Alon USA Energy, Inc. - FORM 10-Q

Attached files

file	filename
EX-32.1 - CERTIFICATION - Alon USA Energy, Inc.	alj-ex321_2016331xq1.htm
EX-31.1 - CERTIFICATION - Alon USA Energy, Inc.	alj-ex311_2016331xq1.htm
EX-31.2 - CERTIFICATION - Alon USA Energy, Inc.	alj-ex312_2016331xq1.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 MARCH 31, 2016



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 April 30, 2016, was 71,193,155.

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	39
ITEM 4. CONTROLS AND PROCEDURES	41
PART II. OTHER INFORMATION	42
ITEM 6. EXHIBITS	42
SIGNATURES	43

Table of Contents

PART I. FINANCIAL INFORMATION


ITEM 1.	FINANCIAL STATEMENTS

ALON USA ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(dollars in thousands except per share data)



	March 31, 2016			December 31, 2015
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	193,383		$	234,127
Accounts and other receivables, net	153,597			119,171
Income tax receivable	241			3,741
Inventories	104,404			105,515
Deferred income tax asset	31,773			13,786
Prepaid expenses and other current assets	31,255			28,275
Total current assets	514,653			504,615
Equity method investments	28,041			42,811
Property, plant and equipment, net	1,414,561			1,380,202
Goodwill	62,885			62,885
Other assets, net	193,070			185,625
Total assets	$	2,213,210		$	2,176,138
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	354,088		$	315,721
Accrued liabilities	98,829			93,780
Current portion of long-term debt	16,413			16,420
Total current liabilities	469,330			425,921
Other non-current liabilities	167,059			165,935
Long-term debt	537,649			539,542
Deferred income tax liability	379,673			380,580
Total liabilities	1,553,711			1,511,978
Commitments and contingencies (Note 17)
Stockholders’ equity:
Common stock, par value $0.01, 150,000,000 shares authorized; 71,076,808 and 70,960,461 shares issued and outstanding at March 31, 2016 and December 31, 2015, respectively	711			710
Additional paid-in capital	530,740			526,035
Accumulated other comprehensive loss, net of tax	(29,472		)	(28,808		)
Retained earnings	95,137			141,201
Total stockholders’ equity	597,116			639,138
Non-controlling interest in subsidiaries	62,383			25,022
Total equity	659,499			664,160
Total liabilities and equity	$	2,213,210		$	2,176,138

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
	March 31,
	2016			2015
Net sales (1)	$	849,973		$	1,103,240
Operating costs and expenses:
Cost of sales	735,144			894,488
Direct operating expenses	68,617			64,205
Selling, general and administrative expenses	48,701			45,596
Depreciation and amortization	34,862			31,962
Total operating costs and expenses	887,324			1,036,251
Gain (loss) on disposition of assets	(2,088		)	572
Operating income (loss)	(39,439		)	67,561
Interest expense	(18,307		)	(21,037		)
Equity earnings (losses) of investees	378			(554		)
Other income, net	72			46
Income (loss) before income tax expense (benefit)	(57,296		)	46,016
Income tax expense (benefit)	(21,236		)	11,961
Net income (loss)	(36,060		)	34,055
Net income (loss) attributable to non-controlling interest	(523		)	7,116
Net income (loss) available to stockholders	$	(35,537	)	$	26,939
Earnings (loss) per share, basic	$	(0.51	)	$	0.39
Weighted average shares outstanding, basic (in thousands)	70,143			69,485
Earnings (loss) per share, diluted	$	(0.51	)	$	0.38
Weighted average shares outstanding, diluted (in thousands)	70,143			71,142
Cash dividends per share	$	0.15		$	0.10

___________


(1)	Includes excise taxes on sales by the retail segment of $19,525 and $18,056 for the three months ended March 31, 2016 and 2015, 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
	March 31,
	2016			2015
Net income (loss)	$	(36,060	)	$	34,055
Other comprehensive income (loss):
Interest rate derivatives designated as cash flow hedges:
Unrealized holding loss arising during period	(1,121		)	(930		)
Loss reclassified to earnings - interest expense	70			15
Net loss, before tax	(1,051		)	(915		)
Income tax benefit	(383		)	(339		)
Net loss, net of tax	(668		)	(576		)
Commodity contracts designated as cash flow hedges:
Unrealized holding gain arising during period	—			6,070
Amortization of unrealized gain on de-designated cash flow hedges - cost of sales	—			(7,982		)
Net loss, before tax	—			(1,912		)
Income tax benefit	—			(708		)
Net loss, net of tax	—			(1,204		)
Total other comprehensive loss, net of tax	(668		)	(1,780		)
Comprehensive income (loss)	(36,728		)	32,275
Comprehensive income (loss) attributable to non-controlling interest	(527		)	7,016
Comprehensive income (loss) attributable to stockholders	$	(36,201	)	$	25,259

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 Three Months Ended
	March 31,
	2016			2015
Cash flows from operating activities:
Net income (loss)	$	(36,060	)	$	34,055
Adjustments to reconcile net income (loss) to cash used in operating activities:
Depreciation and amortization	34,862			31,962
Stock compensation	2,120			1,539
Deferred income taxes	(18,511		)	(8,159		)
Equity (earnings) losses of investees, net of dividends	(378		)	554
Amortization of debt issuance costs	880			808
Amortization of original issuance discount	1,634			1,503
(Gain) loss on disposition of assets	2,088			(572		)
Unrealized (gain) loss on commodity swaps	3,333			(18,403		)
Changes in operating assets and liabilities:
Accounts and other receivables, net	(30,748		)	(23,434		)
Income tax receivable	3,500			9,196
Inventories	4,127			20,756
Prepaid expenses and other current assets	(2,980		)	976
Other assets, net	(3,940		)	(5,979		)
Accounts payable	2,997			(61,223		)
Accrued liabilities	7,652			(7,365		)
Other non-current liabilities	73			4,565
Net cash used in operating activities	(29,351		)	(19,221		)
Cash flows from investing activities:
Capital expenditures	(23,446		)	(10,749		)
Capital expenditures for turnarounds and catalysts	(16,610		)	(2,333		)
Proceeds from disposition of assets	975			1,469
Acquisition of AltAir	(7,936		)	—
Net cash used in investing activities	(47,017		)	(11,613		)
Cash flows from financing activities:
Dividends paid to stockholders	(10,527		)	(6,914		)
Dividends paid to non-controlling interest	(133		)	(82		)
Distributions paid to non-controlling interest in the Partnership	(921		)	(8,055		)
Inventory agreement transactions	51,313			35,160
Revolving credit facilities, net	—			(10,000		)
Payments on long-term debt	(4,108		)	(3,771		)
Net cash provided by financing activities	35,624			6,338
Net decrease in cash and cash equivalents	(40,744		)	(24,496		)
Cash and cash equivalents, beginning of period	234,127			214,961
Cash and cash equivalents, end of period	$	193,383		$	190,465
Supplemental cash flow information:
Cash paid for interest, net of capitalized interest	$	16,514		$	19,519
Refunds received for income tax	$	(3,478	)	$	(29	)
Supplemental disclosure of non-cash activity:
Capital expenditures included in accounts payable and accrued liabilities	$	—		$	661

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,” “our” and “us” or like terms refer to Alon USA Energy, Inc. and its consolidated subsidiaries or to Alon USA Energy, Inc. or an individual subsidiary. Generally, the words

“we,” “our” and “us” include Alon USA Partners, LP and its consolidated subsidiaries (the “Partnership”) as consolidated

subsidiaries of Alon USA Energy, Inc. unless when used in disclosures of transactions or obligations between the Partnership

and Alon USA Energy, Inc., or its other 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 months ended March 31, 2016 are not necessarily indicative of the operating results that may be realized for the year ending December 31, 2016.

Our consolidated balance sheet as of December 31, 2015 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, 2015.

New Accounting Standards

In May 2014, the Financial Accounting Standards Board (“FASB”) 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 standard allows for either full retrospective adoption or modified retrospective adoption. In August 2015, the FASB updated the guidance to include a one-year deferral of the effective date for the new revenue standard, making the requirements of the standard effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted for interim and annual periods beginning after December 15, 2016. We are evaluating the guidance to determine the method of adoption and the impact this standard will have on our consolidated financial statements.

In February 2015, the FASB issued an accounting standards update making targeted changes to the current consolidation guidance. The new standard changes the way certain decisions are made related to substantive rights, related parties, and decision making fees when applying the variable interest entity consolidation model and eliminates certain guidance for limited partnerships and similar entities under the voting interest consolidation model. We have adopted the updated guidance, effective January 1, 2016, with no material impact to our consolidated financial statements.

In July 2015, the FASB issued an accounting standards update simplifying the measurement of certain inventory. This updated standard simplifies the measurement of inventory by requiring certain inventory to be measured at the lower of cost or net realizable value. The amendments in this accounting standards update are effective for interim and annual periods beginning after December 15, 2016. This accounting standards update does not apply to the subsequent measurement of inventory measured using the last-in, first-out (“LIFO”) or retail inventory method, therefore the adoption of this guidance will not have a material effect on our financial position or results of operations.

In November 2015, the FASB issued an accounting standards update simplifying the presentation of income taxes. This updated standard eliminates the current requirement to present deferred tax liabilities and assets as current and non-current in a classified balance sheet. Instead, all deferred tax assets and liabilities will be required to be classified as non-current. The requirements from the updated standard are effective for interim and annual periods beginning after December 31, 2016, and early adoption is permitted. We are evaluating the guidance to determine the impact this standard will have on our consolidated financial statements.

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ALON USA ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(unaudited, dollars in thousands except as noted)

In February 2016, the FASB issued new guidance on the accounting for leases, which requires lessees to recognize assets and liabilities on the balance sheet for the present value of the rights and obligations created by all leases with terms of more than 12 months. The ASU also will require disclosures designed to give financial statement users information on the amount, timing, and uncertainty of cash flows arising from leases. The requirements from this guidance are effective for interim and annual periods beginning after December 31, 2018. We are evaluating the guidance to determine the impact this standard will have on our consolidated financial statements.

In March 2016, the FASB issued an accounting standards update which clarifies that for the purposes of applying hedge accounting for derivative transactions, a change in the counterparty to a derivative contract (through novation) that has been designated as the hedging instrument in an existing hedging relationship would not, in and of itself, require de-designation of that hedging relationship. The adoption of this guidance will not have a material effect on our financial position or results of operations.

In March 2016, the FASB issued an accounting standard update to simplify some provisions in stock compensation accounting. The areas for simplification of this update involve the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification of the statement of cash flows. This update will be effective for interim and annual periods beginning after December 15, 2016, and early adoption is permitted. We do not expect application of this standard to have a material effect on our consolidated financial statements.


(2)	AltAir Acquisition

On March 1, 2016, Alon acquired control of Altair Paramount, LLC (“AltAir”) which initially provides for Alon to receive approximately 77% of earnings and distributions of the entity. Alon increased its original 32% ownership and obtained control of AltAir after certain operational milestones were achieved. Alon contributed to AltAir cash in total amount of $27,058.

AltAir is a renewable fuels project which began operations in February 2016. The project converts approximately 2,500 barrels per day of tallow and other feedstocks into renewable biofuels, which are replacements for petroleum-based fuel. AltAir generates environmental credits in the form of renewable identification numbers, low-carbon fuels standards credits and blender’s fuel tax credits.

Acquisitions achieved in stages require that in the period the acquiring company achieves control, that it recognize 100% of the fair value of the net assets at that time. Additionally, the existing equity interests of the company and of non-controlling interest are required to be recorded at fair value. The fair value of AltAir was estimated by applying the market approach. Based on our analysis at March 1, 2016, there was no gain recorded for the revaluation of Alon’s previous equity interests. The fair value of the assets and liabilities recorded into Alon’s consolidated financial statements are as follows:



Current assets	$	11,897
Other assets	7,704
Property, plant and equipment	49,612
Current liabilities	(5,408		)
Fair value of net assets assumed	63,805
Non-controlling interest	(38,851		)
	$	24,954

Beginning March 1, 2016, we have consolidated AltAir as part of our refining and marketing segment in our consolidated financial statements. Alon’s consolidated statements of operations include revenues of $27,903 and operating income of $7,169.


(3)	Alon USA Partners, LP

The Partnership (NYSE: ALDW) is a publicly-traded limited partnership that owns the assets and conducts the operations of the Big Spring refinery and the associated integrated wholesale marketing operations. The limited partner interests of the Partnership are represented as common units outstanding. As of March 31, 2016, the 11,510,039 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 general partner interest in the Partnership, which is a non-economic interest.

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

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ALON USA ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(unaudited, dollars in thousands except as noted)

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 generated each quarter, as defined in the partnership agreement, 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.

The following table summarizes the Partnership’s cash distribution activity during the period:



	Cash Available for Distribution per Unit (1)		Distribution Amount Per Unit		Total Distribution Amount		Distributions Paid to Non-Controlling Interest
First Quarter 2016	$	—	$	0.08	$	5,001	$	921

_______________________


(1)	Represents the aggregate cash available for distribution per unit attributable to the period indicated. This represents the difference between cash available for distribution and distributions paid in the table above.


(4)	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 a sour crude oil refinery located in Big Spring, Texas, a light sweet crude oil refinery located in Krotz Springs, Louisiana, and heavy crude oil refineries located in Paramount, Bakersfield and Long Beach, California (the “California refineries”). We refine crude oil into petroleum products including various grades of 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. We are also shipping and selling gasoline into wholesale markets in the Southern and Eastern United States. Our California refineries have not processed crude oil since 2012 due to the high cost of crude oil relative to product yield and low asphalt demand. Beginning in February 2016, our renewable fuels project, AltAir, began commercial production.

We sell motor fuels under the Alon brand through various terminals to supply 632 Alon branded retail sites, including our retail segment convenience stores. In addition, we sell motor fuels through our wholesale distribution network on an unbranded basis.

(b)Asphalt Segment

We own or operate 11 asphalt terminals located in Texas (Big Spring), California (Paramount, Long Beach, Elk Grove, Bakersfield and Mojave), Washington (Richmond Beach), Arizona (Phoenix and Flagstaff), as well as asphalt terminals in which we own a 50% interest located in Fernley, Nevada, and Brownwood, Texas. 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 309 convenience stores located in Central and West Texas and New Mexico. These convenience stores typically offer various grades of gasoline and diesel under the Alon brand name and food products, food service, tobacco products, non-alcoholic and alcoholic beverages, general merchandise as well as money orders to the public, primarily under the 7-Eleven brand name. 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 month periods ended March 31, 2016 and 2015 are presented below:



	Refining and Marketing			Asphalt			Retail			Corporate			Consolidated Total
Three Months Ended March 31, 2016
Net sales to external customers	$	633,503		$	53,499		$	162,971		$	—		$	849,973
Intersegment sales (purchases)	63,110			(5,448		)	(57,662		)	—			—
Depreciation and amortization	29,784			1,260			3,399			419			34,862
Operating income (loss)	(42,363		)	(648		)	4,182			(610		)	(39,439		)
Total assets	1,854,500			113,837			227,641			17,232			2,213,210
Turnarounds, catalysts and capital expenditures	35,169			740			2,711			1,436			40,056



	Refining and Marketing		Asphalt			Retail			Corporate			Consolidated Total
Three Months Ended March 31, 2015
Net sales to external customers	$	876,603	$	50,652		$	175,985		$	—		$	1,103,240
Intersegment sales (purchases)	82,889		(10,931		)	(71,958		)	—			—
Depreciation and amortization	27,311		1,145			3,037			469			31,962
Operating income (loss)	75,647		(14,431		)	6,990			(645		)	67,561
Total assets (1)	1,836,655		113,785			201,514			13,745			2,165,699
Turnarounds, catalysts and capital expenditures	6,739		1,406			3,316			1,621			13,082

_________________


(1)	During 2015, we adopted the FASB’s accounting guidance simplifying the presentation of debt issuance costs. As a result, debt issuance costs that had previously been included as deferred charges in our consolidated balance sheets have been reclassified as a direct deduction from the carrying value of the associated debt. These changes have been applied retrospectively to all periods presented.

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.


(5)	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 are our only assets and liabilities measured at fair value on a recurring basis.

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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 sets forth the assets and liabilities measured at fair value on a recurring basis, by input level, in the consolidated balance sheets at March 31, 2016 and December 31, 2015:



	Level 1		Level 2		Level 3		Total
As of March 31, 2016
Assets:
Commodity contracts (swaps)	$	—	$	11,466	$	—	$	11,466
Fair value hedges of consigned inventory	—		32,582		—		32,582
Liabilities:
Commodity contracts (futures and forwards)	602		—		—		602
Interest rate swaps	—		3,227		—		3,227

As of December 31, 2015
Assets:
Commodity contracts (swaps)	$	—	$	14,799	$	—	$	14,799
Fair value hedges of consigned inventory	—		33,797		—		33,797
Liabilities:
Commodity contracts (futures and forwards)	592		—		—		592
Interest rate swaps	—		2,176		—		2,176


(6)	Derivative Financial Instruments

We selectively utilize crude oil and refined product commodity derivative contracts to reduce the risk associated with potential price changes on committed obligations as well as to reduce earnings volatility. We also utilize interest rate swaps to manage our exposure to interest rate risk. 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.

Mark to Market

We have certain contracts that serve as economic hedges, which are derivatives used for risk management but not designated as hedges for financial accounting purposes. All economic hedge transactions are recorded at fair value and any changes in fair value between periods are recognized in earnings.

We have contracts that are used to fix prices on forecasted purchases of inventory, which we refer to as futures and forwards. Futures represent trades executed on the New York Mercantile Exchange which have not been closed or settled at the end of the reporting period. Forwards represent physical trades for which pricing and quantities have been set, but the physical product delivery has not occurred by the end of the reporting period.

We also have economic hedges in the form of swap contracts that fix price differentials between different types of crude oil and refined products that we use or produce at our refineries. At March 31, 2016, these swap contracts had aggregate volumes of 6,750 thousand barrels of crude oil with contract terms through December 2016.

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.

We have certain commodity contracts associated with the Supply and Offtake Agreements discussed in Note 8 that have been accounted for as fair value hedges, which had purchase volumes of 659 thousand barrels of crude oil as of March 31, 2016.

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 hedged item. This assessment, which is updated at least quarterly, is generally based on the most recent relevant historical correlation between the derivative and the hedged item. If, during the term of the derivative, the hedge is determined to be no longer highly effective, hedge accounting is

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ALON USA ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(unaudited, dollars in thousands except as noted)

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 March 31, 2016, we did not have any commodity swap contracts accounted for as cash flow hedges. During the three months ended March 31, 2015, we elected to de-designate certain commodity swap contracts that were previously designated as cash flow hedges. Consequently, hedge accounting was discontinued for these commodity swap contracts and the related unrealized gains in other comprehensive income (“OCI”) were recorded into earnings as the underlying transactions occurred. During the three months ended March 31, 2015, we reclassified $7,982 of these gains from OCI into cost of sales.

Related to commodity swap cash flow hedges in OCI, we recognized unrealized losses of $0 and $1,912 for the three months ended March 31, 2016 and 2015, respectively.

Interest Rate Derivatives. We have interest rate swap agreements, maturing March 2019, that effectively fix the variable LIBOR interest component of the term loans within the retail credit agreement. These interest rate swaps have been accounted for as cash flow hedges. The aggregate notional amount under these agreements covers approximately 75% of the outstanding principal of these term loans throughout the duration of the interest rate swaps. As of March 31, 2016, the outstanding principal of these term loans was $103,950. The interest rate swaps lock in an average fixed interest rate of 1.66% through the remainder of 2016; 2.22% in 2017; 2.89% in 2018 and 3.06% in 2019.

Related to interest rate swap cash flow hedges in OCI, we recognized unrealized losses of $1,051 and $915 for the three months ended March 31, 2016 and 2015, respectively.

For the three months ended March 31, 2016 and 2015, 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 March 31, 2016, we have unrealized losses of $3,227 classified in OCI related to cash flow hedges. Assuming interest rates remain unchanged, unrealized losses of $850 will be reclassified from OCI into earnings over the next twelve-month period as the underlying transactions occur.

The following tables present the effect of derivative instruments on the consolidated balance sheets:



	As of March 31, 2016
	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	$	353	Accrued liabilities	$	955
Commodity contracts (swaps)	Accounts receivable	11,466			—
Total derivatives not designated as hedging instruments		11,819			955

Derivatives designated as hedging instruments:
Interest rate swaps		$	—	Other non-current liabilities	$	3,227
Fair value hedges of consigned inventory	Other assets	32,582			—
Total derivatives designated as hedging instruments		32,582			3,227
Total derivatives		$	44,401		$	4,182

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ALON USA ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(unaudited, dollars in thousands except as noted)



	As of December 31, 2015
	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	$	292	Accrued liabilities	$	884
Commodity contracts (swaps)	Accounts receivable	14,799			—
Total derivatives not designated as hedging instruments		15,091			884

Derivatives designated as hedging instruments:
Interest rate swaps		$	—	Other non-current liabilities	$	2,176
Fair value hedges of consigned inventory	Other assets	33,797			—
Total derivatives designated as hedging instruments		33,797			2,176
Total derivatives		$	48,888		$	3,060

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 March 31, 2016
Interest rate swaps	$	(1,051	)	Interest expense	$	(70	)		$	—
Total derivatives	$	(1,051	)		$	(70	)		$	—

For the Three Months Ended March 31, 2015
Commodity contracts (swaps)	$	(1,912	)	Cost of sales	$	7,982			$	—
Interest rate swaps	(915		)	Interest expense	(15		)		—
Total derivatives	$	(2,827	)		$	7,967			$	—

Derivatives in fair value hedging relationships:



		Gain (Loss) Recognized in Income
		For the Three Months Ended
		March 31,
	Location	2016			2015
Fair value hedges of consigned inventory (1)	Interest expense	$	(1,215	)	$	5,788
Total derivatives		$	(1,215	)	$	5,788

________________


(1)	Changes in the fair value hedges are substantially offset in earnings by changes in the hedged items.

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ALON USA ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(unaudited, dollars in thousands except as noted)

Derivatives not designated as hedging instruments:



		Gain (Loss) Recognized in Income
		For the Three Months Ended
		March 31,
	Location	2016		2015
Commodity contracts (futures and forwards)	Cost of sales	$	5,213	$	(5,358	)
Commodity contracts (swaps)	Cost of sales	366		21,861
Total derivatives		$	5,579	$	16,503

Offsetting Assets and Liabilities

Our derivative 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 March 31, 2016 and December 31, 2015:



	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 March 31, 2016
Derivative Assets:
Commodity contracts (futures and forwards)	$	1,160	$	(807	)	$	353	$	(353	)	$	—	$	—
Commodity contracts (swaps)	29,632		(18,166		)	11,466		—			—		11,466
Fair value hedges of consigned inventory	32,582		—			32,582		—			—		32,582
Derivative Liabilities:
Commodity contracts (futures and forwards)	$	1,762	$	(807	)	$	955	$	(353	)	$	—	$	602
Commodity contracts (swaps)	18,166		(18,166		)	—		—			—		—
Interest rate swaps	3,227		—			3,227		—			—		3,227

As of December 31, 2015
Derivative Assets:
Commodity contracts (futures and forwards)	$	1,112	$	(820	)	$	292	$	(292	)	$	—	$	—
Commodity contracts (swaps)	39,739		(24,940		)	14,799		—			—		14,799
Interest rate swaps	30		(30		)	—		—			—		—
Fair value hedges of consigned inventory	33,797		—			33,797		—			—		33,797
Derivative Liabilities:
Commodity contracts (futures and forwards)	$	1,704	$	(820	)	$	884	$	(292	)	$	—	$	592
Commodity contracts (swaps)	24,940		(24,940		)	—		—			—		—
Interest rate swaps	2,206		(30		)	2,176		—			—		2,176

Compliance Program Market Risk

We are obligated by government regulations to blend a certain percentage of biofuels into the products that we produce and 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 renewable identification number, or 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

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ALON USA ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(unaudited, dollars in thousands except as noted)

order to remain in compliance with applicable regulations. Alternatively, if we have a RINs surplus, some of those RINs could be sold. Any such sales would be subject to our normal credit evaluation process.

We are exposed to market risk related to the volatility in the price of credits needed to comply with these governmental and regulatory programs. 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 $11,211 and $12,696 for the three months ended March 31, 2016 and 2015, respectively. These amounts are reflected in cost of sales in the consolidated statements of operations.


(7)	Inventories

Carrying value of inventories consisted of the following:



	March 31, 2016		December 31, 2015
Crude oil, refined products, asphalt and blendstocks	$	47,770	$	42,123
Crude oil consignment inventory (Note 8)	3,113		2,928
Materials and supplies	27,124		26,940
Store merchandise	21,599		28,475
Store fuel	4,798		5,049
Total inventories	$	104,404	$	105,515

The market value of refined products, asphalt and blendstock inventories was lower than LIFO costs by $340 and $836 at March 31, 2016 and December 31, 2015, respectively. The market value of crude oil inventories exceeded LIFO costs, net of the fair value hedged items, by $18,669 and $18,521 at March 31, 2016 and December 31, 2015, respectively.


(8)	Inventory Financing Agreements

We have 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 our Big Spring, Krotz Springs and California refineries and certain 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 for the Big Spring and Krotz Springs refineries have initial terms that expire in May 2021, and the Supply and Offtake Agreement for the California refineries has initial terms that expire in May 2019. J. Aron may elect to terminate the Supply and Offtake Agreements for the Big Spring and Krotz Springs refineries prior to the expiration of the initial term beginning in May 2018 and upon each anniversary thereof, on six months prior notice. We may elect to terminate at the Big Spring and Krotz refineries in May 2020 on six months prior notice. J. Aron may elect to terminate the Supply and Offtake Agreement for the California refineries prior to the expiration of the initial term beginning in May 2016 and upon each anniversary thereof, on six months prior notice. We may elect to terminate at the California refineries 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.

Associated with the Supply and Offtake Agreements, we have designated fair value hedges of our inventory purchase commitments with J. Aron and crude oil inventory consigned to J. Aron (“crude oil consignment inventory”). Additionally, financing charges related to the Supply and Offtake Agreements are recorded as interest expense in the consolidated statements of operations.

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ALON USA ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(unaudited, dollars in thousands except as noted)

In connection with the Supply and Offtake Agreement for our Krotz Springs refinery, we have granted a security interest to J. Aron in all of its accounts and inventory to secure its obligations to J. Aron. In addition, we have granted a security interest in all of its real property and equipment to J. Aron to secure its obligations under a commodity hedge and sale agreement in lieu of posting cash collateral and being subject to cash margin calls.

At March 31, 2016 and December 31, 2015, we had net current payables of $7,830 and net current receivables of $8,385, respectively, with J. Aron for purchases and sales, and a consignment inventory receivable representing a deposit paid to J. Aron of $26,179 and $26,179, respectively. At March 31, 2016 and December 31, 2015, we had non-current liabilities for the original financing of $24,649 and $23,771, respectively, net of the related fair value hedges.

Additionally, we had net current payables of $389 and $328 at March 31, 2016 and December 31, 2015, 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.


(9)	Property, Plant and Equipment, Net

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



	March 31, 2016			December 31, 2015
Refining facilities (1)	$	1,972,028		$	1,915,924
Pipelines and terminals	43,414			43,443
Retail	212,629			209,921
Other	24,812			23,377
Property, plant and equipment, gross	2,252,883			2,192,665
Accumulated depreciation	(838,322		)	(812,463		)
Property, plant and equipment, net	$	1,414,561		$	1,380,202

________________


(1)	Includes the property, plant and equipment of AltAir (Note 2).


(10)	Additional Financial Information

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


(a)	Other Assets, Net



	March 31, 2016		December 31, 2015
Deferred turnaround and catalyst cost	$	89,701	$	87,469
Environmental receivables (Note 17)	2,507		2,648
Intangible assets, net	16,369		14,505
Receivable from supply and offtake agreements (Note 8)	26,179		26,179
Fair value hedges of consigned inventory (Note 8)	32,582		33,797
Other, net	25,732		21,027
Total other assets	$	193,070	$	185,625


(b)	Accounts Payable

Included in accounts payable was $144,242 and $91,179 related to RINs activity as of March 31, 2016 and December 31, 2015, respectively.

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ALON USA ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(unaudited, dollars in thousands except as noted)


(c)	Accrued Liabilities and Other Non-Current Liabilities



	March 31, 2016		December 31, 2015
Accrued Liabilities:
Taxes other than income taxes, primarily excise taxes	$	37,298	$	35,375
Employee costs	32,532		25,202
Commodity contracts	955		884
Accrued finance charges	677		1,789
Environmental accrual (Note 17)	7,880		7,880
Other	19,487		22,650
Total accrued liabilities	$	98,829	$	93,780

Other Non-Current Liabilities:
Pension and other postemployment benefit liabilities, net	$	49,367	$	49,054
Environmental accrual (Note 17)	38,470		38,482
Asset retirement obligations	11,058		10,906
Consignment inventory obligations (Note 8)	57,231		57,568
Interest rate swaps	3,227		2,176
Other	7,706		7,749
Total other non-current liabilities	$	167,059	$	165,935


(11)	Postretirement Benefits

The components of net periodic benefit cost related to our benefit plans for the three months ended March 31, 2016 and 2015 consisted of the following:



	For the Three Months Ended
	March 31,
	2016			2015
Components of net periodic benefit cost:
Service cost	$	952		$	996
Interest cost	1,409			1,256
Expected return on plan assets	(1,749		)	(1,582		)
Amortization of net loss	806			839
Net periodic benefit cost	$	1,418		$	1,509

Our estimated contributions to our pension plans during 2016 have not changed significantly from amounts previously disclosed in the notes to the consolidated financial statements for the year ended December 31, 2015. For the three months ended March 31, 2016 and 2015, we contributed $1,181 and $1,030, respectively, to our qualified pension plans.


(12)	Indebtedness

Debt consisted of the following:



	March 31, 2016		December 31, 2015
Term loan credit facilities	$	254,873	$	256,519
Alon USA, LP Credit Facility	55,000		55,000
Convertible senior notes	131,295		129,623
Retail credit facilities	112,894		114,820
Total debt	554,062		555,962
Less: Current portion	16,413		16,420
Total long-term debt	$	537,649	$	539,542

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ALON USA ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(unaudited, dollars in thousands except as noted)

(a) Letter of Credit Facility and Alon USA, LP Revolving Credit Facility

We had letters of credit outstanding under our $60,000 letter of credit facility of $37,636 and $60,627 at March 31, 2016 and December 31, 2015, respectively.

We had borrowings of $55,000 and $55,000 and letters of credit of $53,200 and $48,590 outstanding under the Alon USA, LP $240,000 revolving credit facility at March 31, 2016 and December 31, 2015, respectively.

(b) Convertible Senior Notes

The conversion rate for our 3.00% unsecured convertible senior notes (“Convertible Notes”) is subject to adjustment upon the occurrence of certain events, including cash dividend adjustments, but will not be adjusted for any accrued and unpaid interest. As of March 31, 2016, the conversion rate was adjusted to 70.839 shares of our common stock per each $1 (in thousands) principal amount of Convertible Notes, equivalent to a conversion price of approximately $14.12 per share, to reflect cash dividend adjustments. The strike price of the options was adjusted to $14.12 per share and the strike price of the warrants was adjusted to $19.18 per share. Upon a potential change of control, we may have to settle the value of the warrants in accordance with the indenture. Any future quarterly cash dividend payments in excess of $0.06 per share will cause further adjustment based on the formula contained in the indenture governing the Convertible Notes. As of March 31, 2016, there have been no conversions of the Convertible Notes.

In May 2015, Delek US Holdings, Inc. (“Delek”) acquired approximately 48% of our outstanding common stock from Alon Israel Oil Company, Ltd. Delek agreed to a one-year standstill provision limiting Delek’s ability to acquire greater than 49.99% of our outstanding common stock, with additional ownership above this threshold subject to the approval of Alon’s independent directors. If Delek were to acquire greater than 50.00% of our outstanding common stock, it could require us to render a make-whole payment to holders of our Convertible Notes, assuming full conversion of the Convertible Notes. In the event of a conversion, the convertible note options will cover our obligation to render payment under the make-whole provision. Under these circumstances, we could also be required to settle the outstanding warrants, which had a value of approximately $15,000 as of March 31, 2016. Based on our share price as of March 31, 2016, we would not have to render a make-whole payment as our share price was below the minimum share price per the make-whole provision in the indenture.

We have certain credit agreements that contain maintenance financial covenants. At March 31, 2016, 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. As of March 31, 2016 and December 31, 2015, we had 905,727 non-vested restricted shares.

Compensation expense for restricted stock awards amounted to $1,713 and $799 for the three months ended March 31, 2016 and 2015, respectively, and is included in selling, general and administrative expenses in the consolidated statements of operations.

Restricted Stock Units. Compensation expense for restricted stock units granted to our CEO and President amounted to $0 and $249 for the three months ended March 31, 2016 and 2015, respectively, and is included in selling, general and administrative expenses in the consolidated statements of operations.

Partnership Restricted Units. Compensation expense for the Partnership’s restricted common unit grants amounted to $10 and $5 for the three months ended March 31, 2016 and 2015, respectively, and is included in selling, general and administrative expenses in the consolidated statements of operations.

Unrecognized Compensation Cost. As of March 31, 2016, there was $2,866 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 0.4 years.

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ALON USA ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(unaudited, dollars in thousands except as noted)


(14)	Equity (share values in dollars)

Changes to equity during the three months ended March 31, 2016 are presented below:



	Total Stockholders’ Equity			Non-controlling Interest			Total Equity
Balance at December 31, 2015	$	639,138		$	25,022		$	664,160
Other comprehensive loss	(664		)	(4		)	(668		)
Stock compensation	2,279			(159		)	2,120
Acquisition of AltAir	2,427			39,101			41,528
Distributions to non-controlling interest in the Partnership	—			(921		)	(921		)
Dividends	(10,527		)	(133		)	(10,660		)
Net loss	(35,537		)	(523		)	(36,060		)
Balance at March 31, 2016	$	597,116		$	62,383		$	659,499

(a)Common Stock

Amended Shareholder Agreement. In 2012, we signed agreements with the remaining non-controlling interest shareholders of Alon Assets, Inc. (“Alon Assets”) whereby the participants would exchange shares of Alon Assets for shares of our common stock. During the three months ended March 31, 2016, 116,347 shares of our common stock were issued in exchange for 621.98 shares of Alon Assets. At March 31, 2016, 581,736 shares of our common stock are available to be exchanged for all of the outstanding shares held by the non-controlling interest shareholder 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 $397 and $484 for the three months ended March 31, 2016 and 2015, respectively. These amounts are included in selling, general and administrative expenses in the consolidated statements of operations.


(b)	Dividends

On March 18, 2016, we paid a regular quarterly cash dividend of $0.15 per share on common stock to stockholders of record at the close of business on February 26, 2016.


(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, 2015	$	(1,357	)	$	(27,451	)	$	(28,808	)
Other comprehensive income before reclassifications	(708		)	—			(708		)
Amounts reclassified from accumulated other comprehensive loss	44			—			44
Net current-period other comprehensive loss	(664		)	—			(664		)
Balance at March 31, 2016	$	(2,021	)	$	(27,451	)	$	(29,472	)


(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.

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ALON USA ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(unaudited, dollars in thousands except as noted)

The calculation of earnings (loss) per share, basic and diluted, for the three months ended March 31, 2016 and 2015, is as follows (shares in thousands, per share value in dollars):



	For the Three Months Ended
	March 31,
	2016			2015
Net income (loss) available to stockholders	$	(35,537	)	$	26,939
Less: preferred stock dividends	—			15
Net income (loss) available to common stockholders	(35,537		)	26,924

Weighted average shares outstanding, basic	70,143			69,485
Dilutive common stock equivalents	—			1,657
Weighted average shares outstanding, diluted	70,143			71,142
Earnings (loss) per share, basic	$	(0.51	)	$	0.39
Earnings (loss) per share, diluted	$	(0.51	)	$	0.38

For the three months ended March 31, 2016, we excluded 595 common stock equivalents from the weighted average diluted shares outstanding as the effect of including such shares would be anti-dilutive. For the three months ended March 31, 2015, the weighted average diluted shares includes all potentially dilutive common stock equivalents.


(16)	Related Party Transactions

Delek US Holdings, Inc.

In May 2015, Delek completed the purchase of approximately 48% of our outstanding common stock from Alon Israel Oil Company, Ltd. We have transactions with Delek that occur in the ordinary course of business. Including amounts prior to the transaction, we purchased $2,091 and $173 of refined products from Delek for the three months ended March 31, 2016 and 2015, respectively.


(17)	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 commercial arrangement to resolve the dispute have been unsuccessful to this point. This matter is currently scheduled for trial in June 2016. 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.

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ALON USA ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED 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 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 $46,350 ($7,880 current liability and $38,470 non-current liability) at March 31, 2016, and $46,362 ($7,880 current liability and $38,482 non-current liability) at December 31, 2015.

We have an indemnification agreement with a prior owner for part of the remediation expenses at certain West Coast assets. We have recorded current receivables of $623 and $623 and non-current receivables of $2,507 and $2,648 at March 31, 2016 and December 31, 2015, respectively.


(18)	Subsequent Events

Dividend Declared

On May 3, 2016, our board of directors declared the regular quarterly cash dividend of $0.15 per share on our common stock, payable on June 6, 2016, to holders of record at the close of business on May 19, 2016.

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

In this document, the words “Alon,” “we,” “our” and “us” or like terms refer to Alon USA Energy, Inc. and its consolidated subsidiaries or to Alon USA Energy, Inc. or an individual subsidiary. Generally, the words “we,” “our” and “us” include Alon USA Partners, LP and its consolidated subsidiaries (the “Partnership”) as consolidated subsidiaries of Alon USA Energy, Inc. unless when used in disclosures of transactions or obligations between the Partnership and Alon USA Energy, Inc., or its other subsidiaries. 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, 2015.

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;


•	changes in the ownership of our common stock by Delek US Holdings, Inc. (“Delek”), which may trigger change of control provisions contained in the agreements and instruments governing our convertible senior notes and the related purchased options and warrant transactions;

•

termination of our Supply and Offtake Agreements with J. Aron & Company (“J. Aron”), which include all of our refineries and certain of our asphalt terminals, under which J. Aron is one of our largest suppliers of crude oil and one of our largest customers 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 and cost of compliance with the renewable fuel standards program, including the availability, cost and price volatility of renewable identification numbers;

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•	the effects and cost of compliance with current and future state and federal environmental, economic, safety and other laws, policies and regulations;


•	the effects of seasonality on demand for our products;


•	the level of competition from other petroleum refiners;


•	operating hazards, accidents, fires, severe weather, floods and other natural disasters, casualty losses and other matters beyond our control, which could result in unscheduled downtime;


•	the effect of any national or international financial crisis 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, 2015 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. We own 100% of the general partner and 81.6% of the limited partner interests in the Partnership (NYSE: ALDW), which owns a crude oil refinery in Big Spring, Texas, with a crude oil throughput capacity of 73,000 barrels per day and an integrated wholesale marketing business. In addition, we directly own a crude oil refinery in Krotz Springs, Louisiana, with a crude oil throughput capacity of 74,000 bpd. We also own crude oil refineries in California, which have not processed crude oil since 2012. We are a leading marketer of asphalt, which we distribute primarily through asphalt terminals located predominately in the Southwestern and Western United States. We are the largest 7-Eleven licensee in the United States and operate approximately 300 convenience stores which also market motor fuels in Central and West Texas and New Mexico.

Refining and Marketing

Our refining and marketing segment includes a sour crude oil refinery located in Big Spring, Texas, a light sweet crude oil refinery located in Krotz Springs, Louisiana, and heavy crude oil refineries located in Paramount, Bakersfield and Long Beach, California (“California refineries”). Our California refineries have not processed crude oil since 2012 due to the high costs of crude oil relative to product yield and low asphalt demand. Beginning in February 2016, our renewable fuels project, AltAir, began commercial production. We refine crude oil into petroleum products, including various grades of 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.

We own the Big Spring refinery and its integrated wholesale marketing operations through the Partnership. Our marketing of transportation fuels produced at the Big Spring refinery is focused on Central and West Texas, Oklahoma, New Mexico and Arizona. We refer to our operations in these regions as our “physically integrated system” because our distributors in this region are supplied primarily with motor fuels produced at our Big Spring refinery and distributed through a network of pipelines and terminals that we own or access through leases or long-term throughput agreements.

We sell motor fuels under the Alon brand through various terminals to supply 632 locations, including our retail segment convenience stores. We provide substantially all of our branded customers motor fuels, brand support and payment processing services in addition to the license of the Alon brand name and associated trade dress.

We market transportation fuel production from our Krotz Springs refinery substantially through bulk sales and exchange channels. These bulk sales and exchange arrangements are entered into with various oil companies and trading companies and are transported to markets on the Mississippi River and the Atchafalaya River as well as to the Colonial Pipeline.

Asphalt

We own or operate 11 asphalt terminals located in Texas (Big Spring), Washington (Richmond Beach), California (Paramount, Long Beach, Elk Grove, Bakersfield and Mojave), Arizona (Phoenix and Flagstaff) as well as asphalt terminals in which we own a 50% interest located in Fernley, Nevada, and Brownwood, Texas. 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.

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We purchase non-blended asphalt from third parties in addition to non-blended asphalt produced at the Big Spring refinery. We market asphalt through our terminals as blended and non-blended asphalt. We have an exclusive license to use advanced asphalt-blending technology in West Texas, Arizona, New Mexico and Colorado, and a non-exclusive license in Idaho, Montana, Nevada, North Dakota, Utah and Wyoming, with respect to asphalt produced at our Big Spring refinery.

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. We market asphalt primarily as paving asphalt to road and materials manufacturers and as ground tire rubber polymer modified or emulsion asphalt to highway construction/maintenance contractors. Sales of asphalt are seasonal with the majority of sales occurring between May and October.

Retail

Our convenience stores typically offer various grades of gasoline, diesel, food products, food service, tobacco products, non-alcoholic and alcoholic beverages, general merchandise as well as money orders to the 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.

For additional information on each of our operating segments, see Items 1. and 2. “Business and Properties” included in our Annual Report on Form 10-K for the year ended December 31, 2015.

First Quarter Operational and Financial Highlights

Operating loss for the first quarter of 2016 was $39.4 million, compared to operating income of $67.6 million for the same period last year. Our operational and financial highlights for the first quarter of 2016 include the following:

•

Combined refinery average throughput for the first quarter of 2016 was 138,998 bpd, compared to a combined refinery average throughput of 145,229 bpd for the first quarter of 2015. The Big Spring refinery average throughput for the first quarter of 2016 was 67,536 bpd, compared to 72,360 bpd for the first quarter of 2015. The Krotz Springs refinery average throughput for the first quarter of 2016 was 71,462 bpd, compared to 72,869 bpd for the first quarter of 2015. The reduced throughput at our Big Spring refinery was the result of planned downtime to complete a reformer regeneration and catalyst replacement for our diesel hydrotreater unit in the beginning of the first quarter of 2016.

•

Refinery operating margin at the Big Spring refinery was $7.77 per barrel for the first quarter of 2016 compared to $13.80 per barrel for the same period in 2015. This decrease in operating margin was primarily due to a lower Gulf Coast 3/2/1 crack spread and a narrowing of both the WTI Cushing to WTI Midland and the WTI Cushing to WTS spreads, partially offset by the cost of crude benefit from the market moving further into contango in 2016.

•

Refinery operating margin at the Krotz Springs refinery was $1.59 per barrel for the first quarter of 2016 compared to $9.52 per barrel for the same period in 2015. This decrease in operating margin was primarily due to a lower Gulf Coast 2/1/1 high sulfur diesel crack spread and a narrowing of both the WTI Cushing to WTI Midland and the LLS to WTI Cushing spreads, partially offset by the cost of crude benefit from the market moving further into contango in 2016.


•	The average Gulf Coast 3/2/1 crack spread was $11.24 per barrel for the first quarter of 2016 compared to $17.74 per barrel for the first quarter of 2015. The average Gulf Coast 2/1/1 high sulfur diesel crack spread for the first quarter of 2016 was $6.74 per barrel compared to $13.41 per barrel for the first quarter of 2015.

•

The average WTI Cushing to WTI Midland spread for the first quarter of 2016 was $(0.13) per barrel compared to $1.95 per barrel for the same period in 2015. The average WTI Cushing to WTS spread for the first quarter of 2016 was $(0.10) per barrel compared to $1.76 per barrel for the same period in 2015. The average Brent to WTI Cushing spread for the first quarter of 2016 was $0.49 per barrel compared to $5.44 per barrel for the same period in 2015. The average LLS to WTI Cushing spread for the first quarter of 2016 was $1.60 per barrel compared to $2.64 per barrel for the same period in 2015. The average Brent to LLS spread for the first quarter of 2016 was $(0.89) per barrel compared to $0.84 per barrel for the same period in 2015.


•	The contango environment in the first quarter of 2016 created an average cost of crude benefit of $1.83 per barrel compared to an average cost of crude benefit of $0.65 per barrel for the same period in 2015.


•	On March 1, 2016, we began consolidating our renewable fuels project, AltAir, as part of our refining and marketing segment in our consolidated financial statements. For the first quarter of 2016, our statements of operations include revenues of $27.9 million and operating income of $7.2 million related to AltAir’s operations.

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•	Asphalt margins in the first quarter of 2016 were $84.16 per ton compared to $84.76 per ton in the first quarter of 2015.

•

Retail fuel margins decreased to 19.9 cents per gallon in the first quarter of 2016 from 23.6 cents per gallon in the first quarter of 2015. Retail fuel sales volume increased to 50.0 million gallons in the first quarter of 2016 from 46.1 million gallons in the first quarter of 2015. Merchandise margins decreased to 31.5% in the first quarter of 2016 from 33.2% in the first quarter of 2015. Merchandise sales increased to $77.8 million in the first quarter of 2016 from $76.1 million in the first quarter of 2015.

Major Influences on Results of Operations

Refining and Marketing. Earnings and cash flows from our refining and marketing segment are primarily affected by the difference between refined product prices and the prices for crude oil and other feedstocks. These prices depend on numerous factors beyond our control, including the supply of, and demand for, crude oil, gasoline and other refined products which, in turn, depend on, among other factors, changes in domestic and foreign economies, weather conditions, domestic and foreign political affairs, production levels, the availability of imports, the marketing of competitive fuels and government regulation. While our sales and operating revenues fluctuate significantly with movements in crude oil and refined product prices, it is the spread between crude oil and refined product prices, not necessarily fluctuations in those prices, that affects our earnings.

In order to measure our operating performance, we compare our per barrel refinery operating margins to certain industry benchmarks. We calculate this margin for each refinery by dividing the refinery’s gross margin by its throughput volumes. Gross margin is the difference between net sales and cost of sales (exclusive of certain adjustments). Each refinery is compared to an industry benchmark that is intended to approximate that refinery’s crude slate and product yield.

We compare our Big Spring refinery’s operating margin to the Gulf Coast 3/2/1 crack spread. A Gulf Coast 3/2/1 crack spread is calculated assuming that three barrels of WTI Cushing crude oil are converted, or cracked, into two barrels of Gulf Coast conventional gasoline and one barrel of Gulf Coast ultra-low sulfur diesel.

We compare our Krotz Springs refinery’s operating margin to the Gulf Coast 2/1/1 high sulfur diesel crack spread. A Gulf Coast 2/1/1 high sulfur diesel crack spread is calculated assuming that two barrels of LLS crude oil are converted into one barrel of Gulf Coast conventional gasoline and one barrel of Gulf Coast high sulfur diesel.

Our Big Spring refinery is capable of processing substantial volumes of sour crude oil, which has historically cost less than intermediate and sweet crude oils. We measure the cost advantage of refining sour crude oil by calculating the difference between the price of WTI Cushing crude oil and the price of WTS, a medium, sour crude oil. We refer to this differential as the WTI Cushing/WTS, or sweet/sour, spread. A widening of the sweet/sour spread can favorably influence the operating margin for our Big Spring refinery. The Big Spring refinery’s crude oil input is primarily comprised of WTS and WTI Midland.

The Krotz Springs refinery has the capability to process substantial volumes of low-sulfur, or sweet, crude oils to produce a high percentage of light, high-value refined products. Sweet crude oil typically comprises 100% of the Krotz Springs refinery’s crude oil input. The Krotz Springs refinery’s crude oil input is primarily comprised of LLS and WTI Midland.

In addition, the location of the Big Spring refinery near Midland, the largest origination terminal for West Texas crude oil, provides reliable crude sourcing with a relatively low transportation cost. We are also able to source locally produced crude at Big Spring by truck, which tends to have cost and quality advantages. The WTI Cushing less WTI Midland spread represents the differential between the average per barrel price of WTI Cushing crude oil and the average per barrel price of WTI Midland crude oil. A widening of the WTI Cushing less WTI Midland spread will favorably influence the operating margin for both our Big Spring and Krotz Springs refineries. Alternatively, a narrowing of this differential will have an adverse effect on our operating margins.

Recently, the additional takeaway capacity moving crude from Midland to the Gulf Coast has caused a contraction of the WTI Cushing less WTI Midland spread. In addition, the relative small growth in WTS production compared to WTI production and the relative high demand for WTS has caused a contraction of the WTI Cushing less WTS spread.

Global product prices are influenced by the price of Brent crude which is a global benchmark crude. Global product prices influence product prices in the U.S. As a result, both our Big Spring and Krotz Springs refineries are influenced by the spread between Brent crude and WTI Cushing. The Brent less WTI Cushing spread represents the differential between the average per barrel price of Brent crude oil and the average per barrel price of WTI Cushing crude oil. A widening of the spread between Brent and WTI Cushing will favorably influence both the Big Spring and Krotz Springs refineries’ operating margins. Also, the Krotz Springs refinery is influenced by the spread between Brent crude and LLS. The Brent less LLS spread represents the differential between the average per barrel price of Brent crude oil and the average per barrel price of LLS crude oil. A widening of the spread between Brent and LLS will favorably influence the Krotz Springs refinery operating margins.

The results of operations from our refining and marketing segment are also significantly affected by our refineries’ operating costs, particularly the cost of natural gas used for fuel and the cost of electricity. Natural gas prices have historically been volatile. Typically, electricity prices fluctuate with natural gas prices.

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Demand for gasoline products is generally higher during summer months than during winter months due to seasonal increases in highway traffic. As a result, the operating results for our refining and marketing segment for the first and fourth calendar quarters are generally lower than those for the second and third calendar quarters. The effects of seasonal demand for gasoline are partially offset by seasonality in demand for diesel, which in our region is generally higher in winter months as east-west trucking traffic moves south to avoid winter conditions on northern routes.

Safety, reliability and the environmental performance of our refineries are critical to our financial performance. The financial impact of planned downtime, such as a turnaround or major maintenance project, is mitigated through a diligent planning process that considers expectations for product availability, margin environment and the availability of resources to perform the required maintenance.

The nature of our business requires us to maintain crude oil and refined product inventories. Crude oil and refined products are essentially commodities, and we have no control over the changing market value of these inventories. Because our inventory is valued at the lower of cost or market value under the last-in, first-out (“LIFO”) inventory valuation methodology, price fluctuations generally have little effect on our financial results.

Asphalt. Earnings and cash flows from our asphalt segment depend primarily upon the margin between the price at which we sell our asphalt and the price asphalt is purchased from third parties or the transfer price for asphalt produced at the Big Spring refinery. Asphalt is transferred to our asphalt segment from our refining and marketing segment at prices substantially determined by reference to the cost of crude oil, which is intended to approximate wholesale market prices. A portion of our asphalt sales are made using fixed price contracts for delivery at future dates. Because these contracts are priced using market prices for asphalt at the time of the contract, a change in the cost of crude oil between the time we enter into the contract and the time we produce the asphalt can positively or negatively influence the earnings of our asphalt segment. Demand for paving asphalt products is higher during warmer months than during colder months due to seasonal increases in road construction work. As a result, revenues from our asphalt segment for the first and fourth calendar quarters are expected to be lower than those for the second and third calendar quarters.

Retail. Earnings and cash flows from our retail segment are primarily affected by merchandise and retail fuel sales volumes and margins at our convenience stores. Retail merchandise gross margin is equal to retail merchandise sales less the delivered cost of the retail merchandise, net of vendor discounts and rebates, measured as a percentage of total retail merchandise sales. Retail merchandise sales are driven by convenience, branding and competitive pricing. Retail fuel margin is equal to retail fuel sales less the delivered cost of fuel and excise taxes, measured on a cents per gallon (“cpg”) basis. Our retail fuel margins are driven by local supply, demand and competitor pricing. Our retail sales are seasonal and peak in the second and third quarters of the year, while the first and fourth quarters usually experience lower overall sales.

Factors Affecting Comparability

Our financial condition and operating results over the three months ended March 31, 2016 and 2015 have been influenced by the following factors which are fundamental to understanding comparisons of our period-to-period financial performance.

Planned Maintenance and Reduced Crude Oil Throughput

During the three months ended March 31, 2016, throughput at the Big Spring refinery was reduced as a result of planned downtime to complete a reformer regeneration and catalyst replacement for our diesel hydrotreater unit.

Certain Derivative Impacts

Included in cost of sales in the consolidated statements of operations for the three months ended March 31, 2016 are realized and unrealized gains on commodity swaps of $0.4 million, compared to $29.8 million for the three months ended March 31, 2015.

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Results of Operations

The period-to-period comparison of our results of operations has been prepared using the historical periods included in our consolidated financial statements. We refer to our financial statement line items in the explanation of our period-to-period changes in results of operations. Below are general definitions of what those line items include and represent.

Net Sales. Net sales consist primarily of sales of refined petroleum products through our refining and marketing segment and asphalt segment and sales of merchandise, food products and motor fuels through our retail segment.

Refining and marketing net sales consist of gross sales, net of customer rebates, discounts and excise taxes and include intersegment sales to our asphalt and retail segments, which are eliminated through consolidation of our financial statements. Asphalt net sales consist of gross sales, net of any discounts and applicable taxes. Our petroleum and asphalt product sales are mainly affected by crude oil and refined product prices and volume changes caused by operations. Retail net sales consist of gross merchandise sales, less rebates, commissions and discounts, and gross fuel sales, including excise taxes. Our retail merchandise sales are affected primarily by competition and seasonal influences.

Cost of Sales. Refining and marketing cost of sales includes principally crude oil, blending materials and RINs, other raw materials and transportation costs, which include costs associated with crude oil and product pipelines which we utilize. Asphalt cost of sales includes costs of purchased asphalt, blending materials and transportation costs. Retail cost of sales includes motor fuels and merchandise. Retail fuel cost of sales represents the cost of purchased fuel, including transportation costs and associated excise taxes. Merchandise cost of sales includes the delivered cost of merchandise purchases, net of merchandise rebates and commissions. Cost of sales excludes depreciation and amortization expense, which is presented separately in the consolidated statements of operations.

Direct Operating Expenses. Direct operating expenses, which relate to our refining and marketing and asphalt segments, include costs associated with the actual operations of our refineries and asphalt terminals, such as energy and utility costs, routine maintenance, labor, insurance and environmental compliance costs.

Selling, General and Administrative Expenses. Selling, general and administrative, or SG&A, expenses consist primarily of costs relating to the operations of our convenience stores, including labor, utilities, maintenance and retail corporate overhead costs. Corporate overhead and wholesale marketing expenses are also included in SG&A expenses for the refining and marketing and asphalt segments.

Operating income. Operating income represents our net sales less our total operating costs and expenses.

Interest expense. Interest expense includes interest expense, letters of credit, financing charges related to the supply and offtake agreements, financing fees, and amortization of both original issuance discount and deferred debt issuance costs but excludes capitalized interest.

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ALON USA ENERGY, INC. AND SUBSIDIARIES CONSOLIDATED

Summary Financial Tables. The following tables provide summary financial data and selected key operating statistics for Alon and our three operating segments for the three months ended March 31, 2016 and 2015. The summary financial data for our three operating segments does not include certain SG&A expenses and depreciation and amortization related to our corporate headquarters. The following data should be read in conjunction with our consolidated financial statements and the notes thereto included elsewhere in this Form 10-Q. All information in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” except for Balance Sheet data as of December 31, 2015 is unaudited.



	For the Three Months Ended
	March 31,
	2016			2015
	(dollars in thousands, except per share data)
STATEMENTS OF OPERATIONS DATA:
Net sales (1)	$	849,973		$	1,103,240
Operating costs and expenses:
Cost of sales	735,144			894,488
Direct operating expenses	68,617			64,205
Selling, general and administrative expenses (2)	48,701			45,596
Depreciation and amortization (3)	34,862			31,962
Total operating costs and expenses	887,324			1,036,251
Gain (loss) on disposition of assets	(2,088		)	572
Operating income (loss)	(39,439		)	67,561
Interest expense	(18,307		)	(21,037		)
Equity earnings (losses) of investees	378			(554		)
Other income, net	72			46
Income (loss) before income tax expense (benefit)	(57,296		)	46,016
Income tax expense (benefit)	(21,236		)	11,961
Net income (loss)	(36,060		)	34,055
Net income (loss) attributable to non-controlling interest	(523		)	7,116
Net income (loss) available to stockholders	$	(35,537	)	$	26,939
Earnings (loss) per share, basic	$	(0.51	)	$	0.39
Weighted average shares outstanding, basic (in thousands)	70,143			69,485
Earnings (loss) per share, diluted	$	(0.51	)	$	0.38
Weighted average shares outstanding, diluted (in thousands)	70,143			71,142
Cash dividends per share	$	0.15		$	0.10
CASH FLOW DATA:
Net cash provided by (used in):
Operating activities	$	(29,351	)	$	(19,221	)
Investing activities	(47,017		)	(11,613		)
Financing activities	35,624			6,338
OTHER DATA:
Adjusted EBITDA (4)	$	(2,039	)	$	98,443
Capital expenditures (5)	23,446			10,749
Capital expenditures for turnarounds and catalysts	16,610			2,333

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	March 31, 2016		December 31, 2015
BALANCE SHEET DATA (end of period):	(dollars in thousands)
Cash and cash equivalents	$	193,383	$	234,127
Working capital	45,323		78,694
Total assets	2,213,210		2,176,138
Total debt	554,062		555,962
Total debt less cash and cash equivalents	360,679		321,835
Total equity	659,499		664,160


(1)	Includes excise taxes on sales by the retail segment of $19,525 and $18,056 for the three months ended March 31, 2016 and 2015, respectively.


(2)	Includes corporate headquarters selling, general and administrative expenses of $191 and $176 for the three months ended March 31, 2016 and 2015, respectively, which are not allocated to our three operating segments.


(3)	Includes corporate depreciation and amortization of $419 and $469 for the three months ended March 31, 2016 and 2015, respectively, which are not allocated to our three operating segments.

(4)

Adjusted EBITDA represents earnings before net income (loss) attributable to non-controlling interest, income tax expense (benefit), interest expense, depreciation and amortization and (gain) loss on disposition of assets. Adjusted EBITDA is not a recognized measurement under GAAP; however, the amounts included in Adjusted EBITDA are derived from amounts included in our consolidated financial statements. Our management believes that the presentation of Adjusted EBITDA is useful to investors because it is frequently used by securities analysts, investors, and other interested parties in the evaluation of companies in our industry. In addition, our management believes that Adjusted EBITDA is useful in evaluating our operating performance compared to that of other companies in our industry because the calculation of Adjusted EBITDA generally eliminates the effects of net income (loss) attributable to non-controlling interest, income tax expense (benefit), interest expense, (gain) loss on disposition of assets and the accounting effects of capital expenditures and acquisitions, items that may vary for different companies for reasons unrelated to overall operating performance.

Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:


•	Adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;


•	Adjusted EBITDA does not reflect the interest expense or the cash requirements necessary to service interest or principal payments on our debt;


•	Adjusted EBITDA does not reflect the prior claim that non-controlling interest have on the income generated by non-wholly-owned subsidiaries;


•	Adjusted EBITDA does not reflect changes in or cash requirements for our working capital needs; and


•	Our calculation of Adjusted EBITDA may differ from EBITDA calculations of other companies in our industry, limiting its usefulness as a comparative measure.

Because of these limitations, Adjusted EBITDA should not be considered a measure of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our GAAP results and using Adjusted EBITDA only supplementally.

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The following table reconciles net income (loss) available to stockholders to Adjusted EBITDA for the three months ended March 31, 2016 and 2015:



	For the Three Months Ended
	March 31,
	2016			2015
	(dollars in thousands)
Net income (loss) available to stockholders	$	(35,537	)	$	26,939
Net income (loss) attributable to non-controlling interest	(523		)	7,116
Income tax expense (benefit)	(21,236		)	11,961
Interest expense	18,307			21,037
Depreciation and amortization	34,862			31,962
(Gain) loss on disposition of assets	2,088			(572		)
Adjusted EBITDA	$	(2,039	)	$	98,443

Adjusted EBITDA does not exclude unrealized (gains) losses on commodity swaps of $3,333 and $(18,403) for the three months ended March 31, 2016 and 2015, respectively, which are included in net income (loss) available to stockholders. Additionally, Adjusted EBITDA does not exclude a loss of $10,666 for the three months ended March 31, 2015 resulting from a price adjustment related to asphalt inventory.


(5)	Includes corporate capital expenditures of $1,436 and $1,621 for the three months ended March 31, 2016 and 2015, respectively, which are not allocated to our three operating segments.

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REFINING AND MARKETING SEGMENT
	For the Three Months Ended
	March 31,
	2016			2015
	(dollars in thousands, except per barrel data and pricing statistics)
STATEMENTS OF OPERATIONS DATA:
Net sales (1)	$	696,613		$	959,492
Operating costs and expenses:
Cost of sales	626,036			783,391
Direct operating expenses	62,793			56,326
Selling, general and administrative expenses	18,275			17,339
Depreciation and amortization	29,784			27,311
Total operating costs and expenses	736,888			884,367
Gain (loss) on disposition of assets	(2,088		)	522
Operating income (loss)	$	(42,363	)	$	75,647
KEY OPERATING STATISTICS:
Per barrel of throughput:
Refinery operating margin – Big Spring (2)	$	7.77		$	13.80
Refinery operating margin – Krotz Springs (2)	1.59			9.52
Refinery direct operating expense – Big Spring (3)	4.07			3.60
Refinery direct operating expense – Krotz Springs (3)	3.83			3.80
Capital expenditures	$	18,559		$	4,406
Capital expenditures for turnarounds and catalysts	16,610			2,333
PRICING STATISTICS:
Crack spreads (3/2/1) (per barrel):
Gulf Coast	$	11.24		$	17.74
Crack spreads (2/1/1) (per barrel):
Gulf Coast high sulfur diesel	$	6.74		$	13.41
WTI Cushing crude oil (per barrel)	$	33.30		$	48.48
Crude oil differentials (per barrel):
WTI Cushing less WTI Midland	$	(0.13	)	$	1.95
WTI Cushing less WTS	(0.10		)	1.76
LLS less WTI Cushing	1.60			2.64
Brent less LLS	(0.89		)	0.84
Brent less WTI Cushing	0.49			5.44
Product price (dollars per gallon):
Gulf Coast unleaded gasoline	$	1.07		$	1.52
Gulf Coast ultra-low sulfur diesel	1.03			1.69
Gulf Coast high sulfur diesel	0.91			1.55
Natural gas (per MMBtu)	1.98			2.81

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THROUGHPUT AND PRODUCTION DATA: BIG SPRING REFINERY	For the Three Months Ended
THROUGHPUT AND PRODUCTION DATA: BIG SPRING REFINERY	March 31,
	2016		2015
	bpd	%	bpd	%
Refinery throughput:
WTS crude	36,554	54.1	44,865	62.0
WTI crude	27,760	41.1	24,137	33.4
Blendstocks	3,222	4.8

Alon USA Energy, Inc. - FORM 10-Q - May 6, 2016

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