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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________________________
FORM 10-Q
þ
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2012
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
 
(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. (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 registrant's common stock. As of November 1, 2012, 50,110 shares of the registrant's Class A Common stock, par value $0.01, and 90 shares of the registrant's Class B Common stock, par value $0.01, were outstanding.
The aggregate market value for the registrant's common stock held by non-affiliates as of September 30, 2012, the last day of the registrant's most recently completed fiscal quarter, was $0.
The Registrant meets the conditions set forth in General Instructions 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).
 
 






PART I. FINANCIAL INFORMATION

ITEM 1.
FINANCIAL STATEMENTS

ALON REFINING KROTZ SPRINGS, INC.
BALANCE SHEETS
(dollars in thousands except per share data)

 
September 30,
2012
 
December 31,
2011
 
(unaudited)
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
260

 
$
386

Accounts and other receivables, net
22,424

 
38,497

Inventories
62,237

 
38,357

Prepaid expenses and other current assets
3,181

 
498

Total current assets
88,102

 
77,738

Property, plant and equipment, net
343,387

 
349,083

Other assets, net
23,614

 
27,072

Total assets
$
455,103

 
$
453,893

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
368,447

 
$
280,811

Accrued liabilities
64,157

 
21,199

Total current liabilities
432,604

 
302,010

Other non-current liabilities
33,040

 
34,163

Long-term debt
210,973

 
209,324

Total liabilities
676,617

 
545,497

Commitments and contingencies (Note 10)

 

Stockholders’ equity:
 
 
 
Class A Common stock, par value $0.01, 75,000 shares authorized: 50,110 shares issued and outstanding at September 30, 2012 and December 31, 2011, respectively

 

Class B Common stock, par value $0.01, 1,000 shares authorized; 90 and 315 shares issued and outstanding at September 30, 2012 and December 31, 2011, respectively

 

Additional paid-in capital
167,656

 
167,656

Accumulated other comprehensive loss, net of income tax
(37,879
)
 

Retained deficit
(351,291
)
 
(259,260
)
Total stockholders' equity
(221,514
)
 
(91,604
)
Total liabilities and stockholders' equity
$
455,103

 
$
453,893









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


ALON REFINING KROTZ SPRINGS, INC.
STATEMENTS OF OPERATIONS
(unaudited, dollars in thousands)

 
For the Three Months Ended
 
For the Nine Months Ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
Net sales
$
770,723

 
$
720,530

 
$
2,147,904

 
$
2,006,489

Operating costs and expenses:
 
 
 
 
 
 
 
Cost of sales
698,912

 
672,055

 
2,010,493

 
1,907,396

Losses on commodity swaps
38,856

 
1,038

 
91,768

 
3,716

Direct operating expenses
23,930

 
22,021

 
70,192

 
58,077

Selling, general and administrative expenses
1,915

 
1,576

 
5,741

 
5,167

Depreciation and amortization
5,968

 
5,646

 
17,886

 
16,918

Total operating costs and expenses
769,581

 
702,336

 
2,196,080

 
1,991,274

Loss on disposition of assets
(2,524
)
 

 
(2,524
)
 

Operating income (loss)
(1,382
)
 
18,194

 
(50,700
)
 
15,215

Interest expense
(11,415
)
 
(10,245
)
 
(34,040
)
 
(30,314
)
Other income (loss), net
1

 
(14,265
)
 
(7,291
)
 
(51,050
)
Loss before income tax benefit
(12,796
)
 
(6,316
)
 
(92,031
)
 
(66,149
)
Income tax benefit

 

 

 

Net loss
$
(12,796
)
 
$
(6,316
)
 
$
(92,031
)
 
$
(66,149
)


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


ALON REFINING KROTZ SPRINGS, INC.
STATEMENTS OF COMPREHENSIVE INCOME
(unaudited, dollars in thousands)

 
For the Three Months Ended
 
For the Nine Months Ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
Net loss
$
(12,796
)
 
$
(6,316
)
 
$
(92,031
)
 
$
(66,149
)
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Commodity contracts designated as cash flow hedges:
 
 
 
 
 
 
 
Unrealized holding gain (loss) arising during period, net of tax
(49,061
)
 

 
(80,995
)
 

Less: reclassification adjustments for gain (loss) realized in net loss, net of tax
(28,029
)
 

 
(43,116
)
 

Net gain (loss), net of tax
(21,032
)
 

 
(37,879
)
 

Total other comprehensive income (loss), net of tax
(21,032
)
 

 
(37,879
)
 

Comprehensive loss
$
(33,828
)
 
$
(6,316
)
 
$
(129,910
)
 
$
(66,149
)

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


ALON REFINING KROTZ SPRINGS, INC.
STATEMENTS OF CASH FLOWS
(unaudited, dollars in thousands)
 
For the Nine Months Ended
 
September 30,
 
2012
 
2011
Cash flows from operating activities:
 
 
 
Net loss
$
(92,031
)
 
$
(66,149
)
Adjustments to reconcile net loss to cash provided by operating activities:
 
 
 
Depreciation and amortization
17,886

 
16,918

Amortization of debt issuance costs
1,667

 
1,495

Amortization of original issuance discount
1,649

 
1,426

Loss on disposition of assets
2,524

 

Unrealized losses on commodity swaps
37,458

 

Changes in operating assets and liabilities:

 


Accounts and other receivables, net
(16,605
)
 
(2,879
)
Inventories
(23,880
)
 
(4,895
)
Prepaid expenses and other current assets
(2,683
)
 
845

Other assets, net

 
376

Accounts payable
87,636

 
38,362

Accrued liabilities
299

 
38,931

Other non-current liabilities
(1,123
)
 
(744
)
Net cash provided by operating activities
12,797

 
23,686

Cash flows from investing activities:
 
 
 
Capital expenditures
(11,998
)
 
(9,137
)
Capital expenditures for turnarounds and catalysts
(925
)
 
(79
)
Earnout payment related to refinery acquisition

 
(6,562
)
Net cash used in investing activities
(12,923
)
 
(15,778
)
Cash flows from financing activities:
 
 
 
Deferred debt issuance costs

 
(126
)
Net cash used in financing activities

 
(126
)
Net increase (decrease) in cash and cash equivalents
(126
)
 
7,782

Cash and cash equivalents, beginning of period
386

 
277

Cash and cash equivalents, end of period
$
260

 
$
8,059

Supplemental cash flow information:
 
 
 
Cash paid for interest
$
23,881

 
$
19,797


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


ALON REFINING KROTZ SPRINGS, INC.
NOTES TO FINANCIAL STATEMENTS
(unaudited, dollars in thousands except as noted)

(1)
Basis of Presentation
(a)
Basis of Presentation
The financial statements include the accounts of Alon Refining Krotz Springs, Inc. (the “Company”), a subsidiary of Alon USA Energy, Inc. ("Alon USA"). 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. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of the Company’s 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 Company’s 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, 2012.
The balance sheet as of December 31, 2011, 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 Company’s Annual Report on Form 10-K for the year ended December 31, 2011.
(b)
New Accounting Standards
In June 2011, the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification ("ASC") 220, Comprehensive Income, were amended to allow an entity the option to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement or in two separate but consecutive statements. Under either option, the entity is required to present reclassification adjustments on the face of the financial statement where those components are presented. These provisions are effective for the first interim or annual period beginning after December 15, 2011, and are to be applied retrospectively, with early adoption permitted. The adoption of this guidance did not affect the Company's financial position or results of operations because these requirements only affect the presentation of the financial statements and disclosures.
In December 2011, the provisions of FASB ASC 210, Balance Sheet, were amended to require an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of these arrangements on its financial position. The update retains the existing offsetting requirements and enhances the disclosure requirements to allow investors to better compare financial statements prepared under U.S. GAAP with those prepared under International Financial Reporting Standards. These new revisions are to be applied retrospectively and will be effective for interim and annual periods beginning January 1, 2013. The adoption of this guidance will not affect the Company's financial position or results of operations because these requirements will only affect the presentation of the financial statements and disclosures.
In July 2012, the provisions of FASB ASC 350, Intangibles - Goodwill and Other, were amended to allow an entity the option to make a qualitative assessment about the likelihood that an indefinite-lived intangible asset is impaired to determine whether it should perform a quantitative impairment test. These provisions are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption permitted. The adoption of this guidance will not affect the Company's financial position or results of operations.
(2)
Operating Results and Liquidity
The Company's primary sources of liquidity are cash generated from our operating activities, inventory supply and offtake arrangements, other credit lines and additional funding from Alon USA. 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 Company plans to continue to operate the refinery at current or higher utilization rates as long as the refinery is able to generate cash operating margin. Management believes its current liquidity from the above described sources is adequate to operate the refinery.
The Company's refinery average throughput was 66,413 barrels per day for the nine months ended September 30, 2012. Cash flows from operating activities for the nine months ended September 30, 2012 was $12,797.

5

ALON REFINING KROTZ SPRINGS, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(unaudited, dollars in thousands except as noted)


(3)
Fair Value
The carrying amounts of the Company’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.
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 September 30, 2012, and December 31, 2011, respectively:
 
Quoted Prices in
Active Markets
For Identical
Assets or
Liabilities
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Total
As of September 30, 2012
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Commodity contracts (futures and forwards)
$
1,570

 
$

 
$

 
$
1,570

Liabilities:
 
 
 
 
 
 
 
Commodity contracts (swaps)

 
43,401

 

 
43,401

Commodity contracts (forwards)

 
700

 

 
700

As of December 31, 2011
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Commodity contracts (swaps)
$

 
$
31,936

 
$

 
$
31,936

Liabilities:
 
 
 
 
 
 
 
Commodity contracts (futures and forwards)
72

 

 

 
72

Commodity contracts (call options)

 
9,268

 

 
9,268

(4)
Derivative Financial Instruments
Mark to Market
Commodity Derivatives. 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. Credit risk on the Company’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 September 30, 2012, the Company has accounted for certain commodity contracts as fair value hedges with contract purchase volumes of 394 thousand barrels of crude oil with remaining contract terms through May 2018.

6

ALON REFINING KROTZ SPRINGS, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(unaudited, dollars in thousands except as noted)


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.
Commodity Derivatives. As of September 30, 2012, the Company has accounted for certain commodity swap contracts as cash flow hedges with total contract purchase volumes of 6,750 thousand barrels of crude and contract sales volumes 6,750 thousand barrels of refined products with a remaining contract term of fifteen months. During the three and nine months ended September 30, 2012, the Company recognized unrealized losses of $21,032 and $37,879, 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 nine months ended September 30, 2012 and 2011, 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.
The following table presents the effect of derivative instruments on the statements of financial position.
 
As of September 30, 2012
 
Asset Derivatives
 
Liability Derivatives
 
Balance Sheet
 
 
 
Balance Sheet
 
 
 
Location
 
Fair Value
 
Location
 
Fair Value
Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
Commodity contracts (swaps)
 
 
$

 
Accrued liabilities
 
$
(5,522
)
Commodity contracts (futures and forwards)
Accounts receivable
 
3,304

 
Accrued liabilities
 
(1,734
)
Total derivatives not designated as hedging instruments
 
 
$
3,304

 
 
 
$
(7,256
)
 
 
 
 
 
 
 
 
Derivatives designated as hedging instruments:
 
 
 
 
 
 
 
Commodity contracts (swaps)
 
 
$

 
Accrued liabilities
 
$
(37,879
)
Commodity contracts (forwards)
 
 

 
Other non-current liabilities
 
(700
)
Total derivatives designated as hedging instruments
 
 
$

 
 
 
$
(38,579
)
Total derivatives
 
 
$
3,304

 
 
 
$
(45,835
)
 
As of December 31, 2011
 
Asset Derivatives
 
Liability Derivatives
 
Balance Sheet
 
 
 
Balance Sheet
 
 
 
Location
 
Fair Value
 
Location
 
Fair Value
Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
Commodity contracts (swaps)
Accounts receivable
$
32,678

 
Accrued liabilities
 
$
(742
)
Commodity contracts (call options)
 
 

 
Accrued liabilities
 
(9,268
)
Commodity contracts (futures and forwards)
Accounts receivable
463

 
Accrued liabilities
 
(535
)
Total derivatives not designated as hedging instruments
 
 
$
33,141

 
 
 
$
(10,545
)

7

ALON REFINING KROTZ SPRINGS, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(unaudited, dollars in thousands except as noted)


The following tables present the effect of derivative instruments on the Company’s 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 September 30, 2012
 
 
 
 
 
 
 
 
Commodity contracts (swaps)
 
$
(21,032
)
 
Losses on commodity swaps
 
$
(28,029
)
 
 
 
$

Total derivatives
 
$
(21,032
)
 
 
 
$
(28,029
)
 
 
 
$

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 Nine Months Ended September 30, 2012
 
 
 
 
 
 
 
 
Commodity contracts (swaps)
 
$
(37,879
)
 
Losses on commodity swaps
 
$
(43,116
)
 
 
 
$

Total derivatives
 
$
(37,879
)
 
 
 
$
(43,116
)
 
 
 
$

Derivatives in fair value hedging relationships:
 
 
 
Gain (Loss) Recognized in Income
 
 
 
For the Three Months Ended
 
For the Nine Months Ended
 
 
 
September 30,
 
September 30,
 
Location
 
2012
 
2011
 
2012
 
2011
Commodity contracts (forwards)
Cost of sales
 
$
(700
)
 
$

 
$
(700
)
 
$

Total derivatives
 
 
$
(700
)
 
$

 
$
(700
)
 
$

Derivatives not designated as hedging instruments:
 
 
 
Gain (Loss) Recognized in Income
 
 
 
For the Three Months Ended
 
For the Nine Months Ended
 
 
 
September 30,
 
September 30,
 
Location
 
2012
 
2011
 
2012
 
2011
Commodity contracts (futures & forwards)
Cost of sales
 
$
2,257

 
$
(2,960
)
 
$
10,185

 
$
8,091

Commodity contracts (swaps)
Losses on commodity swaps
 
(10,827
)
 
(1,038
)
 
(48,652
)
 
(3,716
)
Commodity contracts (call options)
Other income (loss), net
 

 
(14,269
)
 
(7,297
)
 
(51,093
)
Total derivatives
 
 
$
(8,570
)
 
$
(18,267
)
 
$
(45,764
)
 
$
(46,718
)

8

ALON REFINING KROTZ SPRINGS, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(unaudited, dollars in thousands except as noted)


(5)
Inventories
The Company’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, and blendstock inventories. Materials and supplies are stated at average cost.
Carrying value of inventories consisted of the following:
 
September 30,
2012
 
December 31,
2011
Crude oil, refined products and blendstocks
$
25,672

 
$
6,023

Crude oil inventory consigned to others
33,725

 
29,531

Materials and supplies
2,840

 
2,803

Total inventories
$
62,237

 
$
38,357

Market values of crude oil, refined products and blendstock inventories exceeded LIFO costs by $18,954 and $18,362 at September 30, 2012 and December 31, 2011, respectively.
Crude oil inventory consigned to others represents inventory located at storage facilities that were sold to third parties with an obligation by the Company to repurchase the inventory at the end of the respective agreements. As a result of this requirement to repurchase inventory, no revenue was recorded on these transactions and the inventory volumes remain valued under the LIFO method.
The Company recorded liabilities associated with this consigned inventory of $31,623 and $32,778 in other non-current liabilities at September 30, 2012 and December 31, 2011, respectively.
(6)
Property, Plant and Equipment, Net
Property, plant and equipment, net consisted of the following:
 
September 30,
2012
 
December 31,
2011
Refining facilities
$
424,506

 
$
415,696

Less accumulated depreciation
(81,119
)
 
(66,613
)
Property, plant and equipment, net
$
343,387

 
$
349,083

(7)
Additional Financial Information
The tables that follow provide additional financial information related to the financial statements.
(a)
Other Assets
 
September 30,
2012
 
December 31,
2011
Deferred turnaround and chemical catalyst cost
$
9,907

 
$
11,666

Deferred debt issuance costs
5,464

 
7,131

Intangible assets
2,037

 
2,069

Long-term receivables
6,206

 
6,206

Total other assets
$
23,614

 
$
27,072


9

ALON REFINING KROTZ SPRINGS, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(unaudited, dollars in thousands except as noted)


(b)
Accrued Liabilities, Other Non-Current Liabilities and Accounts Payable
 
September 30,
2012
 
December 31,
2011
Accrued Liabilities:
 
 
 
Taxes other than income taxes, primarily excise taxes
$
1,330

 
$
1,519

Employee costs
1,396

 
1,257

Commodity contracts
45,135

 
10,544

Accrued finance charges
15,196

 
6,839

Other
1,100

 
1,040

Total accrued liabilities
$
64,157

 
$
21,199

Other Non-Current Liabilities:
 
 
 
Environmental accrual
$
335

 
$
356

Asset retirement obligations
1,082

 
1,029

Consignment inventory
31,623

 
32,778

Total other non-current liabilities
$
33,040

 
$
34,163

Accounts payable includes related parties balance of $295,205 and $214,608 at September 30, 2012 and December 31, 2011, respectively.
(c)
Accumulated Other Comprehensive Loss
The following table displays the change in other comprehensive loss, net of tax:
 
Unrealized Loss on Cash Flow Hedges
 
Total
Balance at December 31, 2011
$

 
$

Current period other comprehensive loss, net of tax
(37,879
)
 
(37,879
)
Balance at September 30, 2012
$
(37,879
)
 
$
(37,879
)
(8)
Indebtedness
Long-term debt consisted of the following:
 
September 30,
2012
 
December 31,
2011
Senior secured notes
$
210,973

 
$
209,324

(9)
Related-Party Transactions
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 USA's other subsidiaries and Alon USA performs general corporate and administrative services and functions for the Company and Alon USA's 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 Company's business and affairs relative to the amount of time they devote to the business and affairs of Alon USA's other subsidiaries. The Company records the amount of such allocations to its financial statements as selling, general and administrative expenses. For the three and nine months ended September 30, 2012 and 2011, the Company recorded selling, general and administrative expenses of $1,915 and $5,741, respectively, and $1,576 and $5,167, respectively, with respect to allocations from Alon USA for such services.
During the three months ended March 31, 2012, the Company entered into separate commodity swap arrangements by which the Company purchased refined products and sold crude oil to a subsidiary of Alon USA for a term that expired April 30, 2012. All pricing terms in such arrangements were based on actual published market prices and such arrangements were based on general market terms and conditions and the provisions of an International Swap Dealers Association (ISDA) Master Agreement.

10

ALON REFINING KROTZ SPRINGS, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(unaudited, dollars in thousands except as noted)


Alon USA currently owns all of the Company's outstanding voting capital stock. As a result, Alon USA can control the election of the Company's directors, exercise control or significant influence over the Company's corporate and management policies and generally determine the outcome of any corporate transaction or other matter submitted to the Company's 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 Company's 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 typically short-term in nature or provide terms for cancellation.
Supply and Offtake Agreement with J. Aron & Company
In April 2010, the Company entered into a Supply and Offtake Agreement, which was amended in May 2010 and March 2011 (the “Supply and Offtake Agreement”), with J. Aron & Company (“J. Aron”), to 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 refinery and (ii) the Company agreed to sell, and J. Aron agreed to buy, at market price, certain refined products produced at the 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 Company's 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 refinery, and an agreement to identify prospective purchasers of refined products on J. Aron's behalf. The Supply and Offtake Agreement has an initial term that expires on May 31, 2016. J. Aron may elect to terminate the agreement on May 31, 2013, May 31, 2014 or May 31, 2015 and the Company may elect to terminate the agreement on May 31, 2015; provided that such election is given at least six months prior to any such election. 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 refinery at market price at that time.
In July 2012, the Supply and Offtake Agreement was amended principally in order to extend the terms of the Supply and Offtake Agreement by an additional two years. After the amendment, the Supply and Offtake Agreement has an initial term that expires in May 2018. J. Aron may elect to terminate the agreement prior to the initial term in May 2015 and upon each anniversary thereof provided the Company receives notice of termination at least six months prior to that date. The Company may elect to terminate in May 2017, provided the Company provides notice of termination at least six months prior to that date.
Standby LC Facility
In May 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 up to $200,000 of letters of credit to be issued to J. Aron. 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. In July 2012, the Company entered into an amendment to the Standby LC Facility that extends the expiration of the Standby LC Facility until July 31, 2013. At this time there is no further availability under the Standby LC Facility.
(b)
Environmental
The Company is subject to loss contingencies pursuant 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 are 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 unknown timing, extent and method of the remedial actions which may be required, and the determination of the Company’s liability in proportion to other responsible parties.

11

ALON REFINING KROTZ SPRINGS, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(unaudited, dollars in thousands except as noted)


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 cannot be determined with any degree of reliability.
The Company has accrued environmental remediation obligations recorded as a non-current liability of $335 and $356 at September 30, 2012 and December 31, 2011, respectively.
(c)
Litigation Matters
The Company is a party to claims and legal proceedings arising in the ordinary course of business. Management believes that there is only a remote likelihood that future costs related to known contingent liabilities related to these legal proceedings would have a material adverse impact on the Company’s results of operations or financial position.

12


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 is abbreviated pursuant to General Instruction H(2)(a) of Form 10-Q. This discussion should be read in conjunction with the accompanying quarterly unaudited financial statements and our audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2011. Our Annual Report includes additional information about our significant accounting policies, practices and transactions that underlie our financial results. For additional information, including information regarding outlook, liquidity, capital resources, contractual obligations, and critical accounting estimates, see the Quarterly Report on Form 10-Q of our parent, Alon USA Energy, Inc. for the quarter ended September 30, 2012.
In this document, the words “the Company,” “we” and “our” refer to Alon Refining Krotz Springs, Inc.
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 refinery’s 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 conventional gasoline and Gulf Coast high sulfur diesel and the market value of Light Louisiana Sweet, or LLS, crude oil.
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 refinery’s crude oil input. This input was primarily comprised of LLS crude oil and West Texas Intermediate, or 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 to the average value of WTI crude oil. A narrowing of this spread can favorably influence the refinery operating margins of our refinery.
Our results of operations are also significantly affected by our refinery’s 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.
Factors Affecting Comparability
Our financial condition and operating results over the nine months ended September 30, 2012 and 2011, have been influenced by the following factors which are fundamental to understanding comparisons of our period-to-period financial performance.
Crude throughput was reduced at the refinery during the second quarter of 2011 due to flooding in Louisiana and its impact on crude oil supply to the refinery.
For the three and nine months ended September 30, 2012, we had losses on commodity swaps of $38.9 million and $91.8 million, respectively, as shown separately in the statements of operations. For the three and nine months ended September 30, 2011, we had losses on commodity swaps of $1.0 million and $3.7 million, respectively.
Included in other income (loss), net in the statements of operations, we also had losses on heating oil call option crack spread contracts of $14.3 million for the three months ended September 30, 2011, and $7.3 million and $51.1 million for the nine months ended September 30, 2012 and 2011, respectively.

13


 
ALON REFINING KROTZ SPRINGS, INC.
Summary Financial Tables. The following tables provide summary financial data and selected key operating statistics for the three and nine months ended September 30, 2012 and 2011. The following data should be read in conjunction with our 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” is unaudited.
 
For the Three Months Ended
 
For the Nine Months Ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
 
(dollars in thousands, except per share data)
STATEMENTS OF OPERATIONS DATA:
 
 
 
 
 
 
 
Net sales
$
770,723

 
$
720,530

 
$
2,147,904

 
$
2,006,489

Operating costs and expenses:
 
 
 
 
 
 
 
Cost of sales
698,912

 
672,055

 
2,010,493

 
1,907,396

Losses on commodity swaps
38,856

 
1,038

 
91,768

 
3,716

Direct operating expenses
23,930

 
22,021

 
70,192

 
58,077

Selling, general and administrative expenses
1,915

 
1,576

 
5,741

 
5,167

Depreciation and amortization
5,968

 
5,646

 
17,886

 
16,918

Total operating costs and expenses
769,581

 
702,336

 
2,196,080

 
1,991,274

Loss on disposition of assets
(2,524
)
 

 
(2,524
)
 

Operating income (loss)
(1,382
)
 
18,194

 
(50,700
)
 
15,215

Interest expense
(11,415
)
 
(10,245
)
 
(34,040
)
 
(30,314
)
Other income (loss), net (1)
1

 
(14,265
)
 
(7,291
)
 
(51,050
)
Loss before income tax benefit
(12,796
)
 
(6,316
)
 
(92,031
)
 
(66,149
)
Income tax benefit

 

 

 

Net loss
$
(12,796
)
 
$
(6,316
)
 
$
(92,031
)
 
$
(66,149
)
KEY OPERATING STATISTICS:
 
 
 
 
 
 
 
Per barrel of throughput:
 
 
 
 
 
 
 
Refinery operating margin (2)
$
11.28

 
$
7.77

 
$
7.55

 
$
5.61

Refinery direct operating expense (3)
3.76

 
3.61

 
3.86

 
3.42

Capital expenditures
$
6,075

 
$
6,407

 
$
11,998

 
$
9,137

Capital expenditures for turnaround and chemical catalyst
162

 

 
925

 
79

PRICING STATISTICS:
 
 
 
 
 
 
 
WTI crude oil (per barrel)
$
92.09

 
$
89.75

 
$
96.17

 
$
95.42

LLS crude oil (per barrel)
102.54

 
112.94

 
111.81

 
110.50

Crude oil differentials (per barrel):
 
 
 
 
 
 
 
LLS less WTI
$
15.02

 
$
18.87

 
$
15.25

 
$
14.55

Product price (dollars per gallon):
 
 
 
 
 
 
 
Gulf Coast unleaded gasoline
$
2.89

 
$
2.82

 
$
2.89

 
$
2.80

Gulf Coast high sulfur diesel
2.97

 
2.95

 
2.99

 
2.91

Natural gas (per MMBTU)
2.89

 
4.05

 
2.58

 
4.21

Crack spreads (2/1/1) (per barrel):
 

 
 

 
 
 
 
Gulf Coast high sulfur diesel
$
15.91

 
$
12.44

 
$
12.05

 
$
9.87


14


THROUGHPUT AND PRODUCTION DATA:
For the Three Months Ended
 
For the Nine Months Ended
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
 
bpd
 
%
 
bpd
 
%
 
bpd
 
%
 
bpd
 
%
Refinery throughput:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
WTI Crude
23,159

 
33.5

 

 

 
16,640

 
25.1

 

 

Gulf Coast sweet crude
45,925

 
66.3

 
66,265

 
99.9

 
49,381

 
74.3

 
61,423

 
98.6

Blendstocks
141

 
0.2

 
65

 
0.1

 
392

 
0.6

 
846

 
1.4

Total refinery throughput (4)
69,225

 
100.0

 
66,330

 
100.0

 
66,413

 
100.0

 
62,269

 
100.0

Refinery production:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gasoline
28,693

 
41.1

 
27,396

 
41.1

 
27,170

 
40.5

 
25,905

 
41.5

Diesel/jet
28,184

 
40.2

 
30,491

 
45.7

 
28,056

 
41.8

 
28,757

 
46.0

Heavy Oils
2,554

 
3.6

 
2,828

 
4.2

 
2,737

 
4.1

 
2,577

 
4.1

Other
10,605

 
15.1

 
6,017

 
9.0

 
9,162

 
13.6

 
5,245

 
8.4

Total refinery production (5)
70,036

 
100.0

 
66,732

 
100.0

 
67,125

 
100.0

 
62,484

 
100.0

Refinery utilization (6)
 
 
83.1
%
 
 
 
79.7
%
 
 
 
79.4
%
 
 
 
80.2
%
(1)
Other income (loss), net for the nine months ended September 30, 2012 and the three and nine months ended September 30, 2011 is substantially the loss on heating oil call option crack spread contracts.
(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) 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 margin to these crack spreads to assess our operating performance relative to other participants in our industry.
The refinery operating margin for the three and nine months ended September 30, 2012 excludes losses on commodity swaps of $38,856 and $91,768, respectively, shown separately in the statements of operations.
(3)
Refinery direct operating expense is a per barrel measurement calculated by dividing direct operating expenses at the refinery, exclusive of depreciation and amortization, by the refinery’s total throughput volume.
(4)
Total refinery throughput represents the total barrels per day of crude oil and blendstock inputs in the refinery production process. The throughput data for the nine months ended September 30, 2011, reflects approximately a one month shutdown due to flooding in Louisiana and the impact on crude oil supply to the refinery.
(5)
Total refinery production represents the barrels per day of various products produced from processing crude and other refinery feedstocks through the crude unit and other conversion units at the refinery.
(6)
Refinery utilization represents average daily crude oil throughput divided by crude oil capacity, excluding planned periods of downtime for maintenance and turnarounds.

15


Three Months Ended September 30, 2012 Compared to the Three Months Ended September 30, 2011
Net Sales. Net sales for the three months ended September 30, 2012 were $770.7 million, compared to $720.5 million for the three months ended September 30, 2011, an increase of $50.2 million. This increase was due to higher refinery throughput and higher refined product prices in the three months ended September 30, 2012 compared to the same period last year. Refinery throughput for the three months ended September 30, 2012 was 69,225 barrels per day, compared to 66,330 barrels per day for the three months ended September 30, 2011. The average per gallon price of Gulf Coast gasoline for the three months ended September 30, 2012 increased $0.07, or 2.5%, to $2.89, compared to $2.82 for the three months ended September 30, 2011. The average per gallon price for Gulf Coast high sulfur diesel for the three months ended September 30, 2012 increased $0.02, or 0.7%, to $2.97, compared to $2.95 for the three months ended September 30, 2011.
Cost of Sales. Cost of sales for the three months ended September 30, 2012 were $698.9 million compared to $672.1 million for the three months ended September 30, 2011, an increase of $26.8 million. This increase was primarily due to increased refinery throughput, partially offset by lower crude oil cost. The average price per barrel of LLS for the three months ended September 30, 2012 decreased $10.40 per barrel to an average of $102.54 per barrel, compared to an average of $112.94 per barrel for the three months ended September 30, 2011, a decrease of 9.2%. Additionally, the refinery processed 23,159 barrels per day of WTI priced crude oil for the three months ended September 30, 2012, which is at a lower cost than LLS.
Direct Operating Expenses. Direct operating expenses were $23.9 million for the three months ended September 30, 2012, compared to $22.0 million for the three months ended September 30, 2011, an increase of $1.9 million or 8.6%. This increase was primarily due to higher refinery throughput.
Operating Income (Loss). Operating income (loss) for the three months ended September 30, 2012 was $(1.4) million, compared to $18.2 million for the three months ended September 30, 2011, a decrease of $(19.6) million. This decrease was primarily due to losses on commodity swaps of $38.9 million for the three months ended September 30, 2012, partially offset by higher refinery margin.
The refinery margin for the three months ended September 30, 2012 was $11.28 per barrel compared to $7.77 per barrel for the same period last year. This increase was due to lower crude oil costs with the addition of WTI priced crude oils and higher Gulf Coast 2/1/1 high sulfur diesel crack spreads. The average Gulf Coast 2/1/1 high sulfur diesel crack spread for the three months ended September 30, 2012 was $15.91 per barrel compared to $12.44 per barrel for the three months ended September 30, 2011.
Interest Expense. Interest expense was $11.4 million for the three months ended September 30, 2012, compared to $10.2 million for the three months ended September 30, 2011, an increase of $1.2 million, or 11.8%. This increase was primarily due to higher utilization of our credit facilities as a result of higher refinery throughput as well as lower capitalized interest.
Other Income (Loss), Net. Other income (loss), net for the three months ended September 30, 2011 is substantially the gain (loss) on heating oil crack spread contracts.
Net Loss. Net loss was $12.8 million for the three months ended September 30, 2012, compared to $6.3 million for the three months ended September 30, 2011, an increase in loss of $6.5 million. This increase was attributable to the factors discussed above.
Nine Months Ended September 30, 2012 Compared to the Nine Months Ended September 30, 2011
Net Sales. Net sales for the nine months ended September 30, 2012 were $2,147.9 million, compared to $2,006.5 million for the nine months ended September 30, 2011, an increase of $141.4 million. This increase was due to higher refinery throughput as well as higher refined product prices in the nine months ended September 30, 2012 compared to the same period last year. Refinery throughput for the the nine months ended September 30, 2012 was 66,413 barrels per day, compared to 62,269 barrels per day for the nine months ended September 30, 2011. The average per gallon price of Gulf Coast gasoline for the nine months ended September 30, 2012 increased $0.09, or 3.2%, to $2.89, compared to $2.80 for the nine months ended September 30, 2011. The average per gallon price for Gulf Coast high sulfur diesel for the nine months ended September 30, 2012 increased $0.08, or 2.7%, to $2.99, compared to $2.91 for the nine months ended September 30, 2011.
Cost of Sales. Cost of sales for the nine months ended September 30, 2012 were $2,010.5 million, compared to $1,907.4 million for the nine months ended September 30, 2011, an increase of $103.1 million. This increase was primarily due to higher refinery throughput as well as higher crude oil cost. The average price per barrel of LLS for the nine months ended September 30, 2012 increased $1.31 per barrel to an average of $111.81 per barrel, compared to an average of $110.50 per barrel for the nine months ended September 30, 2011, an increase of 1.2%. The higher crude oil cost was partially reduced by the refinery processing 16,640 barrels per day of WTI priced crude oil for the nine months ended September 30, 2012.

16


Direct Operating Expenses. Direct operating expenses were $70.2 million for the nine months ended September 30, 2012, compared to $58.1 million for the nine months ended September 30, 2011, an increase of $12.1 million or 20.8%. This increase was primarily due to higher refinery throughput and increased costs related to catalysts.
Operating Income (Loss). Operating income (loss) for the nine months ended September 30, 2012 was $(50.7) million, compared to $15.2 million for the nine months ended September 30, 2011, a decrease of $(65.9) million. This decrease was primarily due to losses on commodity swaps of $91.8 million for the nine months ended September 30, 2012. We had losses on commodity swaps of $3.7 million for the nine months ended September 30, 2011. These losses on commodity swaps were partially offset by higher refinery margin.
The refinery margin for the nine months ended September 30, 2012 was $7.55 per barrel compared to $5.61 per barrel for the same period last year. This increase was primarily due to higher Gulf Coast 2/1/1 high sulfur diesel crack spreads. The average Gulf Coast 2/1/1 high sulfur diesel crack spread for the nine months ended September 30, 2012 was $12.05 per barrel, compared to $9.87 per barrel for the nine months ended September 30, 2011.
Interest Expense. Interest expense was $34.0 million for the nine months ended September 30, 2012, compared to $30.3 million for the nine months ended September 30, 2011, an increase of $3.7 million, or 12.2%. This increase was primarily due to higher utilization of our credit facilities as a result of higher refinery throughput and lower capitalized interest.
Other Income (Loss), Net. Other income (loss), net for the nine months ended September 30, 2012 and 2011 is substantially the loss on heating oil crack spread contracts.
Net Loss. Net loss was $92.0 million for the nine months ended September 30, 2012, compared to $66.1 million for the nine months ended September 30, 2011, an increase in loss of $25.9 million, or 39.2%. This increase in loss was attributable to the factors discussed above.
Liquidity and Capital Resources
Our primary sources of liquidity are cash generated from our operating activities, inventory supply and offtake arrangements, other credit lines and additional funding from Alon USA. Future operating results will depend on market factors, primarily the difference between the prices we receive from customers for produced products compared to the prices we pay to suppliers for crude oil. We plan to continue to operate the refinery at current or higher utilization rates as long as the refinery is able to generate cash operating margin. Management believes its current liquidity from the above-described sources is adequate to operate the refinery.
New Accounting Standards and Disclosures
New accounting standards, if any, are disclosed in Note (1) Basis of Presentation included in the financial statements included in Item 1 of this report.

17


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 and Heavy Louisiana Sweet crude oils;
the effects of transactions involving forward contracts and derivative instruments;
actions of customers and competitors;
termination of our Supply and Offtake Agreement with J. Aron & Company (“J. Aron”), under which J. Aron is our largest supplier of crude oil and one of our largest customers of refined products. Additionally, we are obligated to repurchase all consigned inventories and certain other inventories upon termination of this Supply and Offtake Agreement;
changes in fuel and utility costs incurred by our facility;
disruptions due to equipment interruption, pipeline disruptions or failure at our or third-party facilities;
the execution of planned capital projects;
adverse changes in the credit ratings assigned to our trade credit and debt instruments;
the effects of and cost of compliance with current and future state and federal environmental, economic, safety and other laws, policies and regulations;
operating hazards, natural disasters such as flooding, casualty losses and other matters beyond our control;
the global financial crisis’ impact on our business and financial condition; and
the other factors discussed in our Annual Report on Form 10-K for the year ended December 31, 2011 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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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Omitted under the reduced disclosure format permitted by General Instruction H(2)(c) of Form 10-Q.
ITEM 4. 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 submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s 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 submit 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 (as described in Rule 13a-15(f) under the Exchange Act) that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS
Exhibit
 
 
Number
 
Description of Exhibit
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.
101
 
The following financial information from Alon Refining Krotz Springs, Inc.'s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012, formatted in XBRL (Extensible Business Reporting Language): (i) Balance Sheets, (ii) Statements of Operations, (iii) Statements of Comprehensive Income, (iv) Statements of Cash Flows, and (v) Notes to Financial Statements.

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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.
 
 
Alon Refining Krotz Springs, Inc.
 
Date:
November 13, 2012
By:  
/s/ David Wiessman
 
 
 
David Wiessman 
 
 
 
Executive Chairman 
 
 
 
 
 
 
 
 
Date:
November 13, 2012
By:  
/s/ Paul Eisman
 
 
 
Paul Eisman
 
 
 
Chief Executive Officer 
 
 
 
 
 
 
 
 
Date:
November 13, 2012
By:  
/s/ Shai Even
 
 
 
Shai Even 
 
 
 
Chief Financial Officer 

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EXHIBITS
Exhibit
 
 
Number
 
Description of Exhibit
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.
101
 
The following financial information from Alon Refining Krotz Springs, Inc.'s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012, formatted in XBRL (Extensible Business Reporting Language): (i) Balance Sheets, (ii) Statements of Operations, (iii) Statements of Comprehensive Income, (iv) Statements of Cash Flows, and (v) Notes to Financial Statements.



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