
122,803

The market value of refined products, asphalt and blendstock inventories exceeded LIFO costs by $3,650 and $7,713 at September 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 $23,804 and $17,754 at September 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 September 30, 2015 and December 31, 2014, we had net current receivables of $10,214 and net current payables of $46,303, respectively, with J. Aron for sales and purchases, and a consignment inventory receivable representing a deposit paid to J. Aron of $26,179 and $26,179, respectively. At September 30, 2015 and December 31, 2014, we had non-current liabilities for the original financing of $33,911 and $39,060, respectively, net of the related fair value hedges.
Additionally, we had net current payables of $865 and $4,212 at September 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.

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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)


(8)
Property, Plant and Equipment, Net
Property, plant and equipment, net consisted of the following:
 
September 30,
2015
 
December 31,
2014
Refining facilities
$
1,877,840

 
$
1,839,367

Pipelines and terminals
43,439

 
43,439

Retail
205,412

 
181,552

Other
22,328

 
17,988

Property, plant and equipment, gross
2,149,019

 
2,082,346

Accumulated depreciation
(785,853
)
 
(710,002
)
Property, plant and equipment, net
$
1,363,166

 
$
1,372,344

Acquisition of Assets
In August 2015, we acquired 14 retail stores in the Albuquerque, New Mexico area, which increased our Retail property, plant and equipment balance by $10,210.
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 nine months ended September 30, 2014, a pre-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)
Additional Financial Information
The following tables provide additional financial information related to the consolidated financial statements.
(a)
Other Assets, Net
 
September 30,
2015
 
December 31,
2014
Deferred turnaround and catalyst cost
$
59,939

 
$
60,753

Environmental receivables (Note 16)
2,518

 
3,030

Deferred debt issuance costs
10,088

 
10,569

Intangible assets, net
7,240

 
7,647

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

 
26,179

Commodity contracts
4,111

 
11,622

Fair value hedges (Note 7)
33,848

 
24,903

Other, net
23,575

 
18,176

Total other assets
$
167,498

 
$
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
 
September 30,
2015
 
December 31,
2014
Accrued Liabilities:
 
 
 
Taxes other than income taxes, primarily excise taxes
$
33,996

 
$
47,071

Employee costs
24,855

 
13,297

Commodity contracts
787

 
7,501

Accrued finance charges
670

 
1,826

Environmental accrual (Note 16)
8,189

 
8,189

Income taxes
27,530

 

Other
27,685

 
26,507

Total accrued liabilities
$
123,712

 
$
104,391

 
 
 
 
Other Non-Current Liabilities:
 
 
 
Pension and other postemployment benefit liabilities, net
$
52,359

 
$
52,135

Environmental accrual (Note 16)
38,821

 
43,546

Asset retirement obligations
12,890

 
12,328

Consignment inventory obligations (Note 7)
67,759

 
63,963

Interest rate swaps
2,857

 
1,238

Other
7,790

 
9,449

Total other non-current liabilities
$
182,476

 
$
182,659

(10)
Postretirement Benefits
The components of net periodic benefit cost related to our benefit plans for the three and nine months ended September 30, 2015 and 2014 consisted of the following:
 
For the Three Months Ended
 
For the Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Components of net periodic benefit cost:
 
 
 
 
 
 
 
Service cost
$
996

 
$
856

 
$
2,989

 
$
2,568

Interest cost
1,255

 
1,238

 
3,766

 
3,714

Expected return on plan assets
(1,582
)
 
(1,370
)
 
(4,747
)
 
(4,109
)
Amortization of net loss
839

 
596

 
2,518

 
1,787

Net periodic benefit cost
$
1,508

 
$
1,320

 
$
4,526

 
$
3,960

Our estimated contributions to our pension plans during 2015 have not changed significantly from amounts previously disclosed in the notes to the consolidated financial statements for the year ended December 31, 2014. For the nine months ended September 30, 2015 and 2014, we contributed $4,530 and $5,865, respectively, to our qualified pension plans.

16

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


(11)
Indebtedness
Debt consisted of the following:
 
September 30,
2015
 
December 31,
2014
Term loan credit facilities
$
262,048

 
$
264,359

Alon USA, LP Credit Facility
50,000

 
60,000

Convertible senior notes
130,492

 
126,298

Retail credit facilities
118,285

 
113,030

Total debt
560,825

 
563,687

Less: Current portion
16,422

 
15,089

Total long-term debt
$
544,403

 
$
548,598

(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 $34,713 and $54,227 at September 30, 2015 and December 31, 2014, respectively. In October 2015, the expiration date of this facility was extended to November 2017.
We had borrowings of $50,000 and $60,000 and letters of credit of $35,136 and $23,511 outstanding under the Alon USA, LP $240,000 revolving credit facility at September 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 September 30, 2015, the conversion rate was adjusted to 69.839 shares of our common stock per each $1 (in thousands) principal amount of Convertible Notes, equivalent to a conversion price of approximately $14.32 per share, to reflect cash dividend adjustments. The strike price of the options was adjusted to $14.32 per share and the strike price of the warrants was adjusted to $19.45 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 September 30, 2015, there have been no conversions of the Convertible Notes.
In May 2015, Delek US Holdings, Inc. (“Delek”) acquired approximately 48% of our outstanding 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 $15,900 as of September 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 $54,000 as of September 30, 2015.
(c) Alon Retail Credit Agreement
Southwest Convenience Stores, LLC and Skinny’s LLC (“Alon Retail”) are party to a credit agreement (“Alon Retail Credit Agreement”) maturing March 2019. The Alon Retail Credit Agreement includes an initial $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 of $30,000 to fund store rebuilds, new builds and acquisitions. In August 2015, we borrowed $11,000 using the accordion feature and amended the Alon Retail Credit Agreement to restore the undrawn amount of the accordion feature back to $30,000. The $11,000 incremental term loan was used to fund our acquisition of 14 retail stores in New Mexico (Note 3). At September 30, 2015 and December 31, 2014, the Alon Retail Credit Agreement had $107,983 and $102,667, respectively, of outstanding term loans and $10,000 and $10,000, respectively, outstanding under the revolving credit loan.

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


(d) 2015 Term Loan Credit Facility
In August 2015, we entered into a $3,049 unsecured term loan (“2015 Term Loan”), which requires principal repayments of $51 monthly until maturity in August 2020. Borrowings under the 2015 Term Loan bear interest at LIBOR plus 2.50% per annum. At September 30, 2015, the outstanding balance was $2,998.
(e) Financial Covenants
We have certain credit agreements that contain maintenance financial covenants. At September 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, we 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.
In July 2015, we granted awards of 100,000 restricted shares to our CEO and President at a grant date price of $18.82 per share. These July 2015 restricted shares will fully vest in July 2016, assuming continued service at vesting.
In August 2015, we granted awards of 69,980 restricted shares to certain executive officers at a grant date price of $21.00 per share. These August 2015 restricted shares will vest as follows: 50% in August 2016 and 50% in August 2019, assuming continued service at vesting.
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
 
431,008

 
17.82

Vested
 
(169,280
)
 
14.69

Forfeited
 

 

Nonvested at September 30, 2015
 
905,727

 
$
15.86

Compensation expense for restricted stock awards amounted to $2,920 and $1,308 for the three months ended September 30, 2015 and 2014, respectively, and $5,234 and $2,796 for the nine months ended September 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 $2,992.
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 September 30, 2015 and 2014, respectively, and $249 and $1,122 for the nine months ended September 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 September 30, 2015, there was $6,714 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 0.9 years.

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


(13)
Equity (share values in dollars)
Changes to equity during the nine months ended September 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
 
(15,226
)
 
(403
)
 
(15,629
)
Stock compensation
 
4,996

 
(1,166
)
 
3,830

Dividends of common stock on preferred stock
 
(4
)
 

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

 
(28,195
)
 
(28,195
)
Dividends
 
(27,877
)
 
(260
)
 
(28,137
)
Net income
 
105,285

 
29,008

 
134,293

Balance at September 30, 2015
 
$
704,072

 
$
35,864

 
$
739,936

(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, 2015, 445,992 shares of our common stock were issued in exchange for 2,384.22 shares of Alon Assets. At September 30, 2015, 814,431 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 $573 and $540 for the three months ended September 30, 2015 and 2014, respectively, $1,756 and $1,845 for the nine months ended September 30, 2015 and 2014, respectively. These amounts are included in selling, general and administrative expenses in the consolidated statements of operations.
(b)
Preferred Stock
Preferred Stock Conversion. In March 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 nine months ended September 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

September 24, 2015
 
September 8, 2015
 
$
0.15

Preferred Stock Dividends. During the nine months ended September 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 remaining shares of our preferred stock being converted 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
2,803

 

 
2,803

Amounts reclassified from accumulated other comprehensive loss
(18,029
)
 

 
(18,029
)
Net current-period other comprehensive loss
(15,226
)
 

 
(15,226
)
Balance at September 30, 2015
$
6,104

 
$
(29,788
)
 
$
(23,684
)

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


(14)
Earnings Per Share
Basic earnings per share is calculated as net income available to common stockholders divided by the average number of participating shares of common stock outstanding. Diluted earnings 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 per share, basic and diluted, for the three and nine months ended September 30, 2015 and 2014, 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,
 
2015
 
2014
 
2015
 
2014
Net income available to stockholders
$
41,936

 
$
38,482

 
$
105,285

 
$
31,750

Less: preferred stock dividends

 
15

 
15

 
44

Net income available to common stockholders
41,936

 
38,467

 
105,270

 
31,706

 
 
 
 
 
 
 
 
Weighted average shares outstanding, basic
69,893

 
69,153

 
69,687

 
68,873

Dilutive common stock equivalents
2,633

 
403

 
2,594

 
388

Weighted average shares outstanding, diluted
72,526

 
69,556

 
72,281

 
69,261

Earnings per share, basic
$
0.60

 
$
0.56

 
$
1.51

 
$
0.46

Earnings per share, diluted
$
0.58

 
$
0.55

 
$
1.46

 
$
0.46

For the three and nine months ended September 30, 2015 and 2014, the weighted average diluted shares includes all potentially dilutive common stock equivalents.
(15)
Related Party Transactions
Delek US Holdings, Inc.
In May 2015, Delek completed the purchase of approximately 48% of our outstanding common stock from Alon Israel Oil Company, Ltd. For the three months ended September 30, 2015 and from the transaction date through September 30, 2015, we purchased $5,192 and $7,136 of refined products from Delek, respectively. Accounts payable includes a balance outstanding to Delek of $540 at September 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 January 2016. 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

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


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 $47,010 ($8,189 current liability and $38,821 non-current liability) at September 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 $2,518 and $3,030 at September 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 $0 and $3,350 at September 30, 2015 and December 31, 2014, respectively.
(17)
Subsequent Events
Dividend Declared
On October 30, 2015, our board of directors declared the regular quarterly cash dividend of $0.15 per share on our common stock, payable on December 24, 2015, to holders of record at the close of business on December 8, 2015.
Partnership Distribution
On October 29, 2015, the board of directors of the General Partner declared a cash distribution to the Partnership’s common unitholders of approximately $61,260, or $0.98 per common unit. The cash distribution will be paid on November 25, 2015 to unitholders of record at the close of business on November 18, 2015. The total cash distribution payable to non-affiliated common unitholders will be approximately $11,280.

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ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In this document, the words “Alon,” “the Company,” “we,” “our,” “us” or like terms refer to Alon USA Energy, Inc. and its consolidated subsidiaries or to Alon USA Energy, Inc. or an individual subsidiary. 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. 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.
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. (“Delek”), 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, under 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;

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the effects and cost of compliance with current and future state and federal environmental, economic, safety and other laws, policies and regulations;
the effects of seasonality on demand for our products;
the level of competition from other petroleum refiners;
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 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 308 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 regions of the 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 own or access through leases or long-term throughput agreements.
We supply gasoline and diesel to 636 Alon branded retail sites, including our retail segment convenience stores. During 2015, approximately 57% 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 65 licensed locations that are not under fuel supply agreements.
We market transportation fuel production from our Krotz Springs refinery substantially 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, 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.

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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.
Third Quarter Operational and Financial Highlights
Operating income for the third quarter of 2015 was $86.9 million, compared to $94.0 million in the same period last year. Our operational and financial highlights for the third quarter of 2015 include the following:
Combined refinery average throughput for the third quarter of 2015 was 146,070 bpd, compared to a combined refinery average throughput of 151,772 bpd for the third quarter of 2014. The Big Spring refinery average throughput for the third quarter of 2015 was 75,797 bpd, compared to 74,838 bpd for the third quarter of 2014. The Krotz Springs refinery average throughput for the third quarter of 2015 was 70,273 bpd, compared to 76,934 bpd for the third quarter of 2014. The reduced throughput at the Krotz Springs refinery during the