UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________________________
FORM 10-Q
þ
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2013
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. Employer
incorporation or organization)
 
Identification No.)
12700 Park Central Dr., Suite 1600, Dallas, Texas 75251
(Address of principal executive offices) (Zip Code)

(972) 367-3600
(Registrant’s telephone number, including area code)
___________________________________________________

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes  þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer o
Accelerated filer þ
Non-accelerated filer o
Smaller reporting company o
 
(Do not check if a smaller reporting company)
Indicate by check whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
The number of shares of the Registrant’s common stock, par value $0.01 per share, outstanding as of May 1, 2013, was 62,665,107.

 
 



TABLE OF CONTENTS

 
 
 
 
EX-10.1 AMENDMENT TO THE SUPPLY AND OFFTAKE AGREEMENT BETWEEN J. ARON & COMPANY AND ALON USA, LP.
EX-10.2 AMENDMENT TO THE AMENDED AND RESTATED SUPPLY AND OFFTAKE AGREEMENT BETWEEN J. ARON & COMPANY AND ALON REFINING KROTZ SPRINGS, INC.
EX-10.3 AMENDMENT TO THE SUPPLY AND OFFTAKE AGREEMENT BETWEEN J. ARON & COMPANY AND ALON SUPPLY, INC.
EX-31.1 CERTIFICATION OF CEO PURSUANT TO SECTION 302
EX-31.2 CERTIFICATION OF CFO PURSUANT TO SECTION 302
EX-32.1 CERTIFICATION OF CEO AND CFO PURSUANT TO SECTION 906


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)
 
March 31,
2013
 
December 31,
2012
 
(unaudited)
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
252,866

 
$
116,296

Accounts and other receivables, net
173,222

 
184,138

Inventories
211,201

 
183,919

Deferred income tax asset
12,313

 
5,223

Prepaid expenses and other current assets
12,185

 
19,322

Total current assets
661,787

 
508,898

Equity method investments
21,201

 
21,582

Property, plant and equipment, net
1,474,195

 
1,492,493

Goodwill
105,943

 
105,943

Other assets, net
92,596

 
94,658

Total assets
$
2,355,722

 
$
2,223,574

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
312,594

 
$
309,573

Accrued liabilities
128,691

 
102,579

Current portion of long-term debt
9,491

 
9,504

Total current liabilities
450,776

 
421,656

Other non-current liabilities
268,389

 
254,946

Long-term debt
576,880

 
577,513

Deferred income tax liability
366,410

 
348,273

Total liabilities
1,662,455

 
1,602,388

Commitments and contingencies (Note 15)

 

Stockholders’ equity:
 
 
 
Preferred stock, par value $0.01, 15,000,000 shares authorized; 3,568,180 and 4,220,000 shares issued and outstanding at March 31, 2013 and December 31, 2012, respectively
35,682

 
42,200

Common stock, par value $0.01, 150,000,000 shares authorized; 62,464,258 and 61,272,429 shares issued and outstanding at March 31, 2013 and December 31, 2012, respectively
625

 
613

Additional paid-in capital
453,027

 
444,022

Accumulated other comprehensive loss, net of income tax
(24,809
)
 
(30,447
)
Retained earnings
179,256

 
128,319

Total stockholders’ equity
643,781

 
584,707

Non-controlling interest in subsidiaries
49,486

 
36,479

Total equity
693,267

 
621,186

Total liabilities and equity
$
2,355,722

 
$
2,223,574


The accompanying notes are an integral part of these consolidated financial statements.
1

Table of Contents

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

 
For the Three Months Ended
 
March 31,
 
2013
 
2012
Net sales (1)
$
1,651,196

 
$
1,792,133

Operating costs and expenses:
 
 
 
Cost of sales
1,378,257

 
1,618,674

Unrealized losses on commodity swaps

 
45,312

Direct operating expenses
74,222

 
72,209

Selling, general and administrative expenses
41,741

 
35,140

Depreciation and amortization
31,163

 
30,711

Total operating costs and expenses
1,525,383

 
1,802,046

Gain on disposition of assets
18

 
131

Operating income (loss)
125,831

 
(9,782
)
Interest expense
(21,292
)
 
(31,040
)
Equity earnings (losses) of investees
(381
)
 
61

Other income (loss), net
83

 
(8,100
)
Income (loss) before income tax expense (benefit)
104,241

 
(48,861
)
Income tax expense (benefit)
30,590

 
(17,751
)
Net income (loss)
73,651

 
(31,110
)
Net income (loss) attributable to non-controlling interest
19,467

 
(1,743
)
Net income (loss) available to stockholders
$
54,184

 
$
(29,367
)
Earnings (loss) per share, basic
$
0.86

 
$
(0.52
)
Weighted average shares outstanding, basic (in thousands)
61,957

 
56,028

Earnings (loss) per share, diluted
$
0.80

 
$
(0.52
)
Weighted average shares outstanding, diluted (in thousands)
67,616

 
56,028

Cash dividends per share
$
0.04

 
$
0.04

___________
(1)
Includes excise taxes on sales by the retail segment of $17,305 and $16,124 for the three months ended March 31, 2013 and 2012, respectively.


The accompanying notes are an integral part of these consolidated financial statements.
2

Table of Contents

ALON USA ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited, dollars in thousands)

 
For the Three Months Ended
 
March 31,
 
2013
 
2012
Net income (loss)
$
73,651

 
$
(31,110
)
Other comprehensive income (loss), before tax:
 
 
 
Interest rate derivatives designated as cash flow hedges:
 
 
 
Unrealized holding gain (loss) arising during period

 
(171
)
Less: reclassification to earnings - interest expense

 
(995
)
Net gain

 
824

Commodity contracts designated as cash flow hedges:
 
 
 
Unrealized holding gain (loss) arising during period
9,381

 
(48,788
)
Less: reclassification to earnings - cost of sales
(24
)
 
(7,953
)
Net gain (loss)
9,405

 
(40,835
)
Total other comprehensive income (loss), before tax
9,405

 
(40,011
)
Income tax expense (benefit) related to items of other comprehensive income
3,498

 
(14,413
)
Total other comprehensive income (loss), net of tax
5,907

 
(25,598
)
Comprehensive income (loss)
79,558

 
(56,708
)
Comprehensive income (loss) attributable to non-controlling interest
19,736

 
(3,222
)
Comprehensive income (loss) attributable to stockholders
$
59,822

 
$
(53,486
)


The accompanying notes are an integral part of these consolidated financial statements.
3

Table of Contents

ALON USA ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, dollars in thousands)
 
For the Three Months Ended
 
March 31,
 
2013
 
2012
Cash flows from operating activities:
 
 
 
Net income (loss) available to stockholders
$
54,184

 
$
(29,367
)
Adjustments to reconcile net income (loss) available to stockholders to cash provided by operating activities:
 
 
 
Depreciation and amortization
31,163

 
30,711

Stock compensation
1,665

 
563

Deferred income tax expense (benefit)
7,549

 
(20,627
)
Net income (loss) attributable to non-controlling interest
19,467

 
(1,743
)
Equity earnings (losses) of investees (net of dividends)
381

 
(61
)
Amortization of debt issuance costs
1,117

 
1,725

Amortization of original issuance discount
731

 
786

Write-off of unamortized original issuance discount

 
9,624

Gain on disposition of assets
(18
)
 
(131
)
Unrealized losses on commodity swaps

 
45,312

Changes in operating assets and liabilities:
 
 
 
Accounts and other receivables, net
19,548

 
23,262

Inventories
(27,282
)
 
(49,799
)
Prepaid expenses and other current assets
7,137

 
(8,565
)
Other assets, net
1,876

 
(1,556
)
Accounts payable
3,021

 
29,235

Accrued liabilities
26,788

 
467

Other non-current liabilities
13,443

 
1,037

Net cash provided by operating activities
160,770

 
30,873

Cash flows from investing activities:
 
 
 
Capital expenditures
(8,414
)
 
(14,557
)
Capital expenditures for turnarounds and catalysts
(5,216
)
 
(2,105
)
Proceeds from disposition of assets
57

 
11

Net cash used in investing activities
(13,573
)
 
(16,651
)
Cash flows from financing activities:
 
 
 
Dividends paid to stockholders
(2,489
)
 
(2,237
)
Dividends paid to non-controlling interest
(6,556
)
 
(135
)
Deferred debt issuance costs
(205
)
 
(2,400
)
Revolving credit facilities, net
1,000

 
(113,341
)
Payments on long-term debt
(2,377
)
 
(2,886
)
Net cash used in financing activities
(10,627
)
 
(120,999
)
Net increase (decrease) in cash and cash equivalents
136,570

 
(106,777
)
Cash and cash equivalents, beginning of period
116,296

 
157,066

Cash and cash equivalents, end of period
$
252,866

 
$
50,289

Supplemental cash flow information:
 
 
 
Cash paid for interest
$
13,244

 
$
14,456

Refunds received for income tax
$
(843
)
 
$
(1,980
)
Non-cash activity:
 
 
 
Financing activity — payment on long-term debt from issuance of preferred stock
$

 
$
(30,000
)

The accompanying notes are an integral part of these consolidated financial statements.
4

Table of Contents

ALON USA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, dollars in thousands except as noted)
(1)
Basis of Presentation
(a)
Basis of Presentation
The consolidated financial statements include the accounts of Alon USA Energy, Inc. and its subsidiaries (collectively, “Alon”). All significant intercompany balances and transactions have been eliminated. These consolidated financial statements of Alon are unaudited and have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities Exchange Act of 1934. Accordingly, they do not include all of the information and notes required by GAAP for complete consolidated financial statements. In the opinion of Alon’s management, the information included in these consolidated financial statements reflects all adjustments, consisting of normal and recurring adjustments, which are necessary for a fair presentation of Alon’s consolidated financial position and results of operations for the interim periods presented. The results of operations for the interim periods are not necessarily indicative of the operating results that may be obtained for the year ending December 31, 2013.
On November 26, 2012, Alon USA Partners, LP (the "Partnership") completed its initial public offering (NYSE: ALDW) of 11,500,000 common units representing limited partner interests. As of March 31, 2013, the 11,501,043 common units held by the public represent 18.4% of the Partnership's common units outstanding. Alon owns the remaining 81.6% of the Partnership's common units and Alon USA Partners GP, LLC (the "General Partner"), Alon's wholly-owned subsidiary, owns 100% of the non-economic general partner interest in the Partnership. The Partnership is consolidated within the refining and marketing segment.
The non-controlling interest in subsidiaries on the consolidated balance sheets includes the investment by partners other than Alon, including those partners’ share of net income and distributions of the Partnership since the close of its initial public offering on November 26, 2012. Net income (loss) attributable to non-controlling interest on the consolidated statements of operations includes those partners’ share of net income of the Partnership.
The consolidated balance sheet as of December 31, 2012, has been derived from the audited financial statements as of that date. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in Alon’s Annual Report on Form 10-K for the year ended December 31, 2012.
(b)
New Accounting Standards
Effective January 1, 2013, Alon adopted Accounting Standards Update (“ASU”) No. 2011- 11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities and ASU No. 2013- 01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities issued by the Financial Accounting Standards Board (“FASB”). These updates requires an entity to disclose both gross information and net information of recognized derivative instruments, repurchase agreements and securities borrowing and lending transactions offset in the consolidated balance sheet. The updated guidance is to be applied retrospectively, effective January 1, 2013. The adoption concerns disclosure only and did not have any financial impact on the consolidated financial statements.
ASU No. 2013- 02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (“ASU 2013- 02”), was issued in February 2013. This ASU does not change the current requirements for reporting net income or other comprehensive income in financial statements. However, ASU 2013- 02 requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under GAAP to be reclassified in their entirety to net income, an entity is required to cross- reference to other disclosures required under GAAP that provide additional detail about those amounts. The adoption concerns disclosure only and did not have any financial impact on the consolidated financial statements.
(2)
Segment Data
Alon’s revenues are derived from three operating segments: (i) refining and marketing, (ii) asphalt and (iii) retail. The reportable operating segments are strategic business units that offer different products and services. The segments are managed separately as each segment requires unique technology, marketing strategies and distinct operational emphasis. Each operating segment’s performance is evaluated primarily based on operating income.

5

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


In the fourth quarter of 2012, based on a change in our internal reporting structure as a result of the Partnership's initial public offering, the branded marketing operations have been combined with the refining and marketing segment and are no longer included with the retail segment. Information for the three months ended March 31, 2012 has been recast to provide a comparison to the current year results.
(a)
Refining and Marketing Segment
Alon’s refining and marketing segment includes sour and heavy crude oil refineries located in Big Spring, Texas; and Paramount, Bakersfield and Long Beach, California (the “California refineries”); and a light sweet crude oil refinery located in Krotz Springs, Louisiana. Alon's refineries have a combined throughput capacity of approximately 214,000 barrels per day (“bpd”). At these refineries, Alon refines crude oil into products including gasoline, diesel, jet fuel, petrochemicals, feedstocks, asphalts and other petroleum products, which are marketed primarily in the South Central, Southwestern and Western regions of the United States. Finished products and blendstocks are also marketed through sales and exchanges with other major oil companies, state and federal governmental entities, unbranded wholesale distributors and various other third parties. Alon also acquires finished products through exchange agreements and third-party suppliers.
Alon supplies gasoline and diesel to approximately 640 Alon branded retail sites, including its retail segment convenience stores. Approximately 62% of the gasoline and 31% of the diesel motor fuel produced at Alon's Big Spring refinery was transferred to Alon's retail segment convenience stores at prices substantially determined by wholesale market prices. Additionally, Alon licenses the use of the Alon brand name and provides credit card processing services to approximately 103 licensed locations that are not under fuel supply agreements.
(b)
Asphalt Segment
Alon’s asphalt segment includes the Willbridge, Oregon refinery and 11 refinery/terminal locations in Texas (Big Spring), California (Paramount, Long Beach, Elk Grove, Bakersfield and Mojave), Oregon (Willbridge), Washington (Richmond Beach), Arizona (Phoenix and Flagstaff), and Nevada (Fernley) (50% interest) as well as a 50% interest in Wright Asphalt Products Company, LLC (“Wright”) which specializes in marketing patented tire rubber modified asphalt products. Alon produces both paving and roofing grades of asphalt and, depending on the terminal, can manufacture performance-graded asphalts, emulsions and cutbacks. The operations in which Alon has a 50% interest (Fernley and Wright), are recorded under the equity method of accounting and the investments are included as part of total assets in the asphalt segment data.
(c)
Retail Segment
Alon’s retail segment operates 298 convenience stores located in Central and West Texas and New Mexico. These convenience stores typically offer various grades of gasoline, diesel fuel, general merchandise and food and beverage products to the general public, primarily under the 7-Eleven and Alon brand names. Substantially all of the motor fuel sold through Alon’s retail segment is supplied by Alon’s Big Spring refinery.
(d)
Corporate
Operations that are not included in any of the three segments are included in the corporate category. These operations consist primarily of corporate headquarters operating and depreciation expenses.
Segment data as of and for the three month periods ended March 31, 2013 and 2012, are presented below:
 
Refining and
Marketing
 
Asphalt
 
Retail
 
Corporate
 
Consolidated
Total
Three Months Ended March 31, 2013
 
 
 
 
 
 
 
 
 
Net sales to external customers
$
1,272,226

 
$
154,865

 
$
224,105

 
$

 
$
1,651,196

Intersegment sales/purchases
141,899

 
(16,559
)
 
(125,340
)
 

 

Depreciation and amortization
26,505

 
1,549

 
2,268

 
841

 
31,163

Operating income (loss)
126,708

 
(4,401
)
 
4,540

 
(1,016
)
 
125,831

Total assets
2,001,498

 
129,941

 
203,508

 
20,775

 
2,355,722

Turnaround, chemical catalyst and capital expenditures
11,185

 
1,792

 
640

 
13

 
13,630


6

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


 
Refining and
Marketing
 
Asphalt
 
Retail
 
Corporate
 
Consolidated
Total
Three Months Ended March 31, 2012
 
 
 
 
 
 
 
 
 
Net sales to external customers
$
1,482,942

 
$
92,549

 
$
216,642

 
$

 
$
1,792,133

Intersegment sales/purchases
152,866

 
(31,189
)
 
(121,677
)
 

 

Depreciation and amortization
26,277

 
1,382

 
2,499

 
553

 
30,711

Operating income (loss)
(10,929
)
 
(1,421
)
 
3,311

 
(743
)
 
(9,782
)
Total assets
1,906,833

 
120,430

 
193,568

 
15,509

 
2,236,340

Turnaround, chemical catalyst and capital expenditures
10,806

 
1,491

 
4,239

 
126

 
16,662

Operating income (loss) for each segment consists of net sales less cost of sales, direct operating expenses, selling, general and administrative expenses, depreciation and amortization, and gain on disposition of assets. Intersegment sales are intended to approximate wholesale market prices. Consolidated totals presented are after intersegment eliminations.
Total assets of each segment consist of net property, plant and equipment, inventories, cash and cash equivalents, accounts and other receivables and other assets directly associated with the segment’s operations. Corporate assets consist primarily of corporate headquarters information technology and administrative equipment.
(3)
Fair Value
The carrying amounts of Alon’s cash and cash equivalents, receivables, payables and accrued liabilities approximate fair value due to the short-term maturities of these assets and liabilities. The reported amounts of long-term debt approximate fair value. Derivative financial instruments are carried at fair value, which is based on quoted market prices.
Alon must determine fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As required, Alon utilizes valuation techniques that maximize the use of observable inputs (levels 1 and 2) and minimize the use of unobservable inputs (level 3) within the fair value hierarchy. Alon generally applies the “market approach” to determine fair value. This method uses pricing and other information generated by market transactions for identical or comparable assets and liabilities. Assets and liabilities are classified within the fair value hierarchy based on the lowest level (least observable) input that is significant to the measurement in its entirety.
The following table sets forth the assets and liabilities measured at fair value on a recurring basis, by input level, in the consolidated balance sheets at March 31, 2013 and December 31, 2012, respectively:
 
Quoted Prices in
Active Markets
For Identical
Assets or
Liabilities
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Consolidated
Total
As of March 31, 2013
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Commodity contracts (swaps)
$

 
$
10,919

 
$

 
$
10,919

Liabilities:
 
 
 
 
 
 
 
Commodity contracts (futures and forwards)
1,909

 

 

 
1,909

Fair value hedges

 
4,539

 

 
4,539

 
 
 
 
 
 
 
 
As of December 31, 2012
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Commodity contracts (futures and forwards)
$
2,072

 
$

 
$

 
$
2,072

Commodity contracts (swaps)

 
1,514

 

 
1,514

Liabilities:
 
 
 
 
 
 
 
Fair value hedges

 
1,720

 

 
1,720


7

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


(4)
Derivative Financial Instruments
Mark to Market
Commodity Derivatives. Alon selectively utilizes commodity derivatives to manage its exposure to commodity price fluctuations and uses crude oil and refined product commodity derivative contracts to reduce risk associated with potential price changes on committed obligations. Alon does not speculate using derivative instruments. Credit risk on Alon’s derivative instruments is substantially mitigated by transacting with counterparties meeting established collateral and credit criteria.
Fair Value Hedges
Fair value hedges are used to hedge price volatility in certain refining inventories and firm commitments to purchase inventories. The level of activity for our fair value hedges is based on the level of our operating inventories. The gain or loss on a derivative instrument designated and qualifying as a fair value hedge, as well as the offsetting loss or gain on the hedged item attributable to the hedged risk, is recognized currently in income in the same period.
As of March 31, 2013, Alon has accounted for certain commodity contracts as fair value hedges with contract purchase volumes of 1,323 thousand barrels of crude oil with remaining contract terms through May 2019.
Cash Flow Hedges
To designate a derivative as a cash flow hedge, Alon documents at the inception of the hedge the assessment that the derivative will be highly effective in offsetting expected changes in cash flows from the item hedged. This assessment, which is updated at least quarterly, is generally based on the most recent relevant historical correlation between the derivative and the item hedged. If, during the term of the derivative, the hedge is determined to be no longer highly effective, hedge accounting is prospectively discontinued and any remaining unrealized gains or losses, based on the effective portion of the derivative at that date, are reclassified to earnings when the underlying transaction occurs.
Commodity Derivatives. As of March 31, 2013, Alon has accounted for certain commodity swap contracts as cash flow hedges with contract purchase volumes of 4,320 thousand barrels of crude oil and contract sales volumes of 4,320 thousand barrels of refined products with the longest remaining contract term of nine months. During the three months ended March 31, 2013 and 2012, Alon recognized unrealized gains of $9,405 and losses of $40,835, respectively, related to these transactions in Other Comprehensive Income ("OCI"). There were no amounts reclassified from OCI into cost of sales as a result of the discontinuance of cash flow hedge accounting.
For the three months ended March 31, 2013 and 2012, there was no hedge ineffectiveness recognized in income. No component of the derivative instruments’ gains or losses was excluded from the assessment of hedge effectiveness.
Interest Rate Derivatives. Alon selectively utilizes interest rate related derivative instruments to manage its exposure to floating-rate debt instruments. Alon periodically uses interest rate swap agreements to manage its floating to fixed rate position by converting certain floating-rate debt to fixed-rate debt. As of March 31, 2013, Alon did not have any outstanding interest rate swap agreements.
For cash flow hedges, gains and losses reported in OCI are reclassified into interest expense when the forecasted transaction affects income. Alon recognized in OCI unrealized gains of $824 during the three months ended March 31, 2012 for the fair value measurement of the interest rate swap agreements.

8

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


The following table presents the effect of derivative instruments on the consolidated statements of financial position.
 
As of March 31, 2013
 
Asset Derivatives
 
Liability Derivatives
 
Balance Sheet
 
 
 
Balance Sheet
 
 
 
Location
 
Fair Value
 
Location
 
Fair Value
Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
Commodity contracts (futures and forwards)
Accounts receivable
 
$
1,701

 
Accrued liabilities
 
$
(3,610
)
Total derivatives not designated as hedging instruments
 
 
$
1,701

 
 
 
$
(3,610
)
 
 
 
 
 
 
 
 
Derivatives designated as hedging instruments:
 
 
 
 
 
 
 
Commodity contracts (swaps)
Accounts receivable
 
$
10,919

 
 
 
$

Fair value hedges
 
 

 
Other non-current liabilities
 
(4,539
)
Total derivatives designated as hedging instruments
 
 
10,919

 
 
 
(4,539
)
Total derivatives
 
 
$
12,620

 
 
 
$
(8,149
)
 
As of December 31, 2012
 
Asset Derivatives
 
Liability Derivatives
 
Balance Sheet
 
 
 
Balance Sheet
 
 
 
Location
 
Fair Value
 
Location
 
Fair Value
Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
Commodity contracts (futures and forwards)
Accounts receivable
 
$
2,743

 
Accrued liabilities
 
$
(671
)
Total derivatives not designated as hedging instruments
 
 
$
2,743

 
 
 
$
(671
)
 
 
 
 
 
 
 
 
Derivatives designated as hedging instruments:
 
 
 
 
 
 
 
Commodity contracts (swaps)
Accounts receivable
 
$
2,287

 
Accrued liabilities
 
$
(773
)
Fair value hedges
 
 

 
Other non-current liabilities
 
(1,720
)
Total derivatives designated as hedging instruments
 
 
2,287

 
 
 
(2,493
)
Total derivatives
 
 
$
5,030

 
 
 
$
(3,164
)
The following tables present the effect of derivative instruments on Alon’s consolidated statements of operations and accumulated other comprehensive income.
Cash Flow Hedging Relationships
 
Gain (Loss) Recognized
in OCI
 
Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)
 
Gain (Loss) Reclassified
from Accumulated OCI into
Income (Ineffective
Portion and Amount
Excluded from
Effectiveness Testing)
 
 
 
 
Location
 
Amount
 
Location
 
Amount
For the Three Months Ended March 31, 2013
 
 
 
 
 
 
 
 
Commodity contracts (swaps)
 
$
9,405

 
Cost of sales
 
$
(24
)
 
 
 
$

Total derivatives
 
$
9,405

 
 
 
$
(24
)
 
 
 
$

 
 
 
 
 
 
 
 
 
 
 
For the Three Months Ended March 31, 2012
 
 
 
 
 
 
 
 
Commodity contracts (swaps)
 
$
(40,835
)
 
Cost of sales
 
$
(7,953
)
 
 
 
$

Interest rate swap
 
824

 
Interest expense
 
(995
)
 
 
 

Total derivatives
 
$
(40,011
)
 
 
 
$
(8,948
)
 
 
 
$


9

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


Derivatives in fair value hedging relationships:
 
 
 
Gain (Loss) Recognized in Income
 
 
 
For the Three Months Ended
 
 
 
March 31,
 
Location
 
2013
 
2012
Fair value hedges
Cost of sales
 
$
(2,819
)
 
$

Total derivatives
 
 
$
(2,819
)
 
$

Derivatives not designated as hedging instruments:
 
 
 
Gain (Loss) Recognized in Income
 
 
 
For the Three Months Ended
 
 
 
March 31,
 
Location
 
2013
 
2012
Commodity contracts (futures & forwards)
Cost of sales
 
$
7,987

 
$
1,714

Commodity contracts (swaps)
Cost of sales
 

 
(6,381
)
Commodity contracts (swaps)
Unrealized losses on commodity swaps
 

 
(45,312
)
Commodity contracts (call options)
Other income (loss), net
 

 
(8,153
)
Total derivatives
 
 
$
7,987

 
$
(58,132
)
Offsetting Assets and Liabilities
Alon's derivative financial instruments are subject to master netting arrangements to manage counterparty credit risk associated with derivatives, however Alon does not offset on its consolidated balance sheets the fair value amounts recorded for derivative instruments under these agreements.
The following table presents offsetting information regarding Alon's derivatives by type of transaction as of March 31, 2013 and December 31, 2012:
As of March 31, 2013
Gross Amounts of Recognized Assets (Liabilities)
 
Gross Amounts offset in the Statement of Financial Position
 
Net Amounts of Assets (Liabilities) Presented in the Statement of Financial Position
 
Gross Amounts Not offset in the Statement of Financial Position
 
Net Amount
 
 
 
Financial Instruments
 
Cash Collateral Pledged
 
Commodity Derivative Assets:
 
 
 
 
 
 
 
 
 
 
Futures & forwards
$
1,701

 
$

 
$
1,701

 
$
(544
)
 
$

 
$
1,157

Swaps
10,919

 

 
10,919

 

 

 
10,919

 
 
 
 
 
 
 
 
 
 
 
 
Commodity Derivative Liabilities:
 
 
 
 
 
 
 
 
 
 
Futures & forwards
$
(3,610
)
 
$

 
$
(3,610
)
 
$
544

 
$
3,066

 
$

As of December 31, 2012
Gross Amounts of Recognized Assets (Liabilities)
 
Gross Amounts offset in the Statement of Financial Position
 
Net Amounts of Assets (Liabilities) Presented in the Statement of Financial Position
 
Gross Amounts Not offset in the Statement of Financial Position
 
Net Amount
 
 
 
Financial Instruments
 
Cash Collateral Pledged
 
Commodity Derivative Assets:
 
 
 
 
 
 
 
 
 
 
Futures & forwards
$
2,743

 
$

 
$
2,743

 
$
(671
)
 
$

 
$
2,072

Swaps
2,287

 

 
2,287

 

 

 
2,287

 
 
 
 
 
 
 
 
 
 
 
 
Commodity Derivative Liabilities:
 
 
 
 
 
 
 
 
 
 
Futures & forwards
$
(671
)
 
$

 
$
(671
)
 
$
671

 
$

 
$

Swaps
(773
)
 

 
(773
)
 

 

 
(773
)

10

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


(5)
Inventories
Alon’s inventories (including inventory consigned to others) are stated at the lower of cost or market. Cost is determined under the last-in, first-out (LIFO) method for crude oil, refined products, asphalt, and blendstock inventories. Materials and supplies are stated at average cost. Cost for convenience store merchandise inventories is determined under the retail inventory method and cost for convenience store fuel inventories is determined under the first-in, first-out (FIFO) method.
Carrying value of inventories consisted of the following:
 
March 31,
2013
 
December 31,
2012
Crude oil, refined products, asphalt and blendstocks
$
49,547

 
$
40,068

Crude oil inventory consigned to others
107,995

 
91,876

Materials and supplies
23,055

 
21,919

Store merchandise
21,586

 
22,139

Store fuel
9,018

 
7,917

Total inventories
$
211,201

 
$
183,919

Market values of crude oil, refined products, asphalt and blendstock inventories exceeded LIFO costs by $63,062 and $58,213 at March 31, 2013 and December 31, 2012, respectively.
(6)
Inventory Financing Agreements
Alon has entered into supply and offtake agreements with J. Aron & Company ("J. Aron"), to support the operations of the Big Spring, Krotz Springs and California refineries (the “Supply and Offtake Agreements”). Pursuant to the Supply and Offtake Agreements, (i) J. Aron agreed to sell to Alon, and Alon agreed to buy from J. Aron, at market price, crude oil for processing at the refineries and (ii) Alon agreed to sell, and J. Aron agreed to buy, at market price, certain refined products produced at the refineries.
In connection with the execution of the Supply and Offtake Agreements, Alon also entered into agreements (the "Related Agreements") that provided for the sale, at market prices, of Alon's crude oil and certain refined product inventories to J. Aron, the lease to J. Aron of crude oil and refined product storage facilities, and an agreement to identify prospective purchasers of refined products on J. Aron's behalf. The Supply and Offtake Agreements were amended in February 2013 and have initial terms that expire in May 2019. J. Aron may elect to terminate the Supply and Offtake Agreements prior to the initial term in May 2016 and upon each anniversary thereof provided Alon receives notice of termination at least six months prior to that date. Alon may elect to terminate in May 2018, provided Alon gives notice of termination at least six months prior to that date.
Following expiration or termination of the Supply and Offtake Agreements and the Related Agreements, Alon is obligated to purchase the crude oil and refined product inventories then owned by J. Aron and located at the leased storage facilities at market prices at that time.
In association with the supply and offtake agreement at the Krotz Springs refinery, Alon entered into a secured Credit Agreement (the “Krotz Springs Standby LC Facility”) by and between Alon, as Borrower, and Goldman Sachs Bank USA, as Issuing Bank. The Krotz Springs Standby LC Facility provides for up to $200,000 of letters of credit to be issued to J. Aron. Obligations under the Krotz Springs Standby LC Facility are secured by a first priority lien on the existing and future accounts receivable and inventory of Alon Refining Krotz Springs, Inc. and its subsidiaries ("ARKS"), a wholly owned subsidiary of Alon. The Krotz Springs Standby LC Facility includes customary events of default and restrictions on the activities of ARKS. The Krotz Springs Standby LC Facility contains no maintenance financial covenants. At this time there is no further availability under the Standby LC Facility.
As of March 31, 2013 and December 31, 2012, Alon had net current payables to J. Aron for purchases of $47,113 and $37,940, respectively, non-current liabilities related to the original financing of $130,567 and $115,955, respectively, and a consignment inventory receivable representing a deposit paid to J. Aron of $26,179 and $26,179, respectively, recorded in other assets.
Additionally, Alon had net current receivables of $874 and $5,878 at March 31, 2013 and December 31, 2012, respectively, for forward commitments related to month-end consignment inventory target levels differing from projected levels and the associated pricing with these inventory level differences.

11

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


(7)
Property, Plant and Equipment, Net
Property, plant and equipment, net consisted of the following:
 
March 31,
2013
 
December 31,
2012
Refining facilities
$
1,788,352

 
$
1,781,701

Pipelines and terminals
43,445

 
43,445

Retail
165,447

 
164,998

Other
14,332

 
14,296

Property, plant and equipment, gross
2,011,576

 
2,004,440

Less accumulated depreciation
(537,381
)
 
(511,947
)
Property, plant and equipment, net
$
1,474,195

 
$
1,492,493

(8)
Additional Financial Information
The tables that follow provide additional financial information related to the consolidated financial statements.
(a)
Other Assets, Net
 
March 31,
2013
 
December 31,
2012
Deferred turnaround and chemical catalyst cost
$
16,904

 
$
15,978

Environmental receivables
11,888

 
13,563

Deferred debt issuance costs
13,794

 
14,705

Intangible assets, net
7,969

 
9,384

Receivable from supply agreements
26,179

 
26,179

Other, net
15,862

 
14,849

Total other assets
$
92,596

 
$
94,658

(b)
Accrued Liabilities and Other Non-Current Liabilities
 
March 31,
2013
 
December 31,
2012
Accrued Liabilities:
 
 
 
Taxes other than income taxes, primarily excise taxes
$
26,770

 
$
37,888

Employee costs
21,495

 
18,995

Commodity contracts
3,610

 
1,444

Accrued finance charges
18,929

 
11,633

Environmental accrual
7,181

 
6,730

Other
50,706

 
25,889

Total accrued liabilities
$
128,691

 
$
102,579

 
 
 
 
Other Non-Current Liabilities:
 
 
 
Pension and other postemployment benefit liabilities, net
$
59,472

 
$
58,270

Environmental accrual (Note 15)
52,372

 
54,672

Asset retirement obligations
12,047

 
11,867

Consignment inventory
130,567

 
115,955

Other
13,931

 
14,182

Total other non-current liabilities
$
268,389

 
$
254,946

(9)
Postretirement Benefits
Alon has four defined benefit pension plans covering substantially all of its employees, excluding employees of Alon's retail segment. The benefits are based on years of service and the employee's final average monthly compensation. Alon's funding policy is to contribute annually not less than the minimum required nor more than the maximum amount that can be deducted for federal income tax purposes. Contributions are intended to provide not only for benefits attributed to service to

12

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


date, but also for those benefits expected to be earned in the future. Alon’s estimated contributions during 2013 to its pension plans has not changed significantly from amounts previously disclosed in Alon’s consolidated financial statements for the year ended December 31, 2012. For the three months ended March 31, 2013 and 2012, Alon contributed $915 and $1,290, respectively, to its qualified pension plans.
The components of net periodic benefit cost related to Alon’s benefit plans were as follows for the three months ended March 31, 2013 and 2012:
 
For the Three Months Ended
 
March 31,
 
2013
 
2012
Components of net periodic benefit cost:
 
 
 
Service cost
$
1,116

 
$
943

Interest cost
1,100

 
1,032

Expected return on plan assets
(1,157
)
 
(1,077
)
Amortization of net loss
1,005

 
646

Net periodic benefit cost
$
2,064

 
$
1,544

(10)
Indebtedness
Debt consisted of the following:
 
March 31,
2013
 
December 31,
2012
Term loan credit facility
$
245,810

 
$
246,311

Revolving credit facility
50,000

 
49,000

Senior secured notes
212,181

 
211,573

Retail credit facilities
78,380

 
80,133

Total debt
586,371

 
587,017

Less current portion
(9,491
)
 
(9,504
)
Total long-term debt
$
576,880

 
$
577,513

Alon had outstanding letters of credit under the Alon Energy Letter of Credit Facility of $59,450 and $59,485 at March 31, 2013 and December 31, 2012, respectively.
Alon had borrowings of $50,000 and $49,000 and letters of credit of $87,097 and $58,759 outstanding under the Alon USA LP Credit Facility at March 31, 2013 and December 31, 2012, respectively.
Financial Covenants. Alon has certain credit agreements that contain restrictive covenants, including maintenance financial covenants. At March 31, 2013, Alon was in compliance with these maintenance financial covenants.
(11)
Stock-Based Compensation
Alon’s overall executive incentive compensation program includes the granting of awards in the form of options to purchase common stock, Stock Appreciation Rights (“SARs”), restricted shares of common stock, restricted common stock units, performance shares, performance units and senior executive plan bonuses to Alon’s directors, officers and key employees.

13

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


Restricted Stock. The following table summarizes the restricted share activity from January 1, 2012:
 
 
 
Weighted
Average
Grant Date
Fair Values
Nonvested Shares
Shares
 
(per share)
Nonvested at January 1, 2012
194,906

 
$
13.26

Granted
228,648

 
9.63

Vested
(97,424
)
 
13.27

Forfeited

 

Nonvested at December 31, 2012
326,130

 
$
10.71

Granted

 

Vested

 

Forfeited

 

Nonvested at March 31, 2013
326,130

 
$
10.71

Compensation expense for restricted stock awards amounted to $517 and $174 for the three months ended March 31, 2013 and 2012, respectively, and is included in selling, general and administrative expenses in the consolidated statements of operations.
As of March 31, 2013, there was $1,547 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted-average period of 1.8 years.
Restricted Stock Units. In May 2011, Alon granted 500,000 restricted stock units to the CEO and President of Alon at a grant date fair value of $11.47. Each restricted unit represents the right to receive one share of Alon common stock upon the vesting of the restricted stock unit. All 500,000 restricted stock units vest on March 1, 2015, assuming continued service at vesting. Compensation expense for the restricted stock units amounted to $374 and $374 for the three months ended March 31, 2013 and 2012, respectively, and is included in selling, general and administrative expenses in the consolidated statements of operations.
Stock Appreciation Rights. Through March 31, 2013, Alon has granted awards of 599,165 SARs to certain officers and key employees of Alon of which 60% of these SARs have a grant price of $28.46 and the remaining SARs have grant prices ranging from $10.00 to $16.00. As of March 31, 2013, 383,874 SARs have expired without being exercised.
Compensation expense for the SARs grants amounted to $6 and $15 for the three months ended March 31, 2013 and 2012, respectively, and is included in selling, general and administrative expenses in the consolidated statements of operations.
(12)
Stockholders’ Equity
(a)
Common Stock (share value in dollars)
Amended Shareholder Agreement. In 2011, an agreement was reached with one of the non-controlling interest shareholders of Alon Assets, Inc. ("Alon Assets"), whereby the participant would exchange 2,019 shares of Alon Assets ratably over a three year period for up to 377,710 shares of Alon's common stock. One-third of the Alon Assets shares were exchanged in each of October 2012 and October 2011, and the remaining one-third will be exchanged in October 2013.
In 2012, Alon signed agreements with the remaining non-controlling interest shareholders of Alon Assets. Alon has the right to exchange 581,699 shares of its common stock over a period of 12 quarters and 2,326,946 shares of its common stock over a period of 20 quarters, beginning July 2012, for 15,549.3 shares of Alon Assets.
During the three months ended March 31, 2013, 164,822 shares of Alon's common stock were issued in exchange for 881.12 shares of Alon Assets. Compensation expense associated with the difference in value between the participants ownership of Alon Assets compared to Alon's common stock of $764 was recognized for the three months ended March 31, 2013 and is included in selling, general and administrative expenses in the consolidated statements of operations.
(b)
Preferred stock (share value in dollars)
Preferred Stock Conversion. During the three months ended March 31, 2013, certain holders converted 651,820 shares of Series B Preferred Stock to 967,107 shares of Alon's common stock.

14

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


(c)
Dividends
Common Stock Dividends. On March 15, 2013, Alon paid a regular quarterly cash dividend of $0.04 per share on Alon’s common stock to stockholders of record at the close of business on March 1, 2013.
Preferred Stock Dividends. Alon issued 55,907 shares of common stock for payment of the quarterly 8.5% preferred stock dividend to preferred stockholders for the three months ended March 31, 2013.
(d)
Accumulated Other Comprehensive Loss
The following table displays the change in accumulated other comprehensive loss, net of tax.
 
Unrealized Gain on Cash Flow Hedges
 
Defined Benefit Pension Plans
 
Total
Balance at December 31, 2012
$
455

 
$
(30,902
)
 
$
(30,447
)
Current period other comprehensive income, net of tax
5,638

 

 
5,638

Balance at March 31, 2013
$
6,093

 
$
(30,902
)
 
$
(24,809
)
(13)
Earnings (Loss) Per Share
Basic earnings (loss) per share is calculated as net income (loss) available to common stockholders divided by the average number of participating shares of common stock outstanding. Diluted earnings (loss) per share include the dilutive effect of SARs and granted restricted stock units using the treasury stock method and the dilutive effect of convertible preferred shares and warrants using the if-converted method.
The calculation of earnings per share, basic and diluted, for the three months ended March 31, 2013 and 2012, is as follows:
 
For the Three Months Ended
 
March 31,
 
2013
 
2012
Net income (loss) available to stockholders
$
54,184

 
$
(29,367
)
less: preferred stock dividends
758

 

Net income (loss) available to common stockholders
53,426

 
(29,367
)
 
 
 
 
Weighted average number of shares of common stock outstanding
61,957

 
56,028

Dilutive SARs, RSUs, convertible preferred stock and warrants
5,659

 

Weighted average number of shares of common stock outstanding assuming dilution
67,616

 
56,028

Earnings (loss) per share – basic
$
0.86

 
$
(0.52
)
Earnings (loss) per share – diluted
$
0.80

 
$
(0.52
)
(14)
Related-Party Transactions
In March 2012, pursuant to the terms of the Series B Convertible Preferred Stock Agreement, Alon issued $12,000 of 8.5% Series B Convertible Preferred Stock to certain shareholders of Alon Israel and their affiliates. In conjunction with the issuance of the Series B Convertible Preferred Stock, Alon repaid all amounts due under the Alon Brands Term Loan and the warrants held by Alon Israel and their affiliates were surrendered to Alon.
(15)
Commitments and Contingencies
(a)
Commitments
In the normal course of business, Alon has long-term commitments to purchase, at market prices, utilities such as natural gas, electricity and water for use by its refineries, terminals, pipelines and retail locations. Alon is also party to various refined product and crude oil supply and exchange agreements. These agreements are typically short-term in nature or provide terms for cancellation.

15

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


(b)
Contingencies
Alon is involved in various legal actions arising in the ordinary course of business. Alon believes the ultimate disposition of these matters will not have a material effect on Alon’s financial position, results of operations or liquidity.
(c)
Environmental
Alon is subject to federal, state, and local environmental laws and regulations. These rules regulate the discharge of materials into the environment and may require Alon to incur future obligations to investigate the effects of the release or disposal of certain petroleum, chemical, and mineral substances at various sites; to remediate or restore these sites; to compensate others for damage to property and natural resources and for remediation and restoration costs. These possible obligations relate to sites owned by Alon and associated with past or present operations. Alon is currently participating in environmental investigations, assessments and cleanups under these regulations at refineries, service stations, pipelines and terminals. Alon may in the future be involved in additional environmental investigations, assessments and cleanups. The magnitude of future costs will depend on factors such as the unknown nature and contamination at many sites, the timing, extent and method of the remedial actions which may be required, and the determination of Alon’s liability in proportion to other responsible parties.
Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefit are expensed. Liabilities for expenditures of a non-capital nature are recorded when environmental assessment and/or remediation is probable, and the costs can be reasonably estimated. Substantially all amounts accrued are expected to be paid out over the next 15 years. The level of future expenditures for environmental remediation obligations cannot be determined with any degree of reliability.
Alon has accrued environmental remediation obligations of $59,553 ($7,181 accrued liability and $52,372 non-current liability) at March 31, 2013, and $61,402 ($6,730 accrued liability and $54,672 non-current liability) at December 31, 2012.
In connection with the acquisition of the Bakersfield refinery on June 1, 2010, a subsidiary of Alon entered into an indemnification agreement with a prior owner for remediation expenses of conditions that existed at the refinery on the acquisition date. Alon is required to make indemnification claims to the prior owner by March 15, 2015. Alon has recorded a current receivable of $3,239 and a non-current receivable of $10,174, and a current receivable of $3,239 and a non-current receivable of $11,599 at March 31, 2013 and December 31, 2012, respectively.
Alon has indemnification agreements with prior owners for part of the remediation expenses at certain West Coast assets. Alon has recorded current receivables of $604 and $604 and non-current receivables of $1,714 and $1,964 at March 31, 2013 and December 31, 2012, respectively.
(16)
Subsequent Events
Dividend Declared
On May 8, 2013, Alon declared a regular quarterly cash dividend of $0.06 per share and a special non-recurring dividend of $0.16 per share on Alon’s common stock, both payable on June 14, 2013, to stockholders of record at the close of business on May 31, 2013.
Partnership Distribution Declared
On April 30, 2013 the Board of the General Partner declared a cash distribution to the Partnership's common unitholders for the period January 1, 2013 through and including March 31, 2013 of $1.48 per common unit. The cash distribution will be paid on May 15, 2013 to unitholders of record at the close of business on May 10, 2013. The total cash distribution to be paid to non-affiliated common unitholders is approximately $17,020.

16

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, 2012. In this document, the words “Alon,” “the Company,” “we” and “our” refer to Alon USA Energy, Inc. and its subsidiaries or to Alon USA Energy, Inc. or an individual subsidiary, and not to any other person. Generally, the words "we", "our" and "us" include Alon USA Partners, LP and its subsidiaries (the "Partnership") as consolidated subsidiaries of Alon USA Energy, Inc.
Forward-Looking Statements
Certain statements contained in this report and other materials we file with the SEC, or in other written or oral statements made by us, other than statements of historical fact, are “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements relate to matters such as our industry, business strategy, goals and expectations concerning our market position, future operations, margins, profitability, capital expenditures, liquidity and capital resources and other financial and operating information. We have used the words “anticipate,” “assume,” “believe,” “budget,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “will,” “future” and similar terms and phrases to identify forward-looking statements.
Forward-looking statements reflect our current expectations of future events, results or outcomes. These expectations may or may not be realized. Some of these expectations may be based upon assumptions or judgments that prove to be incorrect. In addition, our business and operations involve numerous risks and uncertainties, many of which are beyond our control, which could result in our expectations not being realized or otherwise materially affect our financial condition, results of operations and cash flows.
Actual events, results and outcomes may differ materially from our expectations due to a variety of factors. Although it is not possible to identify all of these factors, they include, among others, the following:
changes in general economic conditions and capital markets;
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 spread between West Texas Intermediate ("WTI") crude oil and West Texas Sour ("WTS") crude oil;
changes in the spread between WTI crude oil and Light Louisiana Sweet crude oil, as well as the spread between California crudes such as Buena Vista and WTI;
the effects of transactions involving forward contracts and derivative instruments;
actions of customers and competitors;
termination of our Supply and Offtake Agreements with J. Aron & Company (“J. Aron”), which include all our refineries and under which J. Aron is our largest supplier of crude oil and our largest customer of refined products. Additionally, we are obligated to repurchase all consigned inventories and certain other inventories upon termination of these Supply and Offtake Agreements;
changes in fuel and utility costs incurred by our facilities;
disruptions due to equipment interruption, pipeline disruptions or failures at our or third-party facilities;
the execution of planned capital projects;
adverse changes in the credit ratings assigned to our trade credit and debt instruments;
the effects of and cost of compliance with current and future state and federal environmental, economic, safety and other laws, policies and regulations;
operating hazards, natural disasters, casualty losses and other matters beyond our control; and
the other factors discussed in our Annual Report on Form 10-K for the year ended December 31, 2012 under the caption “Risk Factors”.
Any one of these factors or a combination of these factors could materially affect our future results of operations and could influence whether any forward-looking statements ultimately prove to be accurate. Our forward-looking statements are not guarantees of future performance, and actual results and future performance may differ materially from those suggested in any forward-looking statements. We do not intend to update these statements unless we are required by the securities laws to do so.

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Company Overview
We are an independent refiner and marketer of petroleum products operating primarily in the South Central, Southwestern and Western regions of the United States. Our crude oil refineries are located in Texas, California, Oregon and Louisiana and have a combined throughput capacity of approximately 214,000 barrels per day (“bpd”). Our refineries produce petroleum products including various grades of gasoline, diesel fuel, jet fuel, petrochemicals, petrochemical feedstocks, asphalt and other petroleum-based products.
Refining and Marketing Segment. Our refining and marketing segment includes sour and heavy crude oil refineries located in Big Spring, Texas; and Paramount, Bakersfield and Long Beach, California; and a light sweet crude oil refinery located in Krotz Springs, Louisiana. We refer to the Paramount, Bakersfield and Long Beach refineries together as our “California refineries.” The refineries in our refining and marketing segment have a combined throughput capacity of approximately 214,000 bpd. At these refineries we refine crude oil into petroleum products, including gasoline, diesel fuel, jet fuel, petrochemicals, petrochemical feedstocks and asphalts, which are marketed primarily in the South Central, Southwestern, and Western United States.
Alon owns the Big Spring refinery and wholesale marketing operations through Alon USA Partners, LP (the "Partnership") (NYSE: ALDW). Alon markets transportation fuels produced at its Big Spring refinery in West and Central Texas, Oklahoma, New Mexico and Arizona. Alon refers to its operations in these regions as its “physically integrated system” because it supplies its Alon branded and unbranded distributors in these regions with motor fuels produced at its Big Spring refinery and distributed through a network of pipelines and terminals which it either owns or has access to through leases or long-term throughput agreements.
We supply gasoline and diesel to approximately 640 Alon branded retail sites, including our retail segment convenience stores. Approximately 62% of the gasoline and 31% of the diesel motor fuel produced at the Big Spring refinery was transferred to our retail segment convenience stores at prices substantially determined by wholesale market prices. Additionally, we license the use of the Alon brand name and provide credit card processing services to approximately 103 licensed locations that are not under fuel supply agreements.
We market refined products produced by our California refineries to wholesale distributors, other refiners and third parties primarily on the West Coast. In December 2012, the California refineries suspended operations.
We market refined products produced by our Krotz Springs refinery to other refiners and third parties. The refinery’s location provides access to upriver markets on the Mississippi and Ohio Rivers. The refinery also uses its direct access to the Colonial Pipeline to transport products to markets in the Southern and Eastern United States. The Krotz Springs refinery processing units are structured to yield approximately 101.5% of total feedstock input, meaning that for each 100 barrels of crude oil and feedstocks input into the refinery, it produces 101.5 barrels of refined products. Of the 101.5%, on average 99.0% is light finished products such as gasoline and distillates, including diesel and jet fuel, petrochemical feedstocks and liquefied petroleum gas, and the remaining 2.5% is primarily heavy oils.
Asphalt Segment. Our asphalt segment markets asphalt produced at our Big Spring and California refineries included in the refining and marketing segment and at our Willbridge, Oregon refinery. Asphalt produced by the refineries in our refining and marketing segment is transferred to the asphalt segment at prices substantially determined by reference to the cost of crude oil, which is intended to approximate wholesale market prices. Our asphalt segment markets asphalt through 11 refinery/terminal locations in Texas (Big Spring), California (Paramount, Long Beach, Elk Grove, Bakersfield and Mojave), Oregon (Willbridge), Washington (Richmond Beach), Arizona (Phoenix and Flagstaff) and Nevada (Fernley) (50% interest) as well as through a 50% interest in Wright Asphalt Products Company, LLC (“Wright”). We produce both paving and roofing grades of asphalt, including performance-graded asphalts, emulsions and cutbacks.
Retail Segment. Our retail segment operates 298 convenience stores located in Central and West Texas and New Mexico. These convenience stores typically offer various grades of gasoline, diesel fuel, general merchandise and food and beverage products to the general public, primarily under the 7-Eleven and Alon brand names. Substantially all of the motor fuel sold through our retail segment is supplied by our Big Spring refinery.

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First Quarter Operational and Financial Highlights
Operating income for the first quarter of 2013 was $125.8 million, compared to an operating loss of $(9.8) million in the same period last year. Our operational and financial highlights for the first quarter of 2013 include the following:
Combined refinery throughput for the first quarter of 2013 averaged 117,915 bpd, consisting of 59,476 bpd at the Big Spring refinery and 58,439 bpd at the Krotz Springs refinery, compared to 135,190 bpd for the first quarter of 2012, consisting of 69,512 bpd at the Big Spring refinery and 65,678 bpd at the Krotz Springs refinery. The lower throughput rates for the first quarter of 2013 were due to maintenance work at both refineries.
Operating margin at the Big Spring refinery was $28.76 per barrel for the first quarter of 2013 compared to $15.24 per barrel for the same period in 2012. This increase in operating margin is mainly due to higher Gulf Coast 3/2/1 crack spreads and a widening sweet/sour spread.
Operating margin at the Krotz Springs refinery was $13.14 per barrel for the first quarter of 2013 compared to $5.81 per barrel for the same period in 2012. This increase in operating margin is mainly due to higher throughput volumes of lower cost WTI priced crude oils in the first quarter of 2013 compared to the same period in 2012.
The average Gulf Coast 3/2/1 crack spread was $28.40 per barrel for the first quarter of 2013 compared to $24.78 per barrel for the first quarter of 2012. The average Gulf Coast 2/1/1 high sulfur diesel crack spread for the first quarter of 2013 was $8.20 per barrel compared to $12.46 per barrel for the first quarter of 2012.
The average WTI to WTS spread for the first quarter of 2013 was $11.41 per barrel compared to $2.16 per barrel for the same period in 2012. The average LLS to WTI spread for the first quarter of 2013 was $20.22 per barrel compared to $12.61 per barrel for the same period in 2012.
Asphalt margins in the first quarter of 2013 were $61.51 per ton compared to $55.18 per ton in the first quarter of 2012. This increase is primarily due to lower crude oil costs and higher non-blended asphalt sales prices, partially offset by lower blended asphalt sales prices. The average blended asphalt sales price decreased 5.6% from $572.54 per ton in the first quarter of 2012 to $540.48 per ton in the first quarter of 2013 and the average non-blended asphalt sales price increased 14.7% from $341.49 per ton in the first quarter of 2012 to $391.77 per ton in the first quarter of 2013.
Retail fuel sales volume increased by 7.5% from 41.3 million gallons in the first quarter of 2012 to 44.4 million gallons in the first quarter of 2013.
During the first quarter, we reduced net debt (as defined as total debt less cash and cash equivalents) $137.2 million to $333.5 million from $470.7 million at December 31, 2012.
Major Influences on Results of Operations
Refining and Marketing. Earnings and cash flow from our refining and marketing segment are primarily affected by the difference between refined product prices and the prices for crude oil and other feedstocks. These prices depend on numerous factors beyond our control, including the supply of, and demand for, crude oil, gasoline and other refined products which, in turn, depend on, among other factors, changes in domestic and foreign economies, weather conditions, domestic and foreign political affairs, production levels, the availability of imports, the marketing of competitive fuels and government regulation. While our sales and operating revenues fluctuate significantly with movements in crude oil and refined product prices, it is the spread between crude oil and refined product prices, and not necessarily fluctuations in those prices, that affect our earnings.
In order to measure our operating performance, we compare our per barrel refinery operating margins to certain industry benchmarks. We calculate this margin for each refinery by dividing the refinery’s gross margin by its throughput volumes. Gross margin is the difference between net sales and cost of sales (exclusive of substantial hedge positions and certain inventory adjustments). Each refinery is compared to an industry benchmark that is intended to approximate that refinery's crude slate and product yield.
We compare our Big Spring refinery’s per barrel operating margin to the Gulf Coast 3/2/1 crack spread. A 3/2/1 crack spread is calculated assuming that three barrels of a benchmark crude oil are converted, or cracked, into two barrels of gasoline and one barrel of diesel. We calculate the Gulf Coast 3/2/1 crack spread using the market value of West Texas Intermediate Cushing, or WTI, a light, sweet crude oil, the market values of Gulf Coast conventional gasoline and ultra-low sulfur diesel.
We compare our California refineries’ per barrel operating margin to the West Coast 3/1/1/1 crack spread. A 3/1/1/1 crack spread is calculated assuming that three barrels of a benchmark crude oil are converted into one barrel of gasoline, one barrel of

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diesel and one barrel of fuel oil. We calculate the West Coast 3/1/1/1 crack spread using the market value of Buena Vista crude oil, the market values of West Coast LA CARBOB pipeline gasoline, LA ultra-low sulfur pipeline diesel and LA 380 pipeline CST (fuel oil).
We compare our Krotz Springs refinery’s per barrel margin to the Gulf Coast 2/1/1 crack spread. A 2/1/1 crack spread is calculated assuming that two barrels of a benchmark crude oil are converted into one barrel of gasoline and one barrel of diesel. We calculate the Gulf Coast 2/1/1 crack spread using the market value of Light Louisiana Sweet, or LLS, crude oil, the market values of Gulf Coast conventional gasoline and Gulf Coast high sulfur diesel.
Our Big Spring refinery and California refineries are capable of processing substantial volumes of sour crude oil, which has historically cost less than intermediate and sweet crude oils. We measure the cost advantage of refining sour crude oil by calculating the difference between the value of WTI crude oil and the value of West Texas Sour, or WTS, a medium, sour crude oil. We refer to this differential as the sweet/sour spread. A widening of the sweet/sour spread can favorably influence the operating margin for our Big Spring and California refineries. In addition, our California refineries are capable of processing significant volumes of heavy crude oils which historically have cost less than light crude oils. We measure the cost advantage of refining heavy crude oils by calculating the difference between the value of WTI crude oil and the value of Buena Vista crude oil. A widening of this spread can favorably influence the refinery operating margins for our California refineries.
The Krotz Springs refinery has the capability to process substantial volumes of low-sulfur, or sweet, crude oils to produce a high percentage of light, high-value refined products. Sweet crude oil typically comprises 100% of the Krotz Springs refinery's crude oil input. This input is primarily comprised of LLS crude oil and WTI crude oil. We measure the cost of refining the LLS crude oil by calculating the difference between the average value of LLS crude oil and the average value of WTI crude oil. A narrowing of this spread can favorably influence the refinery operating margins of our Krotz Springs refinery.
The results of operations from our refining and marketing segment are also significantly affected by our refineries’ operating costs, particularly the cost of natural gas used for fuel and the cost of electricity. Natural gas prices have historically been volatile. Typically, electricity prices fluctuate with natural gas prices.
Demand for gasoline products is generally higher during summer months than during winter months due to seasonal increases in highway traffic. As a result, the operating results for our refining and marketing segment for the first and fourth calendar quarters are generally lower than those for the second and third calendar quarters. The effects of seasonal demand for gasoline are partially offset by seasonality in demand for diesel, which in our region is generally higher in winter months as east-west trucking traffic moves south to avoid winter conditions on northern routes.
Safety, reliability and the environmental performance of our refineries are critical to our financial performance. The financial impact of planned downtime, such as a turnaround or major maintenance project, is mitigated through a diligent planning process that considers expectations for product availability, margin environment and the availability of resources to perform the required maintenance.
The nature of our business requires us to maintain substantial quantities of crude oil and refined product inventories. Crude oil and refined products are essentially commodities, and we have no control over the changing market value of these inventories. Because our inventory is valued at the lower of cost or market value under the LIFO inventory valuation methodology, price fluctuations generally have little effect on our financial results.
Asphalt. Earnings from our asphalt segment depend primarily upon the margin between the price at which we sell our asphalt and the transfer prices for asphalt produced at our refineries. Asphalt is transferred to our asphalt segment from our refining and marketing segment at prices substantially determined by reference to the cost of crude oil, which is intended to approximate wholesale market prices. At times when refining margins are unfavorable we opportunistically purchase asphalt from other producers for resale. A portion of our asphalt sales are made using fixed price contracts for delivery at future dates. Because these contracts are priced at the market prices for asphalt at the time of the contract, a change in the cost of crude oil between the time we enter into the contract and the time we produce the asphalt can positively or negatively influence the earnings of our asphalt segment. Demand for paving asphalt products is higher during warmer months than during colder months due to seasonal increases in road construction work. As a result, revenues from our asphalt segment for the first and fourth calendar quarters are expected to be lower than those for the second and third calendar quarters.
Retail. Earnings and cash flows from our retail segment are primarily affected by merchandise and retail fuel sales volumes and margins at our convenience stores. Retail merchandise gross margin is equal to retail merchandise sales less the delivered cost of the retail merchandise, net of vendor discounts and rebates, measured as a percentage of total retail merchandise sales. Retail merchandise sales are driven by convenience, branding and competitive pricing. Retail fuel margin is equal to retail fuel sales less the delivered cost of fuel and excise taxes, measured on a cents per gallon (“cpg”) basis. Our retail fuel margins are driven by local supply, demand and competitor pricing. Our retail sales are seasonal and peak in the second and third quarters of the year, while the first and fourth quarters usually experience lower overall sales.

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Factors Affecting Comparability
Our financial condition and operating results over the three months ended March 31, 2013 and 2012, have been influenced by the following factors which are fundamental to understanding comparisons of our period-to-period financial performance.
Maintenance and Reduced Crude Oil Throughput
During the three months ended March 31, 2013, the Big Spring refinery was shut down for eleven days to perform maintenance on the crude unit vacuum tower as well as complete a reformer catalyst regeneration and a diesel hydro-treater catalyst replacement. Additionally, the Krotz Springs refinery was shut down for a week for crude unit maintenance and reformer catalyst regeneration.
Certain Derivative Impacts
Included in unrealized losses on commodity swaps and cost of goods sold in the consolidated statements of operations for the three months ended March 31, 2012 are total losses of $59.6 million on commodity swaps.
Included in other income (loss), net in the consolidated statements of operations, we had losses on heating oil call option crack spread contracts of $8.2 million for the three months ended March 31, 2012.
Initial Public Offering of Alon USA Partners, LP
On November 26, 2012, the Partnership completed its initial public offering of 11,500,000 common units representing limited partner interests. As of March 31, 2013, the 11,501,043 common units held by the public represent 18.4% of the Partnership's common units outstanding. We own the remaining 81.6% of the Partnership's common units and Alon USA Partners GP, LLC (the "General Partner"), our wholly-owned subsidiary, owns 100% of the non-economic general partner interest in the Partnership. The Partnership is consolidated within the refining and marketing segment.
The non-controlling interest in subsidiaries on the consolidated balance sheets includes the investment by partners other than us, including those partners’ share of net income and distributions of the Partnership since the close of its initial public offering on November 26, 2012. Net income (loss) attributable to non-controlling interest on the consolidated statements of operations includes those partners’ share of net income of the Partnership.
Costs Associated with Early Repayment of Debt
Interest expense for the three months ended March 31, 2012 includes a charge for original issuance discount of $9.6 million associated with the repayment of the Alon Brands Term loan.

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Results of Operations
The period-to-period comparison of our results of operations has been prepared using the historical periods included in our consolidated financial statements. We refer to our financial statement line items in the explanation of our period-to-period changes in results of operations. Below are general definitions of what those line items include and represent.
Net Sales. Net sales consist primarily of sales of refined petroleum products through our refining and marketing segment and asphalt segment and sales of merchandise, food products, and retail fuels, through our retail segment.
For the refining and marketing segment, net sales consist of gross sales, net of customer rebates, discounts and excise taxes and includes inter-segment sales to our asphalt and retail segments, which are eliminated through consolidation of our financial statements. Asphalt sales consist of gross sales, net of any discounts and applicable taxes. For our petroleum and asphalt products, net sales are mainly affected by crude oil and refined product prices and volume changes caused by operations. Retail net sales consist of gross merchandise sales, less rebates, commissions and discounts, and gross fuel sales, including excise taxes. Our retail merchandise sales are affected primarily by competition and seasonal influences.
Cost of Sales. Refining and marketing cost of sales includes crude oil and other raw materials, inclusive of transportation costs. Asphalt cost of sales includes costs of purchased asphalt, blending materials and transportation costs. Retail cost of sales includes cost of sales for retail fuels and for merchandise. Retail fuel cost of sales represents the net cost of purchased fuel, including transportation costs and associated excises taxes. Merchandise cost of sales includes the delivered cost of merchandise purchases, net of merchandise rebates and commissions. Cost of sales excludes depreciation and amortization expense.
Direct Operating Expenses. Direct operating expenses, which relate to our refining and marketing and asphalt segments, include costs associated with the actual operations of our refineries and asphalt terminals, such as energy and utility costs, routine maintenance, labor, insurance and environmental compliance costs. Environmental compliance costs, including monitoring and routine maintenance, are expensed as incurred. All operating costs associated with our crude oil and product pipelines are considered to be transportation costs and are reflected as cost of sales.
Selling, General and Administrative Expenses. Selling, general and administrative, or SG&A, expenses consist primarily of costs relating to the operations of our convenience stores, including labor, utilities, maintenance and retail corporate overhead costs. Refining and marketing and asphalt segment corporate overhead and marketing expenses are also included in SG&A expenses.

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ALON USA ENERGY, INC. AND SUBSIDIARIES CONSOLIDATED
Summary Financial Tables. The following tables provide summary financial data and selected key operating statistics for Alon and our three operating segments for the three months ended March 31, 2013 and 2012. The summary financial data for our three operating segments does not include certain SG&A expenses and depreciation and amortization related to our corporate headquarters. The following data should be read in conjunction with our consolidated financial statements and the notes thereto included elsewhere in this Form 10-Q. All information in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” except for Balance Sheet data as of December 31, 2012 is unaudited.
 
For the Three Months Ended
 
March 31,
 
2013
 
2012
 
(dollars in thousands, except per share data)
STATEMENTS OF OPERATIONS DATA:
 
 
 
Net sales (1)
$
1,651,196

 
$
1,792,133

Operating costs and expenses:
 
 
 
Cost of sales
1,378,257

 
1,618,674

Unrealized losses on commodity swaps

 
45,312

Direct operating expenses
74,222

 
72,209

Selling, general and administrative expenses (2)
41,741

 
35,140

Depreciation and amortization (3)
31,163

 
30,711

Total operating costs and expenses
1,525,383

 
1,802,046

Gain on disposition of assets
18

 
131

Operating income (loss)
125,831

 
(9,782
)
Interest expense (4)
(21,292
)
 
(31,040
)
Equity earnings (losses) of investees
(381
)
 
61

Other income (loss), net (5)
83

 
(8,100
)
Income (loss) before income tax expense (benefit)
104,241

 
(48,861
)
Income tax expense (benefit)
30,590

 
(17,751
)
Net income (loss)
73,651

 
(31,110
)
Net income (loss) attributable to non-controlling interest
19,467

 
(1,743
)
Net income (loss) available to stockholders
$
54,184

 
$
(29,367
)
Earnings (loss) per share, basic
$
0.86

 
$
(0.52
)
Weighted average shares outstanding, basic (in thousands)
61,957

 
56,028

Earnings (loss) per share, diluted
$
0.80

 
$
(0.52
)
Weighted average shares outstanding, diluted (in thousands)
67,616

 
56,028

Cash dividends per share
$
0.04

 
$
0.04

CASH FLOW DATA:
 
 
 
Net cash provided by (used in):
 
 
 
Operating activities
$
160,770

 
$
30,873

Investing activities
(13,573
)
 
(16,651
)
Financing activities
(10,627
)
 
(120,999
)
OTHER DATA:
 
 
 
Adjusted EBITDA (6)
$
156,678

 
$
12,759

Capital expenditures (7)
8,414

 
14,557

Capital expenditures for turnaround and chemical catalyst
5,216

 
2,105



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March 31,
2013
 
December 31,
2012
BALANCE SHEET DATA (end of period):
(dollars in thousands)
Cash and cash equivalents
$
252,866

 
$
116,296

Working capital
211,011

 
87,242

Total assets
2,355,722

 
2,223,574

Total debt
586,371

 
587,017

Total debt less cash and cash equivalents
333,505

 
470,721

Total equity
693,267

 
621,186

(1)
Includes excise taxes on sales by the retail segment of $17,305 and $16,124 for the three months ended March 31, 2013 and 2012, respectively.
(2)
Includes corporate headquarters selling, general and administrative expenses of $175 and $190 for the three months ended March 31, 2013 and 2012, respectively, which are not allocated to our three operating segments.
(3)
Includes corporate depreciation and amortization of $841 and $553 for the three months ended March 31, 2013 and 2012, respectively, which are not allocated to our three operating segments.
(4)
Interest expense for the three months ended March 31, 2012 includes a charge of $9,624 for the write-off of unamortized original issuance discount associated with our repayment of the Alon Brands Term Loan.
(5)
Other income (loss), net for the three months ended March 31, 2012 is substantially the loss on heating oil call option crack spread contracts.
(6)
Adjusted EBITDA represents earnings before net income (loss) attributable to non-controlling interest, income tax expense (benefit), interest expense, depreciation and amortization and gain on disposition of assets. Adjusted EBITDA is not a recognized measurement under GAAP; however, the amounts included in Adjusted EBITDA are derived from amounts included in our consolidated financial statements. Our management believes that the presentation of Adjusted EBITDA is useful to investors because it is frequently used by securities analysts, investors, and other interested parties in the evaluation of companies in our industry. In addition, our management believes that Adjusted EBITDA is useful in evaluating our operating performance compared to that of other companies in our industry because the calculation of Adjusted EBITDA generally eliminates the effects of net income (loss) attributable to non-controlling interest, income tax expense (benefit), interest expense, gain on disposition of assets and the accounting effects of capital expenditures and acquisitions, items that may vary for different companies for reasons unrelated to overall operating performance.
Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:
Adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;
Adjusted EBITDA does not reflect the interest expense or the cash requirements necessary to service interest or principal payments on our debt;
Adjusted EBITDA does not reflect the prior claim that non-controlling interest have on the income generated by non-wholly-owned subsidiaries;
Adjusted EBITDA does not reflect changes in or cash requirements for our working capital needs; and
Our calculation of Adjusted EBITDA may differ from EBITDA calculations of other companies in our industry, limiting its usefulness as a comparative measure.
Because of these limitations, Adjusted EBITDA should not be considered a measure of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our GAAP results and using Adjusted EBITDA only supplementally.

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The following table reconciles net income (loss) available to stockholders to Adjusted EBITDA for the three months ended March 31, 2013 and 2012, respectively:
 
For the Three Months Ended
 
March 31,
 
2013
 
2012
 
(dollars in thousands)
Net income (loss) available to stockholders
$
54,184

 
$
(29,367
)
Net income (loss) attributable to non-controlling interest
19,467

 
(1,743
)
Income tax expense (benefit)
30,590

 
(17,751
)
Interest expense
21,292

 
31,040

Depreciation and amortization
31,163

 
30,711

Gain on disposition of assets
(18
)
 
(131
)
Adjusted EBITDA
$
156,678

 
$
12,759

Adjusted EBITDA does not exclude unrealized losses on commodity swaps of $45,312 for the three months ended March 31, 2012. Adjusted EBITDA also does not exclude losses on heating oil call option crack spread contracts of $8,153 for the three months ended March 31, 2012.
(7)
Includes corporate capital expenditures of $13 and $126 for the three months ended March 31, 2013 and 2012, respectively, which are not allocated to our three operating segments.

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REFINING AND MARKETING SEGMENT (A)
 
 
 
 
For the Three Months Ended
 
March 31,
 
2013
 
2012
 
(dollars in thousands, except per barrel data and pricing statistics)
STATEMENTS OF OPERATIONS DATA:
 
 
 
Net sales (1)
$
1,414,125

 
$
1,635,808

Operating costs and expenses:
 
 
 
Cost of sales
1,183,322

 
1,503,393

Unrealized losses on commodity swaps

 
45,312

Direct operating expenses
63,669

 
63,219

Selling, general and administrative expenses
13,921

 
8,536

Depreciation and amortization
26,505

 
26,277

Total operating costs and expenses
1,287,417

 
1,646,737

Operating income (loss)
$
126,708

 
$
(10,929
)
KEY OPERATING STATISTICS:
 
 
 
Per barrel of throughput:
 
 
 
Refinery operating margin – Big Spring (2)
$
28.76

 
$
15.24

Refinery operating margin – CA Refineries (2)
N/A

 
N/A

Refinery operating margin – Krotz Springs (2)
13.14

 
5.81

Refinery direct operating expense – Big Spring (3)
5.68

 
3.58

Refinery direct operating expense – CA Refineries (3)
N/A

 
N/A

Refinery direct operating expense – Krotz Springs (3)
4.42

 
3.99

Capital expenditures
$
5,969

 
$
8,701

Capital expenditures for turnaround and chemical catalyst
5,216

 
2,105

PRICING STATISTICS:
 
 
 
Crack spreads (3/2/1) (per barrel):
 
 
 
Gulf Coast
$
28.40

 
$
24.78

Crack spreads (3/1/1/1) (per barrel):
 
 
 
West Coast
$
11.06

 
$
12.64

Crack spreads (2/1/1) (per barrel):
 
 
 
Gulf Coast high sulfur diesel
$
8.20

 
$
12.46

WTI crude oil (per barrel)
$
94.27

 
$
103.00

Crude oil differentials (per barrel):
 
 
 
WTI less WTS
$
11.41

 
$
2.16

LLS less WTI
20.22

 
12.61

WTI less Buena Vista
(15.76
)
 
(13.00
)
Product price (dollars per gallon):
 
 
 
Gulf Coast unleaded gasoline
$
2.84

 
$
2.98

Gulf Coast ultra-low sulfur diesel
3.09

 
3.16

Gulf Coast high sulfur diesel
3.01

 
3.12

West Coast LA CARBOB (unleaded gasoline)
3.09

 
3.20

West Coast LA ultra-low sulfur diesel
3.13

 
3.24

Natural gas (per MMBTU)
3.48

 
2.50

(A)
In the fourth quarter of 2012, based on a change in our internal reporting structure as a result of the Partnership's initial public offering, the branded marketing operations have been combined with the refining and marketing segment and are no longer included with the retail segment. Information for the three months ended March 31, 2012 has been recast to provide a comparison to the current period results.
                                                              

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THROUGHPUT AND PRODUCTION DATA:
BIG SPRING REFINERY
For the Three Months Ended
March 31,
 
2013
 
2012
 
bpd
 
%
 
bpd
 
%
Refinery throughput:
 
 
 
 
 
 
 
WTS crude
45,220

 
76.0

 
55,546

 
79.9

WTI crude
11,549

 
19.4

 
12,206

 
17.6

Blendstocks
2,707

 
4.6

 
1,760

 
2.5

Total refinery throughput (4)
59,476

 
100.0

 
69,512

 
100.0

Refinery production:
 
 
 
 
 
 
 
Gasoline
29,785

 
50.4

 
35,140

 
50.7

Diesel/jet
19,298

 
32.6

 
22,236

 
32.1

Asphalt
3,359

 
5.7

 
4,535

 
6.6

Petrochemicals
3,726

 
6.3

 
4,136

 
6.0

Other
2,969

 
5.0

 
3,187

 
4.6

Total refinery production (5)
59,137

 
100.0

 
69,234

 
100.0

Refinery utilization (6)
 
 
92.4
%
 
 
 
96.8
%
THROUGHPUT AND PRODUCTION DATA:
KROTZ SPRINGS REFINERY
For the Three Months Ended
March 31,
 
2013
 
2012
 
bpd
 
%
 
bpd
 
%
Refinery throughput:
 
 
 
 
 
 
 
WTI crude
25,083

 
43.0

 
9,310

 
14.2

Gulf Coast sweet crude
31,516

 
53.9

 
55,352

 
84.3

Blendstocks
1,840

 
3.1

 
1,016

 
1.5

Total refinery throughput (4)
58,439

 
100.0

 
65,678

 
100.0

Refinery production:
 
 
 
 
 
 
 
Gasoline
26,916

 
45.0

 
27,533

 
41.6

Diesel/jet
22,382

 
37.5

 
28,713

 
43.4

Heavy Oils
1,773

 
3.0

 
5,045

 
7.6

Other
8,687

 
14.5

 
4,927

 
7.4

Total refinery production (5)
59,758

 
100.0

 
66,218

 
100.0

Refinery utilization (6)
 
 
74.2
%
 
 
 
77.8
%

27

Table of Contents

(1)
Net sales include intersegment sales to our asphalt and retail segments at prices which approximate wholesale market prices. These intersegment sales are eliminated through consolidation of our financial statements.
(2)
Refinery operating margin is a per barrel measurement calculated by dividing the margin between net sales and cost of sales (exclusive of substantial hedge positions and certain inventory adjustments) attributable to each refinery by the refinery's throughput volumes. Industry-wide refining results are driven and measured by the margins between refined product prices and the prices for crude oil, which are referred to as crack spreads. We compare our refinery operating margins to these crack spreads to assess our operating performance relative to other participants in our industry.
The refinery operating margins for the three months ended March 31, 2013 includes $2,965 of negative inventory effects.
The refinery operating margin excludes realized losses on commodity swaps of $5,434 for the three months ended March 31, 2012.
(3)
Refinery direct operating expense is a per barrel measurement calculated by dividing direct operating expenses at our Big Spring, California, and Krotz Springs refineries by the applicable refinery’s total throughput volumes.
(4)
Total refinery throughput represents the total barrels per day of crude oil and blendstock inputs in the refinery production process. The California refineries were not in operation for the first quarter of 2013 and 2012, and as a result, the throughput data has been omitted.
(5)
Total refinery production represents the barrels per day of various products produced from processing crude and other refinery feedstocks through the crude units and other conversion units at the refineries.
(6)
Refinery utilization represents average daily crude oil throughput divided by crude oil capacity, excluding planned periods of downtime for maintenance and turnarounds.

28

Table of Contents

ASPHALT SEGMENT
 
 
 
 
For the Three Months Ended
 
March 31,
 
2013
 
2012
 
(dollars in thousands, except per ton data)
STATEMENTS OF OPERATIONS DATA:
 
 
 
Net sales (1)
$
154,865

 
$
92,549

Operating costs and expenses:

 

Cost of sales (1)(2)
145,516

 
82,672

Direct operating expenses
10,553

 
8,990

Selling, general and administrative expenses
1,648

 
926

Depreciation and amortization
1,549

 
1,382

Total operating costs and expenses
159,266

 
93,970

Operating loss
$
(4,401
)
 
$
(1,421
)
KEY OPERATING STATISTICS:
 
 
 
Blended asphalt sales volume (tons in thousands) (3)
130

 
136

Non-blended asphalt sales volume (tons in thousands) (4)
22

 
43

Blended asphalt sales price per ton (3)
$
540.48

 
$
572.54

Non-blended asphalt sales price per ton (4)
391.77

 
341.49

Asphalt margin per ton (5)
61.51

 
55.18

Capital expenditures
$
1,792

 
$
1,491

(1)
Net sales and cost of sales for the three months ended March 31, 2013 includes $76,000 of inventory winter fill purchases sold under the Supply and Offtake Agreements. The volumes associated with these sales are excluded from the Key Operating Statistics.
(2)
Cost of sales includes intersegment purchases of asphalt blends from our refining and marketing segment at prices which approximate wholesale market prices. These intersegment purchases are eliminated through consolidation of our financial statements.
(3)
Blended asphalt represents base asphalt that has been blended with other materials necessary to sell the asphalt as a finished product.
(4)
Non-blended asphalt represents base material asphalt and other components that require additional blending before being sold as a finished product.
(5)
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.

29

Table of Contents

RETAIL SEGMENT (A)
 
 
 
 
For the Three Months Ended
 
March 31,
 
2013
 
2012
 
(dollars in thousands, except per gallon data)
STATEMENTS OF OPERATIONS DATA:
 
 
 
Net sales (1)
$
224,105


$
216,642

Operating costs and expenses:



Cost of sales (2)
191,318


185,475

Selling, general and administrative expenses
25,997


25,488

Depreciation and amortization
2,268


2,499

Total operating costs and expenses
219,583

 
213,462

Gain on disposition of assets
18


131

Operating income
$
4,540

 
$
3,311

KEY OPERATING STATISTICS:
 
 
 
Number of stores (end of period) (3)
298

 
300

Retail fuel sales (thousands of gallons)
44,406

 
41,329

Retail fuel sales (thousands of gallons per site per month)(3)
52

 
48

Retail fuel margin (cents per gallon) (4)