##### 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, 2005
  o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE TRANSITION PERIOD FROM  TO
 Commission file number: 001-32567
 
 Alon USA Energy, Inc.
 (Exact name of Registrant as specified in its charter)
 
 Delaware(State or other jurisdiction of
incorporation or organization)
    
    74-2966572(I.R.S. Employer
Identification No.)
 (Address of principal executive offices) (Zip Code)
 (Registrants telephone number, including area code)
 
 þ o
 o þ
 o þ




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TABLE OF CONTENTS
 PagePART I. FINANCIAL INFORMATION
    
    
    1ITEM 1.(a) FINANCIAL STATEMENTS
    
    
    1CONSOLIDATED BALANCE SHEETS
    
    
    1CONSOLIDATED STATEMENTS OF OPERATIONS
    
    
    2CONSOLIDATED STATEMENTS OF CASH FLOW
    
    
    3NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    
    
    5CONDENSED BALANCE SHEETS
    
    
    16ITEM 1.(b) SCHEDULES TO THE FINANCIAL STATEMENTS (PARENT ONLY)  SCHEDULE I
    
    
    16CONDENSED STATEMENTS OF OPERATIONS
    
    
    17CONDENSED STATEMENTS OF CASH FLOWS
    
    
    18NOTES TO CONDENSED FINANCIAL STATEMENTS
    
    
    19ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    20Forward-Looking Statements
    
    
    20ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE
ABOUT MARKET RISK
    
    
    39ITEM 4. CONTROLS AND PROCEDURES
    
    
    41PART II. OTHER INFORMATION
    
    
    42ITEM 2. UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    
    42ITEM 6. EXHIBITS
    
    
    43SIGNATURES
    
    
    44EXHIBITS
    
    
    45CERTIFICATION OF CEO PURSUANT TO SECTION 302CERTIFICATION OF CFO PURSUANT TO SECTION 302CERTIFICATION OF CEO AND CFO PURSUANT TO SECTION 906Certifications of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO and CFO Pursuant to Section 906




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1.(a) FINANCIAL STATEMENTS
 ALON USA ENERGY, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 (dollars in thousands, except share and per share data)
 September 30,
    
    
    December 31,2005
    
    
    2004(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    193,294
    
    
    $
    63,357Short-term investments
    
    
    29,675
    
    
    
    Accounts and other receivables, net
    
    
    112,683
    
    
    
    69,328Inventories
    
    
    97,743
    
    
    
    79,329Prepaid expenses and other current assets
    
    
    10,032
    
    
    
    2,441Total current assets
    
    
    443,427
    
    
    
    214,455Investment in HEP
    
    
    22,963
    
    
    
    Property, plant and equipment, net
    
    
    210,266
    
    
    
    236,228Other assets
    
    
    27,127
    
    
    
    21,833Total assets
    
    $
    703,783
    
    
    $
    472,516LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable and accrued liabilities
    
    $
    183,012
    
    
    $
    153,897Current portion of deferred gain on disposition of assets
    
    
    5,741
    
    
    
    Current portion of long-term debt
    
    
    4,461
    
    
    
    16,115Total current liabilities
    
    
    193,214
    
    
    
    170,012Other non-current liabilities
    
    
    16,739
    
    
    
    19,436Deferred gain on disposition of assets
    
    
    59,798
    
    
    
    Long-term debt
    
    
    128,416
    
    
    
    171,591Deferred income tax liability
    
    
    51,064
    
    
    
    31,829Total liabilities
    
    
    449,231
    
    
    
    392,868Commitments and contingencies (note 16)Minority interest in subsidiaries
    
    
    4,803
    
    
    
    8,176Stockholders 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;
46,797,357 and 35,001,120 shares issued and outstanding at
September 30, 2005 and December 31, 2004, respectively
    
    
    468
    
    
    
    350Additional paid-in capital
    
    
    180,711
    
    
    
    8,379Accumulated other comprehensive loss
    
    
    (2,261
    )
    
    
    (2,261
    )Retained earnings
    
    
    70,831
    
    
    
    65,004Total stockholders equity
    
    
    249,749
    
    
    
    71,472Total liabilities and stockholders equity
    
    $
    703,783
    
    
    $
    472,516
  1




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ALON USA ENERGY, INC., AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (unaudited, dollars in thousands, except share and per share data)
 For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net sales
    
    $
    648,135
    
    
    $
    445,386
    
    
    $
    1,646,475
    
    
    $
    1,238,288Operating costs and expenses:Cost of sales
    
    
    565,820
    
    
    
    389,976
    
    
    
    1,415,421
    
    
    
    1,058,002Direct operating expenses
    
    
    24,550
    
    
    
    18,121
    
    
    
    63,259
    
    
    
    54,814Selling, general and administrative expenses
    
    
    16,083
    
    
    
    15,364
    
    
    
    51,731
    
    
    
    51,890Depreciation and amortization
    
    
    5,470
    
    
    
    4,893
    
    
    
    15,322
    
    
    
    14,159Total operating costs and expenses
    
    
    611,923
    
    
    
    428,354
    
    
    
    1,545,733
    
    
    
    1,178,865Gain on disposition of assets
    
    
    8,020
    
    
    
    
    
    
    
    37,243
    
    
    
    175Operating income
    
    
    44,232
    
    
    
    17,032
    
    
    
    137,985
    
    
    
    59,598Interest expense
    
    
    4,827
    
    
    
    5,888
    
    
    
    14,579
    
    
    
    17,579Equity earnings in HEP
    
    
    (321
    )
    
    
    
    
    
    
    (733
    )
    
    
    Other income, net
    
    
    (1,269
    )
    
    
    (63
    )
    
    
    (2,349
    )
    
    
    (207
    )Income before income tax expense and minority
interest in income of subsidiaries
    
    
    40,995
    
    
    
    11,207
    
    
    
    126,488
    
    
    
    42,226Income tax expense
    
    
    16,225
    
    
    
    4,488
    
    
    
    48,234
    
    
    
    17,022Income before minority interest in income of
subsidiaries
    
    
    24,770
    
    
    
    6,719
    
    
    
    78,254
    
    
    
    25,204Minority interest in income of subsidiaries
    
    
    382
    
    
    
    619
    
    
    
    3,948
    
    
    
    2,319Net income
    
    $
    24,388
    
    
    $
    6,100
    
    
    $
    74,306
    
    
    $
    22,885Earnings per share
    
    $
    .57
    
    
    $
    .17
    
    
    $
    1.98
    
    
    $
    .65Weighted average shares outstanding
    
    
    42,821,120
    
    
    
    35,001,120
    
    
    
    37,607,787
    
    
    
    35,001,120
  2




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ALON USA ENERGY, INC., AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOW
 (unaudited, dollars in thousands)
 For the Nine Months EndedSeptember 30,2005
    
    
    2004Cash flows from operating activities:Net income
    
    $
    74,306
    
    
    $
    22,885Adjustments:Depreciation and amortization
    
    
    15,322
    
    
    
    14,159Stock compensation
    
    
    1,693
    
    
    
    399Deferred income tax expense
    
    
    14,599
    
    
    
    Minority interest in income of subsidiaries
    
    
    3,948
    
    
    
    2,319Accrued interest on subordinated notes to stockholders
    
    
    
    
    
    
    2,773Gain on disposition of assets
    
    
    (37,243
    )
    
    
    (175
    )Changes in operating assets and liabilities:Accounts and other receivables, net
    
    
    (43,355
    )
    
    
    (19,177
    )Inventories
    
    
    (18,414
    )
    
    
    (9,668
    )Prepaid expenses and other current assets
    
    
    (5,069
    )
    
    
    181Other assets
    
    
    2,331
    
    
    
    3,375Accounts payable and accrued liabilities
    
    
    27,815
    
    
    
    15,021Other non-current liabilities
    
    
    (3,451
    )
    
    
    (2,564
    )Net cash provided by operating activities
    
    
    32,482
    
    
    
    29,528Cash flows from investing activities:Capital expenditures
    
    
    (17,568
    )
    
    
    (18,125
    )Turnaround and chemical catalyst expenditures
    
    
    (11,371
    )
    
    
    (1,698
    )Proceeds from disposition of assets, net
    
    
    118,000
    
    
    
    328Net purchases of short-term investments
    
    
    (29,675
    )
    
    
    Deferred
payment on acquisition of minority interest in subsidiary
    
    
    
    
    
    
    (10,000
    )Acquisition of asphalt business
    
    
    
    
    
    
    (580
    )Dividends from investment in HEP (net of equity earnings)
    
    
    322
    
    
    
    Minority interest shares purchased
    
    
    (5,098
    )
    
    
    Net cash provided by (used in) investing activities
    
    
    54,610
    
    
    
    (30,075
    )Cash flows from financing activities:Payments received for shares issued, net
    
    
    172,287
    
    
    
    140Dividends paid to minority interest shareholders
    
    
    (6,134
    )
    
    
    Dividends
paid to shareholders
    
    
    (68,479
    )
    
    
    Net payments on revolving credit facilities
    
    
    
    
    
    
    (19,600
    )Deferred debt issuance costs
    
    
    
    
    
    
    (1,885
    )Additions to long-term debt
    
    
    2,936
    
    
    
    99,831Payments on long-term debt
    
    
    (57,765
    )
    
    
    (51,491
    )Net cash provided by financing activities
    
    
    42,845
    
    
    
    26,995Net increase in cash and cash equivalents
    
    
    129,937
    
    
    
    26,448Cash and cash equivalents, beginning of period
    
    
    63,357
    
    
    
    7,256Cash and cash equivalents, end of period
    
    $
    193,294
    
    
    $
    33,704Supplemental cash flow information:Cash paid for interest
    
    $
    13,283
    
    
    $
    11,103Cash paid for income tax
    
    $
    21,467
    
    
    $
    12,084
  3




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ALON USA ENERGY, INC., AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF CASH FLOW
 (unaudited, dollars in thousands)
 For the Nine Months EndedSeptember 30,2005
    
    
    2004Non-cash activities:Financing activity  receipt of Class B HEP subordinated units
as proceeds from disposition of assets
    
    $
    30,000
    
    
    $
    Asphalt Business Acquisition:Property, plant and equipment acquired
    
    $
    
    
    
    $
    (3,917
    )Net working capital acquired (accounts and other receivables,
net inventories, accounts payable
    
    
    
    
    
    
    817Net debt assumed
    
    
    
    
    
    
    2,520Cash used in acquisition of asphalt business
    
    $
    
    
    
    $
    (580
    )
  4




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ALON
USA ENERGY, INC., AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, dollars in thousands, except share and per share data)
 (1)
    
    Basis of Presentation and Certain Significant Accounting Policies
        (2)
    
    Initial Public Offering of Alon
   5




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ALON USA ENERGY, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, dollars in thousands, except per share data)
 (3)
    
    Sale of Pipelines and Terminals
 HEP Transaction
    (4)
    
    New Accounting Standards
  6




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ALON USA ENERGY, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, dollars in thousands)
       7




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ALON USA ENERGY, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, dollars in thousands)
 (5)
    
    Segment Data
  (a)
    
    Refining and Marketing Segment
  (b)
    
    Retail Segment
  (c)
    
    Corporate/Other
    8




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ALON USA ENERGY, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, dollars in thousands)
  For the Three Months Ended September 30, 2005Refining and
    
    
    
    
    
    
    CorporateMarketing
    
    
    Retail
    
    
    and other
    
    
    Eliminations
    
    
    ConsolidatedNet sales:Unaffiliated customers
    
    $
    558,671
    
    
    $
    89,464
    
    
    $
    
    
    
    $
    
    
    
    $
    648,135Intersegment
    
    
    41,816
    
    
    
    
    
    
    
    
    
    
    
    (41,816
    )
    
    
    Total net sales
    
    $
    600,487
    
    
    $
    89,464
    
    
    $
    
    
    
    $
    (41,816
    )
    
    $
    648,135Operating income (loss)
    
    $
    42,645
    
    
    $
    2,191
    
    
    $
    (604
    )
    
    $
    
    
    
    $
    44,232Interest expense
    
    
    (3,916
    )
    
    
    (911
    )
    
    
    
    
    
    
    
    
    
    
    (4,827
    )Other income, net
    
    
    314
    
    
    
    
    
    
    
    1,276
    
    
    
    
    
    
    
    1,590Income before income tax expense
and minority interest
    
    $
    39,043
    
    
    $
    1,280
    
    
    $
    672
    
    
    $
    
    
    
    $
    40,995Total assets
    
    $
    619,458
    
    
    $
    72,188
    
    
    $
    12,137
    
    
    $
    
    
    
    $
    703,783Depreciation and amortization
    
    
    3,906
    
    
    
    1,087
    
    
    
    477
    
    
    
    
    
    
    
    5,470Turnaround, chemical catalyst and capital
expenditures
    
    
    784
    
    
    
    873
    
    
    
    42
    
    
    
    
    
    
    
    1,699
 For the Three Months Ended September 30, 2004Refining and
    
    
    
    
    
    
    CorporateMarketing
    
    
    Retail
    
    
    and other
    
    
    Eliminations
    
    
    ConsolidatedNet sales:Unaffiliated customers
    
    $
    366,549
    
    
    $
    78,837
    
    
    $
    
    
    
    $
    
    
    
    $
    445,386Intersegment
    
    
    30,917
    
    
    
    
    
    
    
    
    
    
    
    (30,917
    )
    
    
    Total net sales
    
    $
    397,466
    
    
    $
    78,837
    
    
    $
    
    
    
    $
    (30,917
    )
    
    $
    445,386Operating income (loss)
    
    $
    16,461
    
    
    $
    1,156
    
    
    $
    (585
    )
    
    $
    
    
    
    $
    17,032Interest expense
    
    
    (4,865
    )
    
    
    (1,023
    )
    
    
    
    
    
    
    
    
    
    
    (5,888
    )Other income (expense), net
    
    
    64
    
    
    
    (69
    )
    
    
    68
    
    
    
    
    
    
    
    63Income (loss) before income tax
expense and minority interest
    
    $
    11,660
    
    
    $
    64
    
    
    $
    (517
    )
    
    $
    
    
    
    $
    11,207Total assets
    
    $
    369,984
    
    
    $
    70,769
    
    
    $
    13,428
    
    
    $
    
    
    
    $
    454,181Depreciation and amortization
    
    
    3,446
    
    
    
    1,002
    
    
    
    445
    
    
    
    
    
    
    
    4,893Turnaround, chemical catalyst and capital
expenditures
    
    
    3,429
    
    
    
    1,394
    
    
    
    150
    
    
    
    
    
    
    
    4,973
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ALON USA ENERGY, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, dollars in thousands)
 For the Nine Months Ended September 30, 2005Refining and
    
    
    
    
    
    
    CorporateMarketing
    
    
    Retail
    
    
    and other
    
    
    Eliminations
    
    
    ConsolidatedNet sales:Unaffiliated customers
    
    $
    1,395,931
    
    
    $
    250,544
    
    
    $
    
    
    
    $
    
    
    
    $
    1,646,475Intersegment
    
    
    114,264
    
    
    
    
    
    
    
    
    
    
    (114,264
    )
    
    
    Total net sales
    
    $
    1,510,195
    
    
    $
    250,544
    
    
    $
    
    
    
    $
    (114,264
    )
    
    $
    1,646,475Operating income (loss)
    
    $
    136,812
    
    
    $
    2,982
    
    
    $
    (1,809
    )
    
    $
    
    
    
    $
    137,985Interest expense
    
    
    (11,928
    )
    
    
    (2,651
    )
    
    
    
    
    
    
    
    
    
    
    (14,579
    )Other income, net
    
    
    701
    
    
    
    
    
    
    
    2,381
    
    
    
    
    
    
    
    3,082Income before income tax
expense and minority interest
    
    
    125,585
    
    
    $
    331
    
    
    $
    572
    
    
    $
    
    
    
    $
    126,488Total assets
    
    $
    619,458
    
    
    $
    72,188
    
    
    $
    12,137
    
    
    $
    
    
    
    $
    703,783Depreciation and amortization
    
    
    10,706
    
    
    
    3,190
    
    
    
    1,426
    
    
    
    
    
    
    
    15,322Turnaround, chemical catalyst and capital
expenditures
    
    
    25,834
    
    
    
    2,903
    
    
    
    202
    
    
    
    
    
    
    
    28,939
 For the Nine Months Ended September 30, 2004Refining and
    
    
    
    
    
    
    CorporateMarketing
    
    
    Retail
    
    
    and other
    
    
    Eliminations
    
    
    ConsolidatedNet sales:Unaffiliated customers
    
    $
    1,012,432
    
    
    $
    225,856
    
    
    $
    
    
    
    $
    
    
    
    $
    1,238,288Intersegment
    
    
    86,812
    
    
    
    
    
    
    
    
    
    
    
    (86,812
    )
    
    
    Total net sales
    
    $
    1,099,244
    
    
    $
    225,856
    
    
    $
    
    
    
    $
    (86,812
    )
    
    $
    1,238,288Operating income (loss)
    
    $
    59,613
    
    
    $
    1,674
    
    
    $
    (1,689
    )
    
    $
    
    
    
    $
    59,598Interest expense
    
    
    (14,922
    )
    
    
    (2,657
    )
    
    
    
    
    
    
    
    
    
    
    (17,579
    )Other income (expense), net
    
    
    128
    
    
    
    (74
    )
    
    
    153
    
    
    
    
    
    
    
    207Income (loss) before income tax
expense and minority interest
    
    $
    44,819
    
    
    $
    (1,057
    )
    
    $
    (1,536
    )
    
    $
    
    
    
    $
    42,226Total assets
    
    $
    369,984
    
    
    $
    70,769
    
    
    $
    13,428
    
    
    $
    
    
    
    $
    454,181Depreciation and amortization
    
    
    9,796
    
    
    
    3,068
    
    
    
    1,295
    
    
    
    
    
    
    
    14,159Turnaround, chemical catalyst and capital
expenditures
    
    
    16,651
    
    
    
    2,610
    
    
    
    562
    
    
    
    
    
    
    
    19,823
 (6)
    
    Cash, Cash Equivalents and Short-Term Investments
   10




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ALON USA ENERGY, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, dollars in thousands)
  (7)
    
    Derivative Financial Instruments
   (8)
    
    Inventories
   September 30,
    
    
    December 31,2005
    
    
    2004Crude oil, refined products, and blendstocks
    
    $
    74,432
    
    
    $
    58,412Materials and supplies
    
    
    5,743
    
    
    
    5,570Store merchandise
    
    
    13,051
    
    
    
    12,860Store fuel
    
    
    4,517
    
    
    
    2,487Total inventories
    
    $
    97,743
    
    
    $
    79,329
  11




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ALON USA ENERGY, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, dollars in thousands, except for share and per share data)
 (9)
    
    Investment in HEP
  (10)
    
    Property, Plant, and Equipment
  September 30,
    
    
    December 31,2005
    
    
    2004Refining facilities
    
    $
    167,782
    
    
    $
    149,016Pipelines and terminals
    
    
    26,598
    
    
    
    69,289Retail
    
    
    62,709
    
    
    
    59,543Other
    
    
    10,266
    
    
    
    9,323Property, plant, and equipment, gross
    
    
    267,355
    
    
    
    287,171Less accumulated depreciation
    
    
    (57,089
    )
    
    
    (50,943
    )Property, plant, and equipment, net
    
    $
    210,266
    
    
    $
    236,228
  (11)
    
    Employee and Postretirement Benefits
   For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Components of net periodic benefit cost:Service cost
    
    $
    382
    
    
    $
    332
    
    
    $
    1,075
    
    
    $
    995Interest cost
    
    
    535
    
    
    
    457
    
    
    
    1,492
    
    
    
    1,370Expected return on plan assets
    
    
    (414
    )
    
    
    (347
    )
    
    
    (1,241
    )
    
    
    (1,041
    )Amortization of net loss
    
    
    181
    
    
    
    140
    
    
    
    513
    
    
    
    422Net periodic benefit cost
    
    $
    684
    
    
    $
    582
    
    
    $
    1,839
    
    
    $
    1,746
 12




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ALON USA ENERGY, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, dollars in thousands, except for share and per share data)
 (12)
    
    Long-Term Debt
 (a)
    
    Revolving Credit Facility
    (b)
    
    Debt Repayment
  (13)
    
    Stock Based Compensation
    (14)
    
    Stockholders Equity
 (a)
    
    Stock Split
  13




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ALON USA ENERGY, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, dollars in thousands, except for share and per share data)
 (b)
    
    Special Dividends
  (c)
    
    Initial Public Offering
  (15)
    
    Earnings Per Share
  (16)
    
    Commitments and Contingencies
 (a)
    
    Other Commitments
  (b)
    
    Other Contingencies
  (c)
    
    Environmental
  14




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ALON USA ENERGY, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, dollars in thousands, except for share and per share data)
   15




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ALON USA ENERGY, INC. (PARENT COMPANY ONLY)
 
 CONDENSED BALANCE SHEETS
 (dollars in thousands)
 
 ITEM
1.(b) SCHEDULES TO THE FINANCIAL STATEMENTS (PARENT ONLY)  SCHEDULE I
 September 30,
    
    
    December 31,2005
    
    
    2004(Unaudited)ASSETSCurrent assets
    
    $
    88,493
    
    
    $
    2,126Investment in subsidiary
    
    
    161,314
    
    
    
    111,558Total assets
    
    $
    249,807
    
    
    $
    113,684LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities
    
    $
    
    
    
    $
    511Long-term debt
    
    
    
    
    
    
    41,701Long-term liabilities
    
    
    58
    
    
    
    Total liabilities
    
    
    58
    
    
    
    42,212Shareholders equity:Shareholders investment
    
    
    181,179
    
    
    
    8,729Accumulated other comprehensive loss
    
    
    (2,261
    )
    
    
    (2,261
    )Retained earnings
    
    
    70,831
    
    
    
    65,004Total stockholders equity
    
    
    249,749
    
    
    
    71,472Total liabilities and stockholders equity
    
    $
    249,807
    
    
    $
    113,684
 16




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##### Table of Contents



ALON USA ENERGY, INC. (PARENT COMPANY ONLY)
 
 CONDENSED STATEMENTS OF OPERATIONS
 (unaudited, dollars in thousands)
 For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Interest income
    
    $
    424
    
    
    $
    
    
    
    $
    424
    
    
    $
    General and administrative expenses
    
    
    87
    
    
    
    
    
    
    
    87
    
    
    
    3Interest expense
    
    
    102
    
    
    
    688
    
    
    
    1,081
    
    
    
    2,067Income (loss) before income tax expense (benefit)
and equity earnings in subsidiary
    
    
    235
    
    
    
    (688
    )
    
    
    (744
    )
    
    
    (2,070
    )Income tax expense (benefit)
    
    
    93
    
    
    
    (281
    )
    
    
    (294
    )
    
    
    (818
    )Income (loss) before equity earnings in subsidiary
    
    
    142
    
    
    
    (407
    )
    
    
    (450
    )
    
    
    (1,252
    )Equity earnings in subsidiary
    
    
    24,246
    
    
    
    6,507
    
    
    
    74,756
    
    
    
    24,137Net income
    
    $
    24,388
    
    
    $
    6,100
    
    
    $
    74,306
    
    
    $
    22,885
 17




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ALON USA ENERGY, INC. (PARENT COMPANY ONLY)
 
 CONDENSED STATEMENTS OF CASH FLOWS
 (unaudited, dollars in thousands)
 For the Nine MonthsEnded September 30,2005
    
    
    2004Cash flows from operating activities:Net income
    
    $
    74,306
    
    
    $
    22,885Stock compensation
    
    
    163
    
    
    
    Adjustments:Accrued interest on subordinated notes to stockholders
    
    
    
    
    
    
    2,067Equity earnings in subsidiary
    
    
    (74,756
    )
    
    
    (24,137
    )Changes in operating assets and liabilities:Accounts payable and accrued liabilities
    
    
    (16,744
    )
    
    
    (2,486
    )Net cash used in operating activities
    
    
    (17,031
    )
    
    
    (1,671
    )Cash flows from investing activities:Dividends received from subsidiary
    
    
    25,000
    
    
    
    Net cash provided by investing activities
    
    
    25,000
    
    
    
    Cash flows from financing activities:Stock issuance and payments from stockholders
    
    
    172,287
    
    
    
    140Dividends paid
    
    
    (68,479
    )
    
    
    Additions to long-term debt
    
    
    2,826
    
    
    
    2,727Payments on long-term debt
    
    
    (44,526
    )
    
    
    Net cash provided by financing activities
    
    
    62,108
    
    
    
    2,867Net increase in cash and cash equivalents
    
    
    70,077
    
    
    
    1,196Cash and cash equivalents, beginning of period
    
    
    44
    
    
    
    264Cash and cash equivalents, end of period
    
    $
    70,121
    
    
    $
    1,460
 18




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ALON
USA ENERGY, INC. (PARENT COMPANY ONLY)
 
 NOTES TO CONDENSED FINANCIAL STATEMENTS
 (unaudited, dollars in thousands, except share and per share data)
 (1)
    
    Basis of Presentation
    (2)
    
    Initial Public Offering of Alon
  (3)
    
    Long-Term Debt
  (4)
    
    Dividends Paid
  (5)
    
    Dividends Received
  19




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 The following discussion of our financial condition and results of operations should be read
in conjunction with the Managements Discussion and Analysis of Financial Condition and the
consolidated financial statements and notes thereto for the year ended December 31, 2004 included
in our registration statement on Form S-1 (Registration No. 333-124797) declared effective by the
U.S. Securities and Exchange Commission (SEC) on July 27, 2005. The terms 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;
    
    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;
 20




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##### Table of Contents




    
    operating hazards, natural disasters, casualty losses
and other matters beyond our control; and
    
    the other factors discussed in our registration
statement on Form S-1 (Registration No. 333-124797)
under the caption Risk Factors.
  Company Overview
  Refining and Marketing Segment
  Retail Segment
 Summary of Recent Developments
   
    
    Net sales increased $408.2 million to $1,646.5
million and operating income increased $78.4 million to
$138.0 million for the first nine months of 2005,
compared to the first nine months of 2004.
 21




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
    
    Our average refinery operating margin increased $3.38
per barrel to $11.70 per barrel for the first nine
months of 2005, compared to the first nine months of
2004.
    
    Our capital expenditures and turnaround spending for
the nine months ended September 30, 2005 totaled
approximately $28.9 million, of which $13.1 million was
spent on a major turnaround, catalyst and the crude
throughput expansion from 62,000 bpd to 70,000 bpd in
February 2005, $9.7 million was spent on regulatory
and compliance projects and $6.1 million was spent on
various sustaining and capital improvement projects.
  Major Influences on Results of Operations
 Refining and Marketing
     22




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Retail
 Outlook
    Factors Affecting Comparability
    23




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Results of Operations
 Net Sales
 Cost of Sales
 Direct Operating Expenses
 Selling, General and Administrative Expenses
 24




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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 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(unaudited, dollars in
thousands except share and per share data)STATEMENT OF OPERATIONS DATA:Net sales
    
    $
    648,135
    
    
    $
    445,386
    
    
    $
    1,646,475
    
    
    $
    1,238,288Operating costs and expenses:Cost of sales
    
    
    565,820
    
    
    
    389,976
    
    
    
    1,415,421
    
    
    
    1,058,002Direct operating expenses
    
    
    24,550
    
    
    
    18,121
    
    
    
    63,259
    
    
    
    54,814Selling, general and administrative expenses
(a)
    
    
    16,083
    
    
    
    15,364
    
    
    
    51,731
    
    
    
    51,890Depreciation and amortization (b)
    
    
    5,470
    
    
    
    4,893
    
    
    
    15,322
    
    
    
    14,159Total operating costs and expenses
    
    
    611,923
    
    
    
    428,354
    
    
    
    1,545,733
    
    
    
    1,178,865Gain on disposition of assets (c)
    
    
    8,020
    
    
    
    
    
    
    
    37,243
    
    
    
    175Operating income
    
    
    44,232
    
    
    
    17,032
    
    
    
    137,985
    
    
    
    59,598Interest expense
    
    
    4,827
    
    
    
    5,888
    
    
    
    14,579
    
    
    
    17,579Equity earnings in investee
    
    
    (321
    )
    
    
    
    
    
    
    (733
    )
    
    
    Other income, net
    
    
    (1,269
    )
    
    
    (63
    )
    
    
    (2,349
    )
    
    
    (207
    )Income tax expense
    
    
    16,225
    
    
    
    4,488
    
    
    
    48,234
    
    
    
    17,022Minority interest in income of subsidiaries
    
    
    382
    
    
    
    619
    
    
    
    3,948
    
    
    
    2,319Net income
    
    $
    24,388
    
    
    $
    6,100
    
    
    $
    74,306
    
    
    $
    22,885Earnings per share (d)
    
    $
    .57
    
    
    $
    .17
    
    
    $
    1.98
    
    
    $
    .65Weighted average shares outstanding (d)
    
    
    42,821,120
    
    
    
    35,001,120
    
    
    
    37,607,787
    
    
    
    35,001,120OTHER DATA:Adjusted EBITDA (e)
    
    $
    43,272
    
    
    $
    21,988
    
    
    $
    119,146
    
    
    $
    73,789Capital expenditures, net of disposition proceeds
    
    
    1,109
    
    
    
    4,775
    
    
    
    (100,432
    )
    
    
    17,797Capital expenditures for turnarounds and catalysts
    
    
    590
    
    
    
    198
    
    
    
    11,371
    
    
    
    1,698CASH FLOW DATA:Net cash provided by (used in):Operating activities
    
    $
    (16,494
    )
    
    $
    5,602
    
    
    $
    32,482
    
    
    $
    29,528Investing activities
    
    
    (36,666
    )
    
    
    (5,553
    )
    
    
    54,610
    
    
    
    (30,075
    )Financing activities
    
    
    77,908
    
    
    
    (5,688
    )
    
    
    42,845
    
    
    
    26,995BALANCE SHEET DATA (end of period):Cash, cash equivalents and short-term investments
    
    
    
    
    
    
    
    
    
    $
    222,969
    
    
    $
    33,704Working capital
    
    
    
    
    
    
    
    
    
    
    250,213
    
    
    
    47,909Total assets
    
    
    
    
    
    
    
    
    
    
    703,783
    
    
    
    454,181Total debt
    
    
    
    
    
    
    
    
    
    
    132,877
    
    
    
    194,678Stockholders equity
    
    
    
    
    
    
    
    
    
    
    249,749
    
    
    
    69,948
 
 (a)
    
    Includes corporate headquarters selling, general and administrative expenses of $127 and
$140 for the three months ended September 30, 2005 and 2004, respectively, and $383 and $394
for the nine months ended September 30, 2005 and 2004, respectively, which are not allocated
to our two operating segments.(b)
    
    Includes corporate depreciation and amortization of $477 and $445 for the three months ended
September 30, 2005 and 2004, respectively, and $1,426 and $1,295 for the nine months ended
September 30, 2005 and 2004, respectively, which are not allocated to our two operating
segments.(c)
    
    Gain on disposition of assets reported in the three months ended September 30, 2005, reflects
the $6.5 million accelerated pre-tax gain ($4.2 million after-tax gain) and the monthly
recognition of deferred gain recorded in connection with the HEP transaction. Gain on
disposition of assets reported in the nine months ended September 30, 2005, reflects the $26.7
million initial pre-tax gain, the monthly recognition of deferred gain and the $6.5 million
accelerated pre-tax gain recorded in connection with the HEP transaction. 25




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(d)
    
    Weighted average common shares outstanding and earnings per common share amounts for the
three and nine months ended September 30, 2005 and 2004, have been restated to reflect the
effect of a 33,600-for-one split of Alons common stock which was effected on July 6, 2005.
On August 2, 2005, Alon completed an initial public offering of 11,730,000 shares of its
common stock. Those shares are included in the calculation of weighted average number of
shares outstanding.(e)
    
    See  Reconciliation of Amounts Reported Under Generally Accepted Accounting Principles for
information regarding our definition of Adjusted EBITDA, its limitations as an analytical tool
and a reconciliation of net income to Adjusted EBITDA for the periods presented. REFINING AND MARKETING SEGMENT
 For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(unaudited, dollars in thousands, except forper barrel and pricing statistics)STATEMENT OF OPERATIONS DATA:Net sales (a)
    
    $
    600,487
    
    
    $
    397,466
    
    
    $
    1,510,195
    
    
    $
    1,099,244Operating costs and expenses:Cost of sales
    
    
    534,353
    
    
    
    356,089
    
    
    
    1,322,523
    
    
    
    960,084Direct operating expenses
    
    
    24,550
    
    
    
    18,121
    
    
    
    63,259
    
    
    
    54,814Selling, general and administrative expenses
    
    
    3,090
    
    
    
    3,349
    
    
    
    14,175
    
    
    
    14,937Depreciation and amortization
    
    
    3,906
    
    
    
    3,446
    
    
    
    10,706
    
    
    
    9,796Total operating costs and expenses
    
    
    565,899
    
    
    
    381,005
    
    
    
    1,410,663
    
    
    
    1,039,631Gain on disposition of assets (b)
    
    
    8,057
    
    
    
    
    
    
    
    37,280
    
    
    
    Operating income
    
    $
    42,645
    
    
    $
    16,461
    
    
    $
    136,812
    
    
    $
    59,613KEY OPERATING STATISTICS:Total sales volume (bpd)
    
    
    87,313
    
    
    
    85,963
    
    
    
    84,983
    
    
    
    85,865Non-integrated marketing sales volume (bpd)
    
    
    21,154
    
    
    
    20,404
    
    
    
    20,590
    
    
    
    19,924Non-integrated marketing margin (per barrel sales
volume) (c)
    
    $
    (4.98
    )
    
    $
    (.33
    )
    
    $
    (1.94
    )
    
    $
    (.02
    )Per barrel of throughput:Refinery operating margin (d)
    
    $
    12.35
    
    
    $
    7.74
    
    
    $
    11.70
    
    
    $
    8.32Direct operating expenses
    
    
    4.00
    
    
    
    3.34
    
    
    
    3.73
    
    
    
    3.27PRICING STATISTICS:WTI crude oil (per barrel)
    
    $
    63.03
    
    
    $
    43.86
    
    
    $
    55.31
    
    
    $
    39.13WTS crude oil (per barrel)
    
    
    58.94
    
    
    
    39.99
    
    
    
    51.01
    
    
    
    35.71Crack spreads (3/2/1) (per barrel):Gulf Coast
    
    $
    17.13
    
    
    $
    6.71
    
    
    $
    11.37
    
    
    $
    7.51Group III
    
    
    16.66
    
    
    
    8.08
    
    
    
    12.12
    
    
    
    8.82Crude differentials (per barrel):WTI less WTS
    
    $
    4.09
    
    
    $
    3.87
    
    
    $
    4.30
    
    
    $
    3.42Product price (per gallon):Gulf Coast unleaded gasoline
    
    
    192.8
    ¢
    
    
    121.0
    ¢
    
    
    157.9
    ¢
    
    
    114.7
    ¢Gulf Coast low-sulfur diesel
    
    
    187.0
    
    
    
    119.2
    
    
    
    160.5
    
    
    
    103.7Group III unleaded gasoline
    
    
    190.7
    
    
    
    124.0
    
    
    
    159.5
    
    
    
    117.5Group III low-sulfur diesel
    
    
    187.8
    
    
    
    123.1
    
    
    
    162.6
    
    
    
    107.5Natural gas (per MMBTU)
    
    $
    9.73
    
    
    $
    5.58
    
    
    $
    7.75
    
    
    $
    5.82
 26




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THROUGHPUT AND YIELD DATA:
 For the Three Months Ended
    
    For the Nine Months EndedSeptember 30,
    
    September 30,2005
    
    2004
    
    2005
    
    2004Bpd
    
    %
    
    Bpd
    
    %
    
    Bpd
    
    %
    
    Bpd
    
    %Refinery crude throughput:Sour crude
    
    
    55,757
    
    
    
    88.4
    
    
    
    51,504
    
    
    
    92.6
    
    
    
    52,862
    
    
    
    90.2
    
    
    
    53,100
    
    
    
    92.0Sweet crude
    
    
    7,286
    
    
    
    11.6
    
    
    
    4,114
    
    
    
    7.4
    
    
    
    5,732
    
    
    
    9.8
    
    
    
    4,603
    
    
    
    8.0Total crude throughput
    
    
    63,043
    
    
    
    100.0
    
    
    
    55,618
    
    
    
    100.0
    
    
    
    58,594
    
    
    
    100.0
    
    
    
    57,703
    
    
    
    100.0Blendstocks
    
    
    3,669
    
    
    
    
    
    
    
    3,356
    
    
    
    
    
    
    
    3,565
    
    
    
    
    
    
    
    3,423Total refinery throughput (e)
    
    
    66,712
    
    
    
    
    
    
    
    58,974
    
    
    
    
    
    
    
    62,159
    
    
    
    
    
    
    
    61,126Refinery production (f):Gasoline
    
    
    29,934
    
    
    
    44.8
    
    
    
    26,212
    
    
    
    44.6
    
    
    
    27,643
    
    
    
    44.7
    
    
    
    28,215
    
    
    
    46.2Diesel/jet
    
    
    22,974
    
    
    
    34.4
    
    
    
    19,200
    
    
    
    32.6
    
    
    
    21,386
    
    
    
    34.5
    
    
    
    19,690
    
    
    
    32.2Asphalt
    
    
    6,976
    
    
    
    10.5
    
    
    
    6,402
    
    
    
    10.9
    
    
    
    5,892
    
    
    
    9.5
    
    
    
    5,945
    
    
    
    9.7Petrochemicals
    
    
    3,975
    
    
    
    6.0
    
    
    
    4,234
    
    
    
    7.2
    
    
    
    4,247
    
    
    
    6.9
    
    
    
    4,579
    
    
    
    7.5Other
    
    
    2,888
    
    
    
    4.3
    
    
    
    2,755
    
    
    
    4.7
    
    
    
    2,707
    
    
    
    4.4
    
    
    
    2,655
    
    
    
    4.4Total refinery production
    
    
    66,747
    
    
    
    100.0
    
    
    
    58,803
    
    
    
    100.0
    
    
    
    61,875
    
    
    
    100.0
    
    
    
    61,084
    
    
    
    100.0
 
 (a)
    
    Net sales include intersegment sales to our retail segment at prices which approximate market
price. These intersegment sales are eliminated through consolidation of our financial
statements.(b)
    
    Gain on disposition of assets reported in the three months ended September 30, 2005, reflects
the $6.5 million accelerated pre-tax gain ($4.2 million after-tax gain) and the monthly
recognition of deferred gain recorded in connection with the HEP transaction. Gain on
disposition of assets reported in the nine months ended September 30, 2005, reflects the $26.7
million initial pre-tax gain, the monthly recognition of deferred gain and the $6.5 million
accelerated pre-tax gain recorded in connection with the HEP transaction.(c)
    
    The non-integrated marketing sales volume represents refined products sales to our wholesale
marketing customers located in our non-integrated region. The refined products we sell in
this region are obtained from third-party suppliers. The non-integrated marketing margin
represents the margin between the net sales and cost of sales attributable to our
non-integrated refined products sales volume, expressed on a per barrel basis.(d)
    
    Refinery operating margin is a per barrel measurement calculated by dividing the margin
between net sales and cost of sales attributable to our refining and marketing segment,
exclusive of net sales and cost of sales relating to our non-integrated system, by our Big
Spring refinerys throughput volumes. Industry-wide refining results are driven and measured
by the margins between refined product prices and the prices for crude oil, which are referred
to as crack spreads. We compare our refinery operating margin to these crack spreads to
assess our operating performance relative to other participants in our industry.(e)
    
    Total refinery throughput represents the total of crude oil and blendstock inputs in the
refinery production process.(f)
    
    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. 27




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##### Table of Contents



RETAIL SEGMENT
 For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(unaudited, dollars in thousands, except for per gallon data)STATEMENT OF OPERATIONS DATA:Net sales
    
    $
    89,464
    
    
    $
    78,837
    
    
    $
    250,544
    
    
    $
    225,856Operating Costs and Expenses:Cost of sales (a)
    
    
    73,283
    
    
    
    64,804
    
    
    
    207,162
    
    
    
    184,730Selling, general and administrative expenses
    
    
    12,866
    
    
    
    11,875
    
    
    
    37,173
    
    
    
    36,559Depreciation and amortization
    
    
    1,087
    
    
    
    1,002
    
    
    
    3,190
    
    
    
    3,068Total operating costs and expenses
    
    
    87,236
    
    
    
    77,681
    
    
    
    247,525
    
    
    
    224,357Gain (loss) on disposition of assets
    
    
    (37
    )
    
    
    
    
    
    
    (37
    )
    
    
    175Operating income
    
    $
    2,191
    
    
    $
    1,156
    
    
    $
    2,982
    
    
    $
    1,674KEY OPERATING STATISTICS:Number of stores (end of period)
    
    
    167
    
    
    
    167
    
    
    
    167
    
    
    
    167Fuel sales (thousands of gallons)
    
    
    21,706
    
    
    
    24,780
    
    
    
    69,772
    
    
    
    73,493Fuel sales (thousands of gallons per site per month)
    
    
    44
    
    
    
    50
    
    
    
    47
    
    
    
    50Fuel margin (cents per gallon) (b)
    
    
    20.4
    ¢
    
    
    11.2
    ¢
    
    
    14.3
    ¢
    
    
    11.5
    ¢Fuel sales price (cents per gallon)
    
    
    249.0
    
    
    
    181.0
    
    
    
    215.0
    
    
    
    173.0Merchandise sales
    
    $
    35,391
    
    
    $
    34,046
    
    
    $
    100,246
    
    
    $
    98,992Merchandise sales (per site per month)
    
    
    71
    
    
    
    68
    
    
    
    67
    
    
    
    66Merchandise margin (c)
    
    
    33.2
    %
    
    
    33.1
    %
    
    
    33.3
    %
    
    
    33.0
    %
 
 (a)
    
    Cost of sales includes intersegment purchases of motor fuels from our refining and
marketing segment at prices which approximate market prices. These intersegment purchases are
eliminated through consolidation of our financial statements.(b)
    
    Fuel margin represents the difference between motor fuel revenues and the net cost of
purchased motor fuel, including transportation costs and associated motor fuel taxes,
expressed on a cents per gallon basis. Motor fuel margins are frequently used in the retail
industry to measure operating results related to motor fuel sales.(c)
    
    Merchandise margin represents the difference between merchandise sales revenues and the
delivered cost of merchandise purchases, net of rebates and commissions, expressed as a
percentage of merchandise sales revenues. Merchandise margins, also referred to as in-store
margins, are commonly used in the retail industry to measure in-store, or non-fuel, operating
results. Three
Months Ended September 30, 2005 Compared to the Three Months Ended September 30, 2004
 Net Sales
 Consolidated
 Refining and Marketing Segment
 28




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##### Table of Contents



Retail Segment
 Cost of Sales
 Consolidated
 Refining and Marketing Segment
 Retail Segment
 Direct Operating Expenses
  Selling, General and Administrative Expenses
 Consolidated
 Refining and Marketing Segment
 Retail Segment
 29




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##### Table of Contents



Depreciation and Amortization
  Operating Income
 Consolidated
 Refining and Marketing Segment
 Retail Segment
 Interest Expense
  Income Tax Expense
  Minority Interest
  30




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##### Table of Contents



Net Income
  Nine Months Ended September 30, 2005 Compared to Nine Months Ended September 30, 2004
 Net Sales
 Consolidated
 Refining and Marketing Segment
 Retail Segment
 Cost of Sales
 Consolidated
 Refining and Marketing Segment
 Retail Segment
 31




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##### Table of Contents



Direct Operating Expenses
  Selling, General and Administrative Expenses
 Consolidated
 Refining and Marketing Segment
 Retail Segment
 Depreciation and Amortization
  Operating Income
 Consolidated
 Refining and Marketing Segment
 32




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##### Table of Contents



Retail Segment
 Interest Expense
  Income Tax Expense
  Minority Interest
  Net Income
  Liquidity and Capital Resources
  33




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##### Table of Contents



Cash Flow
  For the Nine Months EndedSeptember 30,2005
    
    
    2004Non cash provided by (used in):Operating activities
    
    $
    32,482
    
    
    $
    29,528Investing activities
    
    
    54,610
    
    
    
    (30,075
    )Financing activities
    
    
    42,845
    
    
    
    26,995Net increase in cash and cash equivalents
    
    $
    129,937
    
    
    $
    26,448
 Cash Flows Provided By Operating Activities
  Cash Flows Provided By (Used In) Investing Activities
  Cash Flows Provided By (Used In) Financing Activities
  Initial Public Offering of Alon USA Energy, Inc.
  34




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##### Table of Contents



Cash Position and Indebtedness.
    Capital Spending.
  Clean Air Capital Expenditures
  Turnaround and Chemical Catalyst Costs
 35




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##### Table of Contents



Contractual Obligations and Commercial Commitments
  Payments Due by PeriodLess Than
    
    
    
    
    
    
    
    
    
    
    More ThanContractual Obligations
    
    1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    5 Years
    
    
    Total(dollars in thousands)Long-term debt obligations (a)
    
    $
    487
    
    
    $
    13,872
    
    
    $
    97,122
    (b)
    
    $
    21,396
    
    
    $
    132,877Operating lease obligations
    
    
    2,903
    
    
    
    28,070
    
    
    
    14,182
    
    
    
    7,540
    
    
    
    52,695Pipelines and Terminals Agreement (c)
    
    
    4,905
    
    
    
    58,863
    
    
    
    39,242
    
    
    
    179,859
    
    
    
    282,869Other commitments (d)
    
    
    707
    
    
    
    12,483
    
    
    
    5,654
    
    
    
    34,636
    
    
    
    53,480Total obligations
    
    $
    9,002
    
    
    $
    113,288
    
    
    $
    156,200
    
    
    $
    243,431
    
    
    $
    521,921
 
 (a)
    
    We repaid approximately $24.3 million of outstanding debt with a portion of the proceeds
received from our initial public offering, of which $3.6 million was due within one year and
$20.7 million was due within five years.(b)
    
    Includes $92.5 million of indebtedness owed under our term loan. We have the right to prepay
our term loan commencing in January 2006. We intend to repay all amounts outstanding under
the term loan in the first quarter of 2006.(c)
    
    Balances represent the minimum committed volume multiplied by the tariff and terminal rates
pursuant to the terms of the Pipelines and Terminals Agreement with HEP.(d)
    
    Other commitments include refinery maintenance services costs and management fees to our
parent. These management fees were terminated in connection with our initial public offering
for an aggregate payment of $6.0 million, of which $2.0 million was paid in August 2005 and
the remaining $4.0 million is due in the first quarter of 2006. Off-Balance Sheet Arrangements
  Critical Accounting Policies
   Reconciliation
of Amounts Reported Under Generally Accepted Accounting Principles
 Reconciliation of earnings before minority interest, income tax expense, interest expense,
depreciation, amortization and gain on disposition of assets (EBITDA) to amounts reported under
generally accepted accounting principles in financial statements.
  36




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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
our non-wholly-owned subsidiaries;
    
    Adjusted EBITDA does not reflect changes in or cash
requirements for our working capital needs; and
    
    Our calculation of Adjusted EBITDA may differ from
the EBITDA calculations of other companies in our
industry, limiting its usefulness as a comparative
measure.
   For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(dollars in thousands)Net income
    
    $
    24,388
    
    
    $
    6,100
    
    
    $
    74,306
    
    
    $
    22,885Minority interest
    
    
    382
    
    
    
    619
    
    
    
    3,948
    
    
    
    2,319Income tax expense
    
    
    16,225
    
    
    
    4,488
    
    
    
    48,234
    
    
    
    17,022Interest expense
    
    
    4,827
    
    
    
    5,888
    
    
    
    14,579
    
    
    
    17,579Depreciation and amortization
    
    
    5,470
    
    
    
    4,893
    
    
    
    15,322
    
    
    
    14,159Gain on disposition of assets
    
    
    (8,020
    )
    
    
    
    
    
    
    (37,243
    )
    
    
    (175
    )Adjusted EBITDA
    
    $
    43,272
    
    
    $
    21,988
    
    
    $
    119,146
    
    
    $
    73,789
 New Accounting Standards and Disclosures
  37




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38




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
  Commodity Price Risk.
      Wtd Avg
    
    
    Wtd AvgDescription
    
    Contract
    
    
    Purchase
    
    
    Sales
    
    
    Contract
    
    
    Fair
    
    
    Gainof Activity
    
    Volume
    
    
    Price
    
    
    Price
    
    
    Value
    
    
    Value
    
    
    (Loss)(bbls)
    
    
    (price per gallon)
    
    
    (dollars in thousands)Futures-long
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Futures-short
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forwards-long (refined products)
    
    
    110,000
    
    
    
    2.98
    
    
    
    
    
    
    
    13,784
    
    
    
    11,653
    
    
    
    (2,131
    )Forwards-short (refined products)
    
    
    25,000
    
    
    
    
    
    
    
    2.90
    
    
    
    3,049
    
    
    
    2,622
    
    
    
    427
 39




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##### Table of Contents



Interest Rate Risk.
  40




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##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES
 (a) Evaluation of disclosure controls and procedures.
  (b) Changes in internal control over financial reporting.
  41




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##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 2. UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS
 Use of Proceeds
    
    
    payment of a dividend in the amount of approximately
$65.7 million to Alon Israel Oil Company, Ltd., a
stockholder of the Company;
    
    payment of a dividend in the amount of approximately
$2.7 million to Tabris Investments Inc., a stockholder
of the Company;
    
    payment of a dividend in the amount of approximately
$4.7 million to the minority stockholders of Alon USA
Operating, Inc., a subsidiary of the Company; and
    
    approximately $20.7 million was used to repay debt
due to our parent company, Alon Israel, and $3.6 million
was used to repay debt due to Atofina Petrochemicals,
Inc.
    
    approximately $2.5 million was used for general
corporate purposes.
 42




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##### Table of Contents



ITEM 6. EXHIBITS
 ExhibitNumber
    
    Description of Exhibit3.1
    
    Amended Restated Certificate of Incorporation of Alon USA
Energy, Inc. (incorporated by reference to Exhibit 3.1 to
Form S-1, filed by the Company on July 7, 2005, SEC File
No. 333-124797).3.2
    
    Amended and Restated Bylaws of Alon USA Energy, Inc.
(incorporated by reference to Exhibit 3.2 to Form S-1,
filed by the Company on July 14, 2005, SEC File No.
333-124797).4.1
    
    Specimen Common Stock Certificate (incorporated by
reference to Exhibit 4.1 to Form S-1, filed by the Company
on June 17, 2005, SEC File No. 333-124797).10.1
    
    Registration Rights Agreement, dated as of July 6, 2005,
between Alon USA Energy, Inc. and Alon Israel Oil Company,
Ltd. (incorporated by reference to Exhibit 10.22 to Form
S-1, filed by the Company on July 7, 2005, SEC File No.
333-124797).10.2
    
    Agreement of Principles of Employment, dated as of July 6,
2005, between David Wiessman and Alon USA Energy, Inc.
(incorporated by reference to Exhibit 10.50 to Form S-1,
filed by the Company on July 7, 2005, SEC File No.
333-124797).10.3
    
    Alon USA Energy, Inc. 2005 Incentive Compensation Plan
(incorporated by reference to Exhibit 10.51 to Form S-1,
filed by the Company on July 7, 2005, SEC File No.
333-124797).10.4
    
    Agreement, dated as of July 6, 2005, by and among Alon USA
Energy, Inc., Alon USA, Inc., Alon USA Capital, Inc., Alon
USA Operating, Inc., Alon Assets, Inc., Jeff D. Morris,
Claire A. Hart and Joseph A. Concienne, III (incorporated
by reference to Exhibit 10.52 to Form S-1, filed by the
Company on July 7, 2005, SEC File No. 333-124797).10.5
    
    Form of Restricted Stock Award Agreement relating to
Director Grants pursuant to Section 12 of the Alon USA
Energy, Inc. 2005 Incentive Compensation Plan (incorporated
by reference to Exhibit 10.1 to Form 8-K filed by the
Company on August 5, 2005, SEC File No. 001-32567).10.6
    
    Form of Restricted Stock Award Agreement relating to
Participant Grants pursuant to Section 8 of the Alon USA
Energy, Inc. 2005 Incentive Compensation Plan (incorporated
by reference to Exhibit 10.1 to Form 8-K filed by the
Company on August 5, 2005, SEC File No. 001-32567).31.1
    
    Certifications of Chief Executive Officer pursuant to §302
of the Sarbanes-Oxley Act of 2002.31.2
    
    Certifications of Chief Financial Officer pursuant to §302
of the Sarbanes-Oxley Act of 2002.32.1*
    
    Certification of Chief Executive Officer and Chief
Financial Officer pursuant to 18 U.S.C. §1350, as adopted
pursuant to §906 of the Sarbanes-Oxley Act of 2002.
 
 *
    
    Furnished herewith 43




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##### Table of Contents



SIGNATURES
  By:
    /s/ David WiessmanDate: November 10, 2005
    
    David WiessmanExecutive Chairman By:
    /s/ Jeff D. MorrisDate: November 10, 2005
    
    Jeff D. MorrisChief Executive Officer By:
    /s/ Shai EvenDate: November 10, 2005
    
    Shai EvenChief Financial Officer 44




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##### Table of Contents



EXHIBITS
 ExhibitNumber
    

Description
of
Exhibit3.1
    
    Amended Restated Certificate of Incorporation of Alon USA
Energy, Inc. (incorporated by reference to Exhibit 3.1 to
Form S-1, filed by the Company on July 7, 2005, SEC File
No. 333-124797).3.2
    
    Amended and Restated Bylaws of Alon USA Energy, Inc.
(incorporated by reference to Exhibit 3.2 to Form S-1,
filed by the Company on July 14, 2005, SEC File No.
333-124797).4.1
    
    Specimen Common Stock Certificate (incorporated by
reference to Exhibit 4.1 to Form S-1, filed by the Company
on June 17, 2005, SEC File No. 333-124797).10.1
    
    Registration Rights Agreement, dated as of July 6, 2005,
between Alon USA Energy, Inc. and Alon Israel Oil Company,
Ltd. (incorporated by reference to Exhibit 10.22 to Form
S-1, filed by the Company on July 7, 2005, SEC File No.
333-124797).10.2
    
    Agreement of Principles of Employment, dated as of July 6,
2005, between David Wiessman and Alon USA Energy, Inc.
(incorporated by reference to Exhibit 10.50 to Form S-1,
filed by the Company on July 7, 2005, SEC File No.
333-124797).10.3
    
    Alon USA Energy, Inc. 2005 Incentive Compensation Plan
(incorporated by reference to Exhibit 10.51 to Form S-1,
filed by the Company on July 7, 2005, SEC File No.
333-124797).10.4
    
    Agreement, dated as of July 6, 2005, by and among Alon USA
Energy, Inc., Alon USA, Inc., Alon USA Capital, Inc., Alon
USA Operating, Inc., Alon Assets, Inc., Jeff D. Morris,
Claire A. Hart and Joseph A. Concienne, III (incorporated
by reference to Exhibit 10.52 to Form S-1, filed by the
Company on July 7, 2005, SEC File No. 333-124797).10.5
    
    Form of Restricted Stock Award Agreement relating to
Director Grants pursuant to Section 12 of the Alon USA
Energy, Inc. 2005 Incentive Compensation Plan (incorporated
by reference to Exhibit 10.1 to Form 8-K filed by the
Company on August 5, 2005, SEC File No. 001-32567).10.6
    
    Form of Restricted Stock Award Agreement relating to
Participant Grants pursuant to Section 8 of the Alon USA
Energy, Inc. 2005 Incentive Compensation Plan (incorporated
by reference to Exhibit 10.1 to Form 8-K filed by the
Company on August 5, 2005, SEC File No. 001-32567).31.1
    
    Certifications of Chief Executive Officer pursuant to §302
of the Sarbanes-Oxley Act of 2002.31.2
    
    Certifications of Chief Financial Officer pursuant to §302
of the Sarbanes-Oxley Act of 2002.32.1*
    
    Certification of Chief Executive Officer and Chief
Financial Officer pursuant to 18 U.S.C. §1350, as adopted
pursuant to §906 of the Sarbanes-Oxley Act of 2002.
 
 *
    
    Furnished herewith 45