##### 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, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 FOR THE TRANSITION PERIOD FROM  TO
 Commission file number: 001-32567
 
 Alon USA Energy, Inc.
 (Exact name of Registrant as specified in its charter)
 
 Delaware
    
    74-2966572(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 7616 LBJ Freeway, Suite 300, Dallas, Texas
    
    75251(Address of principal executive offices)
    
    (Zip Code)
 (Registrants telephone number, including area code)
 
 þ 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 INFORMATIONITEM 1. FINANCIAL STATEMENTS
    
    
    1CONSOLIDATED BALANCE SHEETS
    
    
    1CONSOLIDATED STATEMENTS OF OPERATIONS
    
    
    2CONSOLIDATED STATEMENTS OF CASH FLOWS
    
    
    3NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    
    
    4ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
    
    
    23FORWARD-LOOKING STATEMENTS
    
    
    23ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    52ITEM 4. CONTROLS AND PROCEDURES
    
    
    53PART II. OTHER INFORMATIONITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    
    54ITEM
5. OTHER INFORMATION
    
    
    55ITEM 6. EXHIBITS
    
    
    56SIGNATURES
    
    
    58EXHIBITS
    
    
    59EX-10.9EX-10.10EX-10.11EX-10.12EX-10.13EX-10.14EX-10.15EX-10.16EX-31.1EX-31.2EX-32.1




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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 31,2008
    
    
    2007(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    18,676
    
    
    $
    68,615Short-term investments
    
    
    
    
    
    
    27,296Accounts and other receivables, net
    
    
    255,763
    
    
    
    228,987Insurance receivable
    
    
    27,974
    
    
    
    Income tax receivables
    
    
    76,434
    
    
    
    35,244Inventories
    
    
    339,052
    
    
    
    300,689Prepaid expenses and other current assets
    
    
    16,882
    
    
    
    12,231Total current assets
    
    
    734,781
    
    
    
    673,062Equity method investments
    
    
    37,583
    
    
    
    40,092Property, plant and equipment, net
    
    
    1,430,746
    
    
    
    713,592Goodwill
    
    
    105,943
    
    
    
    105,943Other assets
    
    
    127,257
    
    
    
    48,697Total assets
    
    $
    2,436,310
    
    
    $
    1,581,386LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    419,679
    
    
    $
    291,339Accrued liabilities
    
    
    120,412
    
    
    
    82,184Current portion of deferred gain on disposition of assets
    
    
    
    
    
    
    8,805Current portion of long-term debt
    
    
    22,863
    
    
    
    11,154Total current liabilities
    
    
    562,954
    
    
    
    393,482Other non-current liabilities
    
    
    68,711
    
    
    
    58,637Deferred gain on disposition of assets
    
    
    
    
    
    
    33,832Long-term debt
    
    
    1,059,494
    
    
    
    525,461Deferred income tax liability
    
    
    242,940
    
    
    
    166,052Total liabilities
    
    
    1,934,099
    
    
    
    1,177,464Commitments and contingencies (note 16)Minority interest in subsidiaries
    
    
    17,241
    
    
    
    16,155Preferred
stock of subsidiary including accumulated dividends
    
    
    82,150
    
    
    
    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; 46,814,021 and 46,808,444 shares issued and
outstanding at September 30, 2008 and December 31, 2007,
respectively
    
    
    468
    
    
    
    468Additional paid-in capital
    
    
    183,605
    
    
    
    182,932Accumulated other comprehensive loss, net of income tax
    
    
    (10,084
    )
    
    
    (8,135
    )Retained earnings
    
    
    228,831
    
    
    
    212,502Total stockholders equity
    
    
    402,820
    
    
    
    387,767Total liabilities and stockholders equity
    
    $
    2,436,310
    
    
    $
    1,581,386
  1




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ALON USA ENERGY, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (unaudited, dollars in thousands except per share data)
 For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net sales (1)
    
    $
    1,905,106
    
    
    $
    1,243,723
    
    
    $
    4,170,540
    
    
    $
    3,396,809Operating costs and expenses:Cost of sales
    
    
    1,812,399
    
    
    
    1,136,026
    
    
    
    4,033,788
    
    
    
    2,876,862Direct operating expenses
    
    
    66,748
    
    
    
    48,342
    
    
    
    149,583
    
    
    
    152,371Selling, general and administrative expenses
    
    
    29,697
    
    
    
    26,425
    
    
    
    86,353
    
    
    
    76,485Net costs associated with fire
    
    
    17,376
    
    
    
    
    
    
    
    43,212
    
    
    
    Business interruption recovery
    
    
    (30,000
    )
    
    
    
    
    
    
    (30,000
    )
    
    
    Depreciation and amortization
    
    
    17,232
    
    
    
    17,048
    
    
    
    44,484
    
    
    
    42,643Total operating costs and expenses
    
    
    1,913,452
    
    
    
    1,227,841
    
    
    
    4,327,420
    
    
    
    3,148,361Gain on involuntary conversion of assets
    
    
    103,092
    
    
    
    
    
    
    
    199,680
    
    
    
    Gain (loss) on disposition of assets
    
    
    (2,241
    )
    
    
    1,108
    
    
    
    43,005
    
    
    
    4,588Operating income
    
    
    92,505
    
    
    
    16,990
    
    
    
    85,805
    
    
    
    253,036Interest expense
    
    
    (21,493
    )
    
    
    (12,787
    )
    
    
    (42,885
    )
    
    
    (35,874
    )Equity earnings (losses) of investees
    
    
    (3,915
    )
    
    
    5,531
    
    
    
    (2,307
    )
    
    
    10,071Other income (loss), net
    
    
    (25
    )
    
    
    1,747
    
    
    
    1,093
    
    
    
    4,928Income
before income tax expense (benefit), minority interest in income of
subsidiaries and accumulated dividends on preferred stock of
subsidiary
    
    
    67,072
    
    
    
    11,481
    
    
    
    41,706
    
    
    
    232,161Income tax expense (benefit)
    
    
    25,083
    
    
    
    (1,839
    )
    
    
    15,850
    
    
    
    79,782Income before minority interest in income of
subsidiaries and accumulated dividends on preferred stock of
subsidiary
    
    
    41,989
    
    
    
    13,320
    
    
    
    25,856
    
    
    
    152,379Minority interest in income of subsidiaries
    
    
    2,542
    
    
    
    693
    
    
    
    1,760
    
    
    
    8,574Accumulated
dividends on preferred stock of subsidiary
    
    
    2,150
    
    
    
    
    
    
    
    2,150
    
    
    
    Net income
    
    $
    37,297
    
    
    $
    12,627
    
    
    $
    21,946
    
    
    $
    143,805Earnings per share, basic
    
    $
    0.80
    
    
    $
    0.27
    
    
    $
    0.47
    
    
    $
    3.08Weighted average shares outstanding, basic
(in thousands)
    
    
    46,786
    
    
    
    46,761
    
    
    
    46,783
    
    
    
    46,758Cash dividends per share
    
    $
    0.04
    
    
    $
    0.04
    
    
    $
    0.12
    
    
    $
    0.12
 
 (1)
    
    Includes excise taxes on sales by the retail segment of $9,102 and $18,014 for the three
months and $28,075 and $32,627 for the nine months ended September 30, 2008 and 2007, respectively.  2




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ALON USA ENERGY, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (unaudited, dollars in thousands)
 For the Nine Months EndedSeptember 30,2008
    
    
    2007Cash flows from operating activities:Net income
    
    $
    21,946
    
    
    $
    143,805Adjustments to reconcile net income to cash (used in) provided by
operating activities:Depreciation and amortization
    
    
    44,484
    
    
    
    42,643Stock compensation
    
    
    487
    
    
    
    2,357Deferred income tax expense
    
    
    86,885
    
    
    
    4,394Minority interest in income of subsidiaries
    
    
    1,760
    
    
    
    8,574Accumulated
dividends on preferred stock of subsidiary
    
    
    2,150
    
    
    
    Equity earnings (losses) of investees (net of dividends)
    
    
    4,374
    
    
    
    (4,974
    )Gain on involuntary conversion of assets
    
    
    (199,680
    )
    
    
    Gain on disposition of assets
    
    
    (43,005
    )
    
    
    (4,588
    )Changes in operating assets and liabilities, net of acquisition effects:Accounts and other receivables, net
    
    
    (94,692
    )
    
    
    (182,324
    )Inventories
    
    
    104,587
    
    
    
    28,201Prepaid expenses and other current assets
    
    
    (8,811
    )
    
    
    4,185Other assets
    
    
    (4,377
    )
    
    
    (6,661
    )Accounts payable
    
    
    85,169
    
    
    
    165,228Accrued liabilities
    
    
    (6,675
    )
    
    
    (21,601
    )Other non-current liabilities
    
    
    (2,996
    )
    
    
    (5,644
    )Net cash (used in) provided by operating activities
    
    
    (8,394
    )
    
    
    173,595Cash flows from investing activities:Capital expenditures
    
    
    (41,248
    )
    
    
    (28,869
    )Capital expenditures to rebuild the Big Spring refinery
    
    
    (312,566
    )
    
    
    Proceeds from insurance to rebuild the Big Spring refinery
    
    
    225,010
    
    
    
    Turnaround and chemical catalyst expenditures
    
    
    (2,072
    )
    
    
    (9,357
    )Acquisition
of Krotz Springs refinery
    
    
    (480,170
    )
    
    
    Acquisition of Skinnys, Inc.
    
    
    
    
    
    
    (77,358
    )Sale (purchase) of short-term investments, net
    
    
    27,296
    
    
    
    (35,000
    )Net cash used in investing activities
    
    
    (583,750
    )
    
    
    (150,584
    )Cash flows from financing activities:Dividends paid to minority interest stockholders
    
    
    (242
    )
    
    
    (347
    )Dividends paid to stockholders
    
    
    (5,617
    )
    
    
    (5,617
    )Deferred debt issuance costs
    
    
    (27,678
    )
    
    
    (2,235
    )Revolving credit facilities, net
    
    
    254,000
    
    
    
    Additions to long-term debt
    
    
    252,000
    
    
    
    46,167Payments on long-term debt
    
    
    (10,258
    )
    
    
    (5,719
    )Proceeds from sale of preferred stock by subsidiary
    
    
    80,000
    
    
    
    Net cash provided by financing activities
    
    
    542,205
    
    
    
    32,249Net change in cash and cash equivalents
    
    
    (49,939
    )
    
    
    55,260Cash and cash equivalents, beginning of period
    
    
    68,615
    
    
    
    64,166Cash and cash equivalents, end of period
    
    $
    18,676
    
    
    $
    119,426Supplemental cash flow information:Cash paid for interest
    
    $
    32,204
    
    
    $
    31,689Cash paid for income tax, net of refunds
    
    $
    (22,630
    )
    
    $
    90,242Non-cash activities:Financing activity  proceeds from borrowings retained by bank as
deposit for hedge related activities for Krotz Springs refinery
acquisition
    
    $
    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
 Disclosure about Derivative Instruments and Hedging
Activities
 Business Combinations
 4




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ALON USA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, dollars in thousands except as noted)
 Non-controlling Interests in Consolidated
Financial Statements, an Amendment of ARB 51
 Fair Value
Measurements,
 Partial Deferral of the Effective
Date of Statement 157
 The Fair Value Option for Financial Assets and
Financial Liabilities
 Accounting for Uncertainty in Income
Taxes, an interpretation of FASB Statement No. 109
 How Taxes Collected from
Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement
(That Is, Gross versus Net Presentation).
 5




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ALON USA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, dollars in thousands except as noted)
 d) Reclassifications
  (2) Big Spring Refinery Fire
      (3) Acquisitions and Deferred Gain Recognition
 Krotz Springs Refinery Acquisition
     6




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ALON USA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, dollars in thousands except as noted)
  Cash paid,
    
    $
    474,702Transaction costs
    
    
    5,468Total purchase price
    
    $
    480,170
  Current assets
    
    $
    146,289Property, plant and equipment
    
    
    338,897Current liabilities
    
    
    (4,587
    )Other non-current liabilities
    
    
    (429
    )Total purchase price
    
    $
    480,170
   Unaudited Pro Forma Financial Information
  
    
    The acquisition of the Krotz Springs refining business occurred on January 1, 2007;
    
    $302,000 of term debt and $141,702 of borrowings under the revolver was incurred on
January 1, 2007 to fund the acquisition and buy initial inventories; and
    
    Depreciation expense was higher beginning January 1, 2007 based upon the revaluation of
estimated asset values as of that date.
 7




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ALON USA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, dollars in thousands except as noted)
 Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2008
    
    2007
    
    2008
    
    2007(unaudited)
    
    (pro forma)
    
    (pro forma)
    
    (pro forma)Net sales
    
    $
    1,905,106
    
    
    $
    1,842,455
    
    
    $
    5,710,169
    
    
    $
    5,042,996Operating income
    
    
    92,505
    
    
    
    20,217
    
    
    
    30,370
    
    
    
    313,388Net income (loss)
    
    
    37,297
    
    
    
    6,338
    
    
    
    (29,367
    )
    
    
    156,285Earnings (loss) per
share, basic
    
    $
    0.80
    
    
    $
    0.14
    
    
    $
    (0.63
    )
    
    $
    3.34
 Skinnys Acquisition
    Cash paid, net of unrestricted cash acquired
    
    $
    74,787Transaction costs
    
    
    542Total purchase price
    
    $
    75,329
  Current assets, net of unrestricted cash acquired
    
    $
    7,002Property, plant and equipment
    
    
    43,684Other assets
    
    
    771Goodwill
    
    
    34,471Intangibles
    
    
    827Current liabilities
    
    
    (10,483
    )Other non-current liabilities
    
    
    (943
    )Total purchase price
    
    $
    75,329
  Pipeline Acquisition
  8




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ALON USA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, dollars in thousands except as noted)
 Deferred Gain Recognition
  (4) Segment Data
  (a) Refining and Unbranded Marketing Segment
  (b) Asphalt Segment
  (c) Retail and Branded Marketing Segment
  (d) Corporate
  9




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ALON USA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, dollars in thousands except as noted)
  Refining and
    
    
    
    
    
    Retail andUnbranded
    
    
    
    
    
    Branded
    
    
    
    
    
    ConsolidatedMarketing
    
    Asphalt
    
    Marketing
    
    Corporate
    
    TotalThree Months ended September 30, 2008Net sales to external customers
    
    $
    1,292,054
    
    
    $
    261,556
    
    
    $
    351,496
    
    
    $
    
    
    
    $
    1,905,106Intersegment sales/purchases
    
    
    180,874
    
    
    
    (105,887
    )
    
    
    (74,987
    )
    
    
    
    
    
    
    Depreciation and amortization
    
    
    13,081
    
    
    
    535
    
    
    
    3,392
    
    
    
    224
    
    
    
    17,232Operating income (loss)
    
    
    72,453
    
    
    
    20,113
    
    
    
    314
    
    
    
    (375
    )
    
    
    92,505Total assets
    
    
    1,950,580
    
    
    
    262,184
    
    
    
    215,404
    
    
    
    8,142
    
    
    
    2,436,310Turnaround, chemical catalyst,
capital expenditures and capital
expenditures to rebuild the Big
Spring refinery
    
    
    173,049
    
    
    
    32
    
    
    
    844
    
    
    
    27
    
    
    
    173,952
 Refining and
    
    
    
    
    
    Retail andUnbranded
    
    
    
    
    
    Branded
    
    
    
    
    
    ConsolidatedMarketing
    
    Asphalt
    
    Marketing
    
    Corporate
    
    TotalThree Months ended September 30, 2007Net sales to external customers
    
    $
    690,524
    
    
    $
    211,117
    
    
    $
    342,082
    
    
    $
    
    
    
    $
    1,243,723Intersegment sales/purchases
    
    
    223,065
    
    
    
    (161,701
    )
    
    
    (61,364
    )
    
    
    
    
    
    
    Depreciation and amortization
    
    
    13,085
    
    
    
    557
    
    
    
    3,212
    
    
    
    194
    
    
    
    17,048Operating income (loss)
    
    
    7,422
    
    
    
    (3,195
    )
    
    
    13,087
    
    
    
    (324
    )
    
    
    16,990Total assets
    
    
    1,092,144
    
    
    
    359,380
    
    
    
    240,074
    
    
    
    9,415
    
    
    
    1,701,013Turnaround, chemical catalyst and
capital expenditures
    
    
    10,338
    
    
    
    495
    
    
    
    4,010
    
    
    
    579
    
    
    
    15,422
 Refining and
    
    
    
    
    
    Retail andUnbranded
    
    
    
    
    
    Branded
    
    
    
    
    
    ConsolidatedMarketing
    
    Asphalt
    
    Marketing
    
    Corporate
    
    TotalNine Months ended September 30, 2008Net sales to external customers
    
    $
    2,589,745
    
    
    $
    542,773
    
    
    $
    1,038,022
    
    
    $
    
    
    
    $
    4,170,540Intersegment sales/purchases
    
    
    524,781
    
    
    
    (307,579
    )
    
    
    (217,202
    )
    
    
    
    
    
    
    Depreciation and amortization
    
    
    31,921
    
    
    
    1,603
    
    
    
    10,290
    
    
    
    670
    
    
    
    44,484Operating income (loss)
    
    
    68,354
    
    
    
    20,837
    
    
    
    (2,263
    )
    
    
    (1,123
    )
    
    
    85,805Total assets
    
    
    1,950,580
    
    
    
    262,184
    
    
    
    215,404
    
    
    
    8,142
    
    
    
    2,436,310Turnaround, chemical catalyst,
capital expenditures and capital
expenditures to rebuild the Big
Spring refinery
    
    
    353,083
    
    
    
    307
    
    
    
    2,011
    
    
    
    485
    
    
    
    355,886
 Refining and
    
    
    
    
    
    Retail andUnbranded
    
    
    
    
    
    Branded
    
    
    
    
    
    ConsolidatedMarketing
    
    Asphalt
    
    Marketing
    
    Corporate
    
    TotalNine Months ended September 30, 2007Net sales to external customers
    
    $
    1,947,295
    
    
    $
    506,508
    
    
    $
    943,006
    
    
    $
    
    
    
    $
    3,396,809Intersegment sales/purchases
    
    
    511,011
    
    
    
    (368,577
    )
    
    
    (142,434
    )
    
    
    
    
    
    
    Depreciation and amortization
    
    
    34,341
    
    
    
    1,612
    
    
    
    6,061
    
    
    
    629
    
    
    
    42,643Operating income (loss)
    
    
    215,196
    
    
    
    15,262
    
    
    
    23,554
    
    
    
    (976
    )
    
    
    253,036Total assets
    
    
    1,092,144
    
    
    
    359,380
    
    
    
    240,074
    
    
    
    9,415
    
    
    
    1,701,013Turnaround, chemical catalyst and
capital expenditures
    
    
    29,591
    
    
    
    1,655
    
    
    
    5,974
    
    
    
    1,006
    
    
    
    38,226
   10




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##### Table of Contents



ALON USA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, dollars in thousands except as noted)
 (5) Cash and Cash Equivalents
   (6) Fair Value
    Quoted Prices inActive Markets
    
    Significantfor Identical
    
    Other
    
    SignificantAssets or
    
    Observable
    
    UnobservableLiabilities
    
    Inputs
    
    Inputs(Level 1)
    
    (Level 2)
    
    (Level 3)
    
    TotalSeptember 30, 2008Assets:Commodity swaps
    
    $
    
    
    
    $
    2,085
    
    $
    
    
    
    
    $
    2,085Liabilities:Futures and forwards
    
    
    805
    
    
    
    
    
    
    
    
    
    
    
    805Interest rate swaps
    
    
    
    
    
    
    8,156
    
    
    
    
    
    
    
    8,156December 31, 2007Liabilities:Futures and forwards
    
    
    4,250
    
    
    
    
    
    
    
    
    
    
    
    4,250Interest rate swaps
    
    
    
    
    
    
    3,000
    
    
    
    
    
    
    
    3,000
 (7) Derivative Financial Instruments
 Commodity Derivatives  Mark to Market
  11




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##### Table of Contents



ALON USA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, dollars in thousands except as noted)
    Cash Flow Hedges
  Interest Rate Derivatives
    Commodity Derivatives
  12




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##### Table of Contents



ALON USA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, dollars in thousands except as noted)
   (8) Inventories
   September 30,
    
    
    December 31,2008
    
    
    2007Crude oil, refined products, asphalt and blendstocks
    
    $
    296,934
    
    
    $
    261,816Materials and supplies
    
    
    16,881
    
    
    
    12,789Store merchandise
    
    
    18,030
    
    
    
    18,197Store fuel
    
    
    7,207
    
    
    
    7,887Total inventories
    
    $
    339,052
    
    
    $
    300,689
    (9) Property, Plant and Equipment, net
  September 30,
    
    
    December 31,2008
    
    
    2007Refining facilities
    
    $
    1,386,402
    
    
    $
    645,653Pipelines and terminals
    
    
    45,195
    
    
    
    45,158Retail
    
    
    133,341
    
    
    
    131,556Other
    
    
    15,746
    
    
    
    12,271Property, plant and equipment, gross
    
    
    1,580,684
    
    
    
    834,638Less accumulated depreciation
    
    
    (149,938
    )
    
    
    (121,046
    )Property, plant and equipment, net
    
    $
    1,430,746
    
    
    $
    713,592
  (10) Additional Financial Information
  13




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##### Table of Contents



ALON USA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, dollars in thousands except as noted)
 (a) Other Assets
 September 30,
    
    
    December 31,2008
    
    
    2007Deferred turnaround, chemical catalyst expenditures
    
    $
    9,826
    
    
    $
    9,232Environmental receivables
    
    
    8,658
    
    
    
    9,425Deferred debt issuance costs
    
    
    36,891
    
    
    
    11,286Intangible assets
    
    
    7,502
    
    
    
    7,488Deposit for hedge related activities for Krotz Springs refinery acquisition
    
    
    50,000
    
    
    
    Other
    
    
    14,380
    
    
    
    11,266Total other assets
    
    $
    127,257
    
    
    $
    48,697
 (b) Other Non-Current Liabilities
 September 30,
    
    
    December 31,2008
    
    
    2007Pension and other post-employment benefit liabilities
    
    $
    12,200
    
    
    $
    14,137Environmental liabilities
    
    
    33,516
    
    
    
    34,992Fair value of derivative liabilities
    
    
    14,435
    
    
    
    Other
    
    
    8,560
    
    
    
    9,508Total other non-current liabilities
    
    $
    68,711
    
    
    $
    58,637
 (c) Comprehensive Income
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net income
    
    $
    37,297
    
    
    $
    12,627
    
    
    $
    21,946
    
    
    $
    143,805Other comprehensive gain (loss), net of tax:Adjustments for pension and
post-employment benefits
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Unrealized gain (loss) on cash flow hedges
    
    
    33,492
    
    
    
    
    
    
    
    (1,949
    )
    
    
    Total other comprehensive gain (loss), net of tax
    
    
    33,492
    
    
    
    
    
    
    
    (1,949
    )
    
    
    Total comprehensive income
    
    $
    70,789
    
    
    $
    12,627
    
    
    $
    19,997
    
    
    $
    143,805
  September 30,
    
    
    December 31,2008
    
    
    2007Unrealized losses on cash flow hedges, net of tax
    
    $
    (3,899
    )
    
    $
    (1,950
    )Pension and post-employment benefits, net of tax
    
    
    (6,185
    )
    
    
    (6,185
    )Accumulated other comprehensive loss, net of tax
    
    $
    (10,084
    )
    
    $
    (8,135
    )
 14




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##### Table of Contents



ALON USA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, dollars in thousands except as noted)
 (11) Employee and Postretirement Benefits
   For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Components of net periodic benefit cost:Service cost
    
    $
    857
    
    
    $
    507
    
    
    $
    1,771
    
    
    $
    1,521Interest cost
    
    
    748
    
    
    
    665
    
    
    
    2,244
    
    
    
    1,995Expected return on plan assets
    
    
    (822
    )
    
    
    (704
    )
    
    
    (2,466
    )
    
    
    (2,112
    )Amortization of net loss
    
    
    (47
    )
    
    
    134
    
    
    
    (141
    )
    
    
    402Net periodic benefit cost
    
    $
    736
    
    
    $
    602
    
    
    $
    1,408
    
    
    $
    1,806
 (12) Long-Term Debt
  September 30,
    
    
    December 31,2008
    
    
    2007Term loan credit facilities
    
    $
    739,810
    
    
    $
    443,250Revolving credit facilities
    
    
    254,000
    
    
    
    Retail credit facilities
    
    
    88,547
    
    
    
    93,365Total debt
    
    
    1,082,357
    
    
    
    536,615Less current portion
    
    
    (22,863
    )
    
    
    (11,154
    )Total long-term debt
    
    $
    1,059,494
    
    
    $
    525,461
 (a) Credit Suisse Credit Facilities
   15




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ALON USA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, dollars in thousands except as noted)
       (b) Revolving Credit Facilities
 Israel Discount Bank Credit Facility
   Israel Discount Bank Letter of Credits Credit Facility
 16




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##### Table of Contents



ALON USA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, dollars in thousands except as noted)
 Bank of America Credit Facilities.
      (c) Retail Credit Facilities
    17




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##### Table of Contents



ALON USA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, dollars in thousands except as noted)
   (d) Other Retail Related Credit Facilities
  (13) Stock-Based Compensation
  (a) 2005 Incentive Compensation Plan (share value in dollars)
  Restricted Stock
  18




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##### Table of Contents



ALON USA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, dollars in thousands except as noted)
  Number of
    
    
    Weighted AverageRestricted Shares:
    
    Shares
    
    
    Grant Date Fair ValuesNonvested at January 1, 2007
    
    
    49,079
    
    
    $
    20.27Granted
    
    
    2,001
    
    
    
    37.51Vested
    
    
    (24,162
    )
    
    
    20.06Forfeited
    
    
    
    
    
    
    Nonvested at December 31, 2007
    
    
    26,918
    
    
    
    21.74Granted
    
    
    5,577
    
    
    
    13.45Vested
    
    
    (5,941
    )
    
    
    20.92Forfeited
    
    
    
    
    
    
    Nonvested at September 30, 2008
    
    
    26,554
    
    
    $
    20.18
  Stock Appreciation Rights
  (b) 2000 Incentive Stock Compensation Plan
  19




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##### Table of Contents



ALON USA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, dollars in thousands except as noted)
  Alon Assets
    
    
    Alon OperatingWeighted
    
    
    
    
    
    
    WeightedNumber of
    
    
    Average
    
    
    Number of
    
    
    AverageOptions
    
    
    Exercise
    
    
    Options
    
    
    ExerciseOutstanding
    
    
    Price
    
    
    Outstanding
    
    
    PriceOutstanding at January 1, 2007
    
    
    6,848
    
    
    $
    100
    
    
    
    2,572
    
    
    $
    100Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    (1,632
    )
    
    
    100
    
    
    
    (613
    )
    
    
    100Outstanding at December 31, 2007
    
    
    5,216
    
    
    
    100
    
    
    
    1,959
    
    
    
    100Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    (2,423
    )
    
    
    100
    
    
    
    (910
    )
    
    
    100Outstanding at September 30, 2008
    
    
    2,793
    
    
    $
    100
    
    
    
    1,049
    
    
    $
    100
  (14) Stockholders Equity (per share in dollars)
 Common Stock Dividends
  (15) Earnings Per Share (per share in dollars)
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net income
    
    $
    37,297
    
    
    $
    12,627
    
    
    $
    21,946
    
    
    $
    143,805Average number of shares of common stock outstanding
    
    
    46,786
    
    
    
    46,761
    
    
    
    46,783
    
    
    
    46,758Dilutive restrictive shares, SARs, and convertible
preferred shares
    
    
    5,576
    
    
    
    73
    
    
    
    19
    
    
    
    73Average number of shares of common stock
outstanding assuming dilution
    
    
    52,362
    
    
    
    46,834
    
    
    
    46,802
    
    
    
    46,831Earnings per share  basic
    
    $
    0.80
    
    
    $
    0.27
    
    
    $
    0.47
    
    
    $
    3.08Earnings per share  diluted*
    
    $
    0.74
    
    
    $
    0.26
    
    
    $
    0.46
    
    
    $
    3.02
 
 *
    
    For the purpose of adjusting net income in the calculation of diluted earnings per share issued by Alons subsidiaries, the
effect for the three months ended September 30, 2008 and 2007
was $382 and $238, respectively. The effect for the nine months
ended September 30, 2008 and 2007 are $334 and $2,475,
respectively. Additionally, net income for the three months ended
September 30, 2008 was adjusted for preferred stock
dividends that would no longer be paid if the preferred stock was
converted to shares of common stock. For the nine months ended
September 30, 2008, the convertible preferred shares were
anti-dilutive. 20




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##### Table of Contents



ALON USA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, dollars in thousands except as noted)
 (16) Commitments and Contingencies
 (a) Commitments
  Offtake Agreement with Valero
  (b) Contingencies
  SemGroup, LP Bankruptcy
   (c) Environmental
  21




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ALON USA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, dollars in thousands except as noted)
     (17) Income Tax Expense (Benefit)
  (18) Subsequent Event
 Dividend Declared
  
 22




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
 The following discussion of our financial condition and results of operations should be read
in conjunction with the audited consolidated financial statements and notes thereto included in our
Annual Report on Form 10-K for the year ended December 31, 2007. In this document, the words
Alon, the Company, we and our refer to Alon USA Energy, Inc. and its subsidiaries.
 
 Forward-Looking Statements
    
    
    changes in general economic conditions and capital markets;
    
    changes in the underlying demand for our products;
    
    the availability, costs and price volatility of crude oil, other refinery feedstocks
and refined products;
    
    changes in the sweet/sour spread;
    
    changes in the light/heavy spread;
    
    the effects of transactions involving forward contracts and derivative instruments;
    
    actions of customers and competitors;
    
    changes in fuel and utility costs incurred by our facilities;
    
    disruptions due to equipment interruption, pipeline disruptions or failure at our or
third-party facilities;
    
    the execution of planned capital projects;
    
    adverse changes in the credit ratings assigned to our trade credit and debt
instruments;
    
    the effects of and cost of compliance with current and future state and federal
environmental, economic, safety and other laws, policies and regulations;
    
    operating hazards, natural disasters, casualty losses and other matters beyond our
control;
    
    our planned projects to bring back online the naphtha hydrotreater and the design and
construction of a hydrocracker unit at our California refineries may not be completed
within the expected time frames or within the budgeted costs for such projects due to
factors outside of our control;
 23




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##### Table of Contents




    
    with respect to the February 18, 2008 explosion and fire at our Big Spring refinery,
the resulting damage to equipment and disruption to operations may be greater than
currently anticipated; the costs and time necessary to resume full operations may be
greater than currently anticipated or may be increased due to factors outside of our
control, and we may not fully recover all costs, expenses and damages resulting from the
incident under applicable insurance policies;
    
    the global financial crisis impact on our business and financial condition in ways that we currently cannot predict.
We may face significant challenges if conditions in the financial markets do not improve or continue to worsen, such as adversely
impacting 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, 2007 under the caption Risk Factors.
  Company Overview
   Refining and Unbranded Marketing Segment
   Asphalt Segment.
  24




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##### Table of Contents



Retail and Branded Marketing Segment
 Third Quarter Operational and Financial Highlights
    
    
    A gain of $103.1 million recognized from the involuntary conversion of assets and $30.0
million of business interruption recovery due to the Big Spring refinery fire. Also,
$17.4 million was incurred for costs associated with the Big Spring refinery fire.
    
    On July 3, 2008, we completed the acquisition of all the capital stock of the refining business located in Krotz Springs, Louisiana, from Valero Energy Corporation (Valero). The purchase price was $333 million in cash plus approximately $141.7 million representing a preliminary working capital settlement.
    
    The combined refineries throughput for the third quarter of 2008 averaged 122,252 bpd,
consisting of 35,204 bpd at the Big Spring refinery, 28,661 bpd
at the California refineries and 58,387 bpd at the Krotz Springs refinery as
compared to the combined refineries throughput average of 134,608 bpd for the third quarter
of 2007, consisting of 67,824 bpd at the Big Spring refinery and 66,784 bpd at the California refineries.
    
    The Krotz Springs refinery throughput was affected by electrical outages and reduced crude supply due to hurricanes Gustav and Ike.
    
    Our average refinery operating margin for the Big Spring refinery decreased $1.23 per
barrel to $8.17 per barrel for the three months ended September 30, 2008, compared to $9.40
per barrel for the three months ended September 30, 2007. This decrease resulted primarily from lower refinery light product yields as a result of the fire
at the Big Spring refinery which was partially offset by higher industry Gulf Coast 3-2-1 crack spreads.
Gulf Coast 3-2-1 average crack spreads increased to $16.05 per barrel for the third quarter of 2008 compared to $13.14 per barrel for the third quarter of 2007.
    
    The Big Spring refinery operated in a hydroskimming mode during most of the third
quarter of 2008 due to the fire on February 18, 2008, which resulted in lower refinery
light product yields. Light product yields were approximately 54% for the third quarter of
2008 compared to approximately 79% for the same period in 2007. The Big Spring refinerys
utilization was 52.9% in the third quarter of 2008 compared to 91.7% in the third quarter
of 2007.
 25




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##### Table of Contents




    
    Our California refineries operating margin for the three months ended September 30,
2008 increased by $8.31 per barrel to $9.13 per barrel, compared to $0.82 per barrel for
the three months ended September 30, 2007. The increase was primarily attributable to a
34.9% increase in the West Coast 6/1/2/3 crack spread to $3.17 per barrel for the three
months ended September 30, 2008 from $2.35 per barrel for the three months ended September
30, 2007 and from optimizing inventory levels.
    
    Asphalt margins in the third quarter of 2008 averaged $80.30 per ton compared to an average of $15.67 per
ton in the third quarter of 2007. This increase resulted primarily from a 79% increase in sales prices which were $613.98 per ton for the third quarter of 2008 compared to $342.17 per ton for the same period in 2007, as
 asphalt prices increased to more closely coincide with crude prices.
    
    On November 5, 2008, Alon declared its regular quarterly cash dividend of $0.04 per
share on Alons common stock, payable on December 12, 2008 to stockholders of record at the
close of business on November 28, 2008.
 Major Influences on Results of Operations
 Refining and Unbranded Marketing
     26




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##### Table of Contents



Asphalt
  Retail and Branded Marketing
  27




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##### Table of Contents



Factors Affecting Comparability
        Results of Operations
 Net Sales.
 Cost of Sales
 28




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##### Table of Contents



Direct Operating Expenses.
 Selling, General and Administrative Expenses
 29




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ALON USA ENERGY, INC. AND SUBSIDIARIES CONSOLIDATED
 Summary Financial Tables
 For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(dollars in thousands, except per share data)STATEMENT OF OPERATIONS DATA:Net sales
    
    $
    1,905,106
    
    
    $
    1,243,723
    
    
    $
    4,170,540
    
    
    $
    3,396,809Operating costs and expenses:Cost of sales
    
    
    1,812,399
    
    
    
    1,136,026
    
    
    
    4,033,788
    
    
    
    2,876,862Direct operating expenses
    
    
    66,748
    
    
    
    48,342
    
    
    
    149,583
    
    
    
    152,371Selling, general and administrative expenses (1)
    
    
    29,697
    
    
    
    26,425
    
    
    
    86,353
    
    
    
    76,485Net costs associated with fire (2)
    
    
    17,376
    
    
    
    
    
    
    
    43,212
    
    
    
    Business interruption recovery (3)
    
    
    (30,000
    )
    
    
    
    
    
    
    (30,000
    )
    
    
    Depreciation and amortization (4)
    
    
    17,232
    
    
    
    17,048
    
    
    
    44,484
    
    
    
    42,643Total operating costs and expenses
    
    
    1,913,452
    
    
    
    1,227,841
    
    
    
    4,327,420
    
    
    
    3,148,361Gain on involuntary conversion of assets (5)
    
    
    103,092
    
    
    
    
    
    
    
    199,680
    
    
    
    Gain (loss) on disposition of assets (6)
    
    
    (2,241
    )
    
    
    1,108
    
    
    
    43,005
    
    
    
    4,588Operating income
    
    
    92,505
    
    
    
    16,990
    
    
    
    85,805
    
    
    
    253,036Interest expense
    
    
    (21,493
    )
    
    
    (12,787
    )
    
    
    (42,885
    )
    
    
    (35,874
    )Equity earnings (losses) of investees
    
    
    (3,915
    )
    
    
    5,531
    
    
    
    (2,307
    )
    
    
    10,071Other income (loss), net
    
    
    (25
    )
    
    
    1,747
    
    
    
    1,093
    
    
    
    4,928Income before income tax expense (benefit), minority
interest in income of subsidiaries and accumulated dividends on preferred stock of subsidiary
    
    
    67,072
    
    
    
    11,481
    
    
    
    41,706
    
    
    
    232,161Income tax expense (benefit) (7)
    
    
    25,083
    
    
    
    (1,839
    )
    
    
    15,850
    
    
    
    79,782Income before minority interest in income of subsidiaries and accumulated dividends on preferred stock of subsidiary
    
    
    41,989
    
    
    
    13,320
    
    
    
    25,856
    
    
    
    152,379Minority interest in income of subsidiaries
    
    
    2,542
    
    
    
    693
    
    
    
    1,760
    
    
    
    8,574Accumulated dividends on preferred stock of subsidiary
    
    
    2,150
    
    
    
    
    
    
    
    2,150
    
    
    
    Net income
    
    $
    37,297
    
    
    $
    12,627
    
    
    $
    21,946
    
    
    $
    143,805Earnings per share, basic
    
    $
    0.80
    
    
    $
    0.27
    
    
    $
    0.47
    
    
    $
    3.08Weighted average shares outstanding, basic (in thousands)
    
    
    46,786
    
    
    
    46,761
    
    
    
    46,783
    
    
    
    46,758Cash dividends per share
    
    $
    0.04
    
    
    $
    0.04
    
    
    $
    0.12
    
    
    $
    0.12CASH FLOW DATA:Net cash provided by (used in):Operating activities
    
    $
    33,682
    
    
    $
    14,687
    
    
    $
    (8,394
    )
    
    $
    173,595Investing activities
    
    
    (532,747
    )
    
    
    (50,595
    )
    
    
    (583,750
    )
    
    
    (150,584
    )Financing activities
    
    
    503,845
    
    
    
    (4,334
    )
    
    
    542,205
    
    
    
    32,249OTHER DATA:Adjusted EBITDA (8)
    
    $
    N/A
    
    
    $
    40,208
    
    
    $
    N/A
    
    
    $
    306,090Capital expenditures (9)
    
    
    21,724
    
    
    
    11,202
    
    
    
    41,248
    
    
    
    28,869Capital expenditures to rebuild the Big Spring refinery
    
    
    152,225
    
    
    
    
    
    
    
    312,566
    
    
    
    Capital expenditures for turnaround and chemical catalyst
    
    
    3
    
    
    
    4,220
    
    
    
    2,072
    
    
    
    9,357
 30




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##### Table of Contents



September 30,
    
    
    December 31,2008
    
    
    2007BALANCE SHEET DATA (end of period):Cash and cash equivalents
    
    $
    18,676
    
    
    $
    95,911Working capital
    
    
    171,827
    
    
    
    279,580Total assets
    
    
    2,436,310
    
    
    
    1,581,386Total debt
    
    
    1,082,357
    
    
    
    536,615Total
stockholders equity, minority interest in subsidiaries and
preferred stock of subsidiary including accumulated dividends
    
    
    502,211
    
    
    
    403,922
 
 (1)
    
    Includes corporate headquarters selling, general and administrative expenses of $151
and $130 for the three months ended September 30, 2008 and 2007, respectively, and $453 and
$347 for the nine months ended September 30, 2008 and 2007, respectively, which are not
allocated to our three operating segments.(2)
    
    Includes $17,376 and $37,422 for the three and nine months ended September 30, 2008,
respectively, of expenses incurred from pipeline commitment deficiencies, crude sale losses
and other incremental costs; $5,000 for the nine months ended September 30, 2008 for our
third party liability insurance deductible under the insurance policy; and depreciation for
the temporarily idled facilities of $790 for the nine months ended September 30, 2008.(3)
    
    Alon recorded income for the three and nine months ended September 30, 2008 of $30,000
for business interruption recovery as a result of the Big Spring refinery fire with all
proceeds received in September and October 2008.(4)
    
    Includes corporate depreciation and amortization of $224 and $194 for the three months
ended September 30, 2008 and 2007, respectively, and $670 and $629 for the nine months
ended September 30, 2008 and 2007, respectively, which are not allocated to our three
operating segments.(5)
    
    With the insurance proceeds received of $250,000 through September 30, 2008, an
involuntary gain on conversion of assets has been recorded of $199,680 for the proceeds
received in excess of the book value of the assets impaired of $25,330 and demolition and
repair expenses of $24,990 incurred through September 30, 2008.(6)
    
    Gain on disposition of assets reported in the nine months ended September 30, 2008 and
the three and nine months ended September 30, 2007 includes the recognition of deferred
gain recorded primarily in connection with the contribution of certain product pipelines
and terminals to Holly Energy Partners, LP, (HEP), in March 2005 (HEP transaction). A
gain of $42,935 in the second quarter of 2008 represented all the recognition of the
remaining deferred gain associated with the HEP transaction and was due to the termination
of an indemnification agreement with HEP.(7)
    
    Income tax expense for the three and nine months ended
September 30, 2007 includes a benefit of $5,485 resulting from
the true-up of the prior year income tax expense.(8)
    
    Adjusted EBITDA has not been presented for the three and nine month periods ended
September 30, 2008. Alon has historically provided Adjusted EBITDA during periods of
normal operations because management believes it is helpful for investors to compare Alons
operating results to other companies in our industry. Due to the limited operations of the
Big Spring refinery following the February fire and the costs and expenses incurred to
repair affected units, management does not believe a presentation of Adjusted EBITDA for
the three and nine month periods ended September 30, 2008 is meaningful or useful to
investors.  31




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##### Table of Contents




    
    Adjusted EBITDA does not reflect our cash expenditures or future requirements for
capital expenditures or contractual commitments;
    
    Adjusted EBITDA does not reflect the interest expense or the cash requirements
necessary to service interest or principal payments on our debt;
    
    Adjusted EBITDA does not reflect the prior claim that minority stockholders have
on the income generated by non-wholly-owned subsidiaries;
    
    Adjusted EBITDA does not reflect changes in or cash requirements for our working
capital needs; and
    
    Our calculation of Adjusted EBITDA may differ from EBITDA calculations of other
companies in our industry, limiting its usefulness as a comparative measure.
   Three Months Ended
    
    
    Nine Months EndedSeptember 30, 2007
    
    
    September 30, 2007(dollars in thousands)Net income
    
    $
    12,627
    
    
    $
    143,805Minority interest in income
of subsidiaries
    
    
    693
    
    
    
    8,574Income tax expense (benefit)
    
    
    (1,839
    )
    
    
    79,782Interest expense
    
    
    12,787
    
    
    
    35,874Depreciation and amortization
    
    
    17,048
    
    
    
    42,643Gain on disposition of assets
    
    
    (1,108
    )
    
    
    (4,588
    )Adjusted EBITDA
    
    $
    40,208
    
    
    $
    306,090
 
 (9)
    
    Includes corporate capital expenditures of $27 and $579 for the three months ended
September 30, 2008 and 2007, respectively, and $485 and $1,006 for the nine months ended
September 30, 2008 and 2007, respectively, which are not allocated to our three
operating segments. 32




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##### Table of Contents



REFINING AND UNBRANDED MARKETING SEGMENT (A)
 For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(dollars in thousands, except per barrel data and pricing statistics)STATEMENTS OF OPERATIONS DATA:Net sales (1)
    
    $
    1,472,928
    
    
    $
    913,589
    
    
    $
    3,114,526
    
    
    $
    2,458,306Operating costs and expenses:Cost of sales
    
    
    1,442,376
    
    
    
    853,305
    
    
    
    3,116,022
    
    
    
    2,078,199Direct operating expenses
    
    
    54,109
    
    
    
    36,396
    
    
    
    115,250
    
    
    
    117,633Selling, general and administrative expenses
    
    
    4,384
    
    
    
    4,506
    
    
    
    12,452
    
    
    
    17,568Net costs associated with fire (2)
    
    
    17,376
    
    
    
    
    
    
    
    43,212
    
    
    
    Business interruption recovery (3)
    
    
    (30,000
    )
    
    
    
    
    
    
    (30,000
    )
    
    
    Depreciation and amortization
    
    
    13,081
    
    
    
    13,085
    
    
    
    31,921
    
    
    
    34,341Total operating costs and expenses
    
    
    1,501,326
    
    
    
    907,292
    
    
    
    3,288,857
    
    
    
    2,247,741Gain on involuntary conversion of assets (4)
    
    
    103,092
    
    
    
    
    
    
    
    199,680
    
    
    
    Gain (loss) on disposition of assets (5)
    
    
    (2,241
    )
    
    
    1,125
    
    
    
    43,005
    
    
    
    4,631Operating income
    
    $
    72,453
    
    
    $
    7,422
    
    
    $
    68,354
    
    
    $
    215,196KEY OPERATING STATISTICS:Total sales volume (bpd)
    
    
    108,596
    
    
    
    125,487
    
    
    
    113,860
    
    
    
    131,418Per barrel of throughput:Refinery operating margin  Big Spring (6)
    
    $
    8.17
    
    
    $
    9.40
    
    
    $
    2.30
    
    
    $
    15.81Refinery operating margin  CA Refineries (6)
    
    
    9.13
    
    
    
    0.82
    
    
    
    (0.37
    )
    
    
    5.11Refinery operating margin  Krotz Springs (6)
    
    
    7.20
    
    
    
    N/A
    
    
    
    7.20
    
    
    
    N/ARefinery direct operating expense  Big Spring (7)
    
    
    5.15
    
    
    
    3.22
    
    
    
    5.00
    
    
    
    3.48Refinery direct operating expense  CA Refineries
(7)
    
    
    6.17
    
    
    
    2.65
    
    
    
    5.26
    
    
    
    3.05Refinery direct operating expense  Krotz Springs
(7)
    
    
    3.94
    
    
    
    N/A
    
    
    
    3.94
    
    
    
    N/ACapital expenditures
    
    
    20,821
    
    
    
    6,151
    
    
    
    38,445
    
    
    
    20,234Capital expenditures to rebuild the Big Spring
refinery
    
    
    152,225
    
    
    
    
    
    
    
    312,566
    
    
    
    Capital expenditures for turnaround and chemical
catalyst
    
    
    3
    
    
    
    4,220
    
    
    
    2,072
    
    
    
    9,357PRICING STATISTICS:WTI crude oil (per barrel)
    
    $
    117.98
    
    
    $
    75.43
    
    
    $
    113.34
    
    
    $
    66.15WTS crude oil (per barrel)
    
    
    115.82
    
    
    
    70.17
    
    
    
    109.53
    
    
    
    61.54MAYA crude oil (per barrel)
    
    
    106.75
    
    
    
    63.04
    
    
    
    97.03
    
    
    
    54.59Crack spreads (3/2/1) (per barrel):Gulf Coast
    
    $
    16.05
    
    
    $
    13.14
    
    
    $
    12.82
    
    
    $
    17.38Group III
    
    
    14.94
    
    
    
    21.23
    
    
    
    12.95
    
    
    
    22.66West Coast
    
    
    14.68
    
    
    
    20.50
    
    
    
    18.15
    
    
    
    30.89Crack spreads (6/1/2/3) (per barrel):West Coast
    
    $
    3.17
    
    
    $
    2.35
    
    
    $
    0.22
    
    
    $
    7.89Crack spreads (2/1/1) (per barrel):Gulf Coast high sulfur diesel
    
    $
    15.86
    
    
    $
    11.18
    
    
    $
    13.15
    
    
    $
    20.46Crude oil differentials (per barrel):WTI less WTS
    
    $
    2.16
    
    
    $
    5.26
    
    
    $
    3.81
    
    
    $
    4.61WTI less MAYA
    
    
    11.23
    
    
    
    12.39
    
    
    
    16.31
    
    
    
    11.56Product price (dollars per gallon):Gulf Coast unleaded gasoline
    
    $
    3.090
    
    
    $
    2.073
    
    
    $
    2.863
    
    
    $
    1.973Gulf Coast low-sulfur diesel
    
    
    3.394
    
    
    
    2.181
    
    
    
    3.285
    
    
    
    2.019Group III unleaded gasoline
    
    
    3.032
    
    
    
    2.288
    
    
    
    2.861
    
    
    
    2.112Group III low-sulfur diesel
    
    
    3.430
    
    
    
    2.330
    
    
    
    3.300
    
    
    
    2.120West Coast LA CARBOB (unleaded gasoline)
    
    
    3.084
    
    
    
    2.307
    
    
    
    3.067
    
    
    
    2.406West Coast LA ultra low-sulfur diesel
    
    
    3.308
    
    
    
    2.238
    
    
    
    3.258
    
    
    
    2.120Natural gas (per MMBTU)
    
    
    8.98
    
    
    
    6.24
    
    
    
    9.75
    
    
    
    7.02
 33




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##### Table of Contents



(A)
    
    In the first quarter of 2008, our branded marketing business was removed from the refining and
marketing segment and combined with the retail segment. Information for the three and nine months
ended September 30, 2007 has been recast to provide a comparison to the current year results. THROUGHPUT AND YIELD DATA:
 BIG SPRING
 For the Three Months Ended
    
    For the Nine Months EndedSeptember 30,
    
    September 30,2008
    
    2007
    
    2008
    
    2007bpd
    
    %
    
    bpd
    
    %
    
    bpd
    
    %
    
    bpd
    
    %Refinery throughput:Sour crude
    
    
    29,413
    
    
    
    83.5
    
    
    
    56,292
    
    
    
    83.0
    
    
    
    27,199
    
    
    
    84.2
    
    
    
    58,980
    
    
    
    85.9Sweet crude
    
    
    4,396
    
    
    
    12.5
    
    
    
    5,903
    
    
    
    8.7
    
    
    
    3,736
    
    
    
    11.6
    
    
    
    5,172
    
    
    
    7.5Blendstocks
    
    
    1,395
    
    
    
    4.0
    
    
    
    5,629
    
    
    
    8.3
    
    
    
    1,364
    
    
    
    4.2
    
    
    
    4,502
    
    
    
    6.6Total refinery throughput (8)
    
    
    35,204
    
    
    
    100.0
    
    
    
    67,824
    
    
    
    100.0
    
    
    
    32,299
    
    
    
    100.0
    
    
    
    68,654
    
    
    
    100.0Refinery production:Gasoline
    
    
    8,987
    
    
    
    26.3
    
    
    
    30,516
    
    
    
    45.1
    
    
    
    10,642
    
    
    
    33.7
    
    
    
    31,586
    
    
    
    46.3Diesel/jet
    
    
    8,861
    
    
    
    26.0
    
    
    
    19,560
    
    
    
    28.9
    
    
    
    8,128
    
    
    
    25.7
    
    
    
    20,310
    
    
    
    29.8Asphalt
    
    
    4,582
    
    
    
    13.5
    
    
    
    8,485
    
    
    
    12.6
    
    
    
    4,552
    
    
    
    14.4
    
    
    
    7,614
    
    
    
    11.2Petrochemicals
    
    
    626
    
    
    
    1.8
    
    
    
    3,658
    
    
    
    5.4
    
    
    
    790
    
    
    
    2.5
    
    
    
    4,174
    
    
    
    6.1Other
    
    
    11,054
    
    
    
    32.4
    
    
    
    5,392
    
    
    
    8.0
    
    
    
    7,511
    
    
    
    23.7
    
    
    
    4,497
    
    
    
    6.6Total refinery production (9)
    
    
    34,110
    
    
    
    100.0
    
    
    
    67,611
    
    
    
    100.0
    
    
    
    31,623
    
    
    
    100.0
    
    
    
    68,181
    
    
    
    100.0Refinery utilization (10)
    
    
    
    
    
    
    52.9
    %
    
    
    
    
    
    
    91.7
    %
    
    
    
    
    
    
    45.3
    %
    
    
    
    
    
    
    93.9
    %
 THROUGHPUT AND YIELD DATA:
 CALIFORNIA REFINERIES
 For the Three Months Ended
    
    For the Nine Months EndedSeptember 30,
    
    September 30,2008
    
    2007
    
    2008
    
    2007bpd
    
    %
    
    bpd
    
    %
    
    bpd
    
    %
    
    bpd
    
    %Refinery throughput:Medium sour crude
    
    
    8,692
    
    
    
    30.3
    
    
    
    24,395
    
    
    
    36.5
    
    
    
    10,404
    
    
    
    30.1
    
    
    
    22,949
    
    
    
    36.4Heavy crude
    
    
    19,714
    
    
    
    68.8
    
    
    
    42,562
    
    
    
    63.8
    
    
    
    23,587
    
    
    
    68.1
    
    
    
    40,124
    
    
    
    63.5Blendstocks
    
    
    255
    
    
    
    0.9
    
    
    
    (173
    )
    
    
    (0.3
    )
    
    
    629
    
    
    
    1.8
    
    
    
    43
    
    
    
    0.1Total refinery throughput (8)
    
    
    28,661
    
    
    
    100.0
    
    
    
    66,784
    
    
    
    100.0
    
    
    
    34,620
    
    
    
    100.0
    
    
    
    63,116
    
    
    
    100.0Refinery production:Gasoline
    
    
    3,513
    
    
    
    12.6
    
    
    
    8,090
    
    
    
    12.3
    
    
    
    4,672
    
    
    
    14.0
    
    
    
    7,335
    
    
    
    11.9Diesel/jet
    
    
    7,379
    
    
    
    26.5
    
    
    
    14,490
    
    
    
    22.1
    
    
    
    8,262
    
    
    
    24.7
    
    
    
    13,711
    
    
    
    22.2Asphalt
    
    
    9,026
    
    
    
    32.4
    
    
    
    21,507
    
    
    
    32.8
    
    
    
    9,650
    
    
    
    28.8
    
    
    
    19,440
    
    
    
    31.5Light unfinished
    
    
    0
    
    
    
    0.0
    
    
    
    3,196
    
    
    
    4.9
    
    
    
    0
    
    
    
    0.0
    
    
    
    3,346
    
    
    
    5.4Heavy unfinished
    
    
    7,678
    
    
    
    27.5
    
    
    
    17,248
    
    
    
    26.3
    
    
    
    10,659
    
    
    
    31.8
    
    
    
    16,853
    
    
    
    27.3Other
    
    
    278
    
    
    
    1.0
    
    
    
    1,057
    
    
    
    1.6
    
    
    
    249
    
    
    
    0.7
    
    
    
    1,015
    
    
    
    1.7Total refinery production (9)
    
    
    27,874
    
    
    
    100.0
    
    
    
    65,588
    
    
    
    100.0
    
    
    
    33,492
    
    
    
    100.0
    
    
    
    61,700
    
    
    
    100.0Refinery utilization (10)
    
    
    
    
    
    
    39.2
    %
    
    
    
    
    
    
    92.4
    %
    
    
    
    
    
    
    46.9
    %
    
    
    
    
    
    
    87.9
    %
 34




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##### Table of Contents



THROUGHPUT AND YIELD DATA:
 KROTZ SPRINGS (B)
 For the Three Months
    
    For the Nine MonthsEnded
    
    EndedSeptember 30,
    
    September 30,2008
    
    2008bpd
    
    %
    
    bpd
    
    %Refinery throughput:Light sweet crude
    
    
    37,803
    
    
    
    64.7
    
    
    
    37,803
    
    
    
    64.7Heavy sweet crude
    
    
    18,595
    
    
    
    31.9
    
    
    
    18,595
    
    
    
    31.9Blendstocks
    
    
    1,989
    
    
    
    3.4
    
    
    
    1,989
    
    
    
    3.4Total refinery throughput (8)
    
    
    58,387
    
    
    
    100.0
    
    
    
    58,387
    
    
    
    100.0Refinery production:Gasoline
    
    
    24,255
    
    
    
    41.0
    
    
    
    24,255
    
    
    
    41.0Diesel/jet
    
    
    27,910
    
    
    
    47.2
    
    
    
    27,910
    
    
    
    47.2Heavy oils
    
    
    1,260
    
    
    
    2.1
    
    
    
    1,260
    
    
    
    2.1Other
    
    
    5,700
    
    
    
    9.7
    
    
    
    5,700
    
    
    
    9.7Total refinery production (9)
    
    
    59,125
    
    
    
    100.0
    
    
    
    59,125
    
    
    
    100.0Refinery utilization (10)
    
    
    
    
    
    
    67.9
    %
    
    
    
    
    
    
    67.9
    %
 
 (B)
    
    For the nine months ended September 30, 2008, represents throughput and production data for
the period from July 1, 2008 through September 30, 2008. 
 (1)
    
    Net sales include intersegment sales to our asphalt and retail and branded marketing
segments at prices which approximate wholesale market prices. These intersegment sales are
eliminated through consolidation of our financial statements.(2)
    
    Includes $17,376 and $37,422 for the three and nine months ended September 30, 2008,
respectively, of expenses incurred from pipeline commitment deficiencies, crude sale losses
and other incremental costs; $5,000 for the nine months ended September 30, 2008 for our
third party liability insurance deductible under the insurance policy; and depreciation for
the temporarily idled facilities of $790 for the nine months ended September 30, 2008.(3)
    
    Alon recorded income for the three and nine months ended September 30, 2008 of $30,000
for business interruption recovery as a result of the Big Spring refinery fire with all
proceeds received in September and October 2008.(4)
    
    With the insurance proceeds received of $250,000 through September 30, 2008, an
involuntary gain on conversion of assets has been recorded of $199,680 for the proceeds
received in excess of the book value of the assets impaired of $25,330 and demolition and
repair expenses of $24,990 incurred through September 30, 2008.(5)
    
    Gain on disposition of assets reported in the nine months ended September 30, 2008 and
the three and nine months ended September 30, 2007 includes the recognition of deferred
gain recorded primarily in connection with the contribution of certain product pipelines
and terminals to Holly Energy Partners, LP, (HEP), in March 2005 (HEP transaction). A
gain of $42,935 in the second quarter of 2008 represented all the recognition of the
remaining deferred gain associated with the HEP transaction and was due to the termination
of an indemnification agreement with HEP.(6)
    
    Refinery operating margin is a per barrel measurement calculated by dividing the margin
between net sales and cost of sales (exclusive of unrealized hedging gains and losses and
inventories 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. There were unrealized hedging gains of $2,525 and $4,127
for the California refineries for the three and nine months ended September 30, 2008,
respectively, and unrealized hedging losses of $2,256 and $2,698 for the California
refineries for the three and nine months ended September 30, 2007, respectively. There
were unrealized hedging losses of $1,120 for the Big Spring refinery for the three and nine
months ended September 30, 2007, respectively. 
 35




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##### Table of Contents



The refinery operating margin for the Krotz Springs
refinery excludes a charge of $61,192 to cost of sales for inventories adjustments related
to the acquisition.(7)
    
    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.(8)
    
    Total refinery throughput represents the total barrels per day of crude oil and
blendstock inputs in the refinery production process.(9)
    
    Total refinery production represents the barrels per day of various finished products
produced from processing crude and other refinery feedstocks through the crude units and
other conversion units at the refinery. Light product yields decreased at the Big Spring
refinery for the three and nine months ended September 30, 2008 due to the fire on February
18, 2008 and the re-start of the crude unit in a hydroskimming mode on April 5, 2008.(10)
    
    Refinery utilization represents average daily crude oil throughput divided by crude oil
capacity, excluding planned periods of downtime for maintenance and turnarounds. The
decrease in refinery utilization at our Big Spring refinery for the three and nine months
ended September 30, 2008 is due to the fire on February 18, 2008. Production ceased at the
Big Spring refinery until the re-start of the crude unit in a hydroskimming mode on April
5, 2008. The Big Spring refinery returned to a normal operating mode with the re-start of
the Fluid Catalytic Cracking Unit (FCCU) on September 26, 2008. The decrease in refinery
utilization at our California refineries is due to reduced throughput to optimize our
refining and asphalt economics. The low refinery utilization at our Krotz Springs refinery
is due to shutdowns during hurricanes Gustav and Ike and limited
crude supply and electrical outages following the hurricanes.
 36




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##### Table of Contents



ASPHALT SEGMENT
 For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(dollars in thousands, except per ton data)STATEMENTS OF OPERATIONS DATA:Net sales
    
    $
    261,556
    
    
    $
    211,117
    
    
    $
    542,773
    
    
    $
    506,508Operating costs and expenses:Cost of sales (1)
    
    
    227,348
    
    
    
    201,447
    
    
    
    482,957
    
    
    
    452,722Direct operating expenses
    
    
    12,639
    
    
    
    11,946
    
    
    
    34,333
    
    
    
    34,738Selling, general and administrative
expenses
    
    
    921
    
    
    
    358
    
    
    
    3,043
    
    
    
    2,174Depreciation and amortization
    
    
    535
    
    
    
    557
    
    
    
    1,603
    
    
    
    1,612Total operating costs and expenses
    
    
    241,443
    
    
    
    214,308
    
    
    
    521,936
    
    
    
    491,246Gain (loss) on disposition of assets
    
    
    
    
    
    
    (4
    )
    
    
    
    
    
    
    Operating income (loss)
    
    $
    20,113
    
    
    $
    (3,195
    )
    
    $
    20,837
    
    
    $
    15,262KEY OPERATING STATISTICS:Total sales volume (tons in thousands)
    
    
    426
    
    
    
    617
    
    
    
    1,091
    
    
    
    1,533Sales price per ton
    
    $
    613.98
    
    
    $
    342.17
    
    
    $
    497.50
    
    
    $
    330.40Asphalt margin per ton (2)
    
    $
    80.30
    
    
    $
    15.67
    
    
    $
    54.83
    
    
    $
    35.09Capital expenditures
    
    $
    32
    
    
    $
    495
    
    
    $
    307
    
    
    $
    1,655
 
 (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)
    
    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. 37




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##### Table of Contents



RETAIL AND BRANDED MARKETING SEGMENT (A)
 For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(dollars in thousands, except per gallon data)STATEMENTS OF OPERATIONS DATA:Net sales
    
    $
    351,496
    
    
    $
    342,082
    
    
    $
    1,038,022
    
    
    $
    943,006Operating costs and expenses:Cost of sales (1)
    
    
    323,549
    
    
    
    304,339
    
    
    
    959,590
    
    
    
    856,952Selling, general and administrative expenses
    
    
    24,241
    
    
    
    21,431
    
    
    
    70,405
    
    
    
    56,396Depreciation and amortization
    
    
    3,392
    
    
    
    3,212
    
    
    
    10,290
    
    
    
    6,061Total operating costs and expenses
    
    
    351,182
    
    
    
    328,982
    
    
    
    1,040,285
    
    
    
    919,409Gain (loss) on disposition of assets
    
    
    
    
    
    
    (13
    )
    
    
    
    
    
    
    (43
    )Operating income (loss)
    
    $
    314
    
    
    $
    13,087
    
    
    $
    (2,263
    )
    
    $
    23,554KEY OPERATING STATISTICS:Integrated branded fuel sales (thousands of gallons) (2)
    
    
    54,700
    
    
    
    60,458
    
    
    
    163,789
    
    
    
    191,134Integrated branded fuel margin (cents per gallon) (2)
    
    
    2.7
    
    
    
    17.7
    
    
    
    2.2
    
    
    
    11.5Non-Integrated branded fuel sales (thousands of gallons)
(2)
    
    
    28,236
    
    
    
    53,291
    
    
    
    103,687
    
    
    
    162,396Non-Integrated branded fuel margin (cents per gallon) (2)
    
    
    (1.3
    )
    
    
    2.5
    
    
    
    (1.2
    )
    
    
    1.7Number of stores (end of period)
    
    
    306
    
    
    
    308
    
    
    
    306
    
    
    
    308Retail fuel sales (thousands of gallons)
    
    
    23,807
    
    
    
    27,049
    
    
    
    73,092
    
    
    
    65,075Retail fuel sales (thousands of gallons per site per
month) (3)
    
    
    26
    
    
    
    29
    
    
    
    27
    
    
    
    30Retail fuel margin (cents per gallon) (4)
    
    
    22.5
    
    
    
    16.0
    
    
    
    20.0
    
    
    
    19.3Retail fuel sales price (dollars per gallon) (5)
    
    $
    3.86
    
    
    $
    2.92
    
    
    $
    3.57
    
    
    $
    2.77Merchandise sales
    
    $
    69,378
    
    
    $
    69,180
    
    
    $
    197,931
    
    
    $
    159,289Merchandise sales (per site per month) (3)
    
    
    76
    
    
    
    75
    
    
    
    72
    
    
    
    74Merchandise margin (6)
    
    
    30.8
    %
    
    
    30.7
    %
    
    
    30.9
    %
    
    
    29.7
    %Capital expenditures
    
    $
    844
    
    
    $
    3,977
    
    
    $
    2,011
    
    
    $
    5,954
 
 (A)
    
    In the first quarter of 2008, our branded marketing business was removed from the
refining and marketing segment and combined with the retail segment. Information for the
three and nine months ended September 30, 2007 has been recast to provide a comparison to
the current year results. 
 (1)
    
    Cost of sales includes intersegment purchases of motor fuels from our refining and
unbranded marketing segment at prices which approximate wholesale market prices. These
intersegment purchases are eliminated through consolidation of our financial statements.(2)
    
    Marketing sales volume represents branded fuel sales to our wholesale marketing
customers located in both our integrated and non-integrated regions. The branded fuels we
sell in our integrated region are primarily supplied by the Big Spring refinery, but due to the fire on February 18, 2008 at the Big
Spring refinery, more fuel has been purchased from third-party
suppliers. The branded fuels we sell in the non-integrated region are obtained from
third-party suppliers. The marketing margin represents the margin between the net sales and
cost of sales attributable to our branded fuel sales volume, expressed on a
cents-per-gallon basis.(3)
    
    Retail fuel and merchandise sales per site for the three and nine month periods ending
September 30, 2007 were calculated using 308 stores for the three months ended and a
weighted average for the nine months ended. We added 102 stores with the acquisition of
Skinnys, Inc. on June 29, 2007, which were weighted for the calculation of the nine months
ended September 30, 2007. 38




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##### Table of Contents



(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.
 39




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##### Table of Contents



Three months ended September 30, 2008 Compared to the Three months ended September 30, 2007
 Net Sales
 Consolidated
 Refining and Unbranded Marketing Segment
 Asphalt Segment
 Retail and Branded Marketing Segment
 Cost of Sales
 Consolidated
 Refining and Unbranded Marketing Segment.
 40




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##### Table of Contents



Asphalt Segment
 Retail Branded Marketing Segment.
 Direct Operating Expenses
 Consolidated
 Refining and Unbranded Marketing Segment.
 Asphalt Segment.
 Selling, General and Administrative Expenses
 Consolidated
 Refining and Unbranded Marketing Segment
 Asphalt Segment
 Retail and Branded Marketing Segment
 Depreciation and Amortization
  41




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##### Table of Contents



Operating Income
 Consolidated
 Refining and Unbranded Marketing Segment
   Asphalt
Segment.
 Retail and Branded Marketing Segment.
 Interest Expense
  42




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##### Table of Contents



Income Tax Expense (Benefit)
  Minority Interest in Income of Subsidiaries
  Accumulated Dividends on Preferred Stock of Subsidiary
  Net Income
  Nine Months Ended September 30, 2008 Compared to the Nine Months Ended September 30, 2007
 Net Sales
 Consolidated
 Refining and Unbranded Marketing Segment
 Asphalt Segment
 43




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##### Table of Contents



Retail and Branded Marketing Segment
 Cost of Sales
 Consolidated
 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
 44




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##### Table of Contents



Refining and Unbranded Marketing Segment
 Asphalt Segment
 Retail and Branded Marketing Segment
 Depreciation and Amortization
  Operating Income
 Consolidated
 Refining and Unbranded Marketing Segment.
    45




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##### Table of Contents



Asphalt Segment.
 Retail and Branded Marketing Segment.
 Interest Expense
  Income Tax Expense (Benefit)
  Minority Interest in Income of Subsidiaries
  Accumulated Dividends on Preferred Stock of Subsidiary
  Net Income
  Liquidity and Capital Resources
  46




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##### Table of Contents



Cash Flows
  For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(dollars in thousands)Cash provided by (used in):Operating activities
    
    $
    33,682
    
    
    $
    14,687
    
    
    $
    (8,394
    )
    
    $
    173,595Investing activities
    
    
    (532,747
    )
    
    
    (50,595
    )
    
    
    (583,750
    )
    
    
    (150,584
    )Financing activities
    
    
    503,845
    
    
    
    (4,334
    )
    
    
    542,205
    
    
    
    32,249Net increase (decrease) in cash and cash equivalents
    
    $
    4,780
    
    
    $
    (40,242
    )
    
    $
    (49,939
    )
    
    $
    55,260
 Cash Flows Provided by (Used In) Operating Activities
   Cash Flows Used In Investing Activities
   47




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##### Table of Contents



Cash Flows Provided By Financing Activities
   Cash Position and Indebtedness
  Summary of Indebtedness
 As of September 30, 2008Amount Outstanding
    
    
    Total Facility
    
    
    Total Availability (1)(dollars in thousands)Debt, including current portion:Term loan credit facilities
    
    $
    793,810
    
    
    $
    739,810
    
    
    $
    Revolving credit facilities
    
    
    254,000
    
    
    
    1,000,000
    
    
    
    213,868Retail credit facilities
    
    
    88,547
    
    
    
    88,547
    
    
    
    Totals
    
    $
    1,136,357
    
    
    $
    1,828,357
    
    
    $
    213,868
 
 (1)
    
    Total availability was calculated as the lesser of (a) the total size of the facilities
less outstanding borrowings and letters of credit as of September 30, 2008, which was
$375.6 million or (b) total borrowing base less outstanding borrowings and letters of
credit as of September 30, 2008, which was $213.9 million. Term Loan Credit Facility
  48




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##### Table of Contents



Revolving Credit Facilities
 Israel Discount Bank Credit Facility
  49




---



##### Table of Contents



Israel Discount Bank Letter of Credits Credit Agreement
 Bank of America Credit Facilities.
      Retail Credit Facilities
  50




---



##### Table of Contents



Capital Spending
  Clean Air Capital Expenditures
 Turnaround and Chemical Catalyst Costs
 Contractual Obligations and Commercial Commitments
  Off-Balance Sheet Arrangements
  51




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##### Table of Contents



Critical Accounting Policies
   New Accounting Standards and Disclosures
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Commodity Price Risk
     52




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##### Table of Contents



Wtd Avg
    
    Wtd AvgDescription
    
    Contract
    
    Purchase
    
    Sales
    
    Contract
    
    Market
    
    Gainof Activity
    
    Volume
    
    Price/BBL
    
    Price/BBL
    
    Value
    
    Value
    
    (Loss)(in thousands)Forwards-long (Crude)
    
    
    549,000
    
    
    $
    107.71
    
    
    $
    
    
    
    $
    59,133
    
    
    $
    58,626
    
    
    $
    (507
    )Forwards-long (Diesel)
    
    
    50,000
    
    
    
    130.32
    
    
    
    
    
    
    
    6,516
    
    
    
    6,341
    
    
    
    (175
    )Futures-short (Crude)
    
    
    (58,000
    )
    
    
    
    
    
    
    98.47
    
    
    
    (5,711
    )
    
    
    (5,834
    )
    
    
    (123
    )
 Wtd Avg
    
    Wtd AvgDescription
    
    Contract
    
    Contract
    
    Market
    
    Contract
    
    Market
    
    Gainof Activity
    
    Volume
    
    Spread
    
    Spread
    
    Value
    
    Value
    
    (Loss)Futures-swaps (Crack Spread)
    
    
    13,713,625
    
    
    $
    22.27
    
    
    $
    22.14
    
    
    $
    294,916
    
    
    $
    292,831
    
    
    $
    2,085
 Interest Rate Risk
  
 ITEM 4. CONTROLS AND PROCEDURES
 (1) Evaluation of disclosure controls and procedures.
  (2) Changes in internal control over financial reporting.
  53




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##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
 Purchases
of Equity Securities by Affiliated Purchasers
 Total Number ofShares Purchased as
    
    Maximum Number
    ofPart of Publicly
    
    Shares that May Yet BeTotal Number of
    
    Average Price Paid
    
    Announced Plans or
    
    Purchased Under thePeriod
    
    Shares Purchased
    
    per Share
    
    Programs
    
    Plans or ProgramsJanuary 1, 2008 
January 31, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    February 1, 2008 
February 29, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    March 1, 2008 
March 31, 2008
    
    
    933,000
    (a)
    
    $
    13.07
    (b)
    
    
    
    
    
    
    April 1, 2008 
April 30, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    May 1, 2008 
May 31, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    June 1, 2008 
June 30, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    July 1, 2008 
July 31, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    August 1, 2008 
August 31, 2008
    
    
    1,513,508
    (c)
    
    $
    10.57
    
    
    
    
    
    
    
    September 1, 2008 
September 30, 2008
    
    
    187,300
    (c)
    
    $
    11.93
    
    
    
    
    
    
    
    Total
    
    
    2,633,808
    
    
    $
    11.55
 
 (a)
    
    The amount shown reflects the aggregate purchases, in a series of open market transactions, by
(i) Alon Israel Oil Company Ltd. (Alon Israel) of an aggregate of 880,000 shares of Alon common
stock at an average volume weighted purchase price of $13.02; and (ii) David Wiessman of an
aggregate of 53,000 shares of Alon common stock at an average volume weighted purchase price of
$13.77. The purchases by Alon Israel and Mr. Wiessman were effected in accordance with the volume
limitations and other safe harbor provisions set forth in Rule 10b-18 under the Exchange Act.(b)
    
    The amount shown reflects the average volume weighted purchase price of the combined purchases
by Alon Israel and Mr. Wiessman.(c)
    
    The amount shown reflects the aggregate purchases, in a series of open market transactions, by
Alon Israel. The purchases by Alon Israel were effected in accordance with the volume limitations
and other safe harbor provisions set forth in Rule 10b-18 under the Exchange Act. 54




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##### Table of Contents



ITEM 5. OTHER INFORMATION.
 Amendments to Certain Agreements with Named Executive Officers
  55




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##### Table of Contents



ITEM 6. EXHIBITS
 ExhibitNumber
    
    Description of Exhibit3.1
    
    Amended and Restated Certificate of Incorporation of Alon USA Energy, Inc. (incorporated by
reference to Exhibit 3.1 to Form S-1, filed by the Company on July 7, 2005, SEC File No.
333-124797).3.2
    
    Amended and Restated Bylaws of Alon USA Energy, Inc. (incorporated by reference to Exhibit
3.2 to Form S-1, filed by the Company on July 14, 2005, SEC File No. 333-124797).4.1
    
    Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to Form S-1,
filed by the Company on June 17, 2005, SEC File No. 333-124797).10.1
    
    First Amendment to Stock Purchase Agreement, dated as of July 3, 2008, by and among Valero
Refining and Marketing Company, Alon Refining Krotz Springs, Inc. and Valero Refining
Company-Louisiana (incorporated by reference to Exhibit 10.1 to Form 8-K, filed by the
Company on July 10, 2008, SEC File No. 001-32567).10.2
    
    Term Loan Agreement, dated as of July 3, 2008, by and among Alon Refining Louisiana, Inc.,
Alon Refining Krotz Springs, Inc., the lenders party thereto and Credit Suisse, as
administrative agent and collateral agent (incorporated by reference to Exhibit 10.2 to Form
8-K, filed by the Company on July 10, 2008, SEC File No. 001-32567).10.3
    
    Loan and Security Agreement, dated as of July 3, 2008, by and among Alon Refining Louisiana,
Inc., Alon Refining Krotz Springs, Inc., the lenders party thereto and Bank of America,
N.A., as administrative agent (incorporated by reference to Exhibit 10.3 to Form 8-K, filed
by the Company on July 10, 2008, SEC File No. 001-32567).10.4
    
    Waiver, Consent, Partial Release and Fourth Amendment, dated as of July 3, 2008, by and
among USA Energy, Inc., Alon USA, LP, Israel Discount Bank of New York, Bank Leumi USA and
certain other guarantor companies and financial institutions from time to time named therein
(incorporated by reference to Exhibit 10.4 to Form 8-K, filed by the Company on July 10,
2008, SEC File No. 001-32567).10.5
    
    Series A Preferred Stock Purchase Agreement, dated as of July 3, 2008, by and between Alon
Refining Louisiana, Inc. and Alon Israel Oil Company, Ltd. (incorporated by reference to
Exhibit 10.5 to Form 8-K, filed by the Company on July 10, 2008, SEC File No. 001-32567).10.6
    
    Stockholders Agreement, dated as of July 3, 2008, by and among Alon USA Energy, Inc., Alon
Refining Louisiana, Inc., Alon Louisiana Holdings, Inc. and Alon Israel Oil Company, Ltd.
(incorporated by reference to Exhibit 10.6 to Form 8-K, filed by the Company on July 10,
2008, SEC File No. 001-32567).10.7
    
    Offtake Agreement, dated as of July 3, 2008, by and between Valero Marketing and Supply
Company and Alon Refining Krotz Springs, Inc. (incorporated by reference to Exhibit 10.9 to
Form 10-Q, filed by the Company on August 7, 2008, SEC File No. 001-32567).10.8
    
    Earnout Agreement, dated as of July 3, 2008, by and between Valero Refining and Marketing
Company and Alon Refining Krotz Springs, Inc. (incorporated by reference to Exhibit 10.10 to
Form 10-Q, filed by the Company on August 7, 2008, SEC File No. 001-32567).10.9*
    
    Second Amendment to Executive Employment Agreement, dated as of November 4, 2008, between Jeff D.
Morris and Alon USA GP, LLC.10.10*
    
    Second Amendment to Executive Employment Agreement, dated as of November 4, 2008, between Claire A.
Hart and Alon USA GP, LLC.10.11*
    
    Second Amendment to Executive Employment Agreement, dated as of November 4, 2008, between Joseph A.
Concienne, III and Alon USA GP, LLC.
 56




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##### Table of Contents



ExhibitNumber
    
    Description of Exhibit10.12*
    
    Amendment to Amended and Restated Management Employment Agreement, dated as of November 4,
2008, between Harlin R. Dean and Alon USA GP, LLC.10.13*
    
    Second Amendment to Executive/Management Employment Agreement, dated as of November 4, 2008,
between Yosef Israel and Alon USA GP, LLC.10.14*
    
    Amendment to Executive Employment Agreement, dated as of November 4, 2008, between Shai Even
and Alon USA GP, LLC.10.15*
    
    Second Amendment to Incentive Stock Option Agreement, dated as of November 4, 2008, between Jeff D.
Morris and Alon Assets, Inc.10.16*
    
    Second Amendment to Incentive Stock Option Agreement, dated as of November 4, 2008, between Jeff D.
Morris and Alon USA Operating, Inc.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.
 
 *
    
    Identifies management contracts and compensatory plans or arrangements. 57




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##### Table of Contents



SIGNATURES
  Alon USA Energy, Inc.Date:  November 6, 2008
    By:
    /s/ David WiessmanDavid WiessmanExecutive Chairman Date:  November 6, 2008
    By:
    /s/ Jeff D. MorrisJeff D. MorrisChief Executive Officer Date:  November 6, 2008
    By:
    /s/ Shai EvenShai EvenChief Financial Officer 58




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##### Table of Contents



EXHIBITS
 ExhibitNumber
    
    Description of Exhibit3.1
    
    Amended and Restated Certificate of Incorporation of Alon USA Energy, Inc. (incorporated by
reference to Exhibit 3.1 to Form S-1, filed by the Company on July 7, 2005, SEC File No.
333-124797).3.2
    
    Amended and Restated Bylaws of Alon USA Energy, Inc. (incorporated by reference to Exhibit
3.2 to Form S-1, filed by the Company on July 14, 2005, SEC File No. 333-124797).4.1
    
    Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to Form S-1,
filed by the Company on June 17, 2005, SEC File No. 333-124797).10.1
    
    First Amendment to Stock Purchase Agreement, dated as of July 3, 2008, by and among Valero
Refining and Marketing Company, Alon Refining Krotz Springs, Inc. and Valero Refining
Company-Louisiana (incorporated by reference to Exhibit 10.1 to Form 8-K, filed by the
Company on July 10, 2008, SEC File No. 001-32567).10.2
    
    Term Loan Agreement, dated as of July 3, 2008, by and among Alon Refining Louisiana, Inc.,
Alon Refining Krotz Springs, Inc., the lenders party thereto and Credit Suisse, as
administrative agent and collateral agent (incorporated by reference to Exhibit 10.2 to Form
8-K, filed by the Company on July 10, 2008, SEC File No. 001-32567).10.3
    
    Loan and Security Agreement, dated as of July 3, 2008, by and among Alon Refining Louisiana,
Inc., Alon Refining Krotz Springs, Inc., the lenders party thereto and Bank of America,
N.A., as administrative agent (incorporated by reference to Exhibit 10.3 to Form 8-K, filed
by the Company on July 10, 2008, SEC File No. 001-32567).10.4
    
    Waiver, Consent, Partial Release and Fourth Amendment, dated as of July 3, 2008, by and
among USA Energy, Inc., Alon USA, LP, Israel Discount Bank of New York, Bank Leumi USA and
certain other guarantor companies and financial institutions from time to time named therein
(incorporated by reference to Exhibit 10.4 to Form 8-K, filed by the Company on July 10,
2008, SEC File No. 001-32567).10.5
    
    Series A Preferred Stock Purchase Agreement, dated as of July 3, 2008, by and between Alon
Refining Louisiana, Inc. and Alon Israel Oil Company, Ltd. (incorporated by reference to
Exhibit 10.5 to Form 8-K, filed by the Company on July 10, 2008, SEC File No. 001-32567).10.6
    
    Stockholders Agreement, dated as of July 3, 2008, by and among Alon USA Energy, Inc., Alon
Refining Louisiana, Inc., Alon Louisiana Holdings, Inc. and Alon Israel Oil Company, Ltd.
(incorporated by reference to Exhibit 10.6 to Form 8-K, filed by the Company on July 10,
2008, SEC File No. 001-32567).10.7
    
    Offtake Agreement, dated as of July 3, 2008, by and between Valero Marketing and Supply
Company and Alon Refining Krotz Springs, Inc. (incorporated by reference to Exhibit 10.9 to
Form 10-Q, filed by the Company on August 7, 2008, SEC File No. 001-32567).10.8
    
    Earnout Agreement, dated as of July 3, 2008, by and between Valero Refining and Marketing
Company and Alon Refining Krotz Springs, Inc. (incorporated by reference to Exhibit 10.10 to
Form 10-Q, filed by the Company on August 7, 2008, SEC File No. 001-32567).10.9*
    
    Second Amendment to Executive Employment Agreement, dated as of November 4, 2008, between Jeff D.
Morris and Alon USA GP, LLC.10.10*
    
    Second Amendment to Executive Employment Agreement, dated as of November 4, 2008, between Claire A.
Hart and Alon USA GP, LLC.10.11*
    
    Second Amendment to Executive Employment Agreement, dated as of November 4, 2008, between Joseph A.
Concienne, III and Alon USA GP, LLC.
 59




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##### Table of Contents



ExhibitNumber
    
    Description of Exhibit10.12*
    
    Amendment to Amended and Restated Management Employment Agreement, dated as of November 4,
2008, between Harlin R. Dean and Alon USA GP, LLC.10.13*
    
    Second Amendment to Executive/Management Employment Agreement, dated as of November 4, 2008,
between Yosef Israel and Alon USA GP, LLC.10.14*
    
    Amendment to Executive Employment Agreement, dated as of November 4, 2008, between Shai Even
and Alon USA GP, LLC.10.15*
    
    Second Amendment to Incentive Stock Option Agreement, dated as of November 4, 2008, between Jeff D.
Morris and Alon Assets, Inc.10.16*
    
    Second Amendment to Incentive Stock Option Agreement, dated as of November 4, 2008, between Jeff D.
Morris and Alon USA Operating, Inc.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.
 
 *
    
    Identifies management contracts and compensatory plans or arrangements. 60