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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 Form 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 FOR THE TRANSITION PERIOD FROM  TO
 Commission file number: 001-32567
 
 Alon USA Energy, Inc.
 (Exact name of Registrant as specified in its charter)
 
 Delaware
    
    74-2966572(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 (Address of principal executive offices) (Zip Code)
 (Registrants telephone number, including area code)
 
 þ o
  o þ o
 o þ




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##### 



PART I. FINANCIAL INFORMATION
    
    
    1ITEM 1. FINANCIAL STATEMENTS
    
    
    1CONSOLIDATED BALANCE SHEETS
    
    
    1CONSOLIDATED STATEMENTS OF OPERATIONS
    
    
    2CONSOLIDATED STATEMENTS OF CASH FLOWS
    
    
    3NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    
    
    4ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
    
    
    21FORWARD-LOOKING STATEMENTS
    
    
    21ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    46ITEM 4. CONTROLS AND PROCEDURES
    
    
    47PART II. OTHER INFORMATION
    
    
    49ITEM 6. EXHIBITS
    
    
    49SIGNATURES
    
    
    50EXHIBITSCERTIFICATION OF CEO PURSUANT TO SECTION 302CERTIFICATION OF CFO PURSUANT TO SECTION 302CERTIFICATION OF CEO AND CFO PURSUANT TO SECTION 906Amendment and Supplement to Pipeline Lease AgreementCertification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Section 1350 Certifications




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 ALON USA ENERGY, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 (dollars in thousands except per share data)
 September 30,
    
    
    December 31,2007
    
    
    2006(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    119,426
    
    
    $
    64,166Short-term investments
    
    
    35,008
    
    
    
    Accounts and other receivables, net
    
    
    309,742
    
    
    
    126,634Inventories
    
    
    289,203
    
    
    
    311,464Prepaid expenses and other current assets
    
    
    8,840
    
    
    
    12,909Total current assets
    
    
    762,219
    
    
    
    515,173Equity method investments
    
    
    43,190
    
    
    
    38,298Property, plant and equipment, net
    
    
    713,176
    
    
    
    775,836Goodwill
    
    
    124,860
    
    
    
    15,317Other assets
    
    
    57,568
    
    
    
    64,161Total assets
    
    $
    1,701,013
    
    
    $
    1,408,785LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    374,686
    
    
    $
    202,447Accrued liabilities
    
    
    50,263
    
    
    
    66,808Current portion of deferred gain on disposition of assets
    
    
    9,119
    
    
    
    10,400Current portion of long-term debt
    
    
    10,856
    
    
    
    6,739Total current liabilities
    
    
    444,924
    
    
    
    286,394Other non-current liabilities
    
    
    64,440
    
    
    
    65,885Deferred gain on disposition of assets
    
    
    36,005
    
    
    
    42,299Long-term debt
    
    
    528,261
    
    
    
    491,930Deferred income tax liability
    
    
    178,748
    
    
    
    222,415Total liabilities
    
    
    1,252,378
    
    
    
    1,108,923Commitments and contingencies (note 15)Minority interest in subsidiaries
    
    
    19,297
    
    
    
    9,532Stockholders equity:Preferred stock, par value $0.01, 10,000,000 shares
authorized; no shares issued and outstanding
    
    
    
    
    
    
    Common stock, par value $0.01, 100,000,000 shares
authorized; 46,808,444 and 46,806,443 shares issued and
outstanding at September 30, 2007 and December 31, 2006,
respectively
    
    
    468
    
    
    
    468Additional paid-in capital
    
    
    182,442
    
    
    
    181,622Accumulated other comprehensive loss, net of income tax
    
    
    (7,816
    )
    
    
    (7,816
    )Retained earnings
    
    
    254,244
    
    
    
    116,056Total stockholders equity
    
    
    429,338
    
    
    
    290,330Total liabilities and stockholders equity
    
    $
    1,701,013
    
    
    $
    1,408,785
  1




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ALON USA ENERGY, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (unaudited, dollars in thousands except per share data)
 For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net sales
    
    $
    1,243,232
    
    
    $
    1,000,187
    
    
    $
    3,395,457
    
    
    $
    2,257,150Operating costs and expenses:Cost of sales
    
    
    1,136,026
    
    
    
    861,298
    
    
    
    2,876,862
    
    
    
    1,915,814Direct operating expenses
    
    
    48,342
    
    
    
    35,579
    
    
    
    152,371
    
    
    
    81,014Selling, general and administrative expenses
    
    
    25,934
    
    
    
    24,298
    
    
    
    75,133
    
    
    
    62,105Depreciation and amortization
    
    
    17,048
    
    
    
    9,551
    
    
    
    42,643
    
    
    
    20,482Total operating costs and expenses
    
    
    1,227,350
    
    
    
    930,726
    
    
    
    3,147,009
    
    
    
    2,079,415Gain on disposition of assets
    
    
    1,108
    
    
    
    2,304
    
    
    
    4,588
    
    
    
    59,969Operating income
    
    
    16,990
    
    
    
    71,765
    
    
    
    253,036
    
    
    
    237,704Interest expense
    
    
    (12,787
    )
    
    
    (9,755
    )
    
    
    (35,874
    )
    
    
    (20,151
    )Equity earnings of investees
    
    
    5,531
    
    
    
    1,422
    
    
    
    10,071
    
    
    
    2,175Other income, net
    
    
    1,747
    
    
    
    2,147
    
    
    
    4,928
    
    
    
    6,248Income before income tax expense and
minority interest in income of subsidiaries
    
    
    11,481
    
    
    
    65,579
    
    
    
    232,161
    
    
    
    225,976Income tax expense (benefit)
    
    
    (1,839
    )
    
    
    25,219
    
    
    
    79,782
    
    
    
    83,352Income before minority interest in income of
subsidiaries
    
    
    13,320
    
    
    
    40,360
    
    
    
    152,379
    
    
    
    142,624Minority interest in income of subsidiaries
    
    
    693
    
    
    
    2,217
    
    
    
    8,574
    
    
    
    7,226Net income
    
    $
    12,627
    
    
    $
    38,143
    
    
    $
    143,805
    
    
    $
    135,398Earnings per share, basic
    
    $
    0.27
    
    
    $
    0.82
    
    
    $
    3.08
    
    
    $
    2.90Weighted average shares outstanding (in thousands)
    
    
    46,761
    
    
    
    46,737
    
    
    
    46,758
    
    
    
    46,734Cash dividends per share
    
    $
    0.04
    
    
    $
    2.54
    
    
    $
    0.12
    
    
    $
    2.99
  2




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ALON USA ENERGY, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (unaudited, dollars in thousands)
 For the Nine Months EndedSeptember 30,2007
    
    
    2006Cash flows from operating activities:Net income
    
    $
    143,805
    
    
    $
    135,398Adjustments to reconcile net income to cash provided by operating
activities:Depreciation and amortization
    
    
    42,643
    
    
    
    20,482Stock compensation
    
    
    2,357
    
    
    
    2,123Deferred income tax expense
    
    
    4,394
    
    
    
    22,658Minority interest in income of subsidiaries
    
    
    8,574
    
    
    
    7,226Equity earnings of investees (net of dividends)
    
    
    (4,974
    )
    
    
    (375
    )Gain on disposition of assets
    
    
    (4,588
    )
    
    
    (59,969
    )Changes in operating assets and liabilities, net of acquisition effects:Accounts and other receivables, net
    
    
    (182,324
    )
    
    
    (48,300
    )Inventories
    
    
    28,201
    
    
    
    7,576Prepaid expenses and other current assets
    
    
    4,185
    
    
    
    12,559Other assets
    
    
    (6,661
    )
    
    
    14,984Accounts payable
    
    
    165,228
    
    
    
    (14,042
    )Accrued liabilities
    
    
    (21,601
    )
    
    
    (21,334
    )Other non-current liabilities
    
    
    (5,644
    )
    
    
    9,442Net cash provided by operating activities
    
    
    173,595
    
    
    
    88,428Cash flows from investing activities:Capital expenditures
    
    
    (28,869
    )
    
    
    (27,378
    )Turnaround and chemical catalyst expenditures
    
    
    (9,357
    )
    
    
    (2,990
    )Acquisition of Skinnys
    
    
    (77,358
    )
    
    
    Proceeds from disposition of assets, net
    
    
    
    
    
    
    68,000Acquisition of assets from Good Time Stores
    
    
    
    
    
    
    (27,024
    )Acquisition of Paramount Petroleum Company stock
    
    
    
    
    
    
    (504,381
    )Acquisition of assets from Edgington Oil Company
    
    
    
    
    
    
    (92,976
    )(Purchase) sale of short-term investments, net
    
    
    (35,000
    )
    
    
    185,320Minority interest shares purchased
    
    
    
    
    
    
    (186
    )Net cash used in investing activities
    
    
    (150,584
    )
    
    
    (401,615
    )Cash flows from financing activities:Dividends paid to minority interest stockholders
    
    
    (347
    )
    
    
    (7,863
    )Dividends paid to stockholders
    
    
    (5,617
    )
    
    
    (139,953
    )Deferred debt issuance costs
    
    
    (2,235
    )
    
    
    (8,807
    )Revolving credit facility, net
    
    
    
    
    
    
    8,134Additions to long-term debt
    
    
    46,167
    
    
    
    500,000Payments on long-term debt
    
    
    (5,719
    )
    
    
    (131,231
    )Net cash provided by financing activities
    
    
    32,249
    
    
    
    220,280Net change in cash and cash equivalents
    
    
    55,260
    
    
    
    (92,907
    )Cash and cash equivalents, beginning of period
    
    
    64,166
    
    
    
    136,820Cash and cash equivalents, end of period
    
    $
    119,426
    
    
    $
    43,913Supplemental cash flow information:Cash paid for interest
    
    $
    31,689
    
    
    $
    12,096Cash paid for income tax
    
    $
    90,242
    
    
    $
    51,172
  3




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ALON USA ENERGY, INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited, dollars in thousands except as noted)
 (1) Basis of Presentation and Certain Significant Accounting Policies
 (a) Basis of Presentation
   (b) Revenue Recognition
   (c) New Accounting Standards
 Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109
  4




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ALON USA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, dollars in thousands except as noted)
 Fair Value Measurements
 Employers Accounting for Defined Benefit Pension and Other Postretirement Plans
 The
Fair Value Option for Financial Assets and Financial Liabilities
 (d) Reclassifications
  (2) Acquisitions
 Good Time Stores Acquisition
    Cash paid
    
    $
    26,043Transaction costs
    
    
    981Total Purchase Price
    
    $
    27,024
  Inventories and other current assets
    
    $
    2,693Property, plant and equipment
    
    
    5,014Intangible assets
    
    
    4,000Goodwill
    
    
    15,317Total Purchase Price
    
    $
    27,024
  5




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ALON USA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, dollars in thousands except as noted)
 Paramount Acquisition
   Cash paid, less unrestricted cash acquired
    
    $
    491,723Transaction costs
    
    
    3,599Total Purchase Price
    
    $
    495,322
  Current assets, net of unrestricted cash acquired
    
    $
    314,570Property, plant and equipment
    
    
    387,646Deferred charges and other assets
    
    
    16,905Equity method investments
    
    
    14,259Intangibles
    
    
    2,700Goodwill
    
    
    76,758Current liabilities
    
    
    (166,667
    )Deferred income tax liability
    
    
    (115,112
    )Other liabilities
    
    
    (35,737
    )Total Purchase Price
    
    $
    495,322
   Unaudited Pro Forma Financial Information
  
    
    The acquisition of Paramount Petroleum Corporation occurred on January 1, 2006;
    
    $400,000 of term debt was incurred on January 1, 2006 to fund the acquisition and to
repay the existing Paramount Petroleum Corporation debt; and
    
    Depreciation expense was higher beginning January 1, 2006 based upon the revaluation of
estimated asset values as of that date.
 6




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ALON USA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, dollars in thousands except as noted)
  Nine Months EndedSeptember 30,2007
    
    2006(unaudited)
    
    (pro forma)Net sales
    
    $
    3,395,457
    
    
    $
    3,117,400Operating income
    
    
    253,036
    
    
    
    245,903Net income
    
    
    143,805
    
    
    
    130,576Earnings per share, basic
    
    $
    3.08
    
    
    $
    2.79
 Edgington Acquisition
   Cash paid
    
    $
    92,405Transaction costs
    
    
    1,163Total Purchase Price
    
    $
    93,568
 The purchase price was allocated as follows:Current assets, net of unrestricted cash acquired
    
    $
    1,000Inventories
    
    
    34,405Property, plant and equipment
    
    
    63,951Other non-current liabilities
    
    
    (5,788
    )Total Purchase Price
    
    $
    93,568
  7




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ALON USA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, dollars in thousands except as noted)
 Skinnys Acquisition
    Cash paid, net of unrestricted cash acquired
    
    $
    76,879Transaction costs
    
    
    479Total Purchase Price
    
    $
    77,358
  Current assets, net of unrestricted cash acquired
    
    $
    7,002Property, plant and equipment
    
    
    43,684Other assets
    
    
    771Goodwill
    
    
    32,785Intangibles
    
    
    6,238Current liabilities
    
    
    (10,483
    )Other non-current liabilities
    
    
    (2,639
    )Total Purchase Price
    
    $
    77,358
  Pipeline Acquisition
  (3) Sale of Amdel and White Oil Pipelines
  8




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ALON USA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, dollars in thousands except as noted)
 (4) Segment Data
  (a) Refining and Marketing Segment
  (b) Asphalt Segment
  (c) Retail Segment
  (d) Corporate
  9




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ALON USA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, dollars in thousands except as noted)
  Refining and
    
    
    
    
    
    
    
    
    
    
    
    
    
    ConsolidatedThree Months ended September 30, 2007
    
    Marketing
    
    Asphalt
    
    Retail
    
    Corporate
    
    TotalNet sales to external customers
    
    $
    884,501
    
    
    $
    211,117
    
    
    $
    147,614
    
    
    $
    
    
    
    $
    1,243,232Intersegment sales/purchases
    
    
    223,065
    
    
    
    (161,701
    )
    
    
    (61,364
    )
    
    
    
    
    
    
    Depreciation and amortization
    
    
    13,475
    
    
    
    557
    
    
    
    2,822
    
    
    
    194
    
    
    
    17,048Operating income (loss)
    
    
    17,734
    
    
    
    (3,195
    )
    
    
    2,775
    
    
    
    (324
    )
    
    
    16,990Total assets
    
    
    1,138,517
    
    
    
    359,380
    
    
    
    193,701
    
    
    
    9,415
    
    
    
    1,701,013Turnaround, chemical catalyst and
capital expenditures
    
    
    10,371
    
    
    
    495
    
    
    
    3,977
    
    
    
    579
    
    
    
    15,422
 Refining and
    
    
    
    
    
    
    
    
    
    
    
    
    
    ConsolidatedThree Months ended September 30, 2006
    
    Marketing
    
    Asphalt
    
    Retail
    
    Corporate
    
    TotalNet sales to external customers
    
    $
    733,134
    
    
    $
    162,187
    
    
    $
    104,866
    
    
    $
    
    
    
    $
    1,000,187Intersegment sales/purchases
    
    
    51,329
    
    
    
    (8,711
    )
    
    
    (42,618
    )
    
    
    
    
    
    
    Depreciation and amortization
    
    
    6,954
    
    
    
    334
    
    
    
    1,927
    
    
    
    336
    
    
    
    9,551Operating income (loss)
    
    
    66,328
    
    
    
    5,097
    
    
    
    798
    
    
    
    (458
    )
    
    
    71,765Total assets
    
    
    1,105,564
    
    
    
    260,825
    
    
    
    96,116
    
    
    
    13,223
    
    
    
    1,475,728Turnaround, chemical catalyst and
capital expenditures
    
    
    2,208
    
    
    
    1,032
    
    
    
    953
    
    
    
    85
    
    
    
    4,278
 Refining and
    
    
    
    
    
    
    
    
    
    
    
    
    
    ConsolidatedNine Months ended September 30, 2007
    
    Marketing
    
    Asphalt
    
    Retail
    
    Corporate
    
    TotalNet sales to external customers
    
    $
    2,549,671
    
    
    $
    506,508
    
    
    $
    339,278
    
    
    $
    
    
    
    $
    3,395,457Intersegment sales/purchases
    
    
    511,011
    
    
    
    (368,577
    )
    
    
    (142,434
    )
    
    
    
    
    
    
    Depreciation and amortization
    
    
    35,448
    
    
    
    1,612
    
    
    
    4,954
    
    
    
    629
    
    
    
    42,643Operating income (loss)
    
    
    234,955
    
    
    
    15,262
    
    
    
    3,795
    
    
    
    (976
    )
    
    
    253,036Total assets
    
    
    1,138,517
    
    
    
    359,380
    
    
    
    193,701
    
    
    
    9,415
    
    
    
    1,701,013Turnaround, chemical catalyst and
capital expenditures
    
    
    29,611
    
    
    
    1,655
    
    
    
    5,954
    
    
    
    1,006
    
    
    
    38,226
 Refining and
    
    
    
    
    
    
    
    
    
    
    
    
    
    ConsolidatedNine Months ended September 30, 2006
    
    Marketing
    
    Asphalt
    
    Retail
    
    Corporate
    
    TotalNet sales to external customers
    
    $
    1,769,986
    
    
    $
    222,868
    
    
    $
    264,296
    
    
    $
    
    
    
    $
    2,257,150Intersegment sales/purchases
    
    
    121,803
    
    
    
    (8,711
    )
    
    
    (113,092
    )
    
    
    
    
    
    
    Depreciation and amortization
    
    
    14,478
    
    
    
    456
    
    
    
    4,191
    
    
    
    1,357
    
    
    
    20,482Operating income (loss)
    
    
    234,635
    
    
    
    2,709
    
    
    
    2,061
    
    
    
    (1,701
    )
    
    
    237,704Total assets
    
    
    1,105,564
    
    
    
    260,825
    
    
    
    96,116
    
    
    
    13,223
    
    
    
    1,475,728Turnaround, chemical catalyst and
capital expenditures
    
    
    25,680
    
    
    
    1,400
    
    
    
    3,127
    
    
    
    161
    
    
    
    30,368
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ALON USA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, dollars in thousands except as noted)
 (5) Cash, Cash Equivalents and Short-Term Investments
   (6) Derivatives and Hedging Activities
 (a) Fair Value of Financial Instruments
  (b) Derivative Financial Instruments
      11




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ALON USA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, dollars in thousands except as noted)
 Accounting for Derivative Instruments and Hedging Activities
 (7) Inventories
   September 30,
    
    
    December 31,2007
    
    
    2006Crude oil, refined products, asphalt and blendstocks
    
    $
    253,680
    
    
    $
    280,212Materials and supplies
    
    
    12,065
    
    
    
    12,161Store merchandise
    
    
    17,456
    
    
    
    15,905Store fuel
    
    
    6,002
    
    
    
    3,186Total inventories
    
    $
    289,203
    
    
    $
    311,464
   (8) Property, Plant and Equipment, net
  September 30,
    
    
    December 31,2007
    
    
    2006Refining facilities
    
    $
    643,877
    
    
    $
    730,036Pipelines and terminals
    
    
    40,223
    
    
    
    40,108Retail
    
    
    127,739
    
    
    
    78,722Other
    
    
    11,707
    
    
    
    10,700Property, plant and equipment, gross
    
    
    823,546
    
    
    
    859,566Less accumulated depreciation
    
    
    (110,370
    )
    
    
    (83,730
    )Property, plant and equipment, net
    
    $
    713,176
    
    
    $
    775,836
  12




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ALON USA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, dollars in thousands except as noted)
 (9) Other Assets
  September 30,
    
    
    December 31,2007
    
    
    2006Deferred turnaround, chemical catalyst expenditures
    
    $
    12,375
    
    
    $
    12,797Environmental receivables
    
    
    11,078
    
    
    
    11,853Deferred debt issuance costs
    
    
    11,749
    
    
    
    10,769Intangible assets
    
    
    10,908
    
    
    
    20,696Other
    
    
    11,458
    
    
    
    8,046Total other assets
    
    $
    57,568
    
    
    $
    64,161
 (10) Employee and Postretirement Benefits
   For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Components of net periodic benefit cost:Service cost
    
    $
    507
    
    
    $
    478
    
    
    $
    1,521
    
    
    $
    1,434Interest cost
    
    
    665
    
    
    
    608
    
    
    
    1,995
    
    
    
    1,824Expected return on plan assets
    
    
    (704
    )
    
    
    (592
    )
    
    
    (2,112
    )
    
    
    (1,778
    )Amortization of net loss
    
    
    134
    
    
    
    82
    
    
    
    402
    
    
    
    248Net periodic benefit cost
    
    $
    602
    
    
    $
    576
    
    
    $
    1,806
    
    
    $
    1,728
 (11) Long-Term Debt
  September 30,
    
    
    December 31,2007
    
    
    2006Term loan credit facility
    
    $
    444,375
    
    
    $
    447,750Revolving credit facilities
    
    
    
    
    
    
    Retail credit facilities
    
    
    94,742
    
    
    
    50,919Total debt
    
    
    539,117
    
    
    
    498,669Less current portion
    
    
    (10,856
    )
    
    
    (6,739
    )Total long-term debt
    
    $
    528,261
    
    
    $
    491,930
 (a) Term Loan Credit Facility
 Credit Suisse Credit Facility.
 13




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ALON USA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, dollars in thousands except as noted)
      (b) Revolving Credit Facilities
 Israel Discount Bank Credit Facility
   Bank of America Credit Facility.
  14




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ALON USA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, dollars in thousands except as noted)
  (c) Retail Credit Facilities
        (d) Secured Term Loan
  15




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ALON USA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, dollars in thousands except as noted)
  (12) Stock-Based Compensation
  (a) 2005 Incentive Compensation Plan (share value in dollars)
  Restricted Stock
   Number of
    
    
    Weighted AverageRestricted Shares:
    
    Shares
    
    
    Grant Date Fair ValuesNonvested at January 1, 2006
    
    
    78,737
    
    
    $
    19.73Granted
    
    
    2,253
    
    
    
    33.29Vested
    
    
    (26,244
    )
    
    
    19.73Forfeited
    
    
    (5,667
    )
    
    
    20.42Nonvested at December 31, 2006
    
    
    49,079
    
    
    $
    20.27Granted
    
    
    2,001
    
    
    
    37.51Vested
    
    
    (5,272
    )
    
    
    18.82Forfeited
    
    
    
    
    
    
    Nonvested at September 30, 2007
    
    
    45,808
    
    
    $
    21.19
  16




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ALON USA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, dollars in thousands except as noted)
  Stock Appreciation Rights
  (b) 2000 Incentive Stock Compensation Plan
   Alon Assets
    
    
    Alon OperatingWeighted
    
    
    
    
    
    
    WeightedNumber of
    
    
    Average
    
    
    Number of
    
    
    AverageOptions
    
    
    Exercise
    
    
    Options
    
    
    ExerciseOutstanding
    
    
    Price
    
    
    Outstanding
    
    
    PriceOutstanding at January 1, 2006
    
    
    8,060
    
    
    $
    100
    
    
    
    3,027
    
    
    $
    100Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    (1,212
    )
    
    
    100
    
    
    
    (455
    )
    
    
    100Outstanding at December 31, 2006
    
    
    6,848
    
    
    
    100
    
    
    
    2,572
    
    
    
    100Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    (1,632
    )
    
    
    100
    
    
    
    (613
    )
    
    
    100Outstanding at September 30, 2007
    
    
    5,216
    
    
    $
    100
    
    
    
    1,959
    
    
    $
    100
  17




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ALON USA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, dollars in thousands except as noted)
 (13) Stockholders Equity (per share in dollars)
 Common Stock Dividends
  (14) Income tax expense (benefit)
  (15) Earnings Per Share (earnings per share in dollars)
  18




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ALON USA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, dollars in thousands except as noted)
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net income
    
    $
    12,627
    
    
    $
    38,143
    
    
    $
    143,805
    
    
    $
    135,398Average number of shares of common stock outstanding
    
    
    46,761
    
    
    
    46,737
    
    
    
    46,758
    
    
    
    46,734Dilutive restricted shares and SAR shares
    
    
    73
    
    
    
    52
    
    
    
    73
    
    
    
    42Average number of shares of common stock
outstanding assuming dilution
    
    
    46,834
    
    
    
    46,789
    
    
    
    46,831
    
    
    
    46,776Earnings per share  basic
    
    $
    0.27
    
    
    $
    0.82
    
    
    $
    3.08
    
    
    $
    2.90Earnings per share  diluted*
    
    $
    0.26
    
    
    $
    0.82
    
    
    $
    3.02
    
    
    $
    2.89
 
 *
    
    For the purpose of calculating diluted earnings per share, net income was reduced by $238 and $2,475, respectively, for the three
and nine months ended September 30, 2007, to adjust for the effects of options issued by Alons subsidiaries. (16)
    
    Commitments and Contingencies
 (a) Commitments
  (b) Contingencies
  (c) Environmental
    19




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ALON USA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, dollars in thousands except as noted)
  (17)
    
    Subsequent Event
 Dividend Declared
  20




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##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
 The following discussion of our financial condition and results of operations should be read
in conjunction with the audited consolidated financial statements and notes thereto included in our
Annual Report on Form 10-K for the year ended December 31, 2006. In this document, the words
Alon, the Company, we and our refer to Alon USA Energy, Inc. and its subsidiaries.
 
 FORWARD-LOOKING STATEMENTS
    
    
    the synergies and accretion to reported earnings estimated to result from our
acquisitions of Paramount Petroleum Corporation and Edgington Oil Company may not be
realized;
    
    our ability to successfully integrate the operations and employees of Paramount
Petroleum Corporation and Edgington Oil Company and the timing of such integration;
    
    expected cost savings from the Paramount Petroleum Corporation and Edgington Oil
Company acquisitions may not be fully realized or recognized within the expected time
frame, and costs or expenses relating to the acquisitions may be higher than expected;
    
    revenues or margins following the Paramount Petroleum Corporation and Edgington Oil
Company acquisitions may be lower than expected;
    
    changes in general economic conditions and capital markets;
    
    changes in the underlying demand for our products;
    
    the availability, costs and price volatility of crude oil, other refinery feedstocks
and refined products;
    
    changes in the sweet/sour spread;
    
    changes in the light/heavy spread;
    
    the effects of transactions involving forward contracts and derivative instruments;
    
    actions of customers and competitors;
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##### Table of Contents




    
    changes in fuel and utility costs incurred by our facilities;
    
    disruptions due to equipment interruption, pipeline disruptions or failure at our
facilities or third-party facilities;
    
    the execution of planned capital projects;
    
    adverse changes in the credit ratings assigned to our trade credit and debt
instruments;
    
    the effects of and cost of compliance with current and future state and federal
environmental, economic, safety and other laws, policies and regulations;
    
    operating hazards, natural disasters, casualty losses and other matters beyond our
control; and
    
    the other factors discussed in our Annual Report on Form 10-K for the year ended
December 31, 2006 under the caption Risk Factors.
  Company Overview
  Refining and Marketing Segment
  Asphalt Segment.
 22




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##### Table of Contents



Retail Segment
 Third Quarter Overview
 Operational and Financial Highlights
  
    
    Our average refinery operating margin for the Big Spring refinery decreased by $3.88 per
barrel to $10.90 per barrel for the three months ended September 30, 2007, compared to
$14.78 per barrel for the three months ended September 30, 2006.  The decrease in refinery
operating margin for the Big Spring refinery was impacted by
scheduled maintenance in the third quarter 2007 which also resulted
in reduced throughput volumes. Our Big Spring refinery throughput was 67,824 bpd for the three months
ended September 30, 2007 compared to 68,870 bpd for the three months ended September 30,
2006.  Also impacting the Big Spring refinery operating margin
was the Gulf Coast 3/2/1 crack spread which decreased by $.24 per
barrel to $13.14 per barrel for the three months ended
September 30, 2007 compared to $13.38 per barrel for the three
months ended September 30, 2006.
    
    Our average refinery operating margin for the California refineries decreased by $2.22
per barrel to $0.45 per barrel for the three months ended September 30, 2007, compared to
$2.67 per barrel for the period August 1, 2006 through September 30, 2006.  The decrease in
refinery operating margin for the California refineries was impacted
by California logistical and supply issues primarily related to the
increase in throughput and increased use of waterborne crude, which
is hedged, and the decrease in the
West Coast 3/2/1 crack spread, which decreased by $4.10 per barrel to $20.50 per barrel for
the three months ended September 30, 2007 compared to $24.60 per barrel for the three
months ended September 30, 2006. Our California refineries throughput was 66,784 bpd for
the three months ended September 30, 2007 compared to 45,585 bpd for the period August 1,
2006 through September 30, 2006.
    
    Our average asphalt margin decreased by $24.70 per ton to $15.67 per ton for the three
months ended September 30, 2007, compared to $40.37 per ton for the three months ended
September 30, 2006. Asphalt market prices did not reflect the increase in costs of crude
oil and other raw materials and as a result, asphalt margins decreased.
    
    The average light/heavy spread for the three months ended September 30, 2007 was $12.39
per barrel compared to $14.80 per barrel for the three months ended September 30, 2006. The
average sweet/sour
 23




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##### Table of Contents



spread for the three months ended September 30, 2007 was $5.26 per barrel compared to $4.44
per barrel for the three months ended September 30, 2006.
 
    
    Our capital expenditures and turnaround spending for the three months ended September
30, 2007 totaled approximately $15,422.
    
    On September 14, 2007, we paid a regular quarterly cash dividend of $0.04 per share on
our common stock to stockholders of record at the close of business on September 1, 2007.
    
    The purchase price settlement of certain post closing
adjustments relating to the
acquisition of Paramount Petroleum Corporation was finalized on October 18, 2007 resulting
in amounts due to us of $7,250 which will be recorded in the fourth quarter of 2007.
 Acquisition of Retail Convenience Stores
  Major Influences on Results of Operations
 Refining and Marketing
    24




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Asphalt
  Retail
  25




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##### Table of Contents



Factors Affecting Comparability
  California Refineries and Asphalt Assets
 Market Considerations
 Refinery Turnaround.
 Amdel and White Oil Pipeline Transaction
 Results of Operations
 Net Sales
 Cost of Sales
 Direct Operating Expenses.
 Selling, General and Administrative Expenses
 26




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27




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ALON USA ENERGY, INC. AND SUBSIDIARIES CONSOLIDATED
 Summary Financial Tables
 For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(dollars in thousands, except per share data)STATEMENT OF OPERATIONS DATA:Net sales
    
    $
    1,243,232
    
    
    $
    1,000,187
    
    
    $
    3,395,457
    
    
    $
    2,257,150Operating costs and expenses:Cost of sales
    
    
    1,136,026
    
    
    
    861,298
    
    
    
    2,876,862
    
    
    
    1,915,814Direct operating expenses
    
    
    48,342
    
    
    
    35,579
    
    
    
    152,371
    
    
    
    81,014Selling, general and administrative expenses (1)
    
    
    25,934
    
    
    
    24,298
    
    
    
    75,133
    
    
    
    62,105Depreciation and amortization (2)
    
    
    17,048
    
    
    
    9,551
    
    
    
    42,643
    
    
    
    20,482Total operating costs and expenses
    
    
    1,227,350
    
    
    
    930,726
    
    
    
    3,147,009
    
    
    
    2,079,415Gain on disposition of assets (3)
    
    
    1,108
    
    
    
    2,304
    
    
    
    4,588
    
    
    
    59,969Operating income
    
    
    16,990
    
    
    
    71,765
    
    
    
    253,036
    
    
    
    237,704Interest expense (4)
    
    
    (12,787
    )
    
    
    (9,755
    )
    
    
    (35,874
    )
    
    
    (20,151
    )Equity earnings of investees
    
    
    5,531
    
    
    
    1,422
    
    
    
    10,071
    
    
    
    2,175Other income, net
    
    
    1,747
    
    
    
    2,147
    
    
    
    4,928
    
    
    
    6,248Income before income tax expense and minority
interest in income of subsidiaries
    
    
    11,481
    
    
    
    65,579
    
    
    
    232,161
    
    
    
    225,976Income tax expense (benefit)
    
    
    (1,839
    )
    
    
    25,219
    
    
    
    79,782
    
    
    
    83,352Income before minority interest in income of
subsidiaries
    
    
    13,320
    
    
    
    40,360
    
    
    
    152,379
    
    
    
    142,624Minority interest in income of subsidiaries
    
    
    693
    
    
    
    2,217
    
    
    
    8,574
    
    
    
    7,226Net income
    
    $
    12,627
    
    
    $
    38,143
    
    
    $
    143,805
    
    
    $
    135,398Earnings per share, basic
    
    $
    0.27
    
    
    $
    0.82
    
    
    $
    3.08
    
    
    $
    2.90Weighted average shares outstanding (in thousands)
    
    
    46,761
    
    
    
    46,737
    
    
    
    46,758
    
    
    
    46,734Cash dividends per share
    
    $
    0.04
    
    
    $
    2.54
    
    
    $
    0.12
    
    
    $
    2.99CASH FLOW DATA:Net cash provided by (used in):Operating activities
    
    $
    14,687
    
    
    $
    93,138
    
    
    $
    173,595
    
    
    $
    88,428Investing activities
    
    
    (50,595
    )
    
    
    (597,223
    )
    
    
    (150,584
    )
    
    
    (401,615
    )Financing activities
    
    
    (4,334
    )
    
    
    343,650
    
    
    
    32,249
    
    
    
    220,280OTHER DATA:Adjusted EBITDA (5)
    
    $
    40,208
    
    
    $
    82,581
    
    
    $
    306,090
    
    
    $
    206,640Capital expenditures (6)
    
    
    11,202
    
    
    
    4,213
    
    
    
    28,869
    
    
    
    27,378Capital expenditures for turnaround and chemical
catalyst
    
    
    4,220
    
    
    
    65
    
    
    
    9,357
    
    
    
    2,990
 28




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##### Table of Contents



September 30,
    
    December 31,2007
    
    2006BALANCE SHEET DATA (end of period):Cash, cash equivalents and short-term investments
    
    $
    154,434
    
    
    $
    64,166Working capital
    
    
    317,295
    
    
    
    228,779Total assets
    
    
    1,701,013
    
    
    
    1,408,785Total debt
    
    
    539,117
    
    
    
    498,669Total stockholders equity
    
    
    429,338
    
    
    
    290,330
 
 (1)
    
    Includes corporate headquarters selling, general and administrative expenses of $130 and $122
for the three months ended September 30, 2007 and 2006, respectively, and $347 and $344 for
the nine months ended September 30, 2007 and 2006, respectively, which are not allocated to
our three operating segments.(2)
    
    Includes corporate depreciation and amortization of $194 and $336 for the three months ended
September 30, 2007 and 2006, respectively, and $629 and $1,357 for the nine months ended
September 30, 2007 and 2006, respectively, which are not allocated to our three operating
segments.(3)
    
    Gain on disposition of assets reported in the three and nine months ended September 30, 2007
reflects the recognition of $1,108 and $4,588, respectively, of deferred gain recorded
primarily in connection with the contribution of certain product pipelines and terminals to
Holly Energy Partners, LP in March 2005 (HEP Transaction). Gain on disposition of assets
reported in the nine months ended September 30, 2006 reflects the $52,500 pre-tax gain on
disposition of assets recorded in connection with the Amdel and White Oil transaction and the
recognition of $7,469 deferred gain recorded primarily in connection with the HEP transaction.
Deferred gain recorded primarily in connection with the HEP transaction for the third quarter
2006 was $2,304.(4)
    
    Interest expense for the nine months ended September 30, 2006 includes $3,000 prepayment
premium and $3,894 of unamortized debt issuance costs written off as a result of the
prepayment of the $100,000 term loan in January 2006.(5)
    
    Adjusted EBITDA represents earnings (net income) before minority interest in income of
subsidiaries, income tax expense, interest expense, depreciation and amortization, and is
exclusive of gain on disposition of assets. Adjusted EBITDA is not a recognized measurement
under GAAP; however, the amounts included in Adjusted EBITDA are derived from amounts included
in our consolidated financial statements. Our management believes that the presentation of
Adjusted EBITDA is useful to investors because it is frequently used by securities analysts,
investors and other interested parties in the evaluation of companies in our industry. In
addition, our management believes that Adjusted EBITDA is useful in evaluating our operating
performance compared to that of other companies in our industry because the calculation of
Adjusted EBITDA generally eliminates the effects of minority interest in income of
subsidiaries, income tax expense, interest expense, gain on disposition of assets and the
accounting effects of capital expenditures and acquisitions, items which may vary for
different companies for reasons unrelated to overall operating performance.  
    
    Adjusted EBITDA does not reflect our cash expenditures or future requirements for
capital expenditures or contractual commitments;
    
    Adjusted EBITDA does not reflect the interest expense or the cash requirements
necessary to service interest or principal payments on our debt;
    
    Adjusted EBITDA does not reflect the prior claim that minority stockholders have on
the income generated by non-wholly-owned subsidiaries;
    
    Adjusted EBITDA does not reflect changes in or cash requirements for our working
capital needs; and
 29




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##### Table of Contents




    
    Our calculation of Adjusted EBITDA may differ from the EBITDA calculations of
other companies in our industry, limiting its usefulness as a comparative measure.
   For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(dollars in thousands)Net income
    
    $
    12,627
    
    
    $
    38,143
    
    
    $
    143,805
    
    
    $
    135,398Minority interest in income of subsidiaries
    
    
    693
    
    
    
    2,217
    
    
    
    8,574
    
    
    
    7,226Income tax expense (benefit)
    
    
    (1,839
    )
    
    
    25,219
    
    
    
    79,782
    
    
    
    83,352Interest expense
    
    
    12,787
    
    
    
    9,755
    
    
    
    35,874
    
    
    
    20,151Depreciation and amortization
    
    
    17,048
    
    
    
    9,551
    
    
    
    42,643
    
    
    
    20,482Gain on disposition of assets
    
    
    (1,108
    )
    
    
    (2,304
    )
    
    
    (4,588
    )
    
    
    (59,969
    )Adjusted EBITDA
    
    $
    40,208
    
    
    $
    82,581
    
    
    $
    306,090
    
    
    $
    206,640
 
 (6)
    
    Includes corporate capital expenditures of $579 and $86 for the three months ended September
30, 2007 and 2006, respectively, and $1,006 and $162 for the nine months ended September 30,
2007 and 2006, respectively, which are not allocated to our three operating segments. 30




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REFINING AND MARKETING SEGMENT
 For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(dollars in thousands, except per barrel data and pricing statistics)STATEMENTS OF OPERATIONS DATA:Net sales (1)
    
    $
    1,107,566
    
    
    $
    784,463
    
    
    $
    3,060,682
    
    
    $
    1,891,789Operating costs and expenses:Cost of sales
    
    
    1,035,589
    
    
    
    682,214
    
    
    
    2,655,771
    
    
    
    1,619,441Direct operating expenses
    
    
    36,396
    
    
    
    27,074
    
    
    
    117,633
    
    
    
    69,334Selling, general and administrative expenses
    
    
    5,497
    
    
    
    4,197
    
    
    
    21,424
    
    
    
    13,870Depreciation and amortization
    
    
    13,475
    
    
    
    6,954
    
    
    
    35,448
    
    
    
    14,478Total operating costs and expenses
    
    
    1,090,957
    
    
    
    720,439
    
    
    
    2,830,276
    
    
    
    1,717,123Gain on disposition of assets (2)
    
    
    1,125
    
    
    
    2,304
    
    
    
    4,549
    
    
    
    59,969Operating income
    
    $
    17,734
    
    
    $
    66,328
    
    
    $
    234,955
    
    
    $
    234,635KEY OPERATING STATISTICS:Total sales volume (bpd)
    
    
    125,487
    
    
    
    112,114
    
    
    
    131,418
    
    
    
    92,733Non-integrated marketing sales volume (bpd) (3)
    
    
    14,298
    
    
    
    17,651
    
    
    
    14,168
    
    
    
    18,797Non-integrated marketing margin (per barrel sales volume) (3)
    
    $
    0.89
    
    
    $
    0.75
    
    
    $
    0.57
    
    
    $
    (0.18
    )Per barrel of throughput:Refinery operating margin  Big Spring (4)
    
    $
    10.90
    
    
    $
    14.78
    
    
    $
    16.93
    
    
    $
    14.93Refinery operating margin  CA Refineries (4)
    
    
    0.45
    
    
    
    2.67
    
    
    
    4.95
    
    
    
    2.67Refinery direct operating expense  Big Spring (5)
    
    
    3.22
    
    
    
    2.98
    
    
    
    3.47
    
    
    
    3.43Refinery direct operating expense  CA Refineries (5)
    
    
    2.65
    
    
    
    2.94
    
    
    
    3.05
    
    
    
    2.94Capital expenditures
    
    
    6,151
    
    
    
    2,142
    
    
    
    20,254
    
    
    
    22,689Capital expenditures for turnaround and chemical catalyst
    
    
    4,220
    
    
    
    66
    
    
    
    9,357
    
    
    
    2,991PRICING STATISTICS:WTI crude oil (per barrel)
    
    $
    75.43
    
    
    $
    70.45
    
    
    $
    66.15
    
    
    $
    68.09WTS crude oil (per barrel)
    
    
    70.17
    
    
    
    66.01
    
    
    
    61.54
    
    
    
    62.86MAYA crude oil (per barrel)
    
    
    63.04
    
    
    
    55.58
    
    
    
    54.59
    
    
    
    52.69Crack spreads (3/2/1) (per barrel):Gulf Coast
    
    $
    13.14
    
    
    $
    13.38
    
    
    $
    17.38
    
    
    $
    13.78Group III
    
    
    21.23
    
    
    
    18.30
    
    
    
    22.66
    
    
    
    15.83West Coast
    
    
    20.50
    
    
    
    24.60
    
    
    
    30.89
    
    
    
    26.45Crack spreads (6/1/2/3) (per barrel):West Coast
    
    $
    2.35
    
    
    $
    1.59
    
    
    $
    7.89
    
    
    $
    4.05Crude oil differentials (per barrel):WTI less WTS
    
    $
    5.26
    
    
    $
    4.44
    
    
    $
    4.61
    
    
    $
    5.23WTI less MAYA
    
    
    12.39
    
    
    
    14.80
    
    
    
    11.56
    
    
    
    15.33Product price (dollars per gallon):Gulf Coast unleaded gasoline
    
    $
    2.073
    
    
    $
    1.952
    
    
    $
    1.973
    
    
    $
    1.921Gulf Coast low-sulfur diesel
    
    
    2.181
    
    
    
    2.084
    
    
    
    2.019
    
    
    
    2.005Group III unleaded gasoline
    
    
    2.288
    
    
    
    2.051
    
    
    
    2.112
    
    
    
    1.963Group III low-sulfur diesel
    
    
    2.330
    
    
    
    2.237
    
    
    
    2.120
    
    
    
    2.069West Coast LA CARBOB (unleaded gasoline)
    
    
    2.307
    
    
    
    2.315
    
    
    
    2.406
    
    
    
    2.306West Coast LA ultra low-sulfur diesel
    
    
    2.238
    
    
    
    2.160
    
    
    
    2.120
    
    
    
    2.142Natural gas (per MMBTU)
    
    $
    6.24
    
    
    $
    6.18
    
    
    $
    7.02
    
    
    $
    6.89
 31




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THROUGHPUT
AND YIELD DATA:BIG SPRING
 For the Three Months Ended
    
    For the Nine Months EndedSeptember 30,
    
    September 30,2007
    
    2006
    
    2007
    
    2006Bpd
    
    %
    
    bpd
    
    %
    
    bpd
    
    %
    
    bpd
    
    %Refinery crude throughput:Sour crude
    
    
    56,292
    
    
    
    83.0
    
    
    
    62,961
    
    
    
    91.4
    
    
    
    58,980
    
    
    
    85.9
    
    
    
    58,241
    
    
    
    89.3Sweet crude
    
    
    5,903
    
    
    
    8.7
    
    
    
    2,728
    
    
    
    4.0
    
    
    
    5,172
    
    
    
    7.5
    
    
    
    3,033
    
    
    
    4.6Blendstocks
    
    
    5,629
    
    
    
    8.3
    
    
    
    3,181
    
    
    
    4.6
    
    
    
    4,502
    
    
    
    6.6
    
    
    
    3,964
    
    
    
    6.1Total refinery throughput (6)
    
    
    67,824
    
    
    
    100.0
    
    
    
    68,870
    
    
    
    100.0
    
    
    
    68,654
    
    
    
    100.0
    
    
    
    65,238
    
    
    
    100.0Refinery production:Gasoline
    
    
    30,516
    
    
    
    45.1
    
    
    
    30,347
    
    
    
    44.6
    
    
    
    31,586
    
    
    
    46.3
    
    
    
    29,139
    
    
    
    45.2Diesel/jet
    
    
    19,560
    
    
    
    28.9
    
    
    
    22,775
    
    
    
    33.5
    
    
    
    20,310
    
    
    
    29.8
    
    
    
    20,942
    
    
    
    32.5Asphalt
    
    
    8,485
    
    
    
    12.6
    
    
    
    6,740
    
    
    
    9.9
    
    
    
    7,614
    
    
    
    11.2
    
    
    
    6,301
    
    
    
    9.8Petrochemicals
    
    
    3,658
    
    
    
    5.4
    
    
    
    4,990
    
    
    
    7.3
    
    
    
    4,174
    
    
    
    6.1
    
    
    
    4,341
    
    
    
    6.7Other
    
    
    5,392
    
    
    
    8.0
    
    
    
    3,171
    
    
    
    4.7
    
    
    
    4,497
    
    
    
    6.6
    
    
    
    3,720
    
    
    
    5.8Total refinery production (7)
    
    
    67,611
    
    
    
    100.0
    
    
    
    68,023
    
    
    
    100.0
    
    
    
    68,181
    
    
    
    100.0
    
    
    
    64,443
    
    
    
    100.0Refinery Utilization (8)
    
    
    
    
    
    
    97.1
    %
    
    
    
    
    
    
    93.8
    %
    
    
    
    
    
    
    93.9
    %
    
    
    
    
    
    
    91.5
    %
 THROUGHPUT AND YIELD DATA:CALIFORNIA REFINERIES
 For the Three Months Ended
    
    For the Nine Months EndedSeptember 30,
    
    September 30,2007
    
    2006
    
    2007
    
    2006bpd
    
    %
    
    bpd
    
    %
    
    bpd
    
    %
    
    bpd
    
    %Refinery crude throughput:Sour crude
    
    
    24,395
    
    
    
    36.5
    
    
    
    23,847
    
    
    
    52.3
    
    
    
    22,949
    
    
    
    36.4
    
    
    
    23,847
    
    
    
    52.3Heavy crude
    
    
    42,562
    
    
    
    63.8
    
    
    
    21,969
    
    
    
    48.2
    
    
    
    40,124
    
    
    
    63.5
    
    
    
    21,969
    
    
    
    48.2Blendstocks
    
    
    (173
    )
    
    
    (0.3
    )
    
    
    (231
    )
    
    
    (0.5
    )
    
    
    43
    
    
    
    0.1
    
    
    
    (231
    )
    
    
    (0.5
    )Total
refinery throughput (6) (9)
    
    
    66,784
    
    
    
    100.0
    
    
    
    45,585
    
    
    
    100.0
    
    
    
    63,116
    
    
    
    100.0
    
    
    
    45,585
    
    
    
    100.0Refinery production:Gasoline
    
    
    8,090
    
    
    
    12.3
    
    
    
    5,677
    
    
    
    12.7
    
    
    
    7,335
    
    
    
    11.9
    
    
    
    5,677
    
    
    
    12.7Diesel/jet
    
    
    14,490
    
    
    
    22.1
    
    
    
    11,182
    
    
    
    25.0
    
    
    
    13,711
    
    
    
    22.2
    
    
    
    11,182
    
    
    
    25.0Asphalt
    
    
    21,507
    
    
    
    32.8
    
    
    
    15,130
    
    
    
    33.8
    
    
    
    19,440
    
    
    
    31.5
    
    
    
    15,130
    
    
    
    33.8Light unfinished
    
    
    3,196
    
    
    
    4.9
    
    
    
    1,904
    
    
    
    4.3
    
    
    
    3,346
    
    
    
    5.4
    
    
    
    1,904
    
    
    
    4.3Heavy unfinished
    
    
    17,248
    
    
    
    26.3
    
    
    
    10,222
    
    
    
    22.8
    
    
    
    16,853
    
    
    
    27.3
    
    
    
    10,222
    
    
    
    22.8Other
    
    
    1,057
    
    
    
    1.6
    
    
    
    622
    
    
    
    1.4
    
    
    
    1,015
    
    
    
    1.7
    
    
    
    622
    
    
    
    1.4Total refinery production (7) (9)
    
    
    65,588
    
    
    
    100.0
    
    
    
    44,737
    
    
    
    100.0
    
    
    
    61,700
    
    
    
    100.0
    
    
    
    44,737
    
    
    
    100.0Refinery Utilization (8)
    
    
    
    
    
    
    92.4
    %
    
    
    
    
    
    
    84.8
    %
    
    
    
    
    
    
    87.9
    %
    
    
    
    
    
    
    84.8
    %
 
 (1)
    
    Net sales include intersegment sales to our asphalt and retail segments at prices which are
intended to approximate wholesale market prices. These intersegment sales are eliminated
through consolidation of our financial statements. Net sales for the nine months ended
September 30, 2006 includes $3,300 for the sale of sulfur credits.(2)
    
    Gain on disposition of assets reported in the three and nine months ended September 30, 2007
reflects the recognition of $1,125 and $4,549, respectively, of deferred gain recorded
primarily in connection with the HEP Transaction. Gain on disposition of assets reported in
the nine months ended September 30, 2006 reflects the $52,500 pre-tax gain on disposition of
assets recorded in connection with the Amdel and White Oil transaction and the recognition of
$7,469 deferred gain recorded primarily in connection with the HEP transaction. Deferred gain
recorded primarily in connection with the HEP transaction for the third quarter 2006 was
$2,304.(3)
    
    The non-integrated marketing sales volume represents refined products sales to our wholesale
marketing customers located in our non-integrated region. The refined products we sell in
this region are obtained from 32




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##### Table of Contents



third-party suppliers. The non-integrated marketing margin
represents the margin between the net sales and cost of sales attributable to our
non-integrated refined products sales volume, expressed on a per barrel basis.(4)
    
    Refinery operating margin is a per barrel measurement calculated by dividing the margin
between net sales (exclusive of sale of sulfur credits from the Big Spring refinery) and cost
of sales attributable to each refinery by the refinerys throughput volumes. Industry-wide
refining results are driven and measured by the margins between refined product prices and the
prices for crude oil, which are referred to as crack spreads. We compare our refinery
operating margins to these crack spreads to assess our operating performance relative to other
participants in our industry.(5)
    
    Refinery direct operating expense is a per barrel measurement calculated by dividing direct
operating expenses at our Big Spring and California refineries, exclusive of depreciation and
amortization, by the applicable refinerys total throughput volumes.(6)
    
    Total refinery throughput represents the total barrels per day of crude oil and blendstock
inputs in the refinery production process.(7)
    
    Total refinery production represents the barrels per day of various finished products
produced from processing crude and other refinery feedstocks through the crude units and other
conversion units at the refinery.(8)
    
    Refinery utilization represents average daily crude oil throughput divided by crude oil
capacity, excluding planned periods of downtime for maintenance and turnarounds.(9)
    
    Total refinery throughput and total refinery production for the three and nine month periods ended September 30,
2006 are calculated using two months of data. Our acquisition of Paramount Petroleum Corporation was effective as
of July 31, 2006. 33




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ASPHALT SEGMENT
 For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(dollars in thousands, except per ton data)STATEMENTS OF OPERATIONS DATA:Net sales
    
    $
    211,117
    
    
    $
    162,187
    
    
    $
    506,508
    
    
    $
    222,868Operating costs and expenses:Cost of sales (1)
    
    
    201,447
    
    
    
    143,131
    
    
    
    452,722
    
    
    
    200,471Direct operating expenses
    
    
    11,946
    
    
    
    8,505
    
    
    
    34,738
    
    
    
    11,680Selling, general and administrative
expenses
    
    
    358
    
    
    
    5,120
    
    
    
    2,174
    
    
    
    7,552Depreciation and amortization
    
    
    557
    
    
    
    334
    
    
    
    1,612
    
    
    
    456Total operating costs and expenses
    
    
    214,308
    
    
    
    157,090
    
    
    
    491,246
    
    
    
    220,159Gain (loss) on disposition of assets
    
    
    (4
    )
    
    
    
    
    
    
    
    
    
    
    Operating income (loss)
    
    $
    (3,195
    )
    
    $
    5,097
    
    
    $
    15,262
    
    
    $
    2,709KEY OPERATING STATISTICS:Total sales volume (tons in thousands)
    
    
    617
    
    
    
    472
    
    
    
    1,533
    
    
    
    693Sales price per ton
    
    $
    342.17
    
    
    $
    343.92
    
    
    $
    330.40
    
    
    $
    322.07Asphalt margin (2)
    
    $
    15.67
    
    
    $
    40.37
    
    
    $
    35.09
    
    
    $
    32.32Capital expenditures
    
    $
    495
    
    
    $
    1,032
    
    
    $
    1,655
    
    
    $
    1,400
 
 (1)
    
    Cost of sales includes intersegment purchases of asphalt blends from our refining and
marketing segment at prices substantially determined by reference to
the cost of crude oil, which is intended to approximate bulk
wholesale market prices. These
intersegment purchases are eliminated through consolidation of our financial statements.(2)
    
    Asphalt margin is a per ton measurement calculated by dividing the difference between net
sales and cost of sales by the total sales volume. Asphalt margins are used in the asphalt
industry to measure operating results related to the asphalt sales. 34




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RETAIL SEGMENT
 For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(dollars in thousands, except per gallon data)STATEMENTS OF OPERATIONS DATA:Net sales
    
    $
    147,614
    
    
    $
    104,866
    
    
    $
    339,278
    
    
    $
    264,296Operating costs and expenses:Cost of sales (1)
    
    
    122,055
    
    
    
    87,282
    
    
    
    279,380
    
    
    
    217,705Selling, general and administrative expenses
    
    
    19,949
    
    
    
    14,859
    
    
    
    51,188
    
    
    
    40,339Depreciation and amortization
    
    
    2,822
    
    
    
    1,927
    
    
    
    4,954
    
    
    
    4,191Total operating costs and expenses
    
    
    144,826
    
    
    
    104,068
    
    
    
    335,522
    
    
    
    262,235Gain on disposition of assets
    
    
    (13
    )
    
    
    
    
    
    
    39
    
    
    
    Operating income
    
    $
    2,775
    
    
    $
    798
    
    
    $
    3,795
    
    
    $
    2,061KEY OPERATING STATISTICS:Number of stores (end of period)
    
    
    308
    
    
    
    207
    
    
    
    308
    
    
    
    207Fuel sales (thousands of gallons)
    
    
    27,049
    
    
    
    21,265
    
    
    
    65,075
    
    
    
    55,848Fuel sales (thousands of gallons per site per month) (2)
    
    
    29
    
    
    
    34
    
    
    
    30
    
    
    
    34Fuel margin (cents per gallon) (3)
    
    
    16.0
    ¢
    
    
    15.0
    ¢
    
    
    19.3
    ¢
    
    
    16.3
    ¢Fuel sales price (dollars per gallon) (4)
    
    $
    2.92
    
    
    $
    2.83
    
    
    $
    2.77
    
    
    $
    2.67Merchandise sales
    
    $
    69,180
    
    
    $
    44,692
    
    
    $
    159,289
    
    
    $
    115,296Merchandise sales (per site per month) (2)
    
    
    75
    
    
    
    72
    
    
    
    74
    
    
    
    71Merchandise margin (5)
    
    
    30.7
    %
    
    
    32.2
    %
    
    
    29.7
    %
    
    
    32.5
    %Capital expenditures
    
    $
    3,977
    
    
    $
    953
    
    
    $
    5,954
    
    
    $
    3,127
 
 (1)
    
    Cost of sales includes intersegment purchases of motor fuels from our refining and marketing
segment at prices which approximate wholesale market price. These intersegment purchases are
eliminated through consolidation of our financial statements.(2)
    
    Fuel and merchandise sales per site for the nine months ended September 30, 2007 were
calculated using 206 stores for six months and 308 stores for three months due to the
acquisition of Skinnys, Inc. on June 29, 2007. Fuel and merchandise sales per site for the
nine months ended September 30, 2006 were calculated using 167 stores for six months and 207
stores for three months due to the acquisition of Good Time Stores on July 3, 2006.(3)
    
    Fuel margin represents the difference between motor fuel sales revenue and the net cost of
purchased motor fuel, including transportation costs and associated motor fuel taxes,
expressed on a cents per gallon basis. Motor fuel margins are frequently used in the retail
industry to measure operating results related to motor fuel sales.(4)
    
    Fuel sales price per gallon represents the average sales price for motor fuels sold through
our retail segment.(5)
    
    Merchandise margin represents the difference between merchandise sales revenues and the
delivered cost of merchandise purchases, net of rebates and commissions, expressed as a
percentage of merchandise sales revenues. Merchandise margins, also referred to as in-store
margins, are commonly used in the retail industry to measure in-store, or non-fuel, operating
results. 35




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##### Table of Contents



Three Months Ended September 30, 2007 Compared to the Three Months Ended September 30, 2006
 Net Sales
 Consolidated
 Refining and Marketing Segment
 Asphalt Segment
 Retail Segment
 Cost of Sales
 Consolidated
 Refining and Marketing Segment.
 Asphalt Segment
 Retail Segment.
 36




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##### Table of Contents



Direct Operating Expenses
 Consolidated
 Refining and Marketing Segment.
 Asphalt Segment.
 Selling, General and Administrative Expenses
 Consolidated
 Refining and Marketing Segment
 Asphalt Segment
 Retail Segment
 Depreciation and Amortization
  Operating Income
 Consolidated
 37




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Refining and Marketing Segment
 Asphalt Segment.
 Retail Segment.
 Interest Expense
  Income Tax Expense
  Minority Interest In Income Of Subsidiaries
  Net Income
  38




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Nine Months Ended September 30, 2007 Compared to the Nine Months Ended September 30, 2006
 Net Sales
 Consolidated
 Refining and Marketing Segment
 Asphalt Segment
 Retail Segment
 Cost of Sales
 Consolidated
 Refining and Marketing Segment
 Asphalt Segment
 Retail Segment
 39




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##### Table of Contents



Direct Operating Expenses
 Consolidated
 Refining and Marketing Segment.
 Asphalt Segment.
 Selling, General and Administrative Expenses
 Consolidated
 Refining and Marketing Segment
 Asphalt Segment.
 Retail Segment
 Depreciation and Amortization
 Consolidated
 Operating Income
 Consolidated
 40




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##### Table of Contents



Refining and Marketing Segment
 Asphalt Segment.
 Retail Segment
 Interest Expense
  Income Tax Expense
  Minority Interest In Income Of Subsidiaries
  41




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##### Table of Contents



Net Income
  Liquidity and Capital Resources
   Cash Flows
  For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(dollars in thousands)Cash provided by (used in):Operating activities
    
    $
    14,687
    
    
    $
    93,138
    
    
    $
    173,595
    
    
    $
    88,428Investing activities
    
    
    (50,595
    )
    
    
    (597,223
    )
    
    
    (150,584
    )
    
    
    (401,615
    )Financing activities
    
    
    (4,334
    )
    
    
    343,650
    
    
    
    32,249
    
    
    
    220,280Net (decrease) increase in cash and cash equivalents
    
    $
    (40,242
    )
    
    $
    (160,435
    )
    
    $
    55,260
    
    
    $
    (92,907
    )
 Cash Flows Provided by Operating Activities
   Cash Flows Used In Investing Activities
  42




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Cash
Flows Provided By (Used In) Financing Activities
   Cash Position and Indebtedness
  Summary of Indebtedness
 As of September 30, 2007Amount Outstanding
    
    
    Total Facility
    
    
    Total Availability (1)(dollars in thousands)Debt, including current portion:Term loan credit facility
    
    $
    444,375
    
    
    $
    444,375
    
    
    $
    Revolving credit facilities
    
    
    
    
    
    
    540,000
    
    
    
    274,999Retail credit facilities
    
    
    94,742
    
    
    
    94,742
    
    
    
    Totals
    
    $
    539,117
    
    
    $
    1,079,117
    
    
    $
    274,999
 
 (1)
    
    Total availability was calculated as the lesser of (a) the total size of the facilities less
outstanding borrowings and letters of credit as of September 30, 2007 which was $274,999 or
(b) total borrowing base less outstanding borrowings and letters of credit as of September 30,
2007 which was $468,283. Term Loan Credit Facility
  43




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Revolving Credit Facilities
 Israel Discount Bank Credit Facility
   Bank of America Credit Facility.
 44




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##### Table of Contents



Retail Credit Facilities
        Capital Spending
  45




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##### Table of Contents



Clean Air Capital Expenditures
 Turnaround and Chemical Catalyst Costs
 Contractual Obligations and Commercial Commitments
  Off-Balance Sheet Arrangements
  Critical Accounting Policies
   New Accounting Standards and Disclosures
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Commodity Price Risk
  46




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Wtd Avg
    
    Wtd Avg
    
    
    
    
    
    Pre-taxDescription
    
    Contract
    
    Pay
    
    Receive
    
    Contract
    
    Market
    
    Fairof Activity
    

Volumes
    
    Price
    
    Price
    
    Value
    
    Value
    

Value(in thousands)Forwards-long (gasoline)
    
    
    50,000
    
    
    $
    91.08
    
    
    $
    
    
    
    $
    4,554
    
    
    $
    4,425
    
    
    $
    (129
    )Futures-long (crude)
    
    
    255,000
    
    
    
    81.16
    
    
    
    
    
    
    
    20,695
    
    
    
    20,823
    
    
    
    128Futures-short (crude)
    
    
    (734,000
    )
    
    
    
    
    
    
    75.81
    
    
    
    (55,644
    )
    
    
    (59,891
    )
    
    
    (4,247
    )Futures-long (RBOB)
    
    
    25,000
    
    
    
    86.52
    
    
    
    
    
    
    
    2,163
    
    
    
    2,172
    
    
    
    9Futures-short (RBOB)
    
    
    (25,000
    )
    
    
    
    
    
    
    88.50
    
    
    
    (2,213
    )
    
    
    (2,172
    )
    
    
    41
 Interest Rate Risk
  
 ITEM 4. CONTROLS AND PROCEDURES
 (1) Evaluation of disclosure controls and procedures.
  47




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##### Table of Contents



(2) Changes in internal control over financial reporting.
  48




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##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 6. EXHIBITS
 ExhibitNumber
    
    Description of Exhibit3.1
    
    Amended and Restated Certificate of Incorporation of Alon USA Energy, Inc. (incorporated by
reference to Exhibit 3.1 to Form S-1, filed by the Company on July 7, 2005, SEC File No.
333-124797).3.2
    
    Amended and Restated Bylaws of Alon USA Energy, Inc. (incorporated by reference to Exhibit
3.2 to Form S-1, filed by the Company on July 14, 2005, SEC File No. 333-124797).4.1
    
    Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to Form S-1,
filed by the Company on June 17, 2005, SEC File No. 333-124797).10.1
    
    Amendment and Supplement to Pipeline Lease Agreement, dated as of August 31, 2007, by and
between HEP Pipeline Assets, Limited Partnership and Alon USA, LP.31.1
    
    Certifications of Chief Executive Officer pursuant to §302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certifications of Chief Financial Officer pursuant to §302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.
§1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002.
 49




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##### Table of Contents



SIGNATURES
  Alon USA Energy, Inc.Date:  November 8, 2007
    By:
    /s/ David WiessmanDavid WiessmanExecutive ChairmanDate:  November 8, 2007
    By:
    /s/ Jeff D. MorrisJeff D. MorrisChief Executive OfficerDate:  November 8, 2007
    By:
    /s/ Shai EvenShai EvenChief Financial Officer 50




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##### Table of Contents



EXHIBITS
 ExhibitNumber
    
    Description of Exhibit3.1
    
    Amended and Restated Certificate of Incorporation of Alon USA Energy, Inc. (incorporated by
reference to Exhibit 3.1 to Form S-1, filed by the Company on July 7, 2005, SEC File No.
333-124797).3.2
    
    Amended and Restated Bylaws of Alon USA Energy, Inc. (incorporated by reference to Exhibit
3.2 to Form S-1, filed by the Company on July 14, 2005, SEC File No. 333-124797).4.1
    
    Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to Form S-1,
filed by the Company on June 17, 2005, SEC File No. 333-124797).10.1
    
    Amendment and Supplement to Pipeline Lease Agreement, dated as of August 31, 2007, by and
between HEP Pipeline Assets, Limited Partnership and Alon USA, LP.31.1
    
    Certifications of Chief Executive Officer pursuant to §302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certifications of Chief Financial Officer pursuant to §302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.
§1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002.