Annual Report (10-k)

Western Refining, Inc.

Overview

We are an independent crude oil refiner and marketer of refined products incorporated in September 2005 under Delaware law with principal offices located in El Paso, Texas. Our common stock trades on the New York Stock Exchange ("NYSE") under the symbol “WNR.” We own certain operating assets directly and the controlling general partner interest, incentive distribution rights and a 52.6% limited partner interest in Western Refining Logistics, LP (“WNRL”). WNRL common partnership units trade on the NYSE under the symbol "WNRL."

We produce refined products at our refineries in El Paso, Texas ( 135,000 barrels per day, or bpd, crude oil throughput capacity), near Gallup, New Mexico ( 25,000 bpd capacity) and St. Paul Park, Minnesota ( 102,000 bpd capacity). We sell refined products primarily in Arizona, Colorado, Minnesota, New Mexico, Wisconsin, West Texas, the Mid-Atlantic region and Mexico through bulk distribution terminals and wholesale marketing networks. We also sell refined products through two retail networks with a total of 544 company-operated and franchised retail sites in the United States.

WNRL provides logistical services to our refineries in the Southwest and Upper Great Plains regions and operates several lubricant and bulk petroleum distribution plants and a fleet of crude oil, asphalt and refined product delivery trucks. WNRL distributes wholesale petroleum products primarily in Arizona, Colorado, Nevada, New Mexico and Texas.

On November 16, 2016, we entered into an Agreement and Plan of Merger (the “Tesoro Merger Agreement”) with Tesoro, Tahoe Merger Sub 1, Inc., a Delaware corporation and wholly-owned subsidiary of Tesoro (“Merger Sub 1”), and Tahoe Merger Sub 2, LLC, a Delaware limited liability company and wholly owned subsidiary of Tesoro (“Merger Sub 2”), pursuant to which Merger Sub 1 will merge with and into the Company (the “First Merger,” and, if a second merger election as discussed below is not made, the “Tesoro Merger”), with the Company surviving the First Merger as a wholly owned subsidiary of Tesoro. Subject to the terms and conditions set forth in the Tesoro Merger Agreement, upon consummation of the First Merger, each share of our common stock (each, a “Western Share”) issued and outstanding immediately prior to the effective time of the First Merger (excluding Western Shares owned by the Company or Tesoro or any of their respective direct or indirect wholly-owned subsidiaries that are not held on behalf of third parties) will be converted into and become exchangeable for, at the election of the holder of such Western Share, either (a) $37.30 in cash or (b) 0.4350 shares of common stock in each case without interest. Western stockholders as of the close of business on February 10, 2017, the record date, have been invited to attend a special meeting of Western stockholders on March 24, 2017 at 10:00 am Mountain Standard Time, to consider and vote upon a proposal to adopt the Tesoro Merger Agreement and certain other matters related to the Tesoro Merger. On February 16, 2017, Tesoro filed with the SEC, and the SEC declared effective, a registration statement on Form S-4 (Reg. No. 333-215080), containing a joint proxy statement/prospectus of Tesoro and Western, which proxy statement/prospectus was first mailed to Tesoro and Western stockholders on February 17, 2017. See Note 31, Tesoro Merger , in the Notes to Consolidated Financial Statements included in this annual report for additional information on this transaction.

We own 100% of the limited partner interest in Northern Tier Energy LP ("NTI") and 100% of its general partner. We entered into an Agreement and Plan of Merger dated as of December 21, 2015 (the “NTI Merger Agreement”), with Western Acquisition Co, LLC, which is a wholly-owned subsidiary of Western, NTI and Northern Tier Energy GP LLC, to acquire all of NTI’s outstanding common units not already held by us (the “NTI Merger”). On June 23, 2016, following the approval of the NTI Merger Agreement by NTI common unitholders, all closing conditions to the NTI Merger were satisfied, and the NTI Merger was successfully completed. We incurred $500 million of additional secured indebtedness under our amended term loan credit agreement to partially fund the NTI Merger consideration. See Note 30, NTI , in the Notes to Consolidated Financial Statements included in this annual report for additional information on this transaction.

The following simplified diagram depicts the reporting entities in our organizational structure as of December 31, 2016 :

Our operations are organized into three reportable segments based on manufacturing and marketing criteria and the nature of our products and services, our production processes and our types of customers. The three business segments are: refining, WNRL and retail.

See Note 3, Segment Information , in the Notes to Consolidated Financial Statements included in this annual report for detailed information on our operating results by business segment. We sell a variety of refined products to a diverse customer base. No single customer accounted for more than 10% of consolidated net sales for the years ended December 31, 2016 , 2015 and 2014 .

Refining Segment

Our refining group operates a refinery in El Paso, Texas (the "El Paso refinery"), a refinery near Gallup, New Mexico (the "Gallup refinery") and a refinery in St. Paul Park, Minnesota (the "St. Paul Park refinery"). We supply refined products to the El Paso area via WNRL and other logistics assets adjacent to the El Paso refinery and to other areas including Tucson, Phoenix, Albuquerque and Juarez, Mexico through third-party pipeline systems linked to our El Paso refinery. We supply refined products to the Four Corners region and throughout Northern New Mexico from WNRL operations in Albuquerque, Bloomfield and Gallup, New Mexico. We supply refined products to the St. Paul Park area via WNRL and through a third-party pipeline and terminal system that has facilities throughout the Upper Great Plains region.

Our refining segment also includes our refined products marketing and distribution operations in the Mid-Atlantic region. On September 15, 2016 , we sold certain assets consisting of terminals, transportation and storage assets and the related land located at our St. Paul Park refinery and Cottage Grove tank farm to WNRL. These assets primarily receive, store and distribute crude oil, feedstock and refined products associated with the St. Paul Park refinery (the " St. Paul Park Logistics Assets "). Prior to our sale of the St. Paul Park Logistics Assets (the " St. Paul Park Logistics Transaction "), our refining segment included the operations of the St. Paul Park Logistics Assets , and we have recast historical financial and operational data of the refining segment, for all periods presented, to reflect the sale of the St. Paul Park Logistics Assets to WNRL.

Principal Products.  Our refineries make various grades of gasoline, diesel fuel, jet fuel and other products from crude oil, other feedstocks and blending components. We may acquire refined products through exchange agreements and from various third-party suppliers. We sell these products to WNRL, to our retail segment, to other independent wholesalers and retailers and sales and exchanges with major oil companies. We also sell crude oil directly or through exchanges with major oil companies. See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations for detail on production by refinery.

The following table summarizes sales percentages by category for the years indicated:

Customers.  We sell a variety of refined products to our diverse customer base and through WNRL's wholesale business. No single third-party customer of our refining segment accounted for more than 10% of our consolidated net sales during the years ended December 31, 2016 , 2015 and 2014 .

Other than sales of gasoline and diesel fuel for export to Juarez and other cities in Northern Mexico, our refining sales were domestic sales in the United States. The sales for export were to PMI Trading Limited, an affiliate of Petroleos Mexicanos, the Mexican state-owned oil company and accounted for approximately 6.0% , 6.3% and 5.5% of our consolidated net sales during the years ended December 31, 2016 , 2015 and 2014 , respectively.

We also purchase additional refined products from third parties to supplement supply to our customers primarily in the Mid-Atlantic region. These products are similar to the products that we currently manufacture and represented approximately 5.7% , 6.5% and 7.3% of our total sales volumes during the years ended December 31, 2016 , 2015 and 2014 , respectively. The decrease from 2014 to 2016 was primarily the result of lower refined product sales activities in the Mid-Atlantic region.

Competition. The refining segment operates in the U.S. Southwest region including Arizona, Colorado, New Mexico, Utah and West Texas and the Upper Great Plains region including Minnesota and Wisconsin. These regions are supplied by substantial refining capacity from our refineries, from other regional refineries and from non-regional refineries via interstate pipelines.

Petroleum refining and marketing is highly competitive. Our southwest refineries primarily compete with Valero Energy Corporation, Phillips 66 Company, Alon USA Energy, Inc., HollyFrontier Corporation, Tesoro Corporation, Chevron Products Company ("Chevron") and Suncor Energy, Inc. as well as refineries in other regions of the country that serve the regions we serve through pipelines. Our St. Paul Park refinery competes directly with Koch Industries’ Flint Hills Resources Refinery in Pine Bend, Minnesota, as well as the other refiners in the region, that access the region by pipeline, and, to a lesser extent, other U.S. and foreign refiners. Principal competitive factors include costs of crude oil and other feedstocks, our competitors' refined product pricing, refinery efficiency, operating costs, refinery product mix and costs of product distribution and transportation. Due to their geographic diversity, larger and more complex refineries, integrated operations and greater resources, some of our competitors may be better able to withstand volatile market conditions, compete on the basis of price, obtain crude oil in times of shortage and bear the economic risk inherent in all phases of the refining industry.

In the Mid-Atlantic region, we compete with petroleum products distributors such as Shell Oil Company, BP Oil, CITGO Petroleum Corporation, Valero Energy Corporation and Exxon Mobil Corporation.

Various refined product pipelines supply our refined product distribution areas. Any expansions or additional product supplied by these third-party pipelines could put downward pressure on refined product prices in these areas.

To the extent that climate change legislation passes to impose domestic greenhouse gas restrictions, domestic refiners will be at a competitive disadvantage to offshore refineries not subject to the legislation.

El Paso Refinery

Our El Paso refinery has a crude oil throughput capacity of 135,000  bpd with access to third-party pipeline systems and WNRL logistics assets including approximately 5.3 million barrels of storage capacity, a refined product terminal and an asphalt plant and terminal. The refinery is well situated to serve two separate geographic areas allowing a diversified market pricing exposure. Tucson and Phoenix typically reflect a West Coast market pricing structure while El Paso, Albuquerque and Juarez, Mexico typically reflect a Gulf Coast market pricing structure.

Process Summary.  Our El Paso refinery is a cracking facility that has historically run a high percentage of WTI crude oil to optimize the yields of higher value refined products that currently account for over 90% of our production output. We have the flexibility to process up to 22% West Texas Sour ("WTS") crude oil. Under a sulfuric acid regeneration and sulfur gas processing agreement with Veolia North America, Inc. ("Veolia"), Veolia constructed and operates two sulfuric acid regeneration units on property we lease to Veolia within our El Paso refinery.

Power and Natural Gas Supply.  A regional electric company supplies electricity to our El Paso refinery via two separate feeders to the refinery's north and south sides. There are several uninterruptible power supply units throughout the plant to maintain computers and controls in the event of a power outage. The refinery receives its natural gas supply via pipeline under two transportation agreements. One transportation agreement is on an interruptible basis while the other is on a firm basis. We purchase our natural gas at market rates or under fixed-price agreements.

Raw Material Supply.  The primary inputs for our El Paso refinery are crude oil and isobutane. Our El Paso refinery receives crude oil from a 450 mile crude oil pipeline owned and operated by Kinder Morgan Energy Partners, LP ("Kinder Morgan") under a 30-year crude oil transportation agreement that expires in 2034. The system handles both WTI and WTS crude oil with its main trunkline into El Paso used solely for the supply of crude oil to us on a published tariff. Through the crude oil pipeline, we have access to the majority of the producing fields in the Permian Basin that gives us access to a plentiful supply of WTI and WTS crude oil from fields with long reserve lives. In 2013, we completed construction of a crude oil gathering and storage system in the Delaware Basin portion of the Permian Basin area of West Texas (the "Delaware Basin"). This system connects to the Kinder Morgan pipeline to facilitate delivery of crude oil to El Paso. This system was among the logistics assets that we contributed to WNRL upon completion of its initial public offering. WNRL's crude oil pipeline system also includes the TexNew Mex Pipeline System that facilitates delivery of crude oil to El Paso.

We generally buy our crude oil under contracts with various crude oil providers at market-based pricing. Many of these arrangements are subject to cancellation by either party or have terms of one year or less. In addition, these arrangements are subject to periodic renegotiation that could result in our paying higher or lower relative prices for crude oil.

The following table summarizes the historical feedstocks used by our El Paso refinery for the years indicated:

Refined Products Transportation.  We supply refined products to the El Paso area via WNRL and logistics assets including the light product distribution terminal and other truck and rail racks located at the El Paso refinery and to other areas including Tucson, Phoenix, Albuquerque and Juarez, Mexico, through third-party pipeline systems linked to our El Paso

refinery. We deliver gasoline and distillate products to Tucson and Phoenix through Kinder Morgan's East Line and to Albuquerque and Juarez, Mexico, through pipelines owned by Magellan Midstream Partners, LP ("Magellan").

Both Kinder Morgan’s East Line and Magellan's pipeline to Albuquerque are interstate pipelines regulated by the Federal Energy Regulatory Commission (the "FERC"). The tariff provisions for these pipelines include prorating policies that grant historical shippers line space that is consistent with their prior activities as well as a prorated portion of any expansions.

Gallup Refinery

Our Gallup refinery, located near Gallup, New Mexico, has a crude oil throughput capacity of 25,000  bpd and access to WNRL logistics assets including approximately 910,500 barrels of storage capacity. We market refined products from the Gallup refinery primarily in Arizona, Colorado, New Mexico and Utah. Our primary supply of crude oil and natural gas liquids for our Gallup refinery comes from Colorado, New Mexico and Utah.

Process Summary.  The Gallup refinery sources all of its crude oil supply from regionally produced Four Corners Sweet crude oil. Each barrel of raw materials processed by our Gallup refinery yielded in excess of 90% of high value refined products, including gasoline and diesel fuel, during the three years ended December 31, 2016 .

Power and Natural Gas Supply.  A regional electric cooperative supplies electrical power to our Gallup refinery. There are several uninterruptible power supply units throughout the plant to maintain computers and controls in the event of a power outage. We purchase our natural gas at market rates and have two available pipeline sources for natural gas supply to our refinery.

Raw Material Supply.  The feedstock for our Gallup refinery is Four Corners Sweet that we source primarily from Northern New Mexico, Colorado and Utah. We receive crude oil through a pipeline gathering system owned and operated by our WNRL segment and through a third-party pipeline connected to WNRL's system.

We supplement the crude oil used at our Gallup refinery with other feedstocks that currently include locally produced natural gas liquids and condensate as well as other feedstocks produced outside of the Four Corners area. WNRL owns and operates a 14 -mile pipeline that connects the Gallup refinery to Western's Wingate facility that provides additional receiving capacity for natural gas liquids consumed at the Gallup refinery.

The following table summarizes the historical feedstocks used by our Gallup refinery for the years indicated:

We purchase crude oil from a number of sources, including major oil companies and independent producers, under arrangements that contain market responsive pricing provisions. Many of these arrangements are subject to cancellation by either party or have terms of one year or less. In addition, these arrangements are subject to periodic renegotiation that could result in our paying higher or lower relative prices for crude oil.

Refined Products Transportation.  We distribute all gasoline and diesel fuel produced at our Gallup refinery through the truck loading rack owned and operated by our WNRL segment. We supply these refined products to Arizona, Colorado, New Mexico and Utah, primarily via a fleet of refined product trucks operated by WNRL and common carriers.

St. Paul Park Refinery

Our St. Paul Park refinery located in St. Paul Park, Minnesota, has a crude oil throughput capacity of 102,000 bpd with access to third-party transportation systems and WNRL logistics assets including approximately 4.0 million barrels of storage capacity. It has the ability to process a variety of light, heavy, sweet and sour crudes into higher value refined products. Our St. Paul Park refinery competes directly with Koch Industries’ Flint Hills Resources Refinery in Pine Bend, Minnesota, as well as the other refiners in the region and, to a lesser extent, major U.S. and foreign refiners.

The St. Paul Park refinery is an integrated refining operation that includes storage and transportation assets. Our transportation assets include a 17% interest in the Minnesota Pipe Line Company, LLC ("MPL").

Process Summary. The St. Paul Park refinery is a cracking facility that processes a mix of light sweet, synthetic and heavy sour crude oils, predominately from Canada and North Dakota, into products such as gasoline, diesel, jet fuel, asphalt, kerosene, propane, LPG, propylene and sulfur.

Power and Natural Gas Supply. A regional electric company supplies electricity on a firm basis to our St. Paul Park refinery via five separate feeders to the main refinery areas. Three other utility feeders supply power to the tank farms and barge facilities and the northern turnaround and construction infrastructure. There are several uninterruptible power supply units throughout the plant and one generator to maintain computers and controls in the event of a power outage.

The refinery receives its natural gas supply via pipeline. The supply agreements are on a firm and interruptible basis. We purchase natural gas at market rates or under fixed-price agreements.

Raw Material Supply. The following table summarizes the historical feedstocks used by our St. Paul Park refinery.

Of the crude oils processed at the St. Paul Park refinery for the period ended December 31, 2016 , approximately 47% was Canadian crude oil and the remainder was comprised of mostly light sweet crude oil from North Dakota.

In March 2012, NTI entered into an amended and restated crude oil supply and logistics agreement (the "Crude Intermediation Agreement") with J.P. Morgan Commodities Canada Corporation (“JPM CCC”), under which JPM CCC assisted NTI in the purchase of most of the crude oil requirements of NTI's refinery. JPM CCC announced its intention to sell the physical portions of its commodities business (that included JPM CCC) to Mercuria Energy Group Ltd. during the fourth quarter of 2014. In advance of this sale, JPM CCC and NTI mutually agreed to terminate the Crude Intermediation Agreement. In response, NTI increased the principal amount of its 2020 Secured Notes in September 2014 by an additional $75.0 million in principal value and increased its revolving credit facility to $500.0 million , which it primarily uses for crude procurement.

The Minnesota Pipeline system has a maximum capacity of approximately 465,000 bpd and is the primary supply route for crude oil to the St. Paul Park refinery. The Minnesota Pipeline extends from Clearbrook, Minnesota to the refinery and receives crude oil from Western Canada and North Dakota through connections with various Enbridge pipelines. We also purchase ethanol and biodiesel, as well as conventional petroleum based blendstocks, such as natural gasoline, to supplement the fuels produced at the refinery.

Refined Products Transportation. We distribute all gasoline and diesel fuel produced at our St. Paul Park refinery through pipelines owned by Magellan and via WNRL logistics assets including an eight-bay light products terminal located adjacent to the St. Paul Park refinery, a seven-bay heavy products terminal located on the St. Paul Park refinery's property, storage tanks, rail loading/unloading facilities and a Mississippi river dock. The primary fuel distribution is through WNRL's light products terminal. Approximately 60% of the gasoline and diesel volumes for the year ended December 31, 2016 , were sold via the light products terminal to company-operated and franchised SuperAmerica branded convenience stores, Marathon Petroleum Company LP ("Marathon") branded convenience stores and other resellers. We have a contract with Marathon to supply substantially all of the gasoline and diesel requirements for the independently owned and operated Marathon branded convenience stores within the region that we supply. We also have a crude oil transportation operation in North Dakota that allows us to purchase crude oil at the wellhead in the Bakken Shale while limiting the impact of rising trucking costs for crude oil in North Dakota.

Light refined products that include gasoline and distillates, are distributed from the St. Paul Park refinery through a pipeline and terminal system owned by Magellan that has facilities throughout the Upper Great Plains and WNRL's light products terminal. Asphalt and heavy fuel oil are transported from the refinery via truck from WNRL's seven-bay heavy products terminal and via rail and barge through WNRL's rail facilities and Mississippi River barge dock and are sold to a broad customer base.

The location of the St. Paul Park refinery allows us to distribute refined products throughout the Upper Great Plains of the United States. The St. Paul Park refinery produces refined products including gasoline, diesel, jet fuel and asphalt that are marketed to resellers and consumers primarily in the Petroleum Administration for Defense District II region. We sold the majority of our refinery's 2016 gasoline and diesel sales volumes in Minnesota and Wisconsin with the remainder sold primarily in Iowa, Nebraska, Oklahoma and South and North Dakota.

We own 17% of the outstanding common interests of MPL and a 17% interest in MPL Investments, Inc. that owns 100% of the preferred interests of MPL. MPL owns the Minnesota Pipeline, a crude oil pipeline system in Minnesota that transports crude oil to the St. Paul area and supplies the St. Paul Park refinery crude oil input.

WNRL

WNRL owns and operates terminal, storage, transportation and wholesale assets. WNRL's primary customers are our refineries in the Southwest and Upper Great Plains region. WNRL is a primarily fee-based, Delaware master limited partnership that Western formed during 2013 to own, operate, develop and acquire logistics and related assets and businesses to include terminals, storage tanks, pipelines and other logistics assets related to the terminalling, transportation, storage and distribution of crude oil and refined products. As of December 31, 2016 , Western's ownership of WNRL consisted of a 100% interest in WNRL's general partner and a 52.6% interest in a limited partnership that Western controls through the general partner.

On September 15, 2016, WNRL purchased the St. Paul Park Logistics Assets. In connection with the St. Paul Park Logistics Transaction , we entered into a terminalling, transportation and storage services agreement with Western under which WNRL agreed to provide product storage services, product throughput services and product additive and blending services at the terminal facilities located at or near the St. Paul Park Refinery. On October 30, 2015, Western sold the TexNew Mex Pipeline System to WNRL. In connection with the closing, Western also entered into an amendment to our Pipeline and Gathering Services Agreement with WNRL. On October 15, 2014, Western sold all of the outstanding limited liability company interests of Western Refining Wholesale, LLC ("WRW") to WNRL. Concurrent with the closing of its initial public offering on October 16, 2013, WNRL entered into commercial and service agreements with Western under which it operates assets contributed by Western for the purpose of generating fee-based revenues. See Note 29, Western Refining Logistics, LP , in the Notes to Consolidated Financial Statements included in this annual report for detailed information regarding these transactions.

Logistics - Pipeline and Gathering Assets. WNRL's pipeline and gathering assets consist of approximately 705 miles of crude oil pipelines and gathering systems that serve as the primary source of crude oil for our Gallup refinery and provide access to shale crude oil production in the Delaware Basin and southern New Mexico for shipment to our El Paso refinery through the Kinder Morgan crude oil pipeline. WNRL's pipeline and gathering assets also include two crude oil pipeline segments and one pipeline segment not currently in service, each of which is approximately 2.5 miles and extends from our St. Paul Park refinery in St. Paul Park, Minnesota to the St. Paul Park refinery's tank farm in Cottage Grove, Minnesota. These pipeline systems connect at various points to an aggregate of approximately 959,000 barrels of active crude oil storage located primarily in the Delaware Basin and in the Four Corners area.

Logistics - Terminalling, Transportation, Asphalt and Storage Assets. WNRL's terminalling, transportation and storage infrastructure consist of refined product distribution terminals at the El Paso, Gallup and St. Paul Park refineries and stand-alone refined products terminals located in Bloomfield and Albuquerque, New Mexico.

The Bloomfield product distribution terminal is permitted to operate at 19,000  bpd with a total storage capacity of approximately 696,000  barrels and a truck loading rack with four loading bays. Western maintains a long-term third-party exchange agreement to supply product through a pipeline connection to the Bloomfield product distribution terminal. WNRL provides additional product deliveries to Bloomfield from its truck fleet. The Albuquerque product distribution terminal is permitted to operate at 27,500  bpd with a refined product storage capacity of approximately 185,700  barrels and a truck loading rack with two loading bays. This terminal receives product deliveries via truck or pipeline, including deliveries from our El Paso and Gallup refineries where, between both locations, our combined active shell storage capacity is approximately 6.1 million barrels. These assets primarily receive, store and distribute crude oil, feedstock and refined products for Western’s Southwest refineries. WNRL also provides fee-based asphalt terminalling and processing services at an asphalt plant and terminal in El Paso and asphalt terminalling services at three stand-alone asphalt terminals in Albuquerque, Phoenix and Tucson that have a combined storage capacity of approximately 473,000 barrels.

Our St. Paul Park Logistics Assets provides the St. Paul Park refinery with storage and transfer services required to support the refinery's operations. The tank farm consists of storage tanks with a combined shell storage capacity of approximately 4.0 million barrels. Our St. Paul Park terminal distributes refined products supplied by the St. Paul Park refinery from a light products rack, a heavy products loading rack, certain rail and barge facilities and certain other related logistics assets.

Wholesale Assets. WNRL's wholesale assets include several lubricant and bulk petroleum distribution plants and a fleet of crude oil, refined product, asphalt and lubricant delivery trucks. WNRL distributes commercial wholesale petroleum products primarily in Arizona, Colorado, Nevada, New Mexico and Texas. WNRL purchases petroleum fuels and lubricants primarily from the refining segment and from third-party suppliers.

During the fourth quarter of 2016, WNRL completed an evaluation of its lubricant operations. After careful consideration, having concluded that lubricants are not strategic to its core operations, WNRL has taken steps to divest the remaining assets associated with this business. WNRL anticipates a completed sale within the first half of 2017. Assets related to our lubricant operations include $10.1 million in inventories and $7.3 million in property, plant and equipment in our Consolidated Balance Sheet at December 31, 2016 . WNRL expects proceeds from this divestiture to result in a gain on disposal of assets; however, no amounts related to this anticipated transaction have been recorded in the Consolidated Statements of Operations for the year ended December 31, 2016.

WNRL's principal wholesale customers are retail fuel distributors, our retail segment and the mining, construction, utility, manufacturing, transportation, aviation and agricultural industries. Of the wholesale segment's net sales revenues, 25.6% and 21.8% , were to our retail segment and to Kroger Company, respectively, for the year ended December 31, 2016 . WNRL competes with other wholesale petroleum products distributors in the Southwest such as Pro Petroleum, Inc.; Southern Counties Fuels; Synergy Petroleum, LLC; SoCo Group, Inc.; C&R Distributing, Inc.; and Brewer Petroleum Services, Inc.

Retail Segment

Southwest Retail

Southwest Retail operates retail stores that sell various grades of gasoline, diesel fuel and convenience store merchandise to the general public. Retail also operates unmanned commercial fueling locations ("cardlocks") that sell various grades of gasoline and diesel fuel to contract customers' vehicle fleets. At December 31, 2016 , Southwest Retail operated 259 retail stores located in Arizona, Colorado, New Mexico and Texas and 51 cardlocks located in Arizona, Colorado, New Mexico and Texas. We supply the majority of our retail gasoline and diesel fuel inventories through WNRL and purchase general merchandise as well as beverage and food products from various third-party suppliers.

The main competitive factors affecting Southwest Retail are the location of the stores, brand identification and product price and quality. Our retail stores compete with Alon USA Energy, ampm, Brewer Oil Company, Circle K, Maverik, Murphy Oil, Quik-Trip, Shay Oil, Valero Energy Corporation and 7-2-11 food stores. Large chains of retailers like Costco Wholesale Corp., Wal-Mart Stores, Inc., Kroger Company, Dollar General, Family Dollar and other large grocery retailers compete in the motor fuel retail business. Our Southwest Retail operations are substantially smaller than many of these competitors that are potentially better able to withstand volatile conditions in the fuel market and lower profitability in merchandise sales due to their size.

Our Southwest Retail stores operate under various brands, including Giant, Western, Western Express, Howdy's and Mustang. Gasoline brands sold through these stores include Western, Giant, Phillips 66 Company, Conoco, 76, Shell Oil Company, Chevron, Mobil and Texaco.

SuperAmerica Retail

We have a retail-marketing network of 285 convenience stores, as of December 31, 2016 , located throughout Minnesota, Wisconsin and South Dakota. We brand all of our company-operated and franchised convenience stores as SuperAmerica. We

also own and operate SuperMom’s Bakery that prepares and distributes baked goods and other prepared items for sale in our retail outlets and for other third parties. Substantially all of the fuel gallons sold at our company-operated convenience stores for the period ended December 31, 2016 , was supplied by our St. Paul Park refinery.

The main competitive factors affecting our SuperAmerica Retail operations are the location of the stores, brand identification and product price and quality. Our SuperAmerica retail stores compete with Holiday, Kwik Trip, Marathon and Freedom Valu Centers. Large chains of retailers like BP, Costco Wholesale Corp., Wal-Mart Stores, Inc., Kroger Company and other large grocery retailers compete in the motor fuel retail business. Our SuperAmerica retail operations are substantially smaller than many of these competitors that are potentially better able to withstand volatile conditions in the fuel market and lower profitability in merchandise sales due to their size.

The following table summarizes the ownership and location of our Southwest Retail and SuperAmerica Retail stores as of December 31, 2016 :

The following table summarizes the ownership and location of our cardlocks as of December 31, 2016 :

Northern Tier Energy LP

NTI is a downstream energy limited partnership with refining, retail and logistics operations that serves the Upper Great Plains region of the United States. Western indirectly owns 100% of both Northern Tier Energy GP LLC and NTI. NTI operates the St. Paul Park Refinery and SuperAmerica retail business which are described above. For the year ended December 31, 2016 , NTI had total revenues of $2,888.6 million , operating income of $105.6 million and net income of $76.5 million . For the year ended December 31, 2015, NTI had total revenues of $3,405.0 million , operating income of $368.1 million and net income of $331.0 million .

Governmental Regulation

All of our operations and properties are subject to extensive federal, state and local environmental, health and safety regulations governing, among other things, the generation, storage, handling, use and transportation of petroleum and hazardous substances; the emission and discharge of materials into the environment; waste management; characteristics and composition of gasoline, diesel and other fuels; and the monitoring, reporting and control of greenhouse gas emissions. Our operations also require numerous permits and authorizations under various environmental, health and safety laws and regulations. Failure to comply with these permits or environmental, health or safety laws generally could result in fines, penalties, or other sanctions, or a revocation of our permits. We have made significant capital and other expenditures to comply with these environmental, health and safety laws. We anticipate significant capital and other expenditures with respect to continuing compliance with these environmental, health and safety laws. For additional details on our capital expenditures

related to regulatory requirements, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Capital Spending .

Periodically, we receive communications from various federal, state and local governmental authorities asserting violations of environmental laws and/or regulations. These governmental entities may also propose or assess fines or require corrective action for these asserted violations. We intend to respond in a timely manner to all such communications and to take appropriate corrective actions. We do not anticipate that any such matters currently asserted will have a material adverse impact on our financial condition, results of operations or cash flows.

See Note 23, Contingencies , in the Notes to Consolidated Financial Statements included in this annual report for detailed information on significant environmental matters.

Regulation of Fuel Quality

The U.S. Environmental Protection Agency ("EPA") finalized Tier III regulations for gasoline sulfur content in 2014. The regulations have lowered gasoline sulfur content to 10 parts per million with an effective date of 2017 for our El Paso and St. Paul Park refineries and 2020 for our Gallup refinery. Meeting these regulations will require capital spending and adjustments to the operations of our refineries.

The EPA has issued Renewable Fuels Standards ("RFS") under the Energy Acts of 2005 and 2007, implementing mandates to blend increasing volumes of renewable fuels into the petroleum fuels produced at obligated refineries through the year 2022. The EPA established its final 2014 and 2015 blending volume requirements in November 2015, after the statutory deadlines. The EPA is required to establish the volume of renewable fuels that refineries must blend into their refined petroleum fuels annually. Obligated refineries, including each of our three refineries, demonstrate compliance with the RFS through the accumulation of RINs, which are unique serial numbers acquired through blending renewable fuels or direct purchase. Our compliance strategy includes blending at our refineries, transferring RINs from blending across our refinery and terminal system and purchasing third-party RINs. Blending renewable fuels into the finished petroleum fuels to comply with federal and state requirements could displace an increasing volume of a refinery’s product pool.

Minnesota law currently requires the use of biofuels in gasoline and diesel sold in the state for combustion in internal combustion engines. Fuels produced at the St. Paul Park refinery are currently blended with the appropriate amounts of ethanol or biodiesel to ensure that they comply with applicable federal and state renewable fuel standards. Industry organizations representing Minnesota truckers and auto dealers, U.S. auto manufacturers and U.S. fuels manufacturers have filed suit to challenge Minnesota's biodiesel mandate claiming it is in conflict with the RFS standards and the final outcome is yet to be determined.

Environmental Remediation

Certain environmental laws hold current or previous owners or operators of real property liable for the costs of cleaning up spills, releases and discharges of petroleum or hazardous substances, even if those owners or operators did not know of and were not responsible for such spills, releases and discharges. These environmental laws also assess liability on any person who arranges for the disposal or treatment of hazardous substances, regardless of whether the affected site is owned or operated by such person. We may face currently unknown liabilities for clean-up costs pursuant to these laws.

In addition to clean-up costs, we may face liability for personal injury or property damage due to exposure to chemicals or other hazardous substances that we may have manufactured, used, handled, disposed of or that are located at or released from our refineries and fueling stations or otherwise related to our current or former operations. We may also face liability for personal injury, property damage, natural resource damage or for clean-up costs for any alleged migration of petroleum or hazardous substances from our facilities or transport operations.

Employees

As of December 31, 2016 , our companies employed 7,134 people including 559 WNRL employees in its wholesale segment. The collective bargaining agreements covering the El Paso, Gallup and St. Paul Park refinery employees expire in April 2021 , April 2020 and December 2020 , respectively. While all of our collective bargaining agreements contain “no strike” provisions, those provisions are not effective in the event that an agreement expires. Accordingly, we may not be able to prevent a strike or work stoppage in the future and any such work stoppage could have a material effect on our business, financial condition and results of operations. The collective bargaining agreement covering the SuperMom's bakery operations expire in August 2017. Through our control of WNRL's general partner and its affiliate entities, we have seconded 295 full-time employees to WNRL as well as other employees who may provide services to WNRL from time to time.

Available Information

We file reports with the Securities and Exchange Commission (the "SEC"), including annual reports on Form 10-K, quarterly reports on Form 10-Q and other reports from time to time. The public may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. We are an electronic filer and the SEC’s Internet site at http://www.sec.gov contains the reports, proxy and information statements and other information filed electronically. We do not, however, incorporate any information on that website into this Form 10-K.

As required by Section 406 of the Sarbanes-Oxley Act of 2002, we have adopted a code of ethics that applies specifically to our Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer. We have also adopted a Code of Business Conduct and Ethics applicable to all our directors, officers and employees. The codes of ethics are posted on our website. Within the time period required by the SEC and the NYSE, we will post on our website any amendment to our code of ethics and any waiver applicable to any of our Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer. Our website address is: http://www.wnr.com. We make our website content available for informational purposes only. It should not be relied upon for investment purposes, nor is it incorporated by reference in this Form 10-K. We make available on this website under “Investor Relations,” free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports simultaneously to the electronic filings of those materials with, or furnishing of those materials to, the SEC. We also make available to shareholders hard copies of our complete audited financial statements free of charge upon request.

On July 2, 2016 , our Chief Executive Officer certified to the NYSE that he was not aware of any violation of the NYSE’s corporate governance listing standards. In addition, attached as Exhibits 31.1 and 32.1 to this Form 10-K are the certifications required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002.

An investment in our common shares involves risk. In addition to the other information in this report and our other filings with the SEC, you should carefully consider the following risk factors in evaluating us and our business. The following risk factors relate to both Western and NTI.

Risks Related to Our Proposed Merger with Tesoro

Western stockholders will have a reduced ownership and voting interest in the combined company after the merger with Tesoro and will exercise less influence over management.

Currently, Western stockholders have the right to vote in the election of the Western board and the power to approve or reject any matters requiring stockholder approval under Delaware law and Western’s certificate of incorporation and bylaws. Upon completion of the Tesoro Merger, each Western stockholder who receives shares of Tesoro common stock in the Tesoro Merger will become a stockholder of Tesoro with a percentage ownership of Tesoro that is smaller than the Western stockholder’s current percentage ownership of Western. Based on the number of issued and outstanding shares of Tesoro common stock and shares of Western common stock as of February 8, 2017 and on the exchange ratio of 0.4350 , after the merger Western stockholders are expected to become owners of between approximately 26.9% and approximately 29.0% of the outstanding shares of Tesoro common stock, depending on the number of Western stockholders that make a cash election, and without giving effect to any shares of Tesoro common stock held by Western stockholders prior to the completion of the Tesoro Merger. Even if all former Western stockholders voted together on all matters presented to Tesoro stockholders from time to time, the former Western stockholders would exercise significantly less influence over Tesoro after the completion of the merger relative to their influence over Western prior to the completion of the Tesoro Merger, and thus would have a less significant impact on the approval or rejection of future Tesoro proposals submitted to a stockholder vote.

The Tesoro Merger Agreement limits Western’s ability to pursue alternatives to the merger.

The Tesoro Merger Agreement contains provisions that may discourage a third party from submitting an acquisition proposal to Western that might result in greater value to Western’s stockholders than the Tesoro Merger, or may result in a potential competing acquirer of Western, proposing to pay a lower per share price to acquire Western, than it might otherwise have proposed to pay. These provisions include a general prohibition on Western from soliciting or, subject to certain exceptions relating to the exercise of fiduciary duties by the Western board, entering into discussions with any third party regarding any acquisition proposal or offer for a competing transaction. Western also has an unqualified obligation to submit the Western merger proposal to a vote by its stockholders, even if Western receives an alternative acquisition proposal that the Western board believes is superior to the Tesoro Merger, unless Western terminates the Tesoro Merger Agreement in accordance with its terms prior to such time.

The Tesoro Merger Agreement may be terminated in accordance with its terms and the Tesoro Merger may not be completed.

The Tesoro Merger Agreement is subject to a number of conditions that must be fulfilled in order to complete the Tesoro Merger. Those conditions include, among others: the adoption of the Tesoro Merger Agreement by Western stockholders, the approval by Tesoro stockholders of the issuance of shares of Tesoro common stock in connection with the Tesoro Merger, the expiration or termination of the waiting period applicable to the Tesoro Merger under the HSR Act without the imposition of a burdensome condition, the accuracy of representations and warranties under the Tesoro Merger Agreement (subject to the materiality standards set forth in the Tesoro Merger Agreement), Tesoro’s and Western’s performance of their respective obligations under the Tesoro Merger Agreement in all material respects and Western’s receipt of a written opinion of Davis Polk & Wardwell LLP (or another nationally recognized law firm selected by Western) regarding certain U.S. federal income tax matters. These conditions to the closing of the Tesoro Merger may not be fulfilled in a timely manner or at all, and, accordingly, the Tesoro Merger may be delayed or may not be completed.

On December 8, 2016, notification and report forms under the HSR Act were filed with the FTC and the DOJ, which is referred to as the initial filing, with respect to the proposed merger. The waiting period with respect to the notification and report forms filed under the HSR Act was originally scheduled to expire at 11:59 p.m. Eastern Time on January 9, 2017. Effective January 9, 2017, as permitted by the Merger Agreement, Tesoro voluntarily withdrew its HSR Act notification to provide the FTC and the DOJ an extension beyond the initial 30-day HSR Act waiting period to conduct its review. On January 11, 2017, Tesoro re-filed its HSR Act notification with the FTC and DOJ. The new waiting period under the HSR Act was scheduled to expire at 11:59 p.m. on February 10, 2017. On February 10, 2017, Tesoro and Western received a second request from the FTC in connection with the FTC’s review of the transactions contemplated by the merger agreement. Issuance of the second request extends the waiting period under the HSR Act until 30 days after both Tesoro and Western have complied with the second request or such later time as Tesoro and Western may agree with the FTC, unless the waiting period is terminated earlier by the FTC.

Under the terms of the Tesoro Merger Agreement, Tesoro will not be required to defend litigation or any similar proceeding if the DOJ or the FTC authorizes its staff to seek a preliminary injunction or restraining order to enjoin the completion of the merger.

Although Tesoro and Western currently believe they should be able to obtain the expiration or termination of the waiting period applicable under the HSR Act in a timely manner, they cannot be certain when or if it will be obtained or, if obtained, whether such expiration or termination will require terms, conditions or restrictions not currently contemplated that will be detrimental to the surviving company after the completion of the merger. Tesoro and Western have agreed to take certain actions to obtain the expiration or termination of the waiting period applicable under the HSR Act, except that Tesoro and Western will not be required to take any action constituting a burdensome condition, as defined in the Tesoro Merger Agreement.

In addition, Western has received a letter, dated January 27, 2017, from the Office of the Minnesota AG stating that the Office of the Minnesota AG intends to review the merger under the antitrust laws and requesting that Western provide information regarding the potential competitive effects of the merger in Minnesota.  Western is in the process of responding to this letter.

In addition, if the Tesoro Merger is not completed by November 16, 2017, either Tesoro or Western Refining may choose not to proceed with the Tesoro Merger and the parties can mutually decide to terminate the Tesoro Merger Agreement at any time, before or after stockholder approval. In addition, Tesoro and Western Refining may elect to terminate the Tesoro Merger Agreement in certain other circumstances.

Failure to complete the Tesoro Merger could negatively impact the price of shares of Western common stock, as well as Western’s respective future businesses and financial results.

The Tesoro Merger Agreement contains a number of conditions that must be satisfied or waived prior to the completion of the Tesoro Merger. There can be no assurance that all of the conditions to the Tesoro Merger will be so satisfied or waived. If the conditions to the Tesoro Merger are not satisfied or waived, Tesoro and Western Refining will be unable to complete the Tesoro Merger.

If the Tesoro Merger is not completed for any reason, including the failure to receive the required approvals of Western’s stockholders, Western’s business and financial results may be adversely affected as follows:

In addition to the above risks, if the Tesoro Merger Agreement is terminated and either party’s board seeks an alternative transaction, such party’s stockholders cannot be certain that such party will be able to find a party willing to engage in a transaction on more attractive terms than the Tesoro Merger. If the Tesoro Merger Agreement is terminated under specified circumstances, either Tesoro or Western Refining may be required to pay the other party a termination fee, reverse termination fee or other termination-related payment.

Western will be subject to business uncertainties while the Tesoro Merger is pending, which could adversely affect their respective businesses.

Uncertainty about the effect of the Tesoro Merger on employees and customers may have an adverse effect on Western. These uncertainties may impair Western’s ability to attract, retain and motivate key personnel until the Tesoro Merger is completed and for a period of time thereafter, and could cause customers and others that deal with Western to seek to change their existing business relationships with Western. Employee retention at Western may be particularly challenging during the pendency of the Tesoro Merger, as employees may experience uncertainty about their roles with Tesoro following the Tesoro Merger. In addition, the Tesoro Merger Agreement restricts Western from entering into certain corporate transactions and taking other specified actions without the consent of the other party, and generally requires Western to continue its operations in the ordinary course, until completion of the Tesoro Merger. These restrictions may prevent Western from pursuing attractive business opportunities that may arise prior to the completion of the Tesoro Merger.

Western will incur significant transaction and merger-related costs in connection with the Tesoro Merger, which may be in excess of those anticipated by Western.

Western has incurred and will incur substantial expenses in connection with the negotiation and completion of the transactions contemplated by the Tesoro Merger Agreement, including the costs and expenses of filing, printing and mailing the joint proxy statement/prospectus and all filing and other fees paid to the SEC in connection with the Tesoro Merger.

Western expects to continue to incur a number of non-recurring costs associated with completing the Tesoro Merger, combining the operations of the two companies and achieving desired synergies. These fees and costs have been, and will continue to be, substantial. The substantial majority of non-recurring expenses will consist of transaction costs related to the Tesoro Merger and include, among others, employee retention costs, fees paid to financial, legal and accounting advisors, severance and benefit costs and filing fees.

Western will also incur transaction fees and costs related to formulating and implementing integration plans, including facilities and systems consolidation costs and employment-related costs. Western will continue to assess the magnitude of these costs, and additional unanticipated costs may be incurred in the Tesoro Merger and the integration of the two companies’ businesses. Although Western expects that the elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of the businesses, should allow Western to offset integration-related costs over time, this net benefit may not be achieved in the near term, or at all.

The costs described above, as well as other unanticipated costs and expenses, could have a material adverse effect on the financial condition and operating results of Tesoro following the completion of the Tesoro Merger.

Many of these costs will be borne by Western even if the Tesoro Merger is not completed.

Lawsuits have been filed against Western and the members of its board of directors challenging the adequacy of the disclosures made in the initial version of the joint proxy statement/prospectus filed on December 14, 2016, and an adverse ruling in one or more of these lawsuits may prevent the Tesoro Merger from being completed.

As of February 8, 2017, Western and the members of its board of directors have been named as defendants in five purported stockholder class actions filed in the United States District Court for the Western District of Texas by Western Refining stockholders challenging the adequacy of the disclosures to Western stockholders made in the initial version of the joint proxy statement/prospectus filed on December 14, 2016 regarding the transaction. The actions have been consolidated and an interim lead plaintiff and lead counsel have been appointed. The parties have also agreed to select an operative complaint. Although Tesoro, Tahoe Merger Sub 1, Inc., and Tahoe Merger Sub 2, LLC are included as defendants in the caption of three of the five complaints (but not the operative complaint), the body of those complaints does not identify those entities as defendants, and the complaints do not appear to assert any claims against them. None of the parties named as defendants in the case captions have been served with the complaint in any of these actions as of the date of this filing. Among other remedies, the plaintiffs seek to enjoin the Tesoro Merger until additional information relating to the transaction is disclosed. The actions also seek to recover costs and disbursements from the defendants, including attorneys’ fees and experts’ fees. The lawsuits are

in a preliminary stage. On February 23, 2017, Western and the members of its board of directors filed a motion to dismiss the operative complaint in the consolidated proceedings. Additional lawsuits may be filed against Western and/or its board of directors in connection with the Tesoro Merger.

One of the conditions to the closing of the Tesoro Merger is that there must not have been enacted, issued, promulgated, enforced or entered by a court or other governmental entity of competent jurisdiction any applicable law that is in effect and restrains, enjoins or otherwise prohibits completion of the Tesoro Merger or the other transactions contemplated by the Tesoro Merger Agreement. Therefore, if any of the plaintiffs in one or more of these actions or in any additional lawsuits that may be filed secures injunctive relief or other relief prohibiting, delaying or otherwise adversely affecting the defendants’ ability to complete the Tesoro Merger, then such injunctive or other relief may prevent the Tesoro Merger from becoming effective within the expected timeframe or at all.

Risks Related to Our Business and Industry

The price volatility of crude oil, other feedstocks, refined products and fuel and utility services has had and may continue to have a material adverse effect on our earnings and cash flows.

Our earnings and cash flows from operations depend on the margin above fixed and variable expenses (including the cost of refinery feedstocks such as crude oil) at which we are able to sell refined products. Refining margins historically have been volatile and are likely to continue to be volatile, as a result of a variety of factors, including fluctuations in the prices of crude oil, other feedstocks, refined products and fuel and utility services.

In recent years, the prices of crude oil, other feedstocks and refined products have fluctuated. The NYMEX WTI postings of crude oil for 2016 ranged from $29.64 per barrel in February 2016 to $52.17 per barrel in December 2016 to $52.94 as of February 24, 2017 . In addition, the WTI/Brent discount has been volatile and we expect continued volatility in crude oil pricing and crack spreads. It is possible that this volatility in crude oil pricing and crack spreads may continue for prolonged periods of time due to numerous factors beyond our control. Prolonged periods of low crude oil prices could impact production growth of inland crude oil, which could reduce the amount of advantaged crude oil available and/or the discount of such crude oil and thereby impacting the profitability of our refineries. Prices of crude oil, other feedstocks and refined products depend on numerous factors beyond our control, including the supply of and demand for crude oil, other feedstocks, gasoline and other refined products. Such supply and demand are affected by, among other things:

Volatility has had, and may continue to further have, a negative effect on our results of operations to the extent that the margin between refined product prices and feedstock prices narrows.

The nature of our business requires us to maintain substantial quantities of crude oil and refined product inventories. Crude oil and refined products are commodities. As a result, we have no control over the changing market value of these inventories. Because our inventory of crude oil and refined product is valued at the lower of cost or market value under the

“last-in, first-out” ("LIFO") inventory valuation methodology, if the market value of our inventory were to further decline to an amount less than our LIFO cost, we would record a write-down of inventory and a non-cash charge to cost of products sold, such as we recorded in the fourth quarter of 2015. Due to the volatility in the price of crude oil and other blendstocks, we experienced fluctuations in our LIFO reserves during the past three years. We also experienced LIFO liquidations based on decreased levels in our inventories. These LIFO liquidations resulted in an increase in cost of products sold of $2.9 million and $16.1 million for the years ended December 31, 2016 and 2015 , respectively, and a decrease in cost of products sold of $1.1 million for the year ended December 31, 2014 .

In addition, the volatility in costs of fuel, principally natural gas and other utility services, principally electricity, used by our refineries affects operating costs. Fuel and utility prices have been, and will continue to be, affected by factors outside our control, such as supply and demand for fuel and utility services in both local and regional markets. Natural gas prices have historically been volatile. Typically, electricity prices fluctuate with natural gas prices. Future increases in fuel and utility prices may have a material adverse effect on our business, financial condition, results of operations and cash flows.

If the price of crude oil increases significantly or our credit profile changes, or if we or our subsidiaries are unable to access our respective credit agreements for borrowings or for letters of credit, our liquidity and our ability to purchase enough crude oil to operate our refineries at full capacity could be materially and adversely affected.

We and certain of our subsidiaries rely on borrowings and letters of credit under each of our respective credit agreements to purchase crude oil for our refineries. Changes in our credit profile could affect the way crude oil suppliers view our ability to make payments and induce them to shorten the payment terms of their invoices with us or require additional support such as letters of credit. Due to the large dollar amounts and volume of our crude oil and other feedstock purchases, any imposition by our creditors of more burdensome payment terms on us, or our subsidiaries’ inability to access their credit agreements or other similar arrangements may have a material effect on our liquidity and our ability to make payments to our suppliers that could hinder our ability to purchase sufficient quantities of crude oil to operate our refineries at planned rates. In addition, if the price of crude oil increases significantly, we may not have sufficient capacity under the credit agreements or sufficient cash on hand, to purchase enough crude oil to operate our refineries at planned rates. A failure to operate our refineries at planned rates could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Our hedging transactions may limit our gains and expose us to other risks.

We enter into hedging transactions from time to time to manage our exposure to commodity price risks or to fix sales margins on future gasoline and distillate production. These transactions limit our potential gains if commodity prices rise above the levels established by our hedging instruments. These transactions may also expose us to risks of financial losses, for example, if our production is less than we anticipated at the time we entered into a hedge agreement or if a counterparty to our hedge contracts fails to perform its obligations under the contracts. Some of our hedging agreements also require us to furnish cash collateral, letters of credit or other forms of performance assurance. Mark-to-market calculations that result in settlement obligations by us to the counterparties could impact our liquidity and capital resources.

Compliance with and changes in tax laws could adversely affect our performance.

We are subject to tax liabilities, including federal, state and transactional taxes such as excise, sales/use, payroll, franchise, withholding and ad valorem taxes. New tax laws and regulations and changes in existing tax laws and regulations are continuously being enacted or proposed that could result in increased expenditures for tax liabilities in the future. Certain of these liabilities are subject to periodic audits by the respective taxing authority that could increase our tax liabilities. Subsequent changes to our tax liabilities as a result of these audits may also subject us to interest and penalties.

Recent events have given rise to a heightened possibility of a substantial change to fiscal and tax policies, which may include comprehensive tax reform. We cannot predict the impact these changes will have on our business; however, it is possible that these changes could adversely affect our business, our cash flows, our profitability, and our ability to compete domestically and internationally. Until we know what changes are enacted, we will not know the type or extent of the effects on our business.

The present U.S. federal income tax treatment of publicly traded partnerships including WNRL may be modified by administrative, legislative or judicial changes or differing interpretations at any time. For example, a proposal in the Fiscal Year 2017 Budget had recommended that certain publicly traded partnerships earning income from activities related to fossil fuels be taxed as corporations beginning in 2021. From time to time, members of Congress propose and consider such substantive changes to the existing federal income tax laws that affect publicly traded partnerships. If successful, this could result in a material decrease in our income from our interests in those subsidiaries.

In addition, the IRS, on May 5, 2015, issued proposed regulations concerning which activities give rise to qualifying income within the meaning of Section 7704 of the Internal Revenue Code. We do not believe the proposed regulations affect our subsidiaries' ability to qualify as publicly traded partnerships. However, finalized regulations could modify the amount of gross income that they are able to treat as qualifying income for the purposes of the qualifying income requirement.

Any modification to the U.S. federal income tax laws may be applied retroactively and could make it more difficult or impossible for our subsidiaries to meet the exception for certain publicly traded partnerships to be treated as partnerships for U.S. federal income tax purposes. We are unable to predict whether any of these changes or other proposals will ultimately be enacted. Any such changes could negatively impact the value of our investments in such publicly traded partnerships.

Our indebtedness may limit our ability to obtain additional financing and we also may face difficulties complying with the terms of our indebtedness agreements.

Our level of debt may have important consequences to you. Among other things, it may:

We cannot assure you that we will continue to generate sufficient cash flows or that we and our subsidiaries will be able to borrow funds under certain credit agreements in amounts sufficient to enable us and our subsidiaries to service our debt or meet our working capital and capital expenditure requirements. Our ability to generate sufficient cash flows from our operating activities will continue to be primarily dependent on producing or purchasing and selling sufficient quantities of refined products at margins sufficient to cover fixed and variable expenses. If our margins were to deteriorate significantly, or if our earnings and cash flows were to suffer for any other reason, we and our subsidiaries may be unable to comply with the financial covenants set forth in our and their respective credit facilities. If we or our subsidiaries fail to satisfy these covenants, we and our subsidiaries could be prohibited from borrowing for our working capital needs and issuing letters of credit that would hinder our ability to purchase sufficient quantities of crude oil to operate our refineries at planned rates. To the extent that we and our subsidiaries are unable to generate sufficient cash flows from operations, or if we and our subsidiaries are unable to borrow or issue letters of credit under certain credit agreements, we and our subsidiaries may be required to sell assets, reduce capital expenditures, refinance all or a portion of our existing debt, or obtain additional financing through equity or debt financings. If additional funds are obtained by issuing equity securities, our existing stockholders could be diluted. We cannot assure you that we would be able to refinance our debt, sell assets or obtain additional financing on terms acceptable to us, if at all. In addition, our ability to incur additional debt will be restricted under the covenants contained in credit agreements and our indentures. See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations; Liquidity and Capital Resources; Working Capital and Indebtedness .

Covenants and events of default in our and our subsidiaries’ debt instruments could limit our ability to undertake certain types of transactions and adversely affect our liquidity.

Our and our subsidiaries’ credit agreements and indentures contain covenants and events of default that may limit our financial flexibility and ability to undertake certain types of transactions. For instance, we and our subsidiaries are subject to covenants that restrict our activities, including restrictions on:

Debt instruments of our and our subsidiaries are subject to financial covenants. Our ability and that of our subsidiaries to comply with these covenants will depend on factors outside our control, including refined product margins. We cannot assure you that we and our subsidiaries will satisfy these covenants. If we fail to satisfy the covenants set forth in these facilities or an event of default occurs under the applicable facility, the maturity of the debt instruments could be accelerated or we could be prohibited from borrowing for our working capital needs and issuing letters of credit. A similar result could occur if our subsidiaries fail to satisfy the covenants applicable to them in their respective debt instruments. If our and our subsidiaries' obligations under the debt instruments are accelerated and we do not have sufficient cash on hand to pay all amounts due, we could be required to sell assets, to refinance all or a portion of our indebtedness or to obtain additional financing through equity or debt financings. Refinancing may not be possible and additional financing may not be available on commercially acceptable

terms, or at all. If we or our subsidiaries cannot borrow or issue letters of credit under our respective credit agreements, we would need to seek additional financing, if available, or curtail our operations.

We have capital needs for which our internally generated cash flows and other sources of liquidity may not be adequate.

The refining business is characterized by high fixed costs resulting from the significant capital outlays associated with refineries, terminals, pipelines and related facilities. We are dependent on the production and sale of quantities of refined products at refined product margins sufficient to cover operating costs, including any increases in costs resulting from future inflationary pressures or market conditions and increases in costs of fuel and power necessary in operating our facilities. Our short-term working capital needs are primarily crude oil purchase requirements that fluctuate with the pricing and sourcing of crude oil. We also have significant long-term needs for cash, including those to support ongoing capital expenditures and other regulatory compliance. Furthermore, future regulatory requirements or competitive pressures could result in additional capital expenditures that may not produce a return on investment. Such capital expenditures may require significant financial resources that may be contingent on our access to capital markets and commercial bank loans. Additionally, other matters, such as regulatory requirements or legal actions, may restrict our access to funds for capital expenditures.

Our refineries consist of many processing units, a number of which have been in operation for many years. Equipment, even if properly maintained, may require significant capital expenditures and expenses to keep it operating at optimum efficiency. One or more of the units may require unscheduled downtime for unanticipated maintenance or repairs that are more frequent than our scheduled turnaround for such units. Scheduled and unscheduled maintenance could reduce our revenues during the period of time that the units are not operating. We have taken significant measures to expand and upgrade units in our refineries by installing new equipment and redesigning older equipment to improve refinery capacity. The installation and redesign of key equipment at our refineries involves significant uncertainties, including the following: our upgraded equipment may not perform at expected throughput levels; the yield and product quality of new equipment may differ from design and/or specifications and redesign or modification of the equipment may be required to correct equipment that does not perform as expected that could require facility shutdowns until the equipment has been redesigned or modified. Any of these risks associated with new equipment, redesigned older equipment or repaired equipment could lead to lower revenues or higher costs or otherwise have a material adverse effect on our business, financial condition, results of operations and cash flows.

The dangers inherent in our operations and our reliance on logistics assets could cause disruptions and could expose us to potentially significant losses, costs or liabilities. Any significant interruptions in the operations of any of our refineries could materially and adversely affect our business, financial condition, results of operations and cash flows.

Our operations are subject to significant hazards and risks inherent in refining operations and in transporting and storing crude oil, intermediate products and refined products. Failure to identify and manage these risks could result in explosions, fires, refinery or pipeline releases of crude oil or refined products or other incidents resulting in personal injury, loss of life, environmental damage, property damage, legal liability, loss of revenue and substantial fines by government authorities. These hazards and risks include, but are not limited to, the following:

Any of the foregoing could result in production and distribution difficulties and disruptions, environmental pollution, personal injury or wrongful death claims and other damage to our properties and the properties of others. There is also risk of mechanical failure and equipment shutdowns both in general and following unforeseen events. For example, we may experience unplanned downtime at our El Paso, Gallup or St. Paul Park refineries due to weather, interruptions to our electrical supply or other causes. In any of these situations, undamaged refinery processing units may be dependent on or interact with damaged process units and, accordingly, may also be subject to being shut down.

Our refineries consist of many processing units, several of which have been in operation for a long time. One or more of the units may require unscheduled downtime for unanticipated maintenance or repairs, or our planned turnarounds may last longer than anticipated. Scheduled and unscheduled maintenance could reduce our revenues and increase our costs during the period of time that our units are not operating.

Our refining activities are conducted at our El Paso refinery in Texas, our Gallup refinery in New Mexico and our St. Paul Park refinery in Minnesota. The refineries constitute a significant portion of our operating assets, and our refineries supply a significant portion of our fuel to our wholesale and retail operations.

In addition, we rely on a variety of logistics assets including but not limited to: rail, pipelines, product terminals, storage tanks and trucks to facilitate the movement of crude oil, feedstocks and refined products within our business. Some of these assets are owned and or operated by WNRL or third-parties. We could experience an interruption of supply or an increased cost to deliver refined products to market if the ability to utilize these logistics assets is disrupted.

Because of the significance to us of our refining operations and the logistics assets they depend on, the occurrence of any of the events described above could significantly disrupt our production and distribution of refined products and any sustained disruption could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Weather conditions and natural disasters could materially and adversely affect our business and operating results, including the supply of our feedstocks.

The effects of weather conditions and natural disasters can lead to volatility in the costs and availability of crude oil and other feedstocks and/or negatively impact our operations or those of our customers and suppliers, which could have a material adverse effect on our business, financial condition, results of operations and cash flows. Crude oil supplies for our El Paso and Gallup refineries primarily come from the Permian Basin in Texas and New Mexico, other basins in Northern New Mexico and basins in Utah. As a result, our El Paso and Gallup refineries may be disproportionately exposed to the impact of delays or interruptions of supply from these regions caused by natural disasters or adverse weather conditions. In addition, from time to time, we may obtain certain of our feedstocks for the El Paso and Gallup refineries and some refined products we purchase for resale by pipeline from Gulf Coast refineries that are subject to severe weather risks such as hurricanes and other severe events. Crude oil supplies for our St. Paul Park refinery are from the Bakken Shale of North Dakota and from Western Canada. As a result, our St. Paul Park refinery may be disproportionately exposed to the impact of delays or interruptions of supply from that region caused by natural disasters or adverse weather conditions. An interruption to our supply of feedstocks for the El Paso or the St. Paul Park refineries could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Our operations involve environmental risks that could give rise to material liabilities.

Our operations, and those of prior owners or operators of our properties, have previously resulted in spills, discharges, or other releases of petroleum or hazardous substances into the environment, and such spills, discharges or releases could also happen in the future. Past or future spills related to any of our operations, including our refineries, product terminals, convenience stores or transportation of refined products or hazardous substances from those facilities, may give rise to liability (including strict liability, or liability without fault, and clean-up responsibility) to governmental entities or private parties under federal, state, or local environmental laws, as well as under common law. For example, we could be held strictly liable under the Comprehensive Environmental Responsibility, Compensation and Liability Act for contamination of properties that we currently own or operate and facilities to which we transported or arranged for the transportation of wastes or by-products for use, treatment, storage or disposal, without regard to fault or whether our actions were in compliance with law at the time. Our liability could also increase if other responsible parties, including prior owners or operators of our facilities, fail to complete their clean-up obligations. Based on current information, we do not believe these liabilities are likely to have a material adverse effect on our business, financial condition, results of operations or cash flows. In the event that new spills, discharges, or other releases of petroleum or hazardous substances occur or are discovered or there are other changes in facts or in the level of contributions being made by other responsible parties, there could be a material adverse effect on our business, financial condition, results of operations and cash flows.

In addition, we may face liability for alleged personal injury or property damage due to exposure to chemicals or other hazardous substances located at or released from our facilities or otherwise related to our current or former operations. We may also face liability for personal injury, property damage, natural resource damage, or for clean-up costs for the alleged migration of contamination or other hazardous substances from our facilities to adjacent and other nearby properties.

We may incur significant costs to comply with environmental, health and safety laws and regulations.

Our operations and properties are subject to extensive federal, state and local environmental, health and safety regulations governing, among other things, the generation, storage, handling, use and transportation of petroleum and hazardous substances, the emission and discharge of materials into the environment, waste management, characteristics and composition of gasoline, diesel and other fuels and the monitoring, reporting and control of greenhouse gas emissions. If we fail to comply with these regulations, we may be subject to administrative, civil and criminal proceedings by governmental authorities, as well as civil proceedings by environmental groups and other entities and individuals. A failure to comply, and any related proceedings, including lawsuits, could result in significant costs and liabilities, penalties, judgments against us or governmental or court orders that could alter, limit or stop our operations.

In addition, new environmental laws and regulations, including new regulations relating to alternative energy sources and increased vehicle fuel economy, new state regulations relating to fuel quality, and the risk of global climate change regulation, as well as new interpretations of existing laws and regulations, increased governmental enforcement, or other developments could require us to make additional unforeseen expenditures. Many of these laws and regulations are becoming increasingly stringent, and the cost of compliance with these requirements can be expected to increase over time. We are not able to predict the impact of new or changed laws or regulations or changes in the ways that such laws or regulations are administered, interpreted, or enforced. The requirements to be met, as well as the technology and length of time available to meet those requirements, continue to develop and change. To the extent that the costs associated with meeting any or all of these requirements are substantial and not adequately provided for, there could be a material adverse effect on our business, financial condition, results of operations and cash flows.

The EPA has issued rules pursuant to the Clean Air Act that require refiners to reduce the sulfur content of gasoline and diesel fuel and reduce the benzene content of gasoline by various specified dates. We incurred, and may incur in the future, substantial costs to comply with the EPA’s low sulfur and low benzene rules. Our strategy for complying with low sulfur gasoline and low benzene gasoline regulations at our refineries relies partially on purchasing credits. If credits are not available or are too costly, we may not be able to meet the EPA’s deadlines using a credit strategy. Failure to meet the EPA’s clean fuels mandates could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Various states have proposed and/or enacted low carbon fuel standards (“LCFS”) intended to reduce carbon intensity in transportation fuels. In addition, in 2010 the EPA issued social cost of carbon (“SCC”) estimates used by the EPA and other federal agencies in regulatory cost-benefit analyses to take into account alleged broad economic consequences associated with emissions of greenhouse gases. These estimates were increased in 2013. While the impacts of LCFS and higher SCC in future regulations is not known at this time, either of these may result in increased costs to our operations.

Renewable fuels mandates may reduce demand for the petroleum fuels we produce, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Pursuant to the Energy Policy Act of 2005 and the Energy Independence and Security Act of 2007, the EPA has promulgated the RFS implementing mandates to blend renewable fuels into petroleum fuels produced and sold in the United States. We are subject to the RFS, which requires obligated parties to blend renewable fuels, such as ethanol, into petroleum fuels sold in the United States. A RIN is generated for each gallon of renewable fuel produced under the RFS. At the end of each year, obligated parties must surrender sufficient RINs to meet their renewable fuel obligations under the RFS. The obligated volume increases annually over time until 2022. The obligation for our refineries is met through a combination of blending renewable fuels and purchasing RINs from other parties. We must also purchase waiver credits for cellulosic biofuels from the EPA. Uncertainty surrounding RFS requirements in recent years has resulted in increased volatility in RIN prices. We cannot predict the future prices of RINs or waiver credits, but the costs to obtain the necessary number of RINs and waiver credits could be material.

In 2010 and 2011, the EPA issued partial waivers with conditions allowing a maximum of 15% ethanol to be used in certain vehicles. Future changes to existing laws and regulations could increase the minimum volumes of renewable fuels that must be blended with refined petroleum fuels. Because we do not produce renewable fuels, increasing the volume of renewable fuels that must be blended into our products could displace an increasing volume of our refineries’ product pool, potentially resulting in lower earnings and materially adversely affecting our business, financial condition and results of operations and cash flows.

Certain states, including Minnesota and New Mexico, have renewable fuel mandates that could further displace volume of a refinery's product pool. Minnesota law currently requires that all diesel sold in the state for use in internal combustion engines, with limited exceptions, must contain at least 10% biodiesel which may increase to 20% in 2018. Minnesota law also currently requires, with limited exceptions, that all gasoline sold or offered for sale in the state must contain the maximum amount of ethanol allowed under federal law for use in all gasoline powered motor vehicles. New Mexico law currently requires that all diesel sold in the state for use in internal combustion engines, with limited exceptions, must contain at least 5% biodiesel. Although the state has historically waived this mandate due to infrastructure limitations within the state, future waivers are not guaranteed.

If sufficient RINs are unavailable for purchase or if we have to pay a significantly higher price for RINs, or if we are otherwise unable to meet the EPA's RFS mandates, our business, financial condition and results of operations could be materially adversely affected.

Under the RFS, the volume of renewable fuels refineries are obligated to blend into their finished petroleum products is adjusted annually. We currently blend renewable fuels and purchase RINs on the open market, as well as waiver credits for cellulosic biofuels from the EPA, in order to comply with the RFS. Existing laws or regulations could change, and the minimum volumes of renewable fuels that must be blended with refined petroleum products may increase. In the future, we may be required to purchase additional RINs on the open market and waiver credits from the EPA in order to comply with the RFS.

During 2013, the price of RINs was very volatile as the EPA’s proposed renewable fuel volume mandates approached the "blend wall." The blend wall refers to the point at which refiners are required to blend more ethanol into the transportation fuel supply than can be supported by the demand for E10 gasoline (gasoline containing 10 percent ethanol by volume). In November 2013, the EPA published the annual renewable fuel percentage standards for 2014, which acknowledged the blend wall and were generally lower than the volumes for 2013 and lower than statutory mandates. The price of RINs decreased significantly after the 2014 percentage standards were published; however, RIN prices remained volatile and increased subsequently in 2014. In November 2015, the EPA published final notice for RFS obligated volumes for 2014, 2015 and 2016 and Biomass-Based Diesel for 2017. The current standard may cause the blend wall to again become an issue affecting the overall supply of RINs.

We cannot predict the future prices of RINs or waiver credits. The cost of RINs is dependent upon a variety of factors, which include EPA regulations, the availability of RINs for purchase, the price at which RINs can be purchased, transportation fuel production levels, the mix of our petroleum products, as well as the fuel blending performed at our refineries, all of which can vary significantly from quarter to quarter. Additionally, because we do not produce renewable fuels, increasing the volume of renewable fuels that must be blended into our products could displace an increasing volume of our refineries' product pool, potentially resulting in lower earnings. If sufficient RINs are unavailable for purchase or if we have to pay a significantly higher price for RINs, or if we are otherwise unable to meet the EPA's RFS mandates, our business, financial condition, results of operations and cash flows could be materially adversely affected.

We could incur significant costs to comply with greenhouse gas emissions regulation or legislation.

The EPA has adopted and implemented regulations to restrict emissions of greenhouse gases under certain provisions of the Clean Air Act. For example, the EPA requires, in certain circumstances, permitting of certain emissions of greenhouse gases from large stationary sources, such as refineries. The EPA has also adopted rules requiring refiners to report greenhouse gas emissions on an annual basis for emissions occurring after January 1, 2010. Further, the United States Congress has considered legislation related to the reduction of greenhouse gases through “cap and trade” programs. In addition, Minnesota is a participant in the Midwest Greenhouse Gas Reduction Accord, a non-binding resolution that could lead to the creation of a regional greenhouse gas cap-and-trade program if the Minnesota legislature and the legislatures of other participating states and province enact implementing legislation. Although the participating states and Canadian province are not currently pursuing this commitment, similar state or regional initiatives may be pursued in the future.

On the international level, on December 12, 2015, 195 nations, including the U.S., finalized the text of an international climate change accord in Paris, France (the “Paris Agreement”). The Paris Agreement calls for countries to set their own GHG emissions targets, make these emissions targets more stringent over time and be transparent about the GHG emissions reporting and the measures each country will use to achieve its GHG emissions targets. Additional U.S. GHG emissions reduction laws, regulations or other initiatives may be required in the future in connection with the Paris Agreement.

To the extent that future legislation, rules and regulations are enacted, our operating costs, including capital expenditures, may increase and additional operating restrictions could be imposed on our business, which could have a material adverse effect on our business, financial condition, results of operations and cash flows. Finally, some scientists have concluded that increasing concentrations of greenhouse gases in the earth’s atmosphere may produce climate changes that may have significant physical effects, such as increased frequency and severity of storms, droughts, floods and other climatic events, which if any such event were to occur, it may have a material adverse effect on our business, financial condition, results of operations and cash flows.

Increased regulation of hydraulic fracturing could result in reductions or delays in crude oil production in our existing areas of operation, which could impact our crude oil supply and adversely impact our business.

A significant percentage of the crude oil production in our existing areas of operation is being developed from unconventional sources, such as shale, using hydraulic fracturing. Hydraulic fracturing involves the injection of water, sand and chemicals under pressure into the formation to stimulate production. A number of federal agencies, including the EPA and the U.S. Department of Energy, are analyzing, or have been requested to review, a variety of environmental issues associated with

shale development, including hydraulic fracturing. In addition, the EPA has asserted federal regulatory authority over hydraulic fracturing activities under the Safe Drinking Water Act’s Underground Injection Control Program and under the Toxic Substances Control Act of 1976 and in September 2015 issued proposed rules regulating methane emissions from oil and natural gas completion operations. The rules were finalized in June 2016 and became effective in August 2016. Further, some states and municipalities have adopted and other states and municipalities are considering adopting, regulations prohibiting hydraulic fracturing in certain areas or imposing more stringent disclosure. At the same time, certain environmental groups have suggested that additional laws may be needed to more closely and uniformly regulate the hydraulic fracturing process and legislation has been proposed by some members of Congress to provide for such regulation. We cannot predict whether any such legislation will ever be enacted and if so, what its provisions would be. If additional levels of regulation are imposed at the federal, state or local level, this could result in corresponding delays, increased operating costs and process prohibitions for crude oil producers and potentially negatively impact our crude oil supply, which could adversely affect our business, financial condition, results of operations and cash flows.

Our business, financial condition, results of operations and cash flows may be materially adversely affected by an economic downturn.

The domestic economy, economic slowdowns and the scarcity of credit can lead to lack of consumer confidence, increased market volatility and widespread reduction of business activity generally in the United States and abroad. An economic downturn may adversely affect the liquidity, businesses and/or financial conditions of our customers that has resulted, and may result, not only in decreased demand for our products, but also increased delinquencies in our accounts receivable. Disruptions in the financial markets could also lead to a reduction in available trade credit due to counterparties’ liquidity concerns. If we or our subsidiaries are unable to obtain borrowings or letters of credit under our debt instruments, our business, financial condition, results of operations and cash flows could be materially adversely affected.

We could experience business interruptions caused by pipeline shutdown.

Our El Paso refinery is our largest refinery and is dependent on a pipeline owned by Kinder Morgan for the delivery of all of our crude oil. Because our crude oil refining capacity at the El Paso refinery is approaching the delivery capacity of the pipeline, our ability to offset lost production due to disruptions in supply with increased future production is limited due to this crude oil supply constraint. In addition, we will be unable to take advantage of further expansion of the El Paso refinery’s production without securing additional crude oil supplies or pipeline expansion. We also deliver a substantial percentage of the refined products produced at our El Paso refinery through three principal product pipelines.

We also have a pipeline system that delivers crude oil and natural gas liquids to our Gallup refinery. The Gallup refinery is dependent on the crude oil pipeline system for the delivery of the crude oil necessary to run the refinery. If the operation of the pipeline system is disrupted, we may not receive the crude oil necessary to run the refinery. Certain rights-of-way necessary for our crude oil pipeline system to deliver crude oil to our Gallup refinery must be renewed periodically.

Our St. Paul Park refinery receives all of its crude oil and delivers a portion of its refined products through pipelines. We distribute a portion of its transportation fuels through pipelines owned and operated by Magellan. In addition, we are dependent on the Minnesota Pipeline system that is the supply route for crude oil and transported all of the crude oil used at the refinery. Because we only have a minority equity interest in the pipeline, we do not have full control over the performance of the pipeline.

Certain of the pipelines we utilize are subject to common carrier regulatory obligations applicable to interstate oil pipelines that require that capacity must be prorated among shippers in an equitable manner in accordance with the tariff then in effect in the event there are nominations in excess of capacity. Nominations by new shippers or increased nominations by existing shippers may reduce the capacity available to us. Any extended, non-excused downtime at our refineries could, under certain circumstances, cause us to lose line space on the refined products pipelines used by such refinery, if we cannot otherwise utilize our pipeline allocations.

As a result, we could experience an interruption of supply or delivery, or an increased cost of receiving crude oil and delivering refined products to market, if the ability of these pipelines to transport crude oil, blended stocks or refined products is disrupted because of accidents, weather interruption, governmental regulation, terrorism, other third-party action, or any other events beyond our control. A prolonged inability to receive crude oil or transport refined products on pipelines that we currently utilize could have a material adverse effect on our business, financial condition, results of operations and cash flows.

A material decrease in the supply of crude oil available to our refineries could significantly reduce our production levels.

We continually contract with third-party crude oil suppliers to maintain a sufficient supply of crude oil for production at our refineries. A material decrease in crude oil production from the fields, that supply our refineries as a result of economic, regulatory, or natural influences, availability of equipment, facilities, personnel or services, plant closures for scheduled maintenance, or transportation problems, or an increase in crude oil transport capacities out of the regions that supply our refineries, could result in a decline in the volume of crude oil available to our refineries. In addition, the future growth of our

operations may depend in part on whether we can contract for additional supplies of crude oil at a greater rate than the rate of decline in our current supplies. If we are unable to secure sufficient crude oil supplies to our refineries, we may not be able to take full advantage of current and future expansion of our refineries' production capacities. A decline in available crude oil to our refineries or an inability to secure additional crude oil supplies to meet the needs of current or future refinery expansions could result in an overall decline in volumes of refined products produced by our refineries and could have a material adverse effect on our business, financial condition, results of operations and cash flows.

We could incur substantial costs or disruptions in our business if we cannot obtain or maintain necessary permits and authorizations.

Our operations require numerous permits and authorizations under various laws and regulations, including environmental and health and safety laws. These authorizations and permits are subject to revocation, renewal or modification and can require operational changes that may involve significant costs, to limit impacts or potential impacts on the environment, health and safety and/or our and our subsidiaries’ permits and licenses relating to the sale of alcohol and tobacco products. A violation of these authorization or permit conditions or other legal or regulatory requirements could result in substantial fines, criminal sanctions, permit revocations, injunctions and/or refinery shutdowns. In addition, major modifications of our operations could require modifications to our existing permits or expensive upgrades to our existing pollution control equipment that could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Competition in the refining, marketing and retail industries is intense and an increase in competition in the areas in which we sell our refined products could adversely affect our sales and profitability.

We compete with a broad range of refining and marketing companies, including certain multinational oil companies. Because of their geographic diversity, larger and more complex refineries, integrated operations and greater resources, some of our competitors may be better able to withstand volatile market conditions, to compete on the basis of price, to obtain crude oil in times of shortage and to bear the economic risks inherent in all phases of the refining industry.

We are not engaged in the petroleum exploration and production business and therefore do not produce any of our crude oil feedstocks. Certain of our competitors, however, obtain a portion of their feedstocks from their own production. Competitors that have their own production are at times able to offset losses from refining operations with profits from production, and may be better positioned to withstand periods of depressed refining margins or feedstock shortages. In addition, we compete with other industries that provide alternative means to satisfy the energy and fuel requirements of our industrial, commercial and individual consumers. If we are unable to compete effectively with these competitors, both within and outside of our industry, there could be a material adverse effect on our business, financial condition, results of operations and cash flows.

The areas where we sell refined products are also supplied by various refined product pipelines. Any expansions or additional product supplied by these third-party pipelines could put downward pressure on refined product prices in these areas.

Portions of our operations in the areas we operate may be impacted by competitors’ plans, as well as plans of our own, for expansion projects and refinery improvements that could increase the production of refined products. In addition, we anticipate that lower quality crude oils that are typically less expensive to acquire, can and will be processed by our competitors as a result of refinery improvements. These developments could result in increased competition in the areas in which we operate.

Newer or upgraded refineries will often be more efficient than some of our refineries that may put us at a competitive disadvantage. While we have taken measures to maintain and upgrade units in our refineries by installing new equipment and repairing equipment to improve our operations, these actions involve significant uncertainties, since upgraded equipment may not perform at expected throughput levels, the yield and product quality of new equipment may differ from design specifications and modifications may be needed to correct equipment that does not perform as expected. Any of these risks associated with new equipment, redesigned older equipment or repaired equipment could lead to lower revenues or higher costs or otherwise have an adverse effect on our business, financial condition, results of operations and cash flows. Over time, our refineries may become obsolete or be unable to compete because of the construction of new, more efficient facilities by our competitors.

Our retail operations compete with numerous convenience stores, gasoline service stations, supermarket chains, drug stores, fast food operations and other retail outlets. Increasingly, national high-volume grocery and dry-goods retailers are entering the gasoline retailing business. Because of their diversity, integration of operations and greater resources, these companies may be better able to withstand volatile market conditions or levels of low or no profitability. Additionally, our convenience stores could lose market share, relating to both gasoline and merchandise, to these and other retailers that could adversely affect our business, results of operations and cash flows. Our convenience stores compete in large part based on their ability to offer convenience to customers. Consequently, changes in traffic patterns, the type and number and location of competing stores and promotional pricing or discounts by our competitors could result in the loss of customers and reduced sales and profitability at affected stores.

If we and our subsidiaries are unable to make and integrate acquisitions or complete or manage divestitures on economically acceptable terms, our future growth would be limited, and any acquisitions we and our subsidiaries may make may cause our actual growth or results of operations to differ adversely compared with our expectations.

A portion of our strategy to grow our business is dependent on our ability to make selective acquisitions. We actively seek to acquire assets such as refineries, pipelines, terminals and retail fuel and convenience stores that complement our existing assets and/or broaden our geographic presence. For example, during 2013 we formed WNRL to develop and acquire terminals, storage tanks, pipelines and other logistics assets. WNRL’s acquisition strategy is based, in large part, on its expectation of ongoing divestitures of gathering, transportation and storage assets by industry participants, including Western. Additionally, the NTI Merger was successfully completed on June 23, 2016.

Any acquisition involves potential risks, including, among other things:

We and our subsidiaries may also not be able to complete any divestitures on acceptable terms to us or at all. Further, as divestitures may reduce our and our subsidiaries’ direct control over certain aspects of our business, any failure to maintain good relations with divested businesses may adversely impact our results of operations or performance.

There can be no assurance that any acquisition or any future or pending acquisition or merger, will be successfully integrated into our operations. Furthermore, our capitalization and results of operations may change significantly as a result of any such acquisitions. The occurrence of any of these factors could adversely affect our growth strategy and cause our actual growth or results of operations to differ adversely compared with our expectations.

Our insurance policies do not cover all losses, costs or liabilities that we may experience.

Our insurance coverage does not cover all potential losses, costs or liabilities. We could suffer losses for uninsurable or uninsured risks or in amounts in excess of our existing insurance coverage. Our ability to obtain and maintain adequate insurance may be adversely affected by conditions in the insurance market over which we have no control. In addition, if we experience any more insurable events, our annual premiums could increase further or insurance may not be available at all. The occurrence of an event that is not fully covered by insurance or the loss of insurance coverage could have a material adverse effect on our business, financial condition, results of operations and cash flows.

We could be subject to damages based on claims brought against us by our customers or lose customers as a result of a failure of our products to meet certain quality specifications.

The products we sell are required to meet certain quality specifications. If certain of our quality control measures were to fail, we could supply products to our customers that do not meet these specifications. This type of incident could result in various liability claims regarding damages caused by our products. Any liability claims could impact our ability to retain existing customers or acquire new customers, any of which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

A substantial portion of our refining workforce is unionized and we may face labor disruptions that would interfere with our operations.

As of December 31, 2016 , we employed approximately 7,134  people, with collective bargaining agreements covering about 620 of those employees. WNRL employs approximately 559 employees in its wholesale segment. During 2014, we renegotiated a collective bargaining agreement covering employees at our Gallup refinery that expires in 2020 . We also negotiated a new collective bargaining agreement covering employees at our El Paso refinery, renewing the collective bargaining agreement to expire in April of 2021 . We also have collective bargaining agreement that expires in December 2020 associated with the operations of the St. Paul Park refining operations and another collective bargaining agreement associated

with SuperAmerica retail operations that expires in August 2017. While our El Paso, Gallup and St. Paul Park collective bargaining agreements contain “no strike” provisions, those provisions are not effective in the event that an agreement expires. Accordingly, we may not be able to prevent a strike or work stoppage in the future, and any such work stoppage could cause disruptions in our business and have a material adverse effect on our business, financial condition, results of operations and cash flows.

Long-lived and intangible assets comprise a significant portion of our total assets.

Long-lived assets and both amortizable intangible assets and intangible assets with indefinite lives must be tested for recoverability whenever events or changes in circumstances indicate that the carrying amount of those assets may not be recoverable. We evaluate the remaining useful lives of our intangible assets with indefinite lives at least annually. If events or circumstances no longer support an indefinite life, the intangible asset is tested for impairment and prospectively amortized over its estimated remaining useful life. Long-lived and amortizable intangible assets are not recoverable if their carrying amount exceeds the sum of the undiscounted cash flows expected to result from their use and eventual disposition. If a long-lived or amortizable intangible asset is not recoverable, an impairment loss is recognized in an amount by which its carrying amount exceeds its fair value, with fair value determined generally based on discounted estimated net cash flows.

In order to test long-lived and both amortizable intangible assets and intangible assets with indefinite lives for recoverability, management must make estimates of projected cash flows related to the asset being evaluated that include, but are not limited to, assumptions about the use or disposition of the asset, its estimated remaining life and future expenditures necessary to maintain its existing service potential. In order to determine fair value, management must make certain estimates and assumptions including, among other things, an assessment of market conditions, projected volumes, margins, cash flows, investment rates, interest/equity rates and growth rates that could significantly impact the fair value of the asset being tested for impairment.

Our operating results are seasonal and generally lower in the first and fourth quarters of the year.

Demand for gasoline is generally higher during the summer months than during the winter months. As a result, our operating results for the first and fourth calendar quarters are generally lower than those for the second and third calendar quarters of each year. In addition, unseasonably cool weather in summer months and/or unseasonably warm weather in winter months in the regions where we sell our refined products can impact the demand for gasoline and diesel.

Seasonal fluctuations in traffic also affect sales of motor fuels and merchandise in our retail fuel and convenience stores. As a result, the operating results of our retail business are generally lower for the first quarter of the year. Weather conditions in our operating area also have a significant effect on our retail operating results. Customers are more likely to purchase higher profit margin items at our retail fuel and convenience stores, such as fast foods, fountain drinks and other beverages and more gasoline during the spring and summer months, thereby typically generating higher revenues and gross margins for us in these periods. Unfavorable weather conditions during these months and a resulting lack of the expected seasonal upswings in traffic and sales could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Our ability to pay dividends in the future is limited by contractual restrictions and cash generated by operations.

We are a holding company and all of our operations are conducted through our subsidiaries. Consequently, we will rely on dividends or advances from our subsidiaries to fund any dividends. The ability of our operating subsidiaries to pay dividends and our ability to receive distributions from those entities are subject to applicable local law.

WNRL is dependent upon the earnings and cash flow generated by its operations in order to meet its debt service obligations and to allow them to make cash distributions to us. The operating and financial restrictions and covenants in its debt instruments and any future financing agreements could restrict its, and our, ability to finance future operations or capital needs or to expand or pursue business activities, which may in turn limit its ability to make cash distributions to us and our ability to make cash distributions to stockholders. For example, WNRL’s revolving credit facility and the indenture governing its senior notes contain restrictions on its ability to, among other things, make certain cash distributions, incur certain indebtedness, create certain liens, make certain investments, and merge or sell all or substantially all of its assets.

To the extent the ability of our subsidiaries to distribute dividends or other payments to us could be limited in any way, our ability to grow, pursue business opportunities or make acquisitions that could be beneficial to our business, or otherwise fund and conduct our business could be materially limited.

In addition, our ability to pay dividends to our stockholders is subject to certain restrictions in our debt instruments and such restrictions could restrict our ability to pay dividends in the future. In addition, our payment of dividends will depend upon our ability to generate sufficient cash flows. Our board of directors will review our dividend policy periodically in light of the factors referred to above, and we cannot assure you of the amount of dividends, if any, that may be paid in the future.

Under the Tesoro Merger Agreement, we have agreed that, until the completion of the Tesoro Merger, we will not declare, set aside, make or pay any dividend or other distribution in respect of any of our capital stock, except for regular quarterly cash dividends to the holders of shares of our common stock in an amount not in excess of $0.38 per share.

Our controlling stockholders may have conflicts of interest with other stockholders in the future.

Mr. Paul Foster, our Executive Chairman, and Messrs. Jeff Stevens, our Chief Executive Officer and President and a current director, and Scott Weaver, a current director, own approximately 22.5% of our common stock as of February 24, 2017 . As a result, Mr. Foster and the other members of this group may strongly influence or effectively control the election of our directors, our corporate and management policies, and determine, without the consent of our other stockholders, the outcome of any corporate transaction or other matter submitted to our stockholders for approval, including potential mergers or acquisitions, asset sales, and other significant corporate transactions. The interests of Mr. Foster and the other members of this group may not coincide with the interests of other holders of our common stock.

Loss of any of our key personnel could negatively impact our ability to manage our business and continue our growth.

Our future performance depends to a significant degree upon the continued contributions of our senior management team, including our executive officers and key technical employees. We do not currently maintain key man life insurance with respect to any member of our senior management team. The loss or unavailability to us of any member of our senior management team or a key technical employee could significantly harm us. We face competition for these professionals from our competitors, our customers and other companies operating in our industry. To the extent that the services of members of our senior management team would be unavailable to us for any reason, we would be required to hire other personnel to manage and operate our companies. We may not be able to locate or employ such qualified personnel on acceptable terms, or at all.

Terrorist attacks, cyber-attacks, threats of war or actual war may negatively affect our operations, financial condition, results of operations, cash flows and prospects.

Terrorist attacks in the U.S. as well as events occurring in response to or in connection with them, may adversely affect our operations, financial condition, results of operations, cash flows and prospects. Energy-related assets (that could include refineries and terminals such as ours or pipelines such as the ones on which we depend for our crude oil supply and refined product distribution) may be at greater risk of future terrorist attacks than other possible targets. A direct attack on our assets or assets used by us could have a material adverse effect on our operations, financial condition, results of operations, cash flows and prospects. In addition, any terrorist attack could have an adverse impact on energy prices, including prices for our crude oil and refined products and an adverse impact on the margins from our refining and marketing operations. In addition, disruption or significant increases in energy prices could result in government imposed price controls. While we currently maintain some insurance that provides coverage against terrorist attacks, such insurance has become increasingly expensive and difficult to obtain. As a result, insurance providers may not continue to offer this coverage to us on terms that we consider affordable, or at all.

We are dependent on technology infrastructure and maintain and rely upon certain critical information systems for the effective operation of our businesses. These information systems include data network and telecommunications, internet access and our websites and various computer hardware equipment and software applications. These information systems are subject to damage or interruption from a number of potential sources including natural disasters, software viruses or other malware, power failures, cyber-attacks and other events. To the extent that these information systems are under our control, we have implemented measures such as virus protection software and emergency recovery processes to address the outlined risks. However, security measures for information systems cannot be guaranteed. Breaches to our networks could lead to such information being accessed, publicly disclosed, lost or stolen, and could result in legal claims or proceedings, liability under laws that protect the privacy of customer information, disrupt the services we provide and damage our reputation, any of which could have a material adverse effect on our business, financial condition, results of operations and cash flows. Any compromise of our data security or our inability to use or access these information systems at critical points in time could unfavorably impact the timely and efficient operation of our business and subject us to additional costs and liabilities.

We have exposure to concentrations of credit risk related to the ability of our counterparties to meet their contractual payment obligations and the potential non-performance of counterparties to deliver contracted commodities or services at the contracted price.

We and our subsidiaries are exposed to credit risk of counterparties with whom we do business. Adverse economic conditions or financial difficulties experienced by these counterparties could impair the ability of these counterparties to pay for our and our subsidiaries’ services or fulfill their contractual obligations, including performance and payment of damages. We and our subsidiaries depend on these counterparties to remit payments and perform services timely. Counterparties could fail or delay the performance of their contractual obligations for a number of reasons, including the effect of regulations on their operations. Any delay or default in payment or performance of contractual obligations and an adverse change in our counterparties’ business, results of operations or financial condition could adversely affect their respective ability to perform

each of these obligations that could consequently have a material adverse effect on our business, results of operations or liquidity.

Our operations could be disrupted if our information systems fail, causing increased expenses and loss of sales.

Our business is highly dependent on financial, accounting and other data processing systems and other communications and information systems, including our enterprise resource planning tools and credit and debit card sales at our retail stores and within our wholesale business. We process a large number of transactions and transmit confidential credit and debit card information securely over public networks on a daily basis and rely upon the proper functioning of computer systems. If a key system was to fail or experience unscheduled downtime for any reason, even if only for a short period, our operations and financial results could be affected adversely. These information systems are subject to damage or interruption from a number of potential sources including natural disasters, software viruses or other malware, power failures, cyber-attacks and other events. To the extent that these information systems are under our control, we have implemented measures such as virus protection software, intrusion detection systems and emergency recovery processes to address the outlined risks. However, security measures for information systems cannot be guaranteed to be failsafe. Any security breach could expose us to risks of data loss, litigation and liability and could seriously disrupt our operations and any resulting negative publicity could significantly harm our reputation. Our formal disaster recovery plan may not prevent delays or other complications that could arise from an information systems failure. Further, our business interruption insurance may not compensate us adequately for losses that may occur .

Our pipeline interests are subject to federal and/or state rate regulation that could reduce our profitability.

Certain of our pipelines, are subject to regulation by multiple governmental agencies, and compliance with such regulation increases our cost of doing business and affects our profitability.

Kinder Morgan's East Line, the Plains pipeline to Albuquerque and the Minnesota Pipeline, are common carrier pipelines providing interstate transportation service that is subject to regulation by FERC under the Interstate Commerce Act (the “ICA”). The ICA requires that tariff rates for interstate petroleum pipelines transportation service be just and reasonable and that the rates and terms of service of such pipelines not be unduly discriminatory or unduly preferential. Because we currently do not operate the Minnesota Pipeline or control the board of managers of the Minnesota Pipe Line Company, we do not control how the Minnesota Pipeline’s tariff is applied.

FERC can also impose conditions it considers appropriate, impose penalties limit or set rates retroactively, declare pipeline-related facilities to be common carrier facilities and require that common carrier access be provided or otherwise alter the terms of service and/or rates of such facilities. Rate regulation or a successful challenge to the rates we charge, including on our regulated pipelines could adversely affect the pipeline revenue we generate. Conversely, reduced rates on our regulated pipelines would reduce the rates for transportation of crude oil into our refineries.

One of our subsidiaries acts as the general partner of a master limited partnership that may involve a higher exposure to legal liability than our historic business operations .

Western Refining Logistics GP, LLC acts as the general partner of WNRL, a master limited partnership. Our control of the general partner of WNRL may increase the possibility of claims of breach of fiduciary duties, including claims of conflicts of interest related to WNRL. Any liability resulting from such claims could have a material adverse effect on our future business, financial condition, results of operations and cash flows.

Derivatives regulation in the United States could have an adverse effect on our ability to use derivative instruments to reduce the effect of commodity price and other risks associated with our business.

We use derivative instruments to manage our commodity price risk. The Dodd-Frank Act was enacted in 2010. Many of the provisions of the Dodd-Frank Act require implementing regulations by agencies including the Commodity Futures Trading Commission (the “CFTC”) and the SEC. The CFTC has implemented the majority of its rules governing swaps, including many commodity swaps.

Of particular importance to us, the CFTC has the authority, under certain findings, to establish position limits for certain futures, options on futures and swap contracts. As of today, there are position limits governing the holding of futures positions in nine agricultural contracts. Certain bona fide hedging transactions or positions are exempt from these position limits. In 2011, the CFTC adopted position limit rules that expanded the types of contracts covered by the limits to include additional agricultural commodities, as well as certain metals and energy contracts, as well as to include swaps on those contracts. Those rules were subsequently vacated by the U.S. District Court for the District of Columbia. Starting in November 2013, the CFTC has, through a series of actions, re-proposed these swap and expanded position limits rules. Whether and when these proposed rules or other position limits rules will be adopted, and the applicability of any adopted rules to us and the impact on our ability to cost-effectively hedge our commodity risks, remain unclear.

The financial reform legislation may also require us to comply with margin requirements and with certain clearing and trade-execution requirements in connection with our derivatives activities. While there are exceptions from the margin, clearing and trade execution requirements that have been implemented to date for commercial end users of swaps like us, whether we continue to rely these exceptions for all transactions remains uncertain at this time. The Dodd-Frank Act and its implementing regulations have also required some of the counterparties to our swaps to register with the CFTC and become subject to substantial regulation, which continues to evolve. These requirements and others, such as those related to trade execution and margin, could significantly increase the cost of derivatives contracts (including through requirements to clear swaps and to post collateral for both cleared and uncleared swaps, each of which could adversely affect our available liquidity), materially alter the terms of derivatives contracts, reduce the availability of derivatives to protect against risks we encounter, reduce our ability to monetize or restructure our existing derivative contracts, and increase our exposure to less creditworthy counterparties. If we reduce our use of derivatives as a result of the legislation and regulations, our results of operations may become more volatile and our cash flows may be less predictable, which could adversely affect our ability to plan for and fund capital expenditures. Our revenues could also be adversely affected if a consequence of the legislation and regulations is to lower commodity prices.

Our retail business is vulnerable to risks including changes in consumer preferences and economic conditions, competitive environment, supplier concentration, franchising operations and other trends and factors that could harm our business, financial condition, results of operations or cash flows.

Our retail business is subject to changes in consumer preferences, national, regional and local economic conditions, demographic trends and consumer confidence in the economy. Factors such as traffic patterns, weather conditions, local demographics and the number and locations of competing retail service stations and convenience stores also affect the performance of our retail stores. Our retail operations in the Upper Great Plains region depend on one principal supplier for a substantial portion of its merchandise inventory. We franchise some of our retail stores and as a result, our retail operations partly depend on the retail store franchisees who are independent business operators that could take actions that harm our brand, reputation or goodwill. Adverse changes in any of these trends or factors could reduce our retail customer traffic or sales, or impose limits on our pricing that could adversely affect our business, financial condition, results of operations and cash flows.

Our business depends on the protection of our intellectual property and may suffer if we are unable to adequately protect such intellectual property.

We rely on patent laws, trademark and trade secret protection to protect our intellectual property rights. However, the steps we take to protect our intellectual property rights may be inadequate. There are events that are outside of our control that pose a threat to our intellectual property rights as well as to our products and services. For example, some or all of our and our subsidiaries’ current and future trademarks, service marks and trade dress may not be enforceable, even if registered, against any prior users of similar intellectual property or our competitors who seek to use similar intellectual property in areas where we and our subsidiaries operate or intend to conduct operations. Also, the efforts we have taken to protect our proprietary rights may not be sufficient or effective. Any impairment of our intellectual property rights could harm our business and our ability to compete. Also, protecting our intellectual property rights is costly and time consuming. Any increase in the unauthorized use of our intellectual property could make it more expensive to do business and harm our operating results. In addition, we could encounter claims from prior users of similar intellectual property in areas where we or our subsidiaries operate or intend to conduct operations that could result in additional expenditures and divert our management’s time and attention from our operations. Conversely, competing businesses could infringe on our intellectual property that would necessarily require us to defend our intellectual property possibly at a significant cost to us. Any of these consequences could cause a material adverse effect on our business, financial condition, results of operations and cash flows.