##### 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 MARCH 31, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 FOR THE TRANSITION PERIOD FROM  TO
 Commission file number: 001-32567
 
 Alon USA Energy, Inc.
 (Exact name of Registrant as specified in its charter)
 
 Delaware
    
    74-2966572(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 (Address of principal executive offices) (Zip Code)
 (Registrants telephone number, including area code)
 
 þ o
 o þ
 o þ




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TABLE OF CONTENTS PagePART I. FINANCIAL INFORMATION
    
    
    1ITEM 1. FINANCIAL STATEMENTS
    
    
    1CONSOLIDATED BALANCE SHEETS
    
    
    1CONSOLIDATED STATEMENTS OF OPERATIONS
    
    
    2CONSOLIDATED STATEMENTS OF CASH FLOW
    
    
    3NOTES TO CONSOLIDATED STATEMENTS OF OPERATIONS
    
    
    5ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
    
    
    14FORWARD-LOOKING STATEMENTS
    
    
    14ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
    
    
    32ITEM 4. CONTROLS AND PROCEDURES
    
    
    33PART II. OTHER INFORMATION
    
    
    34ITEM 6. EXHIBITS
    
    
    34SIGNATURESEXHIBITSCertifications of CEO Pursuant to Section 302Certifications of CFO Pursuant to Section 302Certifications of CEO & CFO Pursuant to Section 906
  -i-




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PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 ALON USA ENERGY, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
(dollars in thousands except per share data)
 March 31,
    
    
    December 31,2006
    
    
    2005(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    136,824
    
    
    $
    136,820Short-term investments
    
    
    118,000
    
    
    
    185,320Accounts and other receivables, net
    
    
    85,027
    
    
    
    89,529Inventories
    
    
    112,699
    
    
    
    79,181Prepaid expenses and other current assets
    
    
    12,131
    
    
    
    6,264Total current assets
    
    
    464,681
    
    
    
    497,114Investment in HEP
    
    
    22,746
    
    
    
    22,754Property, plant and equipment, net
    
    
    196,802
    
    
    
    211,410Other assets
    
    
    28,348
    
    
    
    27,502Total assets
    
    $
    712,577
    
    
    $
    758,780LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    148,801
    
    
    $
    157,076Accrued liabilities
    
    
    51,288
    
    
    
    48,128Current portion of deferred gain on disposition of assets
    
    
    11,427
    
    
    
    11,427Current portion of long-term debt
    
    
    2,024
    
    
    
    4,487Total current liabilities
    
    
    213,540
    
    
    
    221,118Other non-current liabilities
    
    
    18,068
    
    
    
    18,345Deferred gain on disposition of assets
    
    
    49,577
    
    
    
    52,433Long-term debt
    
    
    29,898
    
    
    
    127,903Deferred income tax liability
    
    
    76,673
    
    
    
    52,422Total liabilities
    
    
    387,756
    
    
    
    472,221Commitments and contingencies (note 13)Minority interest in subsidiaries
    
    
    10,217
    
    
    
    7,066Stockholders equity:Preferred stock, par value $0.01, 10,000,000 shares
authorized; no shares issued and outstanding
    
    
    
    
    
    
    Common stock, par value $0.01, 100,000,000 shares
authorized; 46,809,857 shares issued and outstanding at
March 31, 2006 and December 31, 2005
    
    
    468
    
    
    
    468Additional paid-in capital
    
    
    181,247
    
    
    
    181,108Accumulated other comprehensive loss, net of income tax
    
    
    (2,596
    )
    
    
    (2,596
    )Retained earnings
    
    
    135,485
    
    
    
    100,513Total stockholders equity
    
    
    314,604
    
    
    
    279,493Total liabilities and stockholders equity
    
    $
    712,577
    
    
    $
    758,780
  1




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ALON USA ENERGY, INC., AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, dollars in thousands except per share data)
 For the Three Months EndedMarch 31,2006
    
    
    2005Net sales
    
    $
    584,701
    
    
    $
    407,974Operating costs and expenses:Cost of sales
    
    
    497,827
    
    
    
    351,554Direct operating expenses
    
    
    23,271
    
    
    
    18,336Selling, general and administrative expenses
    
    
    17,453
    
    
    
    16,665Depreciation and amortization
    
    
    5,523
    
    
    
    4,834Total operating costs and expenses
    
    
    544,074
    
    
    
    391,389Gain on disposition of assets
    
    
    55,386
    
    
    
    27,693Operating income
    
    
    96,013
    
    
    
    44,278Interest expense
    
    
    (9,047
    )
    
    
    (5,007
    )Equity earnings in HEP
    
    
    577
    
    
    
    135Other income, net
    
    
    1,927
    
    
    
    250Income before income tax expense and minority interest
in income of subsidiaries
    
    
    89,470
    
    
    
    39,656Income tax expense
    
    
    32,526
    
    
    
    15,655Income before minority interest in income of subsidiaries
    
    
    56,944
    
    
    
    24,001Minority interest in income of subsidiaries
    
    
    2,780
    
    
    
    1,565Net income
    
    $
    54,164
    
    
    $
    22,436Earnings per share, basic and diluted
    
    $
    1.16
    
    
    $
    .64Weighted average shares outstanding
    
    
    46,731,120
    
    
    
    35,001,120
  2




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ALON USA ENERGY, INC., AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOW
(unaudited, dollars in thousands)
 For the Three Months EndedMarch 31,2006
    
    
    2005Cash flows from operating activities:Net income
    
    $
    54,164
    
    
    $
    22,436Adjustments to reconcile net income to cash used in operating activitiesDepreciation and amortization
    
    
    5,523
    
    
    
    4,834Stock compensation
    
    
    510
    
    
    
    95Deferred income tax expense
    
    
    21,990
    
    
    
    6,915Minority interest in income of subsidiaries
    
    
    2,780
    
    
    
    1,565Accrued interest on subordinated notes to stockholders
    
    
    
    
    
    
    701Gain on disposition of assets
    
    
    (55,386
    )
    
    
    (27,693
    )Equity earnings in HEP
    
    
    
    
    
    
    (135
    )Changes in operating assets and liabilities:Accounts and other receivables, net
    
    
    4,502
    
    
    
    (10,882
    )Inventories
    
    
    (33,518
    )
    
    
    (20,468
    )Prepaid expenses and other current assets
    
    
    (3,606
    )
    
    
    (2,339
    )Other assets
    
    
    (1,415
    )
    
    
    355Accounts payable
    
    
    (8,275
    )
    
    
    14,244Accrued liabilities
    
    
    3,160
    
    
    
    (6,102
    )Other non-current liabilities
    
    
    (152
    )
    
    
    37Net cash used in operating activities
    
    
    (9,723
    )
    
    
    (16,437
    )Cash flows from investing activities:Capital expenditures
    
    
    (4,638
    )
    
    
    (11,098
    )Turnaround and chemical catalyst expenditures
    
    
    (1,303
    )
    
    
    (10,382
    )Proceeds from disposition of assets, net
    
    
    68,000
    
    
    
    118,000Sale of short-term investments, net
    
    
    67,320
    
    
    
    Dividends from investment in HEP (net of equity earnings in HEP)
    
    
    8
    
    
    
    Minority interest shares purchased
    
    
    
    
    
    
    (2,717
    )Net cash provided by investing activities
    
    
    129,387
    
    
    
    93,803Cash flows from financing activities:Dividends paid to minority interest stockholders
    
    
    
    
    
    
    (1,482
    )Dividends paid to stockholders
    
    
    (19,192
    )
    
    
    Additions to long-term debt
    
    
    
    
    
    
    2,932Payments on long-term debt
    
    
    (100,468
    )
    
    
    (33,184
    )Net cash used in financing activities
    
    
    (119,660
    )
    
    
    (31,734
    )Net change in cash and cash equivalents
    
    
    4
    
    
    
    45,632Cash and cash equivalents, beginning of period
    
    
    136,820
    
    
    
    63,357Cash and cash equivalents, end of period
    
    $
    136,824
    
    
    $
    108,989Supplemental cash flow information:Cash paid for interest
    
    $
    5,506
    
    
    $
    3,250Cash paid for income tax
    
    $
    255
    
    
    $
    263
  3




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ALON USA ENERGY, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(unaudited, dollars in thousands)
 For the Three Months EndedMarch 31,2006
    
    
    2005Non-cash activities:Financing activity  receipt of
Class B HEP subordinated units
as proceeds from disposition of
assets
    
    $
    
    
    
    $
    30,000
  4




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ALON USA ENERGY, INC., AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, dollars in thousands except as noted)
 (1) Basis of Presentation and Certain Significant Accounting Policies
 (a) Basis of Presentation
   (b) Revenue Recognition
 Accounting for
Purchases and Sales of Inventory with the Same Counterparty
  (c) New Accounting Standards
 Share-Based Payment
 Accounting for Stock Issued to
Employees
 5




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ALON USA ENERGY, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, dollars in thousands except as noted)
  Inventory Costs
 Application of FASB
Statement No. 109, Accounting for Income Taxes, for the Tax Deduction Provided to U.S. Based
Manufacturers by the American Jobs Creation Act of 2004 Accounting for Income
Taxes
 (2) Sale of Amdel and White Oil Pipelines
  (3) Segment Data
  (a) Refining and Marketing Segment
  (b) Retail Segment
  6




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ALON USA ENERGY, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, dollars in thousands except as noted)
  (c) Corporate
   Refining andThree
Months ended March 31, 2006
    
    Marketing
    
    Retail
    
    Corporate
    
    TotalNet sales to external customers
    
    $
    512,086
    
    
    $
    72,615
    
    
    $
    
    
    
    $
    584,701Intersegment sales/purchases
    
    
    31,390
    
    
    
    (31,390
    )
    
    
    
    
    
    
    Depreciation and amortization
    
    
    3,845
    
    
    
    1,154
    
    
    
    524
    
    
    
    5,523Operating income (loss)
    
    
    96,620
    
    
    
    44
    
    
    
    (651
    )
    
    
    96,013Total assets
    
    
    621,713
    
    
    
    68,822
    
    
    
    22,042
    
    
    
    712,577Turnaround, chemical catalyst and capital expenditures
    
    
    5,699
    
    
    
    223
    
    
    
    19
    
    
    
    5,941
 Refining andThree
Months ended March 31, 2005
    
    Marketing
    
    Retail
    
    Corporate
    
    TotalNet sales to external customers
    
    $
    334,078
    
    
    $
    73,896
    
    
    $
    
    
    
    $
    407,974Intersegment sales/purchases
    
    
    32,856
    
    
    
    (32,856
    )
    
    
    
    
    
    
    Depreciation and amortization
    
    
    3,311
    
    
    
    1,052
    
    
    
    471
    
    
    
    4,834Operating income (loss)
    
    
    44,788
    
    
    
    89
    
    
    
    (599
    )
    
    
    44,278Total assets
    
    
    471,751
    
    
    
    69,625
    
    
    
    12,425
    
    
    
    553,801Turnaround, chemical catalyst and capital expenditures
    
    
    20,327
    
    
    
    1,009
    
    
    
    144
    
    
    
    21,480
   (4) Cash, Cash Equivalents and Short-Term Investments
    7




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ALON USA ENERGY, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, dollars in thousands except as noted)
 (5) Derivatives and Hedging Activities
 (a) Fair Value of Financial Instruments
  (b) Derivative Financial Instruments
     (6) Inventories
  8




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ALON USA ENERGY, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, dollars in thousands except as noted)
  March 31,
    
    
    December 31,2006
    
    
    2005Crude oil, refined products, and blendstocks
    
    $
    90,492
    
    
    $
    57,822Materials and supplies
    
    
    6,007
    
    
    
    5,880Store merchandise
    
    
    12,714
    
    
    
    12,977Store fuel
    
    
    3,486
    
    
    
    2,502Total inventories
    
    $
    112,699
    
    
    $
    79,181
  (7) Property, Plant, and Equipment
  March 31,
    
    
    December 31,2006
    
    
    2005Refining facilities
    
    $
    175,412
    
    
    $
    171,346Pipelines and terminals
    
    
    9,126
    
    
    
    27,237Retail
    
    
    63,823
    
    
    
    63,486Other
    
    
    10,532
    
    
    
    10,691Property, plant, and equipment, gross
    
    
    258,893
    
    
    
    272,760Less accumulated depreciation
    
    
    (62,091
    )
    
    
    (61,350
    )Property, plant, and equipment, net
    
    $
    196,802
    
    
    $
    211,410
  (8) Employee and Postretirement Benefits
   For the Three Months EndedMarch 31,2006
    
    
    2005Components of net periodic benefit cost:Service cost
    
    $
    478
    
    
    $
    382Interest cost
    
    
    608
    
    
    
    535Expected return on plan assets
    
    
    (593
    )
    
    
    (414
    )Amortization of net loss
    
    
    83
    
    
    
    181Net periodic benefit cost
    
    $
    576
    
    
    $
    684
 9




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ALON USA ENERGY, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, dollars in thousands except as noted)
 (9) Long-Term Debt
 (a) Revolving Credit Facility
    (b) Debt Repayment
  (10) Stock Based Compensation
  (a) 2005 Incentive Compensation Plan
   10




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ALON USA ENERGY, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, dollars in thousands except as noted)
  Weighted-AverageNonvested Shares
    
    Shares
    
    
    Grant-Date Fair ValueNonvested at January 1, 2006
    
    
    78,736
    
    
    $
    19.73Granted
    
    
    0
    
    
    
    0Vested
    
    
    0
    
    
    
    0Forfeited
    
    
    0
    
    
    
    0Nonvested at March 31, 2006
    
    
    78,736
    
    
    $
    19.73
  (b) 2000 Incentive Stock Compensation Plan
   Alon Assets
    
    
    Alon OperatingWeighted
    
    
    
    
    
    
    WeightedNumber of
    
    
    Average
    
    
    Number of
    
    
    AverageOptions
    
    
    Exercise
    
    
    Options
    
    
    ExerciseOutstanding
    
    
    Price
    
    
    Outstanding
    
    
    PriceOutstanding at January 1, 2004
    
    
    12,217
    
    
    $
    100
    
    
    
    4,587
    
    
    $
    100Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    (1,212
    )
    
    
    100
    
    
    
    (455
    )
    
    
    100Forfeited and expired
    
    
    (1,733
    )
    
    
    100
    
    
    
    (650
    )
    
    
    100Outstanding at December 31, 2004
    
    
    9,272
    
    
    
    100
    
    
    
    3,482
    
    
    
    100Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    (1,212
    )
    
    
    100
    
    
    
    (455
    )
    
    
    100Outstanding at December 31, 2005
    
    
    8,060
    
    
    
    100
    
    
    
    3,027
    
    
    
    100Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Outstanding at March 31, 2006
    
    
    8,060
    
    
    $
    100
    
    
    
    3,027
    
    
    $
    100
  11




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ALON USA ENERGY, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, dollars in thousands except as noted)
 (11) Stockholders Equity
 (a) Stock Split
  (b) Common Stock Dividends
  (12) Earnings Per Share
  Three Months EndedMarch 31,2006
    
    
    2005Net income
    
    $
    54,164
    
    
    $
    22,436Average number of shares of common stock outstanding
    
    
    46,731
    
    
    
    35,001Effect of dilutive restricted shares
    
    
    29
    
    
    
    Average number of shares of common stock outstanding assuming dilution
    
    
    46,760
    
    
    
    35,001Earnings per share  basic
    
    $
    1.16
    
    
    $
    .64Earnings per share  diluted
    
    $
    1.16
    
    
    $
    .64
 (13) Commitments and Contingencies
 (a) Other Commitments
  (b) Other Contingencies
  (c) Environmental
  12




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ALON USA ENERGY, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, dollars in thousands except as noted)
   (14) Subsequent Events
 (a) Retail Convenience Stores Acquisition
  (b) Refinery Acquisitions
 Paramount Acquisition
  Edgington Acquisition
  13




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 The following discussion of our financial condition and results of operations should be read
in conjunction with the audited consolidated financial statements and notes thereto included in
Alons Annual Report on Form 10-K for the year ended December 31, 2005. Alon, the Company,
we and our refer to Alon USA Energy, Inc. and its subsidiaries.
 
 FORWARD-LOOKING STATEMENTS
    
    
    changes in general economic conditions and capital markets;
    
    changes in the underlying demand for our products;
    
    the availability, costs and price volatility of crude oil, other refinery feedstocks and refined products;
    
    changes in the sweet/sour crude oil spread;
    
    actions of customers and competitors;
    
    changes in fuel and utility costs incurred by our facilities;
    
    disruptions due to equipment interruption, pipeline disruptions or failure at our or third-party facilities;
    
    the execution of planned capital projects;
    
    adverse changes in the credit ratings assigned to our trade credit and debt instruments;
    
    the effects of and cost of compliance with current and future state and federal
environmental, economic, safety and other laws, policies and regulations;
    
    operating hazards, natural disasters, casualty losses and other matters beyond our
control; and
    
    the other factors discussed in our annual report on Form 10-K for the year ended
December 31, 2005, under the caption Risk Factors.
  14




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Company Overview
  Refining and Marketing Segment
  Retail Segment
 First Quarter 2006 Results and Second Quarter 2006 Developments
 First Quarter 2006 Results
  
    
    Net sales increased $176.7 million to $584.7 million and operating income increased
$51.7 million to $96.0 million for the first three months of 2006, compared to the first
three months of 2005.
    
    Our average refinery operating margin increased $1.13 per barrel to $11.69 per barrel
for the first three months of 2006, compared to the first three months of 2005.
    
    Our capital expenditures and turnaround spending for the three months ended March 31,
2006 totaled approximately $5.9 million, of which $1.3 million was spent on a chemical
catalyst.
    
    Refinery throughput increased approximately 23,000 bpd to 70,529 bpd for the first
three months of 2006, compared to 47,447 bpd for the first three months of 2005. In the
first quarter of 2005, we completed a planned major turnaround and expanded the crude oil
throughput capacity at the refinery.
  15




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Second Quarter 2006 Developments
 Retail Convenience Stores Acquisition
  Refinery Acquisitions
 Paramount Acquisition
 Edgington Acquisition.
 Major Influences on Results of Operations
 Refining and Marketing
 Refining and Marketing Margins
 16




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3/2/1 Crack Spread.
 Sweet/Sour Spread.
 Operating Costs.
 Seasonality.
 Safety and Reliability.
 Inventory.
 Retail
  17




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Factors Affecting Comparability
  Increased Crude Oil Throughput Capacity
 Amdel and White Oil Pipeline Transaction
  Results of Operations
 Net Sales
 Cost of Sales
 Direct Operating Expenses
 Selling, General and Administrative Expenses
 18




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ALON USA ENERGY, INC. AND SUBSIDIARIES CONSOLIDATED
 Summary Financial Tables
 For the Three Months EndedMarch 31,2006
    
    
    2005(dollars in thousands,except per share data)STATEMENT OF OPERATIONS DATA:Net sales
    
    $
    584,701
    
    
    $
    407,974Operating costs and expenses:Cost of sales
    
    
    497,827
    
    
    
    351,554Direct operating expenses
    
    
    23,271
    
    
    
    18,336Selling, general and administrative expenses (1)
    
    
    17,453
    
    
    
    16,665Depreciation and amortization (2)
    
    
    5,523
    
    
    
    4,834Total operating costs and expenses
    
    
    544,074
    
    
    
    391,389Gain on disposition of assets (3)
    
    
    55,386
    
    
    
    27,693Operating income
    
    
    96,013
    
    
    
    44,278Interest expense (4)
    
    
    (9,047
    )
    
    
    (5,007
    )Equity earnings in HEP
    
    
    577
    
    
    
    135Other income, net
    
    
    1,927
    
    
    
    250Income before income tax expense and minority interest
in income of subsidiaries
    
    
    89,470
    
    
    
    39,656Income tax expense
    
    
    32,526
    
    
    
    15,655Income before minority interest in income of subsidiaries
    
    
    56,944
    
    
    
    24,001Minority interest in income of subsidiaries
    
    
    2,780
    
    
    
    1,565Net income
    
    $
    54,164
    
    
    $
    22,436Earnings per share, basic and diluted (5)
    
    $
    1.16
    
    
    $
    .64Weighted average shares outstanding (5)
    
    
    46,731,120
    
    
    
    35,001,120CASH FLOW DATA:Net cash provided by (used in):Operating activities
    
    $
    (9,723
    )
    
    $
    (16,437
    )Investing activities
    
    
    129,387
    
    
    
    93,803Financing activities
    
    
    (119,660
    )
    
    
    (31,734
    )OTHER DATA:Adjusted EBITDA (6)
    
    $
    48,654
    
    
    $
    21,804Capital expenditures (7)
    
    
    4,638
    
    
    
    11,098Capital expenditures for turnarounds and catalysts
    
    
    1,303
    
    
    
    10,382March 31,
    
    December 31,2006
    
    2005BALANCE SHEET DATA (end of period):Cash, cash equivalents and short-term investments
    
    $
    254,824
    
    
    $
    322,140Working capital
    
    
    251,141
    
    
    
    275,996Total assets
    
    
    712,577
    
    
    
    758,780Total debt
    
    
    31,922
    
    
    
    132,390Stockholders equity
    
    
    314,604
    
    
    
    279,493
 19




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##### Table of Contents



(1)
    
    Includes corporate headquarters selling, general and administrative expenses of $127 and $128
for the three months ended March 31, 2006 and 2005, respectively.(2)
    
    Includes corporate depreciation and amortization of $524 and $471 for the three months ended
March 31, 2006 and 2005, respectively.(3)
    
    Gain on disposition of assets reported in the three months ended March 31, 2006, reflects the
$52.5 million pre-tax gain on disposition of assets, recorded in connection with the Amdel
transaction and the recognition of $2.9 million deferred gain recorded in connection with the
HEP transaction. Gain on disposition of assets reported in the three months ended March 31,
2005, reflects the $26.7 million initial pre-tax gain and one months recognition of deferred
gain recorded in connection with the HEP transaction.(4)
    
    Includes $3.0 million prepayment premium and $3.9 million of unamortized debt issuance costs
written off as a result of the prepayment of the $100 million term loan in January 2006.(5)
    
    Weighted average common shares outstanding and earnings per common share amounts for the
three months ended March 31, 2005 have been restated to reflect the effect of the
33,600-for-one split of our common stock which was effected on July 6, 2005.(6)
    
    EBITDA represents earnings before minority interest, income tax expense, interest expense,
depreciation and amortization. Adjusted EBITDA represents EBITDA, exclusive of gain on
disposition of assets. EBITDA and Adjusted EBITDA are not recognized measurements under GAAP;
however, the amounts included in EBITDA and Adjusted EBITDA are derived from amounts included
in our consolidated financial statements. Our management believes that the presentation of
Adjusted EBITDA is useful to investors because it is frequently used by securities analysts,
investors and other interested parties in the evaluation of companies in our industry. In
addition, our management believes that Adjusted EBITDA is useful in evaluating our operating
performance compared to that of other companies in our industry because the calculation of
Adjusted EBITDA generally eliminates the effects of minority interests, interest expense,
income taxes, gain on disposition of assets and the accounting effects of capital expenditures
and acquisitions, items which may vary for different companies for reasons unrelated to
overall operating performance. EBITDA is the basis for calculating selected financial ratios
as required in the debt covenants in our revolving credit agreement. See Managements
Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and
Capital ResourcesCash, Cash Equivalents and Short-Term Investment Position and
Indebtedness.Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in
isolation, or as a substitute for analysis of our results as reported under GAAP. Some of these
limitations are: 
    
    Adjusted EBITDA does not reflect our cash expenditures or future requirements
for capital expenditures or contractual commitments;
    
    Adjusted EBITDA does not reflect the interest expense or the cash requirements
necessary to service interest or principal payments on our debt;
    
    Adjusted EBITDA does not reflect the prior claim that minority stockholders have
on the income generated by non-wholly-owned subsidiaries;
    
    Adjusted EBITDA does not reflect changes in or cash requirements for our working
capital needs; and
    
    Our calculation of Adjusted EBITDA may differ from the EBITDA calculations of
other companies in our industry, limiting its usefulness as a comparative measure.
  20




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##### Table of Contents



For the Three Months EndedMarch 31,2006
    
    
    2005(dollars in thousands)Net income
    
    $
    54,164
    
    
    $
    22,436Minority interest
    
    
    2,780
    
    
    
    1,565Income tax expense
    
    
    32,526
    
    
    
    15,655Interest expense
    
    
    9,047
    
    
    
    5,007Depreciation and amortization
    
    
    5,523
    
    
    
    4,834EBITDA
    
    
    104,040
    
    
    
    49,497Gain on disposition of assets
    
    
    (55,386
    )
    
    
    (27,693
    )Adjusted EBITDA
    
    $
    48,654
    
    
    $
    21,804
  (7)
    
    Includes corporate capital expenditures of $19 and $144 for the three months ended
March 31, 2006 and 2005 respectively, which are not included in the capital expenditures of our other two operating
segments. 21




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##### Table of Contents



REFINING AND MARKETING SEGMENT
 For the Three Months EndedMarch 31,2006
    
    
    2005(dollars in thousands except perbarrel data and pricing statistics)STATEMENT OF OPERATIONS DATA:Net sales (1) (2)
    
    $
    543,476
    
    
    $
    366,934Operating costs and expenses:Cost of sales (2)
    
    
    470,250
    
    
    
    323,514Direct operating expenses
    
    
    23,271
    
    
    
    18,336Selling, general and administrative expenses
    
    
    4,876
    
    
    
    4,678Depreciation and amortization
    
    
    3,845
    
    
    
    3,311Total operating costs and expenses
    
    
    502,242
    
    
    
    349,839Gain on disposition of assets (3)
    
    
    55,386
    
    
    
    27,693Operating income
    
    $
    96,620
    
    
    $
    44,788KEY OPERATING STATISTICS:Total sales volume (bpd)
    
    
    85,370
    
    
    
    72,253Non-integrated marketing sales volume (bpd) (4)
    
    
    19,347
    
    
    
    20,061Non-integrated marketing margin (per barrel sales volume) (4)
    
    $
    (.56
    )
    
    $
    (.93
    )Per barrel of throughput:Refinery operating margin (5)
    
    $
    11.69
    
    
    $
    10.56Refinery direct operating expenses
    
    
    3.67
    
    
    
    4.29Capital expenditures
    
    
    4,396
    
    
    
    9,945Capital expenditures for turnaround and chemical catalyst
    
    
    1,303
    
    
    
    10,382PRICING STATISTICS:WTI crude oil (per barrel)
    
    $
    63.34
    
    
    $
    49.70WTS crude oil (per barrel)
    
    
    56.77
    
    
    
    44.62Crack spreads (3/2/1) (per barrel):Gulf Coast
    
    $
    9.70
    
    
    $
    6.62Group III
    
    
    9.66
    
    
    
    7.94Crude differentials (per barrel):WTI less WTS
    
    $
    6.57
    
    
    $
    5.08Product price (per gallon):Gulf Coast unleaded gasoline
    
    
    170.2
    ¢
    
    
    132.2
    ¢Gulf Coast low-sulfur diesel
    
    
    181.3
    
    
    
    137.9Group III unleaded gasoline
    
    
    170.7
    
    
    
    135.7Group III low-sulfur diesel
    
    
    180.1
    
    
    
    140.4Natural gas (per MMBTU)
    
    $
    7.84
    
    
    $
    6.50
 22




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##### Table of Contents



For the Three Months EndedMarch 31,2006
    
    
    2005THROUGHPUT
AND YIELD DATA:
    
    Bpd
    
    
    %
    
    
    Bpd
    
    
    %Refinery crude throughput:Sour crude
    
    
    62,720
    
    
    
    88.9
    
    
    
    41,096
    
    
    
    86.6Sweet crude
    
    
    3,191
    
    
    
    4.5
    
    
    
    2,829
    
    
    
    6.0Blendstocks
    
    
    4,618
    
    
    
    6.6
    
    
    
    3,522
    
    
    
    7.4Total refinery throughput (6)
    
    
    70,529
    
    
    
    100.0
    
    
    
    47,447
    
    
    
    100.0Refinery production:Gasoline
    
    
    32,846
    
    
    
    47.2
    
    
    
    21,562
    
    
    
    45.8Diesel/jet
    
    
    23,701
    
    
    
    34.1
    
    
    
    15,232
    
    
    
    32.4Asphalt
    
    
    6,444
    
    
    
    9.3
    
    
    
    4,297
    
    
    
    9.1Petrochemicals
    
    
    4,266
    
    
    
    6.0
    
    
    
    3,617
    
    
    
    7.7Other
    
    
    2,346
    
    
    
    3.4
    
    
    
    2,352
    
    
    
    5.0Total refinery production (7)
    
    
    69,603
    
    
    
    100.0
    
    
    
    47,060
    
    
    
    100.0Refinery utilization (8)
    
    
    
    
    
    
    94.2
    %
    
    
    
    
    
    
    88.9
    %
 
 (1)
    
    Net sales include intersegment sales to our retail segment at prices which approximate market
price. These intersegment sales are eliminated through consolidation of our financial
statements.(2)
    
    Our buy/sell arrangements involve linked purchases and sales related to refined product
contracts entered into to address location or grade requirements. As of January 1, 2006, such
buy/sell transactions are included on a net basis in sales in the consolidated statement of
operations and profits are recognized when the exchanged product is sold. Prior to January 1,
2006, the results of buy/sell transactions were recorded separately in sales and cost of sales
in the consolidated statement of operations.(3)
    
    Gain on disposition of assets reported in the three months ended March 31, 2006, reflects the
$52.5 million pre-tax gain on disposition of assets, recorded in connection with the Amdel
transaction and the recognition of $2.9 million deferred gain recorded in connection with the
HEP transaction. Gain on disposition of assets reported in the three months ended March 31,
2005, reflects the $26.7 million initial pre-tax gain and one months recognition of deferred
gain recorded in connection with the HEP transaction.(4)
    
    The non-integrated marketing sales volume represents refined products sales to our wholesale
marketing customers located in our non-integrated region. The refined products we sell in
this region are obtained from third-party suppliers. The non-integrated marketing margin
represents the margin between the net sales and cost of sales attributable to our
non-integrated refined products sales volume, expressed on a per barrel basis.(5)
    
    Refinery operating margin is a per barrel measurement calculated by dividing the margin
between net sales and cost of sales attributable to our refining and marketing segment,
exclusive of net sales and cost of sales relating to our non-integrated system, by our Big
Spring refinerys throughput volumes. Industry-wide refining results are driven and measured
by the margins between refined product prices and the prices for crude oil, which are referred
to as crack spreads. We compare our refinery operating margin to these crack spreads to
assess our operating performance relative to other participants in our industry.(6)
    
    Total refinery throughput represents the total 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. 23




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##### Table of Contents



RETAIL SEGMENT
 For the Three Months EndedMarch 31,2006
    
    
    2005(dollars in thousands)STATEMENT OF OPERATIONS DATA:Net sales
    
    $
    72,615
    
    
    $
    73,896Operating costs and expenses:Cost of sales (1)
    
    
    58,967
    
    
    
    60,896Selling, general and administrative expenses
    
    
    12,450
    
    
    
    11,859Depreciation and amortization
    
    
    1,154
    
    
    
    1,052Total operating costs and expenses
    
    
    72,571
    
    
    
    73,807Operating income
    
    $
    44
    
    
    $
    89KEY OPERATING STATISTICS:Number of stores (end of period)
    
    
    167
    
    
    
    167Fuel sales (thousands of gallons)
    
    
    17,133
    
    
    
    23,387Fuel sales (thousands of gallons per site per month)
    
    
    34
    
    
    
    48Fuel margin (cents per gallon) (2)
    
    
    17.2
    ¢
    
    
    12.9
    ¢Fuel sales price (dollars per gallon) (3)
    
    $
    2.33
    
    
    $
    1.88Merchandise sales
    
    $
    32,414
    
    
    $
    29,994Merchandise sales (per site per month)
    
    
    65
    
    
    
    60Merchandise margin (4)
    
    
    33.2
    %
    
    
    33.3
    %Capital expenditures
    
    
    223
    
    
    
    1,009
 
 (1)
    
    Cost of sales includes intersegment purchases of motor fuels from our refining and
marketing segment at prices which approximate market prices. These intersegment purchases
are eliminated through consolidation of our financial statements.(2)
    
    Fuel margin represents the difference between motor fuel revenues and the net cost of
purchased motor fuel, including transportation costs and associated motor fuel taxes,
expressed on a cents per gallon basis. Motor fuel margins are frequently used in the retail
industry to measure operating results related to motor fuel sales.(3)
    
    Fuel sales price per gallon represents the average sales price for motor fuels sold through
our retail segment.(4)
    
    Merchandise margin represents the difference between merchandise sales 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. Three Months Ended March 31, 2006 Compared to the Three Months Ended March 31, 2005
 Net Sales
 Consolidated
 Refining and Marketing Segment
 24




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##### Table of Contents



Retail Segment
 Cost of Sales
 Consolidated
 Refining and Marketing Segment
 Retail Segment
 Direct Operating Expenses
  Selling, General and Administrative Expenses
 Consolidated
 25




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##### Table of Contents



Refining and Marketing Segment
 Retail Segment
 Depreciation and Amortization
  Operating Income
 Consolidated
 Refining and Marketing Segment
 Retail Segment
 Interest Expense
  26




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##### Table of Contents



Income Tax Expense
  Minority Interest
  Net Income
  Liquidity and Capital Resources
   27




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##### Table of Contents



Cash Flow
  For the Three Months EndedMarch 31,2006
    
    
    2005(dollars in thousands)Non cash provided by (used in):Operating activities
    
    $
    (9,723
    )
    
    $
    (16,437
    )Investing activities (1)
    
    
    129,387
    
    
    
    93,803Financing activities
    
    
    (119,660
    )
    
    
    (31,734
    )Net increase in cash and cash equivalents
    
    $
    4
    
    
    $
    45,632
 
 (1)
    
    2006 cash provided by investing activities include $67.3 million sales of short-term
investments and $68.0 million net proceeds received in the Amdel transaction. 2005 cash provided by investing
activities includes $118.0 million net proceeds received in the HEP transaction, partially
offset by capital expenditures and turnaround costs. Cash Flows Used In Operating Activities
   Cash Flows Provided By Investing Activities
   28




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##### Table of Contents



Cash Flows Used In Financing Activities
   Cash Position and Indebtedness
  Summary of Indebtedness
 As of March 31, 2006(dollars in thousands)Debt, including current portionBank credit facilities:Revolving credit facility
    
    $
    Retail mortgages and equipment loans
    
    
    31,922Total debt
    
    $
    31,922
 Revolving Credit Facility
  29




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##### Table of Contents




    
    a minimum consolidated tangible net worth equal to the sum of $106.0 million
plus an amount determined on a cumulative basis equal to the sum of 50% of any
positive net income for each fiscal year after December 31, 2004 (as of March 31,
2006, the minimum consolidated tangible net worth was $185.0 million and our actual
consolidated tangible net worth was $231.0 million);
    
    a ratio of total consolidated indebtedness less freely transferable cash and
permitted investments not subject to any lien (other than liens in favor of Israel
Discount Bank) to consolidated EBITDA for the last four fiscal quarters of no
greater than 4.0 to 1.0 (the ratio as of March 31, 2006 was (0.6) to 1.00);
    
    a minimum ratio of consolidated current assets to consolidated current
liabilities of 1.0 to 1.0 (the ratio as of March 31, 2006 was 1.8 to 1.0); and
    
    a ratio of total consolidated EBITDA to consolidated interest expense, in each
case as of the end of any period of four fiscal quarters, to be not less than 2.0
to 1.0 (the ratio as of March 31, 2006 was 11.7 to 1.0).
  Capital Spending
  Clean Air Capital Expenditures
 Turnaround and Chemical Catalyst Costs
 30




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##### Table of Contents



Contractual Obligations and Commercial Commitments
  Payments Due by PeriodLess Than
    
    
    
    
    
    
    
    
    
    
    More ThanContractual Obligations
    
    1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    5 Years
    
    
    Total(dollars in thousands)Long-term debt obligations (1)
    
    $
    2,024
    
    
    $
    6,535
    
    
    $
    5,023
    
    
    $
    18,340
    
    
    $
    31,922Operating lease obligations
    
    
    9,429
    
    
    
    33,061
    
    
    
    9,908
    
    
    
    6,278
    
    
    
    58,676HEP Pipelines and Terminals Agreement (2)
    
    
    14,716
    
    
    
    58,863
    
    
    
    39,242
    
    
    
    160,238
    
    
    
    273,059Sunoco Throughput & Deficiency Agreement (3)
    
    
    3,290
    
    
    
    17,363
    
    
    
    18,427
    
    
    
    22,881
    
    
    
    61,961Other commitments (4)
    
    
    2,120
    
    
    
    8,483
    
    
    
    5,654
    
    
    
    28,981
    
    
    
    45,238Total obligations
    
    $
    31,579
    
    
    $
    124,305
    
    
    $
    78,254
    
    
    $
    236,718
    
    
    $
    470,856
 
 (1)
    
    On January 19, 2006, we prepaid our $100 million term loan due January 14, 2009 with
available cash on hand.(2)
    
    Balances represent the minimum committed volume multiplied by the tariff rates pursuant to
the terms of the Pipelines and Terminals agreement with HEP.(3)
    
    Balances represent the minimum committed volume multiplied by the tariff rates pursuant to
the terms of the Throughput and Deficiency agreement with Sunoco.(4)
    
    Other commitments include refinery maintenance services agreement costs.   Off-Balance Sheet Arrangements
  Critical Accounting Policies
   31




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##### Table of Contents



New Accounting Standards and Disclosures
 Share-Based Payment
 Accounting for Stock Issued to
Employees
 Inventory Costs
 Application of FASB
Statement No. 109, Accounting for Income Taxes, for the Tax Deduction Provided to U.S. Based
Manufacturers by the American Jobs Creation Act of 2004 Accounting for Income
Taxes
 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
  Commodity Price Risk
   32




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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)Futures-long
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Futures-short
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forwards-long (refined products)
    
    
    60,029
    
    
    
    83.42
    
    
    
    84.20
    
    
    
    5,007
    
    
    
    5,054
    
    
    
    47Forwards-short (refined products)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 Interest Rate Risk.
  
 ITEM 4. CONTROLS AND PROCEDURES
 (a) Evaluation of disclosure controls and procedures.
  (b) Changes in internal control over financial reporting.
  33




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##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 6. EXHIBITS
 ExhibitNumber
    
    Description of Exhibit3.1
    
    Amended 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 by and among Alon USA Energy, Inc., The Craig C. Barto and Gisele
M. Barto Living Trust, Dated April 5, 1991, The Jerrel C. Barto and Janice D. Barto Living
Trust, Dated March 18, 1991, W. Scott Lovejoy, III and Mark R. Milano, dated April 28, 2006
(incorporated by reference to Exhibit 10.1 to Form 8-K filed by the Company on May 2, 2006,
SEC File No. 001-32567).10.2
    
    Agreement and Plan of Merger by and among Alon USA Energy, Inc., Apex Oil Company, Inc.,
Edgington Oil Company, and EOC Acquisition, LLC, dated April 28, 2006 (incorporated by
reference to Exhibit 10.2 to Form 8-K filed by the Company on May 2, 2006, SEC File No.
001-32567).10.3
    
    Purchase and Sale Agreements between Alon Petroleum Pipe Line, LP and Sunoco Pipelines, LP,
dated February 13, 2006 (incorporated by reference to Exhibit 10.1 to Form 8-K filed by the
Company on February 13, 2006, SEC File No. 001-32567).10.4
    
    Amending Revolving Credit Agreement, dated as of February 15, 2006, among 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 February 16, 2006, SEC File No. 001-32567).31.1
    
    Certifications of Chief Executive Officer pursuant to §302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certifications of Chief Financial Officer pursuant to §302 of the Sarbanes-Oxley Act of 2002.32.1*
    
    Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.
§1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002.
 
 *
    
    Furnished herewith. 34




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##### Table of Contents



SIGNATURES
  By:
    /s/ David WiessmanDate: May 12, 2006
    
    David WiessmanExecutive ChairmanBy:
    /s/ Jeff D. MorrisDate: May 12, 2006
    
    Jeff D. MorrisChief Executive OfficerBy:
    /s/ Shai EvenDate: May 12, 2006
    
    Shai EvenChief Financial Officer 35




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##### Table of Contents



EXHIBITS
 ExhibitNumber
    
    Description of Exhibit3.1
    
    Amended 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 by and among Alon USA Energy, Inc., The Craig C. Barto and Gisele
M. Barto Living Trust, Dated April 5, 1991, The Jerrel C. Barto and Janice D. Barto Living
Trust, Dated March 18, 1991, W. Scott Lovejoy, III and Mark R. Milano, dated April 28, 2006
(incorporated by reference to Exhibit 10.1 to Form 8-K filed by the Company on May 2, 2006,
SEC File No. 001-32567).10.2
    
    Agreement and Plan of Merger by and among Alon USA Energy, Inc., Apex Oil Company, Inc.,
Edgington Oil Company, and EOC Acquisition, LLC, dated April 28, 2006 (incorporated by
reference to Exhibit 10.2 to Form 8-K filed by the Company on May 2, 2006, SEC File No.
001-32567).10.3
    
    Purchase and Sale Agreements between Alon Petroleum Pipe Line, LP and Sunoco Pipelines, LP,
dated February 13, 2006 (incorporated by reference to Exhibit 10.1 to Form 8-K filed by the
Company on February 13, 2006, SEC File No. 001-32567).10.4
    
    Amending Revolving Credit Agreement, dated as of February 15, 2006, among 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 February 16, 2006, SEC File No. 001-32567).31.1
    
    Certifications of Chief Executive Officer pursuant to §302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certifications of Chief Financial Officer pursuant to §302 of the Sarbanes-Oxley Act of 2002.32.1*
    
    Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.
§1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002.
 
 *
    
    Furnished herewith. 36