Alon USA Energy, Inc. - FORM 10-Q

Alon USA Energy, Inc. - FORM 10-Q - August 8, 2014

Attached files

Attached files

file	filename
EX-31.1 - CERTIFICATION - Alon USA Energy, Inc.	alj-ex311_2014630xq2.htm
EX-31.2 - CERTIFICATION - Alon USA Energy, Inc.	alj-ex312_2014630xq2.htm
EX-32.1 - CERTIFICATION - Alon USA Energy, Inc.	alj-ex321_2014630xq2.htm
EX-10.5 - AMENDMENT TO ALDW S&O AGREEMENT - Alon USA Energy, Inc.	alj-ex105x2014630xq2.htm
EX-10.4 - SUPPLEMENTAL TO ALDW S&O AGREEMENT - Alon USA Energy, Inc.	alj-ex104_2014630xq2.htm
EX-10.2 - SUPPLEMENTAL AGREEMENT TO ARKS S&O AGREEMENT - Alon USA Energy, Inc.	alj-ex102_2014630xq2.htm
EX-10.3 - AMENDMENT TO AMENDED AND RESTATED ARKS S&O AGREEMENT - Alon USA Energy, Inc.	alj-ex103_2014630xq2.htm
EXCEL - IDEA: XBRL DOCUMENT - Alon USA Energy, Inc.	Financial_Report.xls
EX-10.1 - AMENDED AND RESTATED SECOND AMENDMENT TO ARKS S&O AGREEMENT - Alon USA Energy, Inc.	alj-ex101_2014630xq2.htm

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, 2014



o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		FOR THE TRANSITION PERIOD FROM __________TO __________

Commission file number: 001-32567

ALON USA ENERGY, INC.

(Exact name of Registrant as specified in its charter)

___________________________________________________



Delaware		74-2966572
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

12700 Park Central Dr., Suite 1600, Dallas, Texas 75251

(Address of principal executive offices) (Zip Code)

(972) 367-3600

(Registrant’s telephone number, including area code)

___________________________________________________

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:



Large accelerated filer o	Accelerated filer þ	Non-accelerated filer o	Smaller reporting company o
	(Do not check if a smaller reporting company)

Indicate by check whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

The number of shares of the Registrant’s common stock, par value $0.01 per share, outstanding as of August 1, 2014, was 69,370,172.

TABLE OF CONTENTS



	Page
PART I. FINANCIAL INFORMATION	1
ITEM 1. FINANCIAL STATEMENTS	1
CONSOLIDATED BALANCE SHEETS	1
CONSOLIDATED STATEMENTS OF OPERATIONS	2
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME	3
CONSOLIDATED STATEMENTS OF CASH FLOWS	4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	5
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	20
FORWARD-LOOKING STATEMENTS	20
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	42
ITEM 4. CONTROLS AND PROCEDURES	44
PART II. OTHER INFORMATION	45
ITEM 6. EXHIBITS	45
SIGNATURES	46

Table of Contents

PART I. FINANCIAL INFORMATION


ITEM 1.	FINANCIAL STATEMENTS

ALON USA ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(dollars in thousands except per share data)



	June 30, 2014			December 31, 2013
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	197,151		$	224,499
Accounts and other receivables, net	155,636			200,398
Income tax receivable	7,543			16,053
Inventories	169,530			128,770
Deferred income tax asset	12,599			13,045
Prepaid expenses and other current assets	29,555			18,629
Total current assets	572,014			601,394
Equity method investments	26,667			26,251
Property, plant and equipment, net	1,398,914			1,429,342
Goodwill	101,913			105,943
Other assets, net	134,599			82,210
Total assets	$	2,234,107		$	2,245,140
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	295,050		$	336,499
Accrued liabilities	97,631			120,858
Current portion of long-term debt	50,506			83,174
Total current liabilities	443,187			540,531
Other non-current liabilities	183,929			189,474
Long-term debt	593,204			529,074
Deferred income tax liability	374,980			360,657
Total liabilities	1,595,300			1,619,736
Commitments and contingencies (Note 16)
Stockholders’ equity:
Preferred stock, par value $0.01, 15,000,000 shares authorized; 68,180 shares issued and outstanding at June 30, 2014 and December 31, 2013	682			682
Common stock, par value $0.01, 150,000,000 shares authorized; 69,204,542 and 68,641,428 shares issued and outstanding at June 30, 2014 and December 31, 2013, respectively	692			686
Additional paid-in capital	512,917			509,170
Accumulated other comprehensive loss, net of tax	(11,831		)	(37,515		)
Retained earnings	109,954			124,936
Total stockholders’ equity	612,414			597,959
Non-controlling interest in subsidiaries	26,393			27,445
Total equity	638,807			625,404
Total liabilities and equity	$	2,234,107		$	2,245,140

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

Table of Contents

ALON USA ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited, dollars in thousands except per share data)



	For the Three Months Ended						For the Six Months Ended
	June 30,						June 30,
	2014			2013			2014			2013
Net sales (1)	$	1,742,883		$	1,676,595		$	3,426,128		$	3,327,791
Operating costs and expenses:
Cost of sales	1,580,447			1,497,712			3,086,992			2,875,969
Direct operating expenses	67,630			71,446			138,308			145,668
Selling, general and administrative expenses	46,333			43,101			85,722			84,842
Depreciation and amortization	29,453			30,798			59,331			61,961
Total operating costs and expenses	1,723,863			1,643,057			3,370,353			3,168,440
Gain (loss) on disposition of assets	(88		)	8,494			2,117			8,512
Operating income	18,932			42,032			57,892			167,863
Interest expense	(29,256		)	(20,261		)	(57,271		)	(41,553		)
Equity earnings of investees	1,278			2,110			819			1,729
Other income, net	638			46			621			129
Income (loss) before income tax expense	(8,408		)	23,927			2,061			128,168
Income tax expense (benefit)	(1,971		)	3,985			123			34,575
Net income (loss)	(6,437		)	19,942			1,938			93,593
Net income attributable to non-controlling interest	1,080			8,446			8,670			27,913
Net income (loss) available to stockholders	$	(7,517	)	$	11,496		$	(6,732	)	$	65,680
Earnings (loss) per share, basic	$	(0.11	)	$	0.17		$	(0.10	)	$	1.03
Weighted average shares outstanding, basic (in thousands)	68,851			62,614			68,734			62,285
Earnings (loss) per share, diluted	$	(0.11	)	$	0.17		$	(0.10	)	$	0.97
Weighted average shares outstanding, diluted (in thousands)	68,851			68,071			68,734			67,743
Cash dividends per share	$	0.06		$	0.22		$	0.12		$	0.26

___________


(1)	Includes excise taxes on sales by the retail segment of $19,101 and $18,531 for the three months and $36,911 and $35,836 for the six months ended June 30, 2014 and 2013, respectively.

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

Table of Contents

ALON USA ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited, dollars in thousands)



	For the Three Months Ended						For the Six Months Ended
	June 30,						June 30,
	2014			2013			2014			2013
Net income (loss)	$	(6,437	)	$	19,942		$	1,938		$	93,593
Other comprehensive income:
Interest rate derivatives designated as cash flow hedges:
Unrealized holding loss arising during period	(802		)	—			(802		)	—
Loss reclassified to earnings - interest expense	14			—			14			—
Net loss, before tax	(788		)	—			(788		)	—
Income tax benefit	(290		)	—			(290		)	—
Net loss, net of tax	(498		)	—			(498		)	—
Commodity contracts designated as cash flow hedges:
Unrealized holding gain arising during period	8,925			12,369			32,507			21,750
Gain reclassified to earnings - cost of sales	—			(10,018		)	—			(9,994		)
Amortization of unrealized loss on de-designated cash flow hedges - cost of sales	2,153			—			10,428			—
Net gain, before tax	11,078			2,351			42,935			11,756
Income tax expense	4,098			862			15,885			4,360
Net gain, net of tax	6,980			1,489			27,050			7,396
Total other comprehensive income, net of tax	6,482			1,489			26,552			7,396
Comprehensive income	45			21,431			28,490			100,989
Comprehensive income attributable to non-controlling interest	1,261			8,446			9,538			28,182
Comprehensive income (loss) attributable to stockholders	$	(1,216	)	$	12,985		$	18,952		$	72,807

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

Table of Contents

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

	For the Six Months Ended
	June 30,
	2014			2013
Cash flows from operating activities:
Net income	$	1,938		$	93,593
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	59,331			61,961
Stock compensation	3,540			3,008
Deferred income tax expense (benefit)	(825		)	6,527
Equity earnings of investees	—			(1,729		)
Amortization of debt issuance costs	2,124			2,272
Amortization of original issuance discount	3,309			1,504
Write-off of unamortized original issuance discount	254			—
Write-off of unamortized debt issuance costs	253			—
Gain on disposition of assets	(2,117		)	(8,512		)
Unrealized loss on commodity swaps	9,510			—
Changes in operating assets and liabilities:
Accounts and other receivables, net	49,314			(22,000		)
Income tax receivable	8,510			—
Inventories	(41,744		)	(20,708		)
Prepaid expenses and other current assets	(10,926		)	9,732
Other assets, net	147			2,662
Accounts payable	(31,459		)	(13,066		)
Accrued liabilities	(25,458		)	2,485
Other non-current liabilities	5,941			12,025
Net cash provided by operating activities	31,642			129,754
Cash flows from investing activities:
Capital expenditures	(54,655		)	(30,622		)
Capital expenditures for turnarounds and catalysts	(26,269		)	(6,624		)
Contribution to equity method investment	(597		)	(581		)
Dividends from investees, net of equity earnings	181			—
Proceeds from disposition of assets	40,333			25,745
Net cash used in investing activities	(41,007		)	(12,082		)
Cash flows from financing activities:
Dividends paid to stockholders	(8,221		)	(16,228		)
Dividends paid to non-controlling interest	(389		)	(731		)
Distributions paid to non-controlling interest in the Partnership	(10,010		)	(23,579		)
Inventory agreement transactions	(25,200		)	—
Deferred debt issuance costs	(2,062		)	(205		)
Revolving credit facilities, net	—			(54,000		)
Additions to long-term debt	145,000			—
Payments on long-term debt	(117,101		)	(4,757		)
Net cash used in financing activities	(17,983		)	(99,500		)
Net increase (decrease) in cash and cash equivalents	(27,348		)	18,172
Cash and cash equivalents, beginning of period	224,499			116,296
Cash and cash equivalents, end of period	$	197,151		$	134,468
Supplemental cash flow information:
Cash paid for interest, net of capitalized interest	$	57,906		$	37,829
Cash paid (refunds received) for income tax	$	(6,740	)	$	19,100
Supplemental disclosure of non-cash activity:
Capital expenditures included in accounts payable and accrued liabilities	$	32,522		$	—

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

Table of Contents

ALON USA ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited, dollars in thousands except as noted)


(1)	Basis of Presentation

As used in this report, unless otherwise specified, the terms “Alon,” “we,” “us” or “our” refer to Alon USA Energy, Inc. and its consolidated subsidiaries or to Alon USA Energy, Inc. or an individual subsidiary. The “Partnership,” as used in this report, refers to Alon USA Partners, LP and its consolidated subsidiaries.

These consolidated financial statements and notes are unaudited and have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities Exchange Act of 1934. Accordingly, they do not include all of the information and notes required by GAAP for complete consolidated financial statements.

In the opinion of our management, the information included in these consolidated financial statements reflects all adjustments, consisting of normal and recurring adjustments, which are necessary for a fair presentation of our consolidated financial position and results of operations for the interim periods presented. All significant intercompany balances and transactions have been eliminated in consolidation. Certain prior year balances may have been aggregated or disaggregated in order to conform to the current year presentation. Our results of operations for the three and six month periods ended June 30, 2014 are not necessarily indicative of the operating results that may be realized for the year ending December 31, 2014.

Our consolidated balance sheet as of December 31, 2013, has been derived from the audited financial statements as of that date. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2013.

New Accounting Standards

In May 2014, the Financial Accounting Standards Board and the International Accounting Standards Board jointly issued a comprehensive new revenue recognition standard that provides accounting guidance for all revenue arising from contracts to provide goods or services to customers. This standard is intended to improve comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets. The requirements from the new standard are effective for interim and annual periods beginning after December 15, 2016, and early adoption is not permitted. The standard allows for either full retrospective adoption or modified retrospective adoption. We are evaluating the guidance to determine the method of adoption and the impact of this standard on our consolidated financial statements.


(2)	Alon USA Partners, LP

The Partnership (NYSE: ALDW) is a publicly traded limited partnership that owns the assets and operations of the Big Spring refinery and associated wholesale marketing operations. As of June 30, 2014, the 11,506,550 common units held by the public represent 18.4% of the Partnership’s common units outstanding. We own the remaining 81.6% of the Partnership’s common units and Alon USA Partners GP, LLC (the “General Partner”), our wholly-owned subsidiary, owns 100% of the non-economic General Partner interest in the Partnership.

The limited partner interests in the Partnership not owned by us are reflected in the results of operations in net income attributable to non-controlling interest and in our balance sheet in non-controlling interest in subsidiaries. The Partnership is consolidated within the refining and marketing segment.

We have agreements with the Partnership which establish fees for certain administrative and operational services provided by us and our subsidiaries to the Partnership, provide certain indemnification obligations and other matters and establish terms for the supply of products by the Partnership to us.

Partnership Distributions

The Partnership has adopted a policy pursuant to which it will distribute all of the available cash it generates each quarter, as defined in the partnership agreement and subject to the approval of the board of directors of the General Partner. The per unit amount of available cash to be distributed each quarter, if any, will be distributed within 60 days following the end of such quarter.

Table of Contents

ALON USA ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(unaudited, dollars in thousands except as noted)

During the six months ended June 30, 2014, the Partnership paid the following cash distributions:



Date Paid	Distribution Amount Per Unit		Total Distribution Amount		Distribution Paid to Non-Affiliated Common Unitholders
March 3, 2014	$	0.18	$	11,250	$	2,070
May 21, 2014	0.69		43,130		7,940


(3)	Segment Data

Our revenues are derived from three operating segments: (i) refining and marketing, (ii) asphalt and (iii) retail. The reportable operating segments are strategic business units that offer different products and services. The segments are managed separately as each segment requires unique technology, marketing strategies and distinct operational emphasis. Each operating segment’s performance is evaluated primarily based on operating income.

(a)Refining and Marketing Segment

Our refining and marketing segment includes sour and heavy crude oil refineries located in Big Spring, Texas; and Paramount, Bakersfield and Long Beach, California (the “California refineries”); and a light sweet crude oil refinery located in Krotz Springs, Louisiana. Our refineries have a combined throughput capacity of approximately 217,000 barrels per day (“bpd”). At these refineries, we refine crude oil into petroleum products including gasoline, diesel, jet fuel, petrochemicals, petrochemical feedstocks, asphalt and other petroleum-based products, which are marketed primarily in the South Central, Southwestern and Western regions of the United States. During the six months ended June 30, 2014 and 2013, we did not process crude oil at our California refineries.

We supply gasoline and diesel to 636 Alon branded retail sites, including our retail segment convenience stores. During 2014, approximately 66% of the gasoline and 32% of the diesel produced at our Big Spring refinery was transferred to our branded marketing business at prices substantially determined by wholesale market prices. Additionally, we license the use of the Alon brand name and provide credit card processing services to 76 licensed locations that are not under fuel supply agreements.

(b)Asphalt Segment

Our asphalt segment includes 10 refinery/terminal locations in Texas (Big Spring), California (Paramount, Long Beach, Elk Grove, Bakersfield and Mojave), Washington (Richmond Beach), Arizona (Phoenix and Flagstaff), and Nevada (Fernley) (50% interest) as well as through a 50% interest in Wright Asphalt Products Company, LLC, which specializes in marketing patented tire rubber modified asphalt products. The operations in which we have a 50% interest are recorded under the equity method of accounting and the investments are included as part of total assets in the asphalt segment data. Asphalt produced by our Big Spring refinery is transferred to the asphalt segment at prices substantially determined by reference to the cost of crude oil, which is intended to approximate wholesale market prices.

(c)Retail Segment

Our retail segment operates 296 convenience stores located in Central and West Texas and New Mexico. These convenience stores typically offer various grades of gasoline, diesel fuel, general merchandise and food and beverage products to the general public, primarily under the 7-Eleven and Alon brand names. Substantially all of the motor fuel sold through our retail segment is supplied by our Big Spring refinery.

(d)Corporate

Operations that are not included in any of the three segments are included in the corporate category. These operations consist primarily of corporate headquarters operating and depreciation expenses.

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ALON USA ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(unaudited, dollars in thousands except as noted)

Segment data as of and for the three and six month periods ended June 30, 2014 and 2013 are presented below:



	Refining and Marketing		Asphalt			Retail			Corporate			Consolidated Total
Three Months Ended June 30, 2014
Net sales to external customers	$	1,372,547	$	117,677		$	252,659		$	—		$	1,742,883
Intersegment sales (purchases)	148,777		(9,233		)	(139,544		)	—			—
Depreciation and amortization	24,713		1,162			2,983			595			29,453
Operating income (loss)	16,765		(3,889		)	6,826			(770		)	18,932
Total assets	1,900,995		109,810			200,510			22,792			2,234,107
Turnarounds, catalysts and capital expenditures	43,081		1,501			2,841			494			47,917



	Refining and Marketing		Asphalt			Retail			Corporate			Consolidated Total
Three Months Ended June 30, 2013
Net sales to external customers	$	1,287,571	$	144,191		$	244,833		$	—		$	1,676,595
Intersegment sales (purchases)	156,043		(24,732		)	(131,311		)	—			—
Depreciation and amortization	26,107		1,563			2,554			574			30,798
Operating income (loss)	33,014		2,021			7,764			(767		)	42,032
Total assets	1,880,858		141,515			204,252			20,040			2,246,665
Turnarounds, catalysts and capital expenditures	14,054		2,599			6,537			426			23,616



	Refining and Marketing		Asphalt			Retail			Corporate			Consolidated Total
Six Months Ended June 30, 2014
Net sales to external customers	$	2,738,373	$	213,848		$	473,907		$	—		$	3,426,128
Intersegment sales (purchases)	287,869		(26,216		)	(261,653		)	—			—
Depreciation and amortization	50,081		2,362			5,697			1,191			59,331
Operating income (loss)	56,769		(7,094		)	9,759			(1,542		)	57,892
Total assets	1,900,995		109,810			200,510			22,792			2,234,107
Turnarounds, catalysts and capital expenditures	70,124		3,219			6,222			1,359			80,924



	Refining and Marketing		Asphalt			Retail			Corporate			Consolidated Total
Six Months Ended June 30, 2013
Net sales to external customers	$	2,559,797	$	299,056		$	468,938		$	—		$	3,327,791
Intersegment sales (purchases)	297,942		(41,291		)	(256,651		)	—			—
Depreciation and amortization	52,612		3,112			4,822			1,415			61,961
Operating income (loss)	159,722		(2,380		)	12,304			(1,783		)	167,863
Total assets	1,880,858		141,515			204,252			20,040			2,246,665
Turnarounds, catalysts and capital expenditures	25,239		4,391			7,177			439			37,246

Operating income (loss) for each segment consists of net sales less cost of sales, direct operating expenses, selling, general and administrative expenses, depreciation and amortization, and gain (loss) on disposition of assets. Intersegment sales are intended to approximate wholesale market prices. Consolidated totals presented are after intersegment eliminations.

Total assets of each segment consist of net property, plant and equipment, inventories, cash and cash equivalents, accounts and other receivables and other assets directly associated with the segment’s operations. Corporate assets consist primarily of corporate headquarters information technology and administrative equipment.

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ALON USA ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(unaudited, dollars in thousands except as noted)


(4)	Fair Value

We 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. We classify financial assets and financial liabilities into the following fair value hierarchy:


•	Level 1 - valued based on quoted prices in active markets for identical assets and liabilities;


•	Level 2 - valued based on quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability; and


•	Level 3 - valued based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

As required, we utilize 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. We generally apply 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 carrying amounts of our 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 instruments are carried at fair value, which are based on quoted market prices. Derivative instruments and the Renewable Identification Numbers (“RINs”) obligation are our only assets and liabilities measured at fair value on a recurring basis.

The RINs obligation represents the period-end deficit, if any, after considering any RINs acquired or under contract, necessary to meet our requirements to blend biofuels into the products we have produced. The RINs obligation is categorized as level 2 of the fair value hierarchy and is measured at fair value using the market approach based on quoted prices from an independent pricing service.

The following table sets forth the assets and liabilities measured at fair value on a recurring basis, by input level, in the consolidated balance sheets at June 30, 2014 and December 31, 2013:



	Level 1		Level 2		Level 3		Total
As of June 30, 2014
Assets:
Commodity contracts (swaps)	$	—	$	6,528	$	—	$	6,528
Liabilities:
Commodity contracts (futures and forwards)	104		—		—		104
Interest rate swaps	—		788		—		788
Fair value hedges	—		10,390		—		10,390

As of December 31, 2013
Assets:
Commodity contracts (futures and forwards)	$	335	$	—	$	—	$	335
Liabilities:
Commodity contracts (swaps)	—		15,328		11,569		26,897
Fair value hedges	—		3,339		—		3,339
RINs obligation	—		334		—		334

Level 3 Financial Instruments

As of December 31, 2013, we had commodity price swap contracts related to forecasted sales of jet fuel and forecasted purchases of crude oil for which quoted forward market prices were not readily available. The forward rate used to value these commodity price swaps was derived using a projected forward rate using quoted market rates for similar products, adjusted for product grade differentials, a level 3 input. In January 2014, quoted forward market prices for these commodities became available, and the related financial liability was reclassified to level 2.

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ALON USA ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(unaudited, dollars in thousands except as noted)

The following table presents the changes in fair value of our level 3 assets and liabilities (all related to commodity price swap contracts) for the six months ended June 30, 2014:



	For the Six Months Ended
	June 30, 2014
Balance at beginning of period	$	(11,569	)
Change in fair value of level 3 trades open at the beginning of the period	—
Fair value of trades entered into during the period	—
Fair value of reclassification from level 3 to level 2	11,569
Settlement value of contractual maturities - Recognized in cost of sales	—
Balance at end of period	$	—


(5)	Derivative Financial Instruments

Mark to Market

Commodity Derivatives. We selectively utilize crude oil and refined product commodity derivative contracts to reduce the risk associated with potential price changes on committed obligations. We do not speculate using derivative instruments. Credit risk on our derivative instruments is mitigated by transacting with counterparties meeting established collateral and credit criteria.

Fair Value Hedges

Fair value hedges are used to hedge price volatility of certain refining inventories and firm commitments to purchase inventories. The gain or loss on a derivative instrument designated and qualifying as a fair value hedge, as well as the offsetting gain or loss on the hedged item attributable to the hedged risk, is recognized in earnings in the same period.

As of June 30, 2014, we have accounted for certain commodity contracts as fair value hedges with contract purchase volumes of 766 thousand barrels of crude oil with remaining contract terms through May 2019.

Cash Flow Hedges

To designate a derivative as a cash flow hedge, we document 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 transactions occur.

Commodity Derivatives. As of June 30, 2014, we have accounted for certain commodity swap contracts as cash flow hedges with net contract purchase volumes of 3,600 thousand barrels of crude oil and net contract sales volumes of 3,600 thousand barrels of refined products with the longest remaining contract term of eighteen months. Related to these transactions in other comprehensive income (“OCI”), we recognized unrealized gains of $11,078 and $2,351 for the three months and $42,935 and $11,756 for the six months ended June 30, 2014 and 2013, respectively.

In November 2013 and April 2014, we elected to de-designate certain commodity swap contracts that were previously designated as cash flow hedges. As of June 30, 2014, we have total net unrealized losses of $5,144 classified in OCI that related to the application of hedge accounting prior to de-designation, which will be recorded into earnings as the underlying transactions occur through the remainder of 2014. During the three and six months ended June 30, 2014, we reclassified $2,153 and $10,428 of losses, respectively, related to these de-designated cash flow hedges from OCI into cost of sales.

Interest Rate Derivatives. We selectively utilize interest rate swaps to manage our exposure to interest rate risk. In April 2014, we entered into three interest rate swap agreements, maturing March 2019, that effectively fix the variable LIBOR interest component of the term loan feature of the Alon Retail Credit Agreement, as defined in Note 12. The aggregate notional amount under these agreements covers approximately 75% of the outstanding principal of the term loan throughout the duration of the interest rate swaps. As of June 30, 2014, the outstanding principal of the term loan was $106,333. The interest rate swaps lock in an average fixed interest rate of 0.25% in 2014; 0.60% in 2015; 1.47% in 2016; 2.35% in 2017; 3.09% in 2018 and 3.28% thereafter. The interest rate swaps have been accounted for as cash flow hedges. Related to these transactions in OCI, we recognized unrealized losses of $788 during the three and six months ended June 30, 2014.

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ALON USA ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(unaudited, dollars in thousands except as noted)

For the three and six months ended June 30, 2014 and 2013, there was no cash flow hedge ineffectiveness recognized in income. No component of our cash flow hedges’ gains or losses was excluded from the assessment of hedge effectiveness.

As of June 30, 2014, we have net unrealized gains of $12,166 classified in OCI related to cash flow hedges. Assuming commodity prices and interest rates remain unchanged, unrealized gains of $3,008 will be reclassified from OCI into earnings as the underlying transactions occur over the next twelve-month period.

The following tables present the effect of derivative instruments on the consolidated statements of financial position:



	As of June 30, 2014
	Asset Derivatives			Liability Derivatives
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives not designated as hedging instruments:
Commodity contracts (futures and forwards)	Accounts receivable	$	1,353	Accrued liabilities	$	1,457
Total derivatives not designated as hedging instruments		$	1,353		$	1,457

Derivatives designated as hedging instruments:
Commodity contracts (swaps)	Accounts receivable	$	4,552		$	—
Commodity contracts (swaps)	Other assets, net	1,976			—
Interest rate swaps		—		Other non-current liabilities	788
Fair value hedges		—		Other non-current liabilities	10,390
Total derivatives designated as hedging instruments		6,528			11,178
Total derivatives		$	7,881		$	12,635



	As of December 31, 2013
	Asset Derivatives			Liability Derivatives
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives not designated as hedging instruments:
Commodity contracts (futures and forwards)	Accounts receivable	$	1,533	Accrued liabilities	$	1,198
Total derivatives not designated as hedging instruments		$	1,533		$	1,198

Derivatives designated as hedging instruments:
Commodity contracts (swaps)		$	—	Accrued liabilities	$	15,328
Commodity contracts (swaps)		—		Other non-current liabilities	11,569
Fair value hedges		—		Other non-current liabilities	3,339
Total derivatives designated as hedging instruments		—			30,236
Total derivatives		$	1,533		$	31,434

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ALON USA ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(unaudited, dollars in thousands except as noted)

The following tables present the effect of derivative instruments on the consolidated statements of operations and accumulated other comprehensive income:

Derivatives designated as hedging instruments:



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 June 30, 2014
Commodity contracts (swaps)	$	11,078		Cost of sales	$	(2,153	)		$	—
Interest rate swaps	(788		)	Interest expense	(14		)		—
Total derivatives	$	10,290			$	(2,167	)		$	—

For the Three Months Ended June 30, 2013
Commodity contracts (swaps)	$	2,351		Cost of sales	$	10,018			$	—
Total derivatives	$	2,351			$	10,018			$	—



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 Six Months Ended June 30, 2014
Commodity contracts (swaps)	$	42,935		Cost of sales	$	(10,428	)		$	—
Interest rate swaps	(788		)	Interest expense	(14		)		—
Total derivatives	$	42,147			$	(10,442	)		$	—

For the Six Months Ended June 30, 2013
Commodity contracts (swaps)	$	11,756		Cost of sales	$	9,994			$	—
Total derivatives	$	11,756			$	9,994			$	—

Derivatives in fair value hedging relationships:



		Gain (Loss) Recognized in Income
		For the Three Months Ended					For the Six Months Ended
		June 30,					June 30,
	Location	2014			2013		2014			2013
Fair value hedges	Cost of sales	$	(4,444	)	$	961	$	(7,051	)	$	(1,858	)
Total derivatives		$	(4,444	)	$	961	$	(7,051	)	$	(1,858	)

Derivatives not designated as hedging instruments:



		Gain (Loss) Recognized in Income
		For the Three Months Ended					For the Six Months Ended
		June 30,					June 30,
	Location	2014			2013		2014			2013
Commodity contracts (futures & forwards)	Cost of sales	$	(5,133	)	$	2,532	$	(6,118	)	$	10,519
Commodity contracts (swaps)	Cost of sales	(236		)	—		1,801			—
Total derivatives		$	(5,369	)	$	2,532	$	(4,317	)	$	10,519

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ALON USA ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(unaudited, dollars in thousands except as noted)

Offsetting Assets and Liabilities

Our derivative financial instruments are subject to master netting arrangements to manage counterparty credit risk associated with derivatives and we offset the fair value amounts recorded for derivative instruments to the extent possible under these agreements on our consolidated balance sheets.

The following table presents offsetting information regarding our derivatives by type of transaction as of June 30, 2014 and December 31, 2013:



	Gross Amounts of Recognized Assets/Liabilities		Gross Amounts offset in the Statement of Financial Position			Net Amounts Presented in the Statement of Financial Position		Gross Amounts Not offset in the Statement of Financial Position					Net Amount
	Gross Amounts of Recognized Assets/Liabilities		Gross Amounts offset in the Statement of Financial Position					Financial Instruments			Cash Collateral Pledged		Net Amount
As of June 30, 2014
Derivative Assets:
Commodity contracts (futures & forwards)	$	1,483	$	(130	)	$	1,353	$	(1,353	)	$	—	$	—
Commodity contracts (swaps)	6,528		—			6,528		—			—		6,528
Derivative Liabilities:
Commodity contracts (futures & forwards)	$	1,587	$	(130	)	$	1,457	$	(1,353	)	$	—	$	104
Interest rate swaps	788		—			788		—			—		788
Fair value hedges	10,390		—			10,390		—			—		10,390

As of December 31, 2013
Derivative Assets:
Commodity contracts (futures & forwards)	$	2,287	$	(754	)	$	1,533	$	(1,198	)	$	—	$	335
Derivative Liabilities:
Commodity contracts (futures & forwards)	$	1,952	$	(754	)	$	1,198	$	(1,198	)	$	—	$	—
Commodity contracts (swaps)	26,897		—			26,897		—			—		26,897
Fair value hedges	3,339		—			3,339		—			—		3,339

Compliance Program Market Risk

We are obligated by government regulations to blend a certain percentage of biofuels into the products we produce that are consumed in the U.S. We purchase biofuels from third parties and blend those biofuels into our products, and each gallon of biofuel purchased includes a RIN. To the degree we are unable to blend biofuels at the required percentage, a RINs deficit is generated and we must acquire that number of RINs by the annual reporting deadline in order to remain in compliance with applicable regulations.

We are exposed to market risk related to the volatility in the price of RINs needed to comply with these government regulations. We manage this risk by purchasing RINs when prices are deemed favorable utilizing fixed price purchase contracts. Some of these contracts are derivative instruments; however, we elect the normal purchase and sale exception and do not record these contracts at their fair values.

The cost of meeting our obligations under these compliance programs was $4,742 and $8,016 for the three months ended and $12,755 and $8,016 for the six months ended June 30, 2014 and 2013, respectively. These amounts are reflected in cost of sales.


(6)	Inventories

Our inventories (including inventory consigned to others) are stated at the lower of cost or market. Cost is determined under the last-in, first-out (LIFO) method for crude oil, refined products, asphalt, and blendstock inventories. Materials and supplies are stated at average cost. Cost for convenience store merchandise inventories is determined under the retail inventory method and cost for convenience store fuel inventories is determined under the first-in, first-out (FIFO) method.

Table of Contents

ALON USA ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(unaudited, dollars in thousands except as noted)

Carrying value of inventories consisted of the following:



	June 30, 2014		December 31, 2013
Crude oil, refined products, asphalt and blendstocks	$	62,496	$	34,326
Crude oil inventory consigned to others	55,667		44,081
Materials and supplies	21,726		21,685
Store merchandise	22,788		20,526
Store fuel	6,853		8,152
Total inventories	$	169,530	$	128,770

Market values of crude oil, refined products, asphalt and blendstock inventories exceeded LIFO costs by $69,607 and $61,199 at June 30, 2014 and December 31, 2013, respectively.


(7)	Inventory Financing Agreements

Alon has entered into Supply and Offtake Agreements and other associated agreements (together the “Supply and Offtake Agreements”) with J. Aron & Company (“J. Aron”), to support the operations of the Big Spring, Krotz Springs and California refineries and most of our asphalt terminals. Pursuant to the Supply and Offtake Agreements, (i) J. Aron agreed to sell to us, and we agreed to buy from J. Aron, at market prices, crude oil for processing at the refineries and (ii) we agreed to sell, and J. Aron agreed to buy, at market prices, certain refined products produced at the refineries.

The Supply and Offtake Agreements also provided for the sale, at market prices, of our crude oil and certain refined product inventories to J. Aron, the lease to J. Aron of crude oil and refined product storage facilities, and to identify prospective purchasers of refined products on J. Aron’s behalf. The Supply and Offtake Agreements have initial terms that expire in May 2019. J. Aron may elect to terminate the Supply and Offtake Agreements prior to the expiration of the initial term in May 2016 and upon each anniversary thereof, on six months prior notice. We may elect to terminate in May 2018 on six months prior notice.

Following expiration or termination of the Supply and Offtake Agreements, we are obligated to purchase the crude oil and refined product inventories then owned by J. Aron and located at the leased storage facilities at then current market prices.

In association with the Supply and Offtake Agreement at the Krotz Springs refinery, we entered into a secured Credit Agreement (the “Krotz Springs Standby LC Facility”) by and between Alon, as Borrower, and Goldman Sachs Bank USA, as Issuing Bank. The Krotz Springs Standby LC Facility provides for up to $200,000 of letters of credit to be issued to J. Aron. Obligations under the Krotz Springs Standby LC Facility are secured by a first priority lien on the existing and future accounts receivable and inventory of Alon Refining Krotz Springs, Inc. and its subsidiaries (“ARKS”), our wholly-owned subsidiary. The Krotz Springs Standby LC Facility includes customary events of default and restrictions on the activities of ARKS. The Krotz Springs Standby LC Facility contains no maintenance financial covenants. As of June 30, 2014, there is no further availability under the Krotz Springs Standby LC Facility. The Krotz Springs Standby LC Facility matures in July 2016.

As of June 30, 2014 and December 31, 2013, we had net current payables to J. Aron for purchases of $15,427 and $16,917, respectively, non-current liabilities related to the original financing of $78,098 and $67,889, respectively, and a consignment inventory receivable representing a deposit paid to J. Aron of $26,179 and $26,179, respectively.

Additionally, we had net current receivables of $853 and net current payables of $539 at June 30, 2014 and December 31, 2013, respectively, for forward commitments related to month-end consignment inventory target levels differing from projected levels and the associated pricing with these inventory level differences.

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ALON USA ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(unaudited, dollars in thousands except as noted)


(8)	Property, Plant and Equipment, Net

Property, plant and equipment, net consisted of the following:



	June 30, 2014			December 31, 2013
Refining facilities	$	1,808,470		$	1,804,445
Pipelines and terminals	43,439			43,445
Retail	189,647			184,858
Other	16,771			15,326
Property, plant and equipment, gross	2,058,327			2,048,074
Accumulated depreciation	(659,413		)	(618,732		)
Property, plant and equipment, net	$	1,398,914		$	1,429,342

Disposition of Assets

In January 2014, we sold our Willbridge, Oregon asphalt terminal for $40,000. The terminal was included in our asphalt segment and at the time of disposition was allocated goodwill of $4,030. For the six months ended June 30, 2014, a before-tax gain of $2,014 was recognized and has been included in gain (loss) on disposition of assets in our consolidated statements of operations.


(9)	Goodwill

The following table provides a summary of changes to our goodwill balance by segment for the six months ended June 30, 2014:



Balance at December 31, 2013	$	105,943
Disposition of assets with allocated goodwill	(4,030		)
Balance at June 30, 2014	$	101,913

During the six months ended June 30, 2014, we sold our Willbridge, Oregon asphalt terminal, which was allocated goodwill of $4,030 at the time of disposition.


(10)	Additional Financial Information

The following tables provide additional financial information related to the consolidated financial statements.


(a)	Other Assets, Net



	June 30, 2014		December 31, 2013
Deferred turnaround and catalyst cost	$	62,723	$	12,271
Environmental receivables	2,161		4,273
Deferred debt issuance costs	12,287		12,602
Intangible assets, net	7,917		7,497
Receivable from supply agreements	26,179		26,179
Other, net	23,332		19,388
Total other assets	$	134,599	$	82,210

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ALON USA ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(unaudited, dollars in thousands except as noted)


(b)	Accrued Liabilities and Other Non-Current Liabilities



	June 30, 2014		December 31, 2013
Accrued Liabilities:
Taxes other than income taxes, primarily excise taxes	$	22,889	$	37,645
Employee costs	9,085		13,793
Commodity contracts	1,457		16,526
Accrued finance charges	3,039		8,733
Environmental accrual (Note 16)	12,898		12,898
Other	48,263		31,263
Total accrued liabilities	$	97,631	$	120,858

Other Non-Current Liabilities:
Pension and other postemployment benefit liabilities, net	$	40,619	$	40,351
Environmental accrual (Note 16)	42,475		45,484
Asset retirement obligations	12,028		12,468
Consignment inventory obligations	78,098		67,889
Commodity contracts	—		11,569
Other	10,709		11,713
Total other non-current liabilities	$	183,929	$	189,474


(11)	Postretirement Benefits

The components of net periodic benefit cost related to our benefit plans were as follows for the three and six months ended June 30, 2014 and 2013:



	For the Three Months Ended						For the Six Months Ended
	June 30,						June 30,
	2014			2013			2014			2013
Components of net periodic benefit cost:
Service cost	$	856		$	1,116		$	1,712		$	2,232
Interest cost	1,238			1,100			2,476			2,200
Expected return on plan assets	(1,369		)	(1,157		)	(2,739		)	(2,314		)
Amortization of net loss	595			1,005			1,191			2,010
Net periodic benefit cost	$	1,320		$	2,064		$	2,640		$	4,128

Our estimated contributions during 2014 to our pension plans have not changed significantly from amounts previously disclosed in the consolidated financial statements for the year ended December 31, 2013. For the six months ended June 30, 2014 and 2013, we contributed $2,525 and $2,075, respectively, to our qualified pension plans.


(12)	Indebtedness

Debt consisted of the following:



	June 30, 2014		December 31, 2013
Term loan credit facilities	$	267,913	$	244,322
Revolving credit facility	100,000		100,000
Senior secured notes	35,423		73,706
Convertible senior notes	123,638		121,090
Retail credit facilities	116,736		73,130
Total debt	643,710		612,248
Less: Current portion	50,506		83,174
Total long-term debt	$	593,204	$	529,074

(a) Alon Energy Term Loan

In March 2014, we entered into a five-year Term Loan Agreement (“Alon Energy Term Loan”) for a principal amount of $25,000, maturing in March 2019. Repayments are monthly, commencing June 2014. Borrowings under this agreement incur interest at an annual rate equal to LIBOR plus a margin of 3.75%. We pledged 2,200,000 of the Partnership’s common units as collateral for the Alon Energy Term Loan. Additionally, Alon Assets, Inc. (“Alon Assets”) guarantees all payments under the Alon Energy Term Loan. The Alon Energy Term Loan contains certain restrictive covenants, including maintenance financial covenants.

Proceeds from the Alon Energy Term Loan were used to purchase equipment for a capital project at our Big Spring refinery.

At June 30, 2014, the Alon Energy Term Loan had an outstanding balance of $24,569.

(b) Retail Credit Facilities

Southwest Convenience Stores, LLC and Skinny’s LLC, (“Alon Retail”) were party to a credit agreement (the “Credit Agreement”) with a maturity in December 2015. At December 31, 2013, the outstanding balance under the Credit Agreement was $72,689. In March 2014, Alon Retail entered into a new credit agreement (“Alon Retail Credit Agreement”) and repaid in full its obligations under the Credit Agreement.

The Alon Retail Credit Agreement will mature in March 2019 and includes a $110,000 term loan and a $10,000 revolving credit loan. The Alon Retail Credit Agreement also includes an accordion feature that provides for incremental term loans up to $30,000 to fund store rebuilds, new builds and acquisitions. Borrowings under the Alon Retail Credit Agreement bear interest at a Eurodollar rate plus an applicable margin between 2.00% and 2.75%, determined quarterly based upon Alon Retail’s leverage ratio. Principal payments are made in quarterly installments based on a 15-year amortization schedule. Obligations under the

Table of Contents

ALON USA ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(unaudited, dollars in thousands except as noted)

Alon Retail Credit Agreement are secured by a first lien on substantially all of the assets of Alon Retail. The Alon Retail Credit Agreement also contains certain restrictive covenants including maintenance financial covenants.

Proceeds from the Alon Retail Credit Agreement were used to fully repay the remaining obligations under the Credit Agreement and pay a dividend distribution of $40,000 to Alon Brands, Inc., our wholly-owned subsidiary, while the remainder used for general corporate purposes.

At June 30, 2014, the Alon Retail Credit Agreement had an outstanding balance of $116,333, consisting of a term loan balance of $106,333 and a revolving credit loan balance of $10,000.

We had letters of credit outstanding under the Alon Energy $60,000 letter of credit facility of $58,227 and $56,827 at June 30, 2014 and December 31, 2013, respectively.

We had borrowings of $100,000 and $100,000 and letters of credit of $58,963 and $109,772 outstanding under the Alon USA LP $240,000 revolving credit facility at June 30, 2014 and December 31, 2013, respectively.

(d) Senior Secured Notes

In May 2014, we redeemed $40,000 of the principal balance on the 13.50% senior secured notes (“Senior Secured Notes”) due October 2014. As a result of the prepayment of the Senior Secured Notes, write-offs of unamortized original issuance discount and debt issuance costs of $254 and $253, respectively, were charged to interest expense in the consolidated statements of operations for the three and six months ended June 30, 2014.

At June 30, 2014 and December 31, 2013, the Senior Secured Notes had an outstanding balance of $35,423 and $73,706, respectively.

In July 2014, we redeemed the remaining principal balance on the Senior Secured Notes.

(e) Financial Covenants

We have certain credit agreements that contain maintenance financial covenants. At June 30, 2014, we were in compliance with these covenants.


(13)	Stock-Based Compensation (share values in dollars)

Our overall executive incentive compensation program permits the granting of awards to our directors, officers and key employees in the form of options to purchase common stock, stock appreciation rights, restricted shares of common stock, restricted common stock units, performance shares, performance units and senior executive plan bonuses.

Restricted Stock. Non-employee directors are awarded an annual grant of $25 in shares of restricted stock, which vest over a period of three years, assuming continued service at vesting. In May 2014, we granted awards to our non-employee directors of 4,965 restricted shares at a grant date price of $15.11 per share.

In May 2014, we granted awards of 255,000 restricted shares to certain executive officers at a grant date price of $15.11 per share. These May 2014 restricted shares will vest as follows: 50% in May 2015 and 50% in May 2016, assuming continued service at vesting.

The following table summarizes the restricted share activity from January 1, 2014:



			Weighted Average Grant Date Fair Values
Nonvested Shares	Shares		(per share)
Nonvested at January 1, 2014	448,694		$	14.64
Granted	259,965		15.11
Vested	(134,640	)	16.95
Forfeited	—		—
Nonvested at June 30, 2014	574,019		$	14.31

Table of Contents

ALON USA ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(unaudited, dollars in thousands except as noted)

Compensation expense for restricted stock awards amounted to $1,000 and $620 for the three months ended June 30, 2014 and 2013, respectively, and $1,488 and $1,137 for the six months ended June 30, 2014 and 2013, respectively, and is included in selling, general and administrative expenses in the consolidated statements of operations. The fair value of shares vested in 2014 was $2,044.

Restricted Stock Units. In May 2011, we granted 500,000 restricted stock units to our CEO and President at a grant date fair value of $11.47 per share. Each restricted unit represents the right to receive one share of our common stock upon the vesting of the restricted stock unit. All 500,000 restricted stock units vest on March 1, 2015, assuming continued service at vesting. Compensation expense for restricted stock units amounted to $374 and $374 for the three months ended June 30, 2014 and 2013, respectively, and $748 and $748 for the six months ended June 30, 2014 and 2013, respectively, and is included in selling, general and administrative expenses in the consolidated statements of operations.

Unrecognized Compensation Cost. As of June 30, 2014, there was $6,971 of total unrecognized compensation cost related to non-vested share-based compensation arrangements, which is expected to be recognized over a weighted-average period of 1.9 years.


(14)	Equity (share values in dollars)

Changes to equity during the six months ended June 30, 2014 are presented below:



	Total Stockholders’ Equity			Non-controlling Interest			Total Equity
Balance at December 31, 2013	$	597,959		$	27,445		$	625,404
Other comprehensive income	25,684			868			26,552
Stock compensation	3,731			(191		)	3,540
Dividends of common stock on preferred stock	(7		)	—			(7		)
Distributions to non-controlling interest in the Partnership	—			(10,010		)	(10,010		)
Dividends	(8,221		)	(389		)	(8,610		)
Net income (loss)	(6,732		)	8,670			1,938
Balance at June 30, 2014	$	612,414		$	26,393		$	638,807

(a)Common Stock

Amended Shareholder Agreement. In 2012, we signed agreements with the remaining non-controlling interest shareholders of Alon Assets whereby the participants would exchange shares of Alon Assets for shares of our common stock. During the six months ended June 30, 2014, 329,644 shares of our common stock were issued in exchange for 1,762.24 shares of Alon Assets. We have 1,590,067 shares of our common stock available for exchange at June 30, 2014 for the outstanding shares held by non-controlling interest shareholders of Alon Assets.

We recognized compensation expense associated with the difference in value between the participants' ownership of Alon Assets compared to our common stock of $608 and $734 for the three months ended June 30, 2014 and 2013, respectively, and $1,305 and $1,498 for the six months ended June 30, 2014 and 2013, respectively. These amounts are included in selling, general and administrative expenses in the consolidated statements of operations.


(b)	Dividends

Common Stock Dividends. During the six months ended June 30, 2014, we paid the following dividends:

Preferred Stock Dividends. During the six months ended June 30, 2014, we issued 738 shares of common stock for payment of the quarterly 8.5% preferred stock dividend to preferred stockholders.

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ALON USA ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(unaudited, dollars in thousands except as noted)


(c)	Accumulated Other Comprehensive Loss

The following table displays the change in accumulated other comprehensive loss, net of tax:



	Unrealized Gain (Loss) on Cash Flow Hedges			Postretirement Benefit Plans			Total
Balance at December 31, 2013	$	(18,248	)	$	(19,267	)	$	(37,515	)
Other comprehensive income before reclassifications	19,293			—			19,293
Amounts reclassified from accumulated other comprehensive loss	6,391			—			6,391
Net current-period other comprehensive income	25,684			—			25,684
Balance at June 30, 2014	$	7,436		$	(19,267	)	$	(11,831	)


(15)	Earnings (Loss) Per Share

Basic earnings (loss) per share is calculated as net income (loss) available to common stockholders divided by the average number of participating shares of common stock outstanding. Diluted earnings (loss) per share includes the dilutive effect of granted stock appreciation rights, granted restricted common stock units, granted restricted common stock awards, convertible debt and warrants using the treasury stock method and the dilutive effect of convertible preferred shares using the if-converted method.

The calculation of earnings (loss) per share, basic and diluted, for the three and six months ended June 30, 2014 and 2013, is as follows (shares in thousands, per share value in dollars):



	For the Three Months Ended					For the Six Months Ended
	June 30,					June 30,
	2014			2013		2014			2013
Net income (loss) available to stockholders	$	(7,517	)	$	11,496	$	(6,732	)	$	65,680
Less: preferred stock dividends	14			757		29			1,515
Net income (loss) available to common stockholders	(7,531		)	10,739		(6,761		)	64,165

Weighted average shares outstanding, basic	68,851			62,614		68,734			62,285
Dilutive common stock equivalents	—			5,457		—			5,458
Weighted average shares outstanding, diluted	68,851			68,071		68,734			67,743
Earnings (loss) per share, basic	$	(0.11	)	$	0.17	$	(0.10	)	$	1.03
Earnings (loss) per share, diluted	$	(0.11	)	$	0.17	$	(0.10	)	$	0.97

For the three and six months ended June 30, 2014, we have excluded 200 and 195 common stock equivalents, respectively, from the weighted average diluted shares outstanding as the effect of including such shares would be anti-dilutive. For the three and six months ended June 30, 2013, the weighted average diluted shares includes all potentially dilutive common stock equivalents.


(16)	Commitments and Contingencies


(a)	Commitments

In the normal course of business, we have long-term commitments to purchase, at market prices, utilities such as natural gas, electricity and water for use by our refineries, terminals, pipelines and retail locations. We are also party to various refined product and crude oil supply and exchange agreements, which are typically short-term in nature or provide terms for cancellation.


(b)	Contingencies

We are involved in various legal actions arising in the ordinary course of business. We believe the ultimate disposition of these matters will not have a material effect on our financial position, results of operations or liquidity.

One of our subsidiaries is a party to a lawsuit alleging breach of contract pertaining to an asphalt supply agreement. We believe that we have valid counterclaims as well as affirmative defenses that will preclude recovery. Attempts to reach a

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ALON USA ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(unaudited, dollars in thousands except as noted)

commercial arrangement to resolve the dispute have been unsuccessful to this point. A pre-trial ruling by the trial court is currently being appealed and therefore the matter is not scheduled for trial. Due to the uncertainties of litigation, we cannot predict with certainty the ultimate resolution of this lawsuit.


(c)	Environmental

We are subject to loss contingencies pursuant to federal, state, and local environmental laws and regulations. These laws and regulations govern the discharge of materials into the environment and may require us 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 and to compensate others for damage to property and natural resources. These contingent obligations relate to sites that we own and are associated with past or present operations. We are currently participating in environmental investigations, assessments and cleanups pertaining to our refineries, service stations, pipelines and terminals. We may be involved in additional future environmental investigations, assessments and cleanups. The magnitude of future costs are unknown and will depend on factors such as the nature and contamination at many sites, the timing, extent and method of the remedial actions which may be required, and the determination of our liability in proportion to other responsible parties.

Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefit are expensed. Liabilities for expenditures of a non-capital nature are recorded when environmental assessment and/or remediation is probable, and the costs can be reasonably estimated. Substantially all amounts accrued are expected to be paid out over the next 15 years. The level of future expenditures for environmental remediation obligations cannot be determined with any degree of reliability.

We have accrued environmental remediation obligations of $55,373 ($12,898 current liability and $42,475 non-current liability) at June 30, 2014, and $58,382 ($12,898 current liability and $45,484 non-current liability) at December 31, 2013.

We have an indemnification agreement with a prior owner for remediation expenses at the Bakersfield refinery. We are required to make indemnification claims to the prior owner by March 15, 2015. We have recorded current receivables of $8,927 and $9,100 at June 30, 2014 and December 31, 2013, respectively, and a non-current receivable of $1,774 at December 31, 2013.

In addition to the indemnification agreement related to the Bakersfield refinery, we have an indemnification agreement with a prior owner for part of the remediation expenses at certain other West Coast assets. We have recorded current receivables of $418 and $418 and non-current receivables of $2,161 and $2,499 at June 30, 2014 and December 31, 2013, respectively.


(17)	Subsequent Events

Repayment of Senior Secured Notes

In July 2014, we redeemed the remaining principal balance on the Senior Secured Notes.

Dividend Declared

In August 2014, our board of directors declared the regular quarterly cash dividend of $0.10 per share on our common stock, payable on September 22, 2014, to holders of record at the close of business on September 8, 2014.

Partnership Distribution

In August 2014, the board of directors of the General Partner declared a cash distribution to the Partnership’s common unitholders of approximately $8,130, or $0.13 per common unit. The cash distribution will be paid on August 25, 2014 to unitholders of record at the close of business on August 18, 2014. The total cash distribution payable to non-affiliated common unitholders will be approximately $1,500.

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ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2013. In this document, the words “Alon,” “the Company,” “we” and “our” refer to Alon USA Energy, Inc. and its subsidiaries or to Alon USA Energy, Inc. or an individual subsidiary, and not to any other person. Generally, the words “we”, “our” and “us” include Alon USA Partners, LP and its subsidiaries (the “Partnership”) as consolidated subsidiaries of Alon USA Energy, Inc.

Forward-Looking Statements

Certain statements contained in this report and other materials we file with the SEC, or in other written or oral statements made by us, other than statements of historical fact, are “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements relate to matters such as our industry, business strategy, goals and expectations concerning our market position, future operations, margins, profitability, capital expenditures, liquidity and capital resources and other financial and operating information. We have used the words “anticipate,” “assume,” “believe,” “budget,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “will,” “future” and similar terms and phrases to identify forward-looking statements.

Forward-looking statements reflect our current expectations of future events, results or outcomes. These expectations may or may not be realized. Some of these expectations may be based upon assumptions or judgments that prove to be incorrect. In addition, our business and operations involve numerous risks and uncertainties, many of which are beyond our control, which could result in our expectations not being realized or otherwise materially affect our financial condition, results of operations and cash flows.

Actual events, results and outcomes may differ materially from our expectations due to a variety of factors. Although it is not possible to identify all of these factors, they include, among others, the following:


•	changes in general economic conditions and capital markets;


•	changes in the underlying demand for our products;


•	the availability, costs and price volatility of crude oil, other refinery feedstocks and refined products;


•	changes in the spread between West Texas Intermediate (“WTI”) Cushing crude oil and West Texas Sour (“WTS”) crude oil or WTI Midland crude oil;


•	changes in the spread between WTI Cushing crude oil and Light Louisiana Sweet (“LLS”) crude oil;


•	changes in the spread between Brent crude oil and WTI Cushing crude oil;


•	changes in the spread between Brent crude oil and LLS crude oil;


•	the effects of transactions involving forward contracts and derivative instruments;


•	actions of customers and competitors;

•

termination of our Supply and Offtake Agreements with J. Aron & Company (“J. Aron”), which include all our refineries and most of our asphalt terminals, of which J. Aron is our largest supplier of crude oil and our largest customer of refined products. Additionally upon termination of the Supply and Offtake Agreements, we are obligated to purchase the crude oil and refined product inventories then owned by J. Aron at then current market prices;


•	changes in fuel and utility costs incurred by our facilities;


•	disruptions due to equipment interruption, pipeline disruptions or failures at our or third-party facilities;


•	the execution of planned capital projects;


•	adverse changes in the credit ratings assigned to our debt instruments;


•	the effects of and cost of compliance with the Renewable Fuel Standards 2 (“RFS2”) requirements, including the availability, cost and price volatility of Renewable Identification Numbers (“RINs”);


•	the effects 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 effect of any national or international financial crisis on our business and financial condition; and

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•	the other factors discussed in our Annual Report on Form 10-K for the year ended December 31, 2013 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.

Company Overview

We are an independent refiner and marketer of petroleum products operating primarily in the South Central, Southwestern and Western regions of the United States. Our crude oil refineries are located in Texas, California, Oregon and Louisiana and have a combined throughput capacity of approximately 217,000 barrels per day (“bpd”). Our refineries produce petroleum products including various grades of gasoline, diesel fuel, jet fuel, petrochemicals, petrochemical feedstocks, asphalt and other petroleum-based products.

Refining and Marketing Segment. Our refining and marketing segment includes sour and heavy crude oil refineries located in Big Spring, Texas; and Paramount, Bakersfield and Long Beach, California; and a light sweet crude oil refinery located in Krotz Springs, Louisiana. We refer to the Paramount, Bakersfield and Long Beach refineries together as our “California refineries.” The refineries in our refining and marketing segment have a combined throughput capacity of approximately 217,000 bpd. At our refineries, we refine crude oil into petroleum products, including gasoline, diesel fuel, jet fuel, petrochemicals, petrochemical feedstocks, asphalt and other petroleum-based products,

Record Date

Dividend Amount Per Share

March 14, 2014

February 28, 2014

June 16, 2014

May 30, 2014