##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 Form 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2010
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 FOR THE TRANSITION PERIOD FROM  TO
 Commission file number: 001-32567
 
 Alon USA Energy, Inc.
 (Exact name of Registrant as specified in its charter)
 
 Delaware
    
    74-2966572(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 (Address of principal executive offices) (Zip Code)
 (Registrants telephone number, including area code)
 
 þ o
  o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



PART I. FINANCIAL INFORMATION
    
    
    1ITEM 1. FINANCIAL STATEMENTS
    
    
    1CONSOLIDATED BALANCE SHEETS
    
    
    1CONSOLIDATED STATEMENTS OF OPERATIONS
    
    
    2CONSOLIDATED STATEMENTS OF CASH FLOWS
    
    
    3NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    
    
    4ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    24FORWARD-LOOKING STATEMENTS
    
    
    24ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    51ITEM 4. CONTROLS AND PROCEDURES
    
    
    52PART II. OTHER INFORMATION
    
    
    53ITEM 6. EXHIBITS
    
    
    53SIGNATURES
    
    
    54EXHIBITS
    
    
    55EX-4.3 FORM OF CERTIFICATE OF DESIGNATION OF THE 8.50% SERIES A CONVERTIBLE PREFERRED STOCKEX-4.4 SPECIMEN 8.50% SERIES A CONVERTIBLE PREFERRED STOCK CERTIFICATEEX-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
 
 ITEM 1. FINANCIAL STATEMENTS
 ALON USA ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(dollars in thousands except per share data)
 September 30,
    
    
    December 31,2010
    
    
    2009(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    39,635
    
    
    $
    40,437Accounts and other receivables, net
    
    
    125,095
    
    
    
    103,094Income tax receivable
    
    
    18,128
    
    
    
    65,418Inventories
    
    
    197,699
    
    
    
    214,999Deferred income tax asset
    
    
    71,296
    
    
    
    7,700Prepaid expenses and other current assets
    
    
    14,262
    
    
    
    4,188Total current assets
    
    
    466,115
    
    
    
    435,836Equity method investments
    
    
    22,520
    
    
    
    43,052Property, plant, and equipment, net
    
    
    1,484,004
    
    
    
    1,477,426Goodwill
    
    
    105,943
    
    
    
    105,943Other assets
    
    
    96,982
    
    
    
    70,532Total assets
    
    $
    2,175,564
    
    
    $
    2,132,789LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    332,748
    
    
    $
    248,253Accrued liabilities
    
    
    86,828
    
    
    
    92,380Short-term debt and current portion of long-term debt
    
    
    40,946
    
    
    
    10,946Total current liabilities
    
    
    460,522
    
    
    
    351,579Other non-current liabilities
    
    
    138,375
    
    
    
    95,076Long-term debt
    
    
    912,577
    
    
    
    926,078Deferred income tax liability
    
    
    332,626
    
    
    
    328,138Total liabilities
    
    
    1,844,100
    
    
    
    1,700,871Commitments and contingencies (Note 17)Stockholders equity:Preferred stock, par value $0.01, 10,000,000 shares
authorized; no shares issued and outstanding
    
    
    
    
    
    
    Common stock, par value $0.01, 100,000,000 shares
authorized; 54,181,329 and 54,170,913 shares issued
and outstanding at September 30, 2010, and December
31, 2009, respectively
    
    
    542
    
    
    
    542Additional paid-in capital
    
    
    290,447
    
    
    
    289,853Accumulated other comprehensive loss, net of income tax
    
    
    (25,285
    )
    
    
    (32,871
    )Retained earnings
    
    
    60,962
    
    
    
    165,248Total stockholders equity
    
    
    326,666
    
    
    
    422,772Non-controlling interest in subsidiaries
    
    
    4,798
    
    
    
    9,146Total equity
    
    
    331,464
    
    
    
    431,918Total liabilities and equity
    
    $
    2,175,564
    
    
    $
    2,132,789
  1




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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 Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Net sales (1)
    
    $
    1,248,569
    
    
    $
    1,253,113
    
    
    $
    2,668,243
    
    
    $
    3,081,691Operating costs and expenses:Cost of sales
    
    
    1,153,743
    
    
    
    1,165,295
    
    
    
    2,443,533
    
    
    
    2,693,343Direct operating expenses
    
    
    68,448
    
    
    
    64,091
    
    
    
    192,816
    
    
    
    204,300Selling, general and administrative expenses
    
    
    35,012
    
    
    
    32,276
    
    
    
    96,001
    
    
    
    95,772Depreciation and amortization
    
    
    26,781
    
    
    
    25,247
    
    
    
    78,471
    
    
    
    70,898Total operating costs and expenses
    
    
    1,283,984
    
    
    
    1,286,909
    
    
    
    2,810,821
    
    
    
    3,064,313Gain (loss) on disposition of assets
    
    
    
    
    
    
    (547
    )
    
    
    474
    
    
    
    (2,147
    )Operating income (loss)
    
    
    (35,415
    )
    
    
    (34,343
    )
    
    
    (142,104
    )
    
    
    15,231Interest expense
    
    
    (24,091
    )
    
    
    (21,460
    )
    
    
    (72,411
    )
    
    
    (70,739
    )Equity earnings of investees
    
    
    3,864
    
    
    
    12,811
    
    
    
    4,970
    
    
    
    21,184Gain on bargain purchase
    
    
    17,480
    
    
    
    
    
    
    
    17,480
    
    
    
    Other income (loss), net
    
    
    (494
    )
    
    
    (180
    )
    
    
    13,345
    
    
    
    268Loss before income tax benefit, non-controlling interest
in loss of subsidiaries and accumulated dividends on
preferred stock of subsidiary
    
    
    (38,656
    )
    
    
    (43,172
    )
    
    
    (178,720
    )
    
    
    (34,056
    )Income tax benefit
    
    
    (21,905
    )
    
    
    (16,452
    )
    
    
    (73,711
    )
    
    
    (13,006
    )Loss before non-controlling interest in loss of
subsidiaries and accumulated dividends on preferred stock
of subsidiary
    
    
    (16,751
    )
    
    
    (26,720
    )
    
    
    (105,009
    )
    
    
    (21,050
    )Non-controlling interest in loss of subsidiaries
    
    
    (1,167
    )
    
    
    (2,312
    )
    
    
    (7,224
    )
    
    
    (2,953
    )Accumulated dividends on preferred stock of subsidiary
    
    
    
    
    
    
    2,150
    
    
    
    
    
    
    
    6,450Net loss available to common stockholders
    
    $
    (15,584
    )
    
    $
    (26,558
    )
    
    $
    (97,785
    )
    
    $
    (24,547
    )Loss per share, basic
    
    $
    (0.29
    )
    
    $
    (0.57
    )
    
    $
    (1.80
    )
    
    $
    (0.52
    )Weighted average shares outstanding, basic (in thousands)
    
    
    54,181
    
    
    
    46,810
    
    
    
    54,177
    
    
    
    46,808Loss per share, diluted
    
    $
    (0.29
    )
    
    $
    (0.57
    )
    
    $
    (1.80
    )
    
    $
    (0.52
    )Weighted average shares outstanding, diluted (in thousands)
    
    
    54,181
    
    
    
    46,810
    
    
    
    54,177
    
    
    
    46,808Cash dividends per share
    
    $
    0.04
    
    
    $
    0.04
    
    
    $
    0.12
    
    
    $
    0.12
 
 (1)
    
    Includes excise taxes on sales by the retail segment of $14,204 and $12,073 for the three
months and $40,521 and $34,887 for the nine months ended September 30, 2010, and 2009,
respectively.  2




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##### Table of Contents



ALON USA ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, dollars in thousands)
 For the Nine Months EndedSeptember 30,2010
    
    
    2009Cash flows from operating activities:Net loss available to common stockholders
    
    $
    (97,785
    )
    
    $
    (24,547
    )Adjustments to reconcile net loss available to common stockholders to
cash provided by (used in) operating activities:Depreciation and amortization
    
    
    78,471
    
    
    
    70,898Stock compensation
    
    
    446
    
    
    
    533Deferred income tax expense
    
    
    (73,715
    )
    
    
    (14,575
    )Non-controlling interest in loss of subsidiaries
    
    
    (7,224
    )
    
    
    (2,953
    )Equity earnings of investees (net of dividends)
    
    
    (2,614
    )
    
    
    (13,788
    )Accumulated dividends on preferred stock of subsidiary
    
    
    
    
    
    
    6,450Amortization of debt issuance costs
    
    
    4,475
    
    
    
    5,689Amortization of original issuance discount
    
    
    1,235
    
    
    
    Write-off of unamortized debt issuance costs
    
    
    6,659
    
    
    
    Bargain purchase gain
    
    
    (17,480
    )
    
    
    (Gain) loss on disposition of assets
    
    
    (474
    )
    
    
    2,147Changes in operating assets and liabilities, net of acquisition effects:Accounts and other receivables, net
    
    
    (22,001
    )
    
    
    (8,399
    )Income tax receivable
    
    
    47,290
    
    
    
    103,032Inventories
    
    
    34,644
    
    
    
    (48,072
    )Heating oil crack spread hedge
    
    
    
    
    
    
    117,485Prepaid expenses and other current assets
    
    
    (3,943
    )
    
    
    192Other assets
    
    
    (30,461
    )
    
    
    5,506Accounts payable
    
    
    36,480
    
    
    
    161,370Accrued liabilities
    
    
    12,989
    
    
    
    (27,604
    )Other non-current liabilities
    
    
    (4,267
    )
    
    
    (8,232
    )Net cash provided by (used in) operating activities
    
    
    (37,275
    )
    
    
    325,132Cash flows from investing activities:Capital expenditures
    
    
    (20,526
    )
    
    
    (52,132
    )Capital expenditures to rebuild the Big Spring refinery
    
    
    
    
    
    
    (45,072
    )Capital expenditures for turnarounds and catalysts
    
    
    (12,668
    )
    
    
    (13,005
    )Proceeds from insurance to rebuild Big Spring refinery
    
    
    
    
    
    
    34,125Proceeds from sale of securities
    
    
    36,852
    
    
    
    Proceeds from sale of assets
    
    
    20,095
    
    
    
    Acquisition of Bakersfield refinery
    
    
    (32,409
    )
    
    
    Earnout payment related to Krotz Springs refinery acquisition
    
    
    (6,562
    )
    
    
    (17,521
    )Net cash used in investing activities
    
    
    (15,218
    )
    
    
    (93,605
    )Cash flows from financing activities:Dividends paid to stockholders
    
    
    (6,501
    )
    
    
    (5,617
    )Dividends paid to non-controlling interest
    
    
    (429
    )
    
    
    (576
    )Inventory supply agreement
    
    
    45,807
    
    
    
    Deferred debt issuance costs
    
    
    (2,450
    )
    
    
    (7,238
    )Revolving credit facilities, net
    
    
    (6,527
    )
    
    
    (123,029
    )Payments on long-term debt
    
    
    (8,209
    )
    
    
    (95,443
    )Additions to short-term debt
    
    
    76,500
    
    
    
    Payments on short-term debt
    
    
    (46,500
    )
    
    
    Net cash provided by (used in) financing activities
    
    
    51,691
    
    
    
    (231,903
    )Net decrease in cash and cash equivalents
    
    
    (802
    )
    
    
    (376
    )Cash and cash equivalents, beginning of period
    
    
    40,437
    
    
    
    18,454Cash and cash equivalents, end of period
    
    $
    39,635
    
    
    $
    18,078Supplemental cash flow information:Cash paid for interest
    
    $
    53,717
    
    
    $
    67,968Cash paid (refunds received) for income tax
    
    $
    (46,748
    )
    
    $
    (106,281
    )Non-cash activities:Financing activity  payments on long-term
debt from deposit held to secure heating
oil crack spread hedge
    
    $
    
    
    
    $
    (50,000
    )
  3




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ALON USA ENERGY, INC. AND SUBSIDIARIES  
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (unaudited, dollars in thousands except as noted)
 (1) Basis of Presentation and Certain Significant Accounting Policies
 (a) Basis of Presentation
   (b) Revenue Recognition
   (c) New Accounting Standards
 Subsequent Event (Topic 855) Subsequent Events
 Improving Disclosures about Fair Value Fair Value Measurements and Disclosure
 (d) Reclassifications
  4




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ALON USA ENERGY, INC. AND SUBSIDIARIES  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(unaudited, dollars in thousands except as noted)
 (2) Bakersfield Refinery Acquisition
      Current assets
    
    $
    17,033Other assets
    
    
    17,122Property, plant and equipment
    
    
    69,403Other non-current liabilities
    
    
    (53,669
    )Net assets acquired
    
    
    49,889Less: Gain on bargain purchase
    
    
    (17,480
    )Total consideration
    
    $
    32,409
   (3) Segment Data
  5




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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)
 (a) Refining and Unbranded Marketing Segment
  (b) Asphalt Segment
  (c) Retail and Branded Marketing Segment
  (d) Corporate
   Refining and
    
    
    
    
    
    Retail and Branded
    
    
    
    
    
    ConsolidatedUnbranded Marketing
    
    Asphalt
    
    Marketing
    
    Corporate
    
    TotalThree Months ended September 30, 2010Net sales to external customers
    
    $
    830,478
    
    
    $
    144,610
    
    
    $
    273,481
    
    
    $
    
    
    
    $
    1,248,569Intersegment sales/purchases
    
    
    226,000
    
    
    
    (55,052
    )
    
    
    (170,948
    )
    
    
    
    
    
    
    Depreciation and amortization
    
    
    21,315
    
    
    
    1,716
    
    
    
    3,353
    
    
    
    397
    
    
    
    26,781Operating income (loss)
    
    
    (52,601
    )
    
    
    8,962
    
    
    
    8,809
    
    
    
    (585
    )
    
    
    (35,415
    )Total assets
    
    
    1,818,774
    
    
    
    153,104
    
    
    
    184,694
    
    
    
    18,992
    
    
    
    2,175,564Turnaround, chemical catalyst, capital
expenditures and capital expenditures to
rebuild the Big Spring refinery
    
    
    5,844
    
    
    
    465
    
    
    
    1,322
    
    
    
    1,344
    
    
    
    8,975
 6




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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)
 Refining and
    
    
    
    
    
    Retail and Branded
    
    
    
    
    
    ConsolidatedUnbranded Marketing
    
    Asphalt
    
    Marketing
    
    Corporate
    
    TotalThree Months ended September 30, 2009Net sales to external customers
    
    $
    860,692
    
    
    $
    175,189
    
    
    $
    217,232
    
    
    $
    
    
    
    $
    1,253,113Intersegment sales/purchases
    
    
    197,825
    
    
    
    (73,800
    )
    
    
    (124,025
    )
    
    
    
    
    
    
    Depreciation and amortization
    
    
    19,943
    
    
    
    1,700
    
    
    
    3,399
    
    
    
    205
    
    
    
    25,247Operating income (loss)
    
    
    (57,780
    )
    
    
    19,666
    
    
    
    4,165
    
    
    
    (394
    )
    
    
    (34,343
    )Total assets
    
    
    1,742,871
    
    
    
    251,382
    
    
    
    193,850
    
    
    
    17,163
    
    
    
    2,205,266Turnaround, chemical catalyst, capital expenditures and capital expenditures to rebuild the Big Spring refinery
    
    
    28,341
    
    
    
    523
    
    
    
    751
    
    
    
    1,755
    
    
    
    31,370Refining and
    
    
    
    
    
    Retail and Branded
    
    
    
    
    
    ConsolidatedUnbranded Marketing
    
    Asphalt
    
    Marketing
    
    Corporate
    
    TotalNine Months ended September 30, 2010Net sales to external customers
    
    $
    1,598,064
    
    
    $
    316,715
    
    
    $
    753,464
    
    
    $
    
    
    
    $
    2,668,243Intersegment sales/purchases
    
    
    632,785
    
    
    
    (158,754
    )
    
    
    (474,031
    )
    
    
    
    
    
    
    Depreciation and amortization
    
    
    62,150
    
    
    
    5,148
    
    
    
    10,209
    
    
    
    964
    
    
    
    78,471Operating income (loss)
    
    
    (146,506
    )
    
    
    (8,754
    )
    
    
    14,684
    
    
    
    (1,528
    )
    
    
    (142,104
    )Total assets
    
    
    1,818,774
    
    
    
    153,104
    
    
    
    184,694
    
    
    
    18,992
    
    
    
    2,175,564Turnaround, chemical catalyst and capital expenditures
    
    
    27,902
    
    
    
    991
    
    
    
    2,149
    
    
    
    2,152
    
    
    
    33,194Refining and
    
    
    
    
    
    Retail and Branded
    
    
    
    
    
    ConsolidatedUnbranded Marketing
    
    Asphalt
    
    Marketing
    
    Corporate
    
    TotalNine Months ended September 30, 2009Net sales to external customers
    
    $
    2,139,099
    
    
    $
    351,429
    
    
    $
    591,163
    
    
    $
    
    
    
    $
    3,081,691Intersegment sales/purchases
    
    
    513,818
    
    
    
    (188,676
    )
    
    
    (325,142
    )
    
    
    
    
    
    
    Depreciation and amortization
    
    
    55,120
    
    
    
    5,099
    
    
    
    10,179
    
    
    
    500
    
    
    
    70,898Operating income (loss)
    
    
    6,386
    
    
    
    1,973
    
    
    
    7,941
    
    
    
    (1,069
    )
    
    
    15,231Total assets
    
    
    1,742,871
    
    
    
    251,382
    
    
    
    193,850
    
    
    
    17,163
    
    
    
    2,205,266Turnaround, chemical catalyst, capital expenditures and capital expenditures to rebuild the Big Spring refinery
    
    
    104,259
    
    
    
    1,099
    
    
    
    1,864
    
    
    
    2,987
    
    
    
    110,209
   (4) Cash and Cash Equivalents
  (5) Fair Value
   7




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ALON USA ENERGY, INC. AND SUBSIDIARIES  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(unaudited, dollars in thousands except as noted)
   Quoted Prices inActive Markets
    
    
    SignificantFor Identical
    
    
    Other
    
    
    SignificantAssets or
    
    
    Observable
    
    
    UnobservableLiabilities
    
    
    Inputs
    
    
    Inputs
    
    
    Consolidated(Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    TotalNine Months ended September 30, 2010Assets:Commodity contracts (futures and forwards)
    
    $
    531
    
    
    $
    
    
    
    $
    
    
    
    $
    531Liabilities:Commodity contracts (swaps)
    
    
    873
    
    
    
    633
    
    
    
    
    
    
    
    1,506Commodity contracts (call options)
    
    
    
    
    
    
    6,646
    
    
    
    
    
    
    
    6,646Interest rate swaps
    
    
    
    
    
    
    10,821
    
    
    
    
    
    
    
    10,821Year ended December 31, 2009Assets:Commodity contracts (futures and forwards)
    
    $
    322
    
    
    $
    
    
    
    $
    
    
    
    $
    322Commodity contracts (swaps)
    
    
    
    
    
    
    89
    
    
    
    
    
    
    
    89Liabilities:Commodity contracts (swaps)
    
    
    
    
    
    
    9,983
    
    
    
    
    
    
    
    9,983Interest rate swaps
    
    
    
    
    
    
    16,933
    
    
    
    
    
    
    
    16,933
 (6) Derivative Financial Instruments
 Commodity Derivatives  Mark to Market
      8




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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)
    Cash Flow Hedges
  Interest Rate Derivatives.
   Commodity Derivatives.
  9




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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)
   As of September 30, 2010Asset Derivatives
    
    
    Liability DerivativesBalance Sheet
    
    
    
    
    
    
    Balance SheetLocation
    
    
    Fair Value
    
    
    Location
    
    
    Fair ValueDerivatives not designated as hedging instruments:Commodity contracts (swaps)
    
    
    
    
    
    $
    
    
    
    Accounts Payable
    
    $
    (633
    )Commodity contracts (futures, forwards, swaps and call options)
    
    
    
    
    
    
    
    
    
    Accrued liabilities
    
    
    (3,826
    )Commodity contracts (call options)
    
    
    
    
    
    
    
    
    
    Other non-current liabilities
    
    
    (3,162
    )Total derivatives not designated as hedging instruments
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    (7,621
    )Derivatives designated as hedging instruments:Interest rate swaps
    
    
    
    
    
    $
    
    
    
    Other non-current liabilities
    
    $
    (10,821
    )Total derivatives designated as hedging instruments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,821
    )Total derivatives
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    (18,442
    )As of December 31, 2009Asset Derivatives
    
    
    Liability DerivativesBalance Sheet
    
    
    
    
    
    
    Balance SheetLocation
    
    
    Fair Value
    
    
    Location
    
    
    Fair ValueDerivatives not designated as hedging instruments:Commodity contracts (futures, forwards and SPR swaps)
    
    Accounts receivable
    
    $
    411
    
    
    Accrued liabilities
    
    $
    (9,983
    )Total derivatives not designated as hedging instruments under ASC 815
    
    
    
    
    
    $
    411
    
    
    
    
    
    
    $
    (9,983
    )Derivatives designated as hedging instruments:Interest rate swaps
    
    
    
    
    
    $
    
    
    
    Other non-current liabilities
    
    $
    (16,933
    )Total derivatives designated as hedging instruments under ASC 815
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,933
    )Total derivatives
    
    
    
    
    
    $
    411
    
    
    
    
    
    
    $
    (26,916
    )
 10




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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)
  Gain (Loss) Reclassifiedfrom Accumulated OCI intoIncome (IneffectiveGain (Loss) Reclassified from
    
    
    Portion and AmountGain (Loss) Recognized
    
    
    Accumulated OCI into Income (Effective
    
    
    Excluded fromCash Flow Hedging Relationships
    
    in OCI
    
    
    Portion)
    
    
    Effectiveness Testing)Location
    
    
    Amount
    
    
    Location
    
    
    AmountFor the Three Months Ended September 30, 2010Commodity contracts (heating oil swaps)
    
    $
    
    
    
    Cost of sales
    
    $
    (2,825
    )
    
    
    
    
    
    $
    Interest rate swaps
    
    
    2,494
    
    
    Interest expense
    
    
    (3,693
    )
    
    
    
    
    
    
    Total derivatives
    
    $
    2,494
    
    
    
    
    
    
    $
    (6,518
    )
    
    
    
    
    
    $
    For the Nine Months Ended September 30, 2010Commodity contracts (heating oil swaps)
    
    $
    
    
    
    Cost of sales
    
    $
    (6,354
    )
    
    
    
    
    
    $
    Interest rate swaps
    
    
    6,112
    
    
    Interest expense
    
    
    (10,917
    )
    
    
    
    
    
    
    Total derivatives
    
    $
    6,112
    
    
    
    
    
    
    $
    (17,271
    )
    
    
    
    
    
    $
    Gain (Loss) Reclassifiedfrom Accumulated OCI intoIncome (IneffectiveGain (Loss) Reclassified from
    
    
    Portion and AmountGain (Loss) Recognized
    
    
    Accumulated OCI into Income
    
    
    Excluded fromCash Flow Hedging Relationships
    
    in OCI
    
    
    (Effective Portion)
    
    
    Effectiveness Testing)Location
    
    
    Amount
    
    
    Location
    
    
    AmountFor the Three Months Ended September 30, 2009Commodity contracts (heating oil swaps)
    
    $
    
    
    
    Cost of sales
    
    $
    433
    
    
    
    
    
    
    $
    Interest rate swaps
    
    
    622
    
    
    Interest expense
    
    
    (3,713
    )
    
    
    
    
    
    
    Total derivatives
    
    $
    622
    
    
    
    
    
    
    $
    (3,280
    )
    
    
    
    
    
    $
    For the Nine Months Ended September 30, 2009Commodity contracts (heating oil swaps)
    
    $
    
    
    
    Cost of sales
    
    $
    4,447
    
    
    
    
    
    
    $
    Interest rate swaps
    
    
    6,261
    
    
    Interest expense
    
    
    (10,716
    )
    
    
    
    
    
    
    Total derivatives
    
    $
    6,261
    
    
    
    
    
    
    $
    (6,269
    )
    
    
    
    
    
    $
    
 Derivatives not designated as hedging instruments:
 Gain (Loss) Recognized in IncomeLocation
    
    
    AmountFor the Three Months Ended September 30, 2010Commodity contracts (futures & forwards)
    
    Cost of sales
    
    $
    1,796Commodity contracts (heating oil swaps)
    
    Cost of sales
    
    
    (186
    )Commodity contracts (call options)
    
    Cost of sales
    
    
    60Commodity contracts (commodity swaps)
    
    Other income (loss), net
    
    
    (671
    )Total derivatives
    
    
    
    
    
    $
    999For the Nine Months Ended September 30, 2010Commodity contracts (futures & forwards)
    
    Cost of sales
    
    $
    3,536Commodity contracts (heating oil swaps)
    
    Cost of sales
    
    
    (501
    )Commodity contracts (commodity swaps)
    
    Other income (loss), net
    
    
    (873
    )Total derivatives
    
    
    
    
    
    $
    2,162
 11




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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)
 Gain (Loss) Recognized in IncomeLocation
    
    
    AmountFor the Three Months Ended September 30, 2009Commodity contracts (futures & forwards)
    
    Cost of sales
    
    $
    564Total derivatives
    
    
    
    
    
    $
    564For the Nine Months Ended September 30, 2009Commodity contracts (futures & forwards)
    
    Cost of sales
    
    $
    (13,927
    )Commodity contracts (heating oil swaps)
    
    Cost of sales
    
    
    41,182Commodity contracts (SPR swaps)
    
    Cost of sales
    
    
    174Total derivatives
    
    
    
    
    
    $
    27,429
 (7) Inventories
   September 30,
    
    
    December 31,2010
    
    
    2009Crude oil, refined products, asphalt and blendstocks
    
    $
    73,689
    
    
    $
    150,370Inventory consigned to others
    
    
    82,158
    
    
    
    22,558Materials and supplies
    
    
    18,743
    
    
    
    18,069Store merchandise
    
    
    18,250
    
    
    
    18,856Store fuel
    
    
    4,859
    
    
    
    5,146Total inventories
    
    $
    197,699
    
    
    $
    214,999
   (8) Property, Plant and Equipment, Net
  September 30,
    
    
    December 31,2010
    
    
    2009Refining facilities
    
    $
    1,607,192
    
    
    $
    1,535,841Pipelines and terminals
    
    
    39,213
    
    
    
    39,213Retail
    
    
    136,279
    
    
    
    137,150Other
    
    
    16,999
    
    
    
    16,747Property, plant and equipment, gross
    
    
    1,799,683
    
    
    
    1,728,951Less accumulated depreciation
    
    
    (315,679
    )
    
    
    (251,525
    )Property, plant and equipment, net
    
    $
    1,484,004
    
    
    $
    1,477,426
 12




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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)
 (9) Additional Financial Information
  (a) Other Assets
 September 30,
    
    
    December 31,2010
    
    
    2009Deferred turnaround and chemical catalyst cost
    
    $
    25,236
    
    
    $
    24,387Environmental receivables
    
    
    20,589
    
    
    
    3,448Deferred debt issuance costs
    
    
    17,138
    
    
    
    25,822Intangible assets
    
    
    8,005
    
    
    
    8,516Other
    
    
    26,014
    
    
    
    8,359Total other assets
    
    $
    96,982
    
    
    $
    70,532
   (b) Accrued Liabilities and Other Non-Current
Liabilities
 September 30,
    
    
    December 31,2010
    
    
    2009Accrued Liabilities:Taxes other than income taxes, primarily excise taxes
    
    $
    19,930
    
    
    $
    20,205Employee costs
    
    
    8,153
    
    
    
    6,716Commodity swaps
    
    
    3,826
    
    
    
    9,983Valero earnout liability
    
    
    8,750
    
    
    
    8,750Other
    
    
    46,169
    
    
    
    46,726Total accrued liabilities
    
    $
    86,828
    
    
    $
    92,380Other Non-Current Liabilities:Pension and other postemployment benefit liabilities, net
    
    $
    34,235
    
    
    $
    34,902Environmental accrual (Note 17)
    
    
    67,161
    
    
    
    27,350Asset retirement obligations
    
    
    10,097
    
    
    
    8,789Interest rate swap valuations
    
    
    10,821
    
    
    
    16,933Valero earnout liability
    
    
    
    
    
    
    6,562Commodity swaps
    
    
    3,162
    
    
    
    Other
    
    
    12,899
    
    
    
    540Total other non-current liabilities
    
    $
    138,375
    
    
    $
    95,076
 13




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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)
 (c) Comprehensive Loss
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Loss before non-controlling interest in loss
of subsidiaries and accumulated dividends on
preferred stock of subsidiary
    
    $
    (16,751
    )
    
    $
    (26,720
    )
    
    $
    (105,009
    )
    
    $
    (21,050
    )Other comprehensive gain, net of tax:Unrealized gain on cash flow hedges, net of tax
    
    
    3,401
    
    
    
    131
    
    
    
    7,976
    
    
    
    1,267Total other comprehensive income, net of tax
    
    
    3,401
    
    
    
    131
    
    
    
    7,976
    
    
    
    1,267Comprehensive loss
    
    
    (13,350
    )
    
    
    (26,589
    )
    
    
    (97,033
    )
    
    
    (19,783
    )Comprehensive loss attributable to
non-controlling interest (including
accumulated dividends on preferred shares of
subsidiary)
    
    
    (956
    )
    
    
    (153
    )
    
    
    (6,834
    )
    
    
    3,587Comprehensive loss attributable to common
stockholders
    
    $
    (12,394
    )
    
    $
    (26,436
    )
    
    $
    (90,199
    )
    
    $
    (23,370
    )
  September 30,
    
    
    December 31,2010
    
    
    2009Unrealized losses on cash flow hedges, net of tax
    
    $
    (8,309
    )
    
    $
    (15,895
    )Pension and post-employment benefits, net of tax
    
    
    (16,976
    )
    
    
    (16,976
    )Accumulated other comprehensive loss, net of tax
    
    $
    (25,285
    )
    
    $
    (32,871
    )
 (10) Postretirement Benefits
   For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Components of net periodic benefit cost:Service cost
    
    $
    1,018
    
    
    $
    837
    
    
    $
    3,055
    
    
    $
    2,510Interest cost
    
    
    946
    
    
    
    841
    
    
    
    2,837
    
    
    
    2,522Expected return on plan assets
    
    
    (904
    )
    
    
    (840
    )
    
    
    (2,715
    )
    
    
    (2,519
    )Amortization of net loss
    
    
    385
    
    
    
    262
    
    
    
    1,157
    
    
    
    788Net periodic benefit cost
    
    $
    1,445
    
    
    $
    1,100
    
    
    $
    4,334
    
    
    $
    3,301
 14




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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)
 (11) Indebtedness
  September 30,
    
    
    December 31,2010
    
    
    2009Term loan credit facility
    
    $
    430,875
    
    
    $
    434,250Revolving credit facilities
    
    
    210,050
    
    
    
    216,577Senior secured notes
    
    
    206,928
    
    
    
    205,693Short-term debt
    
    
    30,000
    
    
    
    Retail credit facilities
    
    
    75,670
    
    
    
    80,504Total debt
    
    
    953,523
    
    
    
    937,024Less short-term debt and current portion of long-term debt
    
    
    (40,946
    )
    
    
    (10,946
    )Total long-term debt
    
    $
    912,577
    
    
    $
    926,078
 (a) Alon USA Energy, Inc. Credit Facilities
 Term Loan Credit Facility
     Letter of Credit Facility.
  (b) Alon USA LP Credit Facility
 Revolving Credit Facility.
  15




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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)
    (c) Paramount Petroleum Corporation Credit Facility
 Revolving Credit Facility.
     (d) Alon Refining Krotz Springs, Inc. Credit Facilities
 Senior Secured Notes.
     16




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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)
   Short-Term Credit Facility.
   Revolving Credit Facility.
  (e) Retail Credit Facilities
 Term Credit Agreement.
     Other Retail Related Credit Facilities.
 (12) Stock-Based Compensation
  17




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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)
 (a) Amended and Restated 2005 Incentive Compensation Plan
(share value in
dollars)
  Restricted Stock
   WeightedAverageGrant DateFair ValuesNonvested Shares
    
    Shares
    
    
    (per share)Nonvested at January 1, 2009
    
    
    7,662
    
    
    $
    19.58Granted
    
    
    5,841
    
    
    
    12.84Vested
    
    
    (3,277
    )
    
    
    22.89Forfeited
    
    
    
    
    
    
    Nonvested at December 31, 2009
    
    
    10,226
    
    
    $
    14.67Granted
    
    
    10,416
    
    
    
    7.20Vested
    
    
    (4,473
    )
    
    
    16.77Forfeited
    
    
    
    
    
    
    Nonvested at September 30, 2010
    
    
    16,169
    
    
    $
    9.28
  Stock Appreciation Rights.
   18




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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)
     (b) 2000 Incentive Stock Compensation Plan
   Alon Assets
    
    
    Alon OperatingWeighted
    
    
    
    
    
    
    WeightedNumber of
    
    
    Average
    
    
    Number of
    
    
    AverageOptions
    
    
    Exercise
    
    
    Options
    
    
    ExerciseOutstanding
    
    
    Price
    
    
    Outstanding
    
    
    PriceOutstanding at January 1, 2009
    
    
    2,793
    
    
    $
    100
    
    
    
    1,049
    
    
    $
    100Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeited and expired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Outstanding at December 31, 2009
    
    
    2,793
    
    
    $
    100
    
    
    
    1,049
    
    
    $
    100Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    (2,187
    )
    
    
    100
    
    
    
    (822
    )
    
    
    100Forfeited and expired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Outstanding at September 30, 2010
    
    
    606
    
    
    $
    100
    
    
    
    227
    
    
    $
    100
  19




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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)
 (13) Stockholders Equity (per share in dollars)
 Common Stock Dividends
  (14) Loss Per Share (loss per share in dollars)
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Net loss available to common stockholders
    
    $
    (15,584
    )
    
    $
    (26,558
    )
    
    $
    (97,785
    )
    
    $
    (24,547
    )Average number of shares of common stock outstanding
    
    
    54,181
    
    
    
    46,810
    
    
    
    54,177
    
    
    
    46,808Dilutive SARs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Average number of shares of common stock
outstanding assuming dilution
    
    
    54,181
    
    
    
    46,810
    
    
    
    54,177
    
    
    
    46,808Loss per share  basic
    
    $
    (0.29
    )
    
    $
    (0.57
    )
    
    $
    (1.80
    )
    
    $
    (0.52
    )Loss per share  diluted *
    
    $
    (0.29
    )
    
    $
    (0.57
    )
    
    $
    (1.80
    )
    
    $
    (0.52
    )
 
 *
    
    For the purpose of adjusting net loss in the calculation of diluted loss per share issued by
Alons subsidiaries, the effect for the three and nine months ended September 30, 2010 and
2009, is anti-dilutive and therefore excluded from the calculation. (15) Big Spring Refinery Fire
  (16) Related-Party Transactions
 Sale of Preferred Shares (per share amounts in dollars)
   20




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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)
     Sale of HEP Units
  Richmond Beach Property Sale
   (17) Commitments and Contingencies
 (a) Commitments
  21




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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)
 Offtake Agreement with Valero
  Earnout Agreement with Valero
  Supply and Offtake Agreement with J. Aron & Company
   Standby LC Facility
   (b) Contingencies
  (c) Environmental
  22




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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)
       (18) Subsequent Event
 Dividend Declared
  Preferred Stock Offering
   23




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##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 The following discussion of our financial condition and results of operations should be read
in conjunction with the audited consolidated financial statements and notes thereto included in our
Annual Report on Form 10-K for the year ended December 31, 2009. In this document, the words
Alon, the Company, we and our refer to Alon USA Energy, Inc. and its subsidiaries.
 
 Forward-Looking Statements
    
    
    changes in general economic conditions and capital markets;
    
    changes in the underlying demand for our products;
    
    the availability, costs and price volatility of crude oil, other refinery feedstocks
and refined products;
    
    changes in the sweet/sour spread;
    
    changes in the light/heavy spread;
    
    the effects of transactions involving forward contracts and derivative instruments;
    
    actions of customers and competitors;
    
    changes in fuel and utility costs incurred by our facilities;
    
    disruptions due to equipment interruption, pipeline disruptions or failure at our or
third-party facilities;
    
    the execution of planned capital projects;
    
    adverse changes in the credit ratings assigned to our trade credit and debt
instruments;
    
    the effects of and cost of compliance with current and future state and federal
environmental, economic, safety and other laws, policies and regulations;
    
    operating hazards, natural disasters, casualty losses and other matters beyond our
control;
    
    the global financial crisis impact on our business, financial condition and our
ability to refinance existing credit facilities or extend their terms; and
    
    the other factors discussed in our Annual Report on Form 10-K for the year ended
December 31, 2009 under the caption Risk Factors.
 24




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##### Table of Contents



Company Overview
  Refining and Unbranded Marketing Segment
    Asphalt Segment
 Retail and Branded Marketing Segment
 25




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##### Table of Contents



Third Quarter Operational and Financial Highlights
  
    
    Combined refinery throughput for the three months ended September 30, 2010, averaged
138,253 bpd, consisting of: 53,060 bpd at the Big Spring refinery, 21,035 bpd at the
California refineries and 64,158 bpd at the Krotz Springs refinery, compared to a combined
average throughput of 157,660 bpd for the three months ended September 30, 2009, consisting
of: 62,500 bpd at the Big Spring refinery, 35,470 bpd at the California refineries and
59,690 bpd at the Krotz Springs refinery.
    
    Operating margin at the Big Spring refinery was $5.04 per barrel for the third quarter
of 2010, compared to $1.34 per barrel for the same period in 2009. The operating margin in
2009 was negatively impacted by the absence of the alkylation unit and additional feedstock
costs related to preparations for start up of the ultra-low sulfur gasoline unit in the
fourth quarter of 2009.
    
    Operating margin at the California refineries was $0.17 per barrel for the third quarter
of 2010, compared to ($0.55) per barrel for the same period in 2009. This increase
primarily resulted from higher West Coast 3/2/1 crack spreads and greater light/heavy
spreads.
    
    Operating margin at the Krotz Springs refinery was $1.00 per barrel for the third
quarter of 2010, compared to $2.45 per barrel for the same period in 2009. The decrease
primarily resulted from efforts to return to normal operating conditions after restart in
June 2010 from an extended turnaround and also higher crude oil costs relative to WTI.
    
    Asphalt margins in the third quarter of 2010 were $77.59 per ton compared to $82.99 per
ton in the third quarter of 2009. The average blended asphalt sales price increased 7.3%
from $446.26 per ton in the third quarter of 2009 to $478.65 per ton in the third quarter
of 2010 and the average non-blended asphalt sales price increased 83.4% from $190.23 per
ton in the third quarter of 2009 to $348.89 per ton in the third quarter of 2010. Asphalt
sales volumes in the third quarter of 2010 were 307 thousand tons compared to 427 thousand
tons in the third quarter of 2009.
    
    Retail and branded marketing segment retail fuel sales gallons increased by 19.1% from
30.9 million gallons in the third quarter of 2009 to 36.8 million gallons in the third
quarter of 2010. Our branded fuel sales increased by 24.1% from 68.3 million gallons in the
third quarter of 2009 to 84.7 million gallons in the third quarter of 2010. Operating
income for our retail and branded marketing segment was $8.8 million for the third quarter
of 2010 compared to $4.2 million for the same period in 2009.
    
    On September 15, 2010, 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 August 31, 2010.
 
 26




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Major Influences on Results of Operations
 Refining and Unbranded Marketing
       27




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##### Table of Contents



Asphalt
 Retail and Branded Marketing
 Factors Affecting Comparability
    28




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##### Table of Contents



Results of Operations
 Net Sales
  Cost of Sales
 Direct Operating Expenses
 Selling, General and Administrative Expenses
 29




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##### Table of Contents



ALON USA ENERGY, INC. AND SUBSIDIARIES CONSOLIDATED
 Summary Financial Tables
 For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(dollars in thousands, except per
    
    
    (dollars in thousands, except pershare data)
    
    
    share data)STATEMENT OF OPERATIONS DATA:Net sales (1)
    
    $
    1,248,569
    
    
    $
    1,253,113
    
    
    $
    2,668,243
    
    
    $
    3,081,691Operating costs and expenses:Cost of sales
    
    
    1,153,743
    
    
    
    1,165,295
    
    
    
    2,443,533
    
    
    
    2,693,343Direct operating expenses
    
    
    68,448
    
    
    
    64,091
    
    
    
    192,816
    
    
    
    204,300Selling, general and administrative expenses (2)
    
    
    35,012
    
    
    
    32,276
    
    
    
    96,001
    
    
    
    95,772Depreciation and amortization (3)
    
    
    26,781
    
    
    
    25,247
    
    
    
    78,471
    
    
    
    70,898Total operating costs and expenses
    
    
    1,283,984
    
    
    
    1,286,909
    
    
    
    2,810,821
    
    
    
    3,064,313Gain (loss) on disposition of assets
    
    
    
    
    
    
    (547
    )
    
    
    474
    
    
    
    (2,147
    )Operating income (loss)
    
    
    (35,415
    )
    
    
    (34,343
    )
    
    
    (142,104
    )
    
    
    15,231Interest expense (4)
    
    
    (24,091
    )
    
    
    (21,460
    )
    
    
    (72,411
    )
    
    
    (70,739
    )Equity earnings of investees
    
    
    3,864
    
    
    
    12,811
    
    
    
    4,970
    
    
    
    21,184Gain from bargain purchase (5)
    
    
    17,480
    
    
    
    
    
    
    
    17,480
    
    
    
    Other income (loss), net (6)
    
    
    (494
    )
    
    
    (180
    )
    
    
    13,345
    
    
    
    268Loss before income tax benefit, non-controlling
interest in loss of subsidiaries and accumulated
dividends on preferred stock of subsidiary
    
    
    (38,656
    )
    
    
    (43,172
    )
    
    
    (178,720
    )
    
    
    (34,056
    )Income tax benefit
    
    
    (21,905
    )
    
    
    (16,452
    )
    
    
    (73,711
    )
    
    
    (13,006
    )Loss before non-controlling interest in loss of
subsidiaries and accumulated dividends on
preferred stock of subsidiary
    
    
    (16,751
    )
    
    
    (26,720
    )
    
    
    (105,009
    )
    
    
    (21,050
    )Non-controlling interest in loss of subsidiaries
    
    
    (1,167
    )
    
    
    (2,312
    )
    
    
    (7,224
    )
    
    
    (2,953
    )Accumulated dividends on preferred stock of
subsidiary
    
    
    
    
    
    
    2,150
    
    
    
    
    
    
    
    6,450Net loss available to common stockholders
    
    $
    (15,584
    )
    
    $
    (26,558
    )
    
    $
    (97,785
    )
    
    $
    (24,547
    )Loss per share, basic
    
    $
    (0.29
    )
    
    $
    (0.57
    )
    
    $
    (1.80
    )
    
    $
    (0.52
    )Weighted average shares outstanding, basic (in
thousands)
    
    
    54,181
    
    
    
    46,810
    
    
    
    54,177
    
    
    
    46,808Loss per share, diluted
    
    $
    (0.29
    )
    
    $
    (0.57
    )
    
    $
    (1.80
    )
    
    $
    (0.52
    )Weighted average shares outstanding, diluted (in
thousands)
    
    
    54,181
    
    
    
    46,810
    
    
    
    54,177
    
    
    
    46,808Cash dividends per share
    
    $
    0.04
    
    
    $
    0.04
    
    
    $
    0.12
    
    
    $
    0.12CASH FLOW DATA:Net cash provided by (used in):Operating activities
    
    $
    24,285
    
    
    $
    28,168
    
    
    $
    (37,275
    )
    
    $
    325,132Investing activities
    
    
    (11,162
    )
    
    
    (48,891
    )
    
    
    (15,218
    )
    
    
    (93,605
    )Financing activities
    
    
    18,799
    
    
    
    (4,676
    )
    
    
    51,691
    
    
    
    (231,903
    )
 30




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For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(dollars in thousands, except per
    
    
    (dollars in thousands, except pershare data)
    
    
    share data)OTHER DATA:Adjusted EBITDA (7)
    
    $
    (5,264
    )
    
    $
    4,082
    
    
    $
    (45,792
    )
    
    $
    109,728Capital expenditures (8)
    
    
    7,838
    
    
    
    22,888
    
    
    
    20,526
    
    
    
    52,132Capital expenditures to rebuild the Big Spring
refinery
    
    
    
    
    
    
    5,791
    
    
    
    
    
    
    
    45,072Capital expenditures for turnaround and chemical
catalyst
    
    
    1,137
    
    
    
    2,691
    
    
    
    12,668
    
    
    
    13,005
 September 30,
    
    
    December 31,2010
    
    
    2009BALANCE SHEET DATA (end of period):Cash and cash equivalents
    
    $
    39,635
    
    
    $
    40,437Working capital
    
    
    5,593
    
    
    
    84,257Total assets
    
    
    2,175,564
    
    
    
    2,132,789Total debt
    
    
    953,523
    
    
    
    937,024Total equity
    
    
    331,464
    
    
    
    431,918
 
 (1)
    
    Includes excise taxes on sales by the retail and branded marketing segment of $14,204 and
$12,073 for the three months ended September 30, 2010 and 2009, respectively, and $40,521 and
$34,887 for the nine months ended September 30, 2010 and 2009, respectively.(2)
    
    Includes corporate headquarters selling, general and administrative expenses of $188 and $189
for the three months ended September 30, 2010 and 2009, respectively, and $564 and $569 for
the nine months ended September 30, 2010 and 2009, respectively, which are not allocated to
our three operating segments.(3)
    
    Includes corporate depreciation and amortization of $397 and $205 for the three months ended
September 30, 2010 and 2009, respectively, and $964 and $500 for the nine months ended
September 30, 2010 and 2009, respectively, which are not allocated to our three operating
segments.(4)
    
    Interest expense of $72,411 for the nine months ended September 30, 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. Interest expense of $70,739 for the
nine months ended September 30, 2009, includes $5,715 related to the unwind of a heating oil
crack spread hedge.(5)
    
    In connection with the Bakersfield refinery acquisition, the acquisition date fair value of
the identifiable net assets acquired exceeded the fair value of the consideration transferred,
resulting in a $17,480 bargain purchase gain.(6)
    
    Other income (loss), net for the nine months ended September 30, 2010, substantially
represents the gain from the sale of our investment in Holly Energy Partners.(7)
    
    Adjusted EBITDA represents earnings before non-controlling interest in income of
subsidiaries, income tax expense, interest expense, depreciation and amortization, gain on
bargain purchase 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, gain on bargain purchase and the accounting effects of capital expenditures and
acquisitions, items that may vary for different companies for reasons unrelated to overall
operating performance. 31




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
    
    Adjusted EBITDA does not reflect our cash expenditures or future requirements for
capital expenditures or contractual commitments;
    
    Adjusted EBITDA does not reflect the interest expense or the cash requirements
necessary to service interest or principal payments on our debt;
    
    Adjusted EBITDA does not reflect the prior claim that non-controlling interest have
on the income generated by non-wholly-owned subsidiaries;
    
    Adjusted EBITDA does not reflect changes in or cash requirements for our working
capital needs; and
    
    Our calculation of Adjusted EBITDA may differ from EBITDA calculations of other
companies in our industry, limiting its usefulness as a comparative measure.
   For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(dollars in thousands)Net loss available to common stockholders
    
    $
    (15,584
    )
    
    $
    (26,558
    )
    
    $
    (97,785
    )
    
    $
    (24,547
    )Non-controlling interest in loss of
subsidiaries (including accumulated dividends
on preferred stock of subsidiary)
    
    
    (1,167
    )
    
    
    (162
    )
    
    
    (7,224
    )
    
    
    3,497Income tax benefit
    
    
    (21,905
    )
    
    
    (16,452
    )
    
    
    (73,711
    )
    
    
    (13,006
    )Interest expense
    
    
    24,091
    
    
    
    21,460
    
    
    
    72,411
    
    
    
    70,739Depreciation and amortization
    
    
    26,781
    
    
    
    25,247
    
    
    
    78,471
    
    
    
    70,898Gain on bargain purchase
    
    
    (17,480
    )
    
    
    
    
    
    
    (17,480
    )
    
    
    (Gain) loss on disposition of assets
    
    
    
    
    
    
    547
    
    
    
    (474
    )
    
    
    2,147Adjusted EBITDA
    
    $
    (5,264
    )
    
    $
    4,082
    
    
    $
    (45,792
    )
    
    $
    109,728
 
 (8)
    
    Includes corporate capital expenditures of $1,344 and $1,755 for the three months ended
September 30, 2010 and 2009, respectively, and $2,152 and $2,987 for the nine months ended
September 30, 2010 and 2009, respectively, which are not allocated to our three operating
segments. 32




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REFINING AND UNBRANDED MARKETING SEGMENT
 For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(dollars in thousands, except per barrel data and pricing statistics)STATEMENTS OF OPERATIONS DATA:Net sales (1)
    
    $
    1,056,478
    
    
    $
    1,058,517
    
    
    $
    2,230,849
    
    
    $
    2,652,917Operating costs and expenses:Cost of sales
    
    
    1,022,950
    
    
    
    1,038,134
    
    
    
    2,138,284
    
    
    
    2,397,016Direct operating expenses
    
    
    57,711
    
    
    
    51,286
    
    
    
    159,556
    
    
    
    171,295Selling, general and administrative expenses
    
    
    7,103
    
    
    
    6,934
    
    
    
    17,365
    
    
    
    21,500Depreciation and amortization
    
    
    21,315
    
    
    
    19,943
    
    
    
    62,150
    
    
    
    55,120Total operating costs and expenses
    
    
    1,109,079
    
    
    
    1,116,297
    
    
    
    2,377,355
    
    
    
    2,644,931Loss on disposition of assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,600
    )Operating income (loss)
    
    $
    (52,601
    )
    
    $
    (57,780
    )
    
    $
    (146,506
    )
    
    $
    6,386KEY OPERATING STATISTICS:Total sales volume (bpd)
    
    
    129,194
    
    
    
    127,580
    
    
    
    78,639
    
    
    
    127,460Per barrel of throughput:Refinery operating margin  Big Spring (2)
    
    $
    5.04
    
    
    $
    1.34
    
    
    $
    6.39
    
    
    $
    6.32Refinery operating margin  CA Refineries (2)
    
    
    0.17
    
    
    
    (0.55
    )
    
    
    0.92
    
    
    
    2.41Refinery operating margin  Krotz Springs (2)
    
    
    1.00
    
    
    
    2.45
    
    
    
    0.44
    
    
    
    6.64Refinery direct operating expense  Big Spring (3)
    
    
    4.66
    
    
    
    4.11
    
    
    
    5.58
    
    
    
    4.13Refinery direct operating expense  CA Refineries (3)
    
    
    6.86
    
    
    
    3.85
    
    
    
    7.66
    
    
    
    4.37Refinery direct operating expense  Krotz Springs (3)
    
    
    3.39
    
    
    
    2.75
    
    
    
    5.82
    
    
    
    3.77Capital expenditures
    
    
    4,707
    
    
    
    19,859
    
    
    
    15,234
    
    
    
    46,182Capital expenditures to rebuild the Big Spring refinery
    
    
    
    
    
    
    5,791
    
    
    
    
    
    
    
    45,072Capital expenditures for turnaround and chemical catalyst
    
    
    1,137
    
    
    
    2,691
    
    
    
    12,668
    
    
    
    13,005PRICING STATISTICS:WTI crude oil (per barrel)
    
    $
    76.05
    
    
    $
    68.17
    
    
    $
    77.50
    
    
    $
    57.03WTS crude oil (per barrel)
    
    
    73.89
    
    
    
    66.49
    
    
    
    75.55
    
    
    
    55.69MAYA crude oil (per barrel)
    
    
    67.50
    
    
    
    63.20
    
    
    
    68.45
    
    
    
    51.98HLS crude oil (per barrel)
    
    
    78.18
    
    
    
    69.76
    
    
    
    79.41
    
    
    
    58.71LLS crude oil (per barrel)
    
    
    79.63
    
    
    
    70.43
    
    
    
    80.58
    
    
    
    59.87Crack spreads (3/2/1) (per barrel):Gulf Coast
    
    $
    7.76
    
    
    $
    6.52
    
    
    $
    8.20
    
    
    $
    8.14Group III
    
    
    10.53
    
    
    
    8.01
    
    
    
    9.60
    
    
    
    9.02West Coast
    
    
    15.30
    
    
    
    14.85
    
    
    
    13.65
    
    
    
    15.74Crack spreads (6/1/2/3) (per barrel):West Coast
    
    $
    4.68
    
    
    $
    5.39
    
    
    $
    3.66
    
    
    $
    4.73Crack spreads (2/1/1) (per barrel):Gulf Coast high sulfur diesel
    
    $
    7.02
    
    
    $
    5.36
    
    
    $
    7.40
    
    
    $
    7.14Crude oil differentials (per barrel):WTI less WTS
    
    $
    2.16
    
    
    $
    1.68
    
    
    $
    1.95
    
    
    $
    1.34WTI less MAYA
    
    
    8.55
    
    
    
    4.97
    
    
    
    9.05
    
    
    
    5.05HLS/LLS less WTI
    
    
    2.86
    
    
    
    1.93
    
    
    
    2.50
    
    
    
    2.26Product price (dollars per gallon):Gulf Coast unleaded gasoline
    
    $
    1.950
    
    
    $
    1.773
    
    
    $
    2.014
    
    
    $
    1.545Gulf Coast ultra-low sulfur diesel
    
    
    2.086
    
    
    
    1.789
    
    
    
    2.094
    
    
    
    1.565Gulf Coast high sulfur diesel
    
    
    2.006
    
    
    
    1.728
    
    
    
    2.029
    
    
    
    1.510Group III unleaded gasoline
    
    
    2.031
    
    
    
    1.814
    
    
    
    2.056
    
    
    
    1.575Group III ultra-low sulfur diesel
    
    
    2.123
    
    
    
    1.814
    
    
    
    2.110
    
    
    
    1.567West Coast LA CARBOB (unleaded gasoline)
    
    
    2.183
    
    
    
    2.042
    
    
    
    2.183
    
    
    
    1.798West Coast LA ultra-low sulfur diesel
    
    
    2.160
    
    
    
    1.847
    
    
    
    2.144
    
    
    
    1.602Natural gas (per MMBTU)
    
    
    4.23
    
    
    
    3.44
    
    
    
    4.52
    
    
    
    3.90
 33




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THROUGHPUT AND YIELD DATA:
BIG SPRING
 For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009bpd
    
    
    %
    
    
    bpd
    
    
    %
    
    
    bpd
    
    
    %
    
    
    bpd
    
    
    %Refinery throughput:Sour crude
    
    
    42,680
    
    
    
    80.4
    
    
    
    44,924
    
    
    
    71.9
    
    
    
    36,836
    
    
    
    79.7
    
    
    
    50,345
    
    
    
    80.0Sweet crude
    
    
    7,938
    
    
    
    15.0
    
    
    
    15,521
    
    
    
    24.8
    
    
    
    7,021
    
    
    
    15.1
    
    
    
    10,411
    
    
    
    16.5Blendstocks
    
    
    2,442
    
    
    
    4.6
    
    
    
    2,055
    
    
    
    3.3
    
    
    
    2,387
    
    
    
    5.2
    
    
    
    2,177
    
    
    
    3.5Total refinery throughput (4)
    
    
    53,060
    
    
    
    100.0
    
    
    
    62,500
    
    
    
    100.0
    
    
    
    46,244
    
    
    
    100.0
    
    
    
    62,933
    
    
    
    100.0Refinery production:Gasoline
    
    
    25,937
    
    
    
    49.2
    
    
    
    27,366
    
    
    
    44.1
    
    
    
    23,096
    
    
    
    50.5
    
    
    
    27,424
    
    
    
    43.8Diesel/jet
    
    
    17,772
    
    
    
    33.7
    
    
    
    19,690
    
    
    
    31.8
    
    
    
    14,738
    
    
    
    32.2
    
    
    
    20,477
    
    
    
    32.7Asphalt
    
    
    3,193
    
    
    
    6.1
    
    
    
    5,830
    
    
    
    9.4
    
    
    
    2,636
    
    
    
    5.8
    
    
    
    5,879
    
    
    
    9.4Petrochemicals
    
    
    3,382
    
    
    
    6.4
    
    
    
    3,340
    
    
    
    5.4
    
    
    
    2,664
    
    
    
    5.8
    
    
    
    3,286
    
    
    
    5.3Other
    
    
    2,419
    
    
    
    4.6
    
    
    
    5,790
    
    
    
    9.3
    
    
    
    2,620
    
    
    
    5.7
    
    
    
    5,524
    
    
    
    8.8Total refinery production (5)
    
    
    52,703
    
    
    
    100.0
    
    
    
    62,016
    
    
    
    100.0
    
    
    
    45,754
    
    
    
    100.0
    
    
    
    62,590
    
    
    
    100.0Refinery utilization (6)
    
    
    
    
    
    
    72.3
    %
    
    
    
    
    
    
    86.3
    %
    
    
    
    
    
    
    64.6
    %
    
    
    
    
    
    
    86.8
    %
 THROUGHPUT AND YIELD DATA:
CALIFORNIA REFINERIES
 For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009bpd
    
    
    %
    
    
    bpd
    
    
    %
    
    
    bpd
    
    
    %
    
    
    bpd
    
    
    %Refinery throughput:Medium sour crude
    
    
    4,635
    
    
    
    22.0
    
    
    
    16,073
    
    
    
    45.3
    
    
    
    4,065
    
    
    
    20.7
    
    
    
    16,164
    
    
    
    46.6Heavy crude
    
    
    15,886
    
    
    
    75.6
    
    
    
    18,937
    
    
    
    53.4
    
    
    
    15,082
    
    
    
    77.0
    
    
    
    18,259
    
    
    
    52.6Blendstocks
    
    
    514
    
    
    
    2.4
    
    
    
    460
    
    
    
    1.3
    
    
    
    443
    
    
    
    2.3
    
    
    
    288
    
    
    
    0.8Total refinery throughput (4)
    
    
    21,035
    
    
    
    100.0
    
    
    
    35,470
    
    
    
    100.0
    
    
    
    19,590
    
    
    
    100.0
    
    
    
    34,711
    
    
    
    100.0Refinery production:Gasoline
    
    
    3,401
    
    
    
    16.6
    
    
    
    5,456
    
    
    
    15.8
    
    
    
    2,888
    
    
    
    15.2
    
    
    
    5,189
    
    
    
    15.3Diesel/jet
    
    
    4,758
    
    
    
    23.3
    
    
    
    8,434
    
    
    
    24.5
    
    
    
    4,067
    
    
    
    21.4
    
    
    
    8,037
    
    
    
    23.7Asphalt
    
    
    6,974
    
    
    
    34.1
    
    
    
    10,441
    
    
    
    30.3
    
    
    
    6,554
    
    
    
    34.3
    
    
    
    10,215
    
    
    
    30.2Light unfinished
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    467
    
    
    
    1.4Heavy unfinished
    
    
    4,831
    
    
    
    23.6
    
    
    
    9,546
    
    
    
    27.7
    
    
    
    5,099
    
    
    
    26.8
    
    
    
    9,409
    
    
    
    27.8Other
    
    
    498
    
    
    
    2.4
    
    
    
    585
    
    
    
    1.7
    
    
    
    439
    
    
    
    2.3
    
    
    
    551
    
    
    
    1.6Total refinery production (5)
    
    
    20,462
    
    
    
    100.0
    
    
    
    34,462
    
    
    
    100.0
    
    
    
    19,047
    
    
    
    100.0
    
    
    
    33,868
    
    
    
    100.0Refinery utilization (6)
    
    
    
    
    
    
    28.3
    %
    
    
    
    
    
    
    48.3
    %
    
    
    
    
    
    
    26.4
    %
    
    
    
    
    
    
    53.1
    %
 THROUGHPUT AND YIELD DATA:
KROTZ SPRINGS (A)
 For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009bpd
    
    
    %
    
    
    bpd
    
    
    %
    
    
    bpd
    
    
    %
    
    
    bpd
    
    
    %Refinery throughput:Light sweet crude
    
    
    38,597
    
    
    
    60.1
    
    
    
    30,741
    
    
    
    51.5
    
    
    
    16,460
    
    
    
    56.9
    
    
    
    28,755
    
    
    
    50.2Heavy sweet crude
    
    
    23,854
    
    
    
    37.2
    
    
    
    27,547
    
    
    
    46.2
    
    
    
    11,603
    
    
    
    40.1
    
    
    
    24,691
    
    
    
    43.1Blendstocks
    
    
    1,707
    
    
    
    2.7
    
    
    
    1,402
    
    
    
    2.3
    
    
    
    878
    
    
    
    3.0
    
    
    
    3,862
    
    
    
    6.7Total refinery throughput (4)
    
    
    64,158
    
    
    
    100.0
    
    
    
    59,690
    
    
    
    100.0
    
    
    
    28,941
    
    
    
    100.0
    
    
    
    57,308
    
    
    
    100.0Refinery production:Gasoline
    
    
    26,442
    
    
    
    40.9
    
    
    
    27,441
    
    
    
    45.4
    
    
    
    11,720
    
    
    
    40.3
    
    
    
    26,628
    
    
    
    45.8Diesel/jet
    
    
    31,383
    
    
    
    48.5
    
    
    
    26,855
    
    
    
    44.5
    
    
    
    13,609
    
    
    
    46.9
    
    
    
    25,288
    
    
    
    43.4Heavy Oils
    
    
    1,487
    
    
    
    2.3
    
    
    
    1,205
    
    
    
    2.0
    
    
    
    1,437
    
    
    
    4.9
    
    
    
    1,151
    
    
    
    2.0Other
    
    
    5,368
    
    
    
    8.3
    
    
    
    4,865
    
    
    
    8.1
    
    
    
    2,304
    
    
    
    7.9
    
    
    
    5,090
    
    
    
    8.8Total refinery production (5)
    
    
    64,680
    
    
    
    100.0
    
    
    
    60,366
    
    
    
    100.0
    
    
    
    29,070
    
    
    
    100.0
    
    
    
    58,157
    
    
    
    100.0Refinery utilization (6)
    
    
    
    
    
    
    75.2
    %
    
    
    
    
    
    
    70.1
    %
    
    
    
    
    
    
    33.8
    %
    
    
    
    
    
    
    64.3
    %
 34




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##### Table of Contents



(A)
    
    The throughput data for the nine months ended September 30, 2010, reflects substantially four
months of operations beginning June 2010 due to the restart of the Krotz Springs refinery after
major turnaround activity.(1)
    
    Net sales include intersegment sales to our asphalt and retail and branded marketing segments
at prices which approximate wholesale market price. These intersegment sales are eliminated
through consolidation of our financial statements.(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.The refinery operating margin for the three and nine months ended September 30, 2010, excludes a
benefit of $2,990 and $4,515 to cost of sales for inventory adjustments related to the
Bakersfield refinery acquisition. There were unrealized hedging gains of $1,019 for the Big
Spring refinery for the three months ended September 30, 2009. There were unrealized hedging
losses of $108 and $322 for the California refineries for the three and nine months ended
September 30, 2010, respectively. There were unrealized hedging losses of $169 and $722 for the
Krotz Springs refinery for the three and nine months ended September 30, 2010, respectively.
Also, there was an unrealized gain of $20,369 for the Krotz Springs refinery for the nine months
ended September 30, 2009. Additionally, the Krotz Springs refinery margin for the nine months
ended September 30, 2009 excludes realized gains related to the unwind of the heating oil crack
spread hedge of $139,290.(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 $1,712 and $2,122 have been excluded
from the per barrel measurement calculation for the three and nine months ended September 30,
2010, respectively.(4)
    
    Total refinery throughput represents the total barrels per day of crude oil and blendstock
inputs in the refinery production process.(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.(6)
    
    Refinery utilization represents average daily crude oil throughput divided by crude oil
capacity, excluding planned periods of downtime for maintenance and turnarounds. 35




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##### Table of Contents



ASPHALT SEGMENT
 For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(dollars in thousands, except per ton data)STATEMENTS OF OPERATIONS DATA:Net sales
    
    $
    144,610
    
    
    $
    175,189
    
    
    $
    316,715
    
    
    $
    351,429Operating costs and expenses:Cost of sales (1)
    
    
    120,791
    
    
    
    139,751
    
    
    
    282,500
    
    
    
    307,881Direct operating expenses
    
    
    10,737
    
    
    
    12,805
    
    
    
    33,260
    
    
    
    33,005Selling, general and administrative expenses
    
    
    2,404
    
    
    
    1,267
    
    
    
    4,561
    
    
    
    3,471Depreciation and amortization
    
    
    1,716
    
    
    
    1,700
    
    
    
    5,148
    
    
    
    5,099Total operating costs and expenses
    
    
    135,648
    
    
    
    155,523
    
    
    
    325,469
    
    
    
    349,456Operating income (loss)
    
    $
    8,962
    
    
    $
    19,666
    
    
    $
    (8,754
    )
    
    $
    1,973KEY OPERATING STATISTICS:Blended asphalt sales volume (tons in
thousands) (2)
    
    
    289
    
    
    
    367
    
    
    
    625
    
    
    
    813Non-blended asphalt sales volume (tons in
thousands) (3)
    
    
    18
    
    
    
    60
    
    
    
    52
    
    
    
    143Blended asphalt sales price per ton (2)
    
    $
    478.65
    
    
    $
    446.26
    
    
    $
    477.68
    
    
    $
    404.39Non-blended asphalt sales price per ton (3)
    
    
    348.89
    
    
    
    190.23
    
    
    
    349.29
    
    
    
    158.49Asphalt margin per ton (4)
    
    
    77.59
    
    
    
    82.99
    
    
    
    50.54
    
    
    
    45.55Capital expenditures
    
    $
    465
    
    
    $
    523
    
    
    $
    991
    
    
    $
    1,099
 
 (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.(2)
    
    Blended asphalt represents base asphalt that has been blended with other materials necessary
to sell the asphalt as a finished product.(3)
    
    Non-blended asphalt represents base material asphalt and other components that require
additional blending before being sold as a finished product.(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. 36




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##### Table of Contents



RETAIL AND BRANDED MARKETING SEGMENT
 For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(dollars in thousands, except per gallon data)STATEMENTS OF OPERATIONS DATA:Net sales (1)
    
    $
    273,481
    
    
    $
    217,232
    
    
    $
    753,464
    
    
    $
    591,163Operating costs and expenses:Cost of sales (2)
    
    
    236,002
    
    
    
    185,235
    
    
    
    655,534
    
    
    
    502,264Selling, general and administrative expenses
    
    
    25,317
    
    
    
    23,886
    
    
    
    73,511
    
    
    
    70,232Depreciation and amortization
    
    
    3,353
    
    
    
    3,399
    
    
    
    10,209
    
    
    
    10,179Total operating costs and expenses
    
    
    264,672
    
    
    
    212,520
    
    
    
    739,254
    
    
    
    582,675Gain (loss) on disposition of assets
    
    
    
    
    
    
    (547
    )
    
    
    474
    
    
    
    (547
    )Operating income
    
    $
    8,809
    
    
    $
    4,165
    
    
    $
    14,684
    
    
    $
    7,941KEY OPERATING STATISTICS:Branded fuel sales (thousands of gallons) (3)
    
    
    84,711
    
    
    
    68,280
    
    
    
    230,031
    
    
    
    204,929Branded fuel margin (cents per gallon) (3)
    
    
    8.9
    ¢
    
    
    9.6
    ¢
    
    
    6.7
    ¢
    
    
    5.6
    ¢Number of stores (end of period)
    
    
    306
    
    
    
    305
    
    
    
    306
    
    
    
    305Retail fuel sales (thousands of gallons)
    
    
    36,759
    
    
    
    30,915
    
    
    
    104,881
    
    
    
    89,296Retail fuel sales (thousands of gallons per
site per month)
    
    
    40
    
    
    
    34
    
    
    
    38
    
    
    
    33Retail fuel margin (cents per gallon) (4)
    
    
    13.4
    ¢
    
    
    9.7
    ¢
    
    
    12.3
    ¢
    
    
    15.0
    ¢Retail fuel sales price (dollars per gallon) (5)
    
    $
    2.67
    
    
    $
    2.48
    
    
    $
    2.68
    
    
    $
    2.22Merchandise sales
    
    $
    74,932
    
    
    $
    69,413
    
    
    $
    211,660
    
    
    $
    202,675Merchandise sales (per site per month)
    
    $
    82
    
    
    $
    76
    
    
    $
    77
    
    
    $
    74Merchandise margin (6)
    
    
    32.2
    %
    
    
    31.4
    %
    
    
    31.7
    %
    
    
    30.9
    %Capital expenditures
    
    $
    1,322
    
    
    $
    751
    
    
    $
    2,149
    
    
    $
    1,864
 
 (1)
    
    Includes excise taxes on sales by the retail and branded marketing segment of $14,204 and
$12,073 for the three months ended September 30, 2010 and 2009, respectively, and $40,521 and
$34,887 for the nine months ended September 30, 2010 and 2009. Includes net royalty and
related net credit card fees of $873 and $744 for the three months ended September 30, 2010
and 2009, respectively, and $2,692 and $1,661 for the nine months ended September 30, 2010 and
2009.(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.(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.(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.(5)
    
    Retail fuel sales price per gallon represents the average sales price for motor fuels sold
through our retail convenience stores.(6)
    
    Merchandise margin represents the difference between merchandise sales revenues and the
delivered cost of merchandise purchases, net of rebates and commissions, expressed as a
percentage of merchandise sales revenues. Merchandise margins, also referred to as in-store
margins, are commonly used in the retail convenience store industry to measure in-store, or
non-fuel, operating results. 37




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##### Table of Contents



Three Months Ended September 30, 2010 Compared to the Three Months Ended September 30, 2009
 Net Sales
 Consolidated
 Refining and Unbranded Marketing Segment
   Asphalt Segment
 Retail and Branded Marketing Segment
 Cost of Sales
 Consolidated
 38




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##### Table of Contents



Refining and Unbranded Marketing Segment.
 Asphalt Segment
 Retail and Branded Marketing Segment.
 Direct Operating Expenses
 Consolidated
 Refining and Unbranded Marketing Segment.
 Asphalt Segment.
 Selling, General and Administrative Expenses
 Consolidated
 Refining and Unbranded Marketing Segment
 Asphalt Segment
 Retail and Branded Marketing Segment
 39




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##### Table of Contents



Depreciation and Amortization
  Operating Income (Loss)
 Consolidated
 Refining and Unbranded Marketing Segment
   Asphalt Segment.
 Retail and Branded Marketing Segment.
 40




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##### Table of Contents



Interest Expense
  Gain from Bargain Purchase
  Income Tax Benefit
  Non-Controlling Interest In Loss Of Subsidiaries
  Net Loss Available to Common Stockholders
  Nine Months Ended September 30, 2010 Compared to the Nine Months Ended September 30, 2009
 Net Sales
 Consolidated
 Refining and Unbranded Marketing Segment
  41




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##### Table of Contents



Asphalt Segment
 Retail and Branded Marketing Segment
 Cost of Sales
 Consolidated
 Refining and Unbranded Marketing Segment.
 Asphalt Segment
 Retail and Branded Marketing Segment.
 42




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##### Table of Contents



Direct Operating Expenses
 Consolidated
 Refining and Unbranded Marketing Segment.
 Asphalt Segment.
 Selling, General and Administrative Expenses
 Consolidated
 Refining and Unbranded Marketing Segment
 Asphalt Segment
 Retail and Branded Marketing Segment
 Depreciation and Amortization
  Operating Income (Loss)
 Consolidated
 43




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##### Table of Contents



Refining and Unbranded Marketing Segment
   Asphalt Segment.
 Retail and Branded Marketing Segment.
 Interest Expense
  Gain from Bargain Purchase
  Income Tax Benefit
  44




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##### Table of Contents



Non-Controlling Interest In Loss Of Subsidiaries
  Net Loss Available to Common Stockholders
  Liquidity and Capital Resources
      45




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##### Table of Contents



Cash Flows
  For the Nine Months EndedSeptember 30,2010
    
    
    2009(dollars in thousands)Cash provided by (used in):Operating activities
    
    $
    (37,275
    )
    
    $
    325,132Investing activities
    
    
    (15,218
    )
    
    
    (93,605
    )Financing activities
    
    
    51,691
    
    
    
    (231,903
    )Net decrease in cash and cash equivalents
    
    $
    (802
    )
    
    $
    (376
    )
 Cash Flows Provided By (Used In) Operating Activities
  Cash Flows Used In Investing Activities
  Cash Flows Provided by (Used In) Financing Activities
  Indebtedness
 Alon USA Energy, Inc. Credit Facilities
 Term Loan Credit Facility
 46




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##### Table of Contents



Letter of Credit Facility.
  Alon USA LP Credit Facility
 Revolving Credit Facility.
     47




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##### Table of Contents



Paramount Petroleum Corporation Credit Facility
 Revolving Credit Facility.
     Alon Refining Krotz Springs, Inc. Credit Facilities
 Senior Secured Notes.
      Short-Term Credit Facility.
 48




---



##### Table of Contents



Revolving Credit Facility.
  Retail Credit Facilities
 Term Credit Agreement.
     Other Retail Related Credit Facilities.
 Capital Spending
  Turnaround and Chemical Catalyst Costs
 49




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##### Table of Contents



Contractual Obligations and Commercial Commitments
  Off-Balance Sheet Arrangements
  Critical Accounting Policies
   New Accounting Standards and Disclosures
  50




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Commodity Price Risk
     51




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##### Table of Contents



Description
    
    
    
    
    
    Wtd Avg Purchase
    
    
    Wtd Avg Sales
    
    
    
    
    
    
    Market
    
    
    Gainof Activity
    
    Contract Volume
    
    
    Price/BBL
    
    
    Price/BBL
    
    
    Contract Value
    
    
    Value
    
    
    (Loss)(in thousands)Forwards-long (Diesel)
    
    
    92,966
    
    
    $
    86.11
    
    
    $
    
    
    
    $
    8,005
    
    
    $
    8,536
    
    
    $
    531Description
    
    
    
    
    
    Wtd Avg Contract
    
    
    Wtd Avg Market
    
    
    
    
    
    
    Market
    
    
    Gainof Activity
    
    Contract Volume
    
    
    Price/Oz
    
    
    Price/Oz
    
    
    Contract Value
    
    
    Value
    
    
    (Loss)(in thousands)Futures-short (Platinum)
    
    
    (2,846
    )
    
    $
    1,480.00
    
    
    $
    1,664.50
    
    
    $
    (4,212
    )
    
    $
    (4,737
    )
    
    $
    (525
    )Futures-short (Palladium)
    
    
    (2,534
    )
    
    
    436.00
    
    
    
    573.35
    
    
    
    (1,105
    )
    
    
    (1,453
    )
    
    
    (348
    )Description
    
    
    
    
    
    Wtd Avg Contract
    
    
    Wtd Avg Market
    
    
    
    
    
    
    Market
    
    
    Gainof Activity
    
    Contract Volume
    
    
    Spread
    
    
    Spread
    
    
    Contract Value
    
    
    Value
    
    
    (Loss)(in thousands)Futures-crack spread
(Heating oil)
    
    
    255,600
    
    
    $
    11.38
    
    
    $
    8.90
    
    
    $
    2,908
    
    
    $
    2,275
    
    
    $
    (633
    )Futures-call options (Heating oil)
    
    
    (3,514,500
    )
    
    $
    13.24
    
    
    $
    13.24
    
    
    $
    (46,535
    )
    
    $
    (46,535
    )
    
    $
    
 Interest Rate Risk
  
 ITEM 4. CONTROLS AND PROCEDURES
 (1) Evaluation of disclosure controls and procedures.
  (2) Changes in internal control over financial reporting.
  52




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##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 6. EXHIBITS
 ExhibitNumber
    
    Description of Exhibit3.1
    
    Amended and Restated Certificate of Incorporation of Alon USA Energy, Inc. (incorporated by
reference to Exhibit 3.1 to Form S-1, filed by the Company on July 7, 2005, SEC File No.
333-124797).3.2
    
    Amended and Restated Bylaws of Alon USA Energy, Inc. (incorporated by reference to Exhibit
3.2 to Form S-1, filed by the Company on July 14, 2005, SEC File No. 333-124797).4.1
    
    Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to Form S-1,
filed by the Company on June 17, 2005, SEC File No. 333-124797).4.2
    
    Indenture, 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).4.3
    
    Form of Certificate of Designation of the 8.50% Series A Convertible Preferred Stock.4.4
    
    Specimen 8.50% Series A Convertible Preferred Stock Certificate.10.1
    
    Amendment No. 3 to Credit Agreement, dated August 11, 2010 (as amended, supplemented or
otherwise modified from time to time), among Alon Refining Krotz Springs, Inc., each other
party joined as a borrower thereunder from time to time, the Lenders party thereto, and Bank
Hapoalim B.M., as Administrative Agent (incorporated by reference to Exhibit 10.1 to Form
8-K, filed by the Company on August 13, 2010, 2010, SEC File No. 001-32567).10.2
    
    Form of Series A Convertible Preferred Stock Purchase Agreement (incorporated by reference
to Exhibit 10.105 to Form S-1/A, filed by the Company on October 21, 2010, Registration No.
333-169583).31.1
    
    Certifications of Chief Executive Officer pursuant to §302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certifications of Chief Financial Officer pursuant to §302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.
§1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002.
 53




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##### Table of Contents



SIGNATURES
  Alon USA Energy, Inc.Date: November 8, 2010
    By:
    /s/ David WiessmanDavid WiessmanExecutive ChairmanDate: November 8, 2010
    By:
    /s/ Jeff D. MorrisJeff D. MorrisChief Executive OfficerDate: November 8, 2010
    By:
    /s/ Shai EvenShai EvenChief Financial Officer 54




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##### Table of Contents



EXHIBITS
 ExhibitNumber
    
    Description of Exhibit3.1
    
    Amended and Restated Certificate of Incorporation of Alon USA Energy, Inc. (incorporated by
reference to Exhibit 3.1 to Form S-1, filed by the Company on July 7, 2005, SEC File No.
333-124797).3.2
    
    Amended and Restated Bylaws of Alon USA Energy, Inc. (incorporated by reference to Exhibit
3.2 to Form S-1, filed by the Company on July 14, 2005, SEC File No. 333-124797).4.1
    
    Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to Form S-1,
filed by the Company on June 17, 2005, SEC File No. 333-124797).4.2
    
    Indenture, 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).4.3
    
    Form of Certificate of Designation of the 8.50% Series A Convertible Preferred Stock.4.4
    
    Specimen 8.50% Series A Convertible Preferred Stock Certificate.10.1
    
    Amendment No. 3 to Credit Agreement, dated August 11, 2010 (as amended, supplemented or
otherwise modified from time to time), among Alon Refining Krotz Springs, Inc., each other
party joined as a borrower thereunder from time to time, the Lenders party thereto, and Bank
Hapoalim B.M., as Administrative Agent (incorporated by reference to Exhibit 10.1 to Form
8-K, filed by the Company on August 13, 2010, 2010, SEC File No. 001-32567).10.2
    
    Form of Series A Convertible Preferred Stock Purchase Agreement (incorporated by reference
to Exhibit 10.105 to Form S-1/A, filed by the Company on October 21, 2010, Registration No.
333-169583).31.1
    
    Certifications of Chief Executive Officer pursuant to §302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certifications of Chief Financial Officer pursuant to §302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.
§1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002.
 55