Exhibit 99.2
 LION OIL COMPANY AND SUBSIDIARIES




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Independent Auditors Report




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LION OIL COMPANY AND SUBSIDIARIES
 2010
    
    
    2009AssetsCurrent assets:Cash and cash equivalents
    
    $
    14,440,661
    
    
    
    21,283,348Trade accounts and other receivables, less allowances for
doubtful accounts of $633,275 in 2010 and $832,000 in 2009
    
    
    16,181,665
    
    
    
    8,527,487Inventories
    
    
    165,944,790
    
    
    
    116,212,834Receivable from related party
    
    
    91,715,985
    
    
    
    55,768,626Refundable income taxes
    
    
    50,571,901
    
    
    
    13,617,520Prepaid expenses and other current assets
    
    
    9,743,770
    
    
    
    8,834,626Deferred income taxes
    
    
    2,063,318
    
    
    
    670,974Total current assets
    
    
    350,662,090
    
    
    
    224,915,415Property and equipment
    
    
    782,716,954
    
    
    
    681,152,413Less accumulated depreciation
    
    
    219,172,426
    
    
    
    195,092,157Net property and equipment
    
    
    563,544,528
    
    
    
    486,060,256Deferred turnaround costs, less accumulated amortization of
$9,187,187 in 2010 and $578,538 in 2009
    
    
    54,723,815
    
    
    
    8,461,115Estimated environmental remediation costs recoverable from others
    
    
    1,442,200
    
    
    
    1,809,200Other receivables
    
    
    6,720,000
    
    
    
    8,000,690Other assets
    
    
    1,111,301
    
    
    
    1,160,738$
    978,203,934
    
    
    
    730,407,414Liabilities and Stockholders EquityCurrent liabilities:Trade accounts payable
    
    $
    139,998,278
    
    
    
    115,308,449Accrued expenses and other current liabilities
    
    
    24,407,327
    
    
    
    35,421,462Inventory due under finished product exchange agreements
    
    
    2,445,067
    
    
    
    2,196,975Total current liabilities
    
    
    166,850,672
    
    
    
    152,926,886Term note payable to related party
    
    
    455,368,051
    
    
    
    268,513,137Estimated environmental remediation liability
    
    
    3,564,000
    
    
    
    5,267,400Deferred income taxes
    
    
    85,744,381
    
    
    
    38,374,123Stockholders equity:Common stock of $0.10 par value. Authorized 12,000,000 shares;
issued and outstanding 8,291,442 shares
    
    
    829,144
    
    
    
    829,144Additional paid-in capital
    
    
    8,217,190
    
    
    
    8,217,190Retained earnings
    
    
    257,630,496
    
    
    
    256,279,534Total stockholders equity
    
    
    266,676,830
    
    
    
    265,325,868Commitments and contingencies$
    978,203,934
    
    
    
    730,407,414
   2




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LION OIL COMPANY AND SUBSIDIARIES
   2010
    
    
    2009Net sales
    
    $
    1,899,443,256
    
    
    
    2,255,317,062Cost of sales
    
    
    1,839,500,555
    
    
    
    2,225,401,40359,942,701
    
    
    
    29,915,659Depreciation and amortization
    
    
    37,432,060
    
    
    
    22,368,914Operating expenses
    
    
    8,572,673
    
    
    
    8,205,372General and administrative expenses
    
    
    5,338,924
    
    
    
    5,071,637Marketing expenses
    
    
    1,440,586
    
    
    
    1,737,280Management fee
    
    
    752,418
    
    
    
    Recoveries from insurance proceeds
    
    
    (6,819,256
    )
    
    
    Operating income (loss)
    
    
    13,225,296
    
    
    
    (7,467,544
    )Other income (expense):Interest and other financing costs, net of amounts capitalized
    
    
    (10,496,362
    )
    
    
    (3,617,496
    )Miscellaneous, net
    
    
    280,737
    
    
    
    345,995(10,215,625
    )
    
    
    (3,271,501
    )Earnings (loss) before income
taxes
    
    
    3,009,671
    
    
    
    (10,739,045
    )Income tax (expense) benefit
    
    
    (1,658,709
    )
    
    
    3,848,816Net earnings (loss)
    
    $
    1,350,962
    
    
    
    (6,890,229
    )
   3




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LION OIL COMPANY AND SUBSIDIARIES
   Additional
    
    
    
    
    
    
    TotalCommon stock
    
    
    paid-in
    
    
    Retained
    
    
    stockholdersShares
    
    
    Amount
    
    
    capital
    
    
    earnings
    
    
    equityBalance at April
30, 2008
    
    
    8,291,442
    
    
    $
    829,144
    
    
    
    8,217,190
    
    
    
    263,169,763
    
    
    
    272,216,097Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,890,229
    )
    
    
    (6,890,229
    )Balance at April
30, 2009
    
    
    8,291,442
    
    
    
    829,144
    
    
    
    8,217,190
    
    
    
    256,279,534
    
    
    
    265,325,868Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,350,962
    
    
    
    1,350,962Balance at April
30, 2010
    
    
    8,291,442
    
    
    $
    829,144
    
    
    
    8,217,190
    
    
    
    257,630,496
    
    
    
    266,676,830
   4




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LION OIL COMPANY AND SUBSIDIARIES
   2010
    
    
    2009Increase (decrease) in cash and cash equivalents:Cash flows from operating activities:Cash received from customers and sales of
accounts receivable
    
    $
    1,855,841,719
    
    
    
    2,321,148,078Cash paid to suppliers and employees
    
    
    (1,875,954,415
    )
    
    
    (2,234,645,910
    )Interest received
    
    
    37,358
    
    
    
    136,044Other operating income received
    
    
    229,418
    
    
    
    187,676Interest paid, net of amounts capitalized of $4,474,212 in 2010
and $7,268,687 in 2009
    
    
    (10,181,117
    )
    
    
    (3,423,610
    )Proceeds from business interruption insurance settlement
    
    
    5,465,635
    
    
    
    Income taxes received, net
    
    
    7,364,824
    
    
    
    7,014,793Net cash provided by (used in) operating activities
    
    
    (17,196,578
    )
    
    
    90,417,071Cash flows from investing activities:Capital expenditures
    
    
    (122,737,080
    )
    
    
    (157,849,077
    )Deferred turnaround costs incurred
    
    
    (54,871,348
    )
    
    
    (8,393,697
    )Proceeds from property insurance settlement
    
    
    1,353,621
    
    
    
    Proceeds from sale of equipment
    
    
    19,592
    
    
    
    69,411Net cash used in investing activities
    
    
    (176,235,215
    )
    
    
    (166,173,363
    )Cash flows from financing activities:Proceeds from related party financing agreement
    
    
    1,279,302,635
    
    
    
    1,388,379,723Repayments on related party financing agreement
    
    
    (1,092,447,721
    )
    
    
    (1,308,903,988
    )Deferred financing costs
    
    
    (265,808
    )
    
    
    (460,099
    )Net cash provided by financing activities
    
    
    186,589,106
    
    
    
    79,015,636Net increase (decrease) in cash and cash
equivalents
    
    
    (6,842,687
    )
    
    
    3,259,344Cash and cash equivalents at beginning of year
    
    
    21,283,348
    
    
    
    18,024,004Cash and cash equivalents at end of year
    
    $
    14,440,661
    
    
    
    21,283,348Supplemental disclosure of cash flow information:Noncash change related to property and equipment accrued at year end
    
    $
    (16,423,765
    )
    
    
    7,034,081
    5




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LION OIL COMPANY AND SUBSIDIARIES
   2010
    
    
    2009Reconciliation of net earnings (loss) to net cash provided by
(used in) operating activities:Net earnings (loss)
    
    $
    1,350,962
    
    
    
    (6,890,229
    )Adjustments:Depreciation and amortization
    
    
    37,432,060
    
    
    
    22,368,914Amortization of deferred financing costs
    
    
    315,245
    
    
    
    193,886Deferred income taxes
    
    
    45,977,914
    
    
    
    6,949,210Gain from sale of equipment
    
    
    (13,961
    )
    
    
    (22,275
    )Gain on property insurance settlement
    
    
    (1,353,621
    )Fair value adjustment on energy contracts
    
    
    (3,820,382
    )
    
    
    3,788,444Change in LIFO reserve
    
    
    16,856,804
    
    
    
    (112,700,576
    )Changes in operating assets and liabilities:Trade accounts and other receivables
    
    
    (8,414,488
    )
    
    
    31,830,225Receivable from related party
    
    
    (35,947,359
    )
    
    
    27,876,627Inventories
    
    
    (66,588,760
    )
    
    
    228,601,543Refundable income taxes
    
    
    (36,954,381
    )
    
    
    (2,220,309
    )Income taxes payable
    
    
    
    
    
    
    (1,562,924
    )Prepaid expenses and other current assets
    
    
    (909,144
    )
    
    
    1,951,877Trade accounts payable
    
    
    41,113,594
    
    
    
    (95,068,217
    )Accrued expenses and other current liabilities
    
    
    (3,457,153
    )
    
    
    (4,762,403
    )Environmental remediation liability and receivable
    
    
    (3,032,000
    )
    
    
    (2,125,000
    )Inventory due under finished product exchange agreements
    
    
    248,092
    
    
    
    (7,791,722
    )Net cash provided by (used
in) operating activities
    
    $
    (17,196,578
    )
    
    
    90,417,071
   6




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LION OIL COMPANY AND SUBSIDIARIES
 (1)
    
    Nature of Business and Summary of Significant Accounting PoliciesLion Oil Company (the Company) is engaged in petroleum refining and related lines of business.
It owns and operates a petroleum refinery and crude oil gathering pipelines, product
terminals, and related equipment principally located in Arkansas, Louisiana, Tennessee,
Mississippi, and Texas.
 (a)
    
    Basis of Financial Statement Presentation
  (b)
    
    Inventories
   (c)
    
    Property and Equipment
 Depreciation of equipment is provided over the estimated useful lives of the respective
assets (buildings and improvements ranging from 7 to 39 years; refinery and equipment
ranging from 2 to 30 years; pipelines and equipment ranging from 7 to 30 years; terminals
and equipment ranging from 5 to 15 years; tractors, trailers and automobiles ranging from
5 to 7 years; other equipment ranging from 5 to 10 years) using the straight-line method,
except for automotive equipment which is depreciated using a declining-balance method.
All property and equipment is carried at cost.
 (d)
    
    Revenue Recognition
      7




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LION OIL COMPANY AND SUBSIDIARIES
 (e)
    
    Terminaling Costs
  (f)
    
    Deferred Turnaround Costs
  (g)
    
    Income Taxes
  Accounting for Uncertainty in Income Taxes Income Taxes Overall
    8




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LION OIL COMPANY AND SUBSIDIARIES
 (h)
    
    Cash Equivalents
  (i)
    
    Deferred Financing Costs
  (j)
    
    Use of Estimates
   (k)
    
    Long-Lived Assets
 Property, Plant and Equipment
- Overall
 (l)
    
    Environmental Matters
 Asset Retirement and Environmental Obligations
   9




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LION OIL COMPANY AND SUBSIDIARIES
 (m)
    
    Asset Retirement Obligations
 Asset Retirement and Environmental
Obligations
 Asset Retirement and Environmental
Obligations
 (n)
    
    Derivative Financial Instruments
 Derivatives and Hedging
 (o)
    
    Recent Accounting Pronouncements
    10




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LION OIL COMPANY AND SUBSIDIARIES
  Fair Value
Measurements and Disclosures
 Transfers and Servicing Accounting for
Transfers of Financial Assets Accounting for Transfers of
Financial Assets  an amendment of FASB Statement No. 140
 Amendments to FASB Interpretation No. 46(R) Consolidation of Variable Interest Entities
   11




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LION OIL COMPANY AND SUBSIDIARIES
 (p)
    
    Reclassifications
  (2)
    
    Inventories
 A summary of inventories follows:
 April 302010
    
    
    2009Finished petroleum products
    
    $
    126,950,240
    
    
    
    74,183,541Finished petroleum products under exchange
agreements
    
    
    547,798
    
    
    
    1,666,266Crude oil
    
    
    70,308,178
    
    
    
    60,229,252Intermediates
    
    
    19,954,231
    
    
    
    17,511,224Raw materials and supplies
    
    
    4,281,573
    
    
    
    1,862,977222,042,020
    
    
    
    155,453,260Less LIFO reserve
    
    
    56,097,230
    
    
    
    39,240,426$
    165,944,790
    
    
    
    116,212,834
 (3)
    
    Property and Equipment
 A summary of property and equipment follows:
 April 302010
    
    
    2009Land
    
    $
    2,629,589
    
    
    
    2,577,027Buildings and improvements
    
    
    7,286,264
    
    
    
    5,328,790Refinery and equipment
    
    
    610,601,400
    
    
    
    325,491,761Pipelines and equipment
    
    
    77,682,462
    
    
    
    77,024,546Terminals and equipment
    
    
    6,363,903
    
    
    
    6,305,862Tractors, trailers, and automobiles
    
    
    7,340,044
    
    
    
    7,349,523Other equipment
    
    
    13,958,442
    
    
    
    10,295,030Construction in progress
    
    
    56,854,850
    
    
    
    246,779,874$
    782,716,954
    
    
    
    681,152,413
 Construction in progress consists primarily of costs incurred for refinery improvements.
The Company estimates that it will incur approximately $9,047,000 to complete projects in
progress at April 30, 2010.
   12




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LION OIL COMPANY AND SUBSIDIARIES
 The Company capitalizes interest costs as a component of the cost of construction in progress.
Interest costs capitalized approximated $4,474,000 and $7,269,000 in 2010 and 2009,
respectively.
 (4)
    
    Leases
 As of April 30, 2010, minimum lease payments due under noncancelable operating leases are as
follows:
 Year ended April 30:2011
    
    $
    1,650,2142012
    
    
    769,1102013
    
    
    380,1702014
    
    
    78,9182015
    
    
    42,000Total minimum lease
payments
    
    $
    2,920,412
 Most of the Companys leases require the Company to pay taxes, maintenance, and insurance
applicable to the leased properties.
 The Company recognizes rent expense on the straight-line method. Rent expense under operating
leases was approximately $7,534,000 and $7,619,000 in 2010 and 2009, respectively.
 (5)
    
    Income Taxes
 Components of income tax (expense) benefit are as follows:
 Federal
    
    
    State
    
    
    Total2010:Current
    
    $
    39,738,115
    
    
    
    4,581,090
    
    
    
    44,319,205Deferred
    
    
    (41,201,211
    )
    
    
    (4,776,703
    )
    
    
    (45,977,914
    )$
    (1,463,096
    )
    
    
    (195,613
    )
    
    
    (1,658,709
    )2009:Current
    
    $
    9,178,735
    
    
    
    1,619,291
    
    
    
    10,798,026Deferred
    
    
    (5,731,185
    )
    
    
    (1,218,025
    )
    
    
    (6,949,210
    )$
    3,447,550
    
    
    
    401,266
    
    
    
    3,848,816
   13




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LION OIL COMPANY AND SUBSIDIARIES
 Income tax (expense) benefit of $(1,658,709) for 2010 (effective rate of 55.1%) and
$3,848,816 for 2009 (effective rate of 35.8%) differs from the expected amounts, computed by
applying the U. S. Federal corporate rate of 35% to pretax earnings (loss), as follows:
 2010
    
    
    2009Computed expected tax (expense) benefit
    
    $
    (1,053,385
    )
    
    
    3,758,665Increases (decreases) resulting from:State income taxes (net of Federal income taxes)
    
    
    (129,105
    )
    
    
    264,836Other
    
    
    (476,219
    )
    
    
    (174,685
    )$
    (1,658,709
    )
    
    
    3,848,816
 The tax effects of temporary differences that give rise to the deferred tax assets and
deferred tax liabilities are presented below:
 April 302010
    
    
    2009Deferred tax assets:Accounts receivable, principally due to allowance for
doubtful accounts
    
    $
    287,315
    
    
    
    365,991Estimated environmental remediation liability, net of
estimated recovery, due to deferral for tax purposes
    
    
    1,306,963
    
    
    
    2,457,910Inventories, principally due to additional costs inventoried
for tax purposes
    
    
    1,719,307
    
    
    
    355,147State net operating loss
    
    
    3,791,303
    
    
    
    1,111,203AMT credit carryforward
    
    
    7,319,932
    
    
    
    8,008,063Ultra low sulfur diesel credit carryforward
    
    
    19,587,589
    
    
    
    Other
    
    
    847,182
    
    
    
    620,889Total gross deferred tax assets
    
    
    34,859,591
    
    
    
    12,919,203Deferred tax liabilities:Equipment, principally due to differences in depreciation
    
    
    (96,039,459
    )
    
    
    (46,669,205
    )Deferred turnaround costs
    
    
    (22,492,393
    )
    
    
    (3,932,945
    )Other
    
    
    (8,802
    )
    
    
    (20,202
    )Total gross deferred tax
liabilities
    
    
    (118,540,654
    )
    
    
    (50,622,352
    )Net deferred tax liabilities
    
    $
    (83,681,063
    )
    
    
    (37,703,149
    )
 The net deferred tax liability of $83,681,063 as of April 30, 2010 is reflected in the
consolidated balance sheet as a current asset of $2,063,318 and a noncurrent liability of
$85,744,381. The net deferred tax liability of $37,703,149 as of April 30, 2009 is reflected
in the consolidated balance sheet as a current asset of $670,974 and a noncurrent liability of
$38,374,123.
   14




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##### 



LION OIL COMPANY AND SUBSIDIARIES
 The Company has determined, based on its history of profitable operations and expectations for
the future, that the deferred tax assets will more likely than not be fully realized and that
no valuation allowance is necessary at April 30, 2010 and 2009.
 At April 30, 2010, the Company had various state net operating loss carryforwards of
approximately $100,040,000, which were available to offset future taxable income over periods
ranging from three to fifteen years as determined by applicable taxing jurisdictions.
 (6)
    
    Term Note Payable to Related Party
 A summary of long-term debt follows:
 April 302010
    
    
    2009Term note payable to related party
    
    $
    455,368,051
    
    
    
    268,513,137Total long-term debt
    
    $
    455,368,051
    
    
    
    268,513,137
 The Company has entered into an unsecured, long-term financing agreement between the Company
and Ergon, the Companys largest stockholder. Borrowings by the Company under this financing
agreement were $455,368,051 at April 30, 2010 and $268,513,137 at April 30, 2009. The interest
rate on borrowings under this agreement is based on a blended rate of Ergons consolidated
credit facilities (3.185% at April 30, 2010). The principal balance outstanding under this
agreement is due February 23, 2012. The Company has the ability to prepay some or all of the
outstanding borrowings under this financing agreement and has exercised this prepayment option
in the past.
 Under the terms of the financing agreement with Ergon, discussed in the preceding paragraph,
advances are made to the Company in connection with revolving financing agreements and senior
notes payable between Ergon and several commercial lending institutions. Certain of Ergons
subsidiaries, including the Company, are jointly and severally liable for outstanding
obligations related to these financing agreements. Obligations under Ergons financing
agreements for which the Company is a guarantor, consisted of borrowings of approximately
$683,633,000 (unaudited) and outstanding letters of credit of approximately $281,328,000
(unaudited) at April 30, 2010. These financing agreements are discussed further below:
 
    
    On May 31, 2001, Ergon issued $100,000,000 of 7.18% senior notes payable to a group of
institutional investors. These notes are due in equal annual principal installments which
began on May 31, 2006 and continue through May 31, 2011. On February 10, 2005, Ergon
issued $100,000,000 of 5.17% senior notes payable to a group of institutional investors.
These notes are due in annual principal installments which began on February 10, 2007 and
continue through February 10, 2015. On May 20, 2008, Ergon issued $150,000,000 of 5.50%
senior notes payable to a
group of institutional investors. These notes are due in annual principal installments
beginning May 20, 2010 and continue through May 20, 2018. On February 11, 2010, Ergon
issued $50,000,000 of 6.64% senior notes payable to a group of institutional investors.
These notes are due on February 11, 2018 and interest payments are due quarterly. The
notes also contain certain restrictive covenants. Certain of Ergons subsidiaries,
including the Company, are jointly and severally liable for outstanding borrowings
related to these notes.
   15




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##### 



LION OIL COMPANY AND SUBSIDIARIES
 
    
    On March 10, 2008, Ergon entered into a $575,000,000 credit agreement with a group of
lenders. The credit agreement expires in March 2013. The credit agreement contains
certain restrictive covenants. Certain of Ergons subsidiaries, including the Company,
are jointly and severally liable for outstanding borrowings related to this agreement.
 At April 30, 2010, Ergon has secured approximately $250,902,000 in outstanding letters of
credit on behalf of the Company. This amount is included in the total outstanding letters of
credit discussed in the preceding paragraph. These letters of credit consist of four letters
of credit to various vendors approximating $20,183,000 and letters of credit issued in favor
of the Companys principal crude oil suppliers approximating $230,719,000 (expiration dates
range from June 2010 to August 2011). The Company pays fees on these letters of credit at
rates ranging from 0.875% to 1.75% of the face amount of the letter of credit, depending on
the applicable interest rate in effect under the credit agreement between Ergon and its
lenders. Letter of credit fees of approximately $1,642,000 and $1,364,000 were paid by the
Company during 2010 and 2009, respectively, and are included in interest and other financing
costs (net of interest capitalized) in the accompanying consolidated statements of earnings
(loss).
 (7)
    
    Management Contract and Related Party Transactions
 The Company is managed by Ergon under a management contract whereby Ergon is paid a management
fee by the Company. The fee is based on a percentage of earnings before income taxes and is
included in accrued expenses and other current liabilities in the accompanying consolidated
balance sheets. At April 30, 2010 and 2009, the amount of accrued management fees totaled
$752,418 and $0, respectively. In the event of termination of the management contract by the
Company without cause or by mutual agreement of the Company and Ergon, Ergon has the right, at
its option, to purchase common stock of the Company equal to 20% of the total issued and
outstanding capital stock as of the date of such termination. The purchase price of such stock
would be the same as that of the original shares issued.
 In the ordinary course of business, the Company makes purchases from and sales to Ergon and
its subsidiaries as well as other stockholders of the Company. The Companys management
believes these transactions are at prevailing market prices.
   16




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##### 



LION OIL COMPANY AND SUBSIDIARIES
 Related party balances and transactions as of and for the years ended April 30, 2010 and 2009
follow (approximate amounts):
 2010
    
    
    2009Ergon and its subsidiaries:Asphalt sales
    
    $
    40,973,000
    
    
    
    11,322,000Light oil sales
    
    
    250,000
    
    
    
    236,000Interest income
    
    
    1,881,000
    
    
    
    2,453,000Other sales
    
    
    280,000
    
    
    
    3,413,000Interest expense
    
    
    14,488,000
    
    
    
    10,363,000Net purchases
    
    
    11,187,000
    
    
    
    9,787,000Transportation expenses
    
    
    4,000
    
    
    
    3,746,000Management fees
    
    
    752,000
    
    
    
    Data processing fees
    
    
    1,121,000
    
    
    
    1,160,000Net amounts due to (from) Ergon at April 30
    
    
    (869,000
    )
    
    
    (1,383,000
    )Receivable from Ergon at April 30
    
    
    91,716,000
    
    
    
    55,769,000Note payable to Ergon at April 30
    
    
    455,368,000
    
    
    
    268,513,000Long Brothers Oil Company:Light oil sales
    
    
    80,000
    
    
    
    96,000Crude oil purchases
    
    
    4,933,000
    
    
    
    6,226,000Net amounts due to Long Brothers Oil Company at April 30
    
    
    561,000
    
    
    
    264,000Delek US Holdings, Inc. (August 2008  April 2010):Light oil sales
    
    
    8,489,000
    
    
    
    9,657,000Net amounts due from Delek US Holdings, Inc. at April 30
    
    
    361,530
    
    
    
    763,000
 (8)
    
    Defined Contribution Plan
 The Company has a qualified defined contribution profit sharing and 401(k) plan covering
substantially all permanent full-time employees. The Company makes annual contributions to the
profit sharing plan in amounts determined by the board of directors. The Company matches
employee 401(k) contributions based upon a stipulated percentage determined by the board of
directors. During the years ended April 30, 2010 and 2009, the expense associated with the
plan was approximately $1,056,000 and $1,499,000, respectively. The profit sharing
contribution approved by the Companys board of directors was 3% for the years ended April 30,
2010 and 2009.
 (9)
    
    Litigation and Contingencies
 The Company has pending legal claims incurred in the normal course of business which, in the
opinion of management, can be disposed of without material adverse effect on the financial
position or results of operation of the Company.
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LION OIL COMPANY AND SUBSIDIARIES
 (10)
    
    Environmental Matters
 In March 2003, with the consent of the Company, a Consent Decree (the Consent Decree) was
filed in the United States District Court for the Western District of Arkansas in the case of
United States of America and State of Arkansas v. Lion Oil Company. The Consent Decree
resulted from negotiations involving representatives of the Company, the Environmental
Protection Agency and the Arkansas Department of Environmental Quality with respect to a
possible settlement of issues concerning the application of Federal and state air quality
requirements to past and future operations of the Companys El Dorado, Arkansas petroleum
refinery. The Consent Decree was approved and entered by the Court on June 12, 2003. The
Consent Decree required capital investments by the Company of approximately $44.7 million for
the installation of certain pollution control and monitoring equipment at the Companys
refinery and requires changes in operational practices to reduce air emissions that go beyond
current regulatory requirements. At April 30, 2010, there are no remaining capital investments
expected to be incurred. In addition, the Consent Decree provides to the Company and its
subsidiaries releases from liability for enforcement actions that relate to possible issues
involving the application of air quality regulations at the Companys refinery. The Consent
Decree provides for the payment by the Company of agreed monetary penalties in the event of
noncompliance with specified requirements of the Consent Decree.
 The Company has completed an assessment process regarding possible remediation of active and
inactive surface impoundments on certain property located adjacent to the Companys petroleum
refinery and certain solid waste management units within the refinery for compliance with
environmental laws and regulations. The Company and its consulting engineers have investigated
the identified areas and submitted a Corrective Measures Study (CMS), which regulatory
authorities approved. As part of the CMS, a cost estimate was prepared for the proposed
remediation costs required to comply with the Companys hazardous waste permit and its RCRA
Corrective Action Program. Such remediation costs are anticipated to be incurred over the next
four to seven years. At April 30, 2010, the estimated remediation costs are estimated to fall
within the range of $4,700,000 to $6,600,000. At April 30, 2010 and 2009, the Company has
recorded liabilities of $5,525,000 and $10,965,000, respectively, in the accompanying
consolidated financial statements. At April 30, 2010, $3,564,000 of this liability was
recorded as a noncurrent liability and $1,961,000 was recorded as a current liability in
accrued expenses and other current liabilities. At April 30, 2009, $5,267,400 of this
liability was recorded as a noncurrent liability and $5,697,600 was recorded as a current
liability in accrued expenses and other current liabilities.
 On October 1, 1999, the Company entered into an agreement with the prior owner to share
certain costs and responsibilities associated with the implementation of the CMS which, in the
aggregate, should result in reimbursements to the Company of approximately $2,082,000 and
$4,490,000, respectively, at April 30, 2010 and 2009, of the anticipated remediation costs
outlined above. The Company has recorded a receivable in the accompanying consolidated
financial statements representing the estimated amount to be reimbursed by the former owner
under the CMS. At April 30, 2010, $1,442,200 of this receivable was recorded as a noncurrent
receivable and $639,800 was recorded as a current asset in other receivables. At April 30,
2009, $1,809,200 of this receivable was recorded as a noncurrent receivable and $2,680,800 was
recorded as a current asset in other receivables.
 During fiscal 2010, the Company decreased the remediation liability $5,440,000 and the
receivable from the prior refinery owner $2,408,000 based on revisions to the CMS and net
remediation payments. As a result, the pretax reduction to expense in fiscal 2010 was
$621,000. During fiscal 2009, the Company
decreased the remediation liability $3,535,000 and the receivable from the prior refinery
owner $1,410,000 based on revisions to the CMS and net remediation payments. As a result, the
pretax charge to expense in fiscal 2009 was $993,000.
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##### 



LION OIL COMPANY AND SUBSIDIARIES
 The above estimates of expenses and cost recovery are based on subjective factors, which are
sensitive and susceptible to change. There can be no assurance that the proposed CMS will be
completed within the cost estimates as outlined above. Therefore, it is reasonably possible
that the estimates will change in the near term due to one or more future confirming events.
 The Company must also comply with other environmental regulatory authorities in the normal
course of business which, in the opinion of management, can be met without material adverse
effect on the financial position of the Company.
 (11)
    
    Business, Credit, and Other Concentrations
 The Company sells a majority of its finished products to customers in the oil and gas industry
primarily in the southern United States. The Company performs on-going credit evaluations of
its customers and generally does not require collateral on accounts receivable. The Company
believes it maintains adequate allowances for any uncollectible accounts receivable, which
historically have been minimal.
 Approximately 38% of the Companys workforce is subject to a collective bargaining agreement
which expires August 1, 2011.
 (12)
    
    Fair Value of Financial Instruments
 The Companys financial instruments principally consist of cash and cash equivalents,
short-term trade receivables and payables, long-term debt, and various derivative instruments.
Due to their short-term nature, the fair value of trade receivables and payables approximates
their carrying value. The carrying value of the Companys long-term debt also approximates
fair value based on interest rates that are believed to be available to the Company for debt
with similar provisions provided for in the existing debt agreement. The fair value of natural
gas contracts and crude oil and refined product futures and options contracts approximates the
estimated settlement amounts. The fair value of natural gas contracts are estimated at their
settlement amounts (see note 13) and are considered Level II inputs in accordance with ASC
820.
 (13)
    
    Derivatives and Hedging Activities
 The Company uses futures and option contracts to reduce its exposure to the price volatility
of certain raw material components of refined gasoline products as well as sales of those
refined products. Increases or decreases in the fair value of the contracts generally offset
changes in spot market prices. Although they are typically settled in cash, these contracts
permit settlement by delivery of commodities. At April 30, 2010 and 2009, the Company had no
contracts to sell or purchase crude oil or refined products. The earnings effect of the market
value adjustment is recorded in cost of sales in the accompanying consolidated statements of
earnings (loss). Net gains/(losses) of approximately $(399,000) and $701,000 related to the
Companys derivative activities are recorded in cost of sales in the accompanying 2010 and
2009 consolidated statements of earnings (loss), respectively, as such activities generally
relate to raw material purchases.
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##### 



LION OIL COMPANY AND SUBSIDIARIES
 These contracts are executed on the New York Mercantile Exchange, expose the Company to
acceptable levels of market and credit risks, and may at times be concentrated with certain
counterparties or groups of counterparties. The credit worthiness of counterparties is subject
to continuing review and full performance is anticipated.
 The Company also uses futures contracts to manage its exposure to natural gas fluctuations.
These contracts are typically settled through delivery of the raw material; however, these
contracts permit settlement in cash. These contracts do not extend beyond a one year period.
The Company does not enter into these derivative instruments for speculative purposes. At
April 30, 2010, the Company had contracts to purchase 154,000 MMBTU (1 MMBTU = 1 million
British Thermal Units) of natural gas totaling approximately $613,000. At April 30, 2009, the
Company had contracts to purchase 720,000 MMBTU of natural gas totaling approximately
$6,015,000. At April 30, 2010, the fair value to settle these contracts approximated $32,000
and this asset was recorded in other assets in the accompanying 2010 consolidated balance
sheet. At April 30, 2009, the fair value to settle these contracts approximated ($3,788,000)
and this liability was recorded in accrued expenses and other current liabilities in the
accompanying 2009 consolidated balance sheet.
 (14)
    
    Sale of Trade Accounts Receivable
 The Company entered into an accounts receivable sale agreement (the Agreement) in February
2001 (subsequently amended in March 2010) with a related party whereby the Company sells on a
continuous basis all eligible trade accounts receivable. The related party, a special-purpose,
bankruptcy remote entity (the SPE), was formed under the laws of Mississippi for the sole
purpose of acquiring and selling accounts receivable generated by the Company and other
related parties. Under the terms of the Agreement, the Company transfers to the SPE all of the
Companys rights, title, and interest in the sold accounts receivables, and all monies due or
to become due with respect to the sold receivables. This Agreement is in connection with
certain accounts receivable securitization arrangements between other related parties and
affiliates of the Company.
 The purchase price for accounts receivable sold by the Company to the SPE is an amount equal
to the carrying value of the outstanding balance of any accounts receivable sold, less a
discount specified in the Agreement. The carrying value, less the specified discount,
represents the estimated fair value of the sold accounts receivable. In the event that an
outstanding balance of an account receivable sold to the SPE is reduced or canceled as a
result of rejected or returned goods or services, discounts or credits issued to the customer
after the transfer of the receivable to the SPE or as a result of a setoff in respect of any
claim by a third party, then the SPE is entitled to a purchase price credit for such
receivables. The Company retains servicing responsibilities for accounts receivable sold to
the SPE, and, as specified in the Agreement, the Company receives monthly servicing fees for
the servicing responsibilities retained under the Agreement. Servicing fees earned by the
Company were $204,000 in 2010 and 2009, respectively, and is included in miscellaneous other
income in the accompanying consolidated statements of earnings (loss).
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##### 



LION OIL COMPANY AND SUBSIDIARIES
 The Company sold approximately $1,972,000,000 and $2,492,000,000 in accounts receivable to the
SPE, which includes related excise tax, in fiscal 2010 and 2009, respectively. Net losses of
approximately $2,085,000 in 2010 and $2,657,000 in 2009 on the sales of accounts receivable to
the SPE, which principally consist of the discounts at which the accounts receivable are sold,
are included in miscellaneous other income in the accompanying consolidated statements of
earnings (loss). The Company also earned interest income on receivables from a related party
in connection with sold accounts receivable. Interest earned by the Company approximated
$1,881,000 and $2,453,000 during 2010 and 2009, respectively, and is included in miscellaneous
other income in the accompanying consolidated statements of earnings (loss).
 (15)
    
    Other Matters
 During August 2008, the Company incurred a business interruption due to a fire at its
refinery. The assets destroyed were fully depreciated at the time of the fire; therefore, no
loss resulted from the write-off of the related assets. The Company received insurance
proceeds of $1,353,621 related to property casualty losses and $5,465,635 related to its
business interruption claim for the August 2008 fire during the year ended April 30, 2010.
These amounts are classified in recoveries from insurance proceeds in the related 2010
consolidated statement of earnings (loss).
 (16)
    
    Subsequent Events
 The Company has evaluated subsequent events from the balance sheet date through September 8,
2010, the date at which the consolidated financial statements were available to be issued, and
determined there were no items to disclose.
  21