##### Table of Contents



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 JUNE 30, 2006
 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 o þ
 o þ




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##### 



Table of Contents
 PagePART I. FINANCIAL INFORMATION
    
    
    1ITEM 1. FINANCIAL STATEMENTS
    
    
    1CONSOLIDATED BALANCE SHEETS
    
    
    1CONSOLIDATED STATEMENTS OF OPERATIONS
    
    
    2CONSOLIDATED STATEMENTS OF CASH FLOWS
    
    
    3NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    
    
    5ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    17FORWARD-LOOKING STATEMENTS
    
    
    17ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    39ITEM 4. CONTROLS AND PROCEDURES
    
    
    40PART II. OTHER INFORMATION
    
    
    41ITEM 5. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    41ITEM 6. EXHIBITS
    
    
    42SIGNATURESEXHIBITSCERTIFICATION OF CEO PURSUANT TO SECTION 302CERTIFICATION OF CFO PURSUANT TO SECTION 302CERTIFICATION OF CEO AND CFO PURSUANT TO SECTION 906Certifications of CEO Pursuant to Section 302Certifications of CFO Pursuant to Section 302Certifications of CEO and CFO Pursuant to Section 906




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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)
 June 30,
    
    
    December 31,2006
    
    
    2005(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    204,348
    
    
    $
    136,820Short-term investments
    
    
    
    
    
    
    185,320Accounts and other receivables, net
    
    
    129,966
    
    
    
    89,529Inventories
    
    
    113,393
    
    
    
    79,181Prepaid expenses and other current assets
    
    
    7,496
    
    
    
    6,264Total current assets
    
    
    455,203
    
    
    
    497,114Investment in HEP
    
    
    22,322
    
    
    
    22,754Property, plant and equipment, net
    
    
    211,933
    
    
    
    211,410Other assets
    
    
    57,143
    
    
    
    27,502Total assets
    
    $
    746,601
    
    
    $
    758,780LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    136,004
    
    
    $
    157,076Accrued liabilities
    
    
    58,323
    
    
    
    48,128Current portion of deferred gain on disposition of assets
    
    
    10,750
    
    
    
    11,427Current portion of long-term debt
    
    
    2,067
    
    
    
    4,487Total current liabilities
    
    
    207,144
    
    
    
    221,118Other non-current liabilities
    
    
    17,800
    
    
    
    18,345Deferred gain on disposition of assets
    
    
    47,397
    
    
    
    52,433Long-term debt
    
    
    29,096
    
    
    
    127,903Deferred income tax liability
    
    
    76,652
    
    
    
    52,422Total liabilities
    
    
    378,089
    
    
    
    472,221Commitments and contingencies (note 14)Minority interest in subsidiaries
    
    
    12,571
    
    
    
    7,066Stockholders 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; 46,806,443 and 46,809,857 shares issued and
outstanding at June 30, 2006 and December 31, 2005,
respectively
    
    
    468
    
    
    
    468Additional paid-in capital
    
    
    181,366
    
    
    
    181,108Accumulated other comprehensive loss, net of income tax
    
    
    (2,596
    )
    
    
    (2,596
    )Retained earnings
    
    
    176,703
    
    
    
    100,513Total stockholders equity
    
    
    355,941
    
    
    
    279,493Total liabilities and stockholders equity
    
    $
    746,601
    
    
    $
    758,780
  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 Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Net sales
    
    $
    672,262
    
    
    $
    590,366
    
    
    $
    1,256,963
    
    
    $
    998,340Operating costs and expenses:Cost of sales
    
    
    556,689
    
    
    
    498,047
    
    
    
    1,054,516
    
    
    
    849,601Direct operating expenses
    
    
    22,164
    
    
    
    20,373
    
    
    
    45,435
    
    
    
    38,709Selling, general and administrative
expenses
    
    
    20,354
    
    
    
    18,983
    
    
    
    37,807
    
    
    
    35,648Depreciation and amortization
    
    
    5,408
    
    
    
    5,018
    
    
    
    10,931
    
    
    
    9,852Total operating costs and expenses
    
    
    604,615
    
    
    
    542,421
    
    
    
    1,148,689
    
    
    
    933,810Gain on disposition of assets
    
    
    2,279
    
    
    
    1,530
    
    
    
    57,665
    
    
    
    29,223Operating income
    
    
    69,926
    
    
    
    49,475
    
    
    
    165,939
    
    
    
    93,753Interest expense
    
    
    (1,349
    )
    
    
    (4,745
    )
    
    
    (10,396
    )
    
    
    (9,752
    )Equity earnings in HEP
    
    
    176
    
    
    
    277
    
    
    
    753
    
    
    
    412Other income, net
    
    
    2,174
    
    
    
    830
    
    
    
    4,101
    
    
    
    1,080Income before income tax expense and
minority interest in income of
subsidiaries
    
    
    70,927
    
    
    
    45,837
    
    
    
    160,397
    
    
    
    85,493Income tax expense
    
    
    25,607
    
    
    
    16,354
    
    
    
    58,133
    
    
    
    32,009Income before minority interest in income
of subsidiaries
    
    
    45,320
    
    
    
    29,483
    
    
    
    102,264
    
    
    
    53,484Minority interest in income of subsidiaries
    
    
    2,229
    
    
    
    2,001
    
    
    
    5,009
    
    
    
    3,566Net income
    
    $
    43,091
    
    
    $
    27,482
    
    
    $
    97,255
    
    
    $
    49,918Earnings per share
    
    $
    .92
    
    
    $
    .79
    
    
    $
    2.08
    
    
    $
    1.43Weighted average shares outstanding
    
    
    46,733,009
    
    
    
    35,001,120
    
    
    
    46,732,064
    
    
    
    35,001,120Cash dividends per share
    
    $
    .04
    
    
    $
    
    
    
    $
    .45
    
    
    $
    
  2




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ALON USA ENERGY, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, dollars in thousands)
 For the Six Months EndedJune 30,2006
    
    
    2005Cash flows from operating activities:Net income
    
    $
    97,255
    
    
    $
    49,918Adjustments to reconcile net income to cash (used in) provided
by operating activities:Depreciation and amortization
    
    
    10,931
    
    
    
    9,852Stock compensation
    
    
    1,420
    
    
    
    191Deferred income tax expense
    
    
    22,658
    
    
    
    8,237Minority interest in income of subsidiaries
    
    
    5,009
    
    
    
    3,566Accrued interest on subordinated notes to stockholders
    
    
    
    
    
    
    1,059Gain on disposition of assets
    
    
    (57,665
    )
    
    
    (29,223
    )Changes in operating assets and liabilities:Accounts and other receivables, net
    
    
    (40,471
    )
    
    
    (23,241
    )Inventories
    
    
    (34,212
    )
    
    
    (6,015
    )Prepaid expenses and other current assets
    
    
    340
    
    
    
    (1,369
    )Other assets
    
    
    1,903
    
    
    
    930Accounts payable
    
    
    (21,072
    )
    
    
    35,113Accrued liabilities
    
    
    9,518
    
    
    
    1,427Other non-current liabilities
    
    
    (324
    )
    
    
    (1,057
    )Net cash (used in) provided by operating activities
    
    
    (4,710
    )
    
    
    49,388Cash flows from investing activities:Capital expenditures
    
    
    (23,165
    )
    
    
    (16,459
    )Turnaround and chemical catalyst expenditures
    
    
    (2,925
    )
    
    
    (10,781
    )Proceeds from disposition of assets, net
    
    
    68,000
    
    
    
    118,000Escrow deposits and costs relating to acquisitions
    
    
    (31,868
    )
    
    
    Sale of short-term investments, net
    
    
    185,320
    
    
    
    Dividends from investment in HEP (net of equity earnings in HEP)
    
    
    432
    
    
    
    104Minority interest shares purchased
    
    
    (186
    )
    
    
    (2,717
    )Net cash provided by investing activities
    
    
    195,608
    
    
    
    88,147Cash flows from financing activities:Dividends paid to minority interest stockholders
    
    
    (1,078
    )
    
    
    (1,482
    )Dividends paid to stockholders
    
    
    (21,065
    )
    
    
    Additions to long-term debt
    
    
    
    
    
    
    2,932Payments on long-term debt
    
    
    (101,227
    )
    
    
    (33,796
    )Net cash used in financing activities
    
    
    (123,370
    )
    
    
    (32,346
    )Net change in cash and cash equivalents
    
    
    67,528
    
    
    
    105,189Cash and cash equivalents, beginning of period
    
    
    136,820
    
    
    
    63,357Cash and cash equivalents, end of period
    
    $
    204,348
    
    
    $
    168,546
  3




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ALON USA ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS(unaudited, dollars in thousands)
 For the Six Months EndedJune 30,2006
    
    
    2005Supplemental cash flow information:Cash paid for interest
    
    $
    6,617
    
    
    $
    7,782Cash paid for income tax
    
    $
    17,596
    
    
    $
    12,447Non-cash activities:Investing activity  receipt of
Class B HEP subordinated units as
proceeds from disposition of assets
    
    $
    
    
    
    $
    30,000
  4




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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
 Accounting for
Purchases and Sales of Inventory with the Same Counterparty
   (c) New Accounting Standards
 Share-Based Payment
 5




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ALON USA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, dollars in thousands except as noted)
  Accounting for Stock Issued to
Employees
 Inventory Costs
 Application of FASB
Statement No. 109, Accounting for Income Taxes, for the Tax Deduction Provided to U.S. Based
Manufacturers by the American Jobs Creation Act of 2004 Accounting for Income
Taxes
 Accounting for Uncertainty in Income
Taxes an interpretation of FASB Statement No. 109
 (2) Sale of Amdel and White Oil Pipelines
  6




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ALON USA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, dollars in thousands except as noted)
 (3) Segment Data
  (a) Refining and Marketing Segment
  (b) Retail Segment
   (c) Corporate
  7




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ALON USA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, dollars in thousands except as noted)
  Refining andThree Months ended June 30, 2006
    
    Marketing
    
    Retail
    
    Corporate
    
    TotalNet sales to external customers
    
    $
    585,447
    
    
    $
    86,815
    
    
    $
    
    
    
    $
    672,262Intersegment sales/purchases
    
    
    39,084
    
    
    
    (39,084
    )
    
    
    
    
    
    
    Depreciation and amortization
    
    
    3,801
    
    
    
    1,110
    
    
    
    497
    
    
    
    5,408Operating income (loss)
    
    
    69,299
    
    
    
    1,219
    
    
    
    (592
    )
    
    
    69,926Total assets
    
    
    661,143
    
    
    
    71,144
    
    
    
    14,314
    
    
    
    746,601Turnaround, chemical catalyst and capital expenditures
    
    
    18,141
    
    
    
    1,951
    
    
    
    57
    
    
    
    20,149
 Refining andThree Months ended June 30, 2005
    
    Marketing
    
    Retail
    
    Corporate
    
    TotalNet sales to external customers
    
    $
    503,182
    
    
    $
    87,184
    
    
    $
    
    
    
    $
    590,366Intersegment sales/purchases
    
    
    39,592
    
    
    
    (39,592
    )
    
    
    
    
    
    
    Depreciation and amortization
    
    
    3,489
    
    
    
    1,051
    
    
    
    478
    
    
    
    5,018Operating income (loss)
    
    
    49,379
    
    
    
    702
    
    
    
    (606
    )
    
    
    49,475Total assets
    
    
    529,673
    
    
    
    70,884
    
    
    
    12,325
    
    
    
    612,882Turnaround, chemical catalyst and capital expenditures
    
    
    4,723
    
    
    
    1,021
    
    
    
    16
    
    
    
    5,760
 Refining andSix Months ended June 30, 2006
    
    Marketing
    
    Retail
    
    Corporate
    
    TotalNet sales to external customers
    
    $
    1,097,533
    
    
    $
    159,430
    
    
    $
    
    
    
    $
    1,256,963Intersegment sales/purchases
    
    
    70,474
    
    
    
    (70,474
    )
    
    
    
    
    
    
    Depreciation and amortization
    
    
    7,646
    
    
    
    2,264
    
    
    
    1,021
    
    
    
    10,931Operating income (loss)
    
    
    165,919
    
    
    
    1,263
    
    
    
    (1,243
    )
    
    
    165,939Total assets
    
    
    661,143
    
    
    
    71,144
    
    
    
    14,314
    
    
    
    746,601Turnaround, chemical catalyst and capital expenditures
    
    
    23,840
    
    
    
    2,174
    
    
    
    76
    
    
    
    26,090
 Refining andSix Months ended June 30, 2005
    
    Marketing
    
    Retail
    
    Corporate
    
    TotalNet sales to external customers
    
    $
    837,260
    
    
    $
    161,080
    
    
    $
    
    
    
    $
    998,340Intersegment sales/purchases
    
    
    72,448
    
    
    
    (72,448
    )
    
    
    
    
    
    
    Depreciation and amortization
    
    
    6,800
    
    
    
    2,103
    
    
    
    949
    
    
    
    9,852Operating income (loss)
    
    
    94,167
    
    
    
    791
    
    
    
    (1,205
    )
    
    
    93,753Total assets
    
    
    529,673
    
    
    
    70,884
    
    
    
    12,325
    
    
    
    612,882Turnaround, chemical catalyst and capital expenditures
    
    
    25,050
    
    
    
    2,030
    
    
    
    160
    
    
    
    27,240
   8




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ALON USA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, dollars in thousands except as noted)
 (4) Cash, Cash Equivalents and Short-Term Investments
    (5) Derivatives and Hedging Activities
 (a) Fair Value of Financial Instruments
  (b) Derivative Financial Instruments
     9




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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
 (6) Inventories
   June 30,
    
    
    December 31,2006
    
    
    2005Crude oil, refined products and blendstocks
    
    $
    90,110
    
    
    $
    57,822Materials and supplies
    
    
    6,069
    
    
    
    5,880Store merchandise
    
    
    13,074
    
    
    
    12,977Store fuel
    
    
    4,140
    
    
    
    2,502Total inventories
    
    $
    113,393
    
    
    $
    79,181
  (7) Property, Plant and Equipment
  June 30,
    
    
    December 31,2006
    
    
    2005Refining facilities
    
    $
    190,661
    
    
    $
    171,346Pipelines and terminals
    
    
    10,836
    
    
    
    27,237Retail
    
    
    65,876
    
    
    
    63,486Other
    
    
    10,588
    
    
    
    10,691Property, plant and equipment, gross
    
    
    277,961
    
    
    
    272,760Less accumulated depreciation
    
    
    (66,028
    )
    
    
    (61,350
    )Property, plant and equipment, net
    
    $
    211,933
    
    
    $
    211,410
  10




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ALON USA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, dollars in thousands except as noted)
 (8) Other Assets
  June 30,
    
    
    December 31,2006
    
    
    2005Escrow deposits and costs relating to acquisitions *
    
    $
    31,868
    
    
    $
    Deferred turnaround and chemical catalyst expenditures
    
    
    10,706
    
    
    
    9,865Deferred debt issuance costs
    
    
    2,666
    
    
    
    6,529Other
    
    
    11,903
    
    
    
    11,108Total other assets
    
    $
    57,143
    
    
    $
    27,502
 
 *
    
    (see Note 15) (9) Employee and Postretirement Benefits
   For the Three Months Ended
    
    
    For the Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Components of net periodic benefit cost:Service cost
    
    $
    478
    
    
    $
    347
    
    
    $
    956
    
    
    $
    693Interest cost
    
    
    608
    
    
    
    478
    
    
    
    1,216
    
    
    
    957Expected return on plan assets
    
    
    (593
    )
    
    
    (414
    )
    
    
    (1,186
    )
    
    
    (827
    )Amortization of net loss
    
    
    83
    
    
    
    166
    
    
    
    166
    
    
    
    332Net periodic benefit cost
    
    $
    576
    
    
    $
    577
    
    
    $
    1,152
    
    
    $
    1,155
 (10) Long-Term Debt
 (a) Revolving Credit Facility
   11




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ALON USA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, dollars in thousands except as noted)
  (b) Debt Repayment
  (11) Stock Based Compensation
  (a) 2005 Incentive Compensation Plan
    Weighted-AverageNonvested Shares
    
    Shares
    
    
    Grant-Date Fair ValueNonvested at January 1, 2006
    
    
    78,737
    
    
    $
    19.73Granted
    
    
    2,253
    
    
    
    33.29Vested
    
    
    (2,833
    )
    
    
    20.42Forfeited
    
    
    (5,667
    )
    
    
    20.42Nonvested at June 30, 2006
    
    
    72,490
    
    
    $
    20.07
 12




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ALON USA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, dollars in thousands except as noted)
  (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, 2004
    
    
    12,217
    
    
    $
    100
    
    
    
    4,587
    
    
    $
    100Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    (1,212
    )
    
    
    100
    
    
    
    (455
    )
    
    
    100Forfeited and expired
    
    
    (1,733
    )
    
    
    100
    
    
    
    (650
    )
    
    
    100Outstanding at December 31, 2004
    
    
    9,272
    
    
    
    100
    
    
    
    3,482
    
    
    
    100Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    (1,212
    )
    
    
    100
    
    
    
    (455
    )
    
    
    100Outstanding at December 31, 2005
    
    
    8,060
    
    
    
    100
    
    
    
    3,027
    
    
    
    100Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    (1,212
    )
    
    
    100
    
    
    
    (455
    )
    
    
    100Outstanding at June 30, 2006
    
    
    6,848
    
    
    $
    100
    
    
    
    2,572
    
    
    $
    100
 (12) Stockholders Equity
 (a) Stock Split
  (b) Common Stock Dividends
  13




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##### Table of Contents



ALON USA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, dollars in thousands except as noted)
  (13) Earnings Per Share
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Net income
    
    $
    43,091
    
    
    $
    27,482
    
    
    $
    97,255
    
    
    $
    49,918Average number of shares of common stock outstanding
    
    
    46,733
    
    
    
    35,001
    
    
    
    46,732
    
    
    
    35,001Effect of dilutive restricted shares
    
    
    45
    
    
    
    
    
    
    
    37
    
    
    
    Average number of shares of common stock
outstanding assuming dilution
    
    
    46,778
    
    
    
    35,001
    
    
    
    46,769
    
    
    
    35,001Earnings per share  basic
    
    $
    .92
    
    
    $
    .79
    
    
    $
    2.08
    
    
    $
    1.43Earnings per share  diluted
    
    $
    .92
    
    
    $
    .79
    
    
    $
    2.08
    
    
    $
    1.43
 (14) Commitments and Contingencies
 (a) Other Commitments
  (b) Other Contingencies
  (c) Environmental
  14




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ALON USA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, dollars in thousands except as noted)
   (15) Subsequent Events
 (a) Retail Convenience Stores Acquisition
   (b) Refinery Acquisitions
 Paramount Acquisition
   Edgington Acquisition
  Federal Trade Commission Requests
  15




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ALON USA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, dollars in thousands except as noted)
   Credit Suisse Credit Facility
  Declaration of Cash Dividends
  16




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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
Alons Annual Report on Form 10-K for the year ended December 31, 2005. Alon, the Company,
we and our refer to Alon USA Energy, Inc. and its subsidiaries.
 
 FORWARD-LOOKING STATEMENTS
    
    
    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 crude oil spread;
    
    actions of customers and competitors;
    
    changes in fuel and utility costs incurred by our facilities;
    
    disruptions due to equipment interruption, pipeline disruptions or failure at our 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, 2005, under the caption Risk Factors.
  17




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Company Overview
  Refining and Marketing Segment
  Retail Segment
 Third Quarter 2006 Developments
 Current 2006 Results and Third Quarter 2006 Developments
 Current 2006 Results
  §
    
    Net income for the three months ended June 30, 2006 was $43.1 million. Net income
included $1.4 million of after-tax gain on disposition of assets (after-tax gain)
associated with the pipeline and terminal assets contributed to Holly Energy Partners, L.P.
(HEP). Net income excluding the after-tax gain was $41.7 million, a record quarter for
Alon.§
    
    In the second quarter of 2006, we successfully completed a scheduled turnaround at
the Big Spring refinery that enables the refinery to meet the new ultra low sulfur diesel
standard of 15 parts per million (ppm) for a total investment of $17.5 million. This new
standard was promulgated by the U.S. Environmental Protection Agency (EPA) regulations
related to the Clean Air Act. Refinery production was reduced during the second quarter of
2006, to an average refinery production of 55,720 bpd, while work was
completed to meet this new standard. Even with work performed during the second quarter of
2006, refinery production for the six month period ended June 30, 2006 averaged 62,623 bpd
compared to 59,399 bpd for the six month period ended June 30, 2005. This was possible as a
result of the 8,000 bpd crude oil capacity expansion completed in the first quarter of 2005.§
    
    Our refinery is capable of processing substantial volumes of sour crude oil, which
has historically cost less than intermediate and sweet crude oils. The average sweet/sour
spread for the three months ended June 30, 2006 was $4.72 per barrel compared to $3.74 per
barrel for the three months ended June 30, 2005. The
 18




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##### Table of Contents



average sweet/sour spread for the
first six months of 2006 was $5.63 per barrel compared to $4.41 per barrel for the first
six months of 2005.§
    
    Our average refinery operating margin increased $7.30 per barrel to $19.13 per
barrel for the three months ended June 30, 2006, compared to the three months ended June
30, 2005. Our average refinery operating margin increased $3.69 per barrel to $15.02 per
barrel for the first six months of 2006, compared to the first six months of 2005.§
    
    Our capital expenditures and turnaround spending for the three months ended June 30,
2006 totaled approximately $20.1 million, of which approximately $9.3 million was related
to the ultra low sulfur diesel turnaround and $1.6 million was spent on a chemical
catalyst. Our capital expenditures and turnaround spending for the six months ended June
30, 2006 totaled approximately $26.1 million, of which approximately $12.0 million related
to the ultra low sulfur diesel turnaround and $3.0 million was spent on a chemical
catalyst.
     Third Quarter 2006 Developments
 Retail Convenience Stores Acquisition
    19




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##### Table of Contents



Refinery Acquisitions
 Paramount Acquisition
   Edgington Acquisition
  Federal Trade Commission Requests
   Credit Suisse Credit Facility
  20




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##### Table of Contents



Declaration of Cash Dividends
  Crude Pipeline Arrangement
  Major Influences on Results of Operations
 Refining and Marketing
 Refining and Marketing Margins
 3/2/1 Crack Spread.
 Sweet/Sour Spread.
 Operating Costs.
 Seasonality.
 Safety and Reliability.
 21




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##### Table of Contents



Inventory.
 Retail
  Factors Affecting Comparability
  Refinery Turnaround.
 Increased Crude Oil Throughput Capacity
 Amdel and White Oil Pipeline Transaction
  22




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##### Table of Contents



Results of Operations
 Net Sales
 Cost of Sales
 Direct Operating Expenses
 Selling, General and Administrative Expenses
 23




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ALON USA ENERGY, INC. AND SUBSIDIARIES CONSOLIDATED
 Summary Financial Tables
 For the Three Months Ended
    
    
    For the Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(dollars in thousands, except per share data)STATEMENT OF OPERATIONS DATA:Net sales
    
    $
    672,262
    
    
    $
    590,366
    
    
    $
    1,256,963
    
    
    $
    998,340Operating costs and expenses:Cost of sales
    
    
    556,689
    
    
    
    498,047
    
    
    
    1,054,516
    
    
    
    849,601Direct operating expenses
    
    
    22,164
    
    
    
    20,373
    
    
    
    45,435
    
    
    
    38,709Selling, general and administrative expenses (1)
    
    
    20,354
    
    
    
    18,983
    
    
    
    37,807
    
    
    
    35,648Depreciation and amortization (2)
    
    
    5,408
    
    
    
    5,018
    
    
    
    10,931
    
    
    
    9,852Total operating costs and expenses
    
    
    604,615
    
    
    
    542,421
    
    
    
    1,148,689
    
    
    
    933,810Gain on disposition of assets (3)
    
    
    2,279
    
    
    
    1,530
    
    
    
    57,665
    
    
    
    29,223Operating income
    
    
    69,926
    
    
    
    49,475
    
    
    
    165,939
    
    
    
    93,753Interest expense (4)
    
    
    (1,349
    )
    
    
    (4,745
    )
    
    
    (10,396
    )
    
    
    (9,752
    )Equity earnings in HEP
    
    
    176
    
    
    
    277
    
    
    
    753
    
    
    
    412Other income, net
    
    
    2,174
    
    
    
    830
    
    
    
    4,101
    
    
    
    1,080Income before income tax expense and minority interest
in income of subsidiaries
    
    
    70,927
    
    
    
    45,837
    
    
    
    160,397
    
    
    
    85,493Income tax expense
    
    
    25,607
    
    
    
    16,354
    
    
    
    58,133
    
    
    
    32,009Income before minority interest in income of subsidiaries
    
    
    45,320
    
    
    
    29,483
    
    
    
    102,264
    
    
    
    53,484Minority interest in income of subsidiaries
    
    
    2,229
    
    
    
    2,001
    
    
    
    5,009
    
    
    
    3,566Net income
    
    $
    43,091
    
    
    $
    27,482
    
    
    $
    97,255
    
    
    $
    49,918Earnings per share, basic and diluted (5)
    
    $
    .92
    
    
    $
    .79
    
    
    $
    2.08
    
    
    $
    1.43Weighted average shares outstanding (5)
    
    
    46,733,009
    
    
    
    35,001,120
    
    
    
    46,732,064
    
    
    
    35,001,120Cash dividends per share
    
    $
    .04
    
    
    $
    
    
    
    $
    .45
    
    
    $
    CASH FLOW DATA:Net cash provided by (used in):Operating activities
    
    $
    5,013
    
    
    $
    65,825
    
    
    $
    (4,710
    )
    
    $
    49,388Investing activities
    
    
    66,221
    
    
    
    (5,656
    )
    
    
    195,608
    
    
    
    88,147Financing activities
    
    
    (3,710
    )
    
    
    (612
    )
    
    
    (123,370
    )
    
    
    (32,346
    )OTHER DATA:Adjusted EBITDA (6)
    
    $
    75,405
    
    
    $
    54,070
    
    
    $
    124,059
    
    
    $
    75,874Capital expenditures (7)
    
    
    18,527
    
    
    
    5,361
    
    
    
    23,165
    
    
    
    16,459Capital expenditures for turnaround and chemical catalyst
    
    
    1,622
    
    
    
    399
    
    
    
    2,925
    
    
    
    10,781June 30,
    
    December 31,2006
    
    
    
    2005BALANCE SHEET DATA (end of period):Cash, cash equivalents and short-term investments
    
    
    
    
    
    
    
    
    
    $
    204,348
    
    
    $
    322,140Working capital
    
    
    
    
    
    
    
    
    
    
    248,059
    
    
    
    275,996Total assets
    
    
    
    
    
    
    
    
    
    
    746,601
    
    
    
    758,780Total debt
    
    
    
    
    
    
    
    
    
    
    31,163
    
    
    
    132,390Total stockholders equity
    
    
    
    
    
    
    
    
    
    
    355,941
    
    
    
    279,493
 24




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##### Table of Contents



(1)
    
    Includes corporate headquarters selling, general and administrative expenses of $95 and $128
for the three months ended June 30, 2006 and 2005, respectively, and $222 and $256 for the six
months ended June 30, 2006 and 2005, respectively.(2)
    
    Includes corporate depreciation and amortization of $497 and $478 for the three months ended
June 30, 2006 and 2005, respectively, and $1,021 and $949 for the six months ended June 30,
2006 and 2005, respectively.(3)
    
    Gain on disposition of assets reported in the six months ended June 30, 2006, reflects the
$52.5 million pre-tax gain on disposition of assets, recorded in connection with the Amdel and
White Oil transaction and the recognition of $5.2 million deferred gain recorded in connection
with the HEP transaction. Gain on disposition of assets reported in the six months ended June
30, 2005, reflects the $26.7 million initial pre-tax gain and $2.5 million deferred gain
recorded in connection with the HEP transaction.(4)
    
    Interest expense for the six months ended June 30, 2006, includes $3.0 million prepayment
premium and $3.9 million of unamortized debt issuance costs written off as a result of the
prepayment of the $100 million term loan in January 2006.(5)
    
    Weighted average common shares outstanding and earnings per common share amounts for the
three and six months ended June 30, 2005 have been restated to reflect the effect of the
33,600-for-one split of our common stock which was effective on July 6, 2005.(6)
    
    EBITDA represents earnings before minority interest in income of subsidiaries, income tax
expense, interest expense, depreciation and amortization. Adjusted EBITDA represents EBITDA,
exclusive of gain on disposition of assets. EBITDA and Adjusted EBITDA are not recognized
measurements under GAAP; however, the amounts included in EBITDA and 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. EBITDA is the basis for calculating selected financial ratios as required in the
debt covenants in our revolving credit agreement. See Managements Discussion and Analysis
of Financial Condition and Results of OperationsLiquidity and Capital ResourcesCash Position
and Indebtedness.Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in
isolation, or as a substitute for analysis of our results as reported under GAAP. Some of these
limitations are: 
    
    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
    
    Our calculation of Adjusted EBITDA may differ from the EBITDA calculations of
other companies in our industry, limiting its usefulness as a comparative measure.
  25




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For the Three Months Ended
    
    
    For the Six Months EndedJune 30,
    
    
    June 30,(dollars in thousands)2006
    
    
    2005
    
    
    2006
    
    
    2005Net income
    
    $
    43,091
    
    
    $
    27,482
    
    
    $
    97,255
    
    
    $
    49,918Minority interest in income of subsidiaries
    
    
    2,229
    
    
    
    2,001
    
    
    
    5,009
    
    
    
    3,566Income tax expense
    
    
    25,607
    
    
    
    16,354
    
    
    
    58,133
    
    
    
    32,009Interest expense
    
    
    1,349
    
    
    
    4,745
    
    
    
    10,396
    
    
    
    9,752Depreciation and amortization
    
    
    5,408
    
    
    
    5,018
    
    
    
    10,931
    
    
    
    9,852EBITDA
    
    
    77,684
    
    
    
    55,600
    
    
    
    181,724
    
    
    
    105,097Gain on disposition of assets
    
    
    (2,279
    )
    
    
    (1,530
    )
    
    
    (57,665
    )
    
    
    (29,223
    )Adjusted EBITDA
    
    $
    75,405
    
    
    $
    54,070
    
    
    $
    124,059
    
    
    $
    75,874
 (7)
    
    Includes corporate capital expenditures of $57 and $16 for the three months ended June
30, 2006 and 2005, respectively, and $76 and $160 for the six months ended June 30, 2006 and
2005, respectively, which are not included in the capital expenditures of our other two
operating segments.
 26




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##### Table of Contents



REFINING AND MARKETING SEGMENT
 For the Three Months Ended
    
    
    For the Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(dollars in thousands, except per barrel data and pricing statistics)STATEMENTS OF OPERATIONS DATA:Net sales (1) (2)
    
    $
    624,531
    
    
    $
    542,774
    
    
    $
    1,168,007
    
    
    $
    909,708Operating costs and expenses:Cost of sales (2)
    
    
    524,317
    
    
    
    464,656
    
    
    
    994,567
    
    
    
    788,170Direct operating expenses
    
    
    22,164
    
    
    
    20,373
    
    
    
    45,435
    
    
    
    38,709Selling, general and administrative expenses
    
    
    7,229
    
    
    
    6,407
    
    
    
    12,105
    
    
    
    11,085Depreciation and amortization
    
    
    3,801
    
    
    
    3,489
    
    
    
    7,646
    
    
    
    6,800Total operating costs and expenses
    
    
    557,511
    
    
    
    494,925
    
    
    
    1,059,753
    
    
    
    844,764Gain on disposition of assets (3)
    
    
    2,279
    
    
    
    1,530
    
    
    
    57,665
    
    
    
    29,223Operating income
    
    $
    69,299
    
    
    $
    49,379
    
    
    $
    165,919
    
    
    $
    94,167KEY OPERATING STATISTICS:Total sales volume (bpd)
    
    
    80,419
    
    
    
    95,217
    
    
    
    82,881
    
    
    
    83,799Non-integrated marketing sales volume (bpd) (4)
    
    
    19,411
    
    
    
    20,543
    
    
    
    19,379
    
    
    
    20,304Non-integrated marketing margin (per barrel
sales volume) (4)
    
    $
    (.67
    )
    
    $
    .26
    
    
    $
    (.61
    )
    
    $
    (.32
    )Per barrel of throughput:Refinery operating margin (5)
    
    $
    19.13
    
    
    $
    11.83
    
    
    $
    15.02
    
    
    $
    11.33Refinery direct operating expenses
    
    
    4.32
    
    
    
    3.10
    
    
    
    3.96
    
    
    
    3.57Capital expenditures
    
    
    16,519
    
    
    
    4,324
    
    
    
    20,915
    
    
    
    14,269Capital expenditures for turnaround and
chemical catalyst
    
    
    1,622
    
    
    
    399
    
    
    
    2,925
    
    
    
    10,781PRICING STATISTICS:WTI crude oil (per barrel)
    
    $
    70.41
    
    
    $
    53.00
    
    
    $
    66.89
    
    
    $
    51.39WTS crude oil (per barrel)
    
    
    65.69
    
    
    
    49.26
    
    
    
    61.26
    
    
    
    46.98Crack spreads (3/2/1) (per barrel):Gulf Coast
    
    $
    18.22
    
    
    $
    10.18
    
    
    $
    13.98
    
    
    $
    8.44Group III
    
    
    19.44
    
    
    
    11.62
    
    
    
    14.58
    
    
    
    9.80Crude oil differentials (per barrel):WTI less WTS
    
    $
    4.72
    
    
    $
    3.74
    
    
    $
    5.63
    
    
    $
    4.41Product price (per gallon):Gulf Coast unleaded gasoline
    
    
    210.7
    ¢
    
    
    147.8
    ¢
    
    
    190.6
    ¢
    
    
    140.2
    ¢Gulf Coast low-sulfur diesel
    
    
    211.6
    
    
    
    155.8
    
    
    
    196.5
    
    
    
    147.0Group III unleaded gasoline
    
    
    212.7
    
    
    
    151.3
    
    
    
    191.8
    
    
    
    143.7Group III low-sulfur diesel
    
    
    216.5
    
    
    
    158.9
    
    
    
    198.4
    
    
    
    149.8Natural gas (per MMBTU)
    
    $
    6.65
    
    
    $
    6.95
    
    
    $
    6.11
    
    
    $
    6.73
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THROUGHPUT AND YIELD DATA:
 For the Three Months Ended
    
    For the Six Months EndedJune 30,
    
    June 30,2006
    
    2005
    
    2006
    
    2005bpd
    
    %
    
    bpd
    
    %
    
    bpd
    
    %
    
    bpd
    
    %Refinery crude throughput:Sour crude
    
    
    49,040
    
    
    
    93.9
    
    
    
    61,572
    
    
    
    89.7
    
    
    
    55,842
    
    
    
    94.6
    
    
    
    51,391
    
    
    
    91.2Sweet crude
    
    
    3,186
    
    
    
    6.1
    
    
    
    7,033
    
    
    
    10.3
    
    
    
    3,188
    
    
    
    5.4
    
    
    
    4,943
    
    
    
    8.8Total crude throughput
    
    
    52,226
    
    
    
    100.0
    
    
    
    68,605
    
    
    
    100.0
    
    
    
    59,030
    
    
    
    100.0
    
    
    
    56,334
    
    
    
    100.0Blendstocks
    
    
    4,109
    
    
    
    
    
    
    
    3,502
    
    
    
    
    
    
    
    4,362
    
    
    
    
    
    
    
    3,511Total refinery throughput (6)
    
    
    56,335
    
    
    
    
    
    
    
    72,107
    
    
    
    
    
    
    
    63,392
    
    
    
    
    
    
    
    59,845Refinery production (7):Gasoline
    
    
    24,250
    
    
    
    43.5
    
    
    
    31,340
    
    
    
    43.8
    
    
    
    28,524
    
    
    
    45.5
    
    
    
    26,478
    
    
    
    44.6Diesel/jet
    
    
    16,361
    
    
    
    29.4
    
    
    
    25,867
    
    
    
    36.1
    
    
    
    20,011
    
    
    
    32.0
    
    
    
    20,579
    
    
    
    34.6Asphalt
    
    
    5,715
    
    
    
    10.3
    
    
    
    6,374
    
    
    
    8.9
    
    
    
    6,077
    
    
    
    9.7
    
    
    
    5,341
    
    
    
    9.0Petrochemicals
    
    
    3,759
    
    
    
    6.7
    
    
    
    5,145
    
    
    
    7.2
    
    
    
    4,011
    
    
    
    6.4
    
    
    
    4,386
    
    
    
    7.4Other
    
    
    5,635
    
    
    
    10.1
    
    
    
    2,876
    
    
    
    4.0
    
    
    
    4,000
    
    
    
    6.4
    
    
    
    2,615
    
    
    
    4.4Total refinery production
    
    
    55,720
    
    
    
    100.0
    
    
    
    71,602
    
    
    
    100.0
    
    
    
    62,623
    
    
    
    100.0
    
    
    
    59,399
    
    
    
    100.0Refinery Utilization (8)
    
    
    
    
    
    
    85.7
    %
    
    
    
    
    
    
    98.0
    %
    
    
    
    
    
    
    90.2
    %
    
    
    
    
    
    
    94.2
    %
 
 (1)
    
    Net sales include intersegment sales to our retail segment at prices which approximate market
price. These intersegment sales are eliminated through consolidation of our financial
statements. Net sales for the three and six months ended June 30, 2006, includes $3.3 million
for the sale of sulfur credits.(2)
    
    Our buy/sell arrangements involve linked purchases and sales related to refined product
contracts entered into to address location or grade requirements. As of January 1, 2006, such
buy/sell transactions are included on a net basis in sales in the consolidated statements of
operations and profits are recognized when the exchanged product is sold. Prior to January 1,
2006, the results of buy/sell transactions were recorded separately in sales and cost of sales
in the consolidated statements of operations.(3)
    
    Gain on disposition of assets reported in the six months ended June 30, 2006, reflects the
$52.5 million pre-tax gain on disposition of assets, recorded in connection with the Amdel
and White Oil transaction and the recognition of $5.2 million deferred gain recorded in
connection with the HEP transaction. Gain on disposition of assets reported in the six months
ended June 30, 2005, reflects the $26.7 million initial pre-tax gain and $2.5 million of
deferred gain recorded in connection with the HEP transaction.(4)
    
    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 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.(5)
    
    Refinery operating margin is a per barrel measurement calculated by dividing the margin
between net sales (exclusive of sale of sulfur credits) and cost of sales attributable to our
refining and marketing segment, exclusive of net sales and cost of sales relating to our
non-integrated system, by our Big Spring 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 margin to these crack spreads to assess our operating performance relative to other
participants in our industry.(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. 28




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##### Table of Contents



RETAIL SEGMENT
    
    For the Three Months Ended
    
    
    For the Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(dollars in thousands, except per gallon data)STATEMENTS OF OPERATIONS DATA:Net sales
    
    $
    86,815
    
    
    $
    87,184
    
    
    $
    159,430
    
    
    $
    161,080Operating costs and expenses:Cost of sales (1)
    
    
    71,456
    
    
    
    72,983
    
    
    
    130,423
    
    
    
    133,879Selling, general and administrative expenses
    
    
    13,030
    
    
    
    12,448
    
    
    
    25,480
    
    
    
    24,307Depreciation and amortization
    
    
    1,110
    
    
    
    1,051
    
    
    
    2,264
    
    
    
    2,103Total operating costs and expenses
    
    
    85,596
    
    
    
    86,482
    
    
    
    158,167
    
    
    
    160,289Operating income
    
    $
    1,219
    
    
    $
    702
    
    
    $
    1,263
    
    
    $
    791KEY OPERATING STATISTICS:Number of stores (end of period)
    
    
    167
    
    
    
    167
    
    
    
    167
    
    
    
    167Fuel sales (thousands of gallons)
    
    
    17,450
    
    
    
    24,678
    
    
    
    34,583
    
    
    
    48,066Fuel sales (thousands of gallons per site per
month)
    
    
    35
    
    
    
    49
    
    
    
    35
    
    
    
    48Fuel margin (cents per gallon) (2)
    
    
    17.4
    ¢
    
    
    10.3
    ¢
    
    
    17.3
    ¢
    
    
    11.5
    ¢Fuel sales price (dollars per gallon) (3)
    
    $
    2.72
    
    
    $
    2.12
    
    
    $
    2.56
    
    
    $
    2.00Merchandise sales
    
    $
    36,968
    
    
    $
    34,860
    
    
    $
    69,382
    
    
    $
    64,855Merchandise sales (per site per month)
    
    
    74
    
    
    
    70
    
    
    
    69
    
    
    
    65Merchandise margin (4)
    
    
    31.3
    %
    
    
    33.5
    %
    
    
    32.2
    %
    
    
    33.4
    %Capital expenditures
    
    $
    1,951
    
    
    $
    1,021
    
    
    $
    2,174
    
    
    $
    2,030
 
 (1)
    
    Cost of sales includes intersegment purchases of motor fuels from our refining and marketing
segment at prices which approximate market prices. These intersegment purchases are
eliminated through consolidation of our financial statements.(2)
    
    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.(3)
    
    Fuel sales price per gallon represents the average sales price for motor fuels sold through
our retail segment.(4)
    
    Merchandise margin represents the difference between merchandise sales revenue 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. Three Months Ended June 30, 2006 Compared to the Three Months Ended June 30, 2005
 Net Sales
 Consolidated
 Refining and Marketing Segment
 29




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##### Table of Contents



Retail Segment
 Cost of Sales
 Consolidated
 Refining and Marketing Segment
 Retail Segment
 Direct Operating Expenses
  Selling, General and Administrative Expenses
 Consolidated
 Refining and Marketing Segment
 Retail Segment
 Depreciation and Amortization
  30




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##### Table of Contents



Operating Income
 Consolidated
 Refining and Marketing Segment
 Retail Segment
 Interest Expense
  Income Tax Expense
  Minority Interest In Income Of Subsidiaries
  Net Income
  31




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##### Table of Contents



Six Months Ended June 30, 2006 Compared to the Six Months Ended June 30, 2005
 Net Sales
 Consolidated
 Refining and Marketing Segment
 Retail Segment
 Cost of Sales
 Consolidated
 Refining and Marketing Segment
 Retail Segment
 Direct Operating Expenses
  Selling, General and Administrative Expenses
 Consolidated
 32




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##### Table of Contents



Refining and Marketing Segment
 Retail Segment
 Depreciation and Amortization
  Operating Income
 Consolidated
 Refining and Marketing Segment
 Retail Segment
 Interest Expense
  33




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##### Table of Contents



Income Tax Expense
  Minority Interest In Income Of Subsidiaries
  Net Income
  Liquidity and Capital Resources
   Cash Flows
  For the Three Months Ended
    
    
    For the Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(dollars in thousands)
    
    
    (dollars in thousands)Cash provided by (used in):Operating activities
    
    $
    5,013
    
    
    $
    65,825
    
    
    $
    (4,710
    )
    
    $
    49,388Investing activities
    
    
    66,221
    
    
    
    (5,656
    )
    
    
    195,608
    
    
    
    88,147Financing activities
    
    
    (3,710
    )
    
    
    (612
    )
    
    
    (123,370
    )
    
    
    (32,346
    )Net increase in cash and cash
equivalents
    
    $
    67,524
    
    
    $
    59,557
    
    
    $
    67,528
    
    
    $
    105,189
 34




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##### Table of Contents



Cash Flows (Used In) Provided by Operating Activities
   Cash Flows (Used In) Provided By Investing Activities
   Cash Flows Used In Financing Activities
   Cash Position and Indebtedness
  35




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##### Table of Contents



Summary of Indebtedness
 As of June 30, 2006(dollars in thousands)Debt, including current portionBank credit facilities:Revolving credit facility
    
    $
    Retail mortgages and equipment loans
    
    
    31,163Total debt
    
    $
    31,163
 Revolving Credit Facility
    
    
    a minimum consolidated tangible net worth equal to the sum of $106.0 million
plus an amount determined on a cumulative basis equal to the sum of 50% of any positive net
income for each fiscal year after December 31, 2004 (as of June 30, 2006, the minimum
consolidated tangible net worth was $206.4 million and our actual consolidated tangible net
worth was $274.4 million);
    
    a ratio of total consolidated indebtedness less freely transferable cash and
permitted investments not subject to any lien (other than liens in favor of Israel Discount
Bank) to consolidated EBITDA for the last four fiscal quarters of no greater than 4.0 to
1.0 (the ratio as of June 30, 2006 was (.2) to 1.00);
    
    a minimum ratio of consolidated current assets to consolidated current
liabilities of 1.0 to 1.0 (the ratio as of June 30, 2006 was 2.0 to 1.0); and
    
    a ratio of total consolidated EBITDA to consolidated interest expense, in each
case as of the end of any period of four fiscal quarters, to be not less than 2.0 to 1.0
(the ratio as of June 30, 2006 was 14.5 to 1.0).
 
 36




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##### Table of Contents



Wachovia Credit Facility
    Credit Suisse Credit Facility.
     37




---



##### Table of Contents



Capital Spending
  Clean Air Capital Expenditures
 Turnaround and Chemical Catalyst Costs
 Contractual Obligations and Commercial Commitments
  
    
    the prepayment of our $100 million term loan due January 14, 2009 with
available cash on hand on January 19, 2006; and
    
    our obligations under the Sunoco Throughput & Deficiency Agreement.
 Off-Balance Sheet Arrangements
  Critical Accounting Policies
   New Accounting Standards and Disclosures
 Share-Based Payment
 38




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##### Table of Contents



Accounting for Stock Issued to
Employees
 Inventory Costs
 Application of FASB
Statement No. 109, Accounting for Income Taxes, for the Tax Deduction Provided to U.S. Based
Manufacturers by the American Jobs Creation Act of 2004 Accounting for Income
Taxes
 Accounting for Uncertainty in Income
Taxes an interpretation of FASB Statement No. 109
 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Commodity Price Risk
   39




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##### Table of Contents



Wtd Avg
    
    Wtd AvgDescription
    
    Contract
    
    Purchase
    
    Sales
    
    Contract
    
    Fair
    
    Gainof Activity
    
    Volume
    
    Price/BBL
    
    Price
    
    Value
    
    Value
    
    (Loss)(in thousands)Futures-long
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Futures-short
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forwards-long (refined products)
    
    
    25,000
    
    
    
    90.55
    
    
    
    91.50
    
    
    
    2,263
    
    
    
    2,287
    
    
    
    24Forwards-short (refined products)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 Interest Rate Risk.
  
 ITEM 4. CONTROLS AND PROCEDURES
 (1) Evaluation of disclosure controls and procedures .
  (2) Changes in internal control over financial reporting.
  40




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##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 5. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
  (a)
    
    The stockholders approved the election of ten (10) Directors for a one-year
term expiring at the 2007 Annual Meeting of the Companys stockholders. The votes for
these elections were as follows:
 Director
    
    For
    
    WithheldItzhak Bader
    
    
    41,146,811
    
    
    
    4,166,206Boaz Biran
    
    
    41,422,093
    
    
    
    3,890,924Pinchas Cohen
    
    
    39,365,522
    
    
    
    5,947,495Shaul Gliksberg
    
    
    41,147,330
    
    
    
    4,165,687Ron W. Haddock
    
    
    39,860,748
    
    
    
    5,452,269Jeff. D. Morris
    
    
    40,130,445
    
    
    
    5,182,572Yeshayahu Pery
    
    
    41,420,627
    
    
    
    3,892,390Zalman Segal
    
    
    44,939,531
    
    
    
    373,486Avraham Shochat
    
    
    44,940,264
    
    
    
    372,753David Wiessman
    
    
    40,129,712
    
    
    
    5,183,305
 (b)
    
    The stockholders ratified the employment of KPMG LLP as the Companys
independent registered public accounting firm for the fiscal year ending December 31,
2006. The votes for ratification were 44,552,534, the votes against ratification were
745,618 and the votes abstained were 14,865. There were no broker non-votes.(c)
    
    The stockholders approved the Alon USA Energy, Inc. 2005 Incentive Compensation
Plan. The votes in favor of approval were 44,004,349, the votes against approval were
1,186,839, and the votes abstained were 121,829. There were no broker non-votes.
 41




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##### Table of Contents



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
    
    Form of Restricted Stock Award Agreement relating to Director Grants pursuant to Section 12
of the Alon USA Energy, Inc. 2005 Incentive Compensation Plan (incorporated by reference to
Exhibit 10.1 to Form 8-K filed by the Company on August 5, 2005, SEC File No. 001-32567).10.2
    
    Stock Purchase Agreement by and among Alon USA Energy, Inc., The Craig C. Barto and Gisele
M. Barto Living Trust, Dated April 5, 1991, The Jerrel C. Barto and Janice D. Barto Living
Trust, Dated March 18, 1991, W. Scott Lovejoy III and Mark R. Milano, dated April 28, 2006
(incorporated by reference to Exhibit 10.1 to Form 8-K filed by the Company on May 2, 2006,
SEC File No. 001-32567).10.3
    
    Agreement and Plan of Merger by and among Alon USA Energy, Inc., Apex Oil Company, Inc.,
Edgington Oil Company, and EOC Acquisition, LLC, dated April 28, 2006 (incorporated by
reference to Exhibit 10.2 to Form 8-K filed by the Company on May 2, 2006, SEC File No.
001-32567).10.4
    
    Credit Agreement, dated June 6, 2006, by and among Southwest Convenience Stores, LLC, the
lenders party thereto and Wachovia Bank, National Association (incorporated by reference to
Exhibit 10.1 to Form 8-K filed by the Company on June 7, 2006, SEC File No. 001-32567).10.5
    
    Credit Agreement, dated June 22, 2006, by and among Alon USA Energy, Inc., the lenders party
thereto and Credit Suisse (incorporated by reference to Exhibit 10.1 to Form 8-K filed by
the Company on June 26, 2006, SEC File No. 001-32567).10.6
    
    Amended Revolving Credit Agreement, dated June 22, 2006, by and among Alon USA, LP, EOC
Acquisition, LLC, Israel Discount Bank of New York, Bank Leumi USA and certain other
guarantor companies and financial institutions from time to time named therein (incorporated
by reference to Exhibit 10.2 to Form 8-K filed by the Company on June 26, 2006, SEC File No.
001-32567).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.
 
 *
    
    Furnished herewith. 42




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##### Table of Contents



SIGNATURES
  Date: August 11, 2006
    By:
    /s/ David WiessmanDavid WiessmanExecutive ChairmanDate: August 11, 2006
    By:
    /s/ Jeff D. MorrisJeff D. MorrisChief Executive OfficerDate: August 11, 2006
    By:
    /s/ Shai EvenShai EvenChief Financial Officer 43




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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
    
    Form of Restricted Stock Award Agreement relating to Director Grants pursuant to Section 12
of the Alon USA Energy, Inc. 2005 Incentive Compensation Plan (incorporated by reference to
Exhibit 10.1 to Form 8-K filed by the Company on August 5, 2005, SEC File No. 001-32567).10.2
    
    Stock Purchase Agreement by and among Alon USA Energy, Inc., The Craig C. Barto and Gisele
M. Barto Living Trust, Dated April 5, 1991, The Jerrel C. Barto and Janice D. Barto Living
Trust, Dated March 18, 1991, W. Scott Lovejoy III and Mark R. Milano, dated April 28, 2006
(incorporated by reference to Exhibit 10.1 to Form 8-K filed by the Company on May 2, 2006,
SEC File No. 001-32567).10.3
    
    Agreement and Plan of Merger by and among Alon USA Energy, Inc., Apex Oil Company, Inc.,
Edgington Oil Company, and EOC Acquisition, LLC, dated April 28, 2006 (incorporated by
reference to Exhibit 10.2 to Form 8-K filed by the Company on May 2, 2006, SEC File No.
001-32567).10.4
    
    Credit Agreement, dated June 6, 2006, by and among Southwest Convenience Stores, LLC, the
lenders party thereto and Wachovia Bank, National Association (incorporated by reference to
Exhibit 10.1 to Form 8-K filed by the Company on June 7, 2006, SEC File No. 001-32567).10.5
    
    Credit Agreement, dated June 22, 2006, by and among Alon USA Energy, Inc., the lenders party
thereto and Credit Suisse (incorporated by reference to Exhibit 10.1 to Form 8-K filed by
the Company on June 26, 2006, SEC File No. 001-32567).10.6
    
    Amended Revolving Credit Agreement, dated June 22, 2006, by and among Alon USA, LP, EOC
Acquisition, LLC, Israel Discount Bank of New York, Bank Leumi USA and certain other
guarantor companies and financial institutions from time to time named therein (incorporated
by reference to Exhibit 10.2 to Form 8-K filed by the Company on June 26, 2006, SEC File No.
001-32567).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.
 
 *
    
    Furnished herewith. 44