UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


___________________________________________________


Form 10-Q


þQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2011


OR


oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934FOR THE TRANSITION PERIOD FROM __________TO __________





Commission file number: 001-32567


Alon USA Energy, Inc.


(Exact name of Registrant as specified in its charter)


___________________________________________________





Delaware74-2966572(State or other jurisdiction of(I.R.S. Employerincorporation or organization)Identification No.)


7616 LBJ Freeway, Suite 300, Dallas, Texas 75251


(Address of principal executive offices) (Zip Code)





(972) 367-3600


(Registrant’s telephone number, including area code)


___________________________________________________





Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated fileroAccelerated filerþNon-accelerated fileroSmaller reporting companyo(Do not check if a smaller reporting company)


Indicate by check whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ


The number of shares of the Registrant’s common stock, par value $0.01 per share, outstanding as of May 1, 2011, was 55,576,822.











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PART I. FINANCIAL INFORMATION1ITEM 1. FINANCIAL STATEMENTS1CONSOLIDATED BALANCE SHEETS1CONSOLIDATED STATEMENTS OF OPERATIONS2CONSOLIDATED STATEMENTS OF CASH FLOWS3NOTES TO CONSOLIDATED FINANCIAL STATEMENTS4ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS17FORWARD-LOOKING STATEMENTS17ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK35ITEM 4. CONTROLS AND PROCEDURES36PART II. OTHER INFORMATION38ITEM 6. EXHIBITS38SIGNATURES39EXHIBITS40EX-10.1 AMENDED AND RESTATED SUPPLY AND OFFTAKE AGREEMENT BY AND BETWEEN ALON USA, LP AND J. ARON & COMPANYEX-10.2 AMENDED AND RESTATED SECOND AMENDMENT TO THE SUPPLY AND OFFTAKE AGREEMENT BY AND BETWEEN ALON REFINING KROTZ SPRINGS, INC. AND J. ARON & COMPANYEX-10.3 AMENDED AND RESTATED SECOND AMENDMENT TO THE SUPPLY AND OFFTAKE AGREEMENT BY AND BETWEEN ALON REFINING KROTZ SPRINGS, INC. AND J. ARON & COMPANYEX-31.1 CERTIFICATION OF CEO PURSUANT TO SECTION 302EX-31.2 CERTIFICATION OF CFO PURSUANT TO SECTION 302EX-32.1 CERTIFICATION OF CEO AND CFO PURSUANT TO SECTION 906


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Table of Contents


PART I. FINANCIAL INFORMATION





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|ITEM 1. | FINANCIAL STATEMENTS




ALON USA ENERGY, INC. AND SUBSIDIARIES


CONSOLIDATED BALANCE SHEETS


(dollars in thousands except per share data)





March 31, 2011December 31, 2010(unaudited)ASSETSCurrent assets:Cash and cash equivalents$119,445$71,687Accounts and other receivables, net155,328115,541Income tax receivable8,6428,642Inventories143,584141,050Deferred income tax asset51,94149,052Prepaid expenses and other current assets8,6617,875Total current assets487,601393,847Equity method investments16,16918,664Property, plant, and equipment, net1,491,3421,488,532Goodwill105,943105,943Other assets, net98,74181,535Total assets$2,199,796$2,088,521LIABILITIES AND STOCKHOLDERS’ EQUITYCurrent liabilities:Accounts payable$263,093$292,991Accrued liabilities113,64688,354Current portion of long-term debt46,98311,512Total current liabilities423,722392,857Other non-current liabilities204,923160,976Long-term debt900,263904,793Deferred income tax liability296,920288,128Total liabilities1,825,8281,746,754Commitments and contingencies (Note 14)Stockholders’ equity:Preferred stock, par value $0.01, 10,000,000 shares authorized; 4,000,000 issued and outstanding at March 31, 2011 and December 31, 2010, respectively40,00040,000Common stock, par value $0.01, 100,000,000 shares authorized; 55,440,585 and 54,281,636 shares issued and outstanding at March 31, 2011, and December 31, 2010, respectively554543Additional paid-in capital312,518290,809Accumulated other comprehensive loss, net of income tax(21,319)(21,917)Retained earnings43,06433,052Total stockholders’ equity374,817342,487Non-controlling interest in subsidiaries(849)(720)Total equity373,968341,767Total liabilities and equity$2,199,796$2,088,521


The accompanying notes are an integral part of these consolidated financial statements.


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Table of Contents


ALON USA ENERGY, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF OPERATIONS


(unaudited, dollars in thousands except per share data)





For the Three Months EndedMarch 31,20112010Net sales (1)$1,651,104$579,313Operating costs and expenses:Cost of sales1,461,123538,715Direct operating expenses56,92361,444Selling, general and administrative expenses34,33031,807Depreciation and amortization25,44726,322Total operating costs and expenses1,577,823658,288Gain on disposition of assets12—Operating income (loss)73,293(78,975)Interest expense(20,440)(26,585)Equity losses of investees(245)(103)Other income (loss), net(31,913)14,204Income (loss) before income tax expense (benefit), non-controlling interest in income (loss) of subsidiaries20,695(91,459)Income tax expense (benefit)7,470(34,713)Income (loss) before non-controlling interest in income (loss) of subsidiaries13,225(56,746)Non-controlling interest in income (loss) of subsidiaries160(3,804)Net income (loss) available to common stockholders$13,065$(52,942)Income (loss) per share, basic$0.24$(0.98)Weighted average shares outstanding, basic (in thousands)54,54954,161Income (loss) per share, diluted$0.22$(0.98)Weighted average shares outstanding, diluted (in thousands)60,48454,161Cash dividends per share$0.04$0.04


___________________________________


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|(1) | Includes excise taxes on sales by the retail segment of$14,218and$12,786for the three months endedMarch 31, 2011, and2010, respectively.































The accompanying notes are an integral part of these consolidated financial statements.


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Table of Contents


ALON USA ENERGY, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(unaudited, dollars in thousands)For the Three Months EndedMarch 31,20112010Cash flows from operating activities:Net income (loss) available to common stockholders$13,065$(52,942)Adjustments to reconcile net income (loss) available to common stockholders to cash provided by (used in) operating activities:Depreciation and amortization25,44726,322Stock compensation254234Deferred income tax expense5,580(34,713)Non-controlling interest in income (loss) of subsidiaries160(3,804)Amortization of debt issuance costs1,4041,379Amortization of original issuance discount455393Write-off of unamortized debt issuance costs—6,659Gain on disposition of assets(12)—Changes in operating assets and liabilities, net of acquisition effects:Accounts and other receivables, net(39,787)8,180Income tax receivable—34,655Inventories(3,699)(7,988)Prepaid expenses and other current assets(786)(7,634)Other assets, net(19,958)(9,257)Accounts payable(30,004)(8,927)Accrued liabilities27,3946,803Other non-current liabilities44,868(339)Net cash provided by (used in) operating activities24,381(40,979)Cash flows from investing activities:Capital expenditures(25,163)(7,303)Capital expenditures for turnarounds and catalysts(185)(10,009)Dividends from investees, net of equity earnings2,495409Proceeds from disposition of assets18—Proceeds from sale of securities—22,760Escrow deposit for purchase of Bakersfield Refinery—(10,000)Earnout payment related to Krotz Springs refinery acquisition(2,187)(2,188)Net cash used in investing activities(25,022)(6,331)Cash flows from financing activities:Dividends paid to stockholders(2,204)(2,167)Dividends paid to non-controlling interest(287)(144)Proceeds from issuance of common stock10,100—Stock issuance costs(282)—Inventory supply agreement1,165—Deferred debt issuance costs(1,567)(455)Revolving credit facilities, net13,852(45,065)Additions to long-term debt30,000—Payments on long-term debt(2,378)(2,736)Additions to short-term debt—65,000Net cash provided by financing activities48,39914,433Net increase (decrease) in cash and cash equivalents47,758(32,877)Cash and cash equivalents, beginning of period71,68740,437Cash and cash equivalents, end of period$119,445$7,560Supplemental cash flow information:Cash paid for interest$12,737$11,979Refunds received for income tax$(186)$(34,668)








The accompanying notes are an integral part of these consolidated financial statements.


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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)





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|--- | ---------------------
|(1) | Basis of Presentation

The consolidated financial statements include the accounts of Alon USA Energy, Inc. and its subsidiaries (collectively, “Alon”). All significant intercompany balances and transactions have been eliminated. These consolidated financial statements of Alon are unaudited and have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities Exchange Act of 1934. Accordingly, they do not include all of the information and notes required by GAAP for complete consolidated financial statements. In the opinion of Alon’s management, the information included in these consolidated financial statements reflects all adjustments, consisting of normal and recurring adjustments, which are necessary for a fair presentation of Alon’s consolidated financial position and results of operations for the interim periods presented. The results of operations for the interim periods are not necessarily indicative of the operating results that may be obtained for the year ending December 31, 2011 .


The consolidated balance sheet as of December 31, 2010 , has been derived from the audited financial statements as of that date. These unaudited consolidated financial statements 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, 2010 .





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|--- | ------------
|(2) | Segment Data

Alon’s revenues are derived from three operating segments: (i) refining and unbranded marketing, (ii) asphalt and (iii) retail and branded marketing. The reportable operating segments are strategic business units that offer different products and services. The segments are managed separately as each segment requires unique technology, marketing strategies and distinct operational emphasis. Each operating segment’s performance is evaluated primarily based on operating income.


|    |                                         
|--- | ----------------------------------------
|(a) | Refining and Unbranded Marketing Segment

Alon’s refining and unbranded marketing segment includes sour and heavy crude oil refineries located in Big Spring, Texas, and Paramount, Bakersfield and Long Beach, California (the “California refineries”) and a light sweet crude oil refinery located in Krotz Springs, Louisiana. At these refineries, Alon refines crude oil into products including gasoline, diesel, jet fuel, petrochemicals, feedstocks, asphalts and other petroleum products, which are marketed primarily in the South Central, Southwestern and Western regions of the United States. Finished products and blendstocks are also marketed through sales and exchanges with other major oil companies, state and federal governmental entities, unbranded wholesale distributors and various other third parties. Alon also acquires finished products through exchange agreements and third-party suppliers.


|    |                
|--- | ---------------
|(b) | Asphalt Segment

Alon’s asphalt segment includes the Willbridge, Oregon refinery and 12 refinery/terminal locations in Texas (Big Spring), California (Paramount, Long Beach, Elk Grove, Bakersfield and Mojave), Oregon (Willbridge), Washington (Richmond Beach), Arizona (Phoenix, Flagstaff and Fredonia), and Nevada (Fernley) (50% interest) as well as a 50% interest in Wright Asphalt Products Company, LLC (“Wright”) which specializes in marketing patented tire rubber modified asphalt products. Alon produces both paving and roofing grades of asphalt and, depending on the terminal, can manufacture performance-graded asphalts, emulsions and cutbacks. The operations in which Alon has a 50% interest (Fernley and Wright), are recorded under the equity method of accounting, and the investments are included as part of total assets in the asphalt segment data.


|    |                                     
|--- | ------------------------------------
|(c) | Retail and Branded Marketing Segment

Alon’s retail and branded marketing segment operates 304 convenience stores located primarily in Central and West Texas and New Mexico. These convenience stores typically offer various grades of gasoline, diesel fuel, general merchandise and food and beverage products to the general public, primarily under the 7-Eleven and FINA brand names. Alon’s branded marketing business markets gasoline and diesel under the FINA brand name, primarily in the Southwestern and South Central United States, through a network of approximately 640 locations, including Alon’s convenience stores. Historically, substantially all of the motor fuel sold through Alon’s convenience stores and the majority of the motor fuels marketed in Alon’s branded business have been supplied by Alon’s Big Spring refinery.


|    |          
|--- | ---------
|(d) | Corporate

Operations that are not included in any of the three segments are included in the corporate category. These operations consist primarily of corporate headquarters operating and depreciation expenses.


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Table of Contents
 ALON USA ENERGY, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 (unaudited, dollars in thousands except as noted)


Segment data as of and for the three month periods ended March 31, 2011 and 2010 , are presented below:


Refining andUnbranded MarketingAsphaltRetail and BrandedMarketingCorporateConsolidatedTotalThree Months ended March 31, 2011Net sales to external customers$1,248,677$86,243$316,184$—$1,651,104Intersegment sales/purchases250,347(23,487)(226,860)——Depreciation and amortization20,0371,7303,27740325,447Operating income (loss)79,289(9,628)4,223(591)73,293Total assets1,863,971118,012200,93116,8822,199,796Turnaround, chemical catalyst and capital expenditures23,2786601,3456525,348





Refining andUnbranded MarketingAsphaltRetail and BrandedMarketingCorporateConsolidatedTotalThree Months ended March 31, 2010Net sales to external customers$286,144$67,141$226,028$—$579,313Intersegment sales/purchases196,896(51,059)(145,837)——Depreciation and amortization20,9541,7173,42023126,322Operating loss(58,518)(18,179)(1,859)(419)(78,975)Total assets1,686,285191,198189,95216,2112,083,646Turnaround, chemical catalyst and capital expenditures16,32117939741517,312


Operating income (loss) for each segment consists of net sales less cost of sales, direct operating expenses, selling, general and administrative expenses, depreciation and amortization, and gain (loss) on disposition of assets. Intersegment sales are intended to approximate wholesale market prices. Consolidated totals presented are after intersegment eliminations.


Total assets of each segment consist of net property, plant and equipment, inventories, cash and cash equivalents, accounts and other receivables and other assets directly associated with the segment’s operations. Corporate assets consist primarily of corporate headquarters information technology and administrative equipment.





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|(3) | Fair Value

The carrying amounts of Alon’s cash and cash equivalents, receivables, payables and accrued liabilities approximate fair value due to the short-term maturities of these assets and liabilities. The reported amounts of short-term and long-term debt approximate fair value. Derivative financial instruments are carried at fair value, which is based on quoted market prices.


Alon must determine fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As required, Alon utilizes valuation techniques that maximize the use of observable inputs (levels 1 and 2) and minimize the use of unobservable inputs (level 3) within the fair value hierarchy. Alon generally applies the “market approach” to determine fair value. This method uses pricing and other information generated by market transactions for identical or comparable assets and liabilities. Assets and liabilities are classified within the fair value hierarchy based on the lowest level (least observable) input that is significant to the measurement in its entirety.


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Table of Contents
 ALON USA ENERGY, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 (unaudited, dollars in thousands except as noted)


The following table sets forth the assets and liabilities measured at fair value on a recurring basis, by input level, in the consolidated balance sheets at March 31, 2011 , and December 31, 2010 , respectively:


Quoted Prices inActive MarketsFor IdenticalAssets orLiabilities(Level 1)SignificantOtherObservableInputs(Level 2)SignificantUnobservableInputs(Level 3)ConsolidatedTotalThree Months ended March 31, 2011Assets:Commodity contracts (futures and forwards)$560$—$—$560Liabilities:Commodity contracts (swaps)—2,553—2,553Commodity contracts (call options)—34,486—34,486Interest rate swaps—6,579—6,579Year ended December 31, 2010Assets:Commodity contracts (futures and forwards)$1,214$—$—$1,214Liabilities:Commodity contracts (swaps)—681—681Commodity contracts (call options)—8,876—8,876Interest rate swaps—7,501—7,501





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|(4) | Derivative Financial Instruments

Commodity Derivatives — Mark to Market


Alon selectively utilizes commodity derivatives to manage its exposure to commodity price fluctuations and uses crude oil, refined product and precious metal (catalyst) commodity derivative contracts to reduce risk associated with potential price changes on committed obligations. Alon does not speculate using derivative instruments. There is not a significant credit risk on Alon’s derivative instruments which are transacted through counterparties meeting established collateral and credit criteria.


Cash Flow Hedges


To designate a derivative as a cash flow hedge, Alon documents at the inception of the hedge the assessment that the derivative will be highly effective in offsetting expected changes in cash flows from the item hedged. This assessment, which is updated at least quarterly, is generally based on the most recent relevant historical correlation between the derivative and the item hedged. If, during the term of the derivative, the hedge is determined to be no longer highly effective, hedge accounting is prospectively discontinued and any remaining unrealized gains or losses, based on the effective portion of the derivative at that date, are reclassified to earnings when the underlying transaction occurs.


Interest Rate Derivatives. Alon selectively utilizes interest rate related derivative instruments to manage its exposure to floating-rate debt instruments. Alon periodically uses interest rate swap agreements to manage its floating to fixed rate position by converting certain floating-rate debt to fixed-rate debt. As of March 31, 2011 , Alon had an interest rate swap agreement with a notional amount of $100,000, a remaining period of two years and a fixed interest rate of 4.25%. This swap was accounted for as a cash flow hedge.


For cash flow hedges, gains and losses reported in equity are reclassified into interest expense when the forecasted transaction affects income. During the three months ended March 31, 2011 and 2010 , Alon recognized in equity unrealized after-tax gains of $598 and $1,020 , respectively, for the fair value measurement of the interest rate swap agreements. There were no amounts reclassified from equity into interest expense as a result of the discontinuance of cash flow hedge accounting.


For the three months ended March 31, 2011 and 2010 , there was no hedge ineffectiveness recognized in income. No component of the derivative instruments’ gains or losses was excluded from the assessment of hedge effectiveness.


Commodity Derivatives. In May 2008, as part of financing the acquisition of the Krotz Springs refinery, Alon entered into futures contracts for the forward purchase of crude oil and the forward sale of heating oil of 14,849,750 barrels. These futures contracts were designated as cash flow hedges for accounting purposes. In the fourth quarter of 2008, Alon determined


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Table of Contents
 ALON USA ENERGY, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 (unaudited, dollars in thousands except as noted)


during its retrospective assessment of hedge effectiveness that the hedge was no longer highly effective. Cash flow hedge accounting was discontinued in the fourth quarter of 2008 and all changes in value subsequent to the discontinuance were recognized into earnings. An after-tax loss of $377 for the three months ended March 31, 2010 was reclassified from equity to earnings due to the discontinuance of cash flow hedge accounting.  No component of the derivative instruments’ gains or losses was excluded from the assessment of hedge effectiveness.


The following table presents the effect of derivative instruments on the consolidated statements of financial position.





As of March 31, 2011Asset DerivativesLiability DerivativesBalance SheetBalance SheetLocationFair ValueLocationFair ValueDerivatives not designated as hedging instruments:Commodity contracts (swaps)$—Accrued liabilities$(2,553)Commodity contracts (call options)—Accrued liabilities(25,360)Commodity contracts (futures and forwards)Accounts receivable1,557Accrued liabilities(997)Commodity contracts (call options)—Other non-current liabilities(9,126)Total derivatives not designated as hedging instruments$1,557$(38,036)Derivatives designated as hedging instruments:Interest rate swap$—Other non-current liabilities$(6,579)Total derivatives designated as hedging instruments—(6,579)Total derivatives$1,557$(44,615)


As of December 31, 2010Asset DerivativesLiability DerivativesBalance SheetBalance SheetLocationFair ValueLocationFair ValueDerivatives not designated as hedging instruments:Commodity contracts (swaps)$—Accounts Payable$(681)Commodity contracts (call options)—Accrued liabilities(5,748)Commodity contracts (futures and forwards)Accounts receivable1,364Accrued liabilities(150)Commodity contracts (call options)—Other non-currentliabilities(3,128)Total derivatives not designated as hedging instruments$1,364$(9,707)Derivatives designated as hedging instruments:Interest rate swap$—Other non-currentliabilities$(7,501)Total derivatives designated as hedging instruments—(7,501)Total derivatives$1,364$(17,208)


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Table of Contents
 ALON USA ENERGY, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 (unaudited, dollars in thousands except as noted)


The following tables present the effect of derivative instruments on Alon’s consolidated statements of operations and accumulated other comprehensive income (“OCI”).


Cash Flow Hedging RelationshipsGain (Loss) Recognizedin OCIGain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)Gain (Loss) Reclassifiedfrom Accumulated OCI intoIncome (IneffectivePortion and AmountExcluded fromEffectiveness Testing)LocationAmountLocationAmountFor the Three Months Ended March 31, 2011Interest rate swap$922Interest expense$(975)$—Total derivatives$922$(975)$—


Cash Flow Hedging RelationshipsGain (Loss) Recognizedin OCIGain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)Gain (Loss) Reclassifiedfrom Accumulated OCI intoIncome (IneffectivePortion and AmountExcluded fromEffectiveness Testing)LocationAmountLocationAmountFor the Three Months Ended March 31, 2010Commodity contracts (heating oil swaps)$—Cost of sales$(598)$—Interest rate swaps1,569Interest expense(3,558)—Total derivatives$1,569$(4,156)$—


Derivatives not designated as hedging instruments:


Gain (Loss) Recognized in IncomeLocationAmountFor the Three Months Ended March 31, 2011Commodity contracts (futures & forwards)Cost of sales$(2,070)Commodity contracts (heating oil swaps)Cost of sales5,259Commodity contracts (call options)Other income (loss), net(31,919)Total derivatives$(28,730)


Gain (Loss) Recognized in IncomeLocationAmountFor the Three Months Ended March 31, 2010Commodity contracts (futures & forwards)Cost of sales$1,473Commodity contracts (heating oil swaps)Cost of sales(106)Total derivatives$1,367





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|(5) | Inventories

Alon’s inventories are stated at the lower of cost or market. Cost is determined under the last-in, first-out (LIFO) method for crude oil, refined products, asphalt, and blendstock inventories. Materials and supplies are stated at average cost. Cost for convenience store merchandise inventories is determined under the retail inventory method and cost for convenience store fuel inventories is determined under the first-in, first-out (FIFO) method.


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Table of Contents
 ALON USA ENERGY, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 (unaudited, dollars in thousands except as noted)


Carrying value of inventories consisted of the following:





March 31, 2011December 31, 2010Crude oil, refined products, asphalt and blendstocks$36,599$60,588Crude oil inventory consigned to others63,02838,445Materials and supplies19,22919,059Store merchandise17,82417,237Store fuel6,9045,721Total inventories$143,584$141,050


Crude oil, refined products, asphalt and blendstock inventories totaled 2,038 barrels and 2,441 barrels as of March 31, 2011 and December 31, 2010 , respectively.  A reduction of inventory volumes in 2011 resulted in a liquidation of LIFO inventory layers associated with refined products and asphalt carried at lower costs which prevailed in previous years.  The liquidation decreased cost of sales by approximately $42,642 for the three months ended March 31, 2011.  An increase in LIFO inventory associated with crude oil resulted in an increase to cost of sales of $20,182 for the three months ended March 31, 2011.


Market values of crude oil, refined products, asphalt and blendstock inventories exceeded LIFO costs by $110,366 and $115,072 at March 31, 2011 and December 31, 2010 , respectively.


Crude oil inventory consigned to others represents inventory located at storage facilities that were sold to third parties with an obligation by Alon to repurchase the inventory at the end of the respective agreements. As a result of this requirement to repurchase inventory, no revenue was recorded on these transactions and the inventory volumes remain valued under the LIFO method.


Alon had 976 barrels and 674 barrels of crude oil consigned to others at March 31, 2011 and December 31, 2010 , respectively. Alon recorded liabilities associated with this consigned inventory of $27,034 and $27,034 in accounts payable and $61,467 and $32,433 in other non-current liabilities at March 31, 2011 and December 31, 2010 , respectively.


Additionally, Alon recorded accounts receivable of $1,416 and $1,073 at March 31, 2011 and December 31, 2010 , respectively, for forward commitments related to month-end consignment inventory target levels differing from projected levels and the associated pricing with these inventory level differences.


Normal Purchase Normal Sale


Effective January 1, 2011, Alon elected to account for all inventory financing agreements it has under the "Normal Purchase Normal Sales" exemption of Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 815, Derivatives and Hedging .  This exemption applies to situations where commodities are physically delivered.  In previous periods Alon recorded changes in the fair value of the estimated settlement liability of these contracts through the statement of operations.  Beginning January 1, 2011 and forward, changes in fair value of the estimated settlement liability will no longer be recorded due to the Normal Purchase Normal Sale exemption.  If the contracts were settled March 31, 2011, the payment would be in excess of the liability recorded by $17,754.





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 ALON USA ENERGY, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 (unaudited, dollars in thousands except as noted)


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|(6) | Property, Plant and Equipment, Net

Property, plant and equipment, net consisted of the following:





March 31, 2011December 31, 2010Refining facilities$1,651,381$1,628,039Pipelines and terminals40,68640,686Retail138,954137,771Other17,24716,773Property, plant and equipment, gross1,848,2681,823,269Less accumulated depreciation(356,926)(334,737)Property, plant and equipment, net$1,491,342$1,488,532





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|(7) | Additional Financial Information

The tables that follow provide additional financial information related to the consolidated financial statements.


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|(a) | Other Assets, Net




March 31, 2011December 31, 2010Deferred turnaround and chemical catalyst cost$20,566$23,047Environmental receivables17,17017,426Deferred debt issuance costs16,45316,284Intangible assets, net7,7807,901Receivable from supply agreements22,0955,805Other, net14,67711,072Total other assets$98,741$81,535


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|(b) | Accrued Liabilities and Other Non-Current Liabilities




March 31, 2011December 31, 2010Accrued Liabilities:Taxes other than income taxes, primarily excise taxes$19,645$23,584Employee costs10,23611,571Commodity contracts28,9105,898Accrued finance charges16,32012,246Environmental accrual7,3497,349Valero earnout liability4,3756,562Other26,81121,144Total accrued liabilities$113,646$88,354Other Non-Current Liabilities:Pension and other postemployment benefit liabilities, net$33,592$33,157Environmental accrual (Note 14)61,09261,657Asset retirement obligations11,10410,932Interest rate swap valuations6,5797,501Consignment inventory61,46732,433Commodity contracts9,1263,128Other21,96312,168Total other non-current liabilities$204,923$160,976


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 ALON USA ENERGY, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 (unaudited, dollars in thousands except as noted)


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|--- | ---------------------------
|(c) | Comprehensive Income (Loss)

The following table displays the computation of total comprehensive income (loss):





For the Three Months EndedMarch 31,20112010Income (loss) before non-controlling interest in income (loss) of subsidiaries$13,225$(56,746)Other comprehensive gain, net of tax:Unrealized gain on cash flow hedges, net of tax5981,397Total other comprehensive income, net of tax5981,397Comprehensive gain (loss)13,823(55,349)Comprehensive income (loss) attributable to non-controlling interest160(3,761)Comprehensive income (loss) attributable to common stockholders$13,663$(51,588)


The following table displays the components of accumulated other comprehensive loss, net of tax.


March 31, 2011December 31, 2010Unrealized losses on cash flow hedges, net of tax$(4,743)$(5,341)Pension and post-employment benefits, net of tax(16,576)(16,576)Accumulated other comprehensive loss, net of tax$(21,319)$(21,917)





|    |                        
|--- | -----------------------
|(8) | Postretirement Benefits

Alon has three defined benefit pension plans covering substantially all of its refining and unbranded marketing segment employees, excluding West Coast employees. The benefits are based on years of service and the employee’s final average monthly compensation. Alon’s funding policy is to contribute annually not less than the minimum required nor more than the maximum amount that can be deducted for federal income tax purposes. Contributions are intended to provide not only for benefits attributed to service to date but also for those benefits expected to be earned in the future. Alon’s estimated contributions during 2011 to its pension plans has not changed significantly from amounts previously disclosed in Alon’s consolidated financial statements for the year ended December 31, 2010 . For the three months ended March 31, 2011 and 2010 , Alon contributed $1,100 and $735 , respectively, to its qualified pension plans.


The components of net periodic benefit cost related to Alon’s benefit plans were as follows for the three months ended March 31, 2011 and 2010 :





For the Three Months EndedMarch 31,20112010Components of net periodic benefit cost:Service cost$914$1,018Interest cost1,035946Expected return on plan assets(933)(905)Amortization of net loss448386Net periodic benefit cost$1,464$1,445





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 ALON USA ENERGY, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 (unaudited, dollars in thousands except as noted)


|    |             
|--- | ------------
|(9) | Indebtedness

Debt consisted of the following:





March 31, 2011December 31, 2010Term loan credit facility$428,625$429,750Revolving credit facilities198,972185,120Senior secured notes207,832207,378Retail credit facilities111,81794,057Total debt947,246916,305Less current portion(46,983)(11,512)Total long-term debt$900,263$904,793


Alon Brands Term Loans .   In March 2011, Alon Brands issued $30,000 five-year unsecured notes (the "Alon Brands Term Loans") to a group of investors including certain shareholders of Alon Israel and their affiliates.  The notes will mature in March 2016.  The group of investors have the right to request that principal payments of the loan will be paid in four equal, consecutive annual payments, starting in March 2013.  Otherwise, the principal amount will be paid at the maturity date in March 2016.


Borrowings under the Alon Brands Term Loans bear interest at a rate of 7% per annum, payable on a semi-annual basis, provided that the interest rate will increase to 9% per annum solely with respect to the portion of the loan equal to the unexercised portion of the warrants described below.


The Alon Brands Term Loans contain certain restrictive covenants, including maintenance financial covenants.


In conjunction with the issuance of the notes, Alon issued 3,092,783 warrants to purchase shares of Alon USA Energy common stock at an initial exercise price per share of $9.70.  The warrants are exercisable in whole or in part until March 2016, five years from the date of issuance.


At March 31, 2011 , the Alon Brands Term Loan had an outstanding balance of $19,012 (net of unamortized discount).  Alon is utilizing the effective interest method to amortize the discount over the life of facility.





|     |                         
|---- | ------------------------
|(10) | Stock-Based Compensation

Alon has two employee incentive compensation plans, (i) the Amended and Restated 2005 Incentive Compensation Plan and (ii) the 2000 Incentive Stock Compensation Plan.


|    |                                                                               
|--- | ------------------------------------------------------------------------------
|(a) | Amended and Restated 2005 Incentive Compensation Plan (share value in dollars)

Alon’s original incentive compensation plan, the Alon USA Energy, Inc. 2005 Incentive Compensation Plan, was approved by its stockholders in 2006. In May 2010, Alon’s stockholders approved an amended and restated incentive compensation plan, the Alon USA Energy, Inc. Amended and Restated 2005 Incentive Compensation Plan, which is a component of Alon’s overall executive incentive compensation program. The Amended and Restated 2005 Incentive Compensation Plan permits the granting of awards in the form of options to purchase common stock, Stock Appreciation Rights (“SARs”), restricted shares of common stock, restricted common stock units, performance shares, performance units and senior executive plan bonuses to Alon’s directors, officers and key employees.


Restricted Stock . Non-employee directors are awarded an annual grant of shares of restricted stock valued at $25. The restricted shares granted to the non-employee directors vest over a period of three years, assuming continued service at vesting.


Compensation expense for the restricted stock grants amounted to $12 and $12 for the three months ended March 31, 2011 and 2010 , respectively, and is included in selling, general and administrative expenses in the consolidated statements of operations. There is no material difference between intrinsic value and fair value under FASB ASC Topic 718-10 for pro forma disclosure purposes.


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Table of Contents
 ALON USA ENERGY, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 (unaudited, dollars in thousands except as noted)


The following table summarizes the restricted share activity from January 1, 2010:


WeightedAverageGrant DateFair ValuesNonvested SharesShares(per share)Nonvested at January 1, 201010,226$14.67Granted10,4167.20Vested(4,473)16.77Forfeited——Nonvested at December 31, 201016,169$9.28Granted——Vested——Forfeited——Nonvested at March 31, 201116,169$9.28


As of March 31, 2011 , there was $51 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Amended and Restated 2005 Incentive Compensation Plan. That cost is expected to be recognized over a weighted-average period of 1.6 years. The fair value of shares vested in 2011 was $0 .


Stock Appreciation Rights. Through December 31, 2010, Alon has granted awards of 580,915 SARs to certain officers and key employees of Alon of which 62% of these SARs have a grant price of $28.46 and the remaining SARs have grant prices ranging from $10.00 to $16.00.


In January 2011, Alon granted awards of 18,250 SARs to certain officers and key employees at a grant price equal to $16.00.  The January 2011 SARs vest as follows:  50% on January 5, 2013, 25% on January 5, 2014, and 25% on January 5, 2015, and are exercisable during the 365-day period following the date of vesting.


When exercised, all SARs are convertible into shares of Alon common stock, the number of which will be determined at the time of exercise by calculating the difference between the closing price of Alon common stock on the exercise date and the grant price of the SARs (the “Spread”), multiplying the Spread by the number of SARs being exercised and then dividing the product by the closing price of Alon common stock on the exercise date.


Compensation expense for the SARs grants amounted to $242 and $208 for the three months ended March 31, 2011 and 2010 , respectively, and is included in selling, general and administrative expenses in the consolidated statements of operations.


|    |                                       
|--- | --------------------------------------
|(b) | 2000 Incentive Stock Compensation Plan

On August 1, 2000, Alon Assets, Inc. (“Alon Assets”) and Alon USA Operating, Inc. (“Alon Operating”), majority owned, fully consolidated subsidiaries of Alon, adopted the 2000 Incentive Stock Compensation Plan pursuant to which Alon’s board of directors may grant stock options to certain officers and members of executive management. The 2000 Incentive Stock Compensation Plan authorized grants of options to purchase up to 16,154 shares of common stock of Alon Assets and 6,066 shares of common stock of Alon Operating. All authorized options were granted in 2000 and there have been no additional options granted under this plan. All stock options have ten-year terms. The options are subject to accelerated vesting and become fully exercisable if Alon achieves certain financial performance and debt service criteria. Upon exercise, Alon will reimburse the option holder for the exercise price of the shares and under certain circumstances the related federal and state taxes payable as a result of such exercises (gross-up liability). This plan was closed to new participants subsequent to August 1, 2000, the initial grant date. All stock options have been exercised at March 31, 2011.  Total compensation expense recognized under this plan was $0 and $13 for the three months ended March 31, 2011 and 2010 , and is included in selling, general and administrative expenses in the consolidated statements of operations.


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 ALON USA ENERGY, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 (unaudited, dollars in thousands except as noted)


The following table summarizes the stock option activity for Alon Assets and Alon Operating for the three months ended March 31, 2011 , and for the year ended December 31, 2010 :





Alon AssetsAlon OperatingNumber ofOptionsOutstandingWeightedAverageExercisePriceNumber ofOptionsOutstandingWeightedAverageExercisePriceOutstanding at January 1, 20102,793$1001,049$100Granted————Exercised(2,187)100(822)100Forfeited and expired————Outstanding at December 31, 2010606$100227$100Granted————Exercised(606)100(227)100Forfeited and expired————Outstanding at March 31, 2011—$——$—


The intrinsic value of total options exercised in 2011 was $471 .





|     |                                            
|---- | -------------------------------------------
|(11) | Stockholders’ Equity (per share in dollars)

Common Stock Dividends


On March 15, 2011, Alon paid a regular quarterly cash dividend of $0.04 per share on Alon’s common stock to stockholders of record at the close of business on March 1, 2011.


Warrants


In conjunction with the issuance of the Alon Brands Term Loans, Alon issued 3,092,783 warrants to purchase shares of Alon USA Energy, Inc. common stock at an initial exercise price per share of $9.70.  The warrants are exercisable in whole or in part until March 2016, five years from the date of issuance.


Standby Equity Distribution Agreement


In January 2011, Alon entered into a Standby Equity Distribution Agreement (the "SEDA”) with YA Global Master SPV Ltd. ("YA Global”) to purchase up to $25,000 of Alon USA Energy, Inc. common stock ("Common Stock").  At any time during the effective period of the agreement, Alon may require YA Global to purchase shares of Common Stock by delivering an advance notice (as provided for in the SEDA) to YA Global.  The purchase price of the Common Stock is 98.5% of the market price during the five consecutive trading days after the receipt of the advance notice is provided to YA Global.  Par value of the Common Stock is $0.01 per share.  In no event shall the number of shares of Common Stock owned by YA Global and its affiliates exceed 4.99% of the outstanding Common Stock at that time.  The SEDA automatically terminates in January 2013.  During the first quarter of 2011, Alon sold $10,100 of Common Stock.





|     |                          
|---- | -------------------------
|(12) | Earnings (Loss) Per Share

Basic earnings (loss) per share is calculated as net income (loss) available to common stockholders divided by the average number of participating shares of common stock outstanding. Diluted earnings per share include the dilutive effect of  SARs using the treasury stock method and the dilutive effect of convertible preferred shares and warrants using the if-converted method.


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 ALON USA ENERGY, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 (unaudited, dollars in thousands except as noted)


The calculation of earnings (loss) per share, basic and diluted, for the three months ended March 31, 2011 and 2010 , is as follows:


Three Months EndedMarch 31,20112010Net income (loss) available to common stockholders$13,065$(52,942)Average number of shares of common stock outstanding54,54954,161Dilutive SARs, convertible preferred stock and warrants5,935—Average number of shares of common stock outstanding assuming dilution60,48454,161Income (loss) per share – basic$0.24$(0.98)Income (loss) per share – diluted$0.22$(0.98)





|     |                           
|---- | --------------------------
|(13) | Related-Party Transactions

Alon Brands Term Loans


In March 2011, Alon Brands issued $12,000 five-year unsecured notes to certain shareholders of Alon Israel and their affiliates from the Alon Brands Term Loans.  The notes will mature in March 2016.  The shareholders have the right to request that principal payments of the loan will be paid in four equal, consecutive annual payments, starting in March 2013.  Otherwise, the principal amount will be paid at the maturity date in March 2016.


Borrowings under the Alon Brands Term Loans bear interest at a rate of 7% per annum, payable on a semi-annual basis, provided that the interest rate will increase to 9% per annum solely with respect to the portion of the loan equal to the unexercised portion of the warrants described below.


The Alon Brands Term Loans contains certain restrictive covenants, including maintenance financial covenants.


In conjunction with the issuance of the notes, Alon issued to certain shareholders of Alon Israel 1,237,113 warrants to purchase shares of Alon USA Energy, Inc. common stock at an initial exercise price per share of $9.70.  The warrants are exercisable in whole or in part until March 2016, five years from the date of issuance.





|     |                              
|---- | -----------------------------
|(14) | Commitments and Contingencies

|    |            
|--- | -----------
|(a) | Commitments

In the normal course of business, Alon has long-term commitments to purchase utilities such as natural gas, electricity and water for use by its refineries, terminals, pipelines and retail locations. Alon is also party to various refined product and crude oil supply and exchange agreements. These agreements are typically short-term in nature or provide terms for cancellation.


Supply and Offtake Agreement with J. Aron & Company


In February 2011, Alon entered into a Supply and Offtake Agreement, (the “Supply and Offtake Agreement”), with J. Aron & Company (“J. Aron”). Pursuant to the Supply and Offtake Agreement, (i) J. Aron agreed to sell to Alon, and Alon agreed to buy from J. Aron, at market price, crude oil for processing at the Big Spring refinery and (ii) Alon agreed to sell, and J. Aron agreed to buy, at market price, certain refined products produced at the Big Spring refinery.


In connection with the execution of the Supply and Offtake Agreement, Alon also entered into agreements that provided for the sale, at market price, of Alon's crude oil and certain refined product inventories to J. Aron, the lease to J. Aron of crude oil and refined product storage tanks located at the Big Spring refinery, and an agreement to identify prospective purchasers of refined products on J. Aron’s behalf. The Supply and Offtake Agreement has an initial term that expires in May 2016.  J. Aron may elect to terminate the agreement prior to the initial term beginning in May 2013, provided Alon receives notice of termination at least six months prior to that date. Following expiration or termination of the Supply and Offtake Agreement, Alon is obligated to purchase the crude oil and refined product inventories then owned by J. Aron and located at the Big Spring refinery.


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 ALON USA ENERGY, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 (unaudited, dollars in thousands except as noted)


|    |              
|--- | -------------
|(b) | Contingencies

Alon is involved in various other claims and legal actions arising in the ordinary course of business. Alon believes the ultimate disposition of these matters will not have a material effect on Alon’s financial position, results of operations or liquidity.


|    |              
|--- | -------------
|(c) | Environmental

Alon is subject to federal, state, and local environmental laws and regulations. These rules regulate the discharge of materials into the environment and may require Alon to incur future obligations to investigate the effects of the release or disposal of certain petroleum, chemical, and mineral substances at various sites; to remediate or restore these sites; to compensate others for damage to property and natural resources and for remediation and restoration costs. These possible obligations relate to sites owned by Alon and associated with past or present operations. Alon is currently participating in environmental investigations, assessments and cleanups under these regulations at refineries, service stations, pipelines and terminals. Alon may in the future be involved in additional environmental investigations, assessments and cleanups. The magnitude of future costs will depend on factors such as the unknown nature and contamination at many sites, the timing, extent and method of the remedial actions which may be required, and the determination of Alon’s liability in proportion to other responsible parties.


Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefit are expensed. Liabilities for expenditures of a non-capital nature are recorded when environmental assessment and/or remediation is probable, and the costs can be reasonably estimated. Substantially all amounts accrued are expected to be paid out over the next 15 years. The level of future expenditures for environmental remediation obligations cannot be determined with any degree of reliability.


Alon has accrued environmental remediation obligations of $68,441 ( $7,349 current payable and $61,092 non-current liability) at March 31, 2011 , and $69,006 ( $7,349 current payable and $61,657 non-current liability) at December 31, 2010 .


In connection with the acquisition of the Bakersfield refinery on June 1, 2010, a subsidiary of Alon entered into an indemnification agreement with a prior owner for remediation expenses of conditions that existed at the refinery on the acquisition date. Alon is required to make indemnification claims to the prior owner by March 15, 2015. Alon has recorded a current receivable of $2,675 and $2,675 and a non-current receivable of $14,243 and $14,386 at March 31, 2011 and December 31, 2010 , respectively.


Paramount Petroleum Corporation has indemnification agreements with a prior owner for part of the remediation expenses at its refineries and offsite tank farm and, as a result, has recorded a current receivable of $1,323 and $1,323 and non-current receivable of $2,927 and $3,039 at March 31, 2011 and December 31, 2010 , respectively.





|     |                 
|---- | ----------------
|(15) | Subsequent Event

Dividend Declared


On May 5, 2011, Alon declared its regular quarterly cash dividend of $0.04 per share on Alon’s common stock, payable on June 1, 2011, to stockholders of record at the close of business on June 15, 2011.


.





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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, 2010 . In this document, the words “Alon,” “the Company,” “we” and “our” refer to Alon USA Energy, Inc. and its subsidiaries.


Table of Contents


Forward-Looking Statements


Certain statements contained in this report and other materials we file with the SEC, or in other written or oral statements made by us, other than statements of historical fact, are “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements relate to matters such as our industry, business strategy, goals and expectations concerning our market position, future operations, margins, profitability, capital expenditures, liquidity and capital resources and other financial and operating information. We have used the words “anticipate,” “assume,” “believe,” “budget,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “will,” “future” and similar terms and phrases to identify forward-looking statements.


Forward-looking statements reflect our current expectations regarding future events, results or outcomes. These expectations may or may not be realized. Some of these expectations may be based upon assumptions or judgments that prove to be incorrect. In addition, our business and operations involve numerous risks and uncertainties, many of which are beyond our control, which could result in our expectations not being realized or otherwise materially affect our financial condition, results of operations and cash flows.


Actual events, results and outcomes may differ materially from our expectations due to a variety of factors. Although it is not possible to identify all of these factors, they include, among others, the following:


|  |                                                            
|- | -----------------------------------------------------------
|• | changes in general economic conditions and capital markets;

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|• | changes in the underlying demand for our products;

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|• | the availability, costs and price volatility of crude oil, other refinery feedstocks and refined products;

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|• | changes in the sweet/sour spread;

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|• | changes in the light/heavy spread;

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|• | changes in the spread between West Texas Intermediate crude oil and Light Louisiana Sweet and Heavy Louisiana Sweet crude oils, as well as California crudes such as Buena Vista;

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|• | the effects of transactions involving forward contracts and derivative instruments;

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|• | actions of customers and competitors;

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|• | changes in fuel and utility costs incurred by our facilities;

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|• | disruptions due to equipment interruption, pipeline disruptions or failure at our or third-party facilities;

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|- | ------------------------------------------
|• | the execution of planned capital projects;

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|• | adverse changes in the credit ratings assigned to our trade credit and debt instruments;

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|• | the effects of and cost of compliance with current and future state and federal environmental, economic, safety and other laws, policies and regulations;

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|• | operating hazards, natural disasters such as flooding, casualty losses and other matters beyond our control;

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|- | -------------------------------------------------------------------------------------------------------------
|• | realization of synergies and accretion to reported earnings from our acquisition of the Bakersfield refinery;

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|- | -----------------------------------------------------------------------------------------------------------
|• | integration of the operations and employees of the Bakersfield refinery and the timing of such integration;

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|- | --------------------------------------------------------------------------------
|• | the global financial crisis’ impact on our business and financial condition; and

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|- | ----------------------------------------------------------------------------------------------------------------------------------
|• | the other factors discussed in our Annual Report on Form 10-K for the year endedDecember 31, 2010under the caption “Risk Factors”.

Any one of these factors or a combination of these factors could materially affect our future results of operations and could influence whether any forward-looking statements ultimately prove to be accurate. Our forward-looking statements are not guarantees of future performance, and actual results and future performance may differ materially from those suggested in any forward-looking statements. We do not intend to update these statements unless we are required by the securities laws to do so.


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Table of Contents


Company Overview


We are an independent refiner and marketer of petroleum products operating primarily in the South Central, Southwestern and Western regions of the United States. Our crude oil refineries are located in Texas, California, Oregon and Louisiana and have a combined throughput capacity of approximately 250,000 barrels per day (“bpd”). Our refineries produce petroleum products including various grades of gasoline, diesel fuel, jet fuel, petrochemicals, petrochemical feedstocks, asphalt, and other petroleum-based products.


Refining and Unbranded Marketing Segment . Our refining and unbranded marketing segment includes sour and heavy crude oil refineries located in Big Spring, Texas; and Paramount, Bakersfield and Long Beach, California; and a light sweet crude oil refinery located in Krotz Springs, Louisiana. We refer to the Long Beach, Bakersfield and Paramount refineries together as our “California refineries.” The refineries in our refining and unbranded marketing segment have a combined throughput capacity of approximately 240,000 bpd. At these refineries we refine crude oil into petroleum products, including gasoline, diesel fuel, jet fuel, petrochemicals, feedstocks and asphalts, which are marketed primarily in the South Central, Southwestern, and Western United States.


We market transportation fuels produced at our Big Spring refinery in West and Central Texas, Oklahoma, New Mexico and Arizona. We refer to our operations in these regions as our “physically integrated system” because we supply our retail and branded marketing segment convenience stores and unbranded distributors in this region with motor fuels produced at our Big Spring refinery and distributed through a network of pipelines and terminals which we either own or have access to through leases or long-term throughput agreements.


We market refined products produced from our California refineries to wholesale distributors, other refiners and third parties primarily on the West Coast. We plan to integrate the Bakersfield hydrocracker unit by processing vacuum gas oil produced at our other California refineries.


The Krotz Springs refining processing units are structured to yield approximately 101.5% of total feedstock input, meaning that for each 100 barrels of crude oil and feedstocks input into the refinery, it produces 101.5 barrels of refined products. Of the 101.5%, on average 99.0% is light finished products such as gasoline and distillates, including diesel and jet fuel, petrochemical feedstocks and liquefied petroleum gas, and the remaining 2.5% is primarily heavy oils. We market refined products from Krotz Springs to wholesale distributors, other refiners, and third parties. The refinery’s location provides access to upriver markets on the Mississippi and Ohio Rivers and its docking facilities along the Atchafalaya River allow barge access. The refinery also uses its direct access to the Colonial Pipeline to transport products to markets in the Southern and Eastern United States.


Asphalt Segment . Our asphalt segment markets asphalt produced at our Big Spring and California refineries included in the refining and marketing segment and at our Willbridge, Oregon refinery. Asphalt produced by the refineries in our refining and marketing segment is transferred to the asphalt segment at prices substantially determined by reference to the cost of crude oil, which is intended to approximate wholesale market prices. Our asphalt segment markets asphalt through 12 refinery/terminal locations in Texas (Big Spring), California (Paramount, Long Beach, Elk Grove, Bakersfield and Mojave), Oregon (Willbridge), Washington (Richmond Beach), Arizona (Phoenix, Flagstaff and Fredonia) and Nevada (Fernley) (50% interest) as well as a 50% interest in Wright Asphalt Products Company, LLC (“Wright”). We produce both paving and roofing grades of asphalt, including performance-graded asphalts, emulsions and cutbacks.


Retail and Branded Marketing Segment . Our retail and branded marketing segment operates 304 convenience stores located primarily in Central and West Texas and New Mexico. These convenience stores typically offer various grades of gasoline, diesel fuel, general merchandise and food and beverage products to the general public, primarily under the 7-Eleven and FINA brand names. Substantially all of the motor fuel sold through our retail operations and the majority of the motor fuel marketed in our branded business is supplied by our Big Spring refinery. In 2011 , approximately 89% of the motor fuel requirements of our branded marketing operations, including retail operations, were supplied by our Big Spring refinery. Branded distributors that are not part of our integrated supply system, primarily in Central Texas, are supplied with motor fuels we obtain from third-party suppliers.


We market gasoline and diesel under the FINA brand name through a network of approximately 640 locations, including our convenience stores. Approximately 53% of the gasoline and 19% of the diesel motor fuel produced at our Big Spring refinery was transferred to our retail and branded marketing segment at prices substantially determined by reference to commodity pricing information published by Platts. Additionally, our retail and branded marketing segment licenses the use of the FINA brand name and provides credit card processing services to approximately 260 licensed locations that are not under fuel supply agreements with us.





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Table of Contents


First Quarter Operational and Financial Highlights


Operating income for the first quarter of 2011 was $73.3 million , compared to an operating loss of $(79.0) million in the same period last year. Operating income increased principally due to higher refinery throughput and margins, higher retail fuel margins and motor fuel sales volumes. Other operational and financial highlights for the first quarter of 2011 include the following:


|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|• | Combined refinery throughput for the three months endedMarch 31, 2011, averaged135,638bpd, consisting of62,181bpd at the Big Spring refinery and73,457bpd at the Krotz Springs refinery, compared to a combined average throughput of61,047bpd for the three months endedMarch 31, 2010, consisting of42,784bpd at the Big Spring refinery and18,263bpd at the California refineries.  The California refineries were shutdown most of thefirstquarter of2011to redeploy resources for the integration of the Bakersfield refinery acquired in June 2010.  The Krotz Springs refinery was shut down during thefirstquarter of2010for scheduled turnaround work.

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|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|• | Operating margin at the Big Spring refinery was$19.50per barrel for thefirstquarter of2011, compared to$4.91per barrel for the same period in2010. The operating margin in2011was positively impacted by higher Gulf Coast 3/2/1 crack spreads and WTI to WTS crude oil spreads.

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|- | ---------------------------------------------------------------------------------------------
|• | Operating margin at the Krotz Springs refinery was$5.06per barrel for thefirstquarter of2011.

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|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|• | Asphalt margins in thefirstquarter of2011were$18.18per ton compared to$(28.50)per ton in thefirstquarter of2010. The average blended asphalt sales price increased9.3%from$463.53per ton in thefirstquarter of2010to$506.55per ton in thefirstquarter of2011and the average non-blended asphalt sales price decreased9.4%from$333.82per ton in thefirstquarter of2010to$302.57per ton in thefirstquarter of2011. Asphalt sales volumes in thefirstquarter of2011were192 thousandtons compared to151 thousandtons in thefirstquarter of2010.

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|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|• | Retail and branded marketing segment retail fuel sales gallons increased by12.0%from32.7 milliongallons in thefirstquarter of2010to36.7 milliongallons in thefirstquarter of2011. Our branded fuel sales increased by21.4%from70.5 milliongallons in thefirstquarter of2010to85.6 milliongallons in thefirstquarter of2011. Operating income for our retail and branded marketing segment was$4.2 millionfor thefirstquarter of2011compared to an operating loss of$(1.9) millionfor the same period in2010.

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|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|• | On March 15, 2011, Alon paid a regular quarterly cash dividend of $0.04 per share on Alon’s common stock to stockholders of record at the close of business on March 1, 2011.




Major Influences on Results of Operations


Refining and Unbranded Marketing . Earnings and cash flow from our refining and unbranded marketing segment are primarily affected by the difference between refined product prices and the prices for crude oil and other feedstocks. The cost to acquire crude oil and other feedstocks and the price of the refined products we ultimately sell depend on numerous factors beyond our control, including the supply of, and demand for, crude oil, gasoline and other refined products which, in turn, depend on, among other factors, changes in domestic and foreign economies, weather conditions, domestic and foreign political affairs, production levels, the availability of imports, the marketing of competitive fuels and government regulation. While our sales and operating revenues fluctuate significantly with movements in crude oil and refined product prices, it is the spread between crude oil and refined product prices, and not necessarily fluctuations in those prices that affect our earnings.


In order to measure our operating performance, we compare our per barrel refinery operating margins to certain industry benchmarks. We compare our Big Spring refinery’s per barrel operating margin to the Gulf Coast 3/2/1 crack spreads. A 3/2/1 crack spread is calculated assuming that three barrels of a benchmark crude oil are converted, or cracked, into two barrels of gasoline and one barrel of diesel. We calculate the Gulf Coast 3/2/1 crack spread using the market values of Gulf Coast conventional gasoline and ultra-low sulfur diesel and the market value of West Texas Intermediate, or WTI, a light, sweet crude oil. We calculate the per barrel operating margin for our Big Spring refinery by dividing the Big Spring refinery’s gross margin by its throughput volumes. Gross margin is the difference between net sales and cost of sales (exclusive of substantial unrealized hedge positions and inventories adjustments related to acquisitions).


We compare our California refineries’ per barrel operating margin to the West Coast 3/2/1 crack spread. A 3/2/1 crack spread is calculated assuming that three barrels of a benchmark crude oil are converted into two barrels of gasoline and one barrel of diesel.  This is calculated using the market values of West Coast LA CARBOB pipeline gasoline, LA ultra-low sulfur pipeline diesel and the market value of WTI crude oil.


We compare our Krotz Springs refinery’s per barrel margin to the Gulf Coast 2/1/1 crack spread. The 2/1/1 crack spread is calculated assuming that two barrels of a benchmark crude oil are converted into one barrel of gasoline and one barrel of


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diesel. We calculate the Gulf Coast 2/1/1 crack spread using the market values of Gulf Coast conventional gasoline and Gulf Coast high sulfur diesel and the market value of WTI crude oil.


Our Big Spring refinery and California refineries are capable of processing substantial volumes of sour crude oil, which has historically cost less than intermediate and sweet crude oils. We measure the cost advantage of refining sour crude oil by calculating the difference between the value of WTI crude oil less the value of West Texas Sour, or WTS, a medium, sour crude oil. We refer to this differential as the sweet/sour spread. A widening of the sweet/sour spread can favorably influence the operating margin for our Big Spring and California refineries. In addition, our California refineries are capable of processing significant volumes of heavy crude oils which historically have cost less than light crude oils. We measure the cost advantage of refining heavy crude oils by calculating the difference between the value of WTI crude oil less the value of Buena Vista crude oil. A widening of this spread can favorably influence the refinery operating margins for our California refineries.


The Krotz Springs refinery has the capability to process substantial volumes of low-sulfur, or sweet, crude oils to produce a high percentage of light, high-value refined products. Sweet crude oil typically comprises 100% of the Krotz Springs refinery's crude oil input. This input is comprised of equal amounts of Heavy Louisiana Sweet, or HLS crude oil, and Light Louisiana Sweet, or LLS crude oil. We measure the cost of refining these lighter sweet crude oils by calculating the difference between the average value of LLS crude oil (which also approximates the value of HLS crude oil) to the average value of WTI crude oil. A narrowing of this spread can favorably influence the refinery operating margins of our Krotz Springs refinery.


The results of operations from our refining and unbranded marketing segment are also significantly affected by our refineries’ operating costs, particularly the cost of natural gas used for fuel and the cost of electricity. Natural gas prices have historically been volatile. Typically, electricity prices fluctuate with natural gas prices.


Demand for gasoline products is generally higher during summer months than during winter months due to seasonal increases in highway traffic. As a result, the operating results for our refining and unbranded marketing segment for the first and fourth calendar quarters are generally lower than those for the second and third calendar quarters. The effects of seasonal demand for gasoline are partially offset by seasonality in demand for diesel, which in our region is generally higher in winter months as east-west trucking traffic moves south to avoid winter conditions on northern routes.


Safety, reliability and the environmental performance of our refineries are critical to our financial performance. The financial impact of planned downtime, such as a turnaround or major maintenance project, is mitigated through a diligent planning process that considers expectations for product availability, margin environment and the availability of resources to perform the required maintenance.


The nature of our business requires us to maintain substantial quantities of crude oil and refined product inventories. Crude oil and refined products are essentially commodities, and we have no control over the changing market value of these inventories. Because our inventory is valued at the lower of cost or market value under the LIFO inventory valuation methodology, price fluctuations generally have little effect on our financial results.


Asphalt . Earnings from our asphalt segment depend primarily upon the margin between the price at which we sell our asphalt and the transfer prices for asphalt produced at our refineries in the refining and unbranded marketing segment. Asphalt is transferred to our asphalt segment at prices substantially determined by reference to the cost of crude oil, which is intended to approximate wholesale market prices. The asphalt segment also conducts operations at and markets asphalt produced by our refinery located in Willbridge, Oregon. In addition to producing asphalt at our refineries, at times when refining margins are unfavorable we opportunistically purchase asphalt from other producers for resale. A portion of our asphalt sales are made using fixed price contracts for delivery at future dates. Because these contracts are priced at the market prices for asphalt at the time of the contract, a change in the cost of crude oil between the time we enter into the contract and the time we produce the asphalt can positively or negatively influence the earnings of our asphalt segment. Demand for paving asphalt products is higher during warmer months than during colder months due to seasonal increases in road construction work. As a result, revenues from our asphalt segment for the first and fourth calendar quarters are expected to be lower than those for the second and third calendar quarters.


Retail and Branded Marketing . Earnings and cash flows from our retail and branded marketing segment are primarily affected by merchandise and motor fuel sales volumes and margins at our convenience stores and the motor fuel sales volumes and margins from sales to our FINA-branded distributors, together with licensing and credit card related fees generated from our FINA-branded distributors and licensees. Retail merchandise gross margin is equal to retail merchandise sales less the delivered cost of the retail merchandise, net of vendor discounts and rebates, measured as a percentage of total retail merchandise sales. Retail merchandise sales are driven by convenience, branding and competitive pricing. Motor fuel margin is equal to motor fuel sales less the delivered cost of fuel and motor fuel taxes, measured on a cents per gallon (“cpg”) basis. Our motor fuel margins are driven by local supply, demand and competitor pricing. Our convenience store sales are seasonal and peak in the second and third quarters of the year, while the first and fourth quarters usually experience lower overall sales.





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Factors Affecting Comparability


Our financial condition and operating results over the three months ended  March 31, 2011 and 2010 , have been influenced by the following factors which are fundamental to understanding comparisons of our period-to-period financial performance.


The Krotz Springs refinery was shut down during November 2009 for a scheduled turnaround and remained down until its restart in June 2010. Throughput at the Big Spring refinery was higher over the three months ended  March 31, 2011 , after we implemented new operating procedures. The California refineries were shut down for most of the first quarter of 2011 to redeploy resources for the integration of the Bakersfield refinery acquired in June 2010.





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Results of Operations


Net Sales . Net sales consist primarily of sales of refined petroleum products through our refining and unbranded marketing segment and asphalt segment and sales of merchandise, including food products, and motor fuels, through our retail and branded marketing segment.


For the refining and unbranded marketing segment, net sales consist of gross sales, net of customer rebates, discounts and excise taxes and includes inter-segment sales to our asphalt and retail and branded marketing segments, which are eliminated through consolidation of our financial statements. Asphalt sales consist of gross sales, net of any discounts and applicable taxes. Retail net sales consist of gross merchandise sales, less rebates, commissions and discounts, and gross fuel sales, including motor fuel taxes. For our petroleum and asphalt products, net sales are mainly affected by crude oil and refined product prices and volume changes caused by operations. Our retail merchandise sales are affected primarily by competition and seasonal influences.


Cost of Sales . Refining and unbranded marketing cost of sales includes crude oil and other raw materials, inclusive of transportation costs. Asphalt cost of sales includes costs of purchased asphalt, blending materials and transportation costs. Retail cost of sales includes cost of sales for motor fuels and for merchandise. Motor fuel cost of sales represents the net cost of purchased fuel, including transportation costs and associated motor fuel taxes. Merchandise cost of sales includes the delivered cost of merchandise purchases, net of merchandise rebates and commissions. Cost of sales excludes depreciation and amortization expense.


Direct Operating Expenses . Direct operating expenses, which relate to our refining and unbranded marketing and asphalt segments, include costs associated with the actual operations of our refineries and asphalt terminals, such as energy and utility costs, routine maintenance, labor, insurance and environmental compliance costs. Environmental compliance costs, including monitoring and routine maintenance, are expensed as incurred. All operating costs associated with our crude oil and product pipelines are considered to be transportation costs and are reflected as cost of sales.


Selling, General and Administrative Expenses . Selling, general and administrative, or SG&A, expenses consist primarily of costs relating to the operations of our convenience stores, including labor, utilities, maintenance and retail corporate overhead costs. Refining and marketing and asphalt segment corporate overhead and marketing expenses are also included in SG&A expenses.


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ALON USA ENERGY, INC. AND SUBSIDIARIES CONSOLIDATED


Summary Financial Tables . The following tables provide summary financial data and selected key operating statistics for Alon and our three operating segments for the three months ended  March 31, 2011 and 2010 . The summary financial data for our three operating segments does not include certain SG&A expenses and depreciation and amortization related to our corporate headquarters. The following data should be read in conjunction with our consolidated financial statements and the notes thereto included elsewhere in this Form 10-Q. All information in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” except for Balance Sheet data as of December 31, 2010 is unaudited.


For the Three Months EndedMarch 31,20112010(dollars in thousands, except pershare data)STATEMENT OF OPERATIONS DATA:Net sales (1)$1,651,104$579,313Operating costs and expenses:Cost of sales1,461,123538,715Direct operating expenses56,92361,444Selling, general and administrative expenses (2)34,33031,807Depreciation and amortization (3)25,44726,322Total operating costs and expenses1,577,823658,288Gain on disposition of assets12—Operating income (loss)73,293(78,975)Interest expense (4)(20,440)(26,585)Equity loss of investees(245)(103)Other income (loss), net (5)(31,913)14,204Income (loss) before income tax expense (benefit) and non-controlling interest in income (loss) of subsidiaries20,695(91,459)Income tax expense (benefit)7,470(34,713)Income (loss) before non-controlling interest in income (loss) of subsidiaries13,225(56,746)Non-controlling interest in income (loss) of subsidiaries160(3,804)Net income (loss) available to common stockholders$13,065$(52,942)Income (loss) per share, basic$0.24$(0.98)Weighted average shares outstanding, basic (in thousands)54,54954,161Income (loss) per share, diluted$0.22$(0.98)Weighted average shares outstanding, diluted (in thousands)60,48454,161Cash dividends per share$0.04$0.04CASH FLOW DATA:Net cash provided by (used in):Operating activities$24,381$(40,979)Investing activities(25,022)(6,331)Financing activities48,39914,433OTHER DATA:Adjusted EBITDA (6)66,570(38,552)Capital expenditures (7)25,1637,303Capital expenditures for turnaround and chemical catalyst18510,009


March 31 2011December 31 2010BALANCE SHEET DATA (end of period):Cash and cash equivalents119,44571,687Working capital63,879990Total assets2,199,7962,088,521Total debt947,246916,305Total equity373,968341,767


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|(1) | Includes excise taxes on sales by the retail and branded marketing segment of$14,218and$12,786for the three months endedMarch 31, 2011and2010, respectively.

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|(2) | Includes corporate headquarters selling, general and administrative expenses of$188and$188for the three months endedMarch 31, 2011and2010, respectively, which are not allocated to our three operating segments.

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|(3) | Includes corporate depreciation and amortization of$403and$231for the three months endedMarch 31, 2011and2010, respectively, which are not allocated to our three operating segments.

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|(4) | Interest expense of$26,585for thethreemonths endedMarch 31, 2010, includes a charge of $6,659 for the write-off of debt issuance costs associated with our prepayment of the Alon Refining Krotz Springs, Inc. revolving credit facility.

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|(5) | Other income (loss) for thethreemonths endedMarch 31, 2011is substantially the loss on heating oil crack spread contracts. In the first quarter of 2010, Alon sold approximately two-thirds of its investment in Holly Energy Partners for $22,760, resulting in a gain of $8,047.  Subsequently, Alon marked-to-market its remaining investment, resulting in an unrealized gain of $6,291.

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|(6) | Adjusted EBITDA represents earnings before non-controlling interest in income of subsidiaries, income tax expense, interest expense, depreciation and amortization, and gain on disposition of assets. Adjusted EBITDA is not a recognized measurement under GAAP; however, the amounts included in Adjusted EBITDA are derived from amounts included in our consolidated financial statements. Our management believes that the presentation of Adjusted EBITDA is useful to investors 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 non-controlling interest in income of subsidiaries, income tax expense, interest expense, gain on disposition of assets and the accounting effects of capital expenditures and acquisitions, items that may vary for different companies for reasons unrelated to overall operating performance.

Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:


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|• | Adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;

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|• | Adjusted EBITDA does not reflect the interest expense or the cash requirements necessary to service interest or principal payments on our debt;

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|• | Adjusted EBITDA does not reflect the prior claim that non-controlling interest have on the income generated by non-wholly-owned subsidiaries;

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|• | Adjusted EBITDA does not reflect changes in or cash requirements for our working capital needs; and

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|• | Our calculation of Adjusted EBITDA may differ from EBITDA calculations of other companies in our industry, limiting its usefulness as a comparative measure.

Because of these limitations, Adjusted EBITDA should not be considered a measure of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our GAAP results and using Adjusted EBITDA only supplementally.


The following table reconciles net income (loss) available to common stockholders to Adjusted EBITDA for the three months ended March 31, 2011 and 2010 , respectively:


For the Three Months EndedMarch 31,20112010(dollars in thousands)Net income (loss) available to common stockholders$13,065$(52,942)Non-controlling interest in income (loss) of subsidiaries160(3,804)Income tax expense (benefit)7,470(34,713)Interest expense20,44026,585Depreciation and amortization25,44726,322Gain on disposition of assets(12)—Adjusted EBITDA$66,570$(38,552)


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Adjusted EBITDA for the three months ended March 31, 2011 does not exclude loss on heating oil crack spread contracts of $31,919 .


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|(7) | Includes corporate capital expenditures of$65and$415for the three months endedMarch 31, 2011and2010, respectively, which are not allocated to our three operating segments.

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REFINING AND UNBRANDED MARKETING SEGMENTFor the Three Months EndedMarch 31,20112010(dollars in thousands, except per barrel data and pricing statistics)STATEMENTS OF OPERATIONS DATA:Net sales (1)$1,499,024$483,040Operating costs and expenses:Cost of sales1,345,021463,864Direct operating expenses46,94950,352Selling, general and administrative expenses7,7286,388Depreciation and amortization20,03720,954Total operating costs and expenses1,419,735541,558Operating income (loss)$79,289$(58,518)KEY OPERATING STATISTICS:Per barrel of throughput:Refinery operating margin – Big Spring (2)$19.50$4.91Refinery operating margin – CA Refineries (2)N/A(0.42)Refinery operating margin – Krotz Springs (2)5.06N/ARefinery direct operating expense – Big Spring (3)4.136.57Refinery direct operating expense – CA Refineries (3)N/A8.82Refinery direct operating expense – Krotz Springs (3)2.85N/ACapital expenditures23,0936,312Capital expenditures for turnaround and chemical catalyst18510,009PRICING STATISTICS:WTI crude oil (per barrel)$94.13$78.75WTS crude oil (per barrel)90.0376.87Buena Vista crude oil (per barrel)99.3177.11HLS crude oil (per barrel)106.5178.82LLS crude oil (per barrel)107.1879.96Crack spreads (3/2/1) (per barrel):Gulf Coast$18.09$7.09West Coast24.5910.12Crack spreads (2/1/1) (per barrel):Gulf Coast high sulfur diesel$18.38$6.25Crude oil differentials (per barrel):WTI less WTS$4.10$1.88LLS less WTI13.051.21WTI less Buena Vista(5.18)1.64Product price (dollars per gallon):Gulf Coast unleaded gasoline$2.595$2.040Gulf Coast ultra-low sulfur diesel2.8252.052Gulf Coast high sulfur diesel2.7622.008West Coast LA CARBOB (unleaded gasoline)2.7862.136West Coast LA ultra-low sulfur diesel2.9072.076Natural gas (per MMBTU)4.204.99


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THROUGHPUT AND PRODUCTION DATA:BIG SPRING REFINERYFor the Three Months EndedMarch 31,20112010bpd%bpd%Refinery throughput:Sour crude52,12483.835,97884.1Sweet crude8,49913.75,25812.3Blendstocks1,5582.51,5483.6Total refinery throughput (4)62,181100.042,784100.0Refinery production:Gasoline30,37349.320,61848.9Diesel/jet19,98832.413,74332.6Asphalt4,3407.02,3595.6Petrochemicals3,8246.22,0214.8Other3,1655.13,3968.1Total refinery production (5)61,690100.042,137100.0Refinery utilization (6)86.6%64.8%


THROUGHPUT AND PRODUCTION DATA:CALIFORNIA REFINERIESFor the Three Months EndedMarch 31,20112010bpd%bpd%Refinery throughput:Medium sour crude——4,10622.5Heavy crude——13,74075.2Blendstocks——4172.3Total refinery throughput (4)——18,263100.0Refinery production:Gasoline——2,46914.0Diesel/jet——3,37019.1Asphalt——6,16334.9Light unfinished————Heavy unfinished——5,25929.8Other——3932.2Total refinery production (5)——17,654100.0Refinery utilization (6)—%24.6%


THROUGHPUT AND PRODUCTION DATA:KROTZ SPRINGS REFINERYFor the Three Months EndedMarch 31,20112010bpd%bpd%Refinery throughput:Light sweet crude52,93072.0——Heavy sweet crude19,22426.2——Blendstocks1,3031.8——Total refinery throughput (4)73,457100.0——Refinery production:Gasoline31,17542.4——Diesel/jet34,54246.9——Heavy Oils1,6592.3——Other6,1468.4——Total refinery production (5)73,522100.0——Refinery utilization (6)86.8%—%


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|(1) | Net sales include intersegment sales to our asphalt and retail and branded marketing segments at prices which approximate wholesale market prices. These intersegment sales are eliminated through consolidation of our financial statements.

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|(2) | Refinery operating margin is a per barrel measurement calculated by dividing the margin between net sales and cost of sales (exclusive of substantial unrealized hedge positions and inventory adjustments related to acquisitions) 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.

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|(3) | Refinery direct operating expense is a per barrel measurement calculated by dividing direct operating expenses at our Big Spring, California, and Krotz Springs refineries, exclusive of depreciation and amortization, by the applicable refinery’s total throughput volumes. Direct operating expenses related to the Bakersfield refinery of$1,512have been excluded from the per barrel measurement calculation for the three months endedMarch 31, 2011.

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|(4) | Total refinery throughput represents the total barrels per day of crude oil and blendstock inputs in the refinery production process.

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|(5) | Total refinery production represents the barrels per day of various products produced from processing crude and other refinery feedstocks through the crude units and other conversion units at the refineries.

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|(6) | Refinery utilization represents average daily crude oil throughput divided by crude oil capacity, excluding planned periods of downtime for maintenance and turnarounds.




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ASPHALT SEGMENTFor the Three Months EndedMarch 31,20112010(dollars in thousands, except per ton data)STATEMENTS OF OPERATIONS DATA:Net sales$86,243$67,141Operating costs and expenses:Cost of sales (1)82,75271,445Direct operating expenses9,97411,092Selling, general and administrative expenses1,4151,066Depreciation and amortization1,7301,717Total operating costs and expenses95,87185,320Operating loss$(9,628)$(18,179)KEY OPERATING STATISTICS:Blended asphalt sales volume (tons in thousands) (2)138129Non-blended asphalt sales volume (tons in thousands) (3)5422Blended asphalt sales price per ton (2)$506.55$463.53Non-blended asphalt sales price per ton (3)302.57333.82Asphalt margin per ton (4)18.18(28.50)Capital expenditures$660$179


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|(1) | Cost of sales includes intersegment purchases of asphalt blends from our refining and unbranded marketing segment at prices which approximate wholesale market prices. These intersegment purchases are eliminated through consolidation of our financial statements.

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|(2) | Blended asphalt represents base asphalt that has been blended with other materials necessary to sell the asphalt as a finished product.

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|(3) | Non-blended asphalt represents base material asphalt and other components that require additional blending before being sold as a finished product.

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|(4) | Asphalt margin is a per ton measurement calculated by dividing the margin between net sales and cost of sales by the total sales volume. Asphalt margins are used in the asphalt industry to measure operating results related to asphalt sales.







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RETAIL AND BRANDED MARKETING SEGMENTFor the Three Months EndedMarch 31,20112010(dollars in thousands, except per gallon data)STATEMENTS OF OPERATIONS DATA:Net sales (1)$316,184$226,028Operating costs and expenses:Cost of sales (2)283,697200,302Selling, general and administrative expenses24,99924,165Depreciation and amortization3,2773,420Total operating costs and expenses311,973227,887Gain on disposition of assets12—Operating income$4,223$(1,859)KEY OPERATING STATISTICS:Branded fuel sales (thousands of gallons) (3)85,57070,469Branded fuel margin (cents per gallon) (3)3.74.2Number of stores (end of period)304308Retail fuel sales (thousands of gallons)36,65532,714Retail fuel sales (thousands of gallons per site per month)4035Retail fuel margin (cents per gallon) (4)14.69.0Retail fuel sales price (dollars per gallon) (5)$3.19$2.63Merchandise sales$68,001$63,482Merchandise sales (per site per month)$75$69Merchandise margin (6)33.1%30.0%Capital expenditures$1,345$397


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|(1) | Includes excise taxes on sales by the retail and branded marketing segment of$14,218and$12,786for the three months endedMarch 31, 2011and2010, respectively. Includes net royalty and related net credit card fees of$1,419and$773for the three months endedMarch 31, 2011and2010, respectively.

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|(2) | Cost of sales includes intersegment purchases of motor fuels from our refining and unbranded marketing segment at prices which approximate wholesale market prices. These intersegment purchases are eliminated through consolidation of our financial statements.

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|(3) | Marketing sales volume represents branded fuel sales to our wholesale marketing customers that are primarily supplied by the Big Spring refinery. The branded fuels that are not supplied by the Big Spring refinery are obtained from third-party suppliers. The marketing margin represents the margin between the net sales and cost of sales attributable to our branded fuel sales volume, expressed on a cents-per-gallon basis.

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|(4) | Retail fuel margin represents the difference between motor fuel sales revenue and the net cost of purchased motor fuel, including transportation costs and associated motor fuel taxes, expressed on a cents-per-gallon basis. Motor fuel margins are frequently used in the retail industry to measure operating results related to motor fuel sales.

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|(5) | Retail fuel sales price per gallon represents the average sales price for motor fuels sold through our retail convenience stores.

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|(6) | Merchandise margin represents the difference between merchandise sales revenues and the delivered cost of merchandise purchases, net of rebates and commissions, expressed as a percentage of merchandise sales revenues. Merchandise margins, also referred to as in-store margins, are commonly used in the retail convenience store industry to measure in-store, or non-fuel, operating results.

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Three Months Ended March 31, 2011 Compared to the Three Months Ended March 31, 2010


Net Sales


Consolidated . Net sales for the three months ended March 31, 2011 , were $1,651.1 million , compared to $579.3 million for the three months ended March 31, 2010 , an increase of $1,071.8 million .


Refining and Unbranded Marketing Segment . Net sales for our refining and unbranded marketing segment were $1,499.0 million for the three months ended March 31, 2011 , compared to $483.0 million for the three months ended March 31, 2010 , an increase of $1,016.0 million . The increase was due to higher refined product prices and higher refinery throughput in the three months ended March 31, 2011 compared to the same period last year.


Combined refinery throughput for the three months ended March 31, 2011 , averaged 135,638 bpd, consisting of 62,181 bpd at the Big Spring refinery and 73,457 bpd at the Krotz Springs refinery, compared to a combined average throughput of 61,047 bpd for the three months ended March 31, 2010 , consisting of 42,784 bpd at the Big Spring refinery and 18,263 bpd at the California refineries. During the three months ended March 31, 2011 , the California refineries were shut down to redeploy resources for the integration of the Bakersfield refinery acquired in June 2010.  During the three months ended March 31, 2010 , the Krotz Springs refinery was shut down for major turnaround activity and restarted in June 2010.


The increase in refined product prices that our refineries experienced resembled the price increases experienced in each refinery’s respective markets. The average per gallon price of Gulf Coast gasoline for the three months ended March 31, 2011 , increased $0.56 , or 27.2% , to $2.60 , compared to $2.04 for the three months ended March 31, 2010 . The average per gallon price of Gulf Coast ultra-low sulfur diesel for the three months ended March 31, 2011 , increased $0.77 , or 37.7% , to $2.83 , compared to $2.05 for the three months ended March 31, 2010 . The average per gallon price of West Coast LA CARBOB gasoline for the three months ended March 31, 2011 , increased $0.65 , or 30.4% , to $2.79 , compared to $2.14 for the three months ended March 31, 2010 . The average per gallon price of West Coast LA ultra-low sulfur diesel for the three months ended March 31, 2011 , increased $0.83 , or 40.0% , to $2.91 , compared to $2.08 for the three months ended March 31, 2010 .


Asphalt Segment . Net sales for our asphalt segment were $86.2 million for the three months ended March 31, 2011 , compared to $67.1 million for the three months ended March 31, 2010 , an increase of $19.1 million or 28.5% .  The increase was due primarily to an increase in asphalt sales volumes for the three months ended March 31, 2011 .   For the three months ended March 31, 2011 , the asphalt volume increased 27.2% from 151 tons for the three months ended March 31, 2010 , to 192 tons for the three months ended March 31, 2011 .


Retail and Branded Marketing Segment . Net sales for our retail and branded marketing segment were $316.2 million for the three months ended March 31, 2011 , compared to $226.0 million for the three months ended March 31, 2010 , an increase of $90.2 million or 39.9% . This increase was primarily attributable to increases in retail motor fuel sales volumes and prices and merchandise sales.


Cost of Sales


Consolidated . Cost of sales were $1,461.1 million for the three months ended March 31, 2011 , compared to $538.7 million for the three months ended March 31, 2010 , an increase of $922.4 million . This increase was primarily due to higher refinery throughput volumes in our refining and unbranded marketing segment, increased sales volumes in our retail and branded marketing segment and higher crude oil prices.


Refining and Unbranded Marketing Segment. Cost of sales for our refining and unbranded marketing segment were $1,345.0 million for the three months ended March 31, 2011 , compared to $463.9 million for the three months ended March 31, 2010 , an increase of $881.1 million . This increase was primarily due to increased refinery throughput as well as an increase in the cost of crude oil used by our refineries. The average price per barrel of WTI for the three months ended March 31, 2011 , increased $15.38 per barrel to an average of $94.13 per barrel, compared to an average of $78.75 per barrel for the three months ended March 31, 2010 , an increase of 19.5% .


Asphalt Segment . Cost of sales for our asphalt segment were $82.8 million for the three months ended March 31, 2011 , compared to $71.4 million for the three months ended March 31, 2010 , an increase of $11.4 million or 16.0% .  The increase was due primarily to higher asphalt sales volumes and higher crude oil costs for the three months ended March 31, 2011.


Retail and Branded Marketing Segment. Cost of sales for our retail and branded marketing segment was $283.7 million for the three months ended March 31, 2011 , compared to $200.3 million for the three months ended March 31, 2010 , an increase of $83.4 million or 41.6% . This increase was primarily attributable to increases in retail motor fuel sales volumes and merchandise sales.


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Direct Operating Expenses


Consolidated . Direct operating expenses were $56.9 million for the three months ended March 31, 2011 , compared to $61.4 million for the three months ended March 31, 2010 , a decrease of $4.5 million or 7.3% .


Refining and Unbranded Marketing Segment. Direct operating expenses for our refining and unbranded marketing segment for the three months ended March 31, 2011 , were $46.9 million , compared to $50.4 million for the three months ended March 31, 2010 , a decrease of $3.5 million or 6.9% . This decrease was primarily due to decreases in the cost of natural gas offset by costs associated with the integration of the Bakersfield refinery.


Asphalt Segment. Direct operating expenses for our asphalt segment for the three months ended March 31, 2011 , were $10.0 million , compared to $11.1 million for the three months ended March 31, 2010 , a decrease of $1.1 million or 9.9% .  The decrease was due primarily to lower natural gas costs.


Selling, General and Administrative Expenses


Consolidated . SG&A expenses for the three months ended March 31, 2011 , were $34.3 million , compared to $31.8 million for the three months ended March 31, 2010 , an increase of $2.5 million or 7.9% primarily due to increased employee related costs for the three months ended March 31, 2011 .


Refining and Unbranded Marketing Segment . SG&A expenses for our refining and unbranded marketing segment for the three months ended March 31, 2011 , were $7.7 million , compared to $6.4 million for the three months ended March 31, 2010 , an increase of $1.3 million or 20.3% .  The increase is primarily due to increased employee related costs for the three months ended March 31, 2011 .


Asphalt Segment . SG&A expenses for our asphalt segment for the three months ended March 31, 2011 , were $1.4 million , compared to $1.1 million for the three months ended March 31, 2010 an increase of $0.3 million , or 27.3% . This increase is due to increased employee related costs for the three months ended March 31, 2011 .


Retail and Branded Marketing Segment . SG&A expenses for our retail and branded marketing segment for the three months ended March 31, 2011 were $25.0 million , compared to $24.2 million for the three months ended March 31, 2010 , an increase of $0.8 million or 3.3% . The increase was primarily attributable to increased employee related costs for the three months ended March 31, 2011 .


Depreciation and Amortization


Depreciation and amortization for the three months ended March 31, 2011 , was $25.4 million , compared to $26.3 million for the three months ended March 31, 2010 , a decrease of $0.9 million or 3.4% .


Operating Income (Loss)


Consolidated . Operating income for the three months ended March 31, 2011 , was $73.3 million , compared to an operating loss of $(79.0) million for the three months ended March 31, 2010 , an increase of $152.3 million . This increase was primarily due to higher refinery margins and throughput, higher retail fuel sales volumes and margins and increased merchandise sales margins.


Refining and Unbranded Marketing Segment . Operating income for our refining and unbranded marketing segment was $79.3 million for the three months ended March 31, 2011 , compared to an operating loss of $(58.5) million for the three months ended March 31, 2010 , an increase of $137.8 million . This increase was primarily due to higher refinery operating margins and increased refinery throughput.


Refinery operating margin at the Big Spring refinery was $19.50 per barrel for the three months ended March 31, 2011 , compared to $4.91 per barrel for the three months ended March 31, 2010 . The average Gulf Coast 3/2/1 crack spread increased 155.1% to $18.09 per barrel for the three months ended March 31, 2011 , compared to $7.09 per barrel for the three months ended March 31, 2010 . Refinery operating margin at the California refineries was $(0.42) per barrel for the three months ended March 31, 2010 . The California refineries were shut down most of the first quarter to expedite the integration of the Bakersfield hydrocracker into the California operations.  The West Coast 3/2/1 average crack spreads increased 143.0% to $24.59 per barrel for the three months ended March 31, 2011 , compared to $10.12 per barrel for the three months ended March 31, 2010 . The Krotz Springs refinery operating margin for the three months ended March 31, 2011 , was $5.06 per barrel.  The Krotz Springs refinery was shut down for the three months ended March 31, 2010 for turnaround and capital projects work.


The increases in refining margins at our Big Spring refinery was in part due to improvements in the sweet/sour differential. The sweet/sour differential increased 118.1% to $4.10 per barrel for the three months ended March 31, 2011 , compared to $1.88 per barrel for the three months ended March 31, 2010 .  The refining margins at our Krotz Springs refinery were affected by a widening of the LLS to WTI spread.  The LLS to WTI spread increased $11.84 per barrel to $13.05 per


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barrel for the three months ended March 31, 2011 , compared to $1.21 for the three months ended March 31, 2010 .


Asphalt Segment. Operating loss for our asphalt segment was $9.6 million for the three months ended March 31, 2011 , compared to $18.2 million for the three months ended March 31, 2010 , a decrease in loss of $8.6 million . The decrease was primarily due to higher sales volumes for the three months ended March 31, 2011 .


Retail and Branded Marketing Segment. Operating income (loss) for our retail and branded marketing segment was $4.2 million for the three months ended March 31, 2011 , compared to $(1.9) million for the three months ended March 31, 2010 , an increase of $6.1 million . This increase was primarily due to higher retail fuel sales volumes and margins increased  and higher merchandise sales and margins.


Interest Expense


Interest expense was $20.4 million for the three months ended March 31, 2011 , compared to $26.6 million for the three months ended March 31, 2010 , a decrease of $6.2 million , or 23.3% . The decrease was due primarily a charge of $6.7 million for the write-off of debt issuance costs associated with our prepayment of the Alon Refining Krotz Springs, Inc. revolving credit facility in the three months ended March 31, 2010 .


Income Tax Expense (Benefit)


Income tax expense was $7.5 million for the three months ended March 31, 2011 , compared to income tax benefit of $(34.7) million for the three months ended March 31, 2010 . The increase resulted from our higher pre-tax income in the first quarter of 2011 , compared to the first quarter of 2010 , and a decrease in the effective tax rate. Our effective tax rate was 36.1% for the first quarter of 2011 , compared to an effective tax rate of 38.0% for the first quarter of 2010 .


Non-Controlling Interest In Income (Loss) Of Subsidiaries


Non-controlling interest in income (loss) of subsidiaries represents the proportional share of net loss related to non-voting common stock owned by non-controlling interests in two of our subsidiaries, Alon Assets, Inc. and Alon USA Operating, Inc. Non-controlling interest in income (loss) of subsidiaries was $0.2 million for the three months ended March 31, 2011 , compared to $(3.8) million for the three months ended March 31, 2010 , an increase of $4.0 million or 105.3% .


Net Income (Loss) Available to Common Stockholders


Net income (loss) available to common stockholders was $13.1 million for the three months ended March 31, 2011 , compared to $(52.9) million for the three months ended March 31, 2010 , an increase of $66.0 million or 124.8% . This increase was attributable to the factors discussed above.





Liquidity and Capital Resources


Our primary sources of liquidity are cash on hand, cash generated from our operating activities, borrowings under our revolving credit facilities and other credit lines and advances from affiliates.


We believe that the aforementioned sources of funds and other sources of capital available to us will be sufficient to satisfy the anticipated cash requirements associated with our business during the next 12 months. Our ability to generate sufficient cash from our operating activities depends on our future performance, which may be impacted by general economic, political, financial, competitive and other factors beyond our control.


Depending upon conditions in the capital markets and other factors, we will from time to time consider the issuance of debt or equity securities, or other possible capital markets transactions, the proceeds of which could be used to refinance current indebtedness, extend or replace existing revolving credit facilities or for other corporate purposes.


In January 2011, we completed a Standby Equity Distribution Agreement with YA Global Master SPV, Ltd. ("YA Global") to purchase up to $25.0 million of our common stock over a two-year period.  During the first quarter of 2011, we sold $10.1 million of common stock.


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Cash Flows


The following table sets forth our consolidated cash flows for the three months ended  March 31, 2011 , and 2010 :


For the Three Months EndedMarch 31,20112010(dollars in thousands)Cash provided by (used in):Operating activities$24,381$(40,979)Investing activities(25,022)(6,331)Financing activities48,39914,433Net increase (decrease) in cash and cash equivalents$47,758$(32,877)


Cash Flows Provided By (Used In) Operating Activities


Net cash provided by (used in) operating activities during the three months ended  March 31, 2011 , was $24.4 million , compared to $(41.0) million during the three months ended  March 31, 2010 . The change in cash provided by operating activities of $65.4 million is primarily attributable to the difference of approximately $102.8 million in net income, adjusted for non-cash adjustments offset by income tax refunds received of $34.7 million in 2010 .


Cash Flows Used In Investing Activities


Net cash used in investing activities was $25.0 million during the three months ended  March 31, 2011 , compared to $6.3 million during the three months ended  March 31, 2010 . The change in net cash used in investing activities of $18.7 million was principally due to the proceeds received from the sale of securities of $22.8 million in 2010 .


Cash Flows Provided by Financing Activities


Net cash provided by financing activities was $48.4 million during the three months ended  March 31, 2011 , compared to $14.4 million during the three months ended  March 31, 2010 . The net change in cash provided by financing activities of $34.0 million is primarily attributable to additions to long-term financing of $30.0 million through the Alon Brands Term Loans and sales of stock to YA Global partially offset by payments on other indebtedness.


Indebtedness


Retail Credit Facility


Alon Brands Term Loans .  In March 2011, Alon Brands issued $30.0 million five-year unsecured notes (the "Alon Brands Term Loans") to a group of investors including certain shareholders of Alon Israel and their affiliates.  The notes will mature in March 2016.  The group of investors have the right to request that principal payments of the loan will be paid in four equal, consecutive annual payments, starting in March 2013.  Otherwise, the principal amount will be paid at the maturity date in March 2016.


Borrowings under the Alon Brands Term Loans bear interest at a rate of 7% per annum, payable on a semi-annual basis, provided that the interest rate will increase to 9% per annum solely with respect to the portion of the loan equal to the unexercised portion of the warrants described below.


The Alon Brands Term Loans contain certain restrictive covenants, including maintenance financial covenants.


In conjunction with the issuance of the notes, we issued 3,092,783 warrants to purchase shares of Alon USA Energy, Inc. common stock at an initial exercise price per share of $9.70.  The warrants are exercisable in whole or in part until March 2016, five years from the date of issuance.


At March 31, 2011 , the Alon Brands Term Loans had an outstanding balance of $19.0 million (net of unamortized discount).  We are utilizing the effective interest method to amortize the discount over the life of facility.


Capital Spending


Each year our Board of Directors approves capital projects, including regulatory and planned turnaround projects that our management is authorized to undertake in our annual capital budget. Additionally, at times when conditions warrant or as new opportunities arise, other projects or the expansion of existing projects may be approved. Our total capital expenditure and turnaround/chemical catalyst budget for 2011 is $108.9 million , of which $58.0 million is substantially related to the


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Bakersfield hydrocracker project, $40.6 million is related to sustaining and regulatory compliance projects, and $10.3 million is related to turnaround and chemical catalyst.  Approximately $25.3 million has been spent as of March 31, 2011 .





Contractual Obligations and Commercial Commitments


There have been no material changes outside the ordinary course of business from our contractual obligations and commercial commitments detailed in our Annual Report on Form 10-K for the year ended December 31, 2010 .





Off-Balance Sheet Arrangements


We have no material off-balance sheet arrangements.





Critical Accounting Policies


We prepare our consolidated financial statements in conformity with GAAP. In order to apply these principles, we must make judgments, assumptions and estimates based on the best available information at the time. Actual results may differ based on the accuracy of the information utilized and subsequent events, some of which we may have little or no control over.


Our critical accounting policies are described under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies” in our Annual Report on Form 10-K for the year ended December 31, 2010 . Certain critical accounting policies that materially affect the amounts recorded in our consolidated financial statements are the use of the LIFO method for valuing certain inventories and the deferral and subsequent amortization of costs associated with major turnarounds and chemical catalysts replacements. No significant changes to these accounting policies have occurred subsequent to December 31, 2010 .





New Accounting Standards and Disclosures


New accounting standards if any are disclosed in Note (1) Basis of Presentation included in the consolidated financial statements included in Item 1 of this report.


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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


Changes in commodity prices, purchased fuel prices and interest rates are our primary sources of market risk. Our risk management committee oversees all activities associated with the identification, assessment and management of our market risk exposure.


Commodity Price Risk


We are exposed to market risks related to the volatility of crude oil and refined product prices, as well as volatility in the price of natural gas used in our refinery operations. Our financial results can be affected significantly by fluctuations in these prices, which depend on many factors, including demand for crude oil, gasoline and other refined products, changes in the economy, worldwide production levels, worldwide inventory levels and governmental regulatory initiatives. Our risk management strategy identifies circumstances in which we may utilize the commodity futures market to manage risk associated with these price fluctuations.


In order to manage the uncertainty relating to inventory price volatility, we have consistently applied a policy of maintaining inventories at or below a targeted operating level. In the past, circumstances have occurred, such as timing of crude oil cargo deliveries, turnaround schedules or shifts in market demand that have resulted in variances between our actual inventory level and our desired target level. Upon the review and approval of our risk management committee, we may utilize the commodity futures market to manage these anticipated inventory variances.


We maintain inventories of crude oil, refined products, asphalt and blendstocks, the values of which are subject to wide fluctuations in market prices driven by world economic conditions, regional and global inventory levels and seasonal conditions. As of March 31, 2011 , we held approximately 2.0 million barrels of crude oil, refined product and asphalt inventories valued under the LIFO valuation method with an average cost of $49.85 per barrel. Market value exceeded carrying value of LIFO costs by $110.4 million . We refer to this excess as our LIFO reserve. If the market value of these inventories had been $1.00 per barrel lower, our LIFO reserve would have been reduced by $2.0 million .


In accordance with fair value provisions of ASC 825-10, all commodity futures contracts are recorded at fair value and any changes in fair value between periods is recorded in the profit and loss section of our consolidated financial statements. “Forwards” represent physical trades for which pricing and quantities have been set, but the physical product delivery has not occurred by the end of the reporting period. “Futures” represent trades which have been executed on the New York Mercantile Exchange which have not been closed or settled at the end of the reporting period. A “long” represents an obligation to purchase product and a “short” represents an obligation to sell product.


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The following table provides information about our derivative commodity instruments as of March 31, 2011 :


DescriptionContractWtd Avg PurchaseWtd Avg SalesContractMarketGainof ActivityVolumePrice/BBLPrice/BBLValueValue(Loss)(in thousands)Forwards-long (Crude)139,400116.31—$16,213$16,733$520Forwards-short (Crude)(75,921)—102.98(7,818)(8,102)(283)Forwards-long (Gasoline)143,103123.81—17,71818,382664Forwards-short (Gasoline)(300,012)—123.44(37,033)(37,683)(649)Forwards-long (Distillate)221,947125.82—27,92628,609683Forwards-short (Distillate)(8,960)—132.23(1,185)(1,209)(24)Forwards-long (Jet)6,818133.86—91392613Forwards-short (Jet)(127,282)—131.66(16,758)(16,965)(207)Forwards-long (Slurry)16,78689.52—1,5031,54239Forwards-short (Slurry)(3,000)—94.52(284)(291)(7)Forwards-long (Catfeed)33,090121.90—4,0344,168134Forwards-short (Catfeed)(67,016)—121.90(8,170)(8,442)(272)Forwards-long (Slop)5,03592.98—46848719Forwards-short (Slop)(16,669)—93.39(1,557)(1,612)(55)Forwards-long (Propane)4,39055.88—245239(6)Forwards-short (Asphalt)(71,619)—80.40(5,758)(5,907)(148)Futures-long (Crude)40,000104.55—4,1824,26987Futures-short (Crude)(210,000)—106.78(22,204)(22,424)(220)Futures-long (Gasoline)287,000127.49—36,59037,460870Futures-short (Gasoline)(152,000)—130.52(19,195)(19,840)(645)Futures-long (Distillate)47,000129.70—6,0966,14448DescriptionContractWtd Avg ContractWtd Avg MarketContractMarketGainof ActivityVolumeSpreadSpreadValueValue(Loss)(in thousands)Futures-swaps (Heating Oil)182,00011.43(2.60)$2,079$(474)$(2,553)Futures-call options (Heating Oil)(2,513,500)13.5125.34(33,963)(63,696)(29,733)


Interest Rate Risk


As of March 31, 2011 , $619.7 million of our outstanding debt was at floating interest rates out of which approximately $164.0 million was at the Eurodollar rate plus 3.00% , subject to a minimum interest rate of 4.0% . As of March 31, 2011 , we had an interest rate swap agreement with a notional amount of $100.0 million with a remaining period of 21 months and a fixed interest rate of 4.25% . An increase of 1% in the Eurodollar rate on indebtedness, net of the interest rate swap agreement outstanding in 2011 and the instrument subject to the minimum interest rate, would result in an increase in our interest expense of approximately $4.6 million per year.





ITEM 4. CONTROLS AND PROCEDURES


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|(1) | Evaluation of disclosure controls and procedures.

Our management has evaluated, with the participation of our principal executive and principal financial officers, the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report, and has concluded that our disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms including, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the


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Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosures.


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

There has been no change in our internal control over financial reporting (as described in Rule 13a-15(f) under the Exchange Act) that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.





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PART II. OTHER INFORMATION





ITEM 6. EXHIBITS





ExhibitNumberDescription of Exhibit3.1Amended 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).3.2Amended 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).4.1Specimen 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).4.2Indenture, dated as of October 22, 2009, by and among Alon Refining Krotz Springs, Inc. and Wilmington Trust FSB, as Trustee (incorporated by reference to Exhibit 4.1 to Form 8-K, filed by the Company on October 23, 2009, SEC File No. 001-32567).4.3Form of Certificate of Designation of the 8.50% Series A Convertible Preferred Stock (incorporated by reference to Exhibit 4.3 to Form 10-Q, filed by the Company on November 9, 2010, SEC File No. 001-32567).4.4Specimen 8.50% Series A Convertible Preferred Stock Certificate (incorporated by reference to Exhibit 4.4 to Form 10-Q, filed by the Company on November 9, 2010, SEC File No. 001-32567).10.1Amended and Restated Supply and Offtake Agreement by and between Alon USA, LP  and J. Aron & Company, dated March 1, 2011.10.2First Amendment to the Supply and Offtake Agreement, dated January 20, 2011, by and between Alon Refining Krotz Springs, Inc. and J. Aron & Company.10.3Amended and Restated Second Amendment to the Supply and Offtake Agreement, dated March 1, 2011, by and between Alon Refining Krotz Springs, Inc. and J. Aron & Company.31.1Certifications of Chief Executive Officer pursuant to §302 of the Sarbanes-Oxley Act of 2002.31.2Certifications of Chief Financial Officer pursuant to §302 of the Sarbanes-Oxley Act of 2002.32.1Certifications 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.





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SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


Alon USA Energy, Inc.Date:May 9, 2011By:/s/ David WiessmanDavid WiessmanExecutive ChairmanDate:May 9, 2011By:/s/ Paul EismanPaul EismanChief Executive OfficerDate:May 9, 2011By:/s/ Shai EvenShai EvenChief Financial Officer


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EXHIBITS





ExhibitNumberDescription of Exhibit3.1Amended 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).3.2Amended 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).4.1Specimen 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).4.2Indenture, dated as of October 22, 2009, by and among Alon Refining Krotz Springs, Inc. and Wilmington Trust FSB, as Trustee (incorporated by reference to Exhibit 4.1 to Form 8-K, filed by the Company on October 23, 2009, SEC File No. 001-32567).4.3Form of Certificate of Designation of the 8.50% Series A Convertible Preferred Stock (incorporated by reference to Exhibit 4.3 to Form 10-Q, filed by the Company on November 9, 2010, SEC File No. 001-32567).4.4Specimen 8.50% Series A Convertible Preferred Stock Certificate (incorporated by reference to Exhibit 4.4 to Form 10-Q, filed by the Company on November 9, 2010, SEC File No. 001-32567).10.1Amended and Restated Supply and Offtake Agreement by and between Alon USA, LP  and J. Aron & Company, dated March 1, 2011.10.2First Amendment to the Supply and Offtake Agreement, dated January 20, 2011, by and between Alon Refining Krotz Springs, Inc. and J. Aron & Company.10.3Amended and Restated Second Amendment to the Supply and Offtake Agreement, dated March 1, 2011, by and between Alon Refining Krotz Springs, Inc. and J. Aron & Company.31.1Certifications of Chief Executive Officer pursuant to §302 of the Sarbanes-Oxley Act of 2002.31.2Certifications of Chief Financial Officer pursuant to §302 of the Sarbanes-Oxley Act of 2002.32.1Certifications 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.





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