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Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2010
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR
THE TRANSITION PERIOD FROM TO
Commission file number: 333-163942
ALON REFINING KROTZ SPRINGS, INC.
(Exact name of Registrant as specified in its charter)
Delaware | 74-2849682 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
7616 LBJ Freeway, Suite 300, Dallas, Texas 75251
(Address of principal executive offices) (Zip Code)
(972) 367-3600
(Registrants telephone number, including area code)
(Address of principal executive offices) (Zip Code)
(972) 367-3600
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
Large accelerated filer o | Accelerated filer o | Non-accelerated filer þ | 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 registrant is a subsidiary of Alon USA Energy, Inc., a Delaware corporation, and there is
no market for the registrants common stock. As of July 31, 2010, 36,219 shares of the registrants
Class A Common stock, par value $0.01, and 405 shares of the registrants Class B Common stock, par
value $0.01, were outstanding.
The registrant meets the conditions set forth in General
Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this
form with the reduced disclosure format permitted by General
Instruction H(2).
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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
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
(unaudited) | ||||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | | $ | 26,161 | ||||
Accounts receivable |
8,599 | 8,344 | ||||||
Inventories |
46,572 | 54,623 | ||||||
Prepaid expenses |
900 | 615 | ||||||
Total current assets |
56,071 | 89,743 | ||||||
Property, plant, and equipment, net |
355,924 | 362,265 | ||||||
Other assets |
33,098 | 30,829 | ||||||
Total assets |
$ | 445,093 | $ | 482,837 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 169,903 | $ | 92,682 | ||||
Accrued liabilities |
23,131 | 31,299 | ||||||
Short-term debt |
30,000 | | ||||||
Total current liabilities |
223,034 | 123,981 | ||||||
Other non-current liabilities |
8,328 | 7,873 | ||||||
Long-term debt |
206,505 | 288,980 | ||||||
Total liabilities |
437,867 | 420,834 | ||||||
Commitments and contingencies (Note 10) |
||||||||
Stockholders equity: |
||||||||
Class A Common stock, par value $0.01, 75,000 shares
authorized; 36,219 shares issued and outstanding at
June 30, 2010 and December 31, 2009, respectively |
| | ||||||
Class B Common stock, par value $0.01, 1,000 shares
authorized; 405 shares issued and outstanding at June
30, 2010 and December 31, 2009, respectively |
| | ||||||
Additional paid-in capital |
137,656 | 126,656 | ||||||
Accumulated other comprehensive loss, net of income tax |
(3,710 | ) | (7,240 | ) | ||||
Retained deficit |
(126,720 | ) | (57,413 | ) | ||||
Total stockholders equity |
7,226 | 62,003 | ||||||
Total liabilities and equity |
$ | 445,093 | $ | 482,837 | ||||
The accompanying notes are an integral part of these financial statements.
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For the Three Months Ended | For the Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Net sales |
$ | 168,638 | $ | 354,698 | $ | 177,958 | $ | 599,763 | ||||||||
Operating costs and expenses: |
||||||||||||||||
Cost of sales |
171,892 | 324,971 | 180,269 | 488,882 | ||||||||||||
Direct operating expenses |
15,372 | 21,525 | 25,908 | 43,869 | ||||||||||||
Selling, general and administrative expenses |
1,727 | 2,007 | 3,537 | 3,656 | ||||||||||||
Depreciation and amortization |
5,102 | 4,911 | 10,609 | 9,158 | ||||||||||||
Total operating costs and expenses |
194,093 | 353,414 | 220,323 | 545,565 | ||||||||||||
Operating income (loss) |
(25,455 | ) | 1,284 | (42,365 | ) | 54,198 | ||||||||||
Interest expense |
(10,240 | ) | (10,491 | ) | (26,956 | ) | (28,315 | ) | ||||||||
Other income, net |
| 2 | 14 | 4 | ||||||||||||
Income (loss) before income tax expense (benefit) |
(35,695 | ) | (9,205 | ) | (69,307 | ) | 25,887 | |||||||||
Income tax expense (benefit) |
| (1,884 | ) | | 6,530 | |||||||||||
Net income (loss) |
$ | (35,695 | ) | $ | (7,321 | ) | $ | (69,307 | ) | $ | 19,357 | |||||
The accompanying notes are an integral part of these financial statements.
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For the Six Months Ended | ||||||||
June 30, | ||||||||
2010 | 2009 | |||||||
Cash flows from operating activities: |
||||||||
Net income (loss) |
$ | (69,307 | ) | $ | 19,357 | |||
Adjustments to reconcile net income (loss) to
cash provided by operating activities: |
||||||||
Depreciation and amortization |
10,609 | 9,158 | ||||||
Deferred income tax expense |
| 7,065 | ||||||
Amortization of debt issuance costs |
1,436 | 2,510 | ||||||
Amortization of original issuance discount |
812 | | ||||||
Write-off of unamortized debt issuance costs |
6,659 | | ||||||
Changes in operating assets and liabilities: |
||||||||
Accounts and other receivables, net |
(255 | ) | 9,158 | |||||
Inventories |
16,927 | (18,375 | ) | |||||
Heating oil crack spread hedge |
| 116,701 | ||||||
Prepaid expenses and other current assets |
(285 | ) | 20,626 | |||||
Other assets |
(2,662 | ) | 10 | |||||
Accounts payable |
56,207 | 97,013 | ||||||
Accrued liabilities |
(4,638 | ) | (20,760 | ) | ||||
Other non-current liabilities |
4,830 | 18 | ||||||
Net cash provided by operating activities |
20,333 | 242,481 | ||||||
Cash flows from investing activities: |
||||||||
Capital expenditures |
(3,329 | ) | (3,087 | ) | ||||
Capital expenditures for turnarounds and catalysts |
(2,194 | ) | (1,682 | ) | ||||
Earnout payment related to refinery acquisition |
(4,375 | ) | | |||||
Net cash used in investing activities |
(9,898 | ) | (4,769 | ) | ||||
Cash flows from financing activities: |
||||||||
Deferred debt issuance costs |
(642 | ) | (3,978 | ) | ||||
Cash received from inventory supply agreement |
6,333 | | ||||||
Revolving credit facilities, net |
(83,287 | ) | (147,105 | ) | ||||
Additions to short-term debt |
65,000 | | ||||||
Payments on short-term debt |
(35,000 | ) | | |||||
Payments on long-term debt |
| (88,180 | ) | |||||
Proceeds from parent equity investment |
11,000 | 25,000 | ||||||
Net cash used in financing activities |
(36,596 | ) | (214,263 | ) | ||||
Net increase (decrease) in cash and cash equivalents |
(26,161 | ) | 23,449 | |||||
Cash and cash equivalents, beginning of period |
26,161 | | ||||||
Cash and cash equivalents, end of period |
$ | | $ | 23,449 | ||||
Supplemental cash flow information: |
||||||||
Cash paid for interest |
$ | 17,376 | $ | 27,258 | ||||
Financing activity payments on long-term debt
from deposit held to secure heating oil crack
spread hedge |
$ | | $ | (50,000 | ) | |||
The accompanying notes are an integral part of these financial statements.
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ALON REFINING KROTZ SPRINGS, INC.
NOTES TO FINANCIAL STATEMENTS
(unaudited, dollars in thousands except as noted)
NOTES TO FINANCIAL STATEMENTS
(unaudited, dollars in thousands except as noted)
(1) Basis of Presentation and Certain Significant Accounting Policies
(a) Basis of Presentation
The financial statements include the accounts of Alon Refining Krotz Springs, Inc. (the
Company). These financial statements of the Company 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, as amended. Accordingly, they do not include all of the
information and notes required by GAAP for complete financial statements. In the opinion of the
Companys management, the information included in these financial statements reflects all
adjustments, consisting of normal and recurring adjustments, which are necessary for a fair
presentation of the Companys 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, 2010.
The balance sheet as of December 31, 2009 has been derived from the audited financial
statements as of that date. These unaudited financial statements should be read in conjunction
with the audited financial statements and notes thereto included in the Companys Annual Report on
Form 10-K for the year ended December 31, 2009.
(b) Revenue Recognition
Revenues from sales of refined products are earned and realized upon transfer of title to the
customer based on the contractual terms of delivery (including payment terms and prices). Title
primarily transfers at the refinery when the refined product is loaded into common carrier
pipelines, trucks or railcars (free on board origin). In some situations, title transfers at the
customers destination (free on board destination).
In the ordinary course of business, logistical and refinery production schedules necessitate
the occasional sale of crude oil to third parties. All purchases and sales of crude oil are
recorded net, in cost of sales in the statements of operations.
(c) New Accounting Standards
In February 2010, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Update (ASU) No. 2010-09, Subsequent Event (Topic 855) which amends FASB Accounting
Standards Codification (ASC) Topic 855, Subsequent Events so that SEC filers, as defined in the
ASU, no longer are required to disclose the date through which subsequent events have been
evaluated in originally issued and revised financial statements. ASU 2010-09 is effective
immediately. ASU 2010-09 only affects disclosure requirements and will not have any effect on the
Companys financial statements.
In January 2010, the FASB issued ASU 2010-06, Improving Disclosures about Fair Value which
amends FASB ASC Topic 820, Fair Value Measurements and Disclosure, to require entities to make new
disclosure about recurring and non-recurring fair-value measurements. The update requires new
disclosures regarding significant transfers in and out of Level 1 and Level 2 fair-value
measurements and information about purchases, sales, issuances, and settlements on a gross basis in
the reconciliation of Level 3 fair-value adjustments. The update provides additional guidance on
other fair value disclosures. This update is effective for interim and annual reporting periods
beginning after December 15, 2009. ASU 2010-06 only affects disclosure requirements and will not
have any effect on the Companys financial statements.
(2) Operating Results and Liquidity
Due to the refinery operating margin environment, the Company accelerated the turnaround that
was originally scheduled for the first quarter of 2010 to November 2009. Also, the Company
extended the refinery downtime
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ALON REFINING KROTZ SPRINGS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(unaudited, dollars in thousands except as noted)
NOTES TO FINANCIAL STATEMENTS (Continued)
(unaudited, dollars in thousands except as noted)
beyond the turnaround due to further distressed refinery operating margins. As a result, the
refinery had no throughput for 2010 until its restart in June 2010.
On March 15, 2010, the Company terminated its revolving credit facility and repaid all
outstanding amounts thereunder. As a result of the prepayment of the revolving credit facility, a
write-off of unamortized debt issuance costs of $6,659 was recorded as interest expense in the
first quarter of 2010.
On March 15, 2010, the Company entered into a $65,000 short-term credit facility with Bank
Hapoalim B.M. that, as currently amended and restated, matures on August 16, 2010. The Company has
agreed in principal with Bank Hapoalim B.M. to extend the maturity date to November 15, 2010. The
Company originally borrowed $65,000 and has repaid $35,000 as of June 30, 2010.
Future operating results will depend on market factors, primarily the difference between the
prices the Company receives from customers for produced products compared to the prices the Company
pays to suppliers for crude oil. The Companys management believes its current plans will result
in continued operation of the refinery and realization of net asset values related to its
operations.
(3) Supply and Offtake Agreement
Supply and Offtake Agreement with J. Aron & Company
On April 21, 2010, the Company entered into a Supply and Offtake Agreement, which was amended
on May 26, 2010, (the Supply and Offtake Agreement) with J. Aron & Company (J. Aron), the
proceeds of which allowed the Company to retire part of its obligations under the Term Facility, as
defined below, and support the operation of the refinery at a minimum
of 72,000 barrels per day. Pursuant to the
Supply and Offtake Agreement, (i) J. Aron agreed to sell to the Company, and the Company agreed to
buy from J. Aron, at market price, crude oil for processing at the Krotz Springs refinery owned and
operated by the Company and (ii) the Company agreed to sell, and J. Aron agreed to buy, at market
price, certain refined products produced at the Krotz Springs refinery.
In connection with the execution of the Supply and Offtake Agreement, the Company also entered
into agreements that provided for the sale, at market price, of the Companys crude oil and certain
refined product inventories to J. Aron, the lease to J. Aron of crude oil and refined product
storage tanks located at the Krotz Springs refinery, and an agreement to identify prospective
purchasers of refined products on J. Arons behalf. The Supply and Offtake Agreement has an initial
term that expires on May 31, 2012 and automatically renews for
up to two additional 12-month terms
unless either party provides notice of termination at least six months prior to the end of the
then-current term. Following expiration or termination of the Supply and Offtake Agreement, the
Company is obligated to purchase the crude oil and refined product inventories then owned by J.
Aron and located at the Krotz Springs refinery.
The Supply and Offtake Agreement includes customary events of default and restrictions on the
activities of the Company.
Standby LC Facility
On May 28, 2010, the Company entered into a secured Credit Agreement (the Standby LC
Facility) by and between the Company, as Borrower, and Goldman Sachs Bank USA, as Issuing Bank.
The Standby LC Facility provides for letters of credit to be issued to J. Aron in an aggregate
amount of up to $200,000 and at this time there is no further availability under the Standby LC
Facility. Obligations under the Standby LC Facility are secured by a first priority lien on the
existing and future accounts receivable and inventory of the Company.
The Standby LC Facility includes customary events of default and restrictions on the
activities of the Company. The Standby LC Facility contains no maintenance financial covenants.
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ALON REFINING KROTZ SPRINGS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(unaudited, dollars in thousands except as noted)
NOTES TO FINANCIAL STATEMENTS (Continued)
(unaudited, dollars in thousands except as noted)
(4) Fair Value and Derivative Instruments
(a) Fair Value of Financial Instruments
The carrying amounts of the Companys cash and cash equivalents, receivables, payables and
accrued liabilities approximate fair value due to the short-term maturities of these assets and
liabilities. The reported amounts of short-term and long-term debt approximate fair value.
Derivative financial instruments are carried at fair value, which is based on quoted market prices.
The Company 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, the Company 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. The Company 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 balance sheets at June 30, 2010 and December 31, 2009,
respectively:
Quoted Prices | ||||||||||||||||
in | ||||||||||||||||
Active Markets | Significant | |||||||||||||||
for Identical | Other | Significant | ||||||||||||||
Assets or | Observable | Unobservable | ||||||||||||||
Liabilities | Inputs | Inputs | ||||||||||||||
(Level 1) | (Level 2) | (Level 3) | Total | |||||||||||||
As of June 30, 2010 |
||||||||||||||||
Assets: |
||||||||||||||||
Commodity contracts (distillate forwards) |
$ | 881 | $ | | $ | | $ | 881 | ||||||||
Liabilities: |
||||||||||||||||
Commodity swaps |
| 404 | | 404 | ||||||||||||
Commodity calls |
| 6,706 | | 6,706 | ||||||||||||
As of December 31, 2009 |
||||||||||||||||
Assets: |
||||||||||||||||
Commodity contracts (heating oil swaps) |
$ | | $ | 89 | $ | | $ | 89 | ||||||||
Liabilities: |
||||||||||||||||
Commodity contracts (crude swaps) |
| 9,983 | | 9,983 |
(b) Derivative Financial Instruments
Commodity Derivatives Mark to Market
The Company 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. The Company does not
speculate using derivative instruments. There is not a significant credit risk on the Companys
derivative instruments which are transacted through counterparties meeting established collateral
and credit criteria.
The Company has elected not to designate the following commodity derivatives as cash flow
hedges for financial accounting purposes. Therefore, changes in the fair value of the commodity
derivatives are included in income in the period of the change.
At June 30, 2010, the Company held forward contracts for net sales of 250,035 barrels of
diesel at an average
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ALON REFINING KROTZ SPRINGS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(unaudited, dollars in thousands except as noted)
NOTES TO FINANCIAL STATEMENTS (Continued)
(unaudited, dollars in thousands except as noted)
price of $85.44 per barrel.
The contracts are recorded at their fair market values and an unrealized gain of $881 has been
included in cost of sales in the statements of operations for the three months ended June 30, 2010.
At June 30, 2010, the Company held futures contracts for sales of 292,400 barrels of heating
oil crack spread swaps at an average of $11.84 per barrel. The contracts are recorded at their fair
market values and an unrealized loss of $404 has been included in cost of sales in the statements
of operations for the three months ended June 30, 2010.
At June 30, 2010, the Company had written call contracts outstanding for the net purchase of
3,514,500 barrels of crude and sale of 3,514,500 barrels of heating oil at an average strike price
of $11.35 for a period of 21 months commencing October 2010. The fair value of the obligation in
excess of the premium received resulted in a loss of $60 included in cost of sales in the
statements of operations for the three months ended June 30, 2010.
At June 30, 2009, the Company held net forward contracts for sales of 225,000 barrels of
refined products at an average price of $75.56 per barrel. The contracts are recorded at their
fair market values and an unrealized loss of $260 has been included in cost of sales in the
statements of operations for the three months ended June 30, 2009.
At June 30, 2009, the Company held net futures contracts for sales of 72,000 barrels of
refined products at an average price of $79.41 per barrel. The contracts were recorded at their
fair market values and an unrealized gain of $28 has been included in cost of sales in the
statements of operations for the three months ended June 30, 2009.
At June 30, 2009, the Company held futures contracts for 434,000 barrels of crude swaps at an
average of $74.80 per barrel. The contracts are recorded at fair market values and an unrealized
loss of $15,157 has been included in cost of sales in the statement of operations for the three
months ended June 30, 2009.
Commodity Derivatives Cash Flow Hedges
To designate a derivative as a cash flow hedge, the Company 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.
Contemporaneously with the acquisition of the refinery, the Company entered into futures
contracts for the forward purchase of crude oil and the forward sale of distillates of 14,849,750
barrels. These futures contracts were designated as cash flow hedges for accounting purposes. Gains
and losses for the futures contracts designated as cash flow hedges reported in accumulated other
comprehensive income in the balance sheet are reclassified into cost of sales when the forecasted
transactions affect income. In the fourth quarter of 2008, the Company determined during its
retrospective assessment of hedge effectiveness that the hedge was no longer highly effective. Cash
flow hedge accounting was discontinued in the fourth quarter of 2008 and all changes in value
subsequent to the discontinuance were recognized into earnings. In April 2009, the Company
completed an unwind of these futures contracts for $139,296.
No component of the derivative instruments gains or losses was excluded from the assessment
of hedge effectiveness.
Losses of $2,932 and $3,530
for the three and six months ended June 30, 2010, and gains of $3,068 and $4,014
for the three and six months ended June 30, 2009, have been reclassified from accumulated other
comprehensive income to earnings since the discontinuance of cash flow hedge accounting,
respectively. All remaining adjustments from accumulated comprehensive income to cost of sales will
occur either over the four month period beginning
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ALON REFINING KROTZ SPRINGS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(unaudited, dollars in thousands except as noted)
NOTES TO FINANCIAL STATEMENTS (Continued)
(unaudited, dollars in thousands except as noted)
July 1, 2010, or earlier if it is determined that the forecasted transactions are not likely to
occur. No component of the derivative instruments gains or losses was excluded from the assessment
of hedge effectiveness.
The following table presents the effect of derivative instruments on the statements of
financial position.
As of June 30, 2010 | ||||||||||||||||
Asset Derivatives | Liability Derivatives | |||||||||||||||
Balance Sheet | Balance Sheet | |||||||||||||||
Location | Fair Value | Location | Fair Value | |||||||||||||
Derivatives not
designated as
hedging
instruments: |
||||||||||||||||
Commodity contracts
(futures, forwards,
calls and swaps) |
Accounts receivable | $ | | Accrued liabilities | $ | (1,417 | ) | |||||||||
Commodity contracts
(futures, forwards, calls and swaps) |
| Other non-current liabilities | (4,812 | ) | ||||||||||||
Total derivatives
not designated as
hedging instruments |
$ | | $ | (6,229 | ) | |||||||||||
As of December 31, 2009 | ||||||||||||||||
Asset Derivatives | Liability Derivatives | |||||||||||||||
Balance Sheet | Balance Sheet | |||||||||||||||
Location | Fair Value | Location | Fair Value | |||||||||||||
Derivatives not
designated as
hedging
instruments: |
||||||||||||||||
Commodity contracts
(futures, forwards and SPR swaps) |
Accounts receivable | $ | 89 | Accrued liabilities | $ | (9,983 | ) | |||||||||
Total derivatives
not designated as
hedging instruments. |
$ | 89 | $ | (9,983 | ) | |||||||||||
The following tables present the effect of derivative instruments on the Companys statements
of operations and accumulated other comprehensive income (OCI).
Gain (Loss) Reclassified | ||||||||||||||||||||
from Accumulated OCI into | ||||||||||||||||||||
Income (Ineffective | ||||||||||||||||||||
Gain (Loss) Reclassified from | Portion and Amount | |||||||||||||||||||
Accumulated OCI into Income | Excluded from | |||||||||||||||||||
Cash Flow Hedging | Gain (Loss) | (Effective Portion) | Effectiveness Testing) | |||||||||||||||||
Relationships | Recognized in OCI | Location | Amount | Location | Amount | |||||||||||||||
For the Three Months Ended June 30, 2010 | ||||||||||||||||||||
Commodity swaps
(heating oil swaps) |
$ | | Cost of sales | $ | (2,932 | ) | $ | | ||||||||||||
Total derivatives |
$ | | $ | (2,932 | ) | $ | | |||||||||||||
For the Six months Ended June 30, 2010 | ||||||||||||||||||||
Commodity swaps
(heating oil swaps) |
$ | | Cost of sales | $ | (3,530 | ) | $ | | ||||||||||||
Total derivatives |
$ | | $ | (3,530 | ) | $ | | |||||||||||||
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ALON REFINING KROTZ SPRINGS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(unaudited, dollars in thousands except as noted)
NOTES TO FINANCIAL STATEMENTS (Continued)
(unaudited, dollars in thousands except as noted)
Gain (Loss) Reclassified | ||||||||||||||||||||
from Accumulated OCI into | ||||||||||||||||||||
Income (Ineffective | ||||||||||||||||||||
Gain (Loss) Reclassified from | Portion and Amount | |||||||||||||||||||
Accumulated OCI into Income | Excluded from | |||||||||||||||||||
Cash Flow Hedging | Gain (Loss) | (Effective Portion) | Effectiveness Testing) | |||||||||||||||||
Relationships | Recognized in OCI | Location | Amount | Location | Amount | |||||||||||||||
For the Three Months Ended June 30, 2009 | ||||||||||||||||||||
Commodity swaps
(heating oil swaps) |
$ | | Cost of sales | $ | 778 | $ | | |||||||||||||
Total derivatives |
$ | | $ | 778 | $ | | ||||||||||||||
For the Six months Ended June 30, 2009 | ||||||||||||||||||||
Commodity swaps
(heating oil swaps) |
$ | | Cost of sales | $ | 4,014 | $ | | |||||||||||||
Total derivatives |
$ | | $ | 4,014 | $ | | ||||||||||||||
Gain (Loss) Recognized in Income | ||||||||
Location | Amount | |||||||
Derivatives not designated as hedging instruments: |
||||||||
For the Three Months Ended June 30, 2010 |
||||||||
Commodity contracts (futures & forwards) |
Cost of sales | $ | 687 | |||||
Commodity contracts (heating oil swaps) |
Cost of sales | (209 | ) | |||||
Commodity contracts (call options) |
Cost of sales | (60 | ) | |||||
Total derivatives |
$ | 418 | ||||||
For the Six months Ended June 30, 2010 |
||||||||
Commodity contracts (futures & forwards) |
Cost of sales | $ | 557 | |||||
Commodity contracts (heating oil swaps) |
Cost of sales | (315 | ) | |||||
Commodity contracts (heating oil calls) |
Cost of sales | (60 | ) | |||||
Total derivatives |
$ | 182 | ||||||
Gain (Loss) Recognized in Income | ||||||||
Location | Amount | |||||||
Derivatives not designated as hedging instruments: |
||||||||
For the Three Months Ended June 30, 2009 |
||||||||
Commodity contracts (futures & forwards) |
Cost of sales | $ | (6,828 | ) | ||||
Commodity contracts (heating oil swaps) |
Cost of sales | 470 | ||||||
Commodity contracts (crude swaps) |
Cost of sales | 1,073 | ||||||
Total derivatives |
$ | (5,285 | ) | |||||
For the Six months Ended June 30, 2009 |
||||||||
Commodity contracts (futures & forwards) |
Cost of sales | $ | (4,725 | ) | ||||
Commodity contracts (heating oil swaps) |
Cost of sales | 41,182 | ||||||
Commodity contracts (crude swaps) |
Cost of sales | 174 | ||||||
Total derivatives |
$ | 36,631 | ||||||
(5) Inventories
The Companys inventories are stated at the lower of cost or market and are comprised
primarily of crude oil, refined products and blendstocks. Cost is determined under the LIFO method
for crude oil, refined products and blendstocks. Materials and supplies are stated at average cost.
9
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ALON REFINING KROTZ SPRINGS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(unaudited, dollars in thousands except as noted)
NOTES TO FINANCIAL STATEMENTS (Continued)
(unaudited, dollars in thousands except as noted)
Market values of crude oil, refined products and blendstock inventories exceeded LIFO costs by
$20,133 and $20,499 at June 30, 2010 and December 31, 2009, respectively.
The
Companys inventories include $41,538 and $22,558 of inventory consigned to others at June
30, 2010 and December 31, 2009, respectively.
(6) Property, Plant and Equipment, net
Property, plant and equipment consisted of the following:
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
Refining facilities |
$ | 392,770 | $ | 389,441 | ||||
Less accumulated depreciation |
(36,846 | ) | (27,176 | ) | ||||
Property, plant and equipment, net |
$ | 355,924 | $ | 362,265 | ||||
The useful lives of refining facilities used to determine depreciation expense were 3 20
years with an average life of 18 years.
(7) Additional Financial Information
The tables that follow provide additional financial information related to the financial
statements.
(a) Other assets
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
Deferred turnaround and chemical catalyst cost, net |
$ | 12,836 | $ | 11,540 | ||||
Deferred debt issuance costs |
9,665 | 17,118 | ||||||
Intangible assets |
2,134 | 2,171 | ||||||
Security deposit |
8,463 | | ||||||
Total other assets |
$ | 33,098 | $ | 30,829 | ||||
Unamortized debt issuance costs of $6,659 related to the prepayment of the Companys revolving
credit facility were written off the first quarter of 2010.
(b) Accrued Liabilities and Other Non-Current Liabilities
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
Accrued Liabilities: |
||||||||
Commodity swaps |
$ | 1,417 | $ | 9,983 | ||||
Valero earnout liability |
8,750 | 8,750 | ||||||
Accrued interest |
9,158 | 8,137 | ||||||
Other |
3,806 | 4,429 | ||||||
Total accrued liabilities |
$ | 23,131 | $ | 31,299 | ||||
Other Non-Current Liabilities: |
||||||||
Environmental accrual |
$ | 399 | $ | 412 | ||||
Asset retirement obligations |
929 | 899 | ||||||
Valero earnout liability |
2,188 | 6,562 | ||||||
Commodity swaps |
4,812 | | ||||||
Total other non-current liabilities |
$ | 8,328 | $ | 7,873 | ||||
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ALON REFINING KROTZ SPRINGS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(unaudited, dollars in thousands except as noted)
NOTES TO FINANCIAL STATEMENTS (Continued)
(unaudited, dollars in thousands except as noted)
(c) Comprehensive Income
The following table displays the computation of total comprehensive income:
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Net income (loss) |
$ | (35,695 | ) | $ | (7,321 | ) | $ | (69,307 | ) | $ | 19,357 | |||||
Other comprehensive gain (loss), net of tax: |
||||||||||||||||
Unrealized gain (loss) on cash flow hedges,
net of tax |
2,932 | (443 | ) | 3,530 | (1,804 | ) | ||||||||||
Total other comprehensive income (loss), net of tax |
2,932 | (443 | ) | 3,530 | (1,804 | ) | ||||||||||
Comprehensive income (loss) |
$ | (32,763 | ) | $ | (7,764 | ) | $ | (65,777) | $ | 17,553 | ||||||
The following table displays the components of accumulated other comprehensive loss, net of
tax.
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
Unrealized losses on cash flow hedges, net of tax |
$ | (3,710 | ) | $ | (7,240 | ) | ||
Accumulated other comprehensive loss, net of tax |
$ | (3,710 | ) | $ | (7,240 | ) | ||
(8) Indebtedness
Debt consisted of the following:
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
Short-term debt |
$ | 30,000 | $ | | ||||
Revolving credit facility |
$ | | $ | 83,287 | ||||
Senior secured notes, net of discount |
206,505 | 205,693 | ||||||
Total long-term debt |
$ | 206,505 | $ | 288,980 | ||||
Senior Secured Notes. In October 2009, the Company issued $216,500 in aggregate principal
amount of 13.50% senior secured notes (the Senior Secured Notes) in a private offering. The
Senior Secured Notes were issued at an offering price of 94.857%. The Senior Secured Notes will
mature on October 15, 2014 and the entire principal amount is due at maturity. Interest is payable
semi-annually in arrears on April 15 and October 15.
The Company received gross proceeds of $205,365 from the sale of the Senior Secured Notes
(before fees and expenses related to the offering). In connection with the closing, the Company
prepaid in full all outstanding obligations under the Companys term loan. The remaining proceeds
from the offering were used for general corporate purposes.
The terms of the Senior Secured Notes are governed by an indenture (the Indenture) and the
obligations under the Indenture are secured by a first priority lien on the Companys property,
plant and equipment and a second priority lien on the Companys cash, accounts receivable and
inventory.
The Indenture also contains restrictive covenants such as restrictions on loans, mergers,
sales of assets, additional indebtedness and restricted payments. The Indenture does not contain
any maintenance financial covenants.
On February 17, 2010, the Company exchanged $216,480 of Senior Secured Notes for an equivalent
amount of Senior Secured Notes (Exchange Notes) registered under the Securities Act of 1933. The
Exchange Notes are substantially identical to the Senior Secured Notes, except that the Exchange
Notes have been registered with the
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ALON REFINING KROTZ SPRINGS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(unaudited, dollars in thousands except as noted)
NOTES TO FINANCIAL STATEMENTS (Continued)
(unaudited, dollars in thousands except as noted)
Securities and Exchange Commission and are not subject to transfer restrictions.
At June 30, 2010, and December 31, 2009, the Senior Secured Notes had an outstanding balance
(net of unamortized discount) of $206,505 and $205,693, respectively. The Company is utilizing the
effective interest method to amortize the original issue discount over the life of the Senior
Secured Notes.
Short-Term Credit Facility. On March 15, 2010, the Company entered into a $65,000 short-term
credit facility with Bank Hapoalim B.M. (the Term Facility). The Term Facility as currently
amended and restated matures on August 16, 2010. The Company has agreed in principal with Bank
Hapoalim B.M. to extend the maturity date to November 15, 2010. The Company originally borrowed
$65,000 and has repaid $35,000 as of June 30, 2010.
Borrowings under the Term Facility bear interest at LIBOR plus 3.00% and $30,000 was
outstanding under the Term Facility at June 30, 2010.
The Term Facility is secured by a second lien on all assets other than cash, accounts
receivable, and inventory owned by the Company.
The Term Facility contains customary restrictive covenants, such as restrictions on liens,
mergers, consolidation, sales of assets, capital expenditures, additional indebtedness,
investments, hedging transactions, and certain restricted payments.
Revolving Credit Facility. On March 15, 2010, the Company terminated its revolving credit
facility and repaid all outstanding amounts thereunder. As a result of the prepayment of the
revolving credit facility, the Company recorded a write-off of unamortized debt issuance costs of
$6,659 as interest expense in the first quarter of 2010.
Borrowings of $83,287 and outstanding letters of credit of $2,765 were outstanding under the
revolving credit facility at December 31, 2009.
(9) Related-Party Transactions
A portion of the purchase price for the acquisition of the Companys refinery from Valero was
provided through an $80,000 equity investment contributed to the Company by Alon Israel Oil
Company, Ltd. (Alon Israel), the majority stockholder of Alon USA, together with a $21,656 equity
investment by Alon USA and its affiliates. Also in connection with the acquisition, Alon Israel,
together with Alon USA and its affiliates, arranged for the issuance of $66,000 of standby letters
of credit, without recourse to the Company, to support increased borrowing capacity under the
Companys revolving credit facility.
In connection with amendments to the Companys credit facilities in April 2009, Alon Israel,
together with Alon USA and its affiliates, invested an additional $25,000 of equity in the Company,
and arranged for the issuance of an additional $25,000 of standby letters of credit without
recourse to the Company. In connection with the termination of the revolving credit facility, the
Company returned to Alon Israel $65,000 of letters of credit. Also in
connection with the termination of the revolving credit facility,
$11,000 of the standby letters of credit support was converted into
cash support. In the second quarter of 2010, this cash support was
converted into an equity contribution of the Company. These
contributions, together with the equity and letters of credit support resulted in $137,656 of
equity and $15,000 of letters of credit support provided to the Company from Alon Israel and Alon
USA and its affiliates at June 30, 2010.
The Company is a subsidiary of Alon USA and is operated as a component of the integrated
operations of Alon USA and its other subsidiaries. As such, the executive officers of Alon USA, who
are employed by another subsidiary of Alon USA, also serve as executive officers of the Company and
Alon USAs other subsidiaries and Alon USA performs general corporate and administrative services
and functions for the Company and Alon USAs other subsidiaries, which include accounting,
treasury, cash management, tax, information technology, insurance administration and claims
processing, legal, environmental, risk management, audit, payroll and employee benefit processing,
and internal audit services. Alon USA allocates the expenses actually incurred by it in performing
these services to the Company and to its other subsidiaries based primarily on the amount of time
the individuals performing such services devote to the Companys business and affairs relative to
the amount of time they devote to the business and affairs of Alon USAs other subsidiaries. The
Company records the amount of such allocations to
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ALON REFINING KROTZ SPRINGS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(unaudited, dollars in thousands except as noted)
NOTES TO FINANCIAL STATEMENTS (Continued)
(unaudited, dollars in thousands except as noted)
its financial statements as selling, general and administrative expenses. For the three and
six months ended June 30, 2010 the Company recorded selling, general and administrative expenses of
$1,727 and $3,537, respectively, with respect to allocations from Alon USA for such services.
Alon USA currently owns all of the Companys outstanding voting capital stock. As a result,
Alon USA can control the election of the Companys directors, exercise control or significant
influence over the Companys corporate and management policies and generally determine the outcome
of any corporate transaction or other matter submitted to the Companys stockholders for approval,
including potential mergers or acquisitions, asset sales and other significant corporate
transactions. So long as Alon USA continues to own a majority of the outstanding shares of the
Companys voting capital stock, Alon USA will continue to be able to effectively control or
influence the outcome of such matters.
(10) Commitments and Contingencies
(a) Commitments
In the normal course of business, the Company has long-term commitments to purchase utilities
such as natural gas, electricity and water for use by the refinery. The Company is also party to
various refined product and crude oil supply and exchange agreements. These agreements are
short-term in nature or provide terms for cancellation.
Offtake Agreement with Valero
In connection with the acquisition of the Companys refinery, the Company and Valero Energy
Corporation (Valero) entered into an offtake agreement for five years that provides for Valero to
purchase, at market prices, light cycle oil and straight run diesel.
Earnout Settlement with Valero
In connection with the Companys refinery acquisition, in July 2008 the Company and Valero
entered into an earnout agreement which was amended in August 2009. The Company has paid Valero
approximately $19,688 in 2009 and $4,374 in the first six months of 2010. Additionally, the
Company has agreed to pay Valero an additional sum of $10,937 in five installments of approximately
$2,188 per quarter through the third quarter of 2011 which will result in aggregate earnout
payments of $35,000. Of the $10,937 that remains to be paid, $8,750 is included in accrued
liabilities and $2,188 is included in other non-current liabilities on the balance sheet at June
30, 2010.
(b) Environmental
The Company is subject to federal, state, and local environmental laws and regulations. These
rules regulate the discharge of materials into the environment and may require the Company 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 the Company and associated with past or
present operations. The Company is currently participating in environmental investigations,
assessments and cleanups under these regulations at its refinery. The Company 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
the Companys 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
five years. The level of future expenditures for environmental remediation obligations beyond the
next five years cannot be determined with any degree of reliability.
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ALON REFINING KROTZ SPRINGS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(unaudited, dollars in thousands except as noted)
NOTES TO FINANCIAL STATEMENTS (Continued)
(unaudited, dollars in thousands except as noted)
The Company has accrued a non-current liability for environmental remediation obligations of
$399 and $412 at June 30, 2010 and at December 31, 2009, respectively.
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ITEM 2. | MANAGEMENTS 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 financial statements and notes thereto included in our Annual
Report on Form 10-K for the year ended December 31, 2009. In this document, the words the
Company, we and our refer to Alon Refining Krotz Springs, 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 regarding future events, results
or outcomes. These expectations may or may not be realized. Some of these expectations may be based
upon assumptions or judgments that prove to be incorrect. In addition, our business and operations
involve numerous risks and uncertainties, many of which are beyond our control, which could result
in our expectations not being realized or otherwise materially affect our financial condition,
results of operations and cash flows.
Actual events, results and outcomes may differ materially from our expectations due to a
variety of factors. Although it is not possible to identify all of these factors, they include,
among others, the following:
| changes in general economic conditions and capital markets; | ||
| 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 crude oil and Light Louisiana Sweet crude Oil; | ||
| the effects of transactions involving forward contracts and derivative instruments; | ||
| actions of customers and competitors; | ||
| changes in fuel and utility costs incurred by our refinery; | ||
| disruptions due to equipment interruption, pipeline disruptions or failure at third-party facilities; | ||
| the execution of planned capital projects; | ||
| adverse changes in the credit ratings assigned to our trade credit and debt instrument; | ||
| the effects of and cost of compliance with current and future state and federal environmental, economic, safety and other laws, policies and regulations; | ||
| operating hazards, natural disasters, casualty losses and other matters beyond our control; | ||
| the global financial crisis impact on our business and financial condition; and |
15
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| the other factors discussed in our Annual Report on Form 10-K for the year ended December 31, 2009 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.
Refinery Overview
We own and operate a high conversion crude oil refinery with a crude oil throughput capacity
of approximately 83,100 barrels per day (bpd). Placed into service in 1980, our refinery is the
second newest complex, grassroots refinery built in the United States. Our refinery is
strategically located on the Atchafalaya River in central Louisiana at the intersection of two
crude oil pipeline systems and has direct access to the Colonial Pipeline, providing us with
diversified access to both locally sourced and foreign crude oils, as well as distribution of our
products to markets throughout the Southern and Eastern United States and along the Mississippi and
Ohio Rivers.
Our 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 our refinerys crude oil input.
Our refinerys Residual Fluid Catalytic Cracking Unit (FCC) allows us to produce a high
percentage of light products with fewer processing units and lower maintenance costs compared to
refineries utilizing conventional FCC technologies. Our refinerys liquid product yield is
approximately 101.5%, meaning that for each 100 barrels of crude oil and feedstocks input into our
refinery, we typically produce 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 LPG, and the remaining 2.5% is primarily heavy oils.
Refinery History
In 1980, Hill Petroleum completed the initial construction of our refinery and commenced
operations with a crude unit, vacuum unit and reformer. Our refinery subsequently went through
several upgrades, including the addition of an FCC in 1982, a 3,300 bpd polymerization unit in
1986, and a 4,500 bpd isomerization unit in 1992. Valero acquired our refinery in 1997, upgraded
the FCC to a 34,100 bpd Residual FCC in 2002 and installed a 18,000 bpd gasoline desulfurization
unit (GDU) in 2006.
Effective July 1, 2008, Alon USA completed the acquisition of our refinery and related assets
through the acquisition of all of the capital stock of Valero Refining Company Louisiana from
Valero. The purchase price was $333.0 million in cash plus $141.5 million for working capital,
including inventories, as well as future consideration in the form of earnout payments due from us
based on the average market prices for crude oil, regular unleaded gasoline, and ultra low-sulfur
diesel in each of the three twelve month periods following the acquisition. In August 2009, we
amended the earnout agreement with Valero to replace future earnout payments with fixed future
payments. As a result, we paid Valero approximately $24.1 million through June 30, 2010 and have
agreed to pay Valero an additional sum of $10.9 million in five installments of approximately $2.2
million per quarter through the third quarter of 2011 for earnout payments in an aggregate amount
of $35.0 million.
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Major Influences on Results of Operations
Our earnings and cash flows are primarily affected by the difference between refined product
prices and the prices for crude oil and other feedstocks. The cost to acquire crude oil and other
feedstocks and the price of the refined products we ultimately sell depends on numerous factors
beyond our control, including the supply of, and demand for, crude oil, gasoline and other refined
products which, in turn, depends 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, which affects our earnings.
In order to measure our operating performance, we compare our per barrel refinery operating
margins to certain industry benchmarks. We compare our refinerys per barrel operating margin to
the Gulf Coast 2/1/1 crack spread. The Gulf Coast 2/1/1 crack spread is calculated assuming that
two barrels of a benchmark crude oil are converted, or cracked, into one barrel of gasoline and one
barrel of diesel. We calculate the Gulf Coast 2/1/1 crack spread using the market values of Gulf
Coast unleaded gasoline and Gulf Coast high sulfur diesel and the market value of WTI crude oil.
Our results of operations are also significantly affected by our refinerys operating costs,
particularly the cost of natural gas used for fuel and the cost of electricity. Natural gas prices
have historically been volatile. For example, between January 1, 2008 and December 31, 2009,
natural gas prices ranged between $2.51 and $13.58 per million British thermal units. Typically,
electricity prices fluctuate with natural gas prices.
Factors Affecting Comparability
Factors which are fundamental to understanding comparisons of our period-to-period financial
performance for both historical and future periods include those discussed below.
Throughput
Safety, reliability and the environmental performance of our refinery is 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 product
availability, margin environment and the availability of resources to perform the required
maintenance. Our refinery was shutdown during November of 2009 for a scheduled turnaround and
remained down as the work was completed and restarted in June of 2010.
Revolving Credit Facility and Term Credit Facility
On March 15, 2010, we terminated our revolving credit facility and repaid all outstanding
amounts thereunder. As a result of the prepayment of the revolving credit facility, a write-off of
unamortized debt issuance costs of $6.7 million was recorded as interest expense in the first
quarter of 2010.
On March 15, 2010, we entered into a new $65.0 million term credit facility with Bank Hapoalim
B.M. with a maturity date of August 16, 2010. We borrowed $65.0 million and used approximately
$51.0 million to repay the outstanding amounts under the revolving credit facility that was
terminated.
Senior Secured Notes
In October 2009, we issued $216.5 million in aggregate principal amount of 13.50% senior
secured notes in a private offering. We received gross proceeds of $205.4 million from the sale of
the senior secured notes (before fees and expenses related to the offering). In connection with the
closing, we prepaid in full the outstanding principal balance of our term loan of $163.8 million.
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2008 Hedging Agreement
Contemporaneously with the acquisition of our refinery, we entered into a heating oil crack
spread hedging agreement (the 2008 Hedging Agreement) consisting of futures contracts for the
forward purchase of crude oil and the forward sale of heating oil covering 14,849,750 barrels over
a 27 month period. As of December 31, 2008, the mark-to-market value of the heating oil crack
spread hedge was $116.7 million and was recorded as a reduction to cost of sales. In April 2009,
the 2008 Hedging Agreement was terminated at a value of $139.3 million for which we received
proceeds of $133.6 million and recorded a charge to interest expense of $5.7 million. In connection
with the termination of the 2008 Hedging Agreement, we also received $50.0 million from the release
of cash collateral previously pledged by us to support obligations under the 2008 Hedging
Agreement.
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Results of Operations
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Statement of Operations Data: |
||||||||||||||||
Net sales |
$ | 168,638 | $ | 354,698 | $ | 177,958 | $ | 599,763 | ||||||||
Cost of sales |
171,892 | 324,971 | 180,269 | 488,882 | ||||||||||||
Direct operating expenses |
15,372 | 21,525 | 25,908 | 43,869 | ||||||||||||
Selling, general and administrative expenses |
1,727 | 2,007 | 3,537 | 3,656 | ||||||||||||
Depreciation and amortization expenses |
5,102 | 4,911 | 10,609 | 9,158 | ||||||||||||
Operating income (loss) |
(25,455 | ) | 1,284 | (42,365 | ) | 54,198 | ||||||||||
Other income, net |
| 2 | 14 | 4 | ||||||||||||
Interest expense |
(10,240 | ) | (10,491 | ) | (26,956 | ) | (28,315 | ) | ||||||||
Income (loss) before income tax expense (benefit) |
(35,695 | ) | (9,205 | ) | (69,307 | ) | 25,887 | |||||||||
Income tax expense (benefit) |
| (1,884 | ) | | 6,530 | |||||||||||
Net income (loss) |
$ | (35,695 | ) | $ | (7,321 | ) | $ | (69,307 | ) | $ | 19,357 | |||||
Operating Data: |
||||||||||||||||
Refinery Throughput (bpd): |
||||||||||||||||
Light sweet crude |
10,358 | 28,065 | 5,208 | 27,746 | ||||||||||||
Heavy sweet crude |
10,693 | 26,362 | 5,376 | 23,240 | ||||||||||||
Blendstocks |
909 | 4,031 | 457 | 5,113 | ||||||||||||
Total refinery throughput (1) |
21,960 | 58,458 | 11,041 | 56,099 | ||||||||||||
Refinery Production (bpd): |
||||||||||||||||
Gasoline |
8,427 | 27,962 | 4,237 | 26,215 | ||||||||||||
Diesel/Jet |
9,098 | 24,514 | 4,575 | 24,491 | ||||||||||||
Heavy oils |
2,809 | 1,358 | 1,412 | 1,124 | ||||||||||||
Others |
1,485 | 5,521 | 746 | 5,205 | ||||||||||||
Total refinery production (2) |
21,819 | 59,355 | 10,970 | 57,035 | ||||||||||||
Key Operating Statistics: |
||||||||||||||||
Refinery utilization (3) |
25.3 | % | 65.5 | % | 12.7 | % | 61.4 | % | ||||||||
Per barrel of throughput: |
||||||||||||||||
Refinery operating margin (4) |
$ | (1.95 | ) | $ | 5.85 | $ | (1.48 | ) | $ | 8.91 | ||||||
Refinery direct operating expense (5) |
7.69 | 4.04 | 12.96 | 4.32 | ||||||||||||
Capital expenditures |
1,466 | 2,326 | 3,329 | 3,087 | ||||||||||||
Capital expenditures for turnaround and catalyst |
273 | 1,120 | 2,194 | 1,682 | ||||||||||||
Pricing Statistics: |
||||||||||||||||
WTI crude oil (per barrel) |
$ | 77.74 | $ | 59.54 | $ | 78.24 | $ | 51.36 | ||||||||
2/1/1 Gulf Coast high sulfur diesel crack spread
(per barrel) |
8.92 | 6.63 | 7.59 | 8.04 | ||||||||||||
Product price (dollars per gallon): |
||||||||||||||||
Gulf Coast unleaded gasoline |
$ | 2.053 | $ | 1.638 | $ | 2.046 | $ | 1.429 | ||||||||
Gulf Coast high sulfur diesel |
2.074 | 1.513 | 2.041 | 1.400 | ||||||||||||
Natural gas (per mmbtu) |
$ | 4.35 | $ | 3.81 | $ | 4.66 | $ | 4.13 |
(1) | Total refinery throughput represents the total barrels per day of crude oil and blendstock inputs in the refinery production process. | |
(2) | Total refinery production represents the barrels per day of various products produced from processing crude oil and other feedstocks through the crude unit and other conversion units at our refinery. | |
(3) | Refinery utilization represents average daily crude oil throughput divided by crude oil capacity, excluding planned periods of downtime for maintenance and turnarounds. Refinery throughput and production for the three and six months ended June 30, 2010 reflect one month of operations as the Company commenced operations in June 2010 following completion of a major turnaround. Refinery throughput and production for |
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2009 reflects the effects of our optimization of throughput to respond to declining margins and to reduce borrowings under our Revolving Credit Facility prior to amendments to our credit facilities in April 2009. | ||
(4) | Refinery operating margin is a per barrel measurement calculated by dividing the margin between net sales and cost of sales (exclusive of substantial unrealized hedging gains and losses) attributable to our refinery by its throughput volumes. Industry-wide refining results are driven and measured by the margins between refined product prices and the prices for crude oil, which are referred to as crack spreads. We compare our refinery operating margins to these crack spreads to assess our operating performance relative to other participants in our industry. There were unrealized hedging gains of $2,373 and $20,399 for our refinery for the three and six months ended June 30, 2009, respectively. Additionally, realized gains related to the unwind of the 2008 Hedging Agreement of $133,581 were excluded from our refinery margin for the three and six months ended June 30, 2009. | |
(5) | Refinery direct operating expense is a per barrel measurement calculated by dividing direct operating expenses, exclusive of depreciation and amortization, by the total throughput volumes. |
Three months ended June 30, 2010 compared to three months ended June 30, 2009
Net Sales. Net sales for the three months ended June 30, 2010 decreased by $186.1 million, or
52.5%, to $168.6 million from $354.7 million for the three months ended June 30, 2009. The decrease
in net sales was due to the refinery shutdown until its restart in June 2010.
Cost of Sales. Cost of sales for the three months ended June 30, 2010 decreased by $153.1
million, or 47.1%, to $171.9 million from $325.0 million for the three months ended June 30, 2009.
The decrease in cost of sales was due to the refinery shutdown until its restart in June 2010.
Direct Operating Expenses. Direct operating expenses for the three months ended June 30, 2010
decreased to $15.4 million from $21.5 million for the three months ended June 30, 2009, a decrease
of approximately $6.1 million, or 28.4%. This decrease was attributable to the refinery shutdown
until its restart in June 2010.
Selling, General and Administrative Expenses. SG&A expenses for the three months ended June
30, 2010 decreased to $1.7 million from $2.0 million for the three months ended June 30, 2009, a
decrease of approximately $0.3 million, or 15.0%. This decrease was primarily due to lower payroll
and related costs. These costs are allocated to us from Alon USAs consolidated operations.
Depreciation and Amortization Expenses. Depreciation and amortization expenses for the three
months ended June 30, 2010 increased to $5.1 million from $4.9 million for the three months ended
June 30, 2009, an increase of approximately $0.2 million, or 4.1%. This increase was primarily
attributable to amortization of turnaround and chemical catalyst costs and to the increase to
property, plant and equipment in the second half of 2009 related to the amended earnout agreement
with Valero.
Operating income (loss). Operating income (loss) for the three months ended June 30, 2010
decreased to ($25.5) million from $1.3 million for the three months ended June 30, 2009, a decrease
of $26.8 million. This decrease was attributable to the refinery shutdown until its restart in June
2010.
Interest expense. Interest expense for the three months ended June 30, 2010 was $10.2 million
compared to $10.5 million for the three months ended June 30, 2009. The decrease was primarily due
to reduced borrowing and letter of credit fees.
Income tax expense. Income tax expense for the three months ended June 30, 2010 was $0.0
million compared to income tax benefit of $1.9 million for the three months ended June 30, 2009.
The decrease resulted from no income tax benefit recognized on our pre-tax loss in 2010 compared to
an income tax benefit recognized on our pre-tax loss in 2009. Our effective tax rate was 0.0% in
the second quarter of 2010, compared to an effective tax rate of 20.5% in the second quarter of
2009.
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Net income (loss). Net income (loss) decreased to ($35.7) million in 2010 from ($7.3) million
in 2009. This decrease was attributable to the factors discussed above.
Six months ended June 30, 2010 compared to Six months ended June 30, 2009
Net Sales. Net sales for the six months ended June 30, 2010 decreased by $421.8 million, or
70.3%, to $178.0 million from $599.8 million for the six months ended June 30, 2009. The decrease
in net sales was due to the refinery shutdown until its restart in June 2010.
Cost of Sales. Cost of sales for the six months ended June 30, 2010 decreased by $308.6
million, or 63.1%, to $180.3 million from $488.9 million for the six months ended June 30, 2009.
The decrease in cost of sales was due to the refinery shutdown until its restart in June 2010.
Direct Operating Expenses. Direct operating expenses for the six months ended June 30, 2010
decreased to $25.9 million from $43.9 million for the six months ended June 30, 2009, a decrease of
approximately $18.0 million, or 41.0%. This decrease was attributable to the refinery shutdown
until its restart in June 2010.
Selling, General and Administrative Expenses. SG&A expenses for the six months ended June 30,
2010 decreased to $3.5 million from $3.7 million for the six months ended June 30, 2009, a decrease
of approximately $0.2 million, or 5.4%. This decrease was primarily due to lower payroll and related
costs. These costs are allocated to us from Alon USAs consolidated operations.
Depreciation and Amortization Expenses. Depreciation and amortization expenses for the six
months ended June 30, 2010 increased to $10.6 million from $9.2 million for the six months ended
June 30, 2009, an increase of approximately $1.4 million, or 15.2%. This increase was primarily
attributable to amortization of turnaround and chemical catalyst costs and to the increase to
property, plant and equipment in the second half of 2009 related to the amended earnout agreement
with Valero.
Operating income (loss). Operating income (loss) for the six months ended June 30, 2010
decreased to ($42.4) million from $54.2 million for the six months ended June 30, 2009, a decrease
of $96.6 million. This decrease was attributable to the refinery shutdown until its restart in June
2010.
Interest expense. Interest expense for the six months ended June 30, 2010 was $27.0 million
compared to $28.3 million for the six months ended June 30, 2009. The decrease was primarily due to
reduced borrowing and letter of credit fees partially offset by the write-off of unamortized debt
issuance costs of $6.7 million in the first quarter of 2010 and interest expense related to the
liquidation of the 2008 Hedging Agreement of $5.7 million in the first quarter of 2009.
Income tax expense. Income tax expense for the six months ended June 30, 2010 was $0.0
million compared to income tax expense of $6.5 million for the six months ended June 30, 2009. The
decrease resulted from no income tax benefit recognized on our pre-tax loss in 2010 compared to
expense recognized on our pre-tax income in 2009. Our effective tax rate was 0.0% in 2010, compared
to an effective tax rate of 25.2% in 2009.
Net income (loss). Net income (loss) decreased to ($69.3) million in 2010 from $19.4 million
in 2009. This decrease was attributable to the factors discussed above.
Liquidity and Capital Resources
Our primary sources of liquidity are cash on hand and cash generated from operating
activities. Although our parent company and its parent have previously made certain contributions
to our capital, neither has any obligation to make any such contributions in the future.
On March 15, 2010, we entered into a $65.0 million short-term credit facility with Bank
Hapoalim B.M. (the Term Facility). The Term Facility as currently amended and restated matures
on August 16, 2010. We have
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agreed in principal with Bank Hapoalim B.M. to extend the maturity date to November 15, 2010.
We originally borrowed $65.0 million and have repaid $35.0 million as of June 30, 2010.
On April 21, 2010, we entered into a Supply and Offtake Agreement, which was amended on May
26, 2010 (the Supply and Offtake Agreement), with J. Aron & Company (J. Aron), the proceeds of
which allowed us to retire part of our obligations under the Term Facility and support the
operation of the refinery at a minimum
of 72,000 barrels per day. Pursuant to the Supply and Offtake Agreement,
(i) J. Aron agreed to sell to us, and we agreed to buy from J. Aron, at market price, crude oil for
processing at the refinery and (ii) we agreed to sell, and J. Aron agreed to buy, at market price,
certain refined products produced at the refinery.
Our ability to generate sufficient cash from our operating activities depends on our future
performance, which is subject to general economic, political, financial, competitive and other
factors beyond our control. In addition, our future capital expenditures and other cash
requirements could be higher than we currently expect as a result of various factors, including the
costs of such future capital expenditures related to the expansion of our business.
Depending upon conditions in the capital markets and other factors, we will from time to time
consider the issuance of debt or equity securities, or other possible capital markets transactions,
the proceeds of which could be used to refinance current indebtedness, extend or replace existing
revolving credit facilities or for other corporate purposes. Pursuant to our growth strategy, we
will also consider from time to time acquisitions of, and investments in, assets or businesses that
complement our existing assets and businesses. Acquisition transactions, if any, are expected to be
financed through cash on hand and from operations, bank borrowings, the issuance of debt or equity
securities or a combination of two or more of those sources.
Cash Flows
The following table sets forth our cash flows for the six months ended June 30, 2010 and 2009:
For the Six Months Ended | ||||||||
June 30, | ||||||||
2010 | 2009 | |||||||
Net cash provided by (used in): |
||||||||
Operating activities |
$ | 20,333 | $ | 242,481 | ||||
Investing activities |
(9,898 | ) | (4,769 | ) | ||||
Financing activities |
(36,596 | ) | (214,263 | ) | ||||
Net increase (decrease) in cash and cash equivalents |
$ | (26,161 | ) | $ | 23,449 | |||
Cash Flows Provided By Operating Activities
Net cash provided by operating activities was $20.3 million for the six months ended June 30,
2010 compared to $242.5 million for the six months ended June 30, 2009. The decrease in cash
provided by operating activities is primarily due to the decrease in net income primarily due to
the extended shutdown and the proceeds received in 2009 from the liquidation of the 2008 Hedging
Agreement.
Cash Flows Used In Investing Activities
Net cash used in investing activities has been used primarily for capital expenditures,
including expenditures for turnarounds and catalysts. Capital expenditures were $5.5 million and
$4.8 million for the six months ended June 30, 2010 and 2009, respectively. Additionally, payments
of $4.4 million were made during the six months ended June 30, 2010, associated with the amended
earnout agreement with Valero.
Cash Flows Used In Financing Activities
Net cash used in financing activities was $36.6 million for the six months ended June 30, 2010
compared to $214.3 million for the six months ended June 30, 2009. Cash used during the six months
ended June 30, 2010 reflects the repayment of the revolving credit facility of $83.3 million which
was partially offset by net short-term
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debt borrowings of $30.0 million and proceeds from parent equity investment of $11.0 million.
Cash used during the six months ended June 30, 2009 reflects repayment of our term loan of $88.2
million and payments on our revolving credit facility of $147.1 million, partially offset by
proceeds from parent equity investment of $25.0 million.
Summary of Indebtedness
Senior Secured Notes. In October 2009, we issued $216.5 million in aggregate principal amount
of 13.50% senior secured notes (the Senior Secured Notes) in a private offering. The Senior
Secured Notes were issued at an offering price of 94.857%. The Senior Secured Notes will mature on
October 15, 2014 and the entire principal amount is due at maturity. Interest is payable
semi-annually in arrears on April 15 and October 15.
We received gross proceeds of $205.4 million from the sale of the Senior Secured Notes (before
fees and expenses related to the offering). In connection with the closing, we prepaid in full all
outstanding obligations under our term loan. The remaining proceeds from the offering were used for
general corporate purposes.
The terms of the Senior Secured Notes are governed by an indenture (the Indenture) and the
obligations under the Indenture are secured by a first priority lien on our property, plant and
equipment and a second priority lien on our cash, accounts receivable and inventory.
The Indenture also contains restrictive covenants such as restrictions on loans, mergers,
sales of assets, additional indebtedness and restricted payments. The Indenture does not contain
any maintenance financial covenants.
On February 17, 2010, we exchanged $216.5 million of Senior Secured Notes for an equivalent
amount of Senior Secured Notes (Exchange Notes) registered under the Securities Act of 1933. The
Exchange Notes are substantially identical to the Senior Secured Notes, except that the Exchange
Notes have been registered with the Securities and Exchange Commission and are not subject to
transfer restrictions.
At June 30, 2010, and December 31, 2009, the Senior Secured Notes had an outstanding balance
(net of unamortized discount) of $206.5 million and $205.7 million, respectively. We are utilizing
the effective interest method to amortize the original issue discount over the life of the Senior
Secured Notes.
Short-Term Credit Facility. On March 15, 2010, we entered into a $65.0 million term credit
facility with Bank Hapoalim B.M. (the Term Facility). The Term Facility as currently amended and
restated matures on August 16, 2010. We have agreed in principal with Bank Hapoalim B.M. to extend
the maturity date to November 15, 2010. The Company borrowed $65.0 million and has repaid $35.0
million as of June 30, 2010.
Borrowings under the Term Facility bear interest at LIBOR plus 3.00% and $30.0 million was
outstanding under the Term Facility at June 30, 2010.
The Term Facility is secured by a second lien on all assets other than cash, accounts
receivable, and inventory owned by the Company.
The Term Facility contains customary restrictive covenants, such as restrictions on liens,
mergers, consolidation, sales of assets, capital expenditures, additional indebtedness,
investments, hedging transactions, and certain restricted payments.
Revolving
Credit Facility. On March 15, 2010, we terminated our revolving credit
facility and repaid all outstanding amounts thereunder. As a result of the prepayment of the
revolving credit facility, we recorded a write-off of unamortized debt issuance costs of
$6.7 million as interest expense in the first quarter of 2010.
Borrowings
of $83.3 million and outstanding letters of credit of $2.8 million were outstanding under the
revolving credit facility at December 31, 2009.
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Capital Spending
Each year our Board of Directors approves capital projects, including regulatory and planned
turnaround projects that our management is authorized to undertake in our annual capital budget.
Additionally, at times when conditions warrant or as new opportunities arise, other projects or the
expansion of existing projects may be approved. Our updated capital expenditure projections, including
expenditures for fixed-bed catalyst and turnarounds, for 2010 is approximately $13.1 million, of
which approximately $2.3 million is related to fixed-bed catalyst and turnarounds and approximately
$10.8 million is related to various regulatory and compliance projects. Approximately $3.3 million
has been spent on various regulatory and compliance projects and $2.2 million has been spent on
turnaround and fixed-bed catalyst costs as of June 30, 2010 compared to $3.1 million for various
regulatory and compliance projects and $1.7 million for turnaround and fixed-bed catalyst costs
for the same period in 2009.
Contractual Obligations
There have been no material changes outside the ordinary course of business from our
contractual obligations and commercial commitments detailed in our Annual Report of Form 10-K for
the year ended December 31, 2009.
Off-Balance Sheet Arrangements
We are not involved in any off-balance sheet arrangements that have or are reasonably likely
to have a material current or future impact on our financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital resources.
Earnout Settlement with Valero
In connection with our refinery acquisition, in July 2008 we entered into an earnout agreement
with Valero which was amended in August 2009. We have paid Valero approximately $19.7 million in
2009 and $4.4 million in the six months ending June 30, 2010. Additionally, we agreed to pay
Valero an additional sum of $10.9 million in five installments of approximately $2.2 million per
quarter through the third quarter of 2011 which will result in aggregate earnout payments of $35.0
million.
Critical Accounting Policies
We prepare our financial statements in conformity with GAAP. In order to apply these
principles, we must make judgments, assumptions and estimates based on the best available
information at the time. Actual results may differ based on the accuracy of the information
utilized and subsequent events, some of which we may have little or no control over. Our critical
accounting policies are described under the caption Managements Discussion and Analysis of
Financial Condition and Results of OperationsCritical Accounting Policies in our Annual Report
on Form 10-K for the year ended December 31, 2009. Certain critical accounting policies that
materially affect the amounts recorded in our financial statements are the use of the LIFO method
for valuing certain inventories and the deferral and subsequent amortization of costs associated
with major turnarounds and chemical catalysts replacements. No significant changes to the
accounting policies have occurred subsequent to December 31, 2009.
New Accounting Standards
New accounting standards are disclosed in Note 1(c) Basis of Presentation and Certain
Significant Accounting PoliciesNew Accounting Standards included in the financial statements
included in Item 1 of this report.
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ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. |
Changes in commodity prices and purchased fuel prices are our primary sources of market risk.
Alon USAs risk management committee oversees all activities associated with the identification,
assessment and management of our market risk exposure.
Commodity Price Risk
We are exposed to market risks related to the volatility of crude oil and refined product
prices, as well as volatility in the price of natural gas used in our refinery operations. Our
financial results can be affected significantly by fluctuations in these prices, which depend on
many factors, including demand for crude oil, gasoline and other refined products, changes in the
economy, worldwide production levels, worldwide inventory levels and governmental regulatory
initiatives. Alon USAs risk management strategy identifies circumstances in which we may utilize
the commodity futures market to manage risk associated with these price fluctuations.
In order to manage the uncertainty relating to inventory price volatility, we have
consistently applied a policy of maintaining inventories at or below a targeted operating level. In
the past, circumstances have occurred, such as timing of crude oil cargo deliveries, turnaround
schedules or shifts in market demand that have resulted in variances between our actual inventory
level and our desired target level. Upon the review and approval of Alon USAs risk management
committee, we may utilize the commodity futures market to manage these anticipated inventory
variances. In addition, we have entered into and regularly evaluate opportunities to provide us
with a minimum fixed cash flow stream on the volume of products hedged during the hedge term and to
protect against volatility on commodity prices.
We maintain inventories of crude oil, refined products, blendstocks and asphalt, the values of
which are subject to wide fluctuations in market prices driven by world economic conditions,
regional and global inventory levels and seasonal conditions. As of June 30, 2010, we held
approximately 0.8 million barrels of crude oil and product inventories valued under the LIFO
valuation method with an average cost of $53.95 per barrel. Market value exceeded carrying value
of LIFO costs by $20.1 million. We refer to this excess as our LIFO reserve. If the market value of
these inventories had been $1.00 per barrel lower, our LIFO reserve would have been reduced by $0.8
million.
In accordance with the fair value provisions of ASC 825-10, all commodity futures contracts
are recorded at fair value and any changes in fair value between periods is recorded in the profit
and loss section of our financial statements. Forwards represent physical trades for which
pricing and quantities have been set, but the physical product delivery has not occurred by the end
of the reporting period. Futures represent trades which have been executed on the New York
Mercantile Exchange which have not been closed or settled at the end of the reporting period. A
long represents an obligation to purchase product and a short represents an obligation to sell
product.
The following table provides information about our derivative commodity instruments as of June
30, 2010:
Description | Wtd Avg Purchase | Wtd Avg Sales | Market | Gain | ||||||||||||||||||||
of Activity | Contract Volume | Price/BBL | Price/BBL | Contract Value | Value | (Loss) | ||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
Forwards-long (Diesel) |
10,908 | $ | 85.58 | $ | | $ | 934 | $ | 880 | $ | (54 | ) | ||||||||||||
Forwards-short (Diesel) |
(260,943 | ) | | 85.45 | (22,297 | ) | (21,362 | ) | 935 |
Description | Wtd Avg Contract | Wtd Avg Market | Market | Gain | ||||||||||||||||||||
of Activity | Contract Volume | Spread | Spread | Contract Value | Value | (Loss) | ||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
Futures-crack spread
(Heating Oil) |
292,400 | $ | 11.84 | $ | 10.46 | $ | 3,463 | $ | 3,059 | $ | (404 | ) | ||||||||||||
Futures-call options |
3,514,500 | 11.35 | 13.26 | (46,535 | ) | (46,595 | ) | (60 | ) |
25
Table of Contents
ITEM 4. | CONTROLS AND PROCEDURES. |
Disclosure Controls and Procedures
(1) Evaluation of Disclosure Controls and Procedures
Our management has evaluated, with the participation of our principal executive and principal
financial officers, the effectiveness of our disclosure controls and procedures (as defined in Rule
13a-15(e) under the Securities Exchange Act of 1934 as amended (the Exchange Act)) as of the end
of the period covered by this report, and has concluded that our disclosure controls and procedures
are effective to provide reasonable assurance that information required to be disclosed by us in
the reports that we file or furnish under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the SECs rules and forms including, without
limitation, controls and procedures designed to ensure that information required to be disclosed by
us in the reports that we file or furnish under the Exchange Act is accumulated and communicated to
our management, including our principal executive and principal financial officers, as appropriate
to allow timely decisions regarding required disclosures.
(2) Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting during the quarter
ended June 30, 2010 that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
26
Table of Contents
PART II. OTHER INFORMATION
ITEM 5. | EXHIBITS |
Exhibit Number | Description of Exhibit | |
3.1
|
Amended and Restated Certificate of Incorporation of Alon Refining Krotz Springs, Inc. (incorporated by reference to Exhibit 3.1 to Form S-4, filed by Alon Refining Krotz Springs, Inc. on December 22, 2009, SEC File No. 333-163942). | |
3.2
|
Amended and Restated Bylaws of Alon Refining Krotz Springs, Inc. (incorporated by reference to Exhibit 3.2 to Form S-4, filed by the Alon Refining Krotz Springs, Inc. on December 22, 2009, SEC File No. 333-163942). | |
4.1
|
Indenture, dated as of October 22, 2009, by and among Alon Refining Krotz Springs, Inc. and Wilmington Trust FSB, as Trustee (incorporated by reference to Exhibit 4.1 to Form 8-K, filed by Alon USA Energy, Inc. on October 23, 2009, SEC File No. 001-32567). | |
10.1
|
Amendment No. 1 to Credit Agreement, dated May 28, 2010, among Alon Refining Krotz Springs, Inc., each other party joined as a borrower thereunder from time to time, the Lenders party thereto, and Bank Hapoalim B.M., as Administrative Agent (incorporated by reference to Exhibit 10.3 to Form 10-Q, filed by Alon USA Energy, Inc. on August 9, 2010, SEC File No. 333-124797). | |
10.2
|
Amendment No. 2 to Credit Agreement, dated June 15, 2010, among Alon Refining Krotz Springs, Inc., each other party joined as a borrower thereunder from time to time, the Lenders party thereto, and Bank Hapoalim B.M., as Administrative Agent (incorporated by reference to Exhibit 10.4 to Form 10-Q, filed by Alon USA Energy, Inc. on August 9, 2010, SEC File No. 333-124797). | |
10.3
|
Credit Agreement, dated May 28, 2010, by and between Alon Refining Krotz Springs, Inc. and Goldman Sachs Bank USA, as Issuing Bank (incorporated by reference to Exhibit 10.5 to Form 10-Q, filed by Alon USA Energy, Inc. on August 9, 2010, SEC File No. 333-124797). | |
10.4
|
Amended and Restated Supply and Offtake Agreement, dated May 26, 2010 by and between Alon Refining Krotz Springs, Inc. and J. Aron & Company (incorporated by reference to Exhibit 10.6 to Form 10-Q, filed by Alon USA Energy, Inc. on August 9, 2010, SEC File No. 333-124797). | |
31.1
|
Certifications of Chief Executive Officer pursuant to §302 of the Sarbanes-Oxley Act of 2002. | |
31.2
|
Certifications of Chief Financial Officer pursuant to §302 of the Sarbanes-Oxley Act of 2002. | |
32.1
|
Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: August 6, 2010 | By: | /s/ David Wiessman | ||
David Wiessman | ||||
Executive Chairman | ||||
Date: August 6, 2010 | By: | /s/ Jeff D. Morris | ||
Jeff D. Morris | ||||
Chief Executive Officer | ||||
Date: August 6, 2010 | By: | /s/ Shai Even | ||
Shai Even | ||||
Chief Financial Officer |
- 28 -
Table of Contents
EXHIBITS
Exhibit Number | Description of Exhibit | |
3.1
|
Amended and Restated Certificate of Incorporation of Alon Refining Krotz Springs, Inc. (incorporated by reference to Exhibit 3.1 to Form S-4, filed by Alon Refining Krotz Springs, Inc. on December 22, 2009, SEC File No. 333-163942). | |
3.2
|
Amended and Restated Bylaws of Alon Refining Krotz Springs, Inc. (incorporated by reference to Exhibit 3.2 to Form S-4, filed by the Alon Refining Krotz Springs, Inc. on December 22, 2009, SEC File No. 333-163942). | |
4.1
|
Indenture, dated as of October 22, 2009, by and among Alon Refining Krotz Springs, Inc. and Wilmington Trust FSB, as Trustee (incorporated by reference to Exhibit 4.1 to Form 8-K, filed by Alon USA Energy, Inc. on October 23, 2009, SEC File No. 001-32567). | |
10.1
|
Amendment No. 1 to Credit Agreement, dated May 28, 2010, among Alon Refining Krotz Springs, Inc., each other party joined as a borrower thereunder from time to time, the Lenders party thereto, and Bank Hapoalim B.M., as Administrative Agent (incorporated by reference to Exhibit 10.3 to Form 10-Q, filed by Alon USA Energy, Inc. on August 9, 2010, SEC File No. 333-124797). | |
10.2
|
Amendment No. 2 to Credit Agreement, dated June 15, 2010, among Alon Refining Krotz Springs, Inc., each other party joined as a borrower thereunder from time to time, the Lenders party thereto, and Bank Hapoalim B.M., as Administrative Agent (incorporated by reference to Exhibit 10.4 to Form 10-Q, filed by Alon USA Energy, Inc. on August 9, 2010, SEC File No. 333-124797). | |
10.3
|
Credit Agreement, dated May 28, 2010, by and between Alon Refining Krotz Springs, Inc. and Goldman Sachs Bank USA, as Issuing Bank (incorporated by reference to Exhibit 10.5 to Form 10-Q, filed by Alon USA Energy, Inc. on August 9, 2010, SEC File No. 333-124797). | |
10.4
|
Amended and Restated Supply and Offtake Agreement, dated May 26, 2010 by and between Alon Refining Krotz Springs, Inc. and J. Aron & Company (incorporated by reference to Exhibit 10.6 to Form 10-Q, filed by Alon USA Energy, Inc. on August 9, 2010, SEC File No. 333-124797). | |
31.1
|
Certifications of Chief Executive Officer pursuant to §302 of the Sarbanes-Oxley Act of 2002. | |
31.2
|
Certifications of Chief Financial Officer pursuant to §302 of the Sarbanes-Oxley Act of 2002. | |
32.1
|
Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002. |