##### 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, 2008
 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(State or other jurisdiction of 
incorporation or organization)
    
    74-2966572(I.R.S. Employer
Identification No.)
 (Address of principal executive offices) (Zip Code)
 (Registrants telephone number, including area code)
 
 þ o
  Large accelerated filer oAccelerated filer þNon-accelerated filer o(Do not check if a smaller reporting company)Smaller reporting company o o þ




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##### 



PART I. FINANCIAL INFORMATIONITEM 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
    
    
    47ITEM 4. CONTROLS AND PROCEDURES
    
    
    48PART II. OTHER INFORMATION
    
    
    49ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    
    49ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    50ITEM 6. EXHIBITS
    
    
    51SIGNATURES
    
    
    52EXHIBITSCERTIFICATION OF CEO PURSUANT TO SECTION 302CERTIFICATION OF CFO PURSUANT TO SECTION 302CERTIFICATION OF CEO AND CFO PURSUANT TO SECTION 906Offtake AgreementEarnout AgreementCertification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification 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 31,2008
    
    
    2007(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    13,896
    
    
    $
    68,615Short-term investments
    
    
    
    
    
    
    27,296Accounts and other receivables, net
    
    
    277,091
    
    
    
    228,987Income tax receivable
    
    
    55,564
    
    
    
    35,244Inventories
    
    
    290,898
    
    
    
    300,689Prepaid expenses and other current assets
    
    
    7,331
    
    
    
    12,231Total current assets
    
    
    644,780
    
    
    
    673,062Equity method investments
    
    
    42,196
    
    
    
    40,092Property, plant and equipment, net
    
    
    878,599
    
    
    
    713,592Goodwill
    
    
    105,943
    
    
    
    105,943Other assets
    
    
    65,616
    
    
    
    48,697Total assets
    
    $
    1,737,134
    
    
    $
    1,581,386LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    427,622
    
    
    $
    291,339Accrued liabilities
    
    
    87,394
    
    
    
    82,184Current portion of deferred gain on disposition of assets
    
    
    
    
    
    
    8,805Fair value of derivative liability
    
    
    24,500
    
    
    
    Current portion of long-term debt
    
    
    7,945
    
    
    
    11,154Total current liabilities
    
    
    547,461
    
    
    
    393,482Other non-current liabilities
    
    
    90,187
    
    
    
    58,637Deferred gain on disposition of assets
    
    
    
    
    
    
    33,832Long-term debt
    
    
    571,017
    
    
    
    525,461Deferred income tax liability
    
    
    180,132
    
    
    
    166,052Total liabilities
    
    
    1,388,797
    
    
    
    1,177,464Commitments and contingencies (note 16)Minority interest in subsidiaries
    
    
    14,746
    
    
    
    16,155Stockholders 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; 46,814,021 and 46,808,444 shares issued and
outstanding at June 30, 2008 and December 31, 2007,
respectively
    
    
    468
    
    
    
    468Additional paid-in capital
    
    
    183,294
    
    
    
    182,932Accumulated other comprehensive loss, net of income tax
    
    
    (43,576
    )
    
    
    (8,135
    )Retained earnings
    
    
    193,405
    
    
    
    212,502Total stockholders equity
    
    
    333,591
    
    
    
    387,767Total liabilities and stockholders equity
    
    $
    1,737,134
    
    
    $
    1,581,386
  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 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net sales (1)
    
    $
    1,244,671
    
    
    $
    1,187,181
    
    
    $
    2,265,434
    
    
    $
    2,153,086Operating costs and expenses:Cost of sales
    
    
    1,252,392
    
    
    
    929,575
    
    
    
    2,221,389
    
    
    
    1,740,836Direct operating expenses
    
    
    40,546
    
    
    
    54,746
    
    
    
    82,835
    
    
    
    104,029Selling, general and administrative expenses
    
    
    27,802
    
    
    
    27,522
    
    
    
    56,656
    
    
    
    50,060Net costs associated with fire
    
    
    9,374
    
    
    
    
    
    
    
    25,836
    
    
    
    Depreciation and amortization
    
    
    13,507
    
    
    
    11,153
    
    
    
    27,252
    
    
    
    25,595Total operating costs and expenses
    
    
    1,343,621
    
    
    
    1,022,996
    
    
    
    2,413,968
    
    
    
    1,920,520Gain on involuntary conversion of assets
    
    
    96,588
    
    
    
    
    
    
    
    96,588
    
    
    
    Gain on disposition of assets
    
    
    42,935
    
    
    
    2,525
    
    
    
    45,246
    
    
    
    3,480Operating income (loss)
    
    
    40,573
    
    
    
    166,710
    
    
    
    (6,700
    )
    
    
    236,046Interest expense
    
    
    (10,736
    )
    
    
    (11,669
    )
    
    
    (21,392
    )
    
    
    (23,087
    )Equity earnings of investees
    
    
    1,292
    
    
    
    3,936
    
    
    
    1,608
    
    
    
    4,540Other income, net
    
    
    373
    
    
    
    2,291
    
    
    
    1,118
    
    
    
    3,181Income (loss) before income tax expense (benefit) and
minority interest in income (loss) of subsidiaries
    
    
    31,502
    
    
    
    161,268
    
    
    
    (25,366
    )
    
    
    220,680Income tax expense (benefit)
    
    
    11,860
    
    
    
    59,650
    
    
    
    (9,233
    )
    
    
    81,621Income (loss) before minority interest in income
(loss) of subsidiaries
    
    
    19,642
    
    
    
    101,618
    
    
    
    (16,133
    )
    
    
    139,059Minority interest in income (loss) of subsidiaries
    
    
    1,415
    
    
    
    6,005
    
    
    
    (782
    )
    
    
    7,881Net income (loss)
    
    $
    18,227
    
    
    $
    95,613
    
    
    $
    (15,351
    )
    
    $
    131,178Earnings (loss) per share, basic
    
    $
    0.39
    
    
    $
    2.05
    
    
    $
    (0.33
    )
    
    $
    2.81Weighted average shares outstanding (in thousands)
    
    
    46,782
    
    
    
    46,758
    
    
    
    46,782
    
    
    
    46,758Cash dividends per share
    
    $
    0.04
    
    
    $
    0.04
    
    
    $
    0.08
    
    
    $
    0.08
 
 (1)
    
    Includes excise taxes on sales by the retail segment of $9,319 and $7,305 for the three months
and $18,973 and $14,613 for the six months ended June 30, 2008 and 2007, respectively.  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 30,2008
    
    
    2007Cash flows from operating activities:Net income (loss)
    
    $
    (15,351
    )
    
    $
    131,178Adjustments to reconcile net income (loss) to cash (used in) provided
by operating activities:Depreciation and amortization
    
    
    27,252
    
    
    
    25,595Stock compensation
    
    
    222
    
    
    
    2,140Deferred income tax expense
    
    
    30,605
    
    
    
    (417
    )Minority interest in income (loss) of subsidiaries
    
    
    (782
    )
    
    
    7,881Equity earnings of investees (net of dividends)
    
    
    (239
    )
    
    
    (2,095
    )Gain on involuntary conversion of assets
    
    
    (96,588
    )
    
    
    Gain on disposition of assets
    
    
    (45,246
    )
    
    
    (3,480
    )Changes in operating assets and liabilities, net of acquisition effects:Accounts and other receivables, net
    
    
    (74,244
    )
    
    
    (116,956
    )Inventories
    
    
    9,791
    
    
    
    5,137Prepaid expenses and other current assets
    
    
    (920
    )
    
    
    5,818Other assets
    
    
    549
    
    
    
    (645
    )Accounts payable
    
    
    136,282
    
    
    
    80,138Accrued liabilities
    
    
    (9,337
    )
    
    
    27,317Other non-current liabilities
    
    
    (4,070
    )
    
    
    (2,703
    )Net cash (used in) provided by operating activities
    
    
    (42,076
    )
    
    
    158,908Cash flows from investing activities:Capital expenditures
    
    
    (19,524
    )
    
    
    (17,667
    )Capital expenditures to rebuild the Big Spring refinery
    
    
    (160,341
    )
    
    
    Turnaround and chemical catalyst expenditures
    
    
    (2,069
    )
    
    
    (5,137
    )Acquisition of Skinnys
    
    
    
    
    
    
    (77,185
    )Proceeds from insurance to rebuild the Big Spring refinery
    
    
    121,918
    
    
    
    Escrow deposit and costs relating to the Krotz Springs refinery acquisition
    
    
    (18,283
    )
    
    
    Sale of short-term investments, net
    
    
    27,296
    
    
    
    Net cash used in investing activities
    
    
    (51,003
    )
    
    
    (99,989
    )Cash flows from financing activities:Dividends paid to minority interest stockholders
    
    
    (242
    )
    
    
    (226
    )Dividends paid to stockholders
    
    
    (3,745
    )
    
    
    (3,745
    )Deferred debt issuance costs
    
    
    
    
    
    
    (2,235
    )Revolving credit facilities, net
    
    
    51,000
    
    
    
    Additions to long-term debt
    
    
    
    
    
    
    46,167Payments on long-term debt
    
    
    (8,653
    )
    
    
    (3,378
    )Net cash provided by financing activities
    
    
    38,360
    
    
    
    36,583Net change in cash and cash equivalents
    
    
    (54,719
    )
    
    
    95,502Cash and cash equivalents, beginning of period
    
    
    68,615
    
    
    
    64,166Cash and cash equivalents, end of period
    
    $
    13,896
    
    
    $
    159,668Supplemental cash flow information:Cash paid for interest
    
    $
    19,674
    
    
    $
    19,819Cash paid for income tax, net of refunds
    
    $
    22,229
    
    
    $
    48,972
  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
 Disclosure about Derivative Instruments and Hedging
Activities
 Business Combinations
 Non-controlling Interests in Consolidated
Financial Statements, an Amendment of ARB 51
 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,
 Partial Deferral of the Effective
Date of Statement 157
 The Fair Value Option for Financial Assets and
Financial Liabilities
 Accounting for Uncertainty in Income
Taxes, an interpretation of FASB Statement No. 109
 How Taxes Collected from
Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement
(That Is, Gross versus Net Presentation).
 d) Reclassifications
  5




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ALON USA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, dollars in thousands except as noted)
 (2) Big Spring Refinery Fire
      (3) Acquisitions and Deferred Gain Recognition
 Skinnys Acquisition
    Cash paid, net of unrestricted cash acquired
    
    $
    74,787Transaction costs
    
    
    542Total purchase price
    
    $
    75,329
 6




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ALON USA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, dollars in thousands except as noted)
  Current assets, net of unrestricted cash acquired
    
    $
    7,002Property, plant and equipment
    
    
    43,684Other assets
    
    
    771Goodwill
    
    
    34,471Intangibles
    
    
    827Current liabilities
    
    
    (10,483
    )Other non-current liabilities
    
    
    (943
    )Total purchase price
    
    $
    75,329
  Pipeline Acquisition
  Deferred Gain Recognition
  (4) Segment Data
  (a) Refining and Unbranded Marketing Segment
  (b) Asphalt Segment
  7




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ALON USA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, dollars in thousands except as noted)
 (c) Retail and Branded Marketing Segment
  (d) Corporate
   Refining and
    
    
    
    
    
    Retail andUnbranded
    
    
    
    
    
    Branded
    
    
    
    
    
    ConsolidatedThree Months ended June 30, 2008
    
    Marketing
    
    Asphalt
    
    Marketing
    
    Corporate
    
    TotalNet sales to external customers
    
    $
    690,122
    
    
    $
    177,277
    
    
    $
    377,272
    
    
    $
    
    
    
    $
    1,244,671Intersegment sales/purchases
    
    
    179,437
    
    
    
    (99,773
    )
    
    
    (79,664
    )
    
    
    
    
    
    
    Depreciation and amortization
    
    
    9,210
    
    
    
    536
    
    
    
    3,538
    
    
    
    223
    
    
    
    13,507Operating income (loss)
    
    
    38,462
    
    
    
    2,653
    
    
    
    (168
    )
    
    
    (374
    )
    
    
    40,573Total assets
    
    
    1,218,458
    
    
    
    267,011
    
    
    
    241,353
    
    
    
    10,312
    
    
    
    1,737,134Turnaround, chemical catalyst,
capital expenditures and
capital expenditures to rebuild
the Big Spring refinery
    
    
    170,723
    
    
    
    62
    
    
    
    40
    
    
    
    319
    
    
    
    171,144
 Refining and
    
    
    
    
    
    Retail andUnbranded
    
    
    
    
    
    Branded
    
    
    
    
    
    ConsolidatedThree Months ended June 30, 2007
    
    Marketing
    
    Asphalt
    
    Marketing
    
    Corporate
    
    TotalNet sales to external customers
    
    $
    663,174
    
    
    $
    181,445
    
    
    $
    342,562
    
    
    $
    
    
    
    $
    1,187,181Intersegment sales/purchases
    
    
    159,724
    
    
    
    (112,832
    )
    
    
    (46,892
    )
    
    
    
    
    
    
    Depreciation and amortization
    
    
    8,882
    
    
    
    558
    
    
    
    1,512
    
    
    
    201
    
    
    
    11,153Operating income (loss)
    
    
    145,033
    
    
    
    12,196
    
    
    
    9,812
    
    
    
    (331
    )
    
    
    166,710Total assets
    
    
    1,023,628
    
    
    
    385,386
    
    
    
    249,023
    
    
    
    8,185
    
    
    
    1,666,222Turnaround, chemical catalyst
and capital expenditures
    
    
    10,740
    
    
    
    1,024
    
    
    
    1,469
    
    
    
    305
    
    
    
    13,538
 Refining and
    
    
    
    
    
    Retail andUnbranded
    
    
    
    
    
    Branded
    
    
    
    
    
    ConsolidatedSix Months ended June 30, 2008
    
    Marketing
    
    Asphalt
    
    Marketing
    
    Corporate
    
    TotalNet sales to external customers
    
    $
    1,297,691
    
    
    $
    281,217
    
    
    $
    686,526
    
    
    $
    
    
    
    $
    2,265,434Intersegment sales/purchases
    
    
    343,907
    
    
    
    (201,692
    )
    
    
    (142,215
    )
    
    
    
    
    
    
    Depreciation and amortization
    
    
    18,840
    
    
    
    1,068
    
    
    
    6,898
    
    
    
    446
    
    
    
    27,252Operating income (loss)
    
    
    (4,099
    )
    
    
    724
    
    
    
    (2,577
    )
    
    
    (748
    )
    
    
    (6,700
    )Total assets
    
    
    1,218,458
    
    
    
    267,011
    
    
    
    241,353
    
    
    
    10,312
    
    
    
    1,737,134Turnaround, chemical catalyst,
capital expenditures and
capital expenditures to
rebuild the Big Spring refinery
    
    
    180,034
    
    
    
    275
    
    
    
    1,167
    
    
    
    458
    
    
    
    181,934
 Refining and
    
    
    
    
    
    Retail andUnbranded
    
    
    
    
    
    Branded
    
    
    
    
    
    ConsolidatedSix Months ended June 30, 2007
    
    Marketing
    
    Asphalt
    
    Marketing
    
    Corporate
    
    TotalNet sales to external customers
    
    $
    1,256,771
    
    
    $
    295,391
    
    
    $
    600,924
    
    
    $
    
    
    
    $
    2,153,086Intersegment sales/purchases
    
    
    287,946
    
    
    
    (206,876
    )
    
    
    (81,070
    )
    
    
    
    
    
    
    Depreciation and amortization
    
    
    21,256
    
    
    
    1,055
    
    
    
    2,849
    
    
    
    435
    
    
    
    25,595Operating income (loss)
    
    
    207,774
    
    
    
    18,457
    
    
    
    10,467
    
    
    
    (652
    )
    
    
    236,046Total assets
    
    
    1,023,628
    
    
    
    385,386
    
    
    
    249,023
    
    
    
    8,185
    
    
    
    1,666,222Turnaround, chemical catalyst
and capital expenditures
    
    
    19,253
    
    
    
    1,160
    
    
    
    1,964
    
    
    
    427
    
    
    
    22,804
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ALON USA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, dollars in thousands except as noted)
   (5) Cash and Cash Equivalents
   (6) Fair Value
   9




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ALON USA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, dollars in thousands except as noted)
  Quoted Prices inActive Markets
    
    Significantfor Identical
    
    Other
    
    SignificantAssets or
    
    Observable
    
    UnobservableLiabilities
    
    Inputs
    
    Inputs(Level 1)
    
    (Level 2)
    
    (Level 3)
    
    TotalJune 30, 2008Liabilities:Futures and forwards
    
    $
    2,706
    
    
    $
    
    
    
    $
    
    
    
    $
    2,706Commodity swaps
    
    
    
    
    
    
    52,966
    
    
    
    
    
    
    
    52,966Interest rate swaps
    
    
    
    
    
    
    6,886
    
    
    
    
    
    
    
    6,886December 31, 2007Liabilities:Futures and forwards
    
    
    4,250
    
    
    
    
    
    
    
    
    
    
    
    4,250Interest rate swaps
    
    
    
    
    
    
    3,000
    
    
    
    
    
    
    
    3,000
 (7) Derivative Financial Instruments
 Commodity Derivatives  Mark to Market
    Cash Flow Hedges
  10




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ALON USA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, dollars in thousands except as noted)
 Interest Rate Derivatives
    Commodity Derivatives
  (8) Inventories
   June 30,
    
    
    December 31,2008
    
    
    2007Crude oil, refined products, asphalt and blendstocks
    
    $
    250,521
    
    
    $
    261,816Materials and supplies
    
    
    13,257
    
    
    
    12,789Store merchandise
    
    
    17,828
    
    
    
    18,197Store fuel
    
    
    9,292
    
    
    
    7,887Total inventories
    
    $
    290,898
    
    
    $
    300,689
  11




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ALON USA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, dollars in thousands except as noted)
  (9) Property, Plant and Equipment, net
  June 30,
    
    
    December 31,2008
    
    
    2007Refining facilities
    
    $
    823,302
    
    
    $
    645,653Pipelines and terminals
    
    
    45,195
    
    
    
    45,158Retail
    
    
    132,832
    
    
    
    131,556Other
    
    
    12,321
    
    
    
    12,271Property, plant and equipment, gross
    
    
    1,013,650
    
    
    
    834,638Less accumulated depreciation
    
    
    (135,051
    )
    
    
    (121,046
    )Property, plant and equipment, net
    
    $
    878,599
    
    
    $
    713,592
 (10) Additional Financial Information
  (a) Other Assets
 June 30,
    
    
    December 31,2008
    
    
    2007Deferred turnaround, chemical catalyst expenditures
    
    $
    9,627
    
    
    $
    9,232Environmental receivables
    
    
    8,939
    
    
    
    9,425Deferred debt issuance costs
    
    
    10,382
    
    
    
    11,286Intangible assets
    
    
    7,334
    
    
    
    7,488Escrow deposit and costs relating to the Krotz Springs refinery acquisition
    
    
    18,283
    
    
    
    Other
    
    
    11,051
    
    
    
    11,266Total other assets
    
    $
    65,616
    
    
    $
    48,697
 (b) Other Non-Current Liabilities
 June 30,
    
    
    December 31,2008
    
    
    2007Pension and other post-employment benefit liabilities
    
    $
    12,865
    
    
    $
    14,137Environmental liabilities
    
    
    33,356
    
    
    
    34,992Fair value of derivative liability
    
    
    28,466
    
    
    
    Other
    
    
    15,500
    
    
    
    9,508Total other non-current liabilities
    
    $
    90,187
    
    
    $
    58,637
 12




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ALON USA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, dollars in thousands except as noted)
 (c) Comprehensive Income
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net income (loss)
    
    $
    18,227
    
    
    $
    95,613
    
    
    $
    (15,351
    )
    
    $
    131,178Other comprehensive loss, net of tax:Adjustments for pension and post-employment
benefits
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Unrealized loss on cash flow hedges
    
    
    (26,242
    )
    
    
    
    
    
    
    (35,441
    )
    
    
    Other comprehensive loss
    
    
    (26,242
    )
    
    
    
    
    
    
    (35,441
    )
    
    
    Total comprehensive loss
    
    $
    (8,015
    )
    
    $
    95,613
    
    
    $
    (50,792
    )
    
    $
    131,178
  June 30,
    
    
    December 31,2008
    
    
    2007Unrealized losses on cash flow hedges, net of tax
    
    $
    (37,391
    )
    
    $
    (1,950
    )Pension and post-employment benefits, net of tax
    
    
    (6,185
    )
    
    
    (6,185
    )Accumulated other comprehensive loss, net of tax
    
    $
    (43,576
    )
    
    $
    (8,135
    )
 (11) Employee and Postretirement Benefits
   For the Three Months Ended
    
    
    For the Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Components of net periodic benefit cost:Service cost
    
    $
    457
    
    
    $
    507
    
    
    $
    914
    
    
    $
    1,014Interest cost
    
    
    748
    
    
    
    665
    
    
    
    1,496
    
    
    
    1,330Expected return on plan assets
    
    
    (822
    )
    
    
    (704
    )
    
    
    (1,644
    )
    
    
    (1,408
    )Amortization of net loss
    
    
    (147
    )
    
    
    134
    
    
    
    (94
    )
    
    
    268Net periodic benefit cost
    
    $
    236
    
    
    $
    602
    
    
    $
    672
    
    
    $
    1,204
 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)
 (12) Long-Term Debt
  June 30,
    
    
    December 31,2008
    
    
    2007Term loan credit facility
    
    $
    437,810
    
    
    $
    443,250Revolving credit facilities
    
    
    51,000
    
    
    
    Retail credit facilities
    
    
    90,152
    
    
    
    93,365Total debt
    
    
    578,962
    
    
    
    536,615Less current portion
    
    
    (7,945
    )
    
    
    (11,154
    )Total long-term debt
    
    $
    571,017
    
    
    $
    525,461
 (a) Credit Suisse Credit Facility
     (b) Revolving Credit Facilities
 Israel Discount Bank Credit Facility
  14




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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)
   Bank of America Credit Facility.
  (c) Retail Credit Facilities
      15




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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)
 (d) Other Retail Related Credit Facilities
  (13) Stock-Based Compensation
  (a) 2005 Incentive Compensation Plan (share value in dollars)
  Restricted Stock
   Weighted AverageRestricted Shares:
    
    Number of Shares
    
    
    Grant Date Fair ValuesNonvested at January 1, 2007
    
    
    49,079
    
    
    $
    20.27Granted
    
    
    2,001
    
    
    
    37.51Vested
    
    
    (24,162
    )
    
    
    20.06Forfeited
    
    
    
    
    
    
    Nonvested at December 31, 2007
    
    
    26,918
    
    
    $
    21.74Granted
    
    
    5,577
    
    
    
    13.45Vested
    
    
    (1,418
    )
    
    
    35.28Forfeited
    
    
    
    
    
    
    Nonvested at June 30, 2008
    
    
    31,077
    
    
    $
    19.63
  Stock Appreciation Rights
 16




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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, 2007
    
    
    6,848
    
    
    $
    100
    
    
    
    2,572
    
    
    $
    100Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    (1,632
    )
    
    
    100
    
    
    
    (613
    )
    
    
    100Outstanding at December 31, 2007
    
    
    5,216
    
    
    
    100
    
    
    
    1,959
    
    
    
    100Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    (404
    )
    
    
    100
    
    
    
    (152
    )
    
    
    100Outstanding at June 30, 2008
    
    
    4,812
    
    
    $
    100
    
    
    
    1,807
    
    
    $
    100
  (14) Stockholders Equity (per share in dollars)
 Common Stock Dividends
  (15) Earnings (Loss) Per Share (per share in dollars)
  17




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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
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net income (loss)
    
    $
    18,227
    
    
    $
    95,613
    
    
    $
    (15,351
    )
    
    $
    131,178Average number of shares of common stock outstanding
    
    
    46,782
    
    
    
    46,758
    
    
    
    46,782
    
    
    
    46,758Dilutive restricted shares
    
    
    20
    
    
    
    42
    
    
    
    
    
    
    
    39Average number of shares of common stock
outstanding assuming dilution
    
    
    46,802
    
    
    
    46,800
    
    
    
    46,782
    
    
    
    46,797Earnings (loss) per share  basic
    
    $
    0.39
    
    
    $
    2.05
    
    
    $
    (0.33
    )
    
    $
    2.81Earnings (loss) per share  diluted*
    
    $
    0.38
    
    
    $
    2.00
    
    
    $
    (0.33
    )
    
    $
    2.76
 
 *
    
    For the purpose of adjusting net income (loss) in the calculation of diluted earnings (loss) per share issued by Alons
subsidiaries, the effect for the three months ended June 30, 2008 was $675. The effects of the six months ended June 30, 2008 are anti-dilutive and therefore excluded from the calculation. (16) Commitments and Contingencies
 (a) Commitments
  (b) Contingencies
  (c) Environmental
    18




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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
 Acquisition of Krotz Springs Refinery
         19




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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)
  Credit Agreement
  SemGroup, LP Bankruptcy
   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, 2007. In this document, the words
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 spread;
    
    changes in the light/heavy spread;
    
    the effects of transactions involving forward contracts and derivative instruments;
    
    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;
    
    our planned projects to bring back online the naphtha hydrotreater and the design and
construction of a hydrocracker unit at our California refineries may not be completed
within the expected time frames or within the budgeted costs for such projects due to
factors outside of our control;
 21




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##### Table of Contents




    
    with respect to the February 18, 2008 explosion and fire at our Big Spring refinery,
the resulting damage to equipment and disruption to operations may be greater than
currently anticipated; the costs and time necessary to resume full operations may be
greater than currently anticipated or may be increased due to factors outside of our
control, and we may not fully recover all costs, expenses and damages resulting from the
incident under applicable insurance policies; and
    
    the other factors discussed in our Annual Report on Form 10-K for the year ended
December 31, 2007 under the caption Risk Factors.
  Company Overview
   Refining and Unbranded Marketing Segment
  Asphalt Segment.
  Retail and Branded Marketing Segment
 22




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##### Table of Contents



Second Quarter Operational and Financial Highlights
   
    
    The second quarter of 2008 included a $42.9 million gain recognized on disposition of
assets in connection with the contribution of certain pipeline and terminal assets to Holly
Energy Partners, LP (HEP) in the first quarter of 2005 (HEP transaction). The gain
recognized in the second quarter of 2008 represented all the remaining deferred gain
associated with the HEP transaction and was due to the termination of an indemnification
agreement with HEP. Additionally, the second quarter of 2008 included a gain of $96.6
million recognized from the involuntary conversion of assets due to the Big Spring refinery
fire. Also, $5.5 million of after-tax losses were incurred for insurance deductibles and
other incremental costs associated with the Big Spring refinery fire.
    
    The combined refineries throughput for the second quarter of 2008 averaged 70,244 bpd,
consisting of an average of 32,390 bpd at the Big Spring refinery and an average of 37,854
bpd at the California refineries compared to a combined average of 135,977 bpd in the
second quarter of 2007, consisting of an average of 72,660 bpd at the Big Spring refinery
and an average of 63,317 bpd at the California refineries.
    
    Our average refinery operating margin for the Big Spring refinery decreased $31.39 per
barrel to ($7.97) per barrel for the three months ended June 30, 2008, compared to $23.42
per barrel for the three months ended June 30, 2007. This decrease was attributable mainly
to the fire on February 18, 2008 and to a lower Gulf Coast 3/2/1 crack spread which
decreased by $13.28 per barrel to $12.95 per barrel for the three months ended June 30,
2008 compared to $26.23 per barrel for the three months ended June 30, 2007.
    
    The Big Spring refinery operated in a hydroskimming mode in the second quarter of 2008
due to the fire, which resulted in lower refinery light product yields. Light product
yields were approximately 54% for the second quarter of 2008 and 84% for the second quarter
of 2007.
    
    Our California refineries operating margin for the three months ended June 30, 2008
decreased $14.46 per barrel to ($6.23) per barrel, compared to $8.23 per barrel for the
three months ended June 30, 2007. The decrease was primarily attributable to a 41.5%
decrease in the West Coast 3/2/1 crack spread to $23.28 per barrel for the three months
ended June 30, 2008 from $39.82 per barrel for the three months ended June 30,
 23




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##### Table of Contents



2007 and to higher crude oil prices. MAYA crude oil increased $47.78 per barrel to $103.08
per barrel from $55.30 per barrel during the same period in 2007.
    
    The decreased margin environment for the second quarter of 2008 was partially offset by
higher sweet/sour and light/heavy crude oil differentials. The average sweet/sour spread
for the three months ended June 30, 2008 was $4.62 per barrel compared to $4.56 per barrel
for the three months ended June 30, 2007. The average light/heavy spread for the three
months ended June 30, 2008 was $20.92 per barrel compared to $9.58 per barrel for the three
months ended June 30, 2007.
    
    Asphalt margins in the second quarter of 2008 were $35.76 per ton compared to $46.53 per
ton in the second quarter of 2007. This decrease was primarily due to higher crude oil
prices in the second quarter of 2008.
    
    On June 13, 2008, 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 May 30, 2008.
 Major Influences on Results of Operations
 Refining and Unbranded Marketing
     24




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##### Table of Contents



Asphalt
  Retail and Branded Marketing
  Factors Affecting Comparability
  25




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##### Table of Contents



Results of Operations
 Net Sales.
 Cost of Sales
 Direct Operating Expenses.
 Selling, General and Administrative Expenses
 26




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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 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(dollars in thousands, except per share data)STATEMENT OF OPERATIONS DATA:Net sales
    
    $
    1,244,671
    
    
    $
    1,187,181
    
    
    $
    2,265,434
    
    
    $
    2,153,086Operating costs and expenses:Cost of sales
    
    
    1,252,392
    
    
    
    929,575
    
    
    
    2,221,389
    
    
    
    1,740,836Direct operating expenses
    
    
    40,546
    
    
    
    54,746
    
    
    
    82,835
    
    
    
    104,029Selling, general and administrative expenses (1)
    
    
    27,802
    
    
    
    27,522
    
    
    
    56,656
    
    
    
    50,060Net costs associated with fire (2)
    
    
    9,374
    
    
    
    
    
    
    
    25,836
    
    
    
    Depreciation and amortization (3)
    
    
    13,507
    
    
    
    11,153
    
    
    
    27,252
    
    
    
    25,595Total operating costs and expenses
    
    
    1,343,621
    
    
    
    1,022,996
    
    
    
    2,413,968
    
    
    
    1,920,520Gain on involuntary conversion of assets (4)
    
    
    96,588
    
    
    
    
    
    
    
    96,588
    
    
    
    Gain on disposition of assets (5)
    
    
    42,935
    
    
    
    2,525
    
    
    
    45,246
    
    
    
    3,480Operating income (loss)
    
    
    40,573
    
    
    
    166,710
    
    
    
    (6,700
    )
    
    
    236,046Interest expense
    
    
    (10,736
    )
    
    
    (11,669
    )
    
    
    (21,392
    )
    
    
    (23,087
    )Equity earnings of investees
    
    
    1,292
    
    
    
    3,936
    
    
    
    1,608
    
    
    
    4,540Other income, net
    
    
    373
    
    
    
    2,291
    
    
    
    1,118
    
    
    
    3,181Income (loss) before income tax expense (benefit) and
minority interest in income (loss) of subsidiaries
    
    
    31,502
    
    
    
    161,268
    
    
    
    (25,366
    )
    
    
    220,680Income tax expense (benefit)
    
    
    11,860
    
    
    
    59,650
    
    
    
    (9,233
    )
    
    
    81,621Income (loss) before minority interest in income (loss)
of subsidiaries
    
    
    19,642
    
    
    
    101,618
    
    
    
    (16,133
    )
    
    
    139,059Minority interest in income (loss) of subsidiaries
    
    
    1,415
    
    
    
    6,005
    
    
    
    (782
    )
    
    
    7,881Net income (loss)
    
    $
    18,227
    
    
    $
    95,613
    
    
    $
    (15,351
    )
    
    $
    131,178Earnings (loss) per share
    
    $
    0.39
    
    
    $
    2.05
    
    
    $
    (0.33
    )
    
    $
    2.81Weighted average shares outstanding (in thousands)
    
    
    46,782
    
    
    
    46,758
    
    
    
    46,782
    
    
    
    46,758Cash dividends per share
    
    $
    0.04
    
    
    $
    0.04
    
    
    $
    0.08
    
    
    $
    0.08CASH FLOW DATA:Net cash provided by (used in):Operating activities
    
    $
    7,548
    
    
    $
    120,040
    
    
    $
    (42,076
    )
    
    $
    158,908Investing activities
    
    
    (67,871
    )
    
    
    (91,113
    )
    
    
    (51,003
    )
    
    
    (99,989
    )Financing activities
    
    
    43,084
    
    
    
    42,245
    
    
    
    38,360
    
    
    
    36,583OTHER DATA:Adjusted EBITDA (6)
    
    $
    N/A
    
    
    $
    181,565
    
    
    $
    N/A
    
    
    $
    265,882Capital expenditures (7)
    
    
    10,342
    
    
    
    13,075
    
    
    
    19,524
    
    
    
    17,667Capital expenditures to rebuild the Big Spring refinery
    
    
    160,341
    
    
    
    
    
    
    
    160,341
    
    
    
    Capital expenditures for turnaround and chemical catalyst
    
    
    460
    
    
    
    463
    
    
    
    2,069
    
    
    
    5,137
 27




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##### Table of Contents



June 30,
    
    December 31,2008
    
    2007BALANCE SHEET DATA (end of period):Cash and cash equivalents
    
    $
    13,896
    
    
    $
    95,911Working capital
    
    
    97,319
    
    
    
    279,580Total assets
    
    
    1,737,134
    
    
    
    1,581,386Total debt
    
    
    578,962
    
    
    
    536,615Total stockholders equity
    
    
    333,591
    
    
    
    387,767
 
 (1)
    
    Includes corporate headquarters selling, general and administrative expenses of $151 and $130
for the three months ended June 30, 2008 and 2007, respectively, and $302 and $217 for the six
months ended June 30, 2008 and 2007, respectively, which are not allocated to our three
operating segments.(2)
    
    Includes $8,374 and $18,046 for the three and six months ended June 30, 2008, respectively,
of expenses incurred from pipeline commitment deficiencies, crude sale losses and other
incremental costs; $1,000 and $7,000 for the three and six months ended June 30, 2008,
respectively, for insurance deductibles under the insurance policies; and depreciation for the temporarily idled facilities of $790 for the six months ended June 30, 2008.(3)
    
    Includes corporate depreciation and amortization of $223 and $201 for the three months ended
June 30, 2008 and 2007, respectively, and $446 and $435 for the six months ended June 30, 2008
and 2007, respectively, which are not allocated to our three operating segments.(4)
    
    With the insurance proceeds received of $150,000 through June 30, 2008, an involuntary gain
on conversion of assets has been recorded of $96,588 for the proceeds received in excess of
the book value of the assets impaired of $25,330 and demolition and repair expenses of $28,082 incurred through
June 30, 2008.(5)
    
    Gain on disposition of assets reported in the three and six months ended June 30, 2008 and
2007 includes the recognition of deferred gain recorded primarily in connection with the
contribution of certain product pipelines and terminals to Holly Energy Partners, LP,(HEP),
in March 2005 (HEP transaction). The gain recognized in the second quarter of 2008
represented all the remaining deferred gain associated with the HEP transaction and was due to
the termination of an indemnification agreement with HEP.(6)
    
    Adjusted EBITDA has not been presented for the three and six month periods ended June 30,
2008. Alon has historically provided Adjusted EBITDA during periods of normal operations
because management believes it is helpful for investors to compare Alons operating results to
other companies in our industry. Due to the limited operations of the Big Spring refinery
following the February fire and the costs and expenses incurred to repair affected units,
management does not believe a presentation of Adjusted EBITDA for the three and six month
periods ended June 30, 2008 is meaningful or useful to investors.For the three and six month periods ended June 30, 2007, Adjusted EBITDA represents earnings
before minority interest in income of subsidiaries, income tax expense, interest expense,
depreciation and amortization and 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 during periods of normal operations
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
that may vary for different companies for reasons unrelated to overall operating performance. 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:
 28




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##### Table of Contents




    
    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 EBITDA calculations of other
companies in our industry, limiting its usefulness as a comparative measure.
 Because of these limitations, Adjusted EBITDA should not be considered a measure of
discretionary cash available to us to invest in the growth of our business. We compensate
for these limitations by relying primarily on our GAAP results and using Adjusted EBITDA
only supplementally.The following table reconciles net income to Adjusted EBITDA for the three and six
months ended June 30, 2007:
 Three Months Ended
    
    
    Six Months EndedJune 30, 2007
    
    
    June 30, 2007(dollars in thousands)Net income
    
    $
    95,613
    
    
    $
    131,178Minority interest in income of
subsidiaries
    
    
    6,005
    
    
    
    7,881Income tax expense
    
    
    59,650
    
    
    
    81,621Interest expense
    
    
    11,669
    
    
    
    23,087Depreciation and amortization
    
    
    11,153
    
    
    
    25,595Gain on disposition of assets
    
    
    (2,525
    )
    
    
    (3,480
    )Adjusted EBITDA
    
    $
    181,565
    
    
    $
    265,882
 
 (7)
    
    Includes corporate capital expenditures of $319 and $305 for the three months ended June 30,
2008 and 2007, respectively, and $458 and $427 for the six months ended June 30, 2008 and
2007, respectively, which are not allocated to our other three operating segments. 29




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##### Table of Contents



REFINING AND UNBRANDED MARKETING SEGMENT (A)
 For the Three Months Ended
    
    
    For the Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(dollars in thousands, except per barrel data and pricing statistics)STATEMENTS OF OPERATIONS DATA:Net sales (1)
    
    $
    869,559
    
    
    $
    822,898
    
    
    $
    1,641,598
    
    
    $
    1,544,717Operating costs and expenses:Cost of sales
    
    
    917,689
    
    
    
    620,591
    
    
    
    1,673,646
    
    
    
    1,224,894Direct operating expenses
    
    
    30,668
    
    
    
    42,790
    
    
    
    61,141
    
    
    
    81,237Selling, general and administrative expenses
    
    
    3,679
    
    
    
    8,084
    
    
    
    8,068
    
    
    
    13,062Net costs associated with fire (2)
    
    
    9,374
    
    
    
    
    
    
    
    25,836
    
    
    
    Depreciation and amortization
    
    
    9,210
    
    
    
    8,882
    
    
    
    18,840
    
    
    
    21,256Total operating costs and expenses
    
    
    970,620
    
    
    
    680,347
    
    
    
    1,787,531
    
    
    
    1,340,449Gain on involuntary conversion of assets (3)
    
    
    96,588
    
    
    
    
    
    
    
    96,588
    
    
    
    Gain on disposition of assets (4)
    
    
    42,935
    
    
    
    2,482
    
    
    
    45,246
    
    
    
    3,506Operating income (loss)
    
    $
    38,462
    
    
    $
    145,033
    
    
    $
    (4,099
    )
    
    $
    207,774KEY OPERATING STATISTICS:Total unbranded sales volume (bpd)
    
    
    55,727
    
    
    
    95,432
    
    
    
    59,717
    
    
    
    95,793Per barrel of throughput:Refinery operating margin  Big Spring (5)
    
    $
    (7.97
    )
    
    $
    23.42
    
    
    $
    (1.08
    )
    
    $
    18.98Refinery operating margin  CA Refineries (5)
    
    
    (6.23
    )
    
    
    8.23
    
    
    
    (4.03
    )
    
    
    7.49Refinery direct operating expense  Big Spring (6)
    
    
    3.98
    
    
    
    3.34
    
    
    
    4.91
    
    
    
    3.60Refinery direct operating expense  CA Refineries
(6)
    
    
    5.50
    
    
    
    3.59
    
    
    
    4.91
    
    
    
    3.27Capital expenditures
    
    
    9,922
    
    
    
    10,277
    
    
    
    17,624
    
    
    
    14,116Capital expenditures to rebuild the Big Spring
refinery
    
    
    160,341
    
    
    
    
    
    
    
    160,341
    
    
    
    Capital expenditures for turnaround and chemical
catalyst
    
    
    460
    
    
    
    463
    
    
    
    2,069
    
    
    
    5,137PRICING STATISTICS:WTI crude oil (per barrel)
    
    $
    124.00
    
    
    $
    64.88
    
    
    $
    111.00
    
    
    $
    61.43WTS crude oil (per barrel)
    
    
    119.38
    
    
    
    60.32
    
    
    
    106.35
    
    
    
    57.16MAYA crude oil (per barrel)
    
    
    103.08
    
    
    
    55.30
    
    
    
    92.11
    
    
    
    50.36Crack spreads (3/2/1) (per barrel):Gulf Coast
    
    $
    12.95
    
    
    $
    26.23
    
    
    $
    11.19
    
    
    $
    19.53Group III
    
    
    13.80
    
    
    
    31.67
    
    
    
    11.95
    
    
    
    23.38West Coast
    
    
    23.28
    
    
    
    39.82
    
    
    
    19.91
    
    
    
    36.17Crack spreads (6/1/2/3) (per barrel):West Coast
    
    $
    (1.69
    )
    
    $
    12.05
    
    
    $
    (1.28
    )
    
    $
    10.71Crude oil differentials (per barrel):WTI less WTS
    
    $
    4.62
    
    
    $
    4.56
    
    
    $
    4.65
    
    
    $
    4.27WTI less MAYA
    
    
    20.92
    
    
    
    9.58
    
    
    
    18.89
    
    
    
    11.08Product price (dollars per gallon):Gulf Coast unleaded gasoline
    
    $
    3.067
    
    
    $
    2.215
    
    
    $
    2.749
    
    
    $
    1.923Gulf Coast low-sulfur diesel
    
    
    3.648
    
    
    
    2.078
    
    
    
    3.229
    
    
    
    1.937Group III unleaded gasoline
    
    
    3.100
    
    
    
    2.369
    
    
    
    2.774
    
    
    
    2.023Group III low-sulfur diesel
    
    
    3.644
    
    
    
    2.159
    
    
    
    3.233
    
    
    
    2.013West Coast LA CARBOB (unleaded gasoline)
    
    
    3.427
    
    
    
    2.650
    
    
    
    3.059
    
    
    
    2.456West Coast LA ultra low-sulfur diesel
    
    
    3.665
    
    
    
    2.179
    
    
    
    3.232
    
    
    
    2.060Natural gas (per MMBTU)
    
    
    11.47
    
    
    
    7.65
    
    
    
    10.14
    
    
    
    7.42
 
 (A)
    
    In the first quarter of 2008, our branded marketing business was removed from the refining and
marketing segment and combined with the retail segment. Information for the three and six months
ended June 30, 2007 has been recast to provide a comparison to the current year results. 30




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##### Table of Contents



THROUGHPUT AND YIELD DATA:
BIG SPRING
 For the Three Months Ended
    
    For the Six Months EndedJune 30,
    
    June 30,2008
    
    2007
    
    2008
    
    2007bpd
    
    %
    
    bpd
    
    %
    
    bpd
    
    %
    
    bpd
    
    %Refinery throughput:Sour crude
    
    
    27,126
    
    
    
    83.7
    
    
    
    62,058
    
    
    
    85.4
    
    
    
    26,080
    
    
    
    84.6
    
    
    
    60,347
    
    
    
    87.4Sweet crude
    
    
    4,427
    
    
    
    13.7
    
    
    
    7,200
    
    
    
    9.9
    
    
    
    3,402
    
    
    
    11.0
    
    
    
    4,800
    
    
    
    6.9Blendstocks
    
    
    837
    
    
    
    2.6
    
    
    
    3,402
    
    
    
    4.7
    
    
    
    1,348
    
    
    
    4.4
    
    
    
    3,929
    
    
    
    5.7Total refinery throughput (7)
    
    
    32,390
    
    
    
    100.0
    
    
    
    72,660
    
    
    
    100.0
    
    
    
    30,830
    
    
    
    100.0
    
    
    
    69,076
    
    
    
    100.0Refinery production:Gasoline
    
    
    8,981
    
    
    
    28.5
    
    
    
    33,726
    
    
    
    46.8
    
    
    
    11,478
    
    
    
    37.8
    
    
    
    32,130
    
    
    
    46.9Diesel/jet
    
    
    7,876
    
    
    
    24.9
    
    
    
    22,506
    
    
    
    31.2
    
    
    
    7,758
    
    
    
    25.6
    
    
    
    20,691
    
    
    
    30.2Asphalt
    
    
    5,976
    
    
    
    18.9
    
    
    
    7,383
    
    
    
    10.2
    
    
    
    4,537
    
    
    
    14.9
    
    
    
    7,171
    
    
    
    10.5Petrochemicals
    
    
    344
    
    
    
    1.1
    
    
    
    4,108
    
    
    
    5.7
    
    
    
    873
    
    
    
    2.9
    
    
    
    4,436
    
    
    
    6.5Other
    
    
    8,394
    
    
    
    26.6
    
    
    
    4,427
    
    
    
    6.1
    
    
    
    5,720
    
    
    
    18.8
    
    
    
    4,042
    
    
    
    5.9Total refinery production (8)
    
    
    31,571
    
    
    
    100.0
    
    
    
    72,150
    
    
    
    100.0
    
    
    
    30,366
    
    
    
    100.0
    
    
    
    68,470
    
    
    
    100.0Refinery utilization (9)
    
    
    
    
    
    
    45.1
    %
    
    
    
    
    
    
    98.9
    %
    
    
    
    
    
    
    43.0
    %
    
    
    
    
    
    
    95.0
    %
 THROUGHPUT AND YIELD DATA:  CALIFORNIA REFINERIES
 For the Three Months Ended
    
    For the Six Months EndedJune 30,
    
    June 30,2008
    
    2007
    
    2008
    
    2007bpd
    
    %
    
    bpd
    
    %
    
    bpd
    
    %
    
    bpd
    
    %Refinery throughput:Medium Sour crude
    
    
    11,837
    
    
    
    31.3
    
    
    
    22,956
    
    
    
    36.3
    
    
    
    11,269
    
    
    
    29.9
    
    
    
    22,213
    
    
    
    36.3Heavy crude
    
    
    25,540
    
    
    
    67.4
    
    
    
    40,350
    
    
    
    63.7
    
    
    
    25,545
    
    
    
    67.9
    
    
    
    38,886
    
    
    
    63.5Blendstocks
    
    
    477
    
    
    
    1.3
    
    
    
    11
    
    
    
    0.0
    
    
    
    818
    
    
    
    2.2
    
    
    
    153
    
    
    
    0.2Total refinery throughput (7)
    
    
    37,854
    
    
    
    100.0
    
    
    
    63,317
    
    
    
    100.0
    
    
    
    37,632
    
    
    
    100.0
    
    
    
    61,252
    
    
    
    100.0Refinery production:Gasoline
    
    
    5,088
    
    
    
    13.9
    
    
    
    7,029
    
    
    
    11.4
    
    
    
    5,296
    
    
    
    14.6
    
    
    
    6,951
    
    
    
    11.6Diesel/jet
    
    
    8,793
    
    
    
    23.9
    
    
    
    12,553
    
    
    
    20.4
    
    
    
    8,708
    
    
    
    23.9
    
    
    
    13,315
    
    
    
    22.3Asphalt
    
    
    9,534
    
    
    
    26.0
    
    
    
    18,029
    
    
    
    29.2
    
    
    
    9,966
    
    
    
    27.4
    
    
    
    18,389
    
    
    
    30.8Light unfinished
    
    
    0
    
    
    
    0.0
    
    
    
    4,333
    
    
    
    7.0
    
    
    
    0
    
    
    
    0.0
    
    
    
    3,423
    
    
    
    5.7Heavy unfinished
    
    
    13,050
    
    
    
    35.5
    
    
    
    18,715
    
    
    
    30.4
    
    
    
    12,166
    
    
    
    33.5
    
    
    
    16,652
    
    
    
    27.9Other
    
    
    271
    
    
    
    0.7
    
    
    
    990
    
    
    
    1.6
    
    
    
    234
    
    
    
    0.6
    
    
    
    994
    
    
    
    1.7Total refinery production (8)
    
    
    36,736
    
    
    
    100.0
    
    
    
    61,649
    
    
    
    100.0
    
    
    
    36,370
    
    
    
    100.0
    
    
    
    59,724
    
    
    
    100.0Refinery utilization (9)
    
    
    
    
    
    
    51.6
    %
    
    
    
    
    
    
    87.3
    %
    
    
    
    
    
    
    50.8
    %
    
    
    
    
    
    
    85.6
    %
 
 (1)
    
    Net sales include intersegment sales to our asphalt and retail and branded marketing segments
at prices which approximate wholesale market prices. These intersegment sales are eliminated
through consolidation of our financial statements.(2)
    
    Includes $8,374 and $18,046 for the three and six months ended June 30, 2008, respectively,
of expenses incurred from pipeline commitment deficiencies, crude sale losses and other
incremental costs; $1,000 and $7,000 for the three and six months ended June 30, 2008,
respectively, for insurance deductibles under the insurance policies; and depreciation
for the temporarily idled facilities of $790 for the six months ended
June 30, 2008.(3)
    
    With the insurance proceeds received of $150,000 through June 30, 2008, an involuntary gain
on conversion of assets has been recorded of $96,588 for the proceeds received in excess of
the book value of the assets impaired of $25,330 and demolition and repair expenses of $28,082 incurred through
June 30, 2008. 31




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##### Table of Contents



(4)
    
    Gain on disposition of assets reported in the three and six months ended June 30, 2008 and
2007 includes the recognition of deferred gain recorded primarily in connection with the
contribution of certain product pipelines and terminals to Holly Energy Partners, LP (HEP) in March
2005 (HEP transaction). The gain recognized in the second quarter of 2008 represented all
the remaining deferred gain associated with the HEP transaction and was due to the termination
of an indemnification agreement with HEP.(5)
    
    Refinery operating margin is a per barrel measurement calculated by dividing the margin
between net sales and cost of sales (exclusive of unrealized hedging gains and losses) attributable to each refinery by the refinerys throughput
volumes. There were unrealized hedging losses of $3,186 and unrealized hedging gains of $1,602 for the
California refineries for the three and six months ended June 30, 2008, respectively, and unrealized hedging gains
of $67 and unrealized hedging losses of $442 for the California refineries for the three
and six months ended June 30, 2007, respectively. 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.(6)
    
    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.(7)
    
    Total refinery throughput represents the total barrels per day of crude oil and blendstock
inputs in the refinery production process.(8)
    
    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. Light product yields decreased at the Big Spring refinery for the
three and six months ended June 30, 2008 due to the fire on February 18, 2008 and the re-start of the crude
unit in a hydro skimming mode on April 5, 2008.(9)
    
    Refinery utilization represents average daily crude oil throughput divided by crude oil
capacity, excluding planned periods of downtime for maintenance and turnarounds. The decrease
in refinery utilization at our Big Spring refinery for the three and six months end June 30, 2008 is due to the fire on February 18, 2008.
Production ceased at the Big Spring refinery until the re-start of the crude unit in a hydroskimming mode on
April 5, 2008. The decrease in refinery utilization at our California refineries is due to reduced
throughput related to low refining margins. 32




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##### Table of Contents



ASPHALT SEGMENT
 For the Three Months Ended
    
    
    For the Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(dollars in thousands, except per ton data)STATEMENTS OF OPERATIONS DATA:Net sales
    
    $
    177,277
    
    
    $
    181,445
    
    
    $
    281,217
    
    
    $
    295,391Operating costs and expenses:Cost of sales (1)
    
    
    163,474
    
    
    
    155,480
    
    
    
    255,609
    
    
    
    251,275Direct operating expenses
    
    
    9,878
    
    
    
    11,956
    
    
    
    21,694
    
    
    
    22,792Selling, general and administrative
expenses
    
    
    736
    
    
    
    1,259
    
    
    
    2,122
    
    
    
    1,816Depreciation and amortization
    
    
    536
    
    
    
    558
    
    
    
    1,068
    
    
    
    1,055Total operating costs and expenses
    
    
    174,624
    
    
    
    169,253
    
    
    
    280,493
    
    
    
    276,938Gain on disposition of assets
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    4Operating income
    
    $
    2,653
    
    
    $
    12,196
    
    
    $
    724
    
    
    $
    18,457KEY OPERATING STATISTICS:Total sales volume (tons in thousands)
    
    
    386
    
    
    
    558
    
    
    
    665
    
    
    
    916Sales price per ton
    
    $
    459.27
    
    
    $
    325.17
    
    
    $
    422.88
    
    
    $
    322.48Asphalt margin per ton (2)
    
    $
    35.76
    
    
    $
    46.53
    
    
    $
    38.51
    
    
    $
    48.16Capital expenditures
    
    $
    62
    
    
    $
    1,024
    
    
    $
    275
    
    
    $
    1,160
 
 (1)
    
    Cost of sales includes intersegment purchases of asphalt
blends and motor fuels from our refining and unbranded
marketing segment at prices, which approximate 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 margin 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 asphalt sales. 33




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##### Table of Contents



RETAIL AND BRANDED MARKETING SEGMENT (A)
 For the Three Months Ended
    
    
    For the Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(dollars in thousands, except per gallon data)STATEMENTS OF OPERATIONS DATA:Net sales
    
    $
    377,272
    
    
    $
    342,562
    
    
    $
    686,526
    
    
    $
    600,924Operating costs and expenses:Cost of sales (1)
    
    
    350,666
    
    
    
    313,228
    
    
    
    636,041
    
    
    
    552,613Selling, general and administrative expenses
    
    
    23,236
    
    
    
    18,049
    
    
    
    46,164
    
    
    
    34,965Depreciation and amortization
    
    
    3,538
    
    
    
    1,512
    
    
    
    6,898
    
    
    
    2,849Total operating costs and expenses
    
    
    377,440
    
    
    
    332,789
    
    
    
    689,103
    
    
    
    590,427Gain (loss) on disposition of assets
    
    
    
    
    
    
    39
    
    
    
    
    
    
    
    (30
    )Operating income (loss)
    
    $
    (168
    )
    
    $
    9,812
    
    
    $
    (2,577
    )
    
    $
    10,467KEY OPERATING STATISTICS:Integrated branded fuel sales (thousands of gallons) (2)
    
    
    54,931
    
    
    
    65,977
    
    
    
    109,089
    
    
    
    132,648Integrated branded fuel margin (cents per gallon) (2)
    
    
    2.0
    
    
    
    14.8
    
    
    
    1.9
    
    
    
    8.8Non-Integrated branded fuel sales (thousands of gallons)
(2)
    
    
    37,182
    
    
    
    54,713
    
    
    
    75,451
    
    
    
    107,162Non-Integrated branded fuel margin (cents per gallon) (2)
    
    
    (2.1
    )
    
    
    2.4
    
    
    
    (1.1
    )
    
    
    1.3Number of stores (end of period)
    
    
    306
    
    
    
    308
    
    
    
    306
    
    
    
    308Retail fuel sales (thousands of gallons)
    
    
    24,414
    
    
    
    19,159
    
    
    
    49,285
    
    
    
    38,026Retail fuel sales (thousands of gallons per site per
month) (3)
    
    
    27
    
    
    
    31
    
    
    
    27
    
    
    
    31Retail fuel margin (cents per gallon) (4)
    
    
    19.2
    ¢
    
    
    20.5
    ¢
    
    
    18.8
    ¢
    
    
    20.1¢Retail fuel sales price (dollars per gallon) (5)
    
    $
    3.77
    
    
    $
    3.01
    
    
    $
    3.43
    
    
    $
    2.67Merchandise sales
    
    $
    68,314
    
    
    $
    48,069
    
    
    $
    128,552
    
    
    $
    90,109Merchandise sales (per site per month) (3)
    
    
    74
    
    
    
    78
    
    
    
    70
    
    
    
    73Merchandise margin (6)
    
    
    31.5
    %
    
    
    28.9
    %
    
    
    31.5
    %
    
    
    29.6
    %Capital expenditures
    
    $
    40
    
    
    $
    1,469
    
    
    $
    1,167
    
    
    $
    1,964
 
 
 (A)
    
    In the first quarter of 2008, our branded marketing business was removed from the
refining and marketing segment and combined with the retail segment. Information for the
three and six months ended June 30, 2007 has been recast to provide a comparison to the
current year results.(1)
    
    Cost of sales includes intersegment purchases of motor fuels from our refining and unbranded
marketing segment at prices which approximate wholesale market prices. These intersegment
purchases are eliminated through consolidation of our financial statements.(2)
    
    Marketing sales volume represents branded fuel sales to our wholesale marketing customers
located in both our integrated and non-integrated regions. The branded fuels we sell in our
integrated region are primarily supplied by the Big Spring refinery, but more fuel has been
from third-party suppliers due to the fire on February 18, 2008 at the Big Spring refinery.
The branded fuels we sell in the non-integrated region are obtained from third-party
suppliers. The marketing margin represents the margin between the net sales and cost of sales
attributable to our branded fuel sales volume, expressed on a cents-per-gallon basis.(3)
    
    Retail fuel and merchandise sales per site for the three and six month periods ending June 30, 2007 were
calculated using 206 stores. We added 102 stores with the acquisition of Skinnys, Inc. on
June 29, 2007, which are excluded from the calculation. Merchandise sales per site per month for the 102 stores were 67 and
60 for the three and six months ended June 30, 2008, respectively.
Merchandise sales per site per month for the 204 stores were 78 and 74 for the three and
six months ended June 30, 2008, respectively.(4)
    
    Retail 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. 34




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##### Table of Contents



(5)
    
    Retail fuel sales price per gallon represents the average sales price for motor fuels sold
through our retail convenience stores.(6)
    
    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 convenience store industry to measure in-store, or
non-fuel, operating results. 35




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##### Table of Contents



Three Months Ended June 30, 2008 Compared to the Three Months Ended June 30, 2007
 Net Sales
 Consolidated
 Refining and Unbranded Marketing Segment
 Asphalt Segment
 Retail and Branded Marketing Segment
 Cost of Sales
 Consolidated
 Refining and Unbranded Marketing Segment.
 Asphalt Segment
 36




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##### Table of Contents



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




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##### Table of Contents



Asphalt Segment.
 Retail and Branded Marketing Segment.
 Interest Expense
  Income Tax Expense
  Minority Interest in Income of Subsidiaries
  38




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##### Table of Contents



Net Income
  Six Months Ended June 30, 2008 Compared to the Six Months Ended June 30, 2007
 Net Sales
 Consolidated
 Refining and Unbranded Marketing Segment
 Asphalt Segment
 Retail and Branded Marketing Segment
 Cost of Sales
 Consolidated
 Refining and Unbranded Marketing Segment.
 39




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##### Table of Contents



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




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##### Table of Contents



Operating Income (Loss)
 Consolidated
 Refining and Unbranded Marketing Segment
    Asphalt Segment.
 Retail and Branded Marketing Segment.
 Interest Expense
  Income Tax Expense (Benefit)
  41




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##### Table of Contents



Minority Interest in Income (Loss) of Subsidiaries
  Net Income (Loss)
  Liquidity and Capital Resources
    42




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##### Table of Contents



Cash Flows
  For the Three Months Ended
    
    
    For the Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(dollars in thousands)Cash provided by (used in):Operating activities
    
    $
    7,548
    
    
    $
    120,040
    
    
    $
    (42,076
    )
    
    $
    158,908Investing activities
    
    
    (67,871
    )
    
    
    (91,113
    )
    
    
    (51,003
    )
    
    
    (99,989
    )Financing activities
    
    
    43,084
    
    
    
    42,245
    
    
    
    38,360
    
    
    
    36,583Net increase (decrease) in cash and cash equivalents
    
    $
    (17,239
    )
    
    $
    71,172
    
    
    $
    (54,719
    )
    
    $
    95,502
 Cash Flows Provided by (Used In) Operating Activities
   Cash Flows Used In Investing Activities
   Cash Flows Provided By Financing Activities
   43




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##### Table of Contents



Cash Position and Indebtedness
  Summary of Indebtedness
 As of June 30, 2008Amount Outstanding
    
    
    Total Facility
    
    
    Total Availability (1)(dollars in thousands)Debt, including current portion:Term loan credit facility
    
    $
    437,810
    
    
    $
    437,810
    
    
    $
    Revolving credit facilities
    
    
    51,000
    
    
    
    540,000
    
    
    
    214,082Retail credit facilities
    
    
    90,152
    
    
    
    90,152
    
    
    
    Totals
    
    $
    578,962
    
    
    $
    1,067,962
    
    
    $
    214,082
 
 (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 June 30, 2008, which was $214.1 million or
(b) total borrowing base less outstanding borrowings and letters of credit as of June 30,
2008, which was $457.6 million. Term Loan Credit Facility
     44




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##### Table of Contents



Revolving Credit Facilities
 Israel Discount Bank Credit Facility
   Bank of America Credit Facility.
  Retail Credit Facilities
    45




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##### Table of Contents



Capital Spending
  Clean Air Capital Expenditures
 Turnaround and Chemical Catalyst Costs
 Contractual Obligations and Commercial Commitments
  Off-Balance Sheet Arrangements
  Critical Accounting Policies
  46




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##### Table of Contents



New Accounting Standards and Disclosures
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Commodity Price Risk
     47




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##### Table of Contents



Wtd Avg
    
    Wtd AvgDescription
    
    Contract
    
    Purchase
    
    Sales
    
    Contract
    
    Market
    
    Gainof Activity
    
    Volume
    
    Price/BBL
    
    Price/BBL
    
    Value
    
    Value
    
    (Loss)(in thousands)Forwards-long (Gasoline)
    
    
    25,000
    
    
    $
    141.02
    
    
    $
    
    
    
    $
    3,525
    
    
    $
    3,539
    
    
    $
    13Forwards-short (Gasoline)
    
    
    (25,000
    )
    
    
    
    
    
    
    138.60
    
    
    
    (3,465
    )
    
    
    (3,490
    )
    
    
    (25
    )Forwards-short (Diesel)
    
    
    (10,000
    )
    
    
    
    
    
    
    160.13
    
    
    
    (1,601
    )
    
    
    (1,647
    )
    
    
    (46
    )Futures-long (Crude)
    
    
    179,000
    
    
    
    136.66
    
    
    
    
    
    
    
    24,463
    
    
    
    25,060
    
    
    
    597Futures-short (Crude)
    
    
    (464,000
    )
    
    
    
    
    
    
    132.95
    
    
    
    (61,689
    )
    
    
    (64,960
    )
    
    
    (3,271
    )Futures-long (Heating Oil)
    
    
    16,000
    
    
    
    161.28
    
    
    
    
    
    
    
    2,580
    
    
    
    2,628
    
    
    
    47Futures-short (Heating Oil)
    
    
    (16,000
    )
    
    
    
    
    
    
    162.84
    
    
    
    (2,606
    )
    
    
    (2,628
    )
    
    
    (22
    )Wtd Avg
    
    Wtd AvgDescription
    
    Contract
    
    Contract
    
    Market
    
    Contract
    
    Market
    
    Gainof Activity
    
    Volume
    
    Spread
    
    Spread
    
    Value
    
    Value
    
    (Loss)Futures-swaps (Crack Spread)
    
    
    14,849,750
    
    
    $
    22.27
    
    
    $
    25.99
    
    
    $
    317,907
    
    
    $
    370,873
    
    
    $
    (52,966
    )
 Interest Rate Risk
  
 ITEM 4. CONTROLS AND PROCEDURES
 (1) Evaluation of disclosure controls and procedures.
  (2) Changes in internal control over financial reporting.
  48




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##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
 Purchases of Equity Securities by Affiliate Purchasers
 Total Number ofShares Purchased as
    
    Maximum Number ofPart of Publicly
    
    Shares that May Yet BeTotal Number of
    
    Average Price Paid
    
    Announced Plans or
    
    Purchased Under thePeriod
    
    Shares Purchased (a)
    
    per Share (b)
    
    Programs
    
    Plans or ProgramsJanuary 1, 2008 
January 31, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    February 1, 2008 
February 29, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    March 1, 2008 
March 31, 2008
    
    
    933,000
    
    
    $
    13.07
    
    
    
    
    
    
    
    April 1, 2008 
April 30, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    May 1, 2008 
May 31, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    June 1, 2008 
June 30, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    933,000
    
    
    $
    13.07
 
 (a)
    
    The amount shown in this column reflects the aggregate purchases, in a series of open market
transactions, by (i) Alon Israel Oil Company Ltd. (Alon Israel) of an aggregate of 880,000 shares
of Alon common stock at an average volume weighted purchase price of $13.02; and (ii) David
Wiessman of an aggregate of 53,000 shares of Alon common stock at an average volume weighted
purchase price of $13.77. The purchases by Alon Israel and Mr. Wiessman were effected in
accordance with the volume limitations and other provisions of the safe harbor set forth in Rule
10b-18 under the Exchange Act.(b)
    
    The amount shown in this column reflects the average volume weighted purchase price of the
combined purchases by Alon Israel and Mr. Wiessman. 49




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##### Table of Contents



ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
   Director
    
    For
    
    WithheldItzhak Bader
    
    
    41,518,375
    
    
    
    3,002,052Boaz Biran
    
    
    41,517,976
    
    
    
    3,002,452Ron Fainaro
    
    
    43,281,975
    
    
    
    1,238,453Avinadav Grinshpon
    
    
    43,493,446
    
    
    
    1,026,982Ron W. Haddock
    
    
    43,602,620
    
    
    
    917,808Jeff. D. Morris
    
    
    41,369,553
    
    
    
    3,150,875Yeshayahu Pery
    
    
    41,518,445
    
    
    
    3,001,983Zalman Segal
    
    
    43,575,238
    
    
    
    945,190Avraham Shochat
    
    
    43,577,038
    
    
    
    943,390David Wiessman
    
    
    41,338,319
    
    
    
    3,182,109
 
 
 b)
    
    The stockholders ratified the employment of KPMG LLP as our independent registered public
accounting firm for the fiscal year ending December 31, 2008. The votes for ratification were
44,372,090, the votes against ratification were 138,993 and the votes abstained were 9,346. There
were no broker non-votes. -50-




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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
    
    Stock Purchase Agreement, dated May 7, 2008, between Valero Refining and Marketing Company
and Alon Refining Krotz Springs, Inc. (incorporated by reference to Exhibit 10.1 to Form
8-K, filed by the Company on May 13, 2008, SEC File No. 001-32567).10.2
    
    First Amendment to Stock Purchase Agreement, dated as of July 3, 2008, by and among Valero
Refining and Marketing Company, Alon Refining Krotz Springs, Inc. and Valero Refining
Company-Louisiana (incorporated by reference to Exhibit 10.1 to Form 8-K, filed by the
Company on July 10, 2008, SEC File No. 001-32567).10.3
    
    Term Loan Agreement, dated as of July 3, 2008, by and among Alon Refining Louisiana, Inc.,
Alon Refining Krotz Springs, Inc., the lenders party thereto and Credit Suisse, as
administrative agent and collateral agent (incorporated by reference to Exhibit 10.2 to Form
8-K, filed by the Company on July 10, 2008, SEC File No. 001-32567).10.4
    
    Loan and Security Agreement, dated as of July 3, 2008, by and among Alon Refining Louisiana,
Inc., Alon Refining Krotz Springs, Inc., the lenders party thereto and Bank of America,
N.A., as administrative agent (incorporated by reference to Exhibit 10.3 to Form 8-K, filed
by the Company on July 10, 2008, SEC File No. 001-32567).10.6
    
    Waiver, Consent, Partial Release and Fourth Amendment, dated as of July 3, 2008, by and
among USA Energy, Inc., Alon USA, LP, 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 10.4 to Form 8-K, filed by the Company on July 10,
2008, SEC File No. 001-32567).10.7
    
    Series A Preferred Stock Purchase Agreement, dated as of July 3, 2008, by and between Alon
Refining Louisiana, Inc. and Alon Israel Oil Company, Ltd. (incorporated by reference to
Exhibit 10.5 to Form 8-K, filed by the Company on July 10, 2008, SEC File No. 001-32567).10.8
    
    Stockholders Agreement, dated as of July 3, 2008, by and among Alon USA Energy, Inc., Alon
Refining Louisiana, Inc., Alon Louisiana Holdings, Inc. and Alon Israel Oil Company, Ltd.
(incorporated by reference to Exhibit 10.6 to Form 8-K, filed by the Company on July 10,
2008, SEC File No. 001-32567).10.9
    
    Offtake Agreement, dated as of July 3, 2008, by and between Valero Marketing and Supply
Company and Alon Refining Krotz Springs, Inc. (asterisks located within the exhibit denote
information which has been deleted pursuant to a request for confidential treatment filed
with the Securities Exchange Commission).10.10
    
    Earnout Agreement, dated as of July 3, 2008, by and between Valero Refining and Marketing
Company and Alon Refining Krotz Springs, Inc. (asterisks located within the exhibit denote
information which has been deleted pursuant to a request for confidential treatment filed
with the Securities Exchange Commission).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.
 -51-




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##### Table of Contents



SIGNATURES
  Alon USA Energy, Inc.Date: August 7, 2008
    By:
    /s/ David WiessmanDavid WiessmanExecutive ChairmanDate: August 7, 2008
    By:
    /s/ Jeff D. MorrisJeff D. MorrisChief Executive OfficerDate:  August 7, 2008
    By:
    /s/ Shai EvenShai EvenChief Financial Officer -52-




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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
    
    Stock Purchase Agreement, dated May 7, 2008, between Valero Refining and Marketing Company
and Alon Refining Krotz Springs, Inc. (incorporated by reference to Exhibit 10.1 to Form
8-K, filed by the Company on May 13, 2008, SEC File No. 001-32567).10.2
    
    First Amendment to Stock Purchase Agreement, dated as of July 3, 2008, by and among Valero
Refining and Marketing Company, Alon Refining Krotz Springs, Inc. and Valero Refining
Company-Louisiana (incorporated by reference to Exhibit 10.1 to Form 8-K, filed by the
Company on July 10, 2008, SEC File No. 001-32567).10.3
    
    Term Loan Agreement, dated as of July 3, 2008, by and among Alon Refining Louisiana, Inc.,
Alon Refining Krotz Springs, Inc., the lenders party thereto and Credit Suisse, as
administrative agent and collateral agent (incorporated by reference to Exhibit 10.2 to Form
8-K, filed by the Company on July 10, 2008, SEC File No. 001-32567).10.4
    
    Loan and Security Agreement, dated as of July 3, 2008, by and among Alon Refining Louisiana,
Inc., Alon Refining Krotz Springs, Inc., the lenders party thereto and Bank of America,
N.A., as administrative agent (incorporated by reference to Exhibit 10.3 to Form 8-K, filed
by the Company on July 10, 2008, SEC File No. 001-32567).10.6
    
    Waiver, Consent, Partial Release and Fourth Amendment, dated as of July 3, 2008, by and
among USA Energy, Inc., Alon USA, LP, 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 10.4 to Form 8-K, filed by the Company on July 10,
2008, SEC File No. 001-32567).10.7
    
    Series A Preferred Stock Purchase Agreement, dated as of July 3, 2008, by and between Alon
Refining Louisiana, Inc. and Alon Israel Oil Company, Ltd. (incorporated by reference to
Exhibit 10.5 to Form 8-K, filed by the Company on July 10, 2008, SEC File No. 001-32567).10.8
    
    Stockholders Agreement, dated as of July 3, 2008, by and among Alon USA Energy, Inc., Alon
Refining Louisiana, Inc., Alon Louisiana Holdings, Inc. and Alon Israel Oil Company, Ltd.
(incorporated by reference to Exhibit 10.6 to Form 8-K, filed by the Company on July 10,
2008, SEC File No. 001-32567).10.9
    
    Offtake Agreement, dated as of July 3, 2008, by and between Valero Marketing and Supply
Company and Alon Refining Krotz Springs, Inc. (asterisks located within the exhibit denote
information which has been deleted pursuant to a request for confidential treatment filed
with the Securities Exchange Commission).10.10
    
    Earnout Agreement, dated as of July 3, 2008, by and between Valero Refining and Marketing
Company and Alon Refining Krotz Springs, Inc. (asterisks located within the exhibit denote
information which has been deleted pursuant to a request for confidential treatment filed
with the Securities Exchange Commission).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.