##### 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, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE TRANSITION PERIOD FROM  TO
 Commission file number: 001-32567
 
 Alon USA Energy, Inc.
 (Exact name of Registrant as specified in its charter)
 
 Delaware(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
  o þ o
 o þ




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##### 



PART I. FINANCIAL INFORMATION
    
    
    1ITEM 1. FINANCIAL STATEMENTS
    
    
    1CONSOLIDATED BALANCE SHEETS
    
    
    1CONSOLIDATED STATEMENTS OF OPERATIONS
    
    
    2CONSOLIDATED STATEMENTS OF CASH FLOWS
    
    
    3NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    
    
    4ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    21FORWARD-LOOKING STATEMENTS
    
    
    21ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    45ITEM 4. CONTROLS AND PROCEDURES
    
    
    47PART II. OTHER INFORMATION
    
    
    48ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    48ITEM 6. EXHIBITS
    
    
    49SIGNATURES
    
    
    50EXHIBITSCERTIFICATION 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 31,2007
    
    
    2006(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    159,668
    
    
    $
    64,166Accounts and other receivables, net
    
    
    244,374
    
    
    
    126,634Inventories
    
    
    312,267
    
    
    
    311,464Prepaid expenses and other current assets
    
    
    7,207
    
    
    
    12,909Total current assets
    
    
    723,516
    
    
    
    515,173Equity method investments
    
    
    40,311
    
    
    
    38,298Property, plant and equipment, net
    
    
    731,818
    
    
    
    775,836Other assets
    
    
    170,577
    
    
    
    79,478Total assets
    
    $
    1,666,222
    
    
    $
    1,408,785LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    289,596
    
    
    $
    202,447Accrued liabilities
    
    
    99,616
    
    
    
    66,808Current portion of deferred gain on disposition of assets
    
    
    9,433
    
    
    
    10,400Current portion of long-term debt
    
    
    10,416
    
    
    
    6,739Total current liabilities
    
    
    409,061
    
    
    
    286,394Other non-current liabilities
    
    
    64,630
    
    
    
    65,885Deferred gain on disposition of assets
    
    
    38,178
    
    
    
    42,299Long-term debt
    
    
    531,042
    
    
    
    491,930Deferred income tax liability
    
    
    186,221
    
    
    
    222,415Total liabilities
    
    
    1,229,132
    
    
    
    1,108,923Commitments and contingencies (note 15)Minority interest in subsidiaries
    
    
    18,852
    
    
    
    9,532Stockholders equity:Preferred stock, par value $0.01, 10,000,000 shares
authorized; no shares issued and outstanding
    
    
    
    
    
    
    Common stock, par value $0.01, 100,000,000 shares
authorized; 46,808,444 and 46,806,443 shares issued and
outstanding at June 30, 2007 and December 31, 2006,
respectively
    
    
    468
    
    
    
    468Additional paid-in capital
    
    
    182,097
    
    
    
    181,622Accumulated other comprehensive loss, net of income tax
    
    
    (7,816
    )
    
    
    (7,816
    )Retained earnings
    
    
    243,489
    
    
    
    116,056Total stockholders equity
    
    
    418,238
    
    
    
    290,330Total liabilities and stockholders equity
    
    $
    1,666,222
    
    
    $
    1,408,785
  1




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ALON USA ENERGY, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (unaudited, dollars in thousands except per share data)
 For the Three Months Ended
    
    
    For the Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net sales
    
    $
    1,186,693
    
    
    $
    672,262
    
    
    $
    2,152,225
    
    
    $
    1,256,963Operating costs and expenses:Cost of sales
    
    
    929,575
    
    
    
    556,689
    
    
    
    1,740,836
    
    
    
    1,054,516Direct operating expenses
    
    
    54,746
    
    
    
    22,164
    
    
    
    104,029
    
    
    
    45,435Selling, general and administrative expenses
    
    
    27,034
    
    
    
    20,354
    
    
    
    49,199
    
    
    
    37,807Depreciation and amortization
    
    
    11,153
    
    
    
    5,408
    
    
    
    25,595
    
    
    
    10,931Total operating costs and expenses
    
    
    1,022,508
    
    
    
    604,615
    
    
    
    1,919,659
    
    
    
    1,148,689Gain on disposition of assets
    
    
    2,525
    
    
    
    2,279
    
    
    
    3,480
    
    
    
    57,665Operating income
    
    
    166,710
    
    
    
    69,926
    
    
    
    236,046
    
    
    
    165,939Interest expense
    
    
    (11,669
    )
    
    
    (1,349
    )
    
    
    (23,087
    )
    
    
    (10,396
    )Equity earnings of investees
    
    
    3,936
    
    
    
    176
    
    
    
    4,540
    
    
    
    753Other income, net
    
    
    2,291
    
    
    
    2,174
    
    
    
    3,181
    
    
    
    4,101Income before income tax expense and
minority interest in income of subsidiaries
    
    
    161,268
    
    
    
    70,927
    
    
    
    220,680
    
    
    
    160,397Income tax expense
    
    
    59,650
    
    
    
    25,607
    
    
    
    81,621
    
    
    
    58,133Income before minority interest in income of
subsidiaries
    
    
    101,618
    
    
    
    45,320
    
    
    
    139,059
    
    
    
    102,264Minority interest in income of subsidiaries
    
    
    6,005
    
    
    
    2,229
    
    
    
    7,881
    
    
    
    5,009Net income
    
    $
    95,613
    
    
    $
    43,091
    
    
    $
    131,178
    
    
    $
    97,255Earnings per share, basic
    
    $
    2.05
    
    
    $
    0.92
    
    
    $
    2.81
    
    
    $
    2.08Weighted average shares outstanding (in thousands)
    
    
    46,758
    
    
    
    46,733
    
    
    
    46,758
    
    
    
    46,732Cash dividends per share
    
    $
    0.04
    
    
    $
    0.04
    
    
    $
    0.08
    
    
    $
    0.45
  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 30,2007
    
    
    2006Cash flows from operating activities:Net income
    
    $
    131,178
    
    
    $
    97,255Adjustments to reconcile net income to cash provided by (used in)
operating activities:Depreciation and amortization
    
    
    25,595
    
    
    
    10,931Stock compensation
    
    
    2,140
    
    
    
    1,420Deferred income tax expense
    
    
    (417
    )
    
    
    22,658Minority interest in income of subsidiaries
    
    
    7,881
    
    
    
    5,009Equity earnings of investees (net of dividends)
    
    
    (2,095
    )
    
    
    Gain on disposition of assets
    
    
    (3,480
    )
    
    
    (57,665
    )Changes in operating assets and liabilities, net of acquisition effects:Accounts and other receivables, net
    
    
    (116,956
    )
    
    
    (40,471
    )Inventories
    
    
    5,137
    
    
    
    (34,212
    )Prepaid expenses and other current assets
    
    
    5,818
    
    
    
    340Other assets
    
    
    (645
    )
    
    
    1,903Accounts payable
    
    
    80,138
    
    
    
    (21,072
    )Accrued liabilities
    
    
    27,317
    
    
    
    9,518Other non-current liabilities
    
    
    (2,703
    )
    
    
    (324
    )Net cash provided by (used in) operating activities
    
    
    158,908
    
    
    
    (4,710
    )Cash flows from investing activities:Capital expenditures
    
    
    (17,667
    )
    
    
    (23,165
    )Turnaround and chemical catalyst expenditures
    
    
    (5,137
    )
    
    
    (2,925
    )Acquisition of Skinnys
    
    
    (77,185
    )
    
    
    Proceeds from disposition of assets, net
    
    
    
    
    
    
    68,000Escrow deposits and costs relating to acquisitions
    
    
    
    
    
    
    (31,868
    )Sale of short-term investments, net
    
    
    
    
    
    
    185,320Dividends from investment in investees (net of equity earnings)
    
    
    
    
    
    
    432Minority interest shares purchased
    
    
    
    
    
    
    (186
    )Net cash (used in) provided by investing activities
    
    
    (99,989
    )
    
    
    195,608Cash flows from financing activities:Dividends paid to minority interest stockholders
    
    
    (226
    )
    
    
    (1,078
    )Dividends paid to stockholders
    
    
    (3,745
    )
    
    
    (21,065
    )Deferred debt issuance costs
    
    
    (2,235
    )
    
    
    Additions to long-term debt
    
    
    46,167
    
    
    
    Payments on long-term debt
    
    
    (3,378
    )
    
    
    (101,227
    )Net cash provided by (used in) financing activities
    
    
    36,583
    
    
    
    (123,370
    )Net change in cash and cash equivalents
    
    
    95,502
    
    
    
    67,528Cash and cash equivalents, beginning of period
    
    
    64,166
    
    
    
    136,820Cash and cash equivalents, end of period
    
    $
    159,668
    
    
    $
    204,348Supplemental cash flow information:Cash paid for interest
    
    $
    19,819
    
    
    $
    6,617Cash paid for income tax
    
    $
    48,972
    
    
    $
    17,596
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ALON USA ENERGY, INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited, dollars in thousands except as noted)
 (1) Basis of Presentation and Certain Significant Accounting Policies
 (a) Basis of Presentation
   (b) Revenue Recognition
   (c) New Accounting Standards
 Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109
  4




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




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ALON USA ENERGY, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited, dollars in thousands except as noted)
 Paramount Acquisition
   Cash paid, less unrestricted cash acquired
    
    $
    491,723Transaction costs
    
    
    3,599Total Purchase Price
    
    $
    495,322
  Current assets, net of unrestricted cash acquired
    
    $
    308,135Property, plant and equipment
    
    
    388,791Deferred charges and other assets
    
    
    13,803Equity method investments
    
    
    15,836Intangibles
    
    
    10,300Goodwill
    
    
    66,055Current liabilities
    
    
    (165,824
    )Deferred income tax liability
    
    
    (106,037
    )Other liabilities
    
    
    (35,737
    )Total Purchase Price
    
    $
    495,322
  Unaudited Pro Forma Financial Information
  
    
    The acquisition of Paramount Petroleum Corporation occurred on January 1, 2006;
    
    $400,000 of term debt was incurred on January 1, 2006 to fund the acquisition and to
repay the existing Paramount Petroleum Corporation debt; and
    
    Depreciation expense was higher beginning January 1, 2006 based upon the revaluation of
estimated asset values as of that date.
 6




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ALON USA ENERGY, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited, dollars in thousands except as noted)
  Six Months EndedJune 30,2007
    
    2006(unaudited)
    
    (pro forma)Net sales
    
    $
    2,152,225
    
    
    $
    1,988,281Operating income
    
    
    236,046
    
    
    
    196,201Net income
    
    
    131,178
    
    
    
    102,612Earnings per
share, basic
    
    $
    2.81
    
    
    $
    2.20
 Edgington Acquisition
  7




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ALON USA ENERGY, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited, dollars in thousands except as noted)
  Cash paid
    
    $
    92,405Transaction costs
    
    
    1,163Total Purchase Price
    
    $
    93,568
  Current assets, net of unrestricted cash acquired
    
    $
    1,000Inventories
    
    
    34,405Property, plant and equipment
    
    
    63,951Other non-current liabilities
    
    
    (5,788
    )Total Purchase Price
    
    $
    93,568
  Skinnys Acquisition
    Cash paid
    
    $
    76,886Transaction costs
    
    
    299Total Purchase Price
    
    $
    77,185
 8




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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
    
    $
    6,844Property, plant and equipment
    
    
    58,853Other assets
    
    
    766Goodwill
    
    
    22,316Current liabilities
    
    
    (10,648
    )Other non-current liabilities
    
    
    (946
    )Total Purchase Price
    
    $
    77,185
  Pipeline Acquisition
  (3) Sale of Amdel and White Oil Pipelines
  (4) Segment Data
  (a) Refining and Marketing Segment
  9




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ALON USA ENERGY, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited, dollars in thousands except as noted)
 (b) Asphalt Segment
  (c) Retail Segment
  (d) Corporate
  10




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ALON USA ENERGY, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited, dollars in thousands except as noted)
  Refining and
    
    
    
    
    
    
    
    
    
    
    
    
    
    ConsolidatedThree Months ended June 30, 2007
    
    Marketing
    
    Asphalt
    
    Retail
    
    Corporate
    
    TotalNet sales to external customers
    
    $
    899,423
    
    
    $
    181,445
    
    
    $
    105,825
    
    
    $
    
    
    
    $
    1,186,693Intersegment sales/purchases
    
    
    159,724
    
    
    
    (112,832
    )
    
    
    (46,892
    )
    
    
    
    
    
    
    Depreciation and amortization
    
    
    9,254
    
    
    
    558
    
    
    
    1,140
    
    
    
    201
    
    
    
    11,153Operating income (loss)
    
    
    153,984
    
    
    
    12,196
    
    
    
    861
    
    
    
    (331
    )
    
    
    166,710Total assets
    
    
    1,071,422
    
    
    
    385,386
    
    
    
    201,256
    
    
    
    8,158
    
    
    
    1,666,222Turnaround, chemical catalyst and
capital expenditures
    
    
    10,711
    
    
    
    1,024
    
    
    
    1,498
    
    
    
    305
    
    
    
    13,538Refining and
    
    
    
    
    
    
    
    
    
    
    
    
    
    ConsolidatedThree Months ended June 30, 2006
    
    Marketing
    
    Asphalt
    
    Retail
    
    Corporate
    
    TotalNet sales to external customers
    
    $
    536,536
    
    
    $
    48,911
    
    
    $
    86,815
    
    
    $
    
    
    
    $
    672,262Intersegment sales/purchases
    
    
    80,254
    
    
    
    (41,170
    )
    
    
    (39,084
    )
    
    
    
    
    
    
    Depreciation and amortization
    
    
    3,738
    
    
    
    63
    
    
    
    1,110
    
    
    
    497
    
    
    
    5,408Operating income (loss)
    
    
    68,637
    
    
    
    662
    
    
    
    1,219
    
    
    
    (592
    )
    
    
    69,926Total assets
    
    
    618,499
    
    
    
    42,644
    
    
    
    71,144
    
    
    
    14,314
    
    
    
    746,601Turnaround, chemical catalyst and
capital expenditures
    
    
    17,844
    
    
    
    297
    
    
    
    1,951
    
    
    
    57
    
    
    
    20,149Refining and
    
    
    
    
    
    
    
    
    
    
    
    
    
    ConsolidatedSix Months ended June 30, 2007
    
    Marketing
    
    Asphalt
    
    Retail
    
    Corporate
    
    TotalNet sales to external customers
    
    $
    1,665,170
    
    
    $
    295,391
    
    
    $
    191,664
    
    
    $
    
    
    
    $
    2,152,225Intersegment sales/purchases
    
    
    287,946
    
    
    
    (206,876
    )
    
    
    (81,070
    )
    
    
    
    
    
    
    Depreciation and amortization
    
    
    21,973
    
    
    
    1,055
    
    
    
    2,132
    
    
    
    435
    
    
    
    25,595Operating income (loss)
    
    
    217,221
    
    
    
    18,457
    
    
    
    1,020
    
    
    
    (652
    )
    
    
    236,046Total assets
    
    
    1,071,422
    
    
    
    385,386
    
    
    
    201,256
    
    
    
    8,158
    
    
    
    1,666,222Turnaround, chemical catalyst and
capital expenditures
    
    
    19,240
    
    
    
    1,160
    
    
    
    1,977
    
    
    
    427
    
    
    
    22,804Refining and
    
    
    
    
    
    
    
    
    
    
    
    
    
    ConsolidatedSix Months ended June 30, 2006
    
    Marketing
    
    Asphalt
    
    Retail
    
    Corporate
    
    TotalNet sales to external customers
    
    $
    1,026,330
    
    
    $
    71,203
    
    
    $
    159,430
    
    
    $
    
    
    
    $
    1,256,963Intersegment sales/purchases
    
    
    130,447
    
    
    
    (59,973
    )
    
    
    (70,474
    )
    
    
    
    
    
    
    Depreciation and amortization
    
    
    7,524
    
    
    
    122
    
    
    
    2,264
    
    
    
    1,021
    
    
    
    10,931Operating income (loss)
    
    
    172,499
    
    
    
    (6,580
    )
    
    
    1,263
    
    
    
    (1,243
    )
    
    
    165,939Total assets
    
    
    618,499
    
    
    
    42,644
    
    
    
    71,144
    
    
    
    14,314
    
    
    
    746,601Turnaround, chemical catalyst and
capital expenditures
    
    
    23,472
    
    
    
    368
    
    
    
    2,174
    
    
    
    76
    
    
    
    26,090
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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) Derivatives and Hedging Activities
 (a) Fair Value of Financial Instruments
  (b) Derivative Financial Instruments
    Accounting for Derivative Instruments and Hedging Activities
 (7) Inventories
  12




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ALON USA ENERGY, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited, dollars in thousands except as noted)
  June 30,
    
    
    December 31,2007
    
    
    2006Crude oil, refined products, asphalt and blendstocks
    
    $
    271,740
    
    
    $
    280,212Materials and supplies
    
    
    12,357
    
    
    
    12,161Store merchandise
    
    
    20,873
    
    
    
    15,905Store fuel
    
    
    7,297
    
    
    
    3,186Total inventories
    
    $
    312,267
    
    
    $
    311,464
   (8) Property, Plant and Equipment, net
  June 30,
    
    
    December 31,2007
    
    
    2006Refining facilities
    
    $
    640,097
    
    
    $
    730,036Pipelines and terminals
    
    
    40,153
    
    
    
    40,108Retail
    
    
    139,347
    
    
    
    78,722Other
    
    
    11,128
    
    
    
    10,700Property, plant and equipment, gross
    
    
    830,725
    
    
    
    859,566Less accumulated depreciation
    
    
    (98,907
    )
    
    
    (83,730
    )Property, plant and equipment, net
    
    $
    731,818
    
    
    $
    775,836
  (9) Other Assets
  June 30,
    
    
    December 31,2007
    
    
    2006Deferred turnaround, chemical catalyst expenditures
    
    $
    12,781
    
    
    $
    12,797Environmental receivables
    
    
    11,451
    
    
    
    11,853Deferred debt issuance costs
    
    
    12,177
    
    
    
    10,769Goodwill
    
    
    104,089
    
    
    
    15,317Intangible assets
    
    
    19,369
    
    
    
    20,696Other
    
    
    10,710
    
    
    
    8,046Total other assets
    
    $
    170,577
    
    
    $
    79,478
 (10) Employee and Postretirement Benefits
  13




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ALON USA ENERGY, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited, dollars in thousands except as noted)
   For the Three Months Ended
    
    
    For the Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Components of net periodic benefit cost:Service cost
    
    $
    507
    
    
    $
    478
    
    
    $
    1,014
    
    
    $
    956Interest cost
    
    
    665
    
    
    
    608
    
    
    
    1,330
    
    
    
    1,216Expected return on plan assets
    
    
    (704
    )
    
    
    (593
    )
    
    
    (1,408
    )
    
    
    (1,186
    )Amortization of net loss
    
    
    134
    
    
    
    83
    
    
    
    268
    
    
    
    166Net periodic benefit cost
    
    $
    602
    
    
    $
    576
    
    
    $
    1,204
    
    
    $
    1,152
 (11) Long-Term Debt
  June 30,
    
    
    December 31,2007
    
    
    2006Term loan credit facility
    
    $
    445,500
    
    
    $
    447,750Revolving credit facilities
    
    
    
    
    
    
    Retail credit facilities
    
    
    95,958
    
    
    
    50,919Total debt
    
    
    541,458
    
    
    
    498,669Less current portion
    
    
    (10,416
    )
    
    
    (6,739
    )Total long-term debt
    
    $
    531,042
    
    
    $
    491,930
 (a) Term Loan Credit Facility
 Credit Suisse Credit Facility.
    14




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ALON USA ENERGY, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited, dollars in thousands except as noted)
  (b) Revolving Credit Facilities
 Israel Discount Bank Credit Facility
   Bank of America Credit Facility.
  (c) Retail Credit Facilities
   15




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ALON USA ENERGY, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited, dollars in thousands except as noted)
      (d) Secured Term Loan
   (12) Stock-Based Compensation
  (a) 2005 Incentive Compensation Plan (share value in dollars)
  16




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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)
 Restricted Stock
   Number of
    
    
    Weighted AverageRestricted Shares:
    
    Shares
    
    
    Grant Date Fair ValuesNonvested at January 1, 2006
    
    
    78,737
    
    
    $
    19.73Granted
    
    
    2,253
    
    
    
    33.29Vested
    
    
    (26,244
    )
    
    
    19.73Forfeited
    
    
    (5,667
    )
    
    
    20.42Nonvested at December 31, 2006
    
    
    49,079
    
    
    $
    20.27Granted
    
    
    2,001
    
    
    
    37.51Vested
    
    
    (751
    )
    
    
    33.29Forfeited
    
    
    
    
    
    
    Nonvested at June 30, 2007
    
    
    50,329
    
    
    $
    20.76
  Stock Appreciation Rights
  (b) 2000 Incentive Stock Compensation Plan
  17




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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)
   Alon Assets
    
    
    Alon OperatingWeighted
    
    
    
    
    
    WeightedNumber of
    
    
    Average
    
    
    Number of
    
    
    AverageOptions
    
    
    Exercise
    
    
    Options
    
    
    ExerciseOutstanding
    
    
    Price
    
    
    Outstanding
    
    
    PriceOutstanding at January 1, 2006
    
    
    8,060
    
    
    $
    100
    
    
    
    3,027
    
    
    $
    100Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    (1,212
    )
    
    
    100
    
    
    
    (455
    )
    
    
    100Outstanding at December 31, 2006
    
    
    6,848
    
    
    
    100
    
    
    
    2,572
    
    
    
    100Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    (1,632
    )
    
    
    100
    
    
    
    (613
    )
    
    
    100Outstanding at June 30, 2007
    
    
    5,216
    
    
    $
    100
    
    
    
    1,959
    
    
    $
    100
  (13) Stockholders Equity (per share in dollars)
 Common Stock Dividends
  (14) Earnings Per Share (earnings per share in dollars)
  18




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ALON USA ENERGY, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited, dollars in thousands except as noted)
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net income
    
    $
    95,613
    
    
    $
    43,091
    
    
    $
    131,178
    
    
    $
    97,255Average number of shares of common stock outstanding
    
    
    46,758
    
    
    
    46,733
    
    
    
    46,758
    
    
    
    46,732Dilutive restricted shares
    
    
    42
    
    
    
    45
    
    
    
    39
    
    
    
    37Average number of shares of common stock
outstanding assuming dilution
    
    
    46,800
    
    
    
    46,778
    
    
    
    46,797
    
    
    
    46,769Earnings per share  basic
    
    $
    2.05
    
    
    $
    0.92
    
    
    $
    2.81
    
    
    $
    2.08Earnings per
share  diluted*
    
    $
    2.00
    
    
    $
    0.92
    
    
    $
    2.76
    
    
    $
    2.08
 
 
 (15) Commitments and Contingencies
 (a) Commitments
  (b) Contingencies
  (c) Environmental
    19




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




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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 our
Annual Report on Form 10-K for the year ended December 31, 2006. In this document, the words
Alon, the Company, we and our refer to Alon USA Energy, Inc. and its subsidiaries.
 
 FORWARD-LOOKING STATEMENTS
    
    
    the synergies and accretion to reported earnings estimated to result from our
acquisitions of Paramount Petroleum Corporation and Edgington Oil Company may not be
realized;
    
    our ability to successfully integrate the operations and employees of Paramount
Petroleum Corporation and Edgington Oil Company and the timing of such integration;
    
    expected cost savings from the Paramount Petroleum Corporation and Edgington Oil
Company acquisitions may not be fully realized or recognized within the expected time
frame, and costs or expenses relating to the acquisitions may be higher than expected;
    
    revenues or margins following the Paramount Petroleum Corporation and Edgington Oil
Company acquisitions may be lower than expected;
    
    changes in general economic conditions and capital markets;
    
    changes in the underlying demand for our products;
    
    the availability, costs and price volatility of crude oil, other refinery feedstocks and refined products;
    
    changes in the sweet/sour spread;
    
    changes in the light/heavy spread;
    
    the effects of transactions involving forward contracts and derivative instruments;
    
    actions of customers and competitors;
    
    changes in fuel and utility costs incurred by our facilities;
 21




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##### Table of Contents




    
    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, 2006 under the caption Risk Factors.
  Company Overview
  Refining and Marketing Segment
  Asphalt Segment.
  22




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##### Table of Contents



Retail Segment
 Second Quarter Overview
 Operational and Financial Highlights
  
    
    Our average refinery operating margin for the Big Spring refinery increased by $6.51 per
barrel to $24.92 per barrel for the three months ended June 30, 2007, compared to $18.41
per barrel for the three months ended June 30, 2006. The increase in refinery operating
margin for the Big Spring refinery was directly related to the increase in the Gulf Coast
3/2/1 crack spread, which increased by $8.01 per barrel to $26.23 per barrel for the three
months ended June 30, 2007 compared to $18.22 per barrel for the three months ended June
30, 2006.
    
    Our Big Spring refinery throughput was 72,660 bpd for the three months ended June 30,
2007 compared to 56,335 bpd for the three months ended June 30, 2006.
    
    The increased margin environment during the second quarter of 2007 was partially offset
by lower sweet/sour and light/heavy crude oil differentials. The average sweet/sour spread
for the three months ended June 30, 2007 was $4.56 per barrel compared to $4.72 per barrel
for the three months ended June 30, 2006. The average light/heavy spread for the three
months ended June 30, 2007 was $9.58 per barrel compared to $15.64 per barrel for the three
months ended June 30, 2006.
    
    Our California refineries and asphalt assets acquired during the third quarter of 2006
generated operating income for the three months ended June 30, 2007 of $19.8 million. The
California refineries operating margins were $8.24 per barrel and total refinery
throughput averaged 63,317 barrels per day for the second quarter of 2007. Asphalt sales
relating to these acquired assets totaled 430 tons for the second quarter of 2007 at an
average price of approximately $324.10 per ton.
    
    Our capital expenditures and turnaround spending for the three months ended June 30,
2007 totaled approximately $13.5 million.
    
    On June 14, 2007, we paid a regular quarterly cash dividend of $0.04 per share on our
common stock to stockholders of record at the close of business on June 1, 2007.
 Acquisition of Retail Convenience Stores
  23




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##### Table of Contents



Major Influences on Results of Operations
 Refining and Marketing
       24




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##### Table of Contents



Asphalt
  Retail
  Factors Affecting Comparability
  California Refineries and Asphalt Assets
 Market Considerations
 Refinery Turnaround.
 Amdel
and White Oil Pipeline Transaction
 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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##### Table of Contents



ALON USA ENERGY, INC. AND SUBSIDIARIES CONSOLIDATED
 Summary Financial Tables
 For the Three Months Ended
    
    
    For the Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(dollars in thousands, except per share data)STATEMENT OF OPERATIONS DATA:Net sales
    
    $
    1,186,693
    
    
    $
    672,262
    
    
    $
    2,152,225
    
    
    $
    1,256,963Operating costs and expenses:Cost of sales
    
    
    929,575
    
    
    
    556,689
    
    
    
    1,740,836
    
    
    
    1,054,516Direct operating expenses
    
    
    54,746
    
    
    
    22,164
    
    
    
    104,029
    
    
    
    45,435Selling, general and administrative expenses (1)
    
    
    27,034
    
    
    
    20,354
    
    
    
    49,199
    
    
    
    37,807Depreciation and amortization (2)
    
    
    11,153
    
    
    
    5,408
    
    
    
    25,595
    
    
    
    10,931Total operating costs and expenses
    
    
    1,022,508
    
    
    
    604,615
    
    
    
    1,919,659
    
    
    
    1,148,689Gain on disposition of assets (3)
    
    
    2,525
    
    
    
    2,279
    
    
    
    3,480
    
    
    
    57,665Operating income
    
    
    166,710
    
    
    
    69,926
    
    
    
    236,046
    
    
    
    165,939Interest expense (4)
    
    
    (11,669
    )
    
    
    (1,349
    )
    
    
    (23,087
    )
    
    
    (10,396
    )Equity earnings of investees
    
    
    3,936
    
    
    
    176
    
    
    
    4,540
    
    
    
    753Other income, net
    
    
    2,291
    
    
    
    2,174
    
    
    
    3,181
    
    
    
    4,101Income before income tax expense and minority interest
in income of subsidiaries
    
    
    161,268
    
    
    
    70,927
    
    
    
    220,680
    
    
    
    160,397Income tax expense
    
    
    59,650
    
    
    
    25,607
    
    
    
    81,621
    
    
    
    58,133Income before minority interest in income of subsidiaries
    
    
    101,618
    
    
    
    45,320
    
    
    
    139,059
    
    
    
    102,264Minority interest in income of subsidiaries
    
    
    6,005
    
    
    
    2,229
    
    
    
    7,881
    
    
    
    5,009Net income
    
    $
    95,613
    
    
    $
    43,091
    
    
    $
    131,178
    
    
    $
    97,255Earnings per
share, basic
    
    $
    2.05
    
    
    $
    0.92
    
    
    $
    2.81
    
    
    $
    2.08Weighted average shares outstanding (in thousands)
    
    
    46,758
    
    
    
    46,733
    
    
    
    46,758
    
    
    
    46,732Cash dividends per share
    
    $
    0.04
    
    
    $
    0.04
    
    
    $
    0.08
    
    
    $
    0.45CASH FLOW DATA:Net cash provided by (used in):Operating activities
    
    $
    120,040
    
    
    $
    5,013
    
    
    $
    158,908
    
    
    $
    (4,710
    )Investing activities
    
    
    (91,113
    )
    
    
    66,221
    
    
    
    (99,989
    )
    
    
    195,608Financing activities
    
    
    42,245
    
    
    
    (3,710
    )
    
    
    36,583
    
    
    
    (123,370
    )OTHER DATA:Adjusted EBITDA (5)
    
    $
    181,565
    
    
    $
    75,405
    
    
    $
    265,882
    
    
    $
    124,059Capital expenditures (6)
    
    
    13,075
    
    
    
    18,527
    
    
    
    17,667
    
    
    
    23,165Capital expenditures for turnaround and chemical catalyst
    
    
    463
    
    
    
    1,622
    
    
    
    5,137
    
    
    
    2,925
 27




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##### Table of Contents



June 30,
    
    December 31,2007
    
    2006BALANCE SHEET DATA (end of
period):Cash and cash equivalents
    
    $
    159,668
    
    
    $
    64,166Working capital
    
    
    314,455
    
    
    
    228,779Total assets
    
    
    1,666,222
    
    
    
    1,408,785Total debt
    
    
    541,458
    
    
    
    498,669Total stockholders equity
    
    
    418,238
    
    
    
    290,330
 
 (1)
    
    Includes corporate headquarters selling, general and administrative expenses of $130 and $95
for the three months ended June 30, 2007 and 2006, respectively, and $217 and $222 for the six
months ended June 30, 2007 and 2006, respectively, which are not allocated to our three
operating segments.(2)
    
    Includes corporate depreciation and amortization of $201 and $497 for the three months ended
June 30, 2007 and 2006, respectively, and $435 and $1,021 for the six months ended June 30,
2007 and 2006, respectively, which are not allocated to our three operating segments.(3)
    
    Gain on disposition of assets reported in the three and six months ended June 30, 2007
reflects the recognition of $2,525 and $3,480, respectively, 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). Gain on disposition of
assets reported in the three and six months ended June 30, 2006 reflects the $52,500 pre-tax
gain on disposition of assets, recorded primarily in connection with the Amdel and White Oil
transaction and the recognition of $2,279 and $5,165, respectively, of deferred gain recorded
primarily in connection with the HEP transaction.(4)
    
    Interest expense for the six months ended June 30, 2006 includes $3,000 prepayment premium
and $3,894 of unamortized debt issuance costs written off as a result of the prepayment of the
$100,000 term loan in January 2006.(5)
    
    Adjusted EBITDA represents earnings (net income) before minority interest in income of
subsidiaries, income tax expense, interest expense, depreciation and amortization, and is
exclusive of gain on disposition of assets. Adjusted EBITDA is not a recognized measurement
under GAAP; however, the amounts included in Adjusted EBITDA are derived from amounts included
in our consolidated financial statements. Our management believes that the presentation of
Adjusted EBITDA is useful to investors because it is frequently used by securities analysts,
investors and other interested parties in the evaluation of companies in our industry. In
addition, our management believes that Adjusted EBITDA is useful in evaluating our operating
performance compared to that of other companies in our industry because the calculation of
Adjusted EBITDA generally eliminates the effects of minority interest in income of
subsidiaries, income tax expense, interest expense, gain on disposition of assets and the
accounting effects of capital expenditures and acquisitions, items which may vary for
different companies for reasons unrelated to overall operating performance.Adjusted EBITDA 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
 28




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##### Table of Contents




    
    Our calculation of Adjusted EBITDA may differ from the EBITDA calculations of
other companies in our industry, limiting its usefulness as a comparative measure.
   For the Three Months Ended
    
    
    For the Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(dollars in thousands)Net income
    
    $
    95,613
    
    
    $
    43,091
    
    
    $
    131,178
    
    
    $
    97,255Minority interest in income of subsidiaries
    
    
    6,005
    
    
    
    2,229
    
    
    
    7,881
    
    
    
    5,009Income tax expense
    
    
    59,650
    
    
    
    25,607
    
    
    
    81,621
    
    
    
    58,133Interest expense
    
    
    11,669
    
    
    
    1,349
    
    
    
    23,087
    
    
    
    10,396Depreciation and amortization
    
    
    11,153
    
    
    
    5,408
    
    
    
    25,595
    
    
    
    10,931Gain on disposition of assets
    
    
    (2,525
    )
    
    
    (2,279
    )
    
    
    (3,480
    )
    
    
    (57,665
    )Adjusted EBITDA
    
    $
    181,565
    
    
    $
    75,405
    
    
    $
    265,882
    
    
    $
    124,059
 
 (6)
    
    Includes corporate capital expenditures of $305 and $57 for the three months ended June 30,
2007 and 2006, respectively, and $427 and $76 for the six months ended June 30, 2007 and 2006,
respectively, which are not allocated to our other three operating segments. 29




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REFINING AND MARKETING SEGMENT
 For the Three Months Ended
    
    
    For the Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(dollars in thousands, except per barrel data and pricing statistics)STATEMENTS OF OPERATIONS DATA:Net sales (1)
    
    $
    1,059,147
    
    
    $
    616,790
    
    
    $
    1,953,116
    
    
    $
    1,156,777Operating costs and expenses:Cost of sales
    
    
    845,791
    
    
    
    520,307
    
    
    
    1,620,182
    
    
    
    982,879Direct operating expenses
    
    
    42,790
    
    
    
    20,661
    
    
    
    81,237
    
    
    
    42,260Selling, general and administrative expenses
    
    
    9,728
    
    
    
    5,730
    
    
    
    15,927
    
    
    
    9,284Depreciation and amortization
    
    
    9,254
    
    
    
    3,738
    
    
    
    21,973
    
    
    
    7,524Total operating costs and expenses
    
    
    907,563
    
    
    
    550,436
    
    
    
    1,739,319
    
    
    
    1,041,947Gain on disposition of assets (2)
    
    
    2,400
    
    
    
    2,283
    
    
    
    3,424
    
    
    
    57,669Operating income
    
    $
    153,984
    
    
    $
    68,637
    
    
    $
    217,221
    
    
    $
    172,499KEY OPERATING STATISTICS:Total sales volume (bpd)
    
    
    135,517
    
    
    
    80,419
    
    
    
    134,433
    
    
    
    82,881Non-integrated marketing sales volume (bpd) (3)
    
    
    14,323
    
    
    
    19,411
    
    
    
    14,101
    
    
    
    19,379Non-integrated marketing margin (per barrel sales
volume) (3)
    
    $
    0.85
    
    
    $
    (0.67
    )
    
    $
    0.40
    
    
    $
    (0.61
    )Per barrel of throughput:Refinery operating margin  Big Spring (4)
    
    $
    24.92
    
    
    $
    18.41
    
    
    $
    19.94
    
    
    $
    15.05Refinery operating margin  CA Refineries (4)
    
    
    8.24
    
    
    
    N/A
    
    
    
    7.45
    
    
    
    N/ARefinery direct operating expense  Big Spring (5)
    
    
    3.34
    
    
    
    4.03
    
    
    
    3.60
    
    
    
    3.68Refinery direct operating expense  CA Refineries
(5)
    
    
    3.59
    
    
    
    N/A
    
    
    
    3.27
    
    
    
    N/ACapital expenditures
    
    
    10,248
    
    
    
    16,222
    
    
    
    14,103
    
    
    
    20,547Capital expenditures for turnaround and chemical
catalyst
    
    
    463
    
    
    
    1,622
    
    
    
    5,137
    
    
    
    2,925PRICING STATISTICS:WTI crude oil (per barrel)
    
    $
    64.88
    
    
    $
    70.41
    
    
    $
    61.43
    
    
    $
    66.89WTS crude oil (per barrel)
    
    
    60.32
    
    
    
    65.69
    
    
    
    57.16
    
    
    
    61.26MAYA crude oil (per barrel)
    
    
    55.30
    
    
    
    54.77
    
    
    
    50.36
    
    
    
    51.25Crack spreads (3/2/1) (per barrel):Gulf Coast
    
    $
    26.23
    
    
    $
    18.22
    
    
    $
    19.53
    
    
    $
    13.98Group III
    
    
    31.67
    
    
    
    19.44
    
    
    
    23.38
    
    
    
    14.58West Coast
    
    
    39.82
    
    
    
    34.61
    
    
    
    36.17
    
    
    
    27.03Crude oil differentials (per barrel):WTI less WTS
    
    $
    4.56
    
    
    $
    4.72
    
    
    $
    4.27
    
    
    $
    5.63WTI less MAYA
    
    
    9.58
    
    
    
    15.64
    
    
    
    11.08
    
    
    
    15.59Product price (dollars per gallon):Gulf Coast unleaded gasoline
    
    $
    2.215
    
    
    $
    2.107
    
    
    $
    1.923
    
    
    $
    1.906Gulf Coast low-sulfur diesel
    
    
    2.078
    
    
    
    2.116
    
    
    
    1.937
    
    
    
    1.965Group III unleaded gasoline
    
    
    2.369
    
    
    
    2.127
    
    
    
    2.023
    
    
    
    1.918Group III low-sulfur diesel
    
    
    2.159
    
    
    
    2.165
    
    
    
    2.013
    
    
    
    1.984West Coast LA CARBOB (unleaded gasoline)
    
    
    2.650
    
    
    
    2.601
    
    
    
    2.456
    
    
    
    2.301West Coast LA ultra low-sulfur diesel
    
    
    2.179
    
    
    
    2.299
    
    
    
    2.060
    
    
    
    2.107Natural gas (per MMBTU)
    
    $
    7.65
    
    
    $
    6.65
    
    
    $
    7.42
    
    
    $
    6.11
 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 30,2007
    
    
    2006
    
    
    2007
    
    
    2006bpd
    
    
    %
    
    
    bpd
    
    
    %
    
    
    bpd
    
    
    %
    
    
    bpd
    
    
    %Refinery crude throughput:Sour crude
    
    
    62,058
    
    
    
    85.4
    
    
    
    49,040
    
    
    
    87.0
    
    
    
    60,347
    
    
    
    87.4
    
    
    
    55,842
    
    
    
    88.1Sweet crude
    
    
    7,200
    
    
    
    9.9
    
    
    
    3,186
    
    
    
    5.7
    
    
    
    4,800
    
    
    
    6.9
    
    
    
    3,188
    
    
    
    5.0Blendstocks
    
    
    3,402
    
    
    
    4.7
    
    
    
    4,109
    
    
    
    7.3
    
    
    
    3,929
    
    
    
    5.7
    
    
    
    4,362
    
    
    
    6.9Total refinery throughput (6)
    
    
    72,660
    
    
    
    100.0
    
    
    
    56,335
    
    
    
    100.0
    
    
    
    69,076
    
    
    
    100.0
    
    
    
    63,392
    
    
    
    100.0Refinery production:Gasoline
    
    
    33,726
    
    
    
    46.8
    
    
    
    24,250
    
    
    
    43.5
    
    
    
    32,130
    
    
    
    46.9
    
    
    
    28,524
    
    
    
    45.5Diesel/jet
    
    
    22,506
    
    
    
    31.2
    
    
    
    16,361
    
    
    
    29.4
    
    
    
    20,691
    
    
    
    30.2
    
    
    
    20,011
    
    
    
    32.0Asphalt
    
    
    7,383
    
    
    
    10.2
    
    
    
    5,715
    
    
    
    10.3
    
    
    
    7,171
    
    
    
    10.5
    
    
    
    6,077
    
    
    
    9.7Petrochemicals
    
    
    4,108
    
    
    
    5.7
    
    
    
    3,759
    
    
    
    6.7
    
    
    
    4,436
    
    
    
    6.5
    
    
    
    4,011
    
    
    
    6.4Other
    
    
    4,427
    
    
    
    6.1
    
    
    
    5,635
    
    
    
    10.1
    
    
    
    4,042
    
    
    
    5.9
    
    
    
    4,000
    
    
    
    6.4Total refinery production (7)
    
    
    72,150
    
    
    
    100.0
    
    
    
    55,720
    
    
    
    100.0
    
    
    
    68,470
    
    
    
    100.0
    
    
    
    62,623
    
    
    
    100.0Refinery Utilization (8)
    
    
    
    
    
    
    98.9
    %
    
    
    
    
    
    
    85.7
    %
    
    
    
    
    
    
    95.0
    %
    
    
    
    
    
    
    90.2
    %
 THROUGHPUT AND YIELD DATA:
CALIFORNIA REFINERIES
 For the Three Months Ended
    
    
    For the Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2007bpd
    
    
    %
    
    
    bpd
    
    
    %Refinery crude throughput:Sour crude
    
    
    22,956
    
    
    
    36.3
    
    
    
    22,213
    
    
    
    36.3Heavy crude
    
    
    40,350
    
    
    
    63.7
    
    
    
    38,886
    
    
    
    63.5Blendstocks
    
    
    11
    
    
    
    0.0
    
    
    
    153
    
    
    
    0.2Total refinery throughput (6)
    
    
    63,317
    
    
    
    100.0
    
    
    
    61,252
    
    
    
    100.0Refinery production:Gasoline
    
    
    7,029
    
    
    
    11.4
    
    
    
    6,951
    
    
    
    11.6Diesel/jet
    
    
    12,553
    
    
    
    20.4
    
    
    
    13,315
    
    
    
    22.3Asphalt
    
    
    18,029
    
    
    
    29.2
    
    
    
    18,389
    
    
    
    30.8Light unfinished
    
    
    4,333
    
    
    
    7.0
    
    
    
    3,423
    
    
    
    5.7Heavy unfinished
    
    
    18,715
    
    
    
    30.4
    
    
    
    16,652
    
    
    
    27.9Other
    
    
    990
    
    
    
    1.6
    
    
    
    994
    
    
    
    1.7Total refinery production (7)
    
    
    61,649
    
    
    
    100.0
    
    
    
    59,724
    
    
    
    100.0Refinery Utilization (8)
    
    
    
    
    
    
    87.3
    %
    
    
    
    
    
    
    85.6
    %
 
 (1)
    
    Net sales include intersegment sales to our asphalt and retail segments at prices which
approximate wholesale market price. These intersegment sales are eliminated through
consolidation of our financial statements. Net sales for the three and the six months ended
June 30, 2006, includes $3,300 for the sale of sulfur credits.(2)
    
    Gain on disposition of assets reported in the three and six months ended June 30, 2007
reflects the recognition of $2,400 and $3,424, respectively, of deferred gain recorded
primarily in connection with the HEP transaction. Gain on disposition of assets reported in
the three and six months ended June 30, 2006 reflects the $52,500 pre-tax gain on disposition
of assets, recorded primarily in connection with the Amdel and White Oil transaction and the
recognition of $2,283 and $5,169, respectively, of deferred gain recorded primarily in
connection with the HEP transaction.(3)
    
    The non-integrated marketing sales volume represents refined products sales to our wholesale
marketing customers located in our non-integrated region. The refined products we sell in
this region are obtained from 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. 31




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##### Table of Contents



(4)
    
    Refinery operating margin is a per barrel measurement calculated by dividing the margin
between net sales (exclusive of sale of sulfur credits from the Big Spring refinery) and cost
of sales attributable to each refinery by the refinerys throughput volumes. Industry-wide
refining results are driven and measured by the margins between refined product prices and the
prices for crude oil, which are referred to as crack spreads. We
compare our refinery
operating margins to these crack spreads to assess our operating performance relative to other
participants in our industry.(5)
    
    Refinery direct operating expense is a per barrel measurement calculated by dividing direct
operating expenses at our Big Spring and California refineries, exclusive of depreciation and
amortization, by the applicable refinerys total throughput volumes.(6)
    
    Total refinery throughput represents the total barrels per day of crude oil and blendstock
inputs in the refinery production process.(7)
    
    Total refinery production represents the barrels per day of various finished products
produced from processing crude and other refinery feedstocks through the crude units and other
conversion units at the refinery.(8)
    
    Refinery utilization represents average daily crude oil throughput divided by crude oil
capacity, excluding planned periods of downtime for maintenance and turnarounds. 32




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##### Table of Contents



ASPHALT SEGMENT
 For the Three Months Ended
    
    
    For the Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(dollars in thousands, except per ton data)STATEMENTS OF OPERATIONS DATA:Net sales
    
    $
    181,445
    
    
    $
    48,911
    
    
    $
    295,391
    
    
    $
    71,203Operating costs and expenses:Cost of sales (1)
    
    
    155,480
    
    
    
    45,180
    
    
    
    251,275
    
    
    
    71,661Direct operating expenses
    
    
    11,956
    
    
    
    1,503
    
    
    
    22,792
    
    
    
    3,175Selling, general and administrative
expenses
    
    
    1,259
    
    
    
    1,499
    
    
    
    1,816
    
    
    
    2,821Depreciation and amortization
    
    
    558
    
    
    
    63
    
    
    
    1,055
    
    
    
    122Total operating costs and expenses
    
    
    169,253
    
    
    
    48,245
    
    
    
    276,938
    
    
    
    77,779Gain (loss) on disposition of assets
    
    
    4
    
    
    
    (4
    )
    
    
    4
    
    
    
    (4
    )Operating income (loss)
    
    $
    12,196
    
    
    $
    662
    
    
    $
    18,457
    
    
    $
    (6,580
    )KEY OPERATING STATISTICS:Total sales volume (tons in thousands)
    
    
    558
    
    
    
    152
    
    
    
    916
    
    
    
    232Sales price per ton
    
    $
    325.17
    
    
    $
    321.78
    
    
    $
    322.48
    
    
    $
    306.91Asphalt margin (2)
    
    $
    46.53
    
    
    $
    24.55
    
    
    $
    48.16
    
    
    $
    (1.97
    )Capital expenditures
    
    $
    1,024
    
    
    $
    297
    
    
    $
    1,160
    
    
    $
    368
 
 (1)
    
    Cost of sales includes intersegment purchases of asphalt blends from our refining and
marketing segment at prices which approximate wholesale market price. These intersegment
purchases are eliminated through consolidation of our financial statements. (2)
    
    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 the asphalt
sales. 33




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##### Table of Contents



RETAIL SEGMENT
 For the Three Months Ended
    
    
    For the Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(dollars in thousands, except per gallon data)STATEMENTS OF OPERATIONS DATA:Net sales
    
    $
    105,825
    
    
    $
    86,815
    
    
    $
    191,664
    
    
    $
    159,430Operating costs and expenses:Cost of sales (1)
    
    
    88,028
    
    
    
    71,456
    
    
    
    157,325
    
    
    
    130,423Selling, general and administrative expenses
    
    
    15,917
    
    
    
    13,030
    
    
    
    31,239
    
    
    
    25,480Depreciation and amortization
    
    
    1,140
    
    
    
    1,110
    
    
    
    2,132
    
    
    
    2,264Total operating costs and expenses
    
    
    105,085
    
    
    
    85,596
    
    
    
    190,696
    
    
    
    158,167Gain on disposition of assets
    
    
    121
    
    
    
    
    
    
    
    52
    
    
    
    Operating income
    
    $
    861
    
    
    $
    1,219
    
    
    $
    1,020
    
    
    $
    1,263KEY OPERATING STATISTICS:Number of stores (end of period)
    
    
    308
    
    
    
    167
    
    
    
    308
    
    
    
    167Fuel sales (thousands of gallons)
    
    
    19,159
    
    
    
    17,450
    
    
    
    38,026
    
    
    
    34,583Fuel sales (thousands of gallons per site per month)
(2)
    
    
    31
    
    
    
    35
    
    
    
    31
    
    
    
    35Fuel margin (cents per gallon) (3)
    
    
    20.5
    ¢
    
    
    17.4
    ¢
    
    
    20.1
    ¢
    
    
    17.3
    ¢Fuel sales price (dollars per gallon) (4)
    
    $
    3.01
    
    
    $
    2.72
    
    
    $
    2.67
    
    
    $
    2.56Merchandise sales
    
    $
    48,069
    
    
    $
    36,968
    
    
    $
    90,109
    
    
    $
    69,382Merchandise sales (per site per month) (2)
    
    
    78
    
    
    
    74
    
    
    
    73
    
    
    
    69Merchandise margin (5)
    
    
    28.9
    %
    
    
    31.3
    %
    
    
    29.6
    %
    
    
    32.2
    %Capital expenditures
    
    $
    1,498
    
    
    $
    1,951
    
    
    $
    1,977
    
    
    $
    2,174
 
 (1)
    
    Cost of sales includes intersegment purchases of motor fuels from our refining and marketing
segment at prices which approximate wholesale market price. These intersegment purchases are
eliminated through consolidation of our financial statements.(2)
    
    Fuel and merchandise sales per site 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.(3)
    
    Fuel margin represents the difference between motor fuel sales revenue and the net cost of
purchased motor fuel, including transportation costs and associated motor fuel taxes,
expressed on a cents per gallon basis. Motor fuel margins are frequently used in the retail
industry to measure operating results related to motor fuel sales.(4)
    
    Fuel sales price per gallon represents the average sales price for motor fuels sold through
our retail segment.(5)
    
    Merchandise margin represents the difference between merchandise sales revenues and the
delivered cost of merchandise purchases, net of rebates and commissions, expressed as a
percentage of merchandise sales revenues. Merchandise margins, also referred to as in-store
margins, are commonly used in the retail industry to measure in-store, or non-fuel, operating
results. 34




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##### Table of Contents



Three Months Ended June 30, 2007 Compared to the Three Months Ended June 30, 2006
 Net Sales
 Consolidated
 Refining and Marketing Segment
 Asphalt Segment
 Retail Segment
 Cost of Sales
 Consolidated
 Refining and Marketing Segment.
 Asphalt Segment
 35




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##### Table of Contents



Retail Segment.
 Direct Operating Expenses
 Consolidated
 Refining and Marketing Segment.
 Asphalt Segment.
 Selling, General and Administrative Expenses
 Consolidated
 Refining and Marketing Segment
 Asphalt Segment
 Retail Segment
 Depreciation and Amortization
  Operating Income
 Consolidated
 36




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##### Table of Contents



Refining and Marketing Segment
 Asphalt Segment.
 Retail Segment.
 Interest Expense
  Income Tax Expense
  Minority Interest In Income Of Subsidiaries
  Net Income
  37




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##### Table of Contents



Six Months Ended June 30, 2007 Compared to the Six Months Ended June 30, 2006
 Net Sales
 Consolidated
 Refining and Marketing Segment
 Asphalt Segment
 Retail Segment
 Cost of Sales
 Consolidated
 Refining and Marketing Segment
 Asphalt Segment
 Retail Segment
 38




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##### Table of Contents



Direct Operating Expenses
 Consolidated
 Refining and Marketing Segment.
 Asphalt Segment.
 Selling, General and Administrative Expenses
 Consolidated
 Refining and Marketing Segment
 Asphalt Segment.
 Retail Segment
 Depreciation and Amortization
 Consolidated
 Operating Income
 Consolidated
 Refining and Marketing Segment
 39




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##### Table of Contents



Asphalt Segment.
 Retail Segment
 Interest Expense
  Income Tax Expense
  Minority Interest In Income Of Subsidiaries
  Net Income
  40




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##### Table of Contents



Liquidity and Capital Resources
   Cash Flows
  For the Three Months Ended
    
    
    For the Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(dollars in thousands)Cash provided by (used in):Operating activities
    
    $
    120,040
    
    
    $
    5,013
    
    
    $
    158,908
    
    
    $
    (4,710
    )Investing activities
    
    
    (91,113
    )
    
    
    66,221
    
    
    
    (99,989
    )
    
    
    195,608Financing activities
    
    
    42,245
    
    
    
    (3,710
    )
    
    
    36,583
    
    
    
    (123,370
    )Net increase in cash and cash equivalents
    
    $
    71,172
    
    
    $
    67,524
    
    
    $
    95,502
    
    
    $
    67,528
 Cash Flows Provided by (Used In) Operating Activities
   Cash Flows (Used In) Provided By Investing Activities
  41




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##### Table of Contents



Cash Flows Provided By (Used In) Financing Activities
   Cash Position and Indebtedness
  Summary of Indebtedness
 As of June 30, 2007Amount Outstanding
    
    
    Total Facility
    
    
    Total Availability (1)(dollars in thousands)Debt, including current portion:Term loan credit facility
    
    $
    445,500
    
    
    $
    445,500
    
    
    $
    Revolving credit facilities
    
    
    
    
    
    
    540,000
    
    
    
    289,902Retail credit facilities
    
    
    95,958
    
    
    
    95,958
    
    
    
    Totals
    
    $
    541,458
    
    
    $
    1,081,458
    
    
    $
    289,902
 
 (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, 2007 which was $289.9 million or
(b) total borrowing base less outstanding borrowings and letters of credit as of June 30, 2007
which was $412.5 million. Term Loan Credit Facility
  42




---



##### Table of Contents



Revolving Credit Facilities
 Israel Discount Bank Credit Facility
   Bank of America Credit Facility.
  43




---



##### Table of Contents



Retail
Credit Facilities
        Capital Spending
  44




---



##### Table of Contents



Clean Air Capital Expenditures
 Turnaround and Chemical Catalyst Costs
 Contractual Obligations and Commercial Commitments
  Off-Balance Sheet Arrangements
  Critical Accounting Policies
   New Accounting Standards and Disclosures
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Commodity Price Risk
   45




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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-short (crude)
    
    
    (120,000
    )
    
    $
    
    
    
    $
    63.94
    
    
    $
    (7,674
    )
    
    $
    (8,482
    )
    
    $
    (808
    )Futures-long (RBOB)
    
    
    25,000
    
    
    
    93.24
    
    
    
    
    
    
    
    2,331
    
    
    
    2,409
    
    
    
    78Futures-short (RBOB)
    
    
    (25,000
    )
    
    
    
    
    
    
    95.01
    
    
    
    (2,375
    )
    
    
    (2,409
    )
    
    
    (34
    )Futures-long (heating oil)
    
    
    105,000
    
    
    
    83.22
    
    
    
    
    
    
    
    8,738
    
    
    
    8,961
    
    
    
    223Futures-short (heating oil)
    
    
    (105,000
    )
    
    
    
    
    
    
    83.88
    
    
    
    (8,808
    )
    
    
    (8,961
    )
    
    
    (153
    )
 46




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##### Table of Contents



Interest Rate Risk
  
 ITEM 4. CONTROLS AND PROCEDURES
 (1) Evaluation of disclosure controls and procedures.
  (2) Changes in internal control over financial reporting.
  47




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##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
   Director
    
    For
    
    WithheldItzhak Bader
    
    
    40,720,742
    
    
    
    3,912,453Boaz Biran
    
    
    40,746,359
    
    
    
    3,886,836Shaul Gliksberg
    
    
    40,723,014
    
    
    
    3,910,181Ron W. Haddock
    
    
    43,242,813
    
    
    
    1,390,382Erez Meltzer
    
    
    40,757,555
    
    
    
    3,875,640Jeff. D. Morris
    
    
    40,606,502
    
    
    
    4,026,693Yeshayahu Pery
    
    
    40,743,537
    
    
    
    3,889,658Zalman Segal
    
    
    44,156,925
    
    
    
    476,270Avraham Shochat
    
    
    44,154,855
    
    
    
    478,340David Wiessman
    
    
    40,019,869
    
    
    
    4,613,326
  48




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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
    
    Amended and Restated Credit Agreement, dated as of June 29, 2007, 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 July 2, 2007,
SEC File No. 001-32567).10.2
    
    Third Amendment to Amended Revolving Credit Agreement, dated as of June 29, 2007, among Alon
USA Energy, Inc., Alon USA, LP, the guarantor companies and financial institutions named
therein, Israel Discount Bank of New York and Bank Leumi USA (incorporated by reference to
Exhibit 10.1 to Form 8-K filed by the Company on July 20, 2007, 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.
 49




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##### Table of Contents



SIGNATURES
  Alon USA Energy, Inc.Date: August 9, 2007
    By:
    /s/ David WiessmanDavid WiessmanExecutive ChairmanDate: August 9, 2007
    By:
    /s/ Jeff D. MorrisJeff D. MorrisChief Executive OfficerDate: August 9, 2007
    By:
    /s/ Shai EvenShai EvenChief Financial Officer 50




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##### Table of Contents



EXHIBITS
 ExhibitNumber
    
    Description of Exhibit3.1
    
    Amended and Restated Certificate of Incorporation of Alon USA Energy, Inc. (incorporated by
reference to Exhibit 3.1 to Form S-1, filed by the Company on July 7, 2005, SEC File No.
333-124797).3.2
    
    Amended and Restated Bylaws of Alon USA Energy, Inc. (incorporated by reference to Exhibit
3.2 to Form S-1, filed by the Company on July 14, 2005, SEC File No. 333-124797).4.1
    
    Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to Form S-1,
filed by the Company on June 17, 2005, SEC File No. 333-124797).10.1
    
    Amended and Restated Credit Agreement, dated as of June 29, 2007, 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 July 2, 2007,
SEC File No. 001-32567).10.2
    
    Third Amendment to Amended Revolving Credit Agreement, dated as of June 29, 2007, among Alon
USA Energy, Inc., Alon USA, LP, the guarantor companies and financial institutions named
therein, Israel Discount Bank of New York and Bank Leumi USA (incorporated by reference to
Exhibit 10.1 to Form 8-K filed by the Company on July 20, 2007, 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.