**LION OIL COMPANY AND SUBSIDIARIES**Consolidated Balance SheetApril 28, 2011(Unaudited)     **Assets**    Current assets:    Trade accounts and other receivables $7,464,180 Inventories  202,732,140 Receivable from related party  112,012,148 Refundable income taxes  193,218 Prepaid expenses and other current assets  10,611,315 Deferred income taxes  38,608     Total current assets  333,051,609     Property and equipment  358,042,849 Estimated environmental remediation costs recoverable from others  1,298,000 Deferred income taxes  4,438,593 Other receivables  3,739,085 Other assets  1,094,237     Total assets $701,664,373          **Liabilities and Stockholders’ Equity**         Current liabilities:    Book overdraft $2,948,074 Trade accounts payable  200,532,162 Accrued expenses and other current liabilities  28,540,732 Inventory due under finished product exchange agreements  4,113,211 Income tax payable  622,792     Total current liabilities  236,756,971     Term note payable to related party  323,605,179 Estimated environmental remediation liability  5,295,000 Stockholders’ equity:    Common stock of $0.10 par value. Authorized 12,000,000 shares;issued and outstanding 8,291,442 shares  829,144 Additional paid-in capital  8,217,190 Retained earnings  126,960,889     Total stockholders’ equity  136,007,223          Commitments and contingencies    Total liabilities andstockholders’ equity $701,664,373     See accompanying notes to consolidated financial statements.
 
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**LION OIL COMPANY AND SUBSIDIARIES**Consolidated Statement of OperationsPeriod from May 1, 2010 to April 28, 2011(Unaudited)     Net sales $2,790,050,928 Cost of sales  2,682,617,284        107,433,644  Depreciation and amortization  44,733,999 Operating expenses  15,391,538 General and administrative expenses  5,024,770 Marketing expenses  1,714,127 Impairment loss  234,300,000     Operating loss  (193,730,790)         Other income (expense):    Interest and other financing costs, netof amounts capitalized  (17,443,529)Miscellaneous, net  (213,795)       (17,657,324)    Loss before income taxes  (211,388,114)     Income tax benefit  80,718,507     Net loss $(130,669,607)    See accompanying notes to consolidated financial statements.
 
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**LION OIL COMPANY AND SUBSIDIARIES**Consolidated Statement of Stockholders’ EquityPeriod from May 1, 2010 to April 28, 2011(Unaudited)                               **Additional**      **Total**   **Common stock**  **paid-in**  **Retained**  **stockholders’**   **Shares**  **Amount**  **capital**  **earnings**  **equity** Balance at April 30, 2010  8,291,442  $829,144   8,217,190   257,630,496   266,676,830 Net loss  —   —   —   (130,669,607)  (130,669,607)                Balance at April 28, 2011  8,291,442  $829,144   8,217,190   126,960,889   136,007,223                 See accompanying notes to consolidated financial statements.
 
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**LION OIL COMPANY AND SUBSIDIARIES**Consolidated Statement of Cash FlowsPeriod from May 1, 2010 to April 28, 2011(Unaudited)     Decrease in cash and cash equivalents:    Cash flows from operating activities:    Cash received from customers and sales ofaccounts receivable $2,780,339,857 Cash paid to suppliers and employees  (2,673,323,709)Interest received  105,599 Other operating income received  178,793 Interest paid  (17,443,529)Income taxes received, net  43,823,818     Net cash provided by operating activities  133,680,829     Cash flows from investing activities:    Capital expenditures  (19,306,692)    Net cash used in investing activities  (19,306,692)    Cash flows from financing activities:    Proceeds from related party financing agreement  1,530,456,953 Repayments on related party financing agreement  (1,662,219,825)Increase in book overdraft  2,948,074     Net cash used in financing activities  (128,814,798)    Net (decrease) in cash and cashequivalents  (14,440,661)Cash and cash equivalents at beginning of period  14,440,661     Cash and cash equivalents at end of period $—     
 
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**LION OIL COMPANY AND SUBSIDIARIES**Consolidated Statement of Cash FlowsPeriod from May 1, 2010 to April 28, 2011(Unaudited)     Reconciliation of net loss to net cash provided byoperating activities:    Net loss $(130,669,607)Adjustments:    Depreciation and amortization  44,733,999 Impairment loss  234,300,000 Amortization of deferred financing costs  345,463 Deferred income taxes  (88,158,264)Gain from sale of equipment  498,187 Change in LIFO reserve  22,062,538 Changes in operating assets and liabilities:    Trade accounts and other receivables  10,585,092 Receivable from related party  (20,296,163)Inventories  (58,849,888)Refundable income taxes  50,378,683 Income taxes payable  622,792 Prepaid expenses and other current assets  (867,545)Other assets  (328,399)Trade accounts payable  60,533,884 Accrued expenses and other current liabilities  4,781,413 Environmental remediation liability and receivable  2,340,500 Inventory due under finished product exchange agreements  1,668,144     Net cash provided by operating activities $133,680,829     See accompanying notes to consolidated financial statements.
 
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**LION OIL COMPANY AND SUBSIDIARIES**Notes to Consolidated Financial StatementsApril 28, 2011(Unaudited)**(1)** **Nature of Business and Summary of Significant Accounting Policies**  Lion 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, productterminals, and related equipment principally located in Arkansas, Louisiana, Tennessee,Mississippi, and Texas.  The consolidated financial statements are as of April 28, 2011 and for the period from May 1,2010 to April 28, 2011 (the Period). ***(a)*** ***Basis of Financial Statement Presentation***    The consolidated financial statements include the accounts of the Company and its whollyowned subsidiaries, J. Christy Construction Co., Inc., a maintenance and constructionbusiness, Lion Oil Trading and Transportation, Inc. (LOTT), a crude oil purchasing anddistribution business, and the following three pipeline operating subsidiaries: MagnoliaPipeline Company, El Dorado Pipeline Company and Paline Pipeline Company. All significantintercompany balances and transactions have been eliminated in consolidation. At April28, 2011, the Company is a majority owned subsidiary of Ergon, Inc. (Ergon).    On April 29, 2011, Ergon sold a 53.7% equity interest in the Company to Delek USHoldings, Inc. (Delek) (see note 15). These unaudited consolidated financial statementspresent the financial position of the Company before the sale transaction and do notconsider any of the closing transactions on April 29, 2011.  ***(b)*** ***Inventories***    Finished inventories and products in process are stated at the lower of cost (FIFO) ormarket. At April 28, 2011, crude oil inventories are stated at the lower of cost (LIFO)or market. Had cost been determined on the FIFO method at April 28, 2011, crude oilinventories would have been higher by approximately $78,160,000. At April 28, 2011,approximately 6%, of the value of the Company’s inventories are recorded on the LIFOmethod.    Finished petroleum products due from third parties under exchange agreements are includedin inventories and recorded at estimated current cost. Finished petroleum products due tothird parties under exchange agreements are recorded at estimated current cost.Adjustments resulting from changes in current cost for refined products due to or fromthird parties under exchange agreementsare reflected in cost of sales. The exchange agreements are generally short-term and aresettled by delivering product to or receiving product from the party to the exchange.  ***(c)*** ***Property and Equipment***    Depreciation of equipment is provided over the estimated useful lives of the respectiveassets (buildings and improvements ranging from 7 to 39 years; refinery and equipmentranging from 2 to 30 years; pipelines and equipment ranging from 7 to 30 years; terminalsand equipment ranging from 5 to 15 years; tractors, trailers and automobiles ranging from5 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.(Continued)
 
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**LION OIL COMPANY AND SUBSIDIARIES**Notes to Consolidated Financial StatementsApril 28, 2011(Unaudited) ***(d)*** ***Revenue Recognition***    Revenues from the sale of finished products and exchanges of product that culminate theearnings process are recorded at the time title and risk of ownership pass.    Exchanges of product that do not culminate the earnings process are recorded as inventoryand liabilities with no effect on earnings. Inventories under product exchange agreementsconsisted primarily of finished petroleum products at April 28, 2011.    Excise taxes collected from customers and remitted to governmental authorities areaccounted for on a net basis and, therefore, are excluded from revenues in theconsolidated statement of operations.  ***(e)*** ***Terminaling Costs***    Costs related to terminaling finished products are included in operating expenses in theaccompanying consolidated financial statements. These costs were approximately $4,400,000for the Period.  ***(f)*** ***Deferred Turnaround Costs***    Turnaround costs for major production units of the refinery are deferred and amortizedover the period benefited, generally two to four years. Insignificant turnaround costsare charged to expense as incurred. Deferred turnaround costs are included in propertyand equipment in the consolidated balance sheet.  ***(g)*** ***Income Taxes***    The Company accounts for income taxes using the asset and liability method, under whichdeferred tax assets and liabilities are recognized for the future tax consequencesattributable to differences between the financial statement carrying amounts of existingassets and liabilities and their respective tax bases, and operating loss and tax creditcarryforwards. Deferred tax assets and liabilities are measured using enacted tax ratesexpected to apply to taxable income in the years in which those temporary differences areexpected to be recovered or settled. The effect on deferred tax assets and liabilities ofa change in tax rates is recognized in income in the period that includes the enactmentdate.    The Company applies Financial Accounting Standards Board (FASB) Interpretation No. 48,*Accounting for Uncertainty in Income Taxes*, included in FASB Accounting StandardsCodification (ASC) Subtopic 740-10 — *Income Taxes Overall. T*he Company recognizes theeffect of income tax positions only if those positions are more likely than not of beingsustained. Recognized income tax positions are measured at the largest amount that isgreater than 50% likely of being realized. Changes in recognition or measurement arereflected in the period in which the change in judgment occurs.    The Company records interest expense and penalties related to unrecognized tax benefitsin income tax expense.(Continued)
 
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**LION OIL COMPANY AND SUBSIDIARIES**Notes to Consolidated Financial StatementsApril 28, 2011(Unaudited) ***(h)*** ***Cash Equivalents***    The Company considers interest bearing accounts with an original maturity of three monthsor less to be cash equivalents.  ***(i)*** ***Deferred Financing Costs***    Deferred financing costs are amortized using the straight-line method over the term ofthe related debt agreements. Amortization under the straight-line method approximatesthat of the effective interest method. Amortization of such costs is included in interestand other financing costs in the accompanying consolidated financial statements.  ***(j)*** ***Use of Estimates***    The preparation of financial statements in conformity with U.S. generally acceptedaccounting principles requires management to make estimates and assumptions that affectthe reported amounts of assets and liabilities and disclosures of contingent assets andliabilities at the date of the financial statements and the reported amounts of revenuesand expenses during the reporting period. Actual results could differ from thoseestimates.    Material estimates that are particularly susceptible to change relate to estimatedenvironmental remediation costs and estimated recoveries of such costs from others.  ***(k)*** ***Long-Lived Assets***    The Company applies the provisions of FASB ASC 360-10, *Property, Plant and Equipment —Overall*. In accordance with ASC 360-10, long-lived assets, such as property andequipment, and purchased intangibles subject to amortization, are reviewed for impairmentwhenever events or circumstances indicate that the carrying amount of an asset may not berecoverable. Recoverability of assets to be held and used is measured by a comparison ofthe carrying amount of an asset to estimated undiscounted future cash flows expected tobe generated by the asset. If the carrying amount of an asset exceeds its estimatedfuture cash flows, an impairment charge is recognized for the amount by which thecarrying amount of the asset exceeds the fair value of the asset. Assets to be disposedof would be separately presented in the balance sheet and reported at the lower of thecarrying amount or fair value less costs to sell, and are no longer depreciated. Theassets and liabilities of an asset group classified as held for sale would be presentedseparately in theappropriate asset and liability sections of the balance sheet. Due to triggering eventsdiscussed in note 15, the Company recorded an impairment charge of $234,300,000 duringthe Period.(Continued)
 
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**LION OIL COMPANY AND SUBSIDIARIES**Notes to Consolidated Financial StatementsApril 28, 2011(Unaudited) ***(l)*** ***Environmental Matters***    The Company is subject to Federal, state, and local environmental laws and regulations.These laws, which are subject to change, regulate the discharge of materials into theenvironment, and may require the Company to remove or mitigate the environmental effectsof the disposal, or release of petroleum or chemical substances. Any future changes inenvironmental regulations could have an impact on the Company’s financial position. TheCompany applies ASC 410-30, *Asset Retirement and Environmental Obligations*. ASC 410-30establishes authoritative guidance regarding the recognition, measurement, and disclosureof environmental remediation liabilities. Environmental expenditures are expensed orcapitalized depending on their future economic benefit. Expenditures that relate to anexisting condition caused by past operations and that have no future economic benefitsare expensed. Liabilities for expenditures of a noncapital nature are recorded on anundiscounted basis when environmental assessment and/or remediation is probable, and thecosts can be reasonably estimated. Such liabilities are adjusted as further informationdevelops or circumstances change. Estimated recoveries of costs from other parties arerecorded on an undiscounted basis as assets when their realization is deemed probable.  ***(m)*** ***Asset Retirement Obligations***    The Company applies the provisions of ASC 410-30, *Asset Retirement and EnvironmentalObligations*. ASC 410-30 requires that the fair value of an asset retirement obligation(ARO) be recorded as a liability in the period in which a legal obligation is incurredassociated with the retirement of tangible long-lived assets that result from theacquisition, construction, development, and/or normal use of the assets. A correspondingasset that is depreciated over the life of the related long-lived asset is also recorded.Subsequent to the initial measurement of the asset retirement obligation, the liabilityis adjusted at the end of each reporting period to reflect the passage of time andchanges in the estimated future cash flows underlying the obligation. The Company has notrecorded an ARO because sufficient information is presently not available to estimate arange of potential settlement dates for the obligation. Refining assets are consistentlybeing upgraded and are expected to be operational into the foreseeable future. Theobligation will be initially recognized in the period in which sufficient informationexists to estimate the obligation.    The Company applies the provisions of ASC 410-30, *Asset Retirement and EnvironmentalObligations*, which requires conditional asset retirement obligations to be recognized ifa legal obligation exists to perform asset retirement activities and a reasonableestimate of the fair value of the obligation can be made. ASC 410-30 also providesguidance as to when an entity would have sufficient information to reasonably estimatethe fair value of an asset retirement obligation. At April 28, 2011, no conditional assetretirement obligation was required to be recognized.  ***(n)*** ***Derivative Financial Instruments***    The Company accounts for its raw material and finished product futures and optionscontracts in accordance with the provisions of ASC 815, *Derivatives and Hedging*. ASC 815establishesaccounting and reporting standards for derivative instruments and for hedging activities.All derivatives are required to be recognized as either assets or liabilities andmeasured at fair value (marked-to-market). Changes in fair value are reported either inearnings or other comprehensive income depending on the intended use of the derivativeinstrument and the resulting designation. Entities applying hedge accounting are requiredto establish at the inception of the hedge the method used to assess the effectiveness ofthe hedging derivative and the measurement approach for determining any ineffectiveaspect of the hedge. At April 28, 2011, the Company elected not to designate itsderivatives as hedge instruments; therefore, changes in the fair value of the derivativesare recorded each period in current earnings.(Continued)
 
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**LION OIL COMPANY AND SUBSIDIARIES**Notes to Consolidated Financial StatementsApril 28, 2011(Unaudited) ***(o)*** ***Recent Accounting Pronouncements***    The FASB issued ASU 2009-16, *Transfers and Servicing*(Topic 860): *Accounting forTransfers of Financial Assets*(FASB Statement No. 166, *Accounting for Transfers ofFinancial Assets — an amendment of FASB Statement No. 140*) in December 2009. ASU 2009-16removes the concept of a qualifying special-purpose entity (QSPE) from ASC Topic 860, andthe exception from applying ASC 810-10 to QSPEs, thereby requiring transferors offinancial assets to evaluate whether to consolidate transferees that previously wereconsidered QSPEs. Transferor-imposed constraints on transferees whose sole purpose is toengage in securitization or asset-backed financing activities are evaluated in the samemanner under the provisions of the ASU as transferor-imposed constraints on QSPEs wereevaluated under the provisions of Topic 860 prior to the effective date of the ASU whendetermining whether a transfer of financial assets qualifies for sale accounting. The ASUalso clarifies the Topic 860 sale-accounting criteria pertaining to legal isolation andeffective control and creates more stringent conditions for reporting a transfer of aportion of a financial asset as a sale. The ASU was effective for periods beginning afterDecember 15, 2009, and could not be early adopted. The Company adopted this standard onMay 1, 2010 and the adoption did not impact the 2011 consolidated financial statements.    In June 2009, the FASB issued FASB No. 167, *Amendments to FASB Interpretation No. 46(R)*.FASB No. 167 amends FIN 46(R), *Consolidation of Variable Interest Entities*, and changesthe consolidation guidance applicable to a variable interest entity (VIE). It also amendsthe guidance governing the determination of whether an enterprise is the primarybeneficiary of a VIE, and is, therefore, required to consolidate an entity, by requiringa qualitative analysis rather than a quantitative analysis. The qualitative analysis willinclude, among other things, consideration of who has the power to direct the activitiesof the entity that most significantly impact the entity’s economic performance and whohas the obligation to absorb losses or the right to receive benefits of the VIE thatcould potentially be significant to the VIE. This standard also required continuousreassessments of whether an enterprise was the primary beneficiary of a VIE only whenspecific events had occurred. QSPEs, which were previously exempt from the application ofthis standard, will be subject to the provisions of this standard when it becomeseffective. FASB No. 167 also requires enhanced disclosures about an enterprise’sinvolvement with a VIE. FASB No. 167 was effective for periods that begin after November15, 2009. The Company adopted this standard effective May 1, 2010 and the adoption didnot impact the 2011 consolidated financial statements.(Continued)
 
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**LION OIL COMPANY AND SUBSIDIARIES**Notes to Consolidated Financial StatementsApril 28, 2011(Unaudited)**(2)** **Inventories**  A summary of inventories at April 28, 2011 follows:     Finished petroleum products $156,418,667 Finished petroleum products under exchange agreements  4,113,211 Crude oil  91,108,577 Intermediates  24,017,223 Raw materials and supplies  5,234,230        280,891,908 Less LIFO reserve  78,159,768       $202,732,140     **(3)** **Property and Equipment**  A summary of property and equipment at April 28, 2011 follows:     Land $7,243,000 Buildings and improvements  6,279,000 Refinery and equipment  214,546,975 Pipelines and equipment  98,207,000 Terminals and equipment  5,533,000 Other equipment  12,176,874 Construction in progress  14,057,000       $358,042,849       Due to the sale transaction discussed further in note 15, the Company performed an impairmentanalysis of property and equipment and recorded an impairment charge of $234,300,000 duringthe Period. At April 28, 2011, the Company has recorded property and equipment at estimatedfair value based on an independent appraisal. Therefore, there was no accumulated depreciationat April 28, 2011.  Construction in progress consists primarily of costs incurred for refinery improvements. TheCompany estimates that it will incur approximately $25,000,000 to complete projects inprogress at April 28, 2011.  The Company capitalizes interest costs as a component of the cost of construction in progress.Interest costs capitalized approximated $195,000 during the Period.(Continued)
 
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**LION OIL COMPANY AND SUBSIDIARIES**Notes to Consolidated Financial StatementsApril 28, 2011(Unaudited)**(4)** **Leases**  As of April 28, 2011, minimum lease payments due under noncancelable operating leases are asfollows:     Year ended April 30:    2012 $1,039,690 2013  648,445 2014  78,918 2015  42,000 2016  42,000     Total minimum lease payments $1,851,053       Most of the Company’s leases require the Company to pay taxes, maintenance, and insuranceapplicable to the leased properties.  The Company recognizes rent expense on the straight-line method. Rent expense under operatingleases was approximately $5,139,000 for the Period.**(5)** **Income Taxes**  Components of income tax expense (benefit) are as follows for the Period:               **Federal**  **State**  **Total** Current $6,853,161   586,596   7,439,757 Deferred  (74,719,386)  (13,438,878)  (88,158,264)            $(67,866,225)  (12,852,282)  (80,718,507)            Income tax benefit of $(80,718,507) for the Period (effective rate of 38.2%) differs from theexpected amounts, computed by applying the U. S. Federal corporate rate of 34% to pretax loss,as follows:     Computed expected tax benefit $(71,871,959)Increases (decreases) resulting from:    State income taxes (net of Federal income taxes)  (8,482,506)Other  (364,042)      $(80,718,507)    (Continued)
 
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**LION OIL COMPANY AND SUBSIDIARIES**Notes to Consolidated Financial StatementsApril 28, 2011(Unaudited)  The tax effects of temporary differences that give rise to the deferred tax assets anddeferred tax liabilities at April 28, 2011 are presented below:     Deferred tax assets:    Estimated environmental remediation liability, net ofestimated recovery, due to deferral for tax purposes $2,709,808 Inventories, principally due to additional costs inventoriedfor tax purposes  38,608 State net operating loss carryforwards  4,081,907 Capital loss carryforward  600,753 AMT credit carryforward  7,914,441 Ultra low sulfur diesel credit carryforward  21,531,298     Total gross deferred tax assets  36,876,815          Deferred tax liabilities:    Equipment, principally due to differences in depreciation  15,751,814 Deferred turnaround costs  16,647,800     Total gross deferred tax liabilities  32,399,614     Net deferred tax asset $4,477,201       The net deferred tax asset of $4,477,201 as of April 28, 2011 is reflected in theconsolidated balance sheet as a current asset of $38,608 and a noncurrent asset of $4,438,593.  The Company has determined, based on its history of profitable operations and expectations forthe future, that the deferred tax assets will more likely than not be fully realized and thatno valuation allowance is necessary at April 28, 2011.  At April 28, 2011, the Company had various state net operating loss carryforwards ofapproximately $104,302,000, which were available to offset future taxable income over periodsranging from three to fifteen years as determined by applicable taxing jurisdictions.**(6)** **Term Note Payable to Related Party**  A summary of long-term debt at April 28, 2011 follows:     Term note payable to related party $323,605,179     Total long-term debt $323,605,179       The Company has entered into an unsecured, long-term financing agreement between the Companyand Ergon, the Company’s largest stockholder. Borrowings by the Company under this financingagreement were $323,605,179 at April 28, 2011. The interest rate on borrowings under thisagreement is based on ablended rate of Ergon’s consolidated credit facilities (4.539% at April 28, 2011). Theprincipal balance outstanding under this agreement is due February 23, 2013. The Company hasthe ability to prepay some or all of the outstanding borrowings under this financing agreementand has exercised this prepayment option in the past.(Continued)
 
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**LION OIL COMPANY AND SUBSIDIARIES**Notes to Consolidated Financial StatementsApril 28, 2011(Unaudited)  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 seniornotes payable between Ergon and several commercial lending institutions. Certain of Ergon’ssubsidiaries, including the Company, are jointly and severally liable for outstandingobligations related to these financing agreements. Obligations under Ergon’s financingagreements for which the Company is a guarantor, consisted of borrowings of approximately$456,572,000 and outstanding letters of credit of approximately$132,000,000 at April 28,2011. 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 ofinstitutional investors. These notes are due in equal annual principal installments whichbegan on May 31, 2006 and continue through May 31, 2011. On February 10, 2005, Ergonissued $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 andcontinue 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 annualprincipal installments beginning May 20, 2010 and continue through May 20, 2018. OnFebruary 11, 2010, Ergon issued $50,000,000 of 6.64% senior notes payable to a group ofinstitutional investors. These notes are due on February 11, 2018 and interest paymentsare due quarterly. The notes also contain certain restrictive covenants. Certain ofErgon’s subsidiaries, including the Company, are jointly and severally liable foroutstanding borrowings related to these notes. **•** On March 10, 2008, Ergon entered into a $575,000,000 credit agreement with a group oflenders. The credit agreement expires in March 2013. The credit agreement containscertain restrictive covenants. Certain of Ergon’s subsidiaries, including the Company,are jointly and severally liable for outstanding borrowings related to this agreement.  At April 28, 2011, Ergon has secured approximately $121,226,000 in outstanding letters ofcredit on behalf of the Company. This amount is included in the total outstanding letters ofcredit discussed in the preceding paragraph. These letters of credit consist of five lettersof credit to various vendors approximating $22,707,000 and letters of credit issued in favorof the Company’s principal crude oil suppliers approximating $98,519,000 (expiration dates inMay 2011). The Company pays fees on these letters of credit at rates ranging from 0.875% to1.75% of the face amount of the letter of credit, depending on the applicable interest rate ineffect under the credit agreement between Ergon and its lenders. Letter of credit fees ofapproximately $1,716,000 were paid by the Company during the Period and are included ininterest and other financing costs (net of interest capitalized) in the accompanyingconsolidated statement of operations.(Continued)
 
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**LION OIL COMPANY AND SUBSIDIARIES**Notes to Consolidated Financial StatementsApril 28, 2011(Unaudited)**(7)** **Management Contract and Related Party Transactions**  The Company is managed by Ergon under a management contract whereby Ergon is paid a managementfee by the Company. The fee is based on a percentage of earnings before income taxes. At April28, 2011 and during the Period, no management fees were payable. In the event of terminationof the management contract by the Company without cause or by mutual agreement of the Companyand Ergon, Ergon has the right, at its option, to purchase common stock of the Company equalto 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 andits subsidiaries as well as other stockholders of the Company. The Company’s managementbelieves these transactions are at prevailing market prices.  Related party balances and transactions as of April 28, 2011 and for the Period follow(approximate amounts):     Ergon and its subsidiaries:    Asphalt sales $61,338,000 Light oil sales  190,000 Interest income  2,843,000 Other sales  50,000 Interest expense  17,223,000 Net purchases  9,968,000 Transportation expenses  184,000 Data processing fees  1,067,000 Net amounts due to Ergon  208,000 Receivable from Ergon  112,012,000 Note payable to Ergon  323,605,000      Long Brothers Oil Company:    Light oil sales  99,000 Crude oil purchases  6,700,000 Net amounts due to Long Brothers OilCompany  781,000      Delek:    Light oil sales  12,972,000 Crude oil purchases  5,730,000 Net amounts due from Delek  647,000 **(8)** **Defined Contribution Plan**  The Company has a qualified defined contribution profit sharing and 401(k) plan coveringsubstantially all permanent full-time employees. The Company makes annual contributions to theprofit sharing plan inamounts determined by the board of directors. The Company matches employee 401(k)contributions based upon a stipulated percentage determined by the board of directors. Duringthe Period, the expense associated with the plan was approximately $2,036,000. The profitsharing contribution approved by the Company’s board of directors was 6% for the Period.(Continued)
 
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**LION OIL COMPANY AND SUBSIDIARIES**Notes to Consolidated Financial StatementsApril 28, 2011(Unaudited)**(9)** **Litigation and Contingencies**  The Company has been named as a defendant in two lawsuits related to crude oil supplycontracts with two of its vendors. These complaints allege that the Company breached certainof its obligations under buy/sell agreements to exchange crude oil. During the Period, thetrial court dismissed claims on four of the five agreements in dispute with one of thevendors. The dismissal is currently on appeal and the claim against the remaining agreementhas been stayed pending the outcome of the appeal. There have been no significant recentdevelopments in the lawsuit with the other vendor.The aggregate potential loss on these two lawsuits ranges from zero toapproximately $22,000,000, plus interest and legal fees.  At April 28, 2011, the Company’s management believes, based on consultation with legal counseland management’s evaluation, that (i) the final resolution of pending legal proceedingsdescribed above will not, individually or in aggregate, have a material impact on theCompany’s consolidated financial position or results of operations and (ii) a loss is notprobable. At April 28, 2011, no reserve has been recorded in the consolidated financialstatements related to these matters.  The Company also has other pending legal claims incurred in the normal course of businesswhich, in the opinion of management, can be disposed of without material adverse effect on thefinancial position or results of operation of the Company.**(10)** **Environmental Matters**  In March 2003, with the consent of the Company, a Consent Decree (the Consent Decree) wasfiled in the United States District Court for the Western District of Arkansas in the case ofUnited States of America and State of Arkansas v. Lion Oil Company. The Consent Decreeresulted from negotiations involving representatives of the Company, the EnvironmentalProtection Agency and the Arkansas Department of Environmental Quality with respect to apossible settlement of issues concerning the application of Federal and state air qualityrequirements to past and future operations of the Company’s El Dorado, Arkansas petroleumrefinery. The Consent Decree was approved and entered by the Court on June 12, 2003. TheConsent Decree required capital investments by the Company of approximately $44.7 million forthe installation of certain pollution control and monitoring equipment at the Company’srefinery and requires changes in operational practices to reduce air emissions that go beyondcurrent regulatory requirements. At April 28, 2011, there are no remaining capital investmentsexpected to be incurred. In addition, the Consent Decree provides to the Company and itssubsidiaries releases from liability for enforcement actions that relate to possible issuesinvolving the application of air quality regulations at the Company’s refinery. The ConsentDecree provides for the payment by the Company of agreed monetary penalties in the event ofnoncompliance with specified requirements of the Consent Decree.  The Company has completed an assessment process regarding possible remediation of active andinactive surface impoundments on certain property located adjacent to the Company’s petroleumrefinery and certain solid waste management units within the refinery for compliance withenvironmental laws andregulations. The Company and its consulting engineers have investigated the identified areasand submitted a Corrective Measures Study (CMS), which regulatory authorities approved. Aspart of the CMS, a cost estimate was prepared for the proposed remediation costs required tocomply with the Company’s hazardous waste permit and its RCRA Corrective Action Program. Suchremediation costs are anticipated to be incurred over the next four to seven years. At April28, 2011, the estimated remediation costs are estimated to fall within the range of $4,700,000to $6,600,000. At April 28, 2011, the Company has recorded liabilities of $6,563,000, in theaccompanying consolidated financial statements. At April 28, 2011, $4,845,000 of thisliability was recorded as a noncurrent liability and $1,718,000 was recorded as a currentliability in accrued expenses and other current liabilities.(Continued)
 
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**LION OIL COMPANY AND SUBSIDIARIES**Notes to Consolidated Financial StatementsApril 28, 2011(Unaudited)  On October 1, 1999, the Company entered into an agreement with the prior owner to sharecertain costs and responsibilities associated with the implementation of the CMS which, in theaggregate, should result in reimbursements to the Company of approximately $1,524,000, atApril 28, 2011, of the anticipated remediation costs outlined above. The Company has recordeda receivable in the accompanying consolidated financial statements representing the estimatedamount to be reimbursed by the former owner under the CMS. At April 28, 2011, $1,298,000 ofthis receivable was recorded as a noncurrent receivable and $226,000 was recorded as a currentasset in other receivables.  The above estimates of expenses and cost recovery are based on subjective factors, which aresensitive and susceptible to change. There can be no assurance that the proposed CMS will becompleted within the cost estimates as outlined above. Therefore, it is reasonably possiblethat 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 normalcourse of business which, in the opinion of management, can be met without material adverseeffect on the financial position of the Company. At April 28, 2011, the Company accrued$744,500 related to other environmental liabilities ($294,500 in accrued expenses and othercurrent liabilities and $450,000 in a noncurrent liability).**(11)** **Business, Credit, and Other Concentrations**  The Company sells a majority of its finished products to customers in the oil and gas industryprimarily in the southern United States. The Company performs on-going credit evaluations ofits customers and generally does not require collateral on accounts receivable. The Companybelieves it maintains adequate allowances for any uncollectible accounts receivable, whichhistorically have been minimal. At April 28, 2011, the Company’s management did not believethat an allowance for uncollectible accounts was necessary.  Approximately 37% of the Company’s workforce is subject to a collective bargaining agreementwhich 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 approximatestheir carrying value. The carryingvalue of the Company’s long-term debt also approximates fair value based on interest ratesthat are believed to be available to the Company for debt with similar provisions provided forin the existing debt agreement.(Continued)
 
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**LION OIL COMPANY AND SUBSIDIARIES**Notes to Consolidated Financial StatementsApril 28, 2011(Unaudited)**(13)** **Derivatives and Hedging Activities**  The Company uses futures and option contracts to reduce its exposure to the price volatilityof certain raw material components of refined gasoline products as well as sales of thoserefined products. Increases or decreases in the fair value of the contracts generally offsetchanges in spot market prices. Although they are typically settled in cash, these contractspermit settlement by delivery of commodities. At April 28, 2011, the Company had no contractsto sell or purchase crude oil or refined products. The earnings effect of the market valueadjustment is recorded in cost of sales in the accompanying consolidated statement ofoperations. Net gains/(losses) of approximately $1,433,000 related to the Company’s derivativeactivities are recorded in cost of sales in the accompanying consolidated statement ofoperations, as such activities generally relate to raw material purchases.  These contracts are executed on the New York Mercantile Exchange, expose the Company toacceptable levels of market and credit risks, and may at times be concentrated with certaincounterparties or groups of counterparties. The credit worthiness of counterparties is subjectto 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, thesecontracts 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. AtApril 28, 2011, the Company had no futures contracts outstanding.**(14)** **Sale of Trade Accounts Receivable**  The Company entered into an accounts receivable sale agreement (the Agreement) in February2001 (subsequently amended in March 2010) with a related party whereby the Company sells on acontinuous 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 solepurpose of acquiring and selling accounts receivable generated by the Company and otherrelated parties. The SPE is not a subsidiary of the Company. Under the terms of the Agreement,the Company transfers to the SPE all of the Company’s rights, title, and interest in the soldaccounts receivables, and all monies due or to become due with respect to the soldreceivables. This Agreement is in connection with certain accounts receivable securitizationarrangements 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 equalto the carrying value of the outstanding balance of any accounts receivable sold, less adiscount 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 anoutstanding balance of an account receivable sold to the SPE is reduced or canceled as aresult of rejected or returned goods or services, discounts or credits issued to the customerafter the transfer of the receivable to the SPE or as a result of a setoff in respect of anyclaim by a third party, then the SPE is entitled to a purchase price credit for suchreceivables. The Company retainsservicing responsibilities for accounts receivable sold to the SPE, and, as specified in theAgreement, the Company receives monthly servicing fees for the servicing responsibilitiesretained under the Agreement. Servicing fees earned by the Company were $204,000 during thePeriod, and is included in miscellaneous other income in the accompanying consolidatedstatement of operations.(Continued)
 
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**LION OIL COMPANY AND SUBSIDIARIES**Notes to Consolidated Financial StatementsApril 28, 2011(Unaudited)  The Company sold approximately $2,882,000,000 in accounts receivable to the SPE, whichincludes related excise tax, during the Period. Net losses of approximately $3,047,000 duringthe Period on the sales of accounts receivable to the SPE, which principally consist of thediscounts at which the accounts receivable are sold, are included in miscellaneous otherincome in the accompanying consolidated statement of operations. The Company also earnedinterest income on receivables from a related party in connection with sold accountsreceivable. Interest earned by the Company approximated $2,843,000 during the Period, and isincluded in miscellaneous other income in the accompanying consolidated statement ofoperations.**(15)** **Subsequent Events**  The Company has evaluated subsequent events from the balance sheet date through July 15, 2011,the date at which the consolidated financial statements were available to be issued, anddetermined that the sale of the Company to Delek discussed below was the only item todisclose.  On April 29, 2011, Delek purchased an additional 53.7% equity interest in the Company andthrough this acquisition obtained a consolidating position in the Company. Delek purchased theshares of the Company from Ergon in return for a combination of cash, stock and the payment orreplacement of all debt currently owed by the Company to Ergon, including the following: (a)Delek issued 3,292,844 restricted shares of its common stock, par value $0.01 per share, toErgon; (b) Delek and the Company made cash payments in the aggregate amount of $50.0 millionto Ergon; (c) the Company executed a new $50.0 million term note payable to Ergon that isguaranteed by Delek; (d) the Company transferred its interests in a pipeline subsidiary toErgon; and (e) the Company paid approximately $32.0 million to Ergon representing the adjustednet working capital of the Company and certain subsidiaries, in payment of outstanding Company debt. In addition, the Company divested certain other non-refining assets to or forthe benefit of Ergon.  Also in conjunction with the sale, the Company entered into a $100.0 million term loan creditfacility (“Term Loan Facility”) with Israeli Discount Bank of New York, Bank Hapoalim B.M. andBank Leumi USA as the lenders. The Term Loan Facility matures on April 29, 2016, and issecured by all assets of the Company (excluding inventory and accounts receivable) as well asall shares of the Company held by Delek. Interest on the unpaid balance of the Term LoanFacility will be computed at a rate per annum equal to the LIBOR Rate plus 4.50%, or theReference Rate plus 3.50%, but shall in each case be no less than 5.50% per annum. The TermLoan Facility requires the Company to make quarterly interest payments commencing June 30,2011 (or, with respect to LIBOR Rate Loans, at the end of each applicable Interest Period) andfour quarterly amortization payments of $1.5 million each commencing June 30, 2011, followedby sixteen quarterly principal amortization payments of $4.0 million each. The remainingprincipal amount is payable at maturity.(Continued)
 
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**LION OIL COMPANY AND SUBSIDIARIES**Notes to Consolidated Financial StatementsApril 28, 2011(Unaudited)  The Company also entered into a Master Supply and Offtake Agreement (“Supply and OfftakeAgreement”) with J Aron & Company (“J Aron”). At the closing of the acquisition of the sharesof the Company, J Aron purchased substantially all of the crude oil and products in theCompany’s inventory at market prices. Pursuant to the Supply and Offtake Agreement, theCompany and J Aron will identify mutually acceptable contracts for the purchase of crude oilfrom third parties and J Aron will supply up to 100,000 barrels per day of crude to the ElDorado Refinery. Crude oil supplied to the El Dorado Refinery by J Aron will be purchased atan average monthly market price by the Company. Also pursuant to the Supply and OfftakeAgreement and other related agreements, the Company will endeavor to arrange potential salesby either the Company or J Aron to third parties of the products produced at the El DoradoRefinery. In instances where the Company is the seller to such third parties, J Aron willfirst sell the applicable products to the Company. The Supply and Offtake Agreement expires onApril 29, 2014. While title of the inventories will reside with J Aron, this arrangement willbe accounted for as a financing.
 
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