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Alon USA Energy, Inc.

7616 LBJ Freeway, Suite 300

Dallas, TX 75251-1100

www.alonusa.com

ALON USA

A unique

combination of

refiner and

retailer

ALON USA 2005 ANNUAL REPORT

Refining

Refining is the critical link between crude oil and the

fuel that consumers purchase and use in everyday life.

Our refinery in Big Spring, Texas, has a capacity of 70,000

barrels per day (BPD) and is especially suited to the

processing of lower-cost sour crude into fuel and other

products providing us a significant competitive advantage.

Wholesale Marketing

We market fuel products to more than 1,200 FINA-

branded stores in six states. Reflecting our commitment

to integration, almost half of these stores are physically

integrated with our refinery. In addition, we market

unbranded fuels and other refined products.

Retail Marketing

Southwest Convenience Stores, our retail subsidiary, is

the largest 7-Eleven licensee in the country. Through it,

we operate 167 convenience stores under the FINA and

7-Eleven brands in West Texas and New Mexico.

Asphalts and Solvents

We produce 23 different grades of asphalt including

high-value, high-performance grades for paving. We

also produce a range of aromatic solvents for customers

in the oil and chemical industries.

Giving Back

We believe in giving back to the communities we serve.

From individual events like the American Heart Walk

to ongoing programs like United Way and Communities

in Schools, we donate time, money and talent to support

a diverse range of programs that benefit everyone in

the community.

Alon USA Energy, Inc. is an independent

refiner and marketer of petroleum products

operating primarily in the Southwestern and

South Central regions of the United States.

Committed to an integrated business strategy,

the company owns and operates a refinery,

markets and sells gasoline and diesel products,

operates convenience stores in West Texas

and New Mexico, and is a leading supplier of

asphalts and solvents. Headquartered in Dallas,

Texas, the company employs more than

1,400 individuals.

WhatWho

ALON USA CORPORATE INFORMATION

Headquarters

Alon USA Energy, Inc.

7616 LBJ Freeway, Suite 300

Dallas, TX 75251-1100

Stock Exchange Listing

New York Stock Exchange

Ticker Symbol: ALJ

Annual Meeting

Tuesday, May 9th 9:00 a.m.

at the Frontiers of Flight Museum

Love Field

6911 Lemmon Ave

Dallas, TX 75209

Auditors

KPMG LLP

Dallas, TX

Transfer Agent

Mellon Investor Services, LLC

85 Challenger Road

Ridgefield Park, NJ 07660

(886)-683-2969

Form 10-K

The company’s annual report on

Form 10-K, which is filed with the

Securities and Exchange Commission,

is available upon request and may

be obtained by writing:

Investor Relations

Alon USA Energy, Inc.

7616 LBJ Freeway, Suite 300

Dallas, TX 75251-1100

OFFICERS AND DIRECTORS

Officers

David Wiessman

Executive Chairman of the Board

Jeff D. Morris

President and Chief Executive Officer

Claire A. Hart

Senior Vice President

Shai Even

Vice President, Chief Financial Officer

and Treasurer

Harlin R. Dean

Vice President, General Counsel

and Secretary

Joe A. Concienne

Vice President of Refining and Transportation

Joseph Israel

Vice President of Mergers and Acquisitions

Jimmy C. Crosby

Vice President of Supply and Planning

Joseph Lipman

President and Chief Executive Officer of

Southwest Convenience Stores

Directors

David Wiessman

Jeff D. Morris

Pinchas Cohen

Boaz Biran

Ron Haddock

Itzhak Bader

Yeshayahu Pery

Zalman Segal

Avraham Shochat

Shaul Gliksberg

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

NET INCOME

(Thousands)

´03 ´04 ´05

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

STOCKHOLDERS’ EQUITY

(Thousands)

´03 ´04 ´05

$50,000

$25,000

$100,000

$75,000

$150,000

$125,000

NET CASH PROVIDED BY

OPERATING ACTIVITIES

(Thousands)

´03 ´04 ´05

Where

LOUISIANA

ARKANSAS

OKLAHOMA

TEXAS

NEW MEXICO

ARIZONA

CALIFORNIA

Bakersfield

Phoenix

Tucson

Bloomfield

Albuquerque

Moriarty

El Paso

Orla

Midland

Lubbock

Wichita Falls

Duncan

Abilene

Big Spring

Dallas/Ft Worth

(Southlake)

Nederland

Big Spring Refinery

Third Party Pipeline

Unfinished Pipeline

Alon Product / Asphalt Terminal

Third Party Terminal

Exchange Terminal

FINANCIAL HIGHLIGHTS

(in thousands except per share data)

2005 2004 2003

Net sales $ 2,328,507 $ 1,707,564 $ 1,410,766

Operating income 188,763 69,439 42,293

Net income 103,988 25,132 14,068

Earnings per share, 2.61 .72 .40

basic and diluted

Net cash provided by 137,895 76,743 76,173

operating activities

Stockholders’ equity 279,493 71,472 46,923

Dear Fellow Shareholders:

We believe 2005 was nothing less than a transformative year at Alon USA. We produced record results, significantly surpassing

those achieved in 2004: net income nearly quadrupled to $104 million from $25 million; operating income almost tripled to

$189 million from $69 million, and cash flow from operations increased 79% to $138 million from $77 million. Despite the

size of these gains, the most telling statistic is the improvement in our balance sheet with $190 million more cash than debt at

year-end (including short-term investments), compared to $124 more debt than cash at the end of 2004. This more than $300

million transformation in a single year not only positions us for future growth, it also marks the vision, discipline and

operational excellence we put to work for our customers and shareholders every day.

CREATING A TRANSFORMATION

Last year’s results reflect the impact of three major accomplishments. First, we significantly strengthened our balance sheet

without sacrificing our commitment to business integration. During the first quarter, we sold the majority of our products

pipelines to Holly Energy Partners (HEP) for $120 million in cash plus more than $30 million in HEP subordinated units.

These units are expected to earn about $2 million per year in distributions, and will convert to common units in 2010. Valued

as common units, these would be worth $35 million at year-end 2005 (the value of these units is not included in our cash or

short-term investments). While we sold the pipeline system, we retained shipping rights for fifteen years, with three five-year

extension options. Thus, we significantly strengthened our balance sheet but did not change our operating profile. It should

also be noted that we purchased the majority of this system from FINA’s Pension Trust in mid-2004 for $9.4 million. As a result

of this transaction we received $118 million in cash net of transaction expenses and booked a $38.6 million pre-tax gain, with

an additional $64 million of deferred pre-tax gain to be recognized over the next 11 years.

Second, in the third quarter we completed an initial public offering (IPO) in which we sold approximately 25% of the company

to public shareholders for $187.7 million, and listed our common stock on the New York Stock Exchange (symbol: ALJ). This

was the first time in recent history a single-asset refining company had successfully gone public. This was a strong indication

of the trust you as shareholders have in Alon USA. The IPO was priced at $16 per share on July 28th and by year-end our

InD

Our facility in Big Spring, Texas (refinery, left; product terminal, right) benefited

from both a major turnaround project and a significant expansion in refining capacity

last year. Specializing in the processing of sour crudes, the refinery has a capacity

of 70,000 BPD. In 2006, we’ll be making upgrades necessary to produce ultra

low-sulfur diesel fuel.

To Our Shareholders

shares were valued at $19.65 per share, an appreciation of 23% in five months. Our shares have continued to perform well

since then, and we have announced a $0.04 per share regular quarterly dividend for the first quarter of 2006, and a $0.37 per

share special dividend.

Third, and most importantly, the company generated approximately $103 million in free cash flow from operations(A). We are

certainly in the right sector at the right time. The strategic and economic value of refineries in the U.S. has never been greater.

Thus, our refining margins increased to $12.30 per barrel from $8.03 in 2004. In addition, throughput at our Big Spring

Refinery was the second-highest on record, and we continued

our capital discipline with expenditures of $23 million,

excluding the expenses for our major turnaround.

THE RIGHT PLACE WITH THE RIGHT TOOLS

But, it is not just a matter of being in the right sector. Alon

USA has the right assets and the technical know-how to

employ them strategically. We continued to benefit from our

sour crude refining capacity. The sour crudes (WTS) we run

cost on average $4.62 per barrel less than sweet crudes (WTI)

in 2005, a differential that improved over 2004’s $3.97 per

barrel. We expect this discount to continue growing as the

country moves into even lower-sulfur fuels in 2006. In 2006, diesel sulfur content will be reduced from 500 to 15 parts per

million, and we’ll be completing our upgrades to produce this fuel in May.

OPERATIONS TRACK FINANCIAL RESULTS

Over and above our financial results, 2005 was also a very good year operationally. During the first quarter, we completed a 5-

year major turnaround at our Big Spring Refinery in just 22 days, with an investment of $11.6 million. At the same time, we

took the opportunity to expand our capacity by 8,000 barrels per day (BPD) to 70,000 BPD, for a total investment of $6.4

million. On a cash basis, this represents an investment of $800 per BPD of capacity. Not only is this figure less than one-tenth

of the going rate for refinery acquisitions in 2005, but it was already paid for by the end of the second quarter!

etail

Alon USA believes in giving back to the community. Here Chairman

David Wiessman speaks at the groundbreaking ceremony for the Dallas

Center for the Performing Arts. The company made a $1 million gift to

help support the new facility’s construction, and also underwrote

the groundbreaking events.

Our asphalt blending facility in Bakersfield, California,

acquired in 2004, is strategically located to serve the

California market. On an annualized basis, we more than

doubled our sales at the facility in 2005 versus 2004, and

we expect a significant sales increase again in 2006 as

the state transitions to specifying rubber modified

grades of asphalt.

0 $1.00 $2.00 $3.00 $4.00 $5.00

FREE CASH FLOW PER BARREL(A)

´03

´04

´05

With our IPO, our stock began

trading on the New York Stock

Exchange last year. Shown

here is the opening bell

ceremony on August 17. This

event represented the first

time in recent history that a

single-asset refining company

had successfully gone public.

(A) See discussion and computation of Free Cash Flow and Free Cash Flow Per Barrel on page 5

We also continue to have strong results from our retail and marketing operations. Southwest Convenience Stores, our retail

subsidiary, increased operating income with inside sales and fuel margins producing solid gains. Also in 2005, we introduced a

new FINA image, and stores with the new signage have reported up to 20% increases in fuel sales. We also announced our plan

to begin the construction of a new travel center on Interstate 20 in Midland, Texas.

POSITIONED FOR GROWTH

Our entire operation is well-positioned for disciplined growth. We retired $100 million of high-cost Term B debt in the first

quarter of 2006; which will reduce our 2007 and beyond interest expense by about $6 million per year. Alon USA is particularly

adept at operating and optimizing inland refineries, and we possess especially valuable asphalt technology based on our FINA

license and continued access to Total’s LaPorte, Texas, research facility. Our acquisition of the Bakersfield, California, asphalt

blending facility in 2004 reflects the depth of these capabilities. On an annualized basis, 2005 sales from this facility more than

doubled those of 2004. As anticipated, the State of California (the last state in the union to make the transition) will begin

specifying rubber modified grades of asphalt in 2006. This is a product in which we excel. As a result of this transition and

the relatively short supplies of heavy crudes in California, we expect our asphalt sales from the Bakersfield facility to

double again in 2006.

GAINING MOMENTUM

Already in 2006 we have taken another major step by announcing the sale of our Amdel Pipeline System to an affiliate of

Sunoco Logistics for $68 million. This transaction further strengthens our capacity to grow. Reactivating this pipeline will

provide us access to foreign and Gulf of Mexico crude oils via Sunoco’s Nederland, Texas terminal. This gives us the opportunity

to buy less-expensive sour and heavy crudes, better leveraging our Big Spring Refinery’s processing capabilities. In connection

with this transaction, we have not only committed to 15,000 BPD of crude shipments for ten years, but we have four additional

30-month option periods. Sunoco has also agreed to expand the overall Amdel System to 40,000 BPD by year-end, and has

committed to ship crude oil from Midland to Big Spring if we are required to transition from the Mesa Pipeline System. The

remaining crude to serve the refinery will come from the reactivation of connections to local gathering systems previously used

by the refinery for a number of years.

THE RIGHT TEAM

Credit for this transformative year goes straight to every Alon USA employee. Their skill is exhibited in every one of our latest

accomplishments—growth in sales, the successful turnaround, an excellent expansion project and exceptional transaction

execution. In recognition of these accomplishments, we have expanded our commitment to giving back to the community. Last

year, we announced a major gift to the Dallas Center for the Performing Arts, and provided significant funding to Communities

in Schools, the American Heart Association, United Way, and other non-profit organizations. We also helped fund the purchase

of computers for schools in Big Spring, Texas.

We now have an exceptionally strong foundation on which to grow. We expect 2006 to be another remarkable year for the

company, and look forward to continuing to earn your support.

JEFF D. MORRIS

President and CEO

Sincerely,

DAVID WIESSMAN

Executive Chairman of the Board

USE OF FREE CASH FLOW AND FREE CASH FLOW

PER BARREL AND SEC REGULATION G RECONCILIATION

Free cash flow represents cash flow from operations less capital expenditures, including turnaround and chemical

catalyst costs. Free cash flow per barrel represents free cash flow divided by total refinery throughput. Free cash flow

and free cash flow per barrel are not recognized measurements under generally accepted accounting principles (GAAP).

However, the amounts included in these calculations are derived from amounts presented separately in our consolidated

financial statements, with the exception of the refinery throughput volume. Free cash flow should not be considered in

isolation or as an alternative to net income or operating income, as an indication of our operating performance, as an

alternative to cash flow provided by operating activities or as a measure of liquidity. Free cash flow is not necessarily

comparable to similarly titled measures of other companies. We believe that the presentation of free cash flow per barrel

is a useful indicator of financial and operating performance. We believe this measure provides investors with an

enhanced perspective of the operating performance of our company relative to other companies in our industry.

The following table sets forth our calculation of free cash flow and free cash flow per barrel of refinery throughput:

For the Year Ended December 31,

2005 2004 2003

(dollars in thousands except per barrel data)

Cash flow from operating activities $ 137,895 $ 76,743 $ 76,173

Capital expenditures (23,034) (27,301) (23,391)

Turnaround and chemical catalysts (12,041) (2,322) (1,547)

Free cash flow from operations (“FCF”) $ 102,820 $ 47,120 $ 51,235

Total refinery throughput (bpd) 64,755 61,664 64,354

Number of days in period 365 366 365

Total refinery throughput

(bpd x number of days) (in thousands) 23,636 22,569 23,489

Free cash flow per barrel

(FCF / total refinery throughput) $ 4.35 $ 2.09 $ 2.18

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

5 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2005

 ANNUAL 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 of incorporation) (I.R.S. Employer Identification No.)

7616 LBJ Freeway, Suite 300, Dallas, Texas 75251

(Address of principal executive offices) (Zip Code)

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

Securities registered pursuant to Section 12 (b) of the Act:

Title of each class Name of each exchange on which registered

Common Stock, par value New York Stock Exchange

$0.01 per share

Securities registered pursuant to Section 12 (g) of the Act: None

Indicate by check mark if the registrant is a well-known, seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  No 5

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No 5

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 5 No 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be

contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form

10-K or any amendment to this Form 10-K. 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of

“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer  Accelerated Filer  Non-Accelerated Filer 5

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes  No 5

The Registrant completed the initial public offering of its common stock in July 2005. Accordingly, there was no public market for the

Registrant’s common stock as of June 30, 2005, the last day of the Registrant’s most recently completed second fiscal quarter.

As of March 1, 2006, 46,809,857 shares of the registrant’s common stock, $0.01 par value, were outstanding.

Documents incorporated by reference: Proxy statement of the registrant relating to the annual meeting of stockholders to be held on May 9,

2006, which is incorporated into Part III of this Form 10-K.

TABLE OF CONTENTS

Page

PART I .................................................................................................................................................................. 1

ITEMS 1. AND 2. BUSINESS AND PROPERTIES. ....................................................................................... 1

ITEM 1A. RISK FACTORS.............................................................................................................................. 14

ITEM 1B. UNRESOLVED STAFF COMMENTS. .......................................................................................... 21

ITEM 3. LEGAL PROCEEDINGS. .................................................................................................................. 21

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........................................ 21

PART II ................................................................................................................................................................. 22

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER

MATTERS AND ISSUER PURCHASE OF EQUITY SECURITIES............................................................ 22

ITEM 6. SELECTED FINANCIAL DATA. ..................................................................................................... 23

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS. ....................................................................................................................... 25

ITEM 7A. QUANTITATIVE and QUALITATIVE DISCLOSURES ABOUT MARKET RISK.................... 50

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE.............................................. 51

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND

FINANCIAL DISCLOSURE........................................................................................................................... 51

ITEM 9A. CONTROLS AND PROCEDURES................................................................................................. 51

ITEM 9B. OTHER INFORMATION................................................................................................................ 51

PART III................................................................................................................................................................ 52

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF the REGISTRANT.......................................... 52

ITEM 11. EXECUTIVE COMPENSATION. ................................................................................................... 52

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

AND RELATED STOCKHOLDER MATTERS............................................................................................ 52

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............................................. 52

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES. ................................................................. 52

PART IV................................................................................................................................................................ 53

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. ....................................................... 53

SIGNATURES

PART I

ITEMS 1. AND 2. BUSINESS AND PROPERTIES.

Statements in this Annual Report on Form 10-K, including those in Items 1 and 2, “Business and Properties,”

and Item 3, “Legal Proceedings,” that are not historical in nature should be deemed forward looking statements

that are inherently uncertain. See “Forward-Looking Statements” in “Management’s Discussion and Analysis of

Financial Condition and Results of Operations” in Item 7 for a discussion of forward looking statements and of

factors that could cause actual outcomes and results to differ materially from those projected.

Company Overview

In this document, the words “we,” “our” and “us” refer to Alon USA Energy, Inc. and its consolidated

subsidiaries or to Alon USA Energy, Inc. or an individual subsidiary, and not to any other person.

We are an independent refiner and marketer of petroleum products operating primarily in the Southwestern and

South Central regions of the United States. Our business consists of two operating segments: (1) refining and

marketing and (2) retail.

Refining and Marketing Segment. We own and operate a sophisticated sour crude oil refinery in Big Spring,

Texas, which we expanded in March 2005 from a crude oil throughput capacity of 62,000 barrels per day (“bpd”) to

70,000 bpd. We refine crude oil into petroleum products, including gasoline, diesel, jet fuel, petrochemicals,

feedstocks, asphalts and other petroleum products, which we market primarily in West Texas, Central Texas,

Oklahoma, New Mexico and Arizona. We refer to our operations in this region as our physically integrated system

because we supply our branded and unbranded distributors in this region with motor fuels produced at our Big

Spring refinery. We distribute our fuel products through a product pipeline and terminal network of seven product

pipelines totaling approximately 840 miles and six product terminals, which we own or access through leases or

long-term throughput agreements. Our physically integrated system includes more than 550 of the approximately

1,250 FINA branded retail sites that we supply, including our retail segment convenience stores.

We also operate in East Texas and Arkansas. We refer to our operations in this region as our non-integrated

system because we supply our branded and unbranded distributors in this region with motor fuels obtained from

third parties. We also market unbranded gasoline, diesel, jet fuel and other refinery products, and we are one of the

largest suppliers of asphalt in West Texas, New Mexico and Arizona.

Retail Segment. We operate 167 7-Eleven branded convenience stores in West Texas and New Mexico. Our

convenience stores typically offer merchandise, food products and motor fuels under the 7-Eleven and FINA brand

names. 7-Eleven, Inc. has advised us that we are the largest 7-Eleven licensee in the United States, and we are one of

the top three convenience store operators, based on number of stores, in the cities of El Paso, Midland, Odessa, Big

Spring and Lubbock, Texas. We also have a significant presence in Wichita Falls, Texas and Albuquerque, New

Mexico. We supply our stores with substantially all of their motor fuel needs with gasoline and diesel produced at

our Big Spring refinery.

Operating segment and geographical information are discussed further in Note 5 to our consolidated financial

statements included elsewhere in this Annual Report on Form 10-K.

We are a controlled company under the rules and regulations of the New York Stock Exchange because Alon

Israel Oil Company, Ltd. (“Alon Israel”) owns approximately 74.3% of our outstanding common stock. Alon Israel,

an Israeli limited liability company, is the largest services and trade company in Israel. Alon Israel entered the

gasoline marketing and convenience store business in Israel in 1989 and has grown to become a leading marketer of

petroleum products and one of the largest operators of retail gasoline and convenience stores in Israel. Alon Israel is

a controlling shareholder of Blue Square Israel, Ltd., a leading retailer in Israel, which is listed on the New York

Stock Exchange and the Tel Aviv Stock Exchange.

We are a Delaware corporation formed in 2000 to acquire the Big Spring refinery and related pipeline, terminal

and marketing assets from Atofina Petrochemicals, Inc., or FINA. We maintain our principal corporate offices at

7616 LBJ Freeway, Suite 300, Dallas, Texas 75251-1100. Our telephone number is 972-367-3600. We file annual,

quarterly and special reports, proxy statements and other information with the Securities and Exchange Commission

(“SEC”). Our SEC filings are available to the public over the Internet at the SEC’s web site at http://www.sec.gov.

In addition, we make available free of charge through our internet website at http://www.alonusa.com, our annual,

quarterly and current reports, proxy statements and certain other information filed by us with the SEC, as soon as

reasonably practical after we electronically file such material with, or furnish it to, the SEC. In addition, we will

provide copies of our filings free of charge to our stockholders upon request. On July 28, 2005, our stock began

trading on the New York Stock Exchange under the trading symbol “ALJ.”

2005 Highlights and Recent Developments

In February 2005, we completed the contribution of certain of our product pipeline and terminal assets to Holly

Energy Partners, L.P. (“HEP”). In exchange for this contribution we received $120.0 million in cash, prior to closing

cost of approximately $2.0 million, and 937,500 subordinated Class B limited partnership units of HEP.

Simultaneously with this transaction, we entered into a Pipelines and Terminal Agreement with HEP with an initial

term of 15 years and three subsequent five year renewal terms exercisable at our sole discretion. Pursuant to the

Pipelines and Terminal Agreement, we have agreed to transport and store minimum volumes of refined products in

these pipelines and terminals and to pay specified tariffs and fees for such transportation and storage during the term

of the agreement.

In March 2005, we successfully completed a major turnaround at our Big Spring refinery. In connection with this

turnaround, we expanded our crude oil throughput capacity from 62,000 bpd to 70,000 bpd. The cost of the

expansion project was approximately $6.4 million, or $800 per bpd of additional throughput capacity.

On August 2, 2005, we completed an initial public offering of 11,730,000 shares of our common stock at a price

of $16.00 per share for an aggregate offering price of $187.7 million. The initial public offering represented the sale

by us of a 25.1% interest in our company. On July 28, 2005, our stock began trading on the New York Stock

Exchange under the trading symbol “ALJ.”

On January 19, 2006, we made a payment of approximately $103.9 million in satisfaction of our outstanding

borrowings under our term loan agreement scheduled to mature in January 2009. Of this amount, $100.0 million

represented a voluntary prepayment of our outstanding principal under the term loan, approximately $0.9 million

represented accrued and unpaid interest on the principal balance, and $3.0 million represented a prepayment

premium.

On February 15, 2006, our Board of Directors announced a regular quarterly cash dividend of $0.04 per share

and a special cash dividend of $0.37 per share on our common stock, payable on March 21, 2006 to stockholders of

record at the close of business on March 1, 2006. In connection with our cash dividend payment to shareholders on

March 21, 2006, the minority interest owners in two of our subsidiaries, Alon Assets Inc., and Alon USA Operating

Inc., will receive aggregate cash dividends of approximately $1.1 million.

On February 15, 2006, we entered into an amended revolving credit agreement. The total commitment under our

revolving credit facility was increased from $141.6 million to $240.0 million and is available for, among other

things, working capital, acquisitions and other general corporate purposes. The initial size of the facility is $160.0

million with options to increase the size to $240.0 million. Under this amended facility, the term has been extended

through January 2010; existing borrowing costs and letter of credit fees have been reduced; most covenants have

been eased; there are substantially no limitations on incurrence of debt, distribution of dividends or investment

activities absent existing or resulting default; and our retail subsidiaries have been excluded from the facility. The

facility is secured by cash, short-term investments, accounts receivable, inventory and related assets. All fixed assets

previously securing the facility have been released.

On March 1, 2006, we sold our Amdel and White Oil crude pipelines, which had been inactive since December

2002, to an affiliate of Sunoco Logistics Partners L.P. (“Sunoco”), for a total consideration of approximately $68.0

million. In conjunction with the sale of the Amdel and White Oil pipelines, we entered into a 10-year pipeline

Throughput and Deficiency Agreement, with an option to extend the agreement by four additional thirty month

periods. The Throughput and Deficiency Agreement will allow us to retain crude oil transportation rights on the

Amdel and White Oil pipelines from the Gulf Coast. Pursuant to the Throughput and Deficiency Agreement, we

have agreed to ship a minimum of 15,000 barrels per day on the pipelines during the term of the agreement.

Refining and Marketing Segment

Refinery Operations

Our Big Spring refinery has a crude oil throughput capacity of 70,000 bpd and is located on 1,306 acres in the

Permian Basin in West Texas. In industry terms, our refinery is characterized as a “cracking refinery.” Our Big

Spring refinery has the capability to process substantial volumes of less expensive high-sulfur, or sour, crude oils to

produce a high percentage of light, high-value refined products. Typically, sour crude oil has accounted for over

90% of our crude oil input. We also have access to domestic and foreign crude oils available on the Gulf Coast,

which we are able to deliver to our Big Spring refinery through the Amdel and White Oil pipelines.

Our Big Spring refinery produces gasoline, distillates, petrochemicals, petrochemical feedstocks, asphalt and

other petroleum products. Our refinery typically converts approximately 86% of its feedstock into higher value

products such as gasoline, diesel, jet fuel and petrochemicals, with the remaining 14% primarily converted to asphalt

and liquefied petroleum gas.

During each full year of operations since our acquisition from FINA, we have averaged approximately 96%

utilization of our Big Spring refinery’s crude oil throughput capacity. The following table summarizes historical

throughput and production data for our Big Spring refinery:

Year Ended December 31,

2005 2004 2003

Bpd % Bpd % Bpd %

Refinery throughput:

Sweet crude............................... 5,072 7.8 4,321 7.0 5,398 8.4

Sour crude................................. 55,643 86.0 53,646 87.0 55,676 86.5

Blendstocks............................... 4,040 6.2 3,697 6.0 3,280 5.1

Total refinery throughput (1)(2) ... 64,755 100.0 61,664 100.0 64,354 100.0

Refinery production:

Gasoline.................................... 29,499 45.8 28,711 46.8 30,700 47.7

Diesel/jet................................... 21,903 34.0 19,939 32.5 21,554 33.5

Asphalt...................................... 5,824 9.1 5,781 9.4 5,746 8.9

Petrochemicals.......................... 4,256 6.6 4,492 7.3 4,536 7.1

Other......................................... 2,911 4.5 2,449 4.0 1,804 2.8

Total refinery production (2)(3).... 64,393 100.0 61,372 100.0 64,340 100.0

Refinery utilization (4) ............. 94.3% 95.0% 99.3%

____________

(1) Total refinery throughput represents the total of crude oil and blendstock inputs in the refinery production

process.

(2) 2005 throughput reflects the effect of the downtime associated with the planned major turnaround in the first

quarter 2005. Refinery throughput increased to an average of 70,419 bpd for the last three quarters of 2005,

compared to an average throughput of 47,447 bpd for the first quarter 2005. Refinery production increased to an

average of 70,065 bpd for the last three quarters of 2005, compared to average production of 47,060 bpd for the

first quarter 2005.

(3) Total refinery production represents the barrels per day of various finished products produced from processing

crude and other refinery feedstocks through the crude units and other conversion units at Alon’s refinery.

(4) Refinery utilization represents average daily crude oil throughput divided by crude capacity, excluding planned

periods of downtime for maintenance and turnarounds.

Raw Material Supply

Sour crude oil has typically accounted for over 90% of our crude oil input, of which approximately 99% has

been West Texas Sour, or WTS, crude oil. We receive WTS crude oil and West Texas Intermediate, or WTI, a light

sweet crude oil, primarily from regional common carrier pipelines. Approximately 47% of our crude oil input

requirements are purchased through term contracts with several suppliers, including major oil companies. These

term contracts are generally short-term in nature with arrangements that contain market-responsive pricing

provisions and provisions for renegotiation or cancellation by either party. The remainder of our crude oil input

requirements are purchased on the spot market. In addition, access to the Amdel pipeline gives us the ability to

optimize our refinery crude slate by transporting foreign and domestic crude oils to our refinery from the Gulf Coast

when the economics for processing those crude oils are more favorable than processing locally sourced crude oils.

Other feedstocks, including butane, isobutane and asphalt blending components, are delivered by truck and railcar,

and a majority of our natural gas is delivered by a pipeline in which we own a 63.0% interest.

Big Spring Refinery Production

Gasoline. Gasoline has typically accounted for approximately 46% of our refinery’s production. We produce

various grades of gasoline, ranging from 84 sub-octane regular unleaded to 93 octane premium unleaded, and use a

computerized component blending system to optimize gasoline blending. Our refinery is capable of producing

specially formulated fuels, such as those required in the El Paso, Dallas/Fort Worth and Arizona markets.

Distillates. Diesel and jet fuel has typically accounted for approximately 34% of our refinery’s production. All of

the diesel fuel we produce is low-sulfur, while our jet fuel production conforms to the JP-8 grade military

specifications required by the Air Force bases to which we market our jet fuel.

Asphalt. Asphalt has typically accounted for approximately 9% of our refinery’s production. Approximately 60%

of our asphalt production is paving grades and 40% is asphalt blendstocks. Our refinery’s asphalt facilities are

capable of producing up to 23 different grades of asphalt base stock, including both polymer modified asphalt

(“PMA”) and ground tire rubber (“GTR”) asphalt.

Petrochemical Feedstocks and Other. We produce propane, propylene, certain aromatics, specialty solvents and

benzene for use as petrochemical feedstocks, along with other by-products such as sulfur and carbon black oil. We

have sulfur processing capabilities of approximately two tons per thousand bpd of crude oil capacity, which is above

the average for cracking refineries and aids in our ability to produce low-sulfur motor fuels with relatively low

investment while continuing to process significant amounts of sour crude oil.

Transportation Fuel Marketing

Our refining and marketing segment sales includes sales of refined products in both the wholesale rack and bulk

markets. Our marketing of transportation fuels is focused on five states in the Southwestern and South Central

regions of the United States through our physically integrated and non-integrated systems.

Branded Transportation Fuel Marketing. Our branded fuels are marketed through our retail segment and to

independently-owned FINA branded retail distributors. During 2005 we sold over 39,000 bpd of gasoline and diesel

fuel as branded fuels. Approximately 70% of our branded fuel sales are in West Texas and Central Texas.

The FINA brand is a recognized trade name in the Southwestern and South Central United States, where motor

fuels have been marketed under the FINA brand since 1963. Our retail segment operates up to 20% of the

convenience stores selling motor fuels in several key cities in these regions. We have an exclusive license through

July 2012 to use the FINA name and related trademarks in connection with the production and sale (including resale

by distributors) of gasoline, diesel and other fuels within Texas, Oklahoma, New Mexico, Arizona, Arkansas,

Louisiana, Colorado and Utah. Prior to the expiration of this license, we intend to review our alternatives for

branding our transportation fuel, including seeking to extend our license with FINA or developing our own brand.

Unbranded Transportation Fuel Marketing. We presently sell a majority of our diesel fuel, and a nominal

volume of gasoline, on an unbranded basis. During 2005, we sold over 18,700 bpd of diesel fuel and gasoline as

unbranded fuels, which were largely sold through our physically integrated system.

Jet Fuel Marketing. We market substantially all our jet fuel as JP-8 grade to the Defense Energy Supply Center

(“DESC”). All DESC contracts are for a one-year term and are awarded through a competitive bidding process. We

have traditionally bid for contracts to supply Dyess Air Force Base in Abilene, Texas and Sheppard Air Force Base

in Wichita Falls, Texas. Jet fuel production in excess of existing contracts is sold on the spot market or, alternatively

as diesel fuel.

Product Supply Sales. We sell transportation fuel production in excess of our branded and unbranded marketing

needs through bulk sales and exchange channels. These bulk sales and exchange arrangements are entered into with

various oil companies and traders and are transported through our product pipeline network or truck deliveries. Our

petrochemical feedstock and other petroleum product production is sold to a wide customer base and is transported

through truck and railcars.

Asphalt Marketing

The Texas Department of Transportation has advised us that we are the second largest supplier of asphalt to the

State of Texas, which is the largest asphalt consuming state in the United States. Our Big Spring refinery produces

an average of approximately 5,750 bpd of asphalt that is sold in up to 23 different product formulations, including

both PMA and GTR, which are paving grade asphalt formulations. We have increased our production capabilities

for latex and rubber modified grades that meet the stringent and varied state highway road paving specifications for

use in Texas, New Mexico and Arizona. Paving grades are predominantly sold from April through October for

government road projects. Our asphalt blendstocks are shipped to roofing companies and asphalt blenders

throughout the United States, including our asphalt blending facility in Bakersfield, California, which we acquired in

2004. In 2005, the Bakersfield facility produced approximately 1,139 bpd of blended asphalt. In 2006, we plan to

increase production capacity at the Bakersfield facility by approximately 800 bpd, and we expect blended asphalt

sales at our Bakersfield facility to increase in 2006 due to increases in the 2006 California Transportation

Department budget.

We have an exclusive license to use FINA’s 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.

Exclusivity under this fully-paid license remains in effect as long as we continue to purchase our rubber modifiers

from FINA, although we may purchase rubber modifiers from other sources and maintain such exclusivity if FINA

does not provide competitive pricing on these products.

Pipelines and Product Terminals

We obtain crude oil and distribute refined products through a pipeline and terminal network consisting of

approximately 500 miles of crude oil pipelines, nearly 840 miles of product pipelines and six product terminals.

These pipelines and terminals allow us to optimize our inventory by allowing us to control the movement and the

timing of our refinery’s feedstock supply and the distribution of our refined products. Specifically, this network

provides us with the flexibility to (1) access a variety of crude oils, thereby allowing us to optimize our refinery’s

crude supply at any given time, (2) efficiently distribute our transportation fuel products to markets in West Texas,

Central Texas and Oklahoma and (3) access other markets, including New Mexico and Arizona, through

interconnections with third-party transportation systems.

Crude Oil and Natural Gas Pipelines. The crude oil pipelines we utilize provide our refinery access to Permian

Basin crude oil and foreign and domestic crude oil from the Gulf Coast and consists of the following pipelines:

Crude Oil Pipelines Status Miles Connections

Amdel Sunoco Throughput 504 Midland and Nederland

White Oil Sunoco Throughput 25 Garden City (Amdel) and Big Spring

Mesa Interconnect Owned 4 Mesa pipeline and Big Spring

The 504 mile bi-directional Amdel pipeline and the 25 mile White Oil pipeline connect our refinery to

Nederland, Texas, which is located on the Gulf Coast and to Midland, Texas. Permian Basin crude oil is delivered to

our refinery through the four-mile long, 16-inch diameter Mesa Interconnect pipeline which is connected to the

Mesa pipeline system, a common carrier. Because prices for WTS and other locally sourced crude oils have been

favorable compared to crude oils available from the Gulf Coast over the last four years, we have not utilized our

Amdel pipeline for crude oil shipments since December 2002. We recently received notice from the operator of the

Mesa system that this pipeline system may cease operations at the end of June 2006 as a result of a dispute among

the owners of the system. In order to replace a portion of the crude oil supply available from the Mesa system,

should that system cease operations, we intend to re-commence shipping on the Amdel pipeline in June 2006.

Sunoco Transaction.On March 1, 2006, we sold our Amdel and White Oil crude pipelines, which had been

inactive since December 2002, to an affiliate of Sunoco for a total consideration of approximately $68.0 million. In

conjunction with the sale of the Amdel and White Oil pipelines, we entered into a 10-year pipeline Throughput and

Deficiency Agreement, with an option to extend the agreement by four additional thirty month periods. The

Throughput and Deficiency Agreement will allow us to maintain crude oil transportation rights on the pipelines

from the Gulf Coast and from Midland, Texas. Pursuant to the Throughput and Deficiency Agreement, we have

agreed to ship a minimum of 15,000 barrels per day on the pipelines during the term of the agreement.

Our refinery is the closest in proximity to Midland, Texas, which is the largest origination terminal for West

Texas crude oil. We believe this location provides us with the lowest transportation cost differential for West Texas

crude oil of any refinery. A small amount of locally gathered crude oil is also delivered directly to our refinery. We

own a 63% interest in the pipeline that supplies a majority of the natural gas to our refinery.

Product Pipelines. The product pipelines we utilize are linked to the major third-party product pipelines in the

geographic area around our refinery, which provides us flexibility to optimize product flows into multiple regional

markets. This product pipeline network can also (1) receive additional transportation fuel products from the Gulf

Coast through the Pride Product terminal and Magellan pipelines, (2) deliver and receive products to and from the

Magellan system, our connection to the Group III, or mid-continent markets, and (3) deliver products to the New

Mexico and Arizona markets through third-party systems. The following table describes the product pipelines which

we utilize:

Product Pipelines Access Miles Connections Termination

Date (a)

Chevron(a) Lease 38 Coahoma and Midland 2006

Fin-Tex HEP throughput 137 Midland and Orla (Holly) 2020

Holly Lease 133 Orla and El Paso 2018

Trust HEP throughput 332 Big Spring/Abilene/Wichita Falls 2020

Dyess JP-8 HEP throughput 2 Abilene and Dyess Air Force Bases 2020

River HEP throughput 47 Wichita Falls and Duncan (Magellan) 2020

Carswell Owned 148 Abilene and Fort Worth N/A

____________

(a) The Chevron pipeline description does not include a four-mile pipeline that we own that connects Big Spring and

Coahoma. This lease currently expires in December 2006.

The Chevron, Fin-Tex and Holly pipelines make up the Fin-Tex system. Our access to the Chevron and Holly

pipelines is secured by long-term leases, while our access to the Fin-Tex pipeline is provided through our Pipelines

and Terminals Agreement with HEP. The Fin-Tex system transports product from our refinery to El Paso, Texas and

allows it to be placed in Tucson and Phoenix, Arizona through the third-party Kinder Morgan pipeline. The Fin-Tex

system also gives us access to the Albuquerque and Bloomfield, New Mexico markets. We deliver physical barrels

to El Paso and receive, through an exchange agreement with Navajo Refining Company, physical barrels in

Albuquerque and Bloomfield, New Mexico.

The Trust pipeline connects our refinery to terminals in Abilene and Wichita Falls, while the River pipeline

connects the terminal in Wichita Falls to our Duncan terminal. At Duncan, the River pipeline connects into the

Magellan pipeline system for sales into Group III markets. The Trust and River pipeline system is a bi-directional

pipeline system which we access through our Pipelines and Terminals Agreement with HEP.

The Dyess JP-8 pipeline connects the Abilene terminal to Dyess Air Force Base. Our access to this pipeline is

also provided through our Pipelines and Terminals Agreement with HEP.

Our Carswell pipeline system runs from Abilene, Texas to Fort Worth, Texas. The Carswell pipeline is currently

inactive.

Product Terminals. We primarily utilize the following six product terminals, of which three are owned and three

are accessed through our Pipelines and Terminal Agreement with HEP:

Terminals Access Working

Capacity(a) Supply Source Mode of Delivery

Big Spring, Texas(b) Owned 331 Pipeline/refinery Pipeline/truck

Abilene, Texas HEP 111 Pipeline Pipeline/truck

Wichita Falls, Texas HEP 155 Pipeline Truck

Duncan, Oklahoma Owned(c) 154 Pipeline Pipeline

Orla, Texas HEP 116 Pipeline Pipeline

Southlake, Texas Owned 212 Pipeline Truck

Total 1,079

____________

(a) Measured in thousands of barrels.

(b) Includes the tankage located at our refinery.

Five of the six terminals we access are physically integrated with our Big Spring refinery through the product

pipelines we utilize. Three of the five terminals in our physically integrated system, Big Spring, Abilene and

Wichita Falls, Texas, are also equipped with truck loading racks. The other two terminals in our physically

integrated system, Duncan, Oklahoma and Orla, Texas, are used for delivering shipments into third-party pipeline

systems. Our Southlake, Texas terminal is located between Fort Worth and Dallas, part of our non-integrated

system, and is supplied with purchased or exchanged products. Our Southlake terminal is equipped with a truck

loading rack and operates as a wholesale outlet for our distributors in the Dallas/Fort Worth area. We also directly

access four other terminals located in Wichita Falls and El Paso, Texas and Tucson and Phoenix, Arizona.

HEP Transaction. In February 2005, we completed the contribution of certain of our product pipeline and

terminal assets to HEP. In exchange for this contribution we received $120 million in cash and 937,500 subordinated

Class B limited partnership units in HEP. Simultaneously with this transaction, we entered into a Pipelines and

Terminal Agreement with HEP with an initial term of 15 years and three subsequent five year renewal terms

exercisable at our sole discretion. Pursuant to the Pipelines and Terminal Agreement, we have agreed to transport

and store minimum volumes of refined products in the pipelines and terminals and to pay specified tariffs and fees

for such transportation and storage during the term of the agreement. See Note 4 of our consolidated financial

statements included elsewhere in this Annual Report on Form 10-K.

Retail Segment

As of December 31, 2005, we operated 167 owned and leased convenience store sites operating primarily in

West Texas and New Mexico. Our convenience stores typically offer various grades of gasoline, diesel fuel, food

products, tobacco products, non-alcoholic and alcoholic beverages and general merchandise to the public under the

7-Eleven and FINA brand names. Substantially all of the motor fuel sold though our retail segment is supplied by

our Big Spring refinery.

We are one of the top three independent convenience store chains in each of the cities of El Paso, Midland,

Odessa, Big Spring and Lubbock, Texas, with approximately 20% of the convenience stores in each city. We also

have a significant presence in Wichita Falls, Texas and Albuquerque, New Mexico.

Location Owned Leased Total

Big Spring, Texas.................................................................................................................... 6 1 7

El Paso, Texas ......................................................................................................................... 13 36 49

Lubbock, Texas ....................................................................................................................... 17 5 22

Midland, Texas........................................................................................................................ 9 10 19

Odessa, Texas.......................................................................................................................... 10 25 35

Wichita Falls, Texas ................................................................................................................ 8 4 12

Albuquerque, New Mexico...................................................................................................... 12 11 23

Total stores........................................................................................................................... 75 92 167

Convenience Store Management and Employees. Each of our stores has a store manager who supervises a staff

of full-time and part-time employees. The number of employees at each convenience store varies based on the

store’s size, sales volume and hours of operation. Typically, a geographic group of six to 10 stores is managed by a

supervisor who reports to a district manager. Five district managers are responsible for a varying number of stores

depending on the geographic size of each market and the experience of each district manager. These district

managers report to our retail management headquarters in Odessa, Texas. Our retail segment’s headquarters, located

in Odessa, Texas, consists of 45 employees.

Distribution and Supply. The merchandise requirements of our convenience stores are serviced at least weekly

by over 100 direct-store delivery, or DSD, vendors. In order to minimize costs and facilitate deliveries, we utilize a

single wholesale distributor, McLane Company Inc., for non-DSD products. We purchase the products from

McLane at cost plus an agreed upon percentage mark-up. Our current contract with McLane expires at the end of

November 2006. We purchase approximately 55% to 60% of our merchandise for resale from McLane. We typically

do not have contracts with our DSD vendors.

7-Eleven License Agreement. We are party to a license agreement with 7-Eleven, Inc., which gives us a license

to use the 7-Eleven trademark, service name and trade name in connection with our convenience store operations in

West Texas and a majority of the counties in New Mexico. This license agreement may be terminated by 7-Eleven if

we fail to perform our obligations under the agreement.

Technology and Store Automation. We are in the process of installing a point of sale checkout system for our

convenience stores. This system includes scanning, pump control, peripheral device integration and daily operations

reporting. This system will enhance our ability to offer a greater variety of promotions with a high degree of

flexibility with regard to definition (store, group of stores, region, etc.) and duration. We will also be able to receive

enhanced management reports that will assist our decision-making processes. We believe this system will allow our

convenience store managers to spend less time preparing reports and more time analyzing these reports to improve

convenience store operations. This system also includes shortage-control tools. This system will be used as the

platform to support other marketing technology projects, including interactive video at the pump and bar code

coupons at the pump.

Competition

The petroleum refining and marketing industry continue, to be highly competitive. Many of our principal

competitors are integrated, multi-national oil companies (e.g., Valero, Chevron, ExxonMobilShell and

ConocoPhillips) and other major independent refining and marketing entities that operate in our market areas.

Because of their diversity, integration of operations and larger capitalization, these major competitors may have

greater financial and other resources and may have a greater ability to bear the economic risks and volatile market

conditions associated with the petroleum industry. Financial returns in the refining and marketing industry depend

on the difference between refined product prices and the prices for crude oil and other feedstock, also referred to as

refining margins. Refining margins are impacted by among other things, levels of crude and refined product

inventories, balance of supply and demand, utilization rates of refineries and global economic and political events.

All of our crude oil and feedstocks are purchased from third-party sources, while some of our competitors have

proprietary sources of crude available for their own refineries. However, as our refinery is in close proximity to

Midland, Texas, which is the largest origination terminal for West Texas crude oil, we believe that our location

provides us with transportation cost advantages over many of our competitors. The Amdel pipeline provides us with

supply alternatives through access to Gulf Coast and foreign crude oils.

The majority of our refined fuel products are shipped to wholesale distributors within our principal geographic

regions of West Texas, Central Texas, Oklahoma, New Mexico and Arizona or to our retail sites within West Texas

and New Mexico. Production in excess of our wholesale and retail sales is sold on the spot market and either

shipped northeast via the Trust and River pipeline system to distribution points in North Texas and Oklahoma or

west via the Fin-Tex pipeline system to El Paso, Texas and distribution points in New Mexico and Arizona. The

market for refined products in these regions is also supplied by a number of refiners, including large integrated oil

companies or independent refiners that either have refineries located in the regions or have pipeline access to these

regions. These larger companies typically have greater resources and may have greater flexibility in responding to

volatile market conditions or absorbing market changes. The principal competitive factors affecting our wholesale

marketing business are price and quality of products, reliability and availability of supply and location of

distribution points.

The Longhorn pipeline runs approximately 700 miles from the Houston area of the Gulf Coast to El Paso and has

an estimated maximum capacity of 225,000 bpd. This pipeline provides Gulf Coast refiners and other shippers with

improved access to markets in West Texas and New Mexico. We anticipate that any additional supply provided by

this pipeline will lower prices and increase price volatility in El Paso and could adversely affect our sales and

profitability in this market. We do not expect our remaining shipments of refined products to be affected, since they

are shipped directly for distribution through our retail segment or to other FINA branded customers or are exchange

paybacks for sales in the Albuquerque and Bloomfield, New Mexico, markets to which the Longhorn pipeline does

not have access.

Our major retail competitors include Valero, Chevron, ConocoPhillips and Shell. The principal competitive

factors affecting our retail segment are location of stores, product price and quality, appearance and cleanliness of

stores and brand identification. We expect to continue to face competition from large, integrated oil companies, as

well as from other convenience stores that sell motor fuels. Increasingly, grocery and dry goods retailers such as

Albertson’s, Wal-Mart and HEB, a Texas-based regional grocer, are entering the motor fuel retailing business. Many

of these competitors are substantially larger than we are. Because of their diversity, integration of operations and

greater resources, these companies may be better able to withstand volatile market conditions and lower profitability

as a result of competitive pricing and lower operating costs.

We compete with Valero, Chevron, Holly and Paramount in the regional asphalt market. The principal factors

affecting competitiveness in asphalt markets are consistency of product quality, transportation cost and capability to

produce the range of high performance products necessary to meet the requirements of customers.

Government Regulation and Legislation

Environmental Controls and Expenditures

Our operations are subject to extensive and frequently changing federal, state, regional and local laws,

regulations and ordinances relating to the protection of the environment, including those governing emissions or

discharges to the air and water, the handling and disposal of solid and hazardous waste and the remediation of

contamination. While we believe our operations are generally in substantial compliance with current requirements,

over the next several years our operations will have to meet new requirements being promulgated by the U.S.

Environmental Protection Agency (“EPA”) and the states and jurisdictions in which we operate.

Environmental Expenditures. The EPA regulations related to the Clean Air Act require significant reductions in

the sulfur content in gasoline and diesel fuel. These regulations required most refineries to reduce sulfur content in

gasoline to 30 ppm by January 1, 2004. The regulations allow small refiners to meet the 30 ppm gasoline standard

by January 2008, or January 2011 if the small refiner implements the new diesel sulfur content standard of 15 ppm

by June 1, 2006, which we intend to do. Otherwise, the new diesel standard allows small refiners to delay

implementation of the 15 ppm standard until June 1, 2010. We have been certified by the EPA as a small refiner for

both gasoline and diesel. We could lose our small refiner certification if, as the result of a merger or acquisition, we

employ more than 1,500 employees or increase our production capacity to more than 155,000 bpd. We anticipate

that the new gasoline and diesel standards will require capital expenditures of approximately $25.3 million through

2010, of which approximately $9.9 million is expected to be spent in 2006. If we lose our status as a small refiner,

we would be required to incur the capital expenditures for the gasoline and diesel standards at an earlier date than

would otherwise be required for a small refiner.

As of December 31, 2005, we had substantially completed our expenditures required for compliance with the

Voluntary Emissions Reduction Program, or VERP, sponsored by the Texas Commission on Environmental Quality,

or TCEQ, including regulations establishing Maximum Achievable Control Technologies for petroleum refineries,

or MACT II.

Conditions may develop that cause additional future capital expenditures at our refinery, product terminals

and retail gasoline stations (operating and closed locations) for compliance with the Federal Clean Air Act and other

federal, state and local requirements. We cannot currently determine the amounts of such future expenditures.

Remediation Efforts. We are currently investigating and remediating historical soil and groundwater

contamination at our Big Spring refinery pursuant to a compliance plan issued by the TCEQ. The compliance plan

requires us to investigate and, if necessary, remediate fifty-nine potentially contaminated areas on our refinery

property. We expect to complete the investigation of these areas by the end of 2006.

The compliance plan also requires us to monitor and treat contaminated groundwater at our Big Spring refinery

and some of our terminals, which is currently underway. We estimate that we will be required to spend

approximately $4.7 million with respect to the investigation and remediation of our Big Spring refinery and our

terminals. The costs incurred to comply with the compliance plan are covered, with certain limitations, by an

environmental indemnity provided by FINA, which we discuss below.

In addition, we operate convenience stores with underground gasoline and diesel fuel storage tanks in various

states. Compliance with federal and state regulations that govern these storage tanks can be costly. The operation of

underground storage tanks also poses various risks, including soil and groundwater contamination. We are currently

investigating and remediating leaks from underground storage tanks at some of our convenience stores, and it is

possible that we may identify more leaks or contamination in the future that could result in fines or civil liability for

us. We have established reserves in our financial statements in respect of these matters to the extent that the

associated costs are both probable and reasonably estimable. We cannot assure you, however, that these reserves

will prove to be adequate.

Environmental Indemnity from FINA. In connection with the acquisition of our Big Spring refinery and other

operating assets from FINA in August 2000, FINA agreed, within prescribed limitations, to indemnify us against

costs incurred in connection with any remediation that is required as a result of environmental conditions that

existed on the acquired properties prior to the closing date of our acquisition. FINA’s indemnification obligations for

these remediation costs run through August 2010, have a ceiling of $5.0 million per year (with carryover of unused

ceiling amounts and unreimbursed environmental costs into subsequent years) and have an aggregate

indemnification cap of $20.0 million. Thereafter, we are solely responsible for all additional remediation costs. As

of December 31, 2005, the remediation of the properties is on schedule, and we have expended approximately $12.3

million in connection with that remediation and approximately $3.0 million in environmental insurance premiums,

all of which has been covered by the FINA indemnity. Subject to a $25,000 deductible per claim up to an aggregate

deductible of $2.0 million, FINA is additionally obligated to indemnify us for third-party claims with respect to

environmental matters received by us within ten years of the closing date to the extent such matters relate to FINA’s

operations on the acquired properties prior to the closing date. FINA is further obligated to indemnify us for

environmental fines imposed as a result of FINA’s operations on the acquired properties prior to the closing date,

provided that such claims are asserted no later than the earlier of ten years from the closing date and the date that the

applicable statute of limitations expires. FINA’s aggregate indemnification obligations for environmental fines and

third-party claims are not subject to a monetary cap. Excluding liabilities retained by FINA as described above, we

assumed the environmental liabilities associated with the acquired properties and agreed to indemnify FINA for any

environmental claims or costs in connection with our operations at the acquired properties after the closing date.

Environmental Insurance. We have also purchased two environmental insurance policies to cover expenditures

not covered by the FINA indemnification agreement, the premiums for which have been prepaid in full. Under an

environmental clean-up cost containment, or cost cap, policy, we are insured for remediation costs for known

conditions at the time of our acquisition of our assets from FINA. This policy has a $20.0 million deductible during

the first ten years after the acquisition (coinciding with the FINA indemnity) and a $1.0 million annual deductible

for the remainder of the term of the policy. Under an environmental response, compensation and liability insurance

policy, or ERCLIP, we are covered for bodily injury, property damage, clean-up costs, legal defense expenses and

civil fines and penalties relating to unknown conditions and incidents. The ERCLIP policy is subject to a $1.0

million sublimit on liability for civil fines and penalties and a deductible of $150,000, or $100,000 in the case of

civil fines or penalties, per incident. Both the cost cap and ERCLIP policies have a term of twenty years and share a

maximum aggregate coverage of $40.0 million. The insurer under these policies is The Kemper Insurance

Companies, which has experienced significant downgrades of its credit ratings in recent years. Our insurance broker

has advised us that environmental insurance policies with terms in excess of ten years are not currently generally

available and that policies with shorter terms are available only at premiums substantially in excess of the premiums

paid for our policies with Kemper.

Environmental Indemnity to HEP. In connection with the HEP transaction, we entered into an Environmental

Agreement with HEP pursuant to which we agreed to indemnify HEP against costs and liabilities incurred by HEP

to the extent resulting from the existence of environmental conditions at the pipelines or terminals prior to February

28, 2005 or from violations of environmental laws with respect to the pipelines and terminals occurring prior to

February 28, 2005. Our environmental indemnification obligations under the Environmental Agreement expire after

February 28, 2015. In addition, our indemnity obligations are subject to HEP first incurring $0.1 million of damages

as a result of pre-existing environmental conditions or violations. Our environmental indemnity obligations are

further limited to an aggregate indemnification amount of $20.0 million, including any amounts paid by us to HEP

with respect to indemnification for breaches of our representations and warranties under the Contribution

Agreement.

With respect to any remediation required for environmental conditions existing prior to February 28, 2005, we

have the option under the Environmental Agreement to perform such remediation ourselves in lieu of indemnifying

HEP for their costs of performing such remediation. Pursuant to this option, we are continuing to perform the

ongoing remediation at the Wichita Falls terminal which is subject to our environmental indemnity from FINA. Any

remediation required under the terms of the Environmental Agreement is limited to the standards under the

applicable environmental laws as in effect at February 28, 2005.

Environmental Indemnity to Sunoco. In connection with the sale of the Amdel and White Oil crude pipelines,

which had been inactive since December 2002, we entered into a Purchase and Sale Agreement with Sunoco

pursuant to which we agreed to indemnify Sunoco against costs and liabilities incurred by Sunoco to the extent

resulting from the existence of environmental conditions at the pipelines prior to March 1, 2006 or from violations

of environmental laws with respect to the pipelines occurring prior to March 1, 2006. With respect to any

remediation required for environmental conditions existing prior to March 1, 2006, we have the option under the

Purchase and Sale Agreement to perform such remediation ourselves in lieu of indemnifying Sunoco for their costs

of performing such remediation.

Other Government Regulation

The pipelines owned or operated by us are regulated by Department of Transportation rules and our intrastate

pipelines are regulated by the Texas Railroad Commission. Within the Texas Railroad Commission, the Pipeline

Safety Section of the Gas Services Division administers and enforces the federal and state requirements on our

intrastate pipelines. All of our pipelines within Texas are permitted and certified by the Texas Railroad

Commission’s Gas Services Division.

Both the State of Texas and the Federal Department of Transportation have recently promulgated new

regulations on pipeline safety. These regulations require pipelines that are located in populated or environmentally

sensitive areas to prepare and implement a program for managing the integrity of these pipelines, including the

repair of any defects identified as a result of ongoing pipeline integrity assessments. We estimate that compliance

with these new regulations will require us to invest $1.2 million over the next five years.

The petroleum Marketing Act, or PMPA, is a federal law that governs the relationship between a refiner and a

distributor pursuant to which the refiner permits a distributor to use a trademark in connection with the sale or

distribution of motor fuel. We are subject to the provisions of the PMPA because we sublicense the FINA brand to

our distributors in connection with their distribution and sale of motor fuels. The PMPA provides that we may not

terminate or fail to renew our distributor contracts unless certain enumerated preconditions or grounds for

termination or nonrenewal are met and we also comply with the prescribed notice requirements. The PMPA

provides that our distributors may enforce the provisions of the act through civil actions against us. If we terminate

or fail to renew one or more of our distributor contracts in the absence of the specific grounds permitted by the

PMPA, or fail to comply with the prescribed notice requirements in effecting a termination or nonrenewal, those

distributors may file lawsuits against us to compel continuation of their contracts or to recover damages from us.

Employees

As of December 31, 2005, we had approximately 1,415 employees. Approximately 250 employees worked in

our refining and marketing segment, of which 170 were employed at our refinery and approximately 80 were

employed at our corporate offices in Dallas, Texas. Approximately 120 of the 170 employees at our refinery are

covered by collective bargaining agreements that expire on March 31, 2006. Approximately 1,165 employees

worked in our retail segment. None of the employees in our retail segment or in our corporate offices are represented

by a union. We consider our relations with our employees to be satisfactory.

Properties

Our principal properties are described above under the captions “Refining and Marketing Segment” and “Retail

Segment” in Item 1. We believe that our facilities are generally adequate for our operations and are maintained in a

good state of repair. As of December 31, 2005 we were the lessee under a number of cancelable and non-cancelable

leases for certain properties. Our leases are discussed more fully in Note 19 to our consolidated financial statements

included elsewhere in this Annual Report on Form 10-K.

Executive Officers of the Registrant

Our current executive officers and key employees, their ages as of January 31, 2006, and their business

experience during at least the past five years are set forth below.

Name Age Position

David Wiessman 51 Executive Chairman of the Board of Directors

Jeff D. Morris 54 Director, President and Chief Executive Officer

Claire A. Hart 50 Senior Vice President

Shai Even 37 Vice President, Chief Financial Officer and Treasurer

Joseph A. Concienne 55 Vice President of Refining and Transportation

Jimmy C. Crosby 46 Vice President of Supply and Planning

Joseph Israel 34 Vice President of Mergers and Acquisitions

Harlin R. Dean 39 Vice President, General Counsel and Secretary

Joseph Lipman 60 President and Chief Executive Officer of SCS

Set forth below is a brief description of the business experience of each of our executive officers and key

employees listed above. Prior to our initial public offering, our executive officers, other than Messrs. Wiessman and

Dean, served with our wholly-owned subsidiary, Alon USA, Inc., which has historically managed our operations. In

May 2005, in contemplation of our initial public offering, each of the executive officers of Alon USA, Inc., was

elected to the same office or appointed to the same position with Alon USA Energy, Inc. in which he served with

Alon USA, Inc.

David Wiessman has served as Executive Chairman of the Board of Directors of Alon since July 2000 and

served as President and Chief Executive Officer of Alon USA Energy, Inc. from its formation in 2000 until May

2005. Mr. Wiessman has over 25 years of oil industry and marketing experience. Since 1994, Mr. Wiessman has

been Chief Executive Officer, President and a director of Alon Israel. In 1992, Bielsol Investments (1987) Ltd.

acquired a 50% interest in Alon Israel. In 1987, Mr. Wiessman became Chief Executive Officer of, and a

stockholder in, Bielsol Investments (1987) Ltd., a sister company of Bielsol Ltd. In 1976, after serving in the Israeli

Air Force, he became Chief Executive Officer of Bielsol Ltd., a privately owned Israeli company that owns and

operates gasoline stations and owns real estate in Israel. Mr. Wiessman is also Chairman of the Board of Directors of

Blue Square Israel, Ltd., which is listed on the New York Stock Exchange and the Tel Aviv Stock Exchange, and

Deputy Chairman of the Board of Directors of Blue Square Chain Properties and Investments, Ltd., which is listed

on the New York Stock Exchange and the Tel Aviv Stock Exchange. Mr. Wiessman also has served as Chairman of

the Board and President of Dor Alon Energy, the energy segment of the Alon Group in Israel, since January 2005.

Jeff D. Morris has served as a director and as our President and Chief Executive Officer since May 2005 and has

served as the President and Chief Executive Officer of our subsidiary Alon USA since its inception in August 2002

and of our other operating subsidiaries since July 2000. Prior to joining Alon, he held various positions at FINA,

where he began his career in 1974. Mr. Morris served as Vice President of FINA’s SouthEastern Business Unit from

1998 to 2000 and as Vice President of its SouthWestern Business Unit from 1995 to 1998. In these capacities, he

was responsible for both the Big Spring refinery and FINA’s Port Arthur refinery and had responsibility for crude

gathering assets and marketing activities for both business units.

Claire A. Hart has served as our Senior Vice President since January 2004 and served as our Chief Financial

Officer and Vice President from August 2000 to January 2004. Prior to joining Alon, he held various positions in the

Finance, Accounting and Operations departments of FINA for 13 years, serving as Treasurer from 1998 to August

2000 and as General Manager of Credit Operations from 1997 to 1998.

Shai Even has served as a Vice President since May 2005, as our Chief Financial Officer since December 2004

and as our Treasurer since August 2003. Prior to joining Alon, Mr. Even served as the Chief Financial Officer of

DCL Technologies, Ltd. from 1996 to July 2003 and prior to that worked for KPMG from 1993 to 1996.

Joseph A. Concienne has served as our Vice President of Refining and Transportation since March 2001. His

primary role is as site manager for our Big Spring refinery. Prior to joining Alon, Mr. Concienne served as Director

of Operations/General Manager for Polyone Corporation in Seabrook, Texas from 1998 to 2001. He served as Vice

President/General Manager for Valero Refining and Marketing, Inc. in 1998 and as Manager of Refinery Operations

and Refinery Manager for Phibro Energy Refining, which became Valero Refining and Marketing, Inc. in 1998,

from 1985 to 1998.

Jimmy C. Crosby has served as our Vice President of Supply and Planning since March 2005, with responsibility

for all terminal and refinery supply for our marketing and refinery operations. Mr. Crosby served as our General

Manager of Business Development and Planning from August 2000 to March 2005. Prior to joining Alon, Mr.

Crosby worked with FINA from 1996 to August 2000 where he last held the position of Manager of Planning and

Economics for the Big Spring refinery.

Joseph Israel has served as our Vice President of Mergers & Acquisitions since March 2005. Mr. Israel served

as our General Manager of Economics and Commerce from September 2000 to March 2005. Prior to joining Alon,

Mr. Israel held positions with several Israeli government entities beginning in 1998, including the Israeli Land

Administration, the Israeli Fuel Administration and most recently as Commerce Vice President of Israel’s Petroleum

Energy Infrastructure entity.

Harlin R. Dean has served as our General Counsel and Secretary since October 2002 and as Vice President since

May 2005. Prior to joining Alon, Mr. Dean practiced corporate and securities laws, with a focus on public and

private merger and acquisition transactions and public securities offerings, at Brobeck, Phleger & Harrison LLP,

from April 2000 to September 2002, and at Weil, Gotshal & Manges, L.L.P., from September 1992 to March 2000.

Joseph Lipman has served as President and Chief Executive Officer of Southwest Convenience Stores, LLC., or

SCS, our subsidiary conducting our Retail operations since July 2001. From 1997 to July 2001, Mr. Lipman served

as General Manager of Cosmos, a chain of supermarkets in Israel owned by Super-Sol Ltd., where he was

responsible for marketing and store operations. Mr. Lipman also held general managerial posts at Tuoro College, in

Jerusalem in 1997.

ITEM 1A. RISK FACTORS.

You should be aware that the occurrence of any of the events described in this Risk Factors section and

elsewhere in this Annual Report on Form 10-K or in any other of our filings with the SEC could have a material

adverse effect on our business, financial position, results of operations and cash flows. In evaluating us, you should

consider carefully, among other things, the factors and the specific risks set forth below. This annual report contains

forward-looking statements that involve risks and uncertainties. See “Forward-Looking Statements” in

“Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 for a

discussion of the factors that could cause actual results to differ materially from those projected.

The price volatility of crude oil, other feedstocks, refined products and fuel and utility services may have a

material adverse effect on our earnings, profitability and cash flows.

Our refining and marketing earnings, profitability and cash flows from operations depend on the margin above

fixed and variable expenses (including the cost of refinery feedstocks, such as crude oil) at which we are able to sell

refined products. We enjoyed historically high refining margins throughout 2005. However, refining margins

historically have been volatile, and are likely to continue to be volatile, as a result of a variety of factors, including

fluctuations in the prices of crude oil, other feedstocks, refined products and fuel and utility services. Prices of crude

oil, other feedstocks and refined products depend on numerous factors beyond our control, including the supply of

and demand for crude oil, other feedstocks, gasoline and other refined products. Such supply and demand are

affected by, among other things:

•changes in global and local economic conditions;

•domestic and foreign demand for fuel products;

•worldwide political conditions, particularly in significant oil producing regions such as the Middle East,

West Africa and Venezuela;

•the level of foreign and domestic production of crude oil and refined products and the level of crude oil,

feedstock and refined products imported into the U.S.;

•utilization rates of U.S. refineries;

•development and marketing of alternative and competing fuels;

•U.S. government regulations; and

•local factors, including market conditions, weather conditions and the level of operations of other refineries

and pipelines in our markets.

If the margin between refined product prices and crude oil and other feedstock prices contracts, it could

negatively affect our earnings and profitability.

The nature of our business requires us to maintain substantial quantities of crude oil and refined product

inventories. Because crude oil and refined products are essentially commodities, we have no control over the

changing market value of these inventories. Our inventory is valued at the lower of cost or market value under the

LIFO inventory valuation methodology; therefore, if the market value of our inventory were to decline to an amount

less than our LIFO cost, we would record a write-down of inventory and a non-cash charge to cost of sales.

In addition, the volatility in costs of fuel, principally natural gas, and other utility services, principally electricity,

used by our refinery and other operations affect our operating costs. Fuel and utility prices have been, and will

continue to be, affected by factors outside our control, such as supply and demand for fuel and utility services in

both local and regional markets. Future increases in fuel and utility prices may have a negative effect on our results

of operations.

Our profitability is linked to the sweet/sour crude oil price spread, which increased significantly in 2005. A

decrease in this spread could negatively affect our profitability.

Our profitability is linked to the price spread between sweet crude oil and sour crude oil, which we refer to as the

sweet/sour spread. We prefer to refine sour crude oils because they have historically provided wider refining

margins than sweet crude oils. During 2005, relatively high demand for sweet crude oils due to increasing demand

for lower sulfur fuels resulted in a wider sweet/sour spread. However, a tightening of the sweet/sour spread could

adversely affect our profitability, particularly if there is a worldwide softening of product demand that lessens the

demand for sweet crude oils.

The dangers inherent in our operations could cause disruptions and could expose us to potentially significant

losses, costs or liabilities. We are particularly vulnerable to disruptions in our operations because all of our

refining operations are conducted at a single facility.

Our operations are subject to significant hazards and risks inherent in refining operations and in transporting and

storing crude oil, intermediate products and refined products. These hazards and risks include, but are not limited to,

natural disasters, fires, explosions, pipeline ruptures and spills, third party interference and mechanical failure of

equipment at our or third-party facilities, any of which could result in production and distribution difficulties and

disruptions, environmental pollution, personal injury or wrongful death claims and other damage to our properties

and the properties of others.

Because all of our refining operations are conducted at a single refinery, any such events at our refinery could

significantly disrupt our production and distribution of refined products, and any sustained disruption could have a

material adverse effect on our business, financial condition and results of operations.

We are subject to interruptions of supply as a result of our reliance on pipelines for transportation of crude oil

and refined products.

Our refinery receives substantially all of its crude oil and delivers a substantial percentage of its refined products

through pipelines. We could experience an interruption of supply or delivery, or an increased cost of receiving crude

oil and delivering refined products to market, if the ability of these pipelines to transport crude oil or refined

products is disrupted because of accidents, governmental regulation, terrorism, other third-party action or any of the

types of events described in the preceding risk factor. Our prolonged inability to use any of the pipelines that we use

to transport crude oil or refined products could have a material adverse effect on our business, financial condition

and results of operations.

In January 2006, we received notice from the operator of the Mesa Pipeline (“Mesa”) system, which currently

supplies over 90% of our Big Spring refinery’s crude oil requirements, that operations of this system may cease on

June 30, 2006 due to a dispute among the owners of the system. While we have begun to implement plans for

alternative sources of supply should a shut down of this system occur, any disruption of supply resulting from a

cessation of operations of the Mesa system could cause us to be unable to operate the Big Spring refinery at full

capacity, which would negatively affect our profitability and cash flows.

If the price of crude oil increases significantly, it could limit our ability to purchase enough crude oil to operate

our refinery at full capacity.

We rely in part on borrowings and letters of credit under our revolving credit facility to purchase crude oil for

our refinery. If the price of crude oil increases significantly, we may not have sufficient capacity under our revolving

credit facility to purchase enough crude oil to operate our refinery at full capacity. A failure to operate our refinery

at full capacity could adversely affect our profitability and cash flows.

Changes in our credit profile could affect our relationships with oursuppliers, which could have a material

adverse effect on our liquidity and our ability to operate our Big Spring refinery at full capacity.

Changes in our credit profile could affect the way crude oil suppliers view our ability to make payments and

induce them to shorten the payment terms of their invoices with us. Due to the large dollar amounts and volume of

our crude oil and other feedstock purchases, any imposition by our creditors of more burdensome payment terms on

us may have a material adverse effect on our liquidity and our ability to make payments to our suppliers. This in turn

could cause us to be unable to operate our Big Spring refinery at full capacity. A failure to operate our refinery at

full capacity could adversely affect our profitability and cash flows.

Covenants and events of default in our debt instruments could limit our ability to undertake certain types of

transactions and adversely affect our liquidity.

Our revolving credit agreement dated February 15, 2006, contains negative and financial covenants and events of

default that may limit our financial flexibility and ability to undertake certain types of transactions. For instance, we

are subject to negative covenants that restrict our activities, including restrictions on creating liens, engaging in

mergers, consolidations and sales of assets, incurring additional indebtedness, providing guaranties, engaging in

different businesses, making loans and investments, entering into certain lease obligations, making certain capital

expenditures, making certain dividend, debt and other restricted payments, in each case, based on certain financial

covenants, compromising or adjusting receivables, engaging in certain transactions with affiliates and amending or

waiving certain material agreements. We are also subject to financial covenants that require us to maintain specified

financial ratios and to satisfy other financial tests. In addition, under our revolving credit facility, a change of control

will be deemed to occur, if Alon Israel ceases to have the power to exercise, directly or indirectly, a controlling

influence over our management or policies or cease to own and control at least 25% of the aggregate voting power

represented by our outstanding capital stock. If we fail to satisfy the covenants set forth in our revolving credit

facility or another event of default occurs under this facility, the maturity of the loan could be accelerated or we

could be prohibited from borrowing for our working capital needs. If our borrowings are accelerated and we do not

have sufficient cash on hand to pay all amounts due, we could be required to sell assets, to refinance all or a portion

of our indebtedness or to obtain additional financing. Refinancing may not be possible and additional financing may

not be available on commercially acceptable terms, or at all. If we cannot borrow under the revolving credit facility,

we would need to seek additional financing, if available, or curtail our operations.

Competition in the refining and marketing industry is intense, and an increase in competition in the markets in

which we sell our products could adversely affect our earnings and profitability.

We compete with a broad range of companies in our refining and marketing operations. Many of these

competitors are integrated, multinational oil companies that are substantially larger than we are. Because of their

diversity, integration of operations, larger capitalization, larger and more complex refineries and greater resources,

these companies may be better able to withstand volatile market conditions, to compete on the basis of price and to

obtain crude oil in times of shortage.

The Longhorn pipeline runs approximately 700 miles from the Houston area of the Gulf Coast to El Paso and has

an estimated maximum capacity of 225,000 bpd. This pipeline provides Gulf Coast refiners and other shippers with

improved access to markets in West Texas and New Mexico. We anticipate that any additional supply provided by

this pipeline will lower prices and increase price volatility in the El Paso market and could adversely affect our sales

and profitability in this market.

Competition in the retail industry is intense, and an increase in competition in the markets in which our retail

businesses operate could adversely affect our earnings and profitability.

Our retail operations compete with numerous convenience stores, gasoline service stations, supermarket chains,

drug stores, fast food operations and other retail outlets. Increasingly, high-volume grocery and dry-goods retailers,

such as Albertson’s, Wal-Mart and HEB are entering the gasoline retailing business. Many of these competitors are

substantially larger than we are. Because of their diversity, integration of operations and greater resources, these

companies may be better able to withstand volatile market conditions or levels of low or no profitability in the retail

segment. In addition, these retailers may use promotional pricing or discounts, both at the pump and in the store, to

encourage in-store merchandise sales. These activities by our competitors could adversely affect our profit margins.

Additionally, our convenience stores could lose market share, relating to both gasoline and merchandise, to these

and other retailers, which could adversely affect our sales and profitability.

Our convenience stores compete in large part based on their ability to offer convenience to customers.

Consequently, changes in traffic patterns and the type, number and location of competing stores could result in the

loss of customers and reduced sales and profitability at affected stores.

We may incur significant costs to comply with new or changing environmental laws and regulations.

Our operations are subject to extensive regulatory controls on air emissions, water discharges, waste

management and the clean-up of contamination that can require costly compliance measures. We anticipate that

compliance with new regulations lowering the permitted level of sulfur in gasoline and highway diesel fuel will

require us to spend approximately $25.3 million through 2010. Actual costs could, however, significantly exceed

current estimates, and we may be required to incur such costs at an earlier date than planned, particularly if we were

to lose our small refiner status. If we fail to meet environmental requirements, we may be subject to administrative,

civil and criminal proceedings by state and federal authorities, as well as civil proceedings by environmental groups

and other individuals, which could result in substantial fines and penalties against us as well as governmental or

court orders that could alter, limit or stop our operations.

In addition, new laws and regulations, new interpretations of existing laws and regulations, increased

governmental enforcement or other developments could require us to make additional unforeseen expenditures.

Many of these laws and regulations are becoming increasingly stringent, and the cost of compliance with these

requirements can be expected to increase over time. We are not able to predict the impact of new or changed laws or

regulations or changes in the ways that such laws or regulations are administered, interpreted or enforced. The

requirements to be met, as well as the technology and length of time available to meet those requirements, continue

to develop and change. To the extent that the costs associated with meeting any of these requirements are substantial

and not adequately provided for, our earnings and cash flows could suffer.

We may incur significant costs and liabilities with respect to environmental lawsuits and proceedings and any

investigation and remediation of existing and future environmental conditions.

We are currently investigating and remediating, in some cases pursuant to government orders, soil and

groundwater contamination at our refinery, terminals and convenience stores. Since August 2000, we have spent

approximately $12.3 million with respect to the investigation and remediation of our Big Spring refinery and our

terminals. We anticipate spending an additional $4.7 million in investigation and remediation expenses over the next

five years. There can be no assurances, however, that we will not have to spend more than this amount. Our

handling and storage of petroleum and hazardous substances may lead to additional contamination at our facilities

and facilities to which we send or sent wastes or by-products for treatment or disposal, in which case we may be

subject to additional cleanup costs, governmental penalties, and third-party suits alleging personal injury and

property damage. Although we have sold three of our pipelines and three of our terminals pursuant to the HEP

transaction and two of our pipelines pursuant to the Sunoco transaction, we have agreed, subject to certain

limitations, to indemnify HEP and Sunoco for costs and liabilities that may be incurred by them as a result of

environmental conditions existing at the time of the sale. See Items 1 and 2 “Business and Properties — Government

Regulation and Legislation — Environmental Indemnity to HEP and — Environmental Indemnity to Sunoco.” If we

are forced to incur costs or pay liabilities in connection with such proceedings and investigations, such costs and

payments could be significant and could adversely affect our profitability.

We could incur substantial costs or disruptions in our business if we cannot obtain or maintain necessary permits

and authorizations or otherwise comply with health, safety, environmental and other laws and regulations.

From time to time, we have been sued or investigated for alleged violations of health, safety, environmental and

other laws. If a lawsuit or enforcement proceeding were commenced or resolved against us, we could incur

significant costs and liabilities. In addition, our operations require numerous permits and authorizations under

various laws and regulations. These authorizations and permits are subject to revocation, renewal or modification

and can require operational changes to limit impacts or potential impacts on the environment and/or health and

safety. A violation of authorization or permit conditions or other legal or regulatory requirements could result in

substantial fines, criminal sanctions, permit revocations, injunctions, and/or facility shutdowns. In addition, major

modifications of our operations could require modifications to our existing permits or upgrades to our existing

pollution control equipment. Any or all of these matters could have a negative effect on our earnings and cash flows.

Our insurance policies do not cover all losses, costs or liabilities that we may experience.

We maintain significant insurance coverage, but it does not cover all potential losses, costs or liabilities, and our

business interruption insurance coverage does not apply unless a business interruption exceeds 45 days. We could

suffer losses for uninsurable or uninsured risks or in amounts in excess of our existing insurance coverage. Our

ability to obtain and maintain adequate insurance may be affected by conditions in the insurance market over which

we have no control. The occurrence of an event that is not fully covered by insurance could have a material adverse

effect on our business, financial condition and results of operations.

We are exposed to risks associated with the credit-worthiness of our insurers.

The insurer under three of our environmental policies is The Kemper Insurance Companies, which has

experienced significant downgrades of its credit ratings in recent years. Of these three policies, two are 20-year

policies that were purchased to protect us against expenditures not covered by our indemnification agreement with

FINA, and the third policy is a ten-year policy covering our operations subsequent to our acquisition from FINA.

Our insurance brokers have advised us that environmental insurance policies with terms in excess of ten years are

not currently generally available and that policies with shorter terms are available only at premiums substantially in

excess of the premiums paid for our policies with Kemper. Accordingly, we are currently subject to the risk that

Kemper will be unable to comply with its obligations under these policies and that comparable insurance may not be

available or, if available, only at substantially higher premiums than our current premiums with Kemper.

If we lose any of our key personnel, our ability to manage our business and continue our growth could be

negatively impacted.

Our future performance depends to a significant degree upon the continued contributions of our senior

management team and key technical personnel. We do not currently maintain key man life insurance with respect to

any member of our senior management team. The loss or unavailability to us of any member of our senior

management team or a key technical employee could significantly harm us. We face competition for these

professionals from our competitors, our customers and other companies operating in our industry. To the extent that

the services of members of our senior management team and key technical personnel would be unavailable to us for

any reason, we would be required to hire other personnel to manage and operate our company and to develop our

products and technology. We cannot assure you that we would be able to locate or employ such qualified personnel

on acceptable terms or at all.

A substantial portion of our refining workforce is unionized, and we may face labor disruptions that would

interfere with our operations.

As of December 31, 2005, we employed approximately 170 people at our refinery, approximately 120 of whom

were covered by a collective bargaining agreement. The collective bargaining agreement expires March 31, 2006.

We may not be able to renegotiate our collective bargaining agreement on satisfactory terms or at all. A failure to do

so may increase our costs. In addition, our existing labor agreement may not prevent a strike or work stoppage in the

future, and any such work stoppage could have a material adverse affect on our results of operation and financial

condition.

We conduct our convenience store business under a license agreement with 7-Eleven, and the loss of this license

could adversely affect the results of operations of our retail segment.

All of our convenience store operations are currently conducted under the 7-Eleven name pursuant to a license

agreement between 7-Eleven, Inc. and us. 7-Eleven may terminate the agreement if we default on our obligations

under the agreement. This termination would result in our convenience stores losing the use of the 7-Eleven brand

name, the accompanying 7-Eleven advertising and certain other brand names used exclusively by 7-Eleven.

Termination of the license agreement could have a material adverse affect on our convenience store operations.

We may not be able to successfully execute our strategy of growth through acquisitions.

A component of our growth strategy is to selectively acquire refining and marketing assets and retail assets in

order to increase cash flow and earnings. Our ability to do so will be dependent upon a number of factors, including

our ability to identify acceptable acquisition candidates, consummate acquisitions on favorable terms, successfully

integrate acquired assets and obtain financing to fund acquisitions and to support our growth and many other factors

beyond our control. Risks associated with acquisitions include those relating to:

•diversion of management time and attention from our existing business;

•challenges in managing the increased scope, geographic diversity and complexity of operations;

•difficulties in integrating the financial, technological and management standards, processes, procedures and

controls of an acquired business with those of our existing operations;

•liability for known or unknown environmental conditions or other contingent liabilities not covered by

indemnification or insurance;

•greater than anticipated expenditures required for compliance with environmental or other regulatory

standards or for investments to improve operating results;

•difficulties in achieving anticipated operational improvements;

•incurrence of additional indebtedness to finance acquisitions or capital expenditures relating to acquired

assets; and

•issuance of additional equity, which could result in further dilution of the ownership interest of existing

stockholders.

We may not be successful in acquiring additional assets, and any acquisitions that we do consummate may not

produce the anticipated benefits or may have adverse effects on our business and operating results.

Terrorist attacks, threats of war or actual war may negatively affect our operations, financial condition, results of

operations and prospects.

Terrorist attacks, threats of war or actual war, as well as events occurring in response to or in connection with

them, may adversely affect our operations, financial condition, results of operations and prospects. Energy-related

assets (which could include refineries, terminals and pipelines such as ours) may be at greater risk of future terrorist

attacks than other possible targets in the United States. A direct attack on our assets or assets used by us could have

a material adverse effect on our operations, financial condition, results of operations and prospects. In addition, any

terrorist attack, threats of war or actual war could have an adverse impact on energy prices, including prices for our

crude oil and refined products, and an adverse impact on the margins from our refining and marketing operations. In

addition, disruption or significant increases in energy prices could result in government-imposed price controls.

If the price of crude oil increases significantly, it could reduce our profit on our fixed-price asphalt supply

contracts.

We enter into fixed-price supply contracts pursuant to which we agree to deliver asphalt to customers at future

dates. We set the pricing terms in these agreements based, in part, upon the price of crude oil at the time we enter

into each contract. If the price of crude oil increases from the time we enter into the contract to the time we produce

the asphalt, our profits from these sales could be adversely affected.

Our operating results are seasonal and generally lower in the first and fourth quarters of the year.

Demand for gasoline and asphalt products is generally higher during the summer months than during the winter

months due to seasonal increases in highway traffic and road construction work. Seasonal fluctuations in highway

traffic also affect motor fuels and merchandise sales in our retail stores. As a result, our operating results for the first

and fourth calendar quarters are generally lower than those for the second and third calendar quarters of each year.

We depend upon our subsidiaries for cash to meet our obligations and pay any dividends, and we do not own

100% of the stock of our operating subsidiaries.

We are a holding company. Our subsidiaries conduct all of our operations and own substantially all of our assets.

Consequently, our cash flow and our ability to meet our obligations or pay dividends to our stockholders depend

upon the cash flow of our subsidiaries and the payment of funds by our subsidiaries to us in the form of dividends,

tax sharing payments or otherwise. Our subsidiaries’ ability to make any payments will depend on their earnings, the

terms of their indebtedness, tax considerations and legal restrictions.

Three of our executive officers, Messrs. Morris, Hart and Concienne, own shares of non-voting stock of two of

our subsidiaries, Alon Assets, Inc., or Alon Assets and Alon USA Operating, Inc., or Alon Operating. As of March

1, 2006, the shares owned by these executive officers represent 5.32% of the aggregate equity interest in these

subsidiaries. In addition, these executive officers hold options vesting through 2010 which, if exercised, could

increase their aggregate ownership to 8.34% of Alon Assets and Alon Operating. To the extent these two

subsidiaries pay dividends to us, Messrs. Morris, Hart and Concienne will be entitled to receive pro rata dividends

based on their equity ownership. For additional information, see Item 12 “Security Ownership of Certain Beneficial

Owners and Management and Related Stockholder Matters.”

Messrs. Morris, Hart and Concienne are parties to stockholders’ agreements with Alon Assets and Alon

Operating, pursuant to which we may elect or be required to purchase their shares in connection with put/call rights

or rights of first refusal contained in those agreements. The purchase price for the shares is generally determined

pursuant to certain formulas set forth in the stockholders’ agreements, but after July 31, 2010, the purchase price,

under certain circumstances involving a termination of, or resignation from, employment would be the fair market

value of the shares. For additional information, see Item 12 “Security Ownership of Certain Beneficial Owners and

Management and Related Stockholder Matters.”

It may be difficult to serve process on or enforce a United States judgment against certain of our directors.

All of our directors,other than Messrs. Ron Haddock and Jeff Morris, reside outside the United States. In

addition, a substantial portion of the assets of these directors are located outside of the United States. As a result,

you may have difficulty serving legal process within the United States upon any of these persons. You may also

have difficulty enforcing, both in and outside the United States, judgments you may obtain in United States courts

against these persons in any action, including actions based upon the civil liability provisions of United States

federal or state securities laws. Furthermore, there is substantial doubt that the courts of the State of Israel would

enter judgments in original actions brought in those courts predicated on United States federal or state securities

laws.

ITEM 1B. UNRESOLVED STAFF COMMENTS.

None.

ITEM 3. LEGAL PROCEEDINGS.

In the ordinary conduct of our business, we are subject to periodic lawsuits, investigations and claims, including

environmental claims and employee related matters. Although we cannot predict with certainty the ultimate

resolution of lawsuits, investigations and claims asserted against us, we do not believe that any currently pending

legal proceeding or proceedings to which we are a party will have a material adverse effect on our business, results

of operations, cash flows or financial condition.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

There were no matters submitted to a stockholder vote during the third and fourth quarter of 2005.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS

AND ISSUER PURCHASE OF EQUITY SECURITIES.

Market Information

Our common stock is traded on the New York Stock Exchange under the symbol “ALJ.”

The following table sets forth the quarterly high and low sales prices of our common stock for each quarterly

period since our common stock began trading on the New York Stock Exchange on July 28, 2005:

2005 HIGH LOW

Fourth Quarter ...................................................................... $25.05 $18.05

Third Quarter........................................................................ 26.50 17.05

Holders

As of March 1, 2006, there were approximately 26 common stockholders of record.

Dividends

Except with respect to the dividend of approximately $68.4 million paid on August 2, 2005 to our stockholders

of record prior to our initial public offering, and the dividend of approximately $4.7 million paid on August 2, 2005

to the minority interest stockholders of record of Alon Operating, we have not paid dividends on our common stock.

On February 15, 2006, our Board of Directors announced a regular quarterly cash dividend of $0.04 per share and a

special cash dividend of $0.37 per share of our common stock, payable on March 21, 2006 to stockholders of record

at the close of business on March 1, 2006. In connection with our cash dividend payment to shareholders on March

21, 2006, the minority interest owners of Alon Assets and Alon Operating will receive an aggregate cash dividend of

approximately $1.1 million. We intend to continue to pay quarterly cash dividends on our common stock at an initial

annual rate of $0.16 per share. The declaration and payment of future dividends to holders of our common stock will

be at the discretion of our board of directors and will depend upon many factors, including our financial condition,

earnings, legal requirements, restrictions in our debt agreements and other factors our board of directors deems

relevant.

Recent Sales of Unregistered Securities

None.

Use of Proceeds from Registered Securities

On July 27, 2005, the SEC declared effective our registration statements on Form S-1 (Registration Nos. 333-

124797 and 333-126952) related to our sale of 11,730,000 shares of our common stock. On August 2, 2005, we

completed an initial public offering of all 11,730,000 registered shares at a price of $16.00 per share for an

aggregate offering price of approximately $187.7 million. Of the aggregate gross proceeds, approximately $2.4

million was used to pay offering expenses related to the initial public offering, and $13.1 million was used to pay

underwriting discounts and commissions. None of the expenses incurred and paid by us in this offering were direct

or indirect payments (i) to our directors, officers, general partners or their associates, (ii) to persons owning 10% or

more of any class of our equity securities, or (iii) to our affiliates. Net proceeds of the offering after payment of

expenses and underwriting discounts and commission were approximately $172.2 million.

The offering was made through an underwriting syndicate led by Credit Suisse, LLC., Deutsche Bank Securities

Inc. and Lehman Brothers Inc. as joint book-running managers.

We used the net proceeds from the offering as follows:

•payment of a dividend in the amount of approximately $65.7 million to Alon Israel, a stockholder of the

Company;

•payment of a dividend in the amount of approximately $2.7 million to Tabris Investments Inc., a stockholder

of the Company;

•payment of a dividend in the amount of approximately $4.7 million to the minority stockholders of Alon

USA Operating, Inc., a subsidiary of the Company;

•approximately $20.7 million was used to repay debt due to our parent company, Alon Israel, and $3.6 million

was used to repay debt due to Atofina Petrochemicals, Inc.

•approximately $2.5 million was used for general corporate purposes; and

•the remaining $72.3 million, along with $31.6 million of cash from operating activities was used to prepay

our $100.0 million secured term loan, including prepayment premiums and accrued interest.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

None.

ITEM 6. SELECTED FINANCIAL DATA.

The following table sets forth selected historical consolidated financial and operating data for our company. The

selected historical consolidated statement of operations and cash flows data for the two years ended December 31,

2002 and 2001, and the selected consolidated balance sheet data as of December 31, 2003, 2002 and 2001, are

derived from our audited consolidated financial statements, which are not included in this Annual Report on Form

10-K. The selected historical consolidated statement of operations and cash flows data for the three years ended

December 31, 2005, 2004 and 2003, and the selected consolidated balance sheet data as of December 31, 2005 and

2004, are derived from our audited consolidated financial statements included elsewhere in this Annual Report on

Form 10-K.

We acquired our business, including a 34.4% interest in our retail subsidiary, Southwest Convenience Stores,

LLC., or SCS, and a 60% interest in our subsidiary, Alon USA Capital, Inc., or Alon Capital effective August 1,

2000. We acquired the remaining 65.6% of SCS effective May 1, 2001. A portion of the financing for our

acquisition of our business from FINA was in the form of the purchase by investors of 40% of the common stock of

Alon Capital, which, through its subsidiaries, holds our refining and other operating assets. On August 21, 2002, we

acquired this 40% interest in Alon Capital, which we refer to as the Alon Capital minority interest acquisition. As a

result of these transactions, the financial and operating data for periods prior to the effective dates of these

transactions may not be comparable to the data for periods after the effective dates of these transactions.

The following selected historical consolidated financial and operating data should be read in conjunction with

Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the

consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K.

Year Ended December 31,

2005 2004 2003 2002 2001

(dollars in thousands, except per share data)

STATEMENT OF OPERATIONS

DATA:

Net sales (1)............................................... $ 2,328,507 $1,707,564 $1,410,766 $1,207,723 $1,210,366

Operating costs and expenses (1) .............. 2,178,335 1,638,300 1,368,473 1,182,663 1,162,142

Gain on disposition of assets (2)................ 38,591 175 — — —

Operating income ...................................... 188,763 69,439 42,293 25,060 48,224

Net income................................................. 103,988 25,132 14,068 4,352 17,627

Earnings per share, basic and diluted (3)... $ 2.61 $ .72 $ .40 $ .12 $ .50

Dividends per share (4).............................. 1.72 — — — —

Weighted average shares outstanding (3).. 39,889 35,001 35,001 35,001 35,001

CASH FLOW DATA:

Net cash provided by (used in):

Operating activities................................ $ 137,895 $ 76,743 $ 76,173 $ 5,001 $ 45,154

Investing activities................................. (106,962) (39,886) (34,664) (70,918) (37,927)

Financing activities................................ 42,530 19,244 (39,667) 62,238 (3,500)

BALANCE SHEET DATA (end of

period):

Cash, cash equivalents and short-term

investments.............................................. $ 322,140 $ 63,357 $ 7,256 $ 5,414 $ 9,093

Working capital ......................................... 275,996 44,443 5,071 30,962 19,500

Total assets ................................................ 758,780 472,516 386,982 392,066 281,753

Total debt................................................... 132,390 187,706 166,816 214,539 126,721

Stockholders’ equity.................................. 279,493 71,472 46,923 33,128 29,961

____________

(1) Our buy/sell arrangements involve linked purchases and sales related to refined product contracts entered into to

address location, or grade requirements. Included in cost of sales are amounts which approximate the revenues

resulting from these transactions. See Note 2 to our consolidated financial statements included elsewhere in this

Annual Report on Form 10-K.

(2) Gain on disposition of assets reported in 2005 reflects the initial pre-tax gain recognized in connection with

assets contributed in the February 28, 2005 HEP transaction and recognition of deferred gain recorded in the ten

months following the transaction. The transaction was recorded as a partial sale for accounting purposes.

(3) Weighted average shares outstanding and earnings per share amounts for the periods presented reflect the effect

of a 33,600-for-one split of our common stock which was effected on July 6, 2005. On August 2, 2005, we

completed an initial public offering of 11,730,000 shares of our common stock. The shares issued in our initial

public offering are included in the number of weighted average shares outstanding at December 31, 2005.

(4) Dividends per share reflects the $68.4 million paid on August 2, 2005 to our stockholders of record prior to our

initial public offering. These dividends were paid with a portion of the proceeds received in our initial public

offering.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS.

The following discussion of our financial condition and results of operations is provided as a supplement to, and

should be read in conjunction with our consolidated financial statements and the notes thereto included elsewhere

in this Annual Report on Form 10-K and the other sections of this Annual Report on Form 10-K, including Items 1

and 2 “Business and Properties,” and Item 6 “Selected Financial Data.”

Forward-Looking Statements

Certain statements contained in this report and other materials we file with the SEC, or in other written or oral

statements made by us, other than statements of historical fact, are “forward-looking statements” as defined in the

Private Securities Litigation Reform Act of 1995. Forward-looking statements relate to matters such as our industry,

business strategy, goals and expectations concerning our market position, future operations, margins, profitability,

capital expenditures, liquidity and capital resources and other financial and operating information. We have used the

words “anticipate,” “assume,” “believe,” “budget,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,”

“plan,” “potential,” “predict,” “project,” “will,” “future” and similar terms and phrases to identify forward-looking

statements.

Forward-looking statements reflect our current expectations regarding future events, results or outcomes. These

expectations may or may not be realized. Some of these expectations may be based upon assumptions or judgments

that prove to be incorrect. In addition, our business and operations involve numerous risks and uncertainties, many

of which are beyond our control, which could result in our expectations not being realized or otherwise materially

affect our financial condition, results of operations and cash flows. See Item 1A “Risk Factors.”

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 sweet/sour spread;

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

•actions of customers and competitors;

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

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

•the execution of planned capital projects;

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

•the effects of and cost of compliance with current and future state and federal environmental, economic,

safety and other laws, policies and regulations;

•operating hazards, natural disasters, casualty losses and other matters beyond our control; and

•the other factors discussed under Item 1A “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.

Overview

We are an independent refiner and marketer of petroleum products operating primarily in the Southwestern and

South Central regions of the United States. Our business consists of two segments: (1) refining and marketing and

(2) retail.

Refining and Marketing Segment. We own and operate a sophisticated sour crude oil refinery in Big Spring,

Texas, with a crude oil throughput capacity of 70,000 bpd. We refine and market petroleum products, including

gasoline, diesel, jet fuel, petrochemicals, petrochemical feedstocks, asphalt and other petroleum products, primarily

in the Southwestern and South Central regions of the United States.

We conduct the majority of our operations in West Texas, Central Texas, Oklahoma, New Mexico and Arizona.

We refer to our operations in this region as our physically integrated system because we supply our branded and

unbranded distributors in this region with refined products produced at our Big Spring refinery and distributed

through a network of product pipelines and terminals which we own or access through leases or long-term

throughput agreements. We also operate in East Texas and Arkansas. We refer to our operations in this region as our

non-integrated system because we supply our branded and unbranded distributors in this region with motor fuels

obtained from third parties.

Retail Segment. As of December 31, 2005, we operated 167 convenience stores in West Texas and New Mexico.

Our convenience stores typically offer merchandise, food products and motor fuels under the 7-Eleven and FINA

brand names. We supply our stores with substantially all of their motor fuel needs with gasoline and diesel produced

at our Big Spring refinery.

Summary of 2005 Developments

In February 2005, we completed the contribution of certain of our pipeline and terminal assets to HEP. In

exchange for this contribution we received $120 million in cash and 937,500 subordinated Class B limited

partnership units in HEP. Simultaneously with this transaction, we entered into a Pipelines and Terminal Agreement

with HEP with an initial term of 15 years and three subsequent five year renewal terms exercisable at our sole

discretion. Pursuant to the Pipelines and Terminal Agreement, we have agreed to transport and store minimum

volumes of refined products in these pipelines and terminals and to pay specified tariffs and fees for such

transportation and storage during the term of the agreement.

In March 2005, we successfully completed a major turnaround at our Big Spring refinery. Other than the planned

low sulfur diesel project scheduled for the second quarter 2006, we believe the completion of this project will enable

us to operate our Big Spring refinery without significant planned maintenance shut downs for the next four to five

years. In connection with this turnaround, we expanded our crude oil throughput capacity from 62,000 bpd to 70,000

bpd. The cost of the expansion project was approximately $6.4 million, or $800 per bpd of additional throughput

capacity.

On August 2, 2005, we completed an initial public offering of 11,730,000 shares of our common stock at a price

of $16.00 per share for an aggregate offering price of approximately $187.7 million. We received approximately

$172.2 million in net proceeds from the initial public offering after payment of expenses, underwriting discounts and

commissions of approximately $15.5 million or $1.32 per share. The initial public offering represented the sale by

us of a 25.1% interest in our company. See “— Liquidity and Capital Resources” and “— Initial Public Offering”

below for additional information.

2005 continued to reflect the positive refinery fundamentals experienced in 2004. These positive fundamentals,

including strong refining margins and favorable differentials between WTI and WTS crude oil, resulted in

significantly enhanced results of operations reported in 2005 compared to 2004. The effects of the favorable refining

margins and WTI/WTS crude oil differentials were partially offset by decreased production in the third quarter of

2005 as a result of the acceleration of a reformer catalyst regeneration that was previously scheduled for January

2006. See “— Factors Affecting Comparability” for additional information. Results of our operations are further

described under “— Results of Operations” and “— Liquidity and Capital Resources.” Selected financial data is

presented below:

•Net sales increased $620.9 million to $2,328.5 million and operating income increased $119.4 million to

$188.8 million for 2005, compared to net sales of $1,707.6 million and operating income of $69.4 million in

2004.

•Our average refinery operating margin increased $4.27 per barrel to $12.30 per barrel for 2005, compared to

$8.03 per barrel for 2004.

•Our cash, cash equivalents and short-term investments increased $258.8 million to $322.1 million in 2005,

compared to cash and cash equivalents of $63.4 million at December 31, 2004, as a result of cash of $137.9

million generated from operating activities, together with $118.0 million net proceeds from the HEP

transaction and $72.3 net proceeds from our initial public offering. Total debt was reduced by $55.3 million

to $132.4 million, compared to $187.7 million in 2004.

•Our capital expenditures and turnaround spending for 2005 totaled approximately $35.1 million, of which

$13.9 million was spent on a major turnaround, catalyst and the crude throughput expansion from 62,000 bpd

to 70,000 bpd in February 2005, $12.1 million was spent on regulatory and compliance projects and $9.1

million was spent on various sustaining and capital improvement projects.

Major Influences on Results of Operations

Refining and Marketing. Our earnings and cash flow from our refining and marketing segment are primarily

affected by the difference between refined product prices and the prices for crude oil and other feedstocks. The cost

to acquire feedstocks and the price of the refined products we ultimately sell depend on numerous factors beyond

our control, including the supply of, and demand for, crude oil, gasoline and other refined products which, in turn,

depend on, among other factors, changes in domestic and foreign economies, weather conditions, domestic and

foreign political affairs, production levels, the availability of imports, the marketing of competitive fuels and

government regulation. While our sales and operating revenues fluctuate significantly with movements in crude oil

and refined product prices, it is the spread between crude oil and refined product prices, and not necessarily

fluctuations in those prices, that affects our earnings.

In order to measure our operating performance, we compare our per barrel refinery operating margin to certain

industry benchmarks, specifically the Gulf Coast and Group III, or mid-continent, 3/2/1 crack spreads. A 3/2/1 crack

spread in a given region is calculated assuming that three barrels of a benchmark crude oil are converted, or cracked,

into two barrels of gasoline and one barrel of diesel. We calculate the Gulf Coast 3/2/1 crack spread using the

market values of Gulf Coast conventional gasoline and low-sulfur diesel and the market value of WTI crude oil. We

calculate the Group III 3/2/1 crack spread using the market values of Group III conventional gasoline and low-sulfur

diesel and the market value of WTI crude oil. The Gulf Coast and Group III crack spreads are proxies for the per

barrel refinery operating margin that a crude oil refiner situated in the Gulf Coast and Group III region, respectively,

would expect to earn if it refined WTI crude oil and sold conventional gasoline and low-sulfur diesel. We calculate

our refinery operating margin by dividing the margin between net sales and cost of sales attributable to our refining

and marketing segment, exclusive of net sales and cost of sales relating to our non-integrated system, by our Big

Spring refinery’s throughput volumes. We exclude net sales and cost of sales relating to our non-integrated system

from our refinery operating margin because the refined products we sell in this region are obtained from third-party

suppliers and are not produced at our Big Spring refinery.

Our refinery is capable of processing substantial volumes of sour crude oil, which has historically cost less than

intermediate and sweet crude oils. In addition, we are able to access domestic and foreign crude oils available on the

Gulf Coast through the Amdel pipeline, which enables us to better optimize our crude supply. As a result, our

refinery operating margin generally exceeds the Gulf Coast 3/2/1 crack spread. Over the past two years our refinery

operating margin exceeded the Group III 3/2/1 crack spread. The Group III market area has experienced product

supply constraints in recent years due to insufficient pipeline capacity from the Gulf Coast to the Group III market

area. The supply constraints have typically caused Group III products to be priced at a premium to Gulf Coast

products, although in 2005, the Gulf Coast and Group III crack spread were comparable. We measure the cost

advantage of refining sour crude oil by calculating the difference between the value of WTI crude oil less the value

of WTS crude oil. We refer to this differential as the sweet/sour spread. A widening of the sweet/sour spread can

favorably influence our refinery operating margin.

The results of operations from our refining and marketing segment are also significantly affected by our Big

Spring refinery’s operating costs, particularly the cost of natural gas used for fuel and the cost of electricity.

Natural gas prices have historically been volatile. For example, natural gas prices ranged between $5.79 and $15.38

per million British thermal units, or MMBTU, in 2005. Typically, electricity prices fluctuate with natural gas prices.

Demand for gasoline and asphalt products is generally higher during summer months than during winter months

due to seasonal increases in highway traffic and road construction work. 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 and asphalt 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 refinery operations 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 product availability, margin environment and the

availability of resources to perform the required maintenance.

The nature of our business requires us to maintain substantial quantities of crude oil and refined product

inventories. Because crude oil and refined products are essentially commodities, we have no control over the

changing market value of these inventories. Because our inventory is valued at the lower of cost or market value

under the LIFO inventory valuation methodology, price fluctuations generally have little effect on our financial

results.

Retail. Our earnings and cash flows from our retail segment are primarily affected by the sales and margins of

retail merchandise and the sales volumes and margins of motor fuels at our convenience stores. The gross margin of

our retail merchandise is retail merchandise sales less the delivered cost of the retail merchandise, net of vendor

discounts, measured as a percentage of total retail merchandise sales. Our retail merchandise sales are driven by

convenience, branding and competitive pricing. Motor fuel margin is sales less the delivered cost of fuel and motor

fuel taxes, measured on a cents per gallon, or cpg, basis. Our motor 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.

Outlook

We believe that we are well positioned to capitalize on the expected positive refining industry fundamentals in

2006. As a result of our 2005 crude oil capacity expansion at the Big Spring refinery, we plan to increase production

in 2006. We plan to complete our ultra low-sulfur diesel upgrades to reduce the sulfur content in all of our diesel

fuel products to 15 ppm in the second quarter of 2006. Our increased production capabilities and the conversion of

all of our finished diesel fuel production to meet the required low-sulfur specifications is expected to allow us to

fully participate in the anticipated positive refinery margin environment in 2006.

The positive refining industry fundamentals experienced in 2004 and 2005 have continued in the first two

months of 2006. We expect that continued concern over adequate refining capacity to meet demand, tight product

inventories as a result of heavy turnaround activity scheduled for the first half of 2006 and the widening of the

sweet/sour crude oil differential will result in a favorable outlook for refining margins in 2006.

Our outlook for diesel margins is positive in 2006, due to high distillate demand and as a result of the EPA’s

tightening of the diesel fuel specifications that take effect on June 1, 2006. We expect an industry-wide loss of

finished diesel production as a result of refineries inability to convert current levels of diesel fuel production to low-

sulfur diesel grades which meet the new specifications. In addition, low-sulfur diesel inventories are expected to

drop due to scheduling and supply constraints during the transition period to meet low-sulfur diesel specifications in

the pipelines, terminals and retail outlets. While diesel margins are expected to outpace gasoline margins, our

outlook for gasoline margins is also favorable as demand is expected to exceed supply due to continued supply

constraints related to, among other things, reduced gasoline production as a result of the elimination by Congress of

MTBE in the gasoline pool and the seasonal shift to summer-grade gasoline in early March 2006.

The average sweet/sour crude oil differential for the first two months of 2006 was well above historical

sweet/sour crude oil differentials. As sour crude oil has typically accounted for over 90% of our crude throughput,

we believe our refinery margins will benefit from the continued widening of the sweet/sour differential. The higher

sweet/sour differential in 2006 is primarily due to the continued increased demand for sweet crude oils due to low-

sulfur specifications, higher incremental sour crude oil production and the expected introduction of low priced

Canadian sour crude oil into the Midwest and Gulf Coast regions. Overall, we believe that we are well positioned to

capitalize on the expected positive refining industry fundamentals and our expected favorable outlook for refined

product margins and sweet/sour crude oil differentials.

Factors Affecting Comparability

Our financial condition and operating results over the three-year period ended December 31, 2005 have been

influenced by the following factors, which are fundamental to understanding comparisons of our period-to-period

financial performance.

The contribution of assets in connection with the HEP transaction on February 28, 2005 reduced property, plant

and equipment, net, by approximately $37.7 million.

Pursuant to our Pipelines and Terminals Agreement with HEP, we have agreed to transport and store minimum

volumes of refined products in the pipelines and terminals contributed to HEP during the term of such agreement.

Beginning March 1, 2005, tariff and terminalling fees associated with the Pipelines and Terminals Agreement are

reflected as a component of cost of sales. In the periods prior to the HEP transaction, tariff and terminalling fees

related to the contributed assets were eliminated through consolidation of our financial statements. As of March 1,

2005, the majority of all operating expenses related to the pipelines and terminals contributed to HEP are no longer

incurred by us, resulting in an offsetting decrease in cost of sales. However, we anticipate that the additional tariff

and terminalling fees will be greater than the operating expenses that we will no longer incur, resulting in a net

increase to cost of sales. This net increase to cost of sales has the effect of reducing our refinery operating margin.

The HEP transaction was recorded as a partial sale for accounting purposes. We recognized pre-tax gain of $38.6

million in the ten-month period ending December 31, 2005 in connection with the transaction. This pre-tax gain

includes $6.5 million of deferred gain, which was recognized in September 2005, as a result of events which

permitted us to accelerate recognition of a portion of the deferred gain. We expect the remaining $63.9 million of

deferred gain to be recognized between now and 2017. In addition, $6.7 million of pro-rata gain was subtracted from

the carrying value of our investment in HEP in our consolidated balance sheet as a basis adjustment. See Note 4 of

the consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

In the first quarter of 2005, we successfully completed a major turnaround at our Big Spring refinery. In

connection with this turnaround, we expanded our crude oil throughput capacity from 62,000 bpd to 70,000 bpd.

Our expanded crude oil processing capability should enable us to spread our fixed costs over a higher production

base and, consequently, should lower our per barrel direct operating expense. In addition, the increased throughput

capacity should result in increased production and higher sales volumes, which will affect the comparability of our

future operating results to periods prior to the expansion. Our average refinery production was 64,393 bpd for 2005,

reflecting effects of the crude oil throughput expansion, partially offset by reduced production resulting from the

planned major turnaround completed in the first quarter of 2005. Average refinery production was 70,065 bpd for

the last three quarters of 2005, compared to average production of 47,060 bpd for the first quarter of 2005. Average

refinery production was 61,372 bpd for 2004.

Results of Operations

Net Sales. Net sales consist primarily of sales of refined petroleum products through our refining and marketing

segment and sales of merchandise, including food products and motor fuels, through our retail segment.

For the refining and marketing segment, net sales consist of gross sales, net of customer rebates, discounts and

excise taxes. Net sales for our refining and marketing segment include inter-segment sales to our retail segment,

which are eliminated through consolidation of our financial statements. Retail net sales consist of gross merchandise

sales, less rebates, commissions and discounts, and gross fuel sales, including motor fuel taxes. For our petroleum

products, net sales are mainly affected by crude oil and refined product prices and volume changes caused by

operations. Our merchandise sales are affected primarily by competition and seasonal influences.

Cost of Sales. Refining and marketing cost of sales includes crude oil and other raw materials, inclusive of

transportation costs. Retail cost of sales includes cost of sales for motor fuels and for merchandise. Motor fuel cost

of sales represents the net cost of purchased fuel, including transportation costs and associated motor fuel taxes.

Merchandise cost of sales includes the delivered cost of merchandise purchases, net of merchandise rebates and

commissions. Cost of goods excludes depreciation and amortization expense.

Direct Operating Expenses. Direct operating expenses, all of which relate to our refining and marketing

segment, include costs associated with the actual operations of our refinery, such as energy and utility costs, routine

maintenance, labor, insurance and environmental compliance costs. Environmental compliance costs, including

monitoring and routine maintenance, are expensed as incurred. All operating costs associated with our crude oil and

product pipelines are considered to be transportation costs and are reflected as cost of sales.

Selling, General and Administrative Expenses. Selling, general and administrative, or SG&A, expenses consist

primarily of costs relating to the operations of our convenience stores, including labor, utilities, maintenance and

retail corporate overhead costs. Refining and marketing segment corporate overhead and marketing expenses are

also included in SG&A expenses.

Summary Financial Tables. The following tables provide summary financial data and selected key operating

statistics for us and our two operating segments for the years ended December 31, 2005, 2004 and 2003. The

summary financial data for our two 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 Annual Report on Form 10-K.

ALON USA ENERGY, INC. CONSOLIDATED

Year Ended December 31,

2005 2004 2003

(dollars in thousands)

STATEMENT OF OPERATIONS DATA:

Net sales................................................................................................. $2,328,507 $1,707,564 $1,410,766

Operating costs and expenses:

Cost of sales....................................................................................... 1,990,338 1,469,940 1,215,032

Direct operating expenses.................................................................. 93,843 75,742 66,113

Selling, general and administrative expenses (1)............................... 73,219 73,554 69,066

Depreciation and amortization (2) ..................................................... 20,935 19,064 18,262

Total operating costs and expenses................................................ 2,178,335 1,638,300 1,368,473

Gain on disposition of assets (3)............................................................ 38,591 175 —

Operating income .................................................................................. 188,763 69,439 42,293

Interest expense ..................................................................................... (19,326) (23,704) (16,284)

Equity earnings in HEP ......................................................................... 1,086 — —

Other income (expense), net (4) ............................................................ 4,775 277 (1,819)

Income before income tax expense, minority interest in income of

subsidiaries and accounting change..................................................... 175,298 46,012 24,190

Income tax expense ............................................................................... 65,518 18,315 9,105

Income before minority interest in income of subsidiaries and

accounting change ............................................................................... 109,780 27,697 15,085

Minority interest in income of subsidiaries ........................................... 5,792 2,565 681

Net income before accounting change................................................... 103,988 25,132 14,404

Cumulative effect of adoption of accounting principle ......................... — — 336

Net income............................................................................................. $ 103,988 $ 25,132 $ 14,068

Earnings per share, basic and diluted (5)............................................... $ 2.61 $ .72 $ .40

Weighted average shares outstanding (5).............................................. 39,889 35,001 35,001

CASH FLOW DATA:

Net cash provided by (used in):

Operating activities............................................................................ $ 137,895 $ 76,743 $ 76,173

Investing activities............................................................................. (106,962) (39,886) (34,664)

Financing activities............................................................................ 42,530 19,244 (39,667)

BALANCE SHEET DATA (end of period):

Cash, cash equivalents and short-term investments............................... $ 322,140 $ 63,357 $ 7,256

Working capital ..................................................................................... 275,996 44,443 5,071

Total assets ............................................................................................ 758,780 472,516 386,982

Total debt............................................................................................... 132,390 187,706 166,816

Stockholders’ equity.............................................................................. 279,493 71,472 46,923

OTHER DATA:

Adjusted EBITDA (6) ........................................................................... $ 176,968 $ 88,605 $ 58,400

Capital expenditures (7)......................................................................... 23,034 27,301 23,391

Capital expenditures for turnarounds and catalysts ............................... 12,041 2,322 1,547

____________

(1) Includes corporate headquarters selling, general and administrative expenses of $491, $589 and $622, for the

years ended December 31, 2005, 2004 and 2003, respectively, which are not allocated to our two operating

segments.

(2) Includes corporate depreciation and amortization of $1,914, $1,480, and $1,548, for the years ended December

31, 2005, 2004 and 2003, respectively, which are not allocated to our two operating segments.

(3) Gain on disposition of assets reported in 2005, reflects the initial pre-tax gain recognized in connection with

assets contributed in the February 28, 2005 HEP transaction and recognition of deferred gain recorded in the ten

months following the transaction. The transaction was recorded as a partial sale for accounting purposes.

(4) Includes interest earned on cash, cash equivalents and short-term investments.

(5) Weighted average shares outstanding and earnings per share amounts for the periods presented reflect the effect

of a 33,600-for-one split of our common stock which was effected on July 6, 2005. On August 2, 2005, we

completed an initial public offering of 11,730,000 shares of our common stock. The shares issued in our initial

public offering are included in number of weighted average shares outstanding at December 31, 2005.

(6) See “— Reconciliation of Amounts Reported Under Generally Accepted Accounting Principles” for information

regarding our definition of EBITDA and Adjusted EBITDA, its limitations as an analytical tool and a

reconciliation of net income to EBITDA and Adjusted EBITDA for the periods presented.

(7) Includes corporate capital expenditures of $470, $612, and $609, for the years ended December 31, 2005, 2004

and 2003, respectively, which are not included in our two operating segment capital expenditures.

REFINING AND MARKETING SEGMENT

Year Ended December 31,

2005 2004 2003

(dollars in thousands, except per barrel data and

pricing statistics)

STATEMENT OF OPERATIONS DATA:

Net sales (1) (2) ................................................................................................ $2,147,390 $1,523,850 $1,225,045

Operating costs and expenses:

Cost of sales (2)............................................................................................ 1,866,536 1,342,426 1,084,213

Direct operating expenses............................................................................. 93,843 75,742 66,113

Selling, general and administrative expenses ............................................... 22,932 23,679 20,063

Depreciation and amortization...................................................................... 14,464 13,392 12,636

Total operating costs and expenses .......................................................... 1,997,775 1,455,239 1,183,025

Gain on disposition of assets (3)....................................................................... 38,628 — —

Operating income.............................................................................................. $ 188,243 $ 68,611 $ 42,020

KEY OPERATING STATISTICS AND OTHER DATA:

Total sales volume (bpd)................................................................................... 87,251 85,950 90,914

Non-integrated marketing sales volume (bpd) (4) ............................................ 20,335 19,926 24,093

Non-integrated marketing margin (per barrel sales volume) (4)....................... $ (1.32) $ 0.03 $ 0.52

Per barrel of throughput:

Refinery operating margin (5)...................................................................... $ 12.30 $ 8.03 $ 5.80

Direct operating expenses (6)....................................................................... 3.97 3.36 2.81

Capital expenditures..................................................................................... $ 19,080 $ 23,555 $ 16,169

Capital expenditures for turnarounds and catalysts ...................................... 12,041 2,322 1,547

PRICING STATISTICS:

WTI crude oil (per barrel)................................................................................. $ 56.49 $ 41.42 $ 31.11

WTS crude oil (per barrel)................................................................................ 51.87 37.45 28.36

Crack spreads (3/2/1) (per barrel):

Gulf Coast .................................................................................................... $ 11.45 $ 6.77 $ 4.73

Group III....................................................................................................... 11.44 8.02 6.74

Crude differentials (per barrel):

WTI less WTS .............................................................................................. $ 4.62 $ 3.97 $ 2.75

Product price (per gallon):

Gulf Coast unleaded..................................................................................... 158.8¢ 116.4¢ 86.9¢

Gulf Coast low-sulfur diesel......................................................................... 167.6 111.0 82.2

Group III unleaded ....................................................................................... 159.4 119.0 91.9

Group III low-sulfur diesel........................................................................... 166.5 115.1 86.5

Natural gas (per MMBTU)........................................................................... $ 9.01 $ 6.19 $ 5.50

Year Ended December 31,

2005 2004 2003

Bpd % Bpd % Bpd %

THROUGHPUT AND

PRODUCTION DATA:

Refinery throughput:

Sweet crude ............................. 5,072 7.8 4,321 7.0 5,398 8.4

Sour crude ............................... 55,643 86.0 53,646 87.0 55,676 86.5

Blendstocks ............................. 4,040 6.2 3,697 6.0 3,280 5.1

Total refinery throughput

(7)(8)................................. 64,755 100.0 61,664 100.0 64,354 100.0

Refinery production:

Gasoline................................... 29,499 45.8 28,711 46.8 30,700 47.7

Diesel/jet.................................. 21,903 34.0 19,939 32.5 21,554 33.5

Asphalt..................................... 5,824 9.1 5,781 9.4 5,746 8.9

Petrochemicals......................... 4,256 6.6 4,492 7.3 4,536 7.1

Other........................................ 2,911 4.5 2,449 4.0 1,804 2.8

Total refinery production

(8)(9)................................. 64,393 100.0 61,372 100.0 64,340 100.0

Refinery utilization (10)............... 94.3% 95.0% 99.3%

____________

(1) Net sales include inter-segment sales to our retail segment at prices which approximate market price. These

inter-segment sales are eliminated through consolidation of our financial statements.

(2) Our buy/sell arrangements involve linked purchase and sales related to refined product contracts entered into to

address location or grade requirements. Included in cost of sales are amounts which approximate the revenues

resulting from these transactions. See Note 2 to our consolidated financial statements included elsewhere in this

Annual Report on Form 10-K.

(3) Gain on disposition of assets reported in 2005 reflects the initial pre-tax gain recognized in connection with

assets contributed in the February 28, 2005 HEP transaction and recognition of deferred gain recorded in the ten

months following the transaction. The transaction was recorded as a partial sale for accounting purposes.

(4) Non-integrated marketing sales volume represents refined products sales to our wholesale marketing customers

located in our non-integrated region. The refined products we sell in this region are obtained from third-party

suppliers. Non-integrated marketing margin represents the margin between net sales and cost of sales

attributable to our non-integrated refined products sales volume expressed on a per barrel basis.

(5) Refinery operating margin is a per barrel measurement calculated by dividing the margin between net sales and

costs of sales exclusive of depreciation and amortization expense, attributable to our refining and marketing

segment, exclusive of net sales and cost of sales relating to our non-integrated system, by our Big Spring

refinery’s throughput volumes. We exclude net sales and cost of sales from our non-integrated system because

the refined products we sell in this system are not produced at our refinery. Industry-wide refining results are

driven and measured by the margins between refined product prices and the prices for crude oil, which are

referred to as crack spreads. We compare our refinery operating margin to these crack spreads to assess our

operating performance relative to other participants in our industry.

(6) Refinery direct operating expense is a per barrel measurement calculated by dividing direct operating expenses,

exclusive of depreciation and amortization expense, by our refinery throughput.

(7) Total refinery throughput represents the aggregate volume of crude oil and blendstock used in the refinery

production process.

(8) Total refinery production represents the barrels per day of various finished products produced from processing

crude and other refinery feedstocks through the crude units and other conversion units at our refinery.

(9) 2005 throughput reflects the effect of the downtime associated with the planned major turnaround in the first

throughput of quarter 2005. Refinery throughput increased to an average of 70,419 bpd for the last three quarters

of 2005, compared to average throughput of 47,447 bpd for the first quarter 2005. Refinery production increased

to an average production of 70,065 bpd for the last three quarters of 2005, compared to average production of

47,060 bpd for the first quarter 2005.

(10) Refinery utilization represents average daily crude oil throughput divided by crude capacity, excluding planned

periods of downtime for maintenance and turnarounds.

RETAIL SEGMENT

Year Ended December 31,

2005 2004 2003

(dollars in thousands, except per gallon data)

STATEMENT OF OPERATIONS DATA:

Net sales.................................................................................................... $326,537 $301,491 $278,189

Operating costs and expenses:

Cost of sales (1)........................................................................................ 269,222 245,291 223,287

Selling, general and administrative expenses ....................................... 49,796 49,286 48,381

Depreciation and amortization.............................................................. 4,557 4,192 4,078

Total operating costs and expenses................................................... 323,575 298,769 275,746

Gain (loss) on disposition of assets .......................................................... (37) 175 —

Operating income ..................................................................................... $ 2,925 $ 2,897 $ 2,443

KEY OPERATING STATISTICS AND OTHER DATA:

Number of stores (end of period).............................................................. 167 167 170

Fuel sales (thousands of gallons).............................................................. 87,714 97,541 100,389

Fuel sales (thousands of gallons per site per month)................................ 45 49 50

Fuel margin (cpg) (2)................................................................................ 14.9¢ 12.9¢ 11.9¢

Fuel sales price (dollar per gallon) (3)...................................................... $ 2.20 $ 1.76 $ 1.47

Merchandise sales..................................................................................... $133,305 $ 130,117 $130,413

Merchandise sales (per site per month) .................................................... 68 65 64

Merchandise margin (4)............................................................................ 33.2% 33.5% 33.0%

Capital expenditures ................................................................................. 3,484 3,134 6,613

____________

(1) Cost of sales includes inter-segment purchases of motor fuels from our refining and marketing segment at prices

which approximate market prices. These inter-segment purchases are eliminated through consolidation of our

financial statements.

(2) Fuel margin represents the difference between motor fuel revenues and the net cost of purchased fuel, including

transportation costs and associated motor fuel taxes, expressed on a cents per gallon basis. Motor fuel margins

are frequently used in the retail industry to measure operating results related to motor fuel sales.

(3) Fuel sales price per gallon represents the average sales price for motor fuels sold through our retail segment (4)

Merchandise margin represents the difference between merchandise sales revenues and the delivered cost of

merchandise purchases, net of rebates and commissions, expressed as a percentage of merchandise sales

revenues. Merchandise margins, also referred to as in-store margins, are commonly used in the retail industry to

measure in-store, or non-fuel, operating results.

Year Ended December 31, 2005 Compared to Year Ended December 31, 2004

Net Sales

Consolidated. Net sales for 2005 were $2,328.5 million, compared to $1,707.6 million for 2004, an increase of

$620.9 million or 36.4%. This increase was primarily due to higher than average refined product prices and

increased refined product sales volume as a result of the completion of our 8,000 bpd throughput capacity expansion

in the first quarter of 2005.

Refining and Marketing Segment. Net sales for our refining and marketing segment were $2,147.4 million for

2005, compared to $1,523.9 million for 2004, an increase of $623.5 million or 40.9%. The increase in net sales was

primarily the result of significantly higher refined product prices in 2005 compared to 2004. The increase in refined

product prices that we experienced was similar to the price increases experienced in the Gulf Coast markets. The

average price of Gulf Coast gasoline in 2005 increased 42.4 cpg, or 36.4%, to 158.8 cpg, compared to 116.4 cpg in

2004. The average Gulf Coast diesel price in 2005 increased 56.6 cpg, or 51.0%, to 167.6 cpg compared to 111.0

cpg in 2004. Also contributing to the increase in sales revenues was an increase in sales volume. Our sales volume

increased by 16.4 million gallons, or 1.2%, to 1,337.6 million gallons in 2005 compared to 1,321.2 million gallons

in 2004. This increase in sales volume resulted primarily from the 8,000 bpd throughput capacity expansion

completed in the first quarter of 2005, which resulted in average refinery production of 64,393 bpd in 2005

compared to 61,372 bpd in 2004, despite the effects of a reformer catalyst regeneration in September 2005 and the

effects of the planned major turnaround in the first quarter 2005. Average refinery production increased to 70,065

bpd in the last three quarters of 2005, compared to average production of 47,060 bpd in the first quarter 2005.

Retail Segment. Net sales for our retail segment were $326.5 million for 2005 compared to $301.5 million for

2004, an increase of $25.0 million or 8.3%. This increase was primarily due to higher average retail fuel prices.

Average retail fuel prices were $2.20 per gallon for 2005, compared to average retail fuel prices of $1.76 per gallon

for 2004. Additionally, merchandise gross sales increased 2.5% to $133.3 million for 2005, compared to $130.1

million for 2004. This increase was partially offset by a decline in retail motor fuel sales volume. Our retail motor

fuel sales volume decreased by 9.8 million gallons, or 10.1%, to 87.7 million gallons in 2005 compared to 97.5

million gallons in 2004. This decrease was due to competitive pressures from an increased presence of larger

retailers in some of our retail markets.

Cost of Sales

Consolidated. Cost of sales was $1,990.3 million for 2005, compared to $1,470.0 million for 2004, an increase

of $520.3 million or 35.4%. This increase resulted primarily from higher crude oil prices.

Refining and Marketing Segment. Cost of sales for our refining and marketing segment was $1,866.5 million for

2005, compared to $1,342.4 million for 2004, an increase of $524.1 million or 39.0%. This increase was primarily

due to significantly higher crude oil prices and the increase in refinery production in 2005 compared to 2004. The

average price per barrel of WTS for 2005 increased $14.42 per barrel to $51.87 per barrel, compared to $37.45 per

barrel for 2004, an increase of 38.5%. In addition, approximately $12.9 million of the increase in cost of sales

related to transportation expense associated with the throughput agreement with HEP.

Retail Segment. Cost of sales for our retail segment was $269.2 million for 2005, compared to $245.3 million for

2004, an increase of $23.9 million or 9.7%. This increase was primarily attributable to higher motor fuel costs,

partially offset by a decrease in fuel sales volume.

Direct Operating Expenses

Direct operating expenses were $93.8 million for 2005, compared to $75.7 million for 2004, an increase of $18.1

million or 23.9%. Of this increase, approximately $15.3 million was attributable to an increase in natural gas prices

in 2005 compared to 2004. The average price of natural gas was $9.01 per MMBTU in 2005, compared to $6.19 per

MMBTU in 2004, an increase of 45.6%. Overall energy usage also increased as a result of the 8,000 bpd throughput

capacity expansion in the first quarter 2005. In addition, repairs and maintenance expense increased in 2005 as a

result of routine maintenance projects that were completed in conjunction with the major turnaround completed in

the first quarter of 2005 and in connection with the reformer catalyst regeneration performed in the third quarter

2005.

Selling, General and Administrative Expenses

Consolidated. SG&A expenses for 2005 were $73.2 million, compared to $73.6 million in 2004, a decrease of

$0.4 million or 0.5%.

Refining and Marketing Segment. SG&A expenses for our refining and marketing segment for 2005 were $22.9

million, compared to $23.7 million for 2004, a decrease of $0.8 million or 3.3%. This decrease was primarily due to

a reduction of bad debt expense and professional fees.

Retail Segment. SG&A expenses for 2005 were $49.8 million, compared to $49.3 million for 2004, an increase

of $0.5 million or 1.0%. This increase was primarily due to increased credit card brokerage fees as a result of the

higher fuel prices, which were partially offset by decreased healthcare and workers compensation insurance costs.

Depreciation and Amortization

Depreciation and amortization for 2005 was $20.9 million, compared to $19.1 million for 2004, an increase of

$1.8 million or 9.4%. This increase was primarily attributable to the completion of the various capital projects in late

2004 and the first half of 2005. Partially offsetting this increase was a reduction in depreciation due to the

disposition of assets in the HEP transaction.

Operating Income

Consolidated. Operating income for 2005 was $188.8 million. Excluding $38.6 million of net gain on disposition

of assets resulting from the HEP transaction, which management believes enhances period-to-period comparability,

operating income for 2005 was $150.2 million, compared to $69.2 million (excluding the $0.2 million gain on

disposition of assets) for 2004, an increase of $81.0 million or 117.1%. This increase was primarily attributable to

higher operating income in our refining and marketing segment.

Refining and Marketing Segment. Operating income for our refining and marketing segment for 2005 was $188.2

million. Excluding $38.6 million of gain on disposition of assets resulting from the HEP transaction, operating

income for 2005 was $149.6 million, compared to operating income for 2004 of $68.6 million, an increase of $81.0

million or 118.1%. This increase was primarily attributable to the increase in our refinery operating margins and

increased sales volumes as a result of the 8,000 bpd crude oil throughput capacity expansion at our Big Spring

refinery in the first quarter of 2005. Our refinery operating margin for 2005 increased $4.27 per barrel to $12.30 per

barrel, compared to $8.03 per barrel in the 2004. This increase was attributable, in part, to higher differentials

between refined product prices and crude oil prices as a result of decreases in finished product inventories, concern

over adequate refining capacity to meet demand and continued year-on-year demand increases at above historical

levels in the United States and abroad. The Gulf Coast 3/2/1 crack spread increased by $4.68 per barrel to an

average of $11.45 per barrel in 2005 compared to an average of $6.77 per barrel in 2004, an increase of 69.1%. Also

contributing to this increase was a widening of the sweet/sour spread. The average sweet/sour spread increased $.65

per barrel to $4.62 per barrel for 2005 compared to the average sweet/sour spread of $3.97 per barrel for 2004, an

increase of 16.4%.

Retail Segment. Operating income for our retail segment was $2.9 million for 2005 and $2.7 million (excluding

the $0.2 million gain on disposition of assets) for 2004. Our average retail motor fuel margin increased 2.0 cpg to

14.9 cpg in 2005, compared to 12.9 cpg in 2004, an increase of 15.5%. Partially offsetting this increase was a

decrease in motor fuel sales volumes as a result of weaker demand in some markets due to the higher prices. The

increase in gross merchandise sales were partially offset by a slight decrease in merchandise gross margin to 33.2%

in 2005, compared to 33.5% in 2004.

Interest Expense

Interest expense was $19.3 million in 2005, compared to $23.7 million in 2004, a decrease of $4.4 million or

18.6%. Interest expense for 2005 reflects the repayment of $55.3 million of debt during 2005 and the significant

reductions of borrowings under our revolving credit facility as a result of increases in cash from operating activities

and funds received as a result of the HEP transaction in the first quarter 2005 and the completion of our initial public

offering in the third quarter of 2005.

Income Tax Expense

Income tax expense was $65.5 million in 2005 compared to $18.3 million in 2004, an increase of $47.2 million.

The increase in income tax expense was attributable to our increased 2005 taxable income compared to 2004. Our

effective tax rate for 2005 was 37.4% and reflects the $1.1 million benefit of the Jobs Creation Act tax credit for

2005. Our effective tax rate was 39.8% for 2004.

Minority Interest In Income of Subsidiaries

Minority interest in income of subsidiaries represents the proportional share of net income related to non-voting

common stock owned by minority shareholders in two of our subsidiaries, Alon Assets and Alon Operating.

Minority interest in income of subsidiaries was $5.8 million for 2005, compared to $2.6 million for 2004, an

increase of $3.2 million. This increase was attributable to our increased after-tax income in 2005 as a result of the

factors discussed above. This increase was partially offset by a reduction in the minority interest ownership

percentage to 4.8% in the third quarter of 2005 compared to 8.4% in 2004 as a result of the issuance of additional

voting common stock by Alon Assets and Alon Operating in the third quarter of 2005 and the repurchase of shares

of non-voting common stock by Alon Assets and Alon Operating in the first quarter of 2005.

Net Income

Net income was $104.0 million for 2005, compared to $25.1 million for 2004, an increase of $78.9 million or

314.3%. This increase was attributable to the factors discussed above.

Year Ended December 31, 2004 Compared to Year Ended December 31,2003

Net Sales

Consolidated. Net sales for 2004 were $1,707.6 million, compared to $1,410.8 million for 2003, an increase of

$296.8 million or 21.0%. This increase was primarily due to favorable market conditions resulting from higher

refined product prices, partially offset by a decrease in sales volume.

Refining and Marketing Segment. Net sales for our refining and marketing segment were $1,523.9 million for

2004, compared to $1,225.0 million for 2003, an increase of $298.9 million or 24.4%. The increase in net sales was

primarily the result of significantly higher refined product prices in 2004 compared to 2003. The average price of

Gulf Coast gasoline in 2004 increased 29.5 cpg, or 34.0%, to 116.4 cpg, compared to 86.9 cpg in 2003. The average

Gulf Coast diesel price in 2004 increased 28.8 cpg, or 35.0%, to 111.0 cpg compared to 82.2 cpg in 2003. The

increase in net sales was partially offset by a 5.2%, or 72.4 million gallons, decrease in sales volumes in 2004

compared to 2003. This decrease was due, in part, to the non-renewal of several distributor supply contracts in our

non-integrated system that expired in late 2003 and early 2004. The decrease was also due to reduced production

resulting from unplanned downtime and repairs to our catalytic cracking unit as we neared the end of our major

turnaround cycle.

Retail Segment. Net sales for our retail segment were $301.5 million for 2004 compared to $278.2 million for

2003, an increase of $23.3 million or 8.4%. This increase was primarily due to higher average retail fuel prices.

Average retail fuel prices were $1.76 per gallon for 2004, compared to average retail fuel prices of $1.47 per gallon

for 2003. This increase was partially offset by a decrease in fuel sales volume of 2.9 million gallons, or 3.0%, to

97.5 million gallons in 2004 as compared to 100.4 million gallons in 2003 and a decrease in merchandise sales. The

decrease in fuel sales volume and merchandise sales was primarily related to closing three stores in 2004.

Cost of Sales

Consolidated. Cost of sales was $1,470.0 million for 2004, compared to $1,215.0 million for 2003, an increase

of $255.0 million or 21.0%. This increase was primarily due to higher crude oil prices, partially offset by reduced

crude oil purchases in 2004, due to slightly reduced crude throughput at our Big Spring refinery.

Refining and Marketing Segment. Cost of sales for our refining and marketing segment was $1,342.4 million for

2004, compared to $1,084.2 million for 2003, an increase of $258.2 million or 23.8%. This increase was primarily

due to significantly higher crude oil prices. The average price per barrel of WTS for 2004 increased $9.09 per barrel

to $37.45 per barrel, compared to $28.36 per barrel for 2003, an increase of 32.1%. The increase in cost of sales was

partially offset by a decline in our crude oil purchases as a result of reduced crude throughput at the Big Spring

refinery.

Retail Segment. Cost of sales for our retail segment was $245.3 million for 2004, compared to $223.3 million for

2003, an increase of $22.0 million or 9.9%. This increase was primarily attributable to higher motor fuel costs,

partially offset by a decrease in fuel sales volume as a result of closing three stores in 2004.

Direct Operating Expenses

Direct operating expenses were $75.7 million for 2004, compared to $66.1 million for 2003, an increase of $9.6

million or 14.5%. This increase was primarily attributable to increased energy costs resulting from higher natural

gas prices. The average price of natural gas was $6.19 per MMBTU in 2004, compared to $5.50 per MMBTU in

2003, an increase of 12.5%. In addition, increased maintenance labor costs and maintenance expenditures

contributed to the increase in direct operating expenses.

Selling, General and Administrative Expenses

Consolidated. SG&A expenses for 2004 were $73.6 million, compared to $69.1 million in 2003, an increase of

$4.5 million or 6.5%. This increase was attributable to higher professional fees and employment related costs in our

refining and marketing segment and higher insurance premiums and utility prices in our retail segment.

Refining and Marketing Segment. SG&A expenses for our refining and marketing segment for 2004 were $23.7

million, compared to $20.1 million for 2003, an increase of $3.6 million or 17.9%. This increase was primarily

attributable to higher legal and consulting fees and higher employee incentive awards.

Retail Segment. SG&A expenses for 2004 were $49.3 million, compared to $48.4 million for 2003, an increase

of $0.9 million or 1.9%. This increase was primarily due to increased workers compensation insurance and health

insurance costs.

Depreciation and Amortization

Depreciation and amortization for 2004 was $19.1 million, compared to $18.3 million for 2003, an increase of

$0.8 million or 4.4%. This increase resulted from additions to property, plant and equipment as a result of capital

expenditures in 2004 and a full year of depreciation associated with 2003 capital expenditures.

Operating Income

Consolidated. Operating income for 2004 was $69.4 million, compared to $42.3 million for 2003, an increase of

$27.1 million or 64.1%. This increase was primarily attributable to higher operating income in our refining and

marketing segment.

Refining and Marketing Segment. Operating income for our refining and marketing segment for 2004 was $68.6

million, compared to $42.0 million for 2003, an increase of $26.6 million or 63.3%. This increase was attributable to

the significant increase in our refinery operating margins, partially offset by higher direct operating expenses and

SG&A expenses. Our refinery operating margin increased $2.23 per barrel to $8.03 per barrel in 2004, compared to

$5.80 per barrel in 2003. This increase was attributable, in part, to higher differentials between refined product

prices and crude oil prices. The Gulf Coast 3/2/1 crack spread increased by 43.1% from an average of $4.73 per

barrel in 2003 to an average of $6.77 per barrel in 2004. Also contributing to this increase was a widening of the

sweet/sour spread which increased to an average of $3.97 per barrel in 2004 compared to $2.75 per barrel in 2003,

an increase of 44.4%.

Retail Segment. Operating income for our retail segment was $2.9 million for 2004, compared to $2.4 million for

2003, an increase of $0.5 million or 20.8%. The increase in merchandise and motor fuel margins were partially

offset by increased SG&A expenses. Our merchandise margin increased to 33.5% in 2004, compared to 33.0% in

2003. Our average retail motor fuel margin increased 1.0 cpg to 12.9 cpg in 2004, compared to 11.9 cpg in 2003, an

increase of 8.4%.

Interest Expense

Interest expense was $23.7 million in 2004, compared to $16.3 million in 2003, an increase of $7.4 million or

45.4%. Interest expense for 2004 reflects a net increase of $34.7 million in outstanding term loan debt resulting from

our incurrence of $100.0 million of indebtedness under our senior secured term loan in January 2004, as well as $0.7

million of non-cash debt issuance costs associated with this transaction and the application of the proceeds to repay

our existing term debt. In addition, higher crude oil prices in 2004 compared to 2003 resulted in increased letter of

credit fees relating to our crude oil purchases.

Income Tax Expense

Income tax expense was $18.3 million in 2004 compared to $9.1 million in 2003, an increase of $9.2 million.

The increase in income tax expense was attributable to our increased 2004 taxable income compared to 2003. Our

effective tax rate for 2004 was 39.8% as compared to 37.6% for 2003.

Minority Interest In Income of Subsidiaries

Minority interest in income of subsidiaries was $2.6 million for 2004, compared to $0.7 million for 2003, an

increase of $1.9 million. This increase was primarily attributable to the increase in net income as a result of the

factors discussed above and the issuance of additional stock under the Alon Assets and Alon Operating stock option

plans.

Net Income

Net income was $25.1 million for 2004, compared to $14.1 million for 2003, an increase of $11.0 million or

78.0%. This increase was attributable to the factors discussed above.

Liquidity and Capital Resources

Our primary sources of liquidity are cash on hand, cash generated from our operating activities and borrowings

under our revolving credit facility. In addition, our liquidity was enhanced during the third quarter of 2005 by the

receipt of $72.3 million net cash proceeds received from our initial public offering after the payment of commissions

and expenses, debt prepayment, dividends to pre-offering stockholders, minority interest stockholders and general

corporate expenditures. We believe that our cash on hand, cash flows from operating activities, borrowings under

our revolving credit facility and other capital resources will be sufficient to satisfy the anticipated cash requirements

associated with our existing operations during the next 12 months. Our ability to generate sufficient cash from our

operating activities depends on our future performance, which is subject to general economic, political, financial,

competitive and other factors beyond our control. In addition, our future capital expenditures and other cash

requirements could be higher than we currently expect as a result of various factors, including any expansion of our

business that we complete.

Cash Flow

The following table sets forth our consolidated cash flows for the years ended December 31, 2005, 2004 and

2003:

Year Ended December 31

2005 2004 2003

(dollars in thousands)

Cash provided by (used in):

Operating activities................................................................................... $ 137,895 $ 76,743 $ 76,173

Investing activities (1)............................................................................... (106,962) (39,886) (34,664)

Financing activities................................................................................... 42,530 19,244 (39,667)

Net increase in cash and cash equivalents ...................................................... $ 73,463 $ 56,101 $ 1,842

____________

(1) 2005 cash used in investing activities include $185,320 investments in short-term, highly liquid debt

instruments, partially offset by $118,000 net proceeds received in the HEP transaction.

Cash Flows Provided By Operating Activities

Net cash provided by operating activities for 2005 was $137.9 million, compared to net cash provided by

operating activities of $76.7 million for 2004. The $61.2 million net increase in cash provided by operating activities

was primarily due to increased net income (excluding after-tax gains on dispositions of assets), resulting from higher

refinery operating margins and increased refinery production as a result of the expansion of the Big Spring refinery

crude oil capacity and the major turnaround in the first quarter of 2005. Working capital, net of cash and short-term

investments, was $(46.1) million at December 31, 2005 compared to $(18.9) million at December 31, 2004, a

decrease of $27.2 million. This decrease was primarily due to higher crude oil prices, products prices and increased

sales volume.

Net cash provided by operating activities for 2004 was $76.7 million compared to net cash provided by operating

activities of $76.2 million for 2003. Cash flow from operating activities for 2004 was primarily attributable to

operating income of $69.4 million, resulting from higher refinery operating margins. Cash flow from operating

activities for 2003 was primarily attributable to improved operating income of $42.3 million and an increase in trade

payables due to the increase in crude oil prices. Working capital, net of cash, was $(18.9) million at December 31,

2004 compared to $(2.2) million at December 31, 2003, a decrease of $16.7 million. This decrease was primarily

attributable to the net increase in trade payables as a result of higher crude prices in 2004, partially offset by

increased accounts receivable balance resulting from higher product prices.

Net cash provided by operating activities for 2003 was $76.2 million. Cash flow from operating activities for

2003 was primarily attributable to operating income of $42.3 million and an increase in trade payables due to the

increase in crude oil prices. Working capital, net of cash, decreased by $27.7 million, compared to $(2.2) million at

December 31, 2003. This decrease was primarily attributable to reduced inventories from 2002 levels and an

increase in trade payables as a result of higher crude oil prices.

Cash Flows Used In Investing Activities

Net cash used in investing activities increased to $107.0 million in 2005 from $39.9 million in 2004. This

increase was primarily attributable to our $185.3 million investment in highly liquid short-term debt instruments and

turnaround and chemical catalyst expenditures of $12.0 million due to the major turnaround in the first quarter of

2005, partially offset by the receipt of $118.0 of net cash proceeds in connection with the HEP transaction. Capital

expenditures in 2005 totaled $23.0 million and included $12.1 million for regulatory and compliance projects, $1.8

million for the completion of our throughput capacity expansion project, $1.4 million for retail store automation and

$7.7 million for various sustaining and capital improvement projects.

Net cash used in investing activities increased to $39.9 million in 2004 from $34.7 million during 2003. Our

primary investments in 2004 included $10.0 million of deferred payment for the 2002 Alon Capital minority interest

acquisition, $9.4 million for the acquisition of the Trust and River pipeline systems, $5.0 million for the initial phase

of our Big Spring refinery’s throughput capacity expansion project, $4.0 million for EPA low-sulfur fuel projects,

$2.3 million for chemical catalysts and turnaround preparations and $4.3 million for retail acquisitions and

improvements. The remaining $4.9 million was spent on sustaining capital needs and growth opportunities,

including the acquisition of our asphalt facility in Bakersfield, California.

Net cash used in investing activities totaled $34.7 million in 2003. Our primary investments in 2003 included

$13.6 million for our low-sulfur gasoline project, $10.0 million of deferred payment for the 2002 Alon Capital

minority interest acquisition and $4.1 million for the acquisition of three retail locations. The remaining $7.0 million

was spent on sustaining capital needs and growth opportunities.

Cash Flows Provided By (Used In) Financing Activities

Net cash provided by financing activities was $42.5 million in 2005, compared to net cash provided by financing

activities of $19.2 million in 2004. Cash provided by financing activities in 2005 included the net proceeds from our

initial public offering on August 2, 2005 of $74.8 million after payment of commissions and expenses, debt

prepayment, dividends to pre-offering stockholders and minority interest stockholders. In addition, cash used in

financing activities during 2005 included additional debt reduction of $31.0 million.

Net cash provided by financing activities was $19.2 million in 2004, compared to net cash used in financing

activities of $39.7 million in 2003. This difference was primarily attributable to the $100.0 million in new

borrowings under our term loan in January 2004. Approximately $43.7 million of existing term debt and $21.6

million of borrowings under our revolving credit facilities were retired with the term loan proceeds.

Net cash used in financing activities in 2003 was $39.7 million. The use of cash in 2003 reflected the reduction

in our net borrowings under our revolving credit facility due to increased operating income and decreased working

capital needs.

Initial Public Offering

On August 2, 2005, we completed an initial public offering of 11,730,000 shares of our common stock at a price

of $16.00 per share for an aggregate offering price of approximately $187.7 million. We received approximately

$172.2 million in net proceeds from the initial public offering after payment of expenses, underwriting discounts and

commissions of approximately $15.5 million or $1.32 per share.

On August 2, 2005, we paid our stockholders of record prior to our initial public offering aggregate dividends of

approximately $68.4 million, and the minority interest stockholders of Alon Operating were paid aggregate

dividends of approximately $4.7 million. During August 2005, we utilized a portion of the proceeds from our initial

public offering to repay the remaining $20.7 million of outstanding debt owed to our parent company, Alon Israel,

and $3.6 million of outstanding debt owed to FINA. As of December 31, 2005, the remaining proceeds from the

initial public offering were invested in various highly liquid, low-risk debt instruments with maturities of three

months or less or low-risk debt instruments with maturities in excess of three months. On January 19, 2006, we used

the remaining $72.3 million of the proceeds, along with cash from operating activities, to repay our $100.0 million

term loan facility. See Item 5 “—Use of Proceeds from Registered Securities.”

Cash, Cash Equivalents and Short-Term Investment Position and Indebtedness

We consider all highly liquid instruments with a maturity of three months or less at the time of purchase to be

cash equivalents. Cash equivalents are stated at cost, which approximates market value and are invested in

conservative, highly rated instruments issued by financial institutions or government entities with strong credit

standings. Short-term investments primarily consist of highly-rated auction rate securities (“ARS”). Although ARS

may have long-term stated maturities, generally 10 to 30 years, we have designated these securities as available-for-

sale and have classified them as current because we view them as available to support our current operations. ARS

may be liquidated at par on the rate reset date, which is in intervals of seven to 49 days, depending on the terms of

the security. These securities are carried at cost, which approximates market value. As of December 31, 2005, our

total cash and cash equivalents were $136.8 million, our short-term investments were $185.3 million and we had

total debt of approximately $132.4 million. On January 19, 2006, we used cash of approximately $103.9 million to

repay our term loan, including a $3.0 million prepayment premium and $0.9 million accrued interest.

Summary of Indebtedness. The following table sets forth the principal amounts outstanding under our bank credit

facilities, retail mortgages and equipment loans at December 31, 2005:

As of December 31, 2005

(dollars in thousands)

Debt, including current portion

Bank credit facilities:

Revolving credit facility........................................................................................... $ —

Term loan.................................................................................................................. 100,000

Retail mortgages and equipment loans ......................................................................... 32,390

Total debt.................................................................................................................. $132,390

Revolving Credit Facility. We entered into a revolving credit facility on July 31, 2000, which was amended and

restated on January 14, 2004 and further amended and restated on February 15, 2006. The Israel Discount Bank of

New York, or Israel Discount Bank, acts as agent administrative agent, co-arranger, collateral agent and lender and

Bank Leumi act as co-arranger and lender under the revolving credit facility. The initial size of the revolving credit

facility is $160.0 million with options to increase the size of the facility to $240.0 million upon the increase of crude

oil prices or an increase in our throughput capacity. Prior to the amendment, the amount available under the previous

revolving credit facility was $141.6 million.

Borrowing availability under the revolving credit facility is limited at any time to the lower of the total current

size of the revolving credit facility at that time, which is initially $160.0 million, or the amount of the borrowing

base under the revolving credit agreement. As of December 31, 2005, the borrowing base under the revolving credit

facility was $337.8 million. The entire revolving credit facility is available in the form of letters of credit, and of

revolving loans. The borrowings under the revolving credit facility bear interest at the Eurodollar rate plus 1.50%

per annum. The revolving credit facility is jointly and severally guaranteed by all of our subsidiaries except for our

retail subsidiaries. The revolving credit facility is secured by cash, accounts receivable, inventory and related assets.

All fixed assets previously securing the facility were released in conjunction with the amendment of the facility on

February 15, 2006.

Our revolving credit facility contains restrictive covenants, such as restrictions on change of control, creating

liens, engaging in mergers, consolidations and sales of assets, incurring additional indebtedness, giving guaranties,

engaging in different businesses, making loans and investments, entering into certain lease obligations, making

certain capital expenditures and making certain dividend, debt and other restricted payments, however, these

covenants do not restrict our activities so long as we maintain the financial covenants described below, on a pro-

forma basis after giving effect to these activities. Our revolving credit facility also contains covenants that restrict us

from compromising or adjusting receivables, engaging in certain transactions with affiliates and amending or

waiving certain material agreements. The revolving credit facility contains financial covenants requiring Alon USA

to maintain:

•a minimum consolidated tangible net worth equal to the sum of $106.0 million plus an amount determined on

a cumulative basis equal to the sum of 50% of any positive net income for each fiscal year after December

31, 2004 (minimum consolidated tangible net worth as of December 31, 2005 was $158.1 million and our

actual consolidated tangible net worth was $193.6);

•a ratio of total consolidated indebtedness less freely transferable cash and permitted investments not subject

to any lien (other than liens in favor of Israel Discount Bank) to consolidated EBITDA for the last four fiscal

quarters of no greater than 4.0 to 1.0 (the ratio as of December 31, 2005 was (0.4) to 1.00);

•a minimum ratio of consolidated current assets to consolidated current liabilities of 1.0 to 1.0 (the ratio as of

December 31, 2005 was 1.8 to 1.0); and

•a ratio of total consolidated EBITDA to consolidated interest expense, in each case as of the end of any

period of four fiscal quarters, to be not less than 2.0 to 1.0 (the ratio as of December 31, 2005 was 11.8 to

1.0);

Compliance with these covenants is determined in the manner specified in the documentation governing the

revolving credit facility. Consolidated EBITDA under our revolving credit facility represents net income plus

minority interest, income tax expense, interest expense, depreciation and amortization and is measured each quarter

on a rolling twelve-month basis. This calculation of consolidated EBITDA differs from the calculation of Adjusted

EBITDA presented elsewhere in this Annual Report on Form 10-K. As of December 31, 2005, we were in

compliance with all of these covenants.

Under our revolving credit facility, a change of control will be deemed to occur, if Alon Israel ceases to have the

power to exercise, directly or indirectly, a controlling influence over our management or policies or ceases to own

and control at lease 25% of the aggregate voting power represented by our outstanding capital stock.

The revolving credit facility expires on January 1, 2010. As of December 31, 2005 there were no borrowings

outstanding and approximately $131.7 million of letters of credit outstanding under the revolving credit facility.

Term Loan. We entered into a term credit facility, or term facility, on December 16, 2003, which was amended

and restated as of January 14, 2004, and further amended on February 10, 2005 and May 6, 2005. Credit Suisse was

the administrative agent and collateral agent under the term facility. On January 19, 2006, we made a payment of

approximately $103.9 million in satisfaction of all of our outstanding obligations under the term facility and

terminated the term facility. Of this amount, $100.0 million represented a voluntary prepayment of the outstanding

principal under the term facility, approximately $0.9 million represented accrued and unpaid interest on the principal

balance and $3.0 million represented a prepayment premium. Borrowings under the term facility bore interest, at our

option, at either adjusted LIBOR plus 6.5% per annum, or at the alternate base rate plus 5.5% per annum, but not

less than 10% per annum. We did not have the right to prepay outstanding principal amounts prior to January 17,

2006. Borrowings outstanding under the term facility would have matured on January 14, 2009.

Mortgage Loans and Equipment Loans. We entered into mortgage and equipment loan agreements with GE

Capital Franchise Finance Corporation on October 1, 2002. Pursuant to these agreements, we formed two new retail

finance subsidiaries, which received $22.3 million in mortgage loans and $12.7 million in equipment loans. The

mortgage loans and equipment loans bear interest at a fixed rate of 8.06% per annum and 8.30% per annum,

respectively. The loans are guaranteed by Alon USA and secured by liens on the properties and equipment owned by

the retail finance subsidiaries. The loans contain representations and warranties, affirmative, negative and financial

covenants and events of default that we believe are customary for financings of this kind. The mortgage loans are

payable on a 20-year amortization schedule, and the equipment loans are payable on a ten-year amortization

schedule. As of December 31, 2005, we had $30.6 million aggregate principal amount outstanding under the GE

mortgage loans and equipment loans. In 2003 and 2004, we obtained $2.3 million in mortgage and equipment loans

to finance the acquisition of new retail locations and equipment. The interest rates on these loans range from 5.5% to

9.7% with five to 15-year payment terms.

Capital Spending

Each year our board of directors approves capital projects, including regulatory and planned turnaround projects

that our management is authorized to undertake in our annual capital budget. Additionally, at times when conditions

warrant or as new opportunities arise, other projects or the expansion of existing projects may be approved. Our

capital expenditure budgets, including expenditures for chemical catalyst and turnarounds, for 2006 and 2007 are

$38.2 million and $42.7 million, respectively. The following table summarizes our expected capital expenditures for

2006 and 2007 by operating segment and major category:

2006 2007

(dollars in thousands)

Refining and Marketing Segment:

Sustaining maintenance ..................................................................................................... $11,515 $ 7,034

Growth/profit improvement/other...................................................................................... 4,932 13,402

Low-sulfur gasoline and diesel compliance....................................................................... 9,930 500

26,377 20,936

Retail Segment:

Sustaining maintenance ..................................................................................................... 1,947 1,211

Growth/profit improvement............................................................................................... 5,471 9,129

7,418 10,340

Total............................................................................................................................... $33,795 $31,276

Clean Air Capital Expenditures. We expect to spend approximately $25.3 million over the next five years to

comply with the Federal Clean Air Act regulations requiring a reduction in sulfur content in gasoline and diesel

fuels, including $9.9 million for low-sulfur diesel compliance in 2006.

As of December 31, 2005, we had completed substantially all of the expenditures required to meet regulatory

requirements under the Voluntary Emission Reduction Permit program, or VERP, sponsored by the Texas

Commission on Environmental Quality, or TCEQ, and for Maximum Achievable Control Technologies for

petroleum refineries, or MACT II, which required additional air emission controls for certain processing units at our

Big Spring refinery.

The estimated capital expenditures described above are summarized in the table below. If we were to lose our

status as a small refiner, expenditures for the low-sulfur gasoline requirements would be accelerated.

2006 2007 2008 2009 2010 2011 and

Thereafter Total

(dollars in thousands)

Low-sulfur gasoline............................. $ — $ 500 $1,000 $4,877 $9,000 $— $15,377

Low-sulfur diesel................................. 9,930 — — — — — 9,930

Total................................................. $9,930 $ 500 $1,000 $4,877 $9,000 $ $25,307

Turnaround and Chemical Catalyst Costs. We completed a major turnaround on substantially all of our major

processing units, including the crude unit and the fluid catalytic cracking unit, in the first quarter of 2005, at a cost

of approximately $8.0 million. Chemical catalyst replacement costs associated with the turnaround were

approximately $3.1 million. An additional $0.9 million was spent in the third quarter 2005 in connection with a

reformer catalyst regeneration which had originally been scheduled for January 2006.

Between our major turnarounds, we also perform periodic scheduled turnaround projects on various units at our

Big Spring refinery.

2006 2007 2008 2009 2010 2011

(dollars in thousands)

Scheduled turnaround costs.................................... $ 400 $ 700 $ 400 $ 8,750 $ 500 $ 500

Chemical catalyst costs........................................... 3,970 10,750 7,701 6,596 7,400 5,400

Total.................................................................... $4,370 $11,450 $ 8,101 $15,346 $ 7,900 $ 5,900

Contractual Obligations and Commercial Commitments

Information regarding our known contractual obligations of the types described below as of December 31, 2005

is set forth in the following table.

Payments Due by Period

Less Than

1 Year 1-3 Years 3-5 Years More Than

Contractual Obligations 5 Years Total

(dollars in thousands)

Long-term debt obligations (a)............................... $ 4,487 $104,099(b) $ 5,023 $ 18,781 $132,390

Operating lease obligations..................................... 12,469 33,061 9,908 6,278 61,716

Pipelines and Terminals Agreement (c).................. 19,621 58,863 39,242 160,238 277,964

Other commitments (d)........................................... 6,827 8,483 5,654 28,981 49,945

Total obligations ................................................. $ 43,404 $204,506 $59,827 $ 214,278 $522,015

____________

(a) We repaid approximately $24.3 million of outstanding debt with a portion of the proceeds received from our

initial public offering, of which $3.6 million was due within one year and $20.7 million was due within five

years.

(b) Includes $100.0 million of indebtedness owed under our term facility. We prepaid all amounts outstanding under

the term facility in the first quarter of 2006.

terms of the Pipelines and Terminals Agreement with HEP.

(d) Other commitments include refinery maintenance services costs and management fees to our parent. These

management fees were terminated in connection with our initial public offering for an aggregate payment of

$6.0 million, of which $2.0 million was paid in August 2005 and the remaining $4.0 million was paid in January

2006.

As of December 31, 2005, we did not have any capital lease obligations or any agreements to purchase goods or

services, other than those included in the table above, that were binding on us and that specified all significant terms.

Our “other non-current liabilities” are described in our consolidated financial statements included elsewhere in

this in this Annual Report on Form 10-K. For most of these liabilities, timing of the payment of such liabilities is not

fixed and therefore cannot be determined as of December 31, 2005. However, certain expected payments related to

our anticipated pension contributions in 2006 and other post-retirement benefits obligations are discussed in Note 12

of our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Critical Accounting Policies

Our accounting policies are described in the notes to our audited consolidated financial statements included

elsewhere in this Annual Report on Form 10-K. We prepare our consolidated financial statements in conformity

with GAAP. In order to apply these principles, we must make judgments, assumptions and estimates based on the

best available information at the time. Actual results may differ based on the accuracy of the information utilized

and subsequent events, some of which we may have little or no control over. Our critical accounting policies, which

are discussed below, could materially affect the amounts recorded in our consolidated financial statements.

Inventory. Crude oil, refined products and blendstocks for the refining and marketing segment are priced at the

lower of cost or market value. Cost is determined using the LIFO valuation method. Under the LIFO valuation

method, we charge the most recent acquisition costs to cost of sales, and we value inventories at the earliest

acquisition costs. We selected this method because we believe it more accurately reflects the cost of our current

sales. If the market value of inventory is less than the inventory cost on a LIFO basis, then inventory is written down

to market value. An inventory write-down to market value results in a non-cash accounting adjustment, decreasing

the value of our crude oil and refined products inventory and increasing our cost of sales. For example, in the second

half of 2001, market prices were significantly lower than our inventory cost determined under our LIFO valuation

method, which resulted in our recording a non-cash charge of $23.2 million to cost of sales and a corresponding

decrease in the value of our crude oil and refined products inventory. In 2002, market prices rose substantially,

allowing us to recover $18.6 million of the 2001 inventory write-down to market value with a corresponding non-

cash credit to cost of sales. Any such recovery results in a non-cash accounting adjustment, increasing the value of

our crude oil and refined products inventory and decreasing our cost of sales. Our results of operations could

continue to include such non-cash write-downs and recoveries of inventory if market prices for crude oil and refined

products return to levels comparable to those in 2001. A reduction of inventory volumes during 2005 resulted in a

liquidation of LIFO inventory layers carried at lower costs which prevailed in previous years. The liquidation

decreased cost of sales by approximately $2.4 million in 2005. Market values of crude oil, refined products and

blendstocks exceeded LIFO costs by $52.2 million at December 31, 2005.

Environmental and Other Loss Contingencies. We record liabilities for loss contingencies, including

environmental remediation costs, when such losses are probable and can be reasonably estimated. Our

environmental liabilities represent the estimated cost to investigate and remediate contamination at our properties.

Our estimates are based upon internal and third-party assessments of contamination, available remediation

technology and environmental regulations. Accruals for estimated liabilities from projected environmental

remediation obligations are recognized no later than the completion of the remedial feasibility study. These accruals

are adjusted as further information develops or circumstances change. We do not discount environmental liabilities

to their present value unless payments are fixed and determinable, and we record them without considering potential

recoveries from third parties. Recoveries of environmental remediation costs from third parties are recorded as

assets when receipt is deemed probable. We update our estimates to reflect changes in factual information, available

technology or applicable laws and regulations.

Turnarounds and Chemical Catalyst Costs. We record the cost of planned major refinery maintenance, referred

to as turnarounds, and catalysts used in refinery process units, which are typically replaced in conjunction with

planned turnarounds, in “other assets” in our consolidated financial statements. Turnaround and catalyst costs are

currently deferred and amortized on a straight-line basis beginning the month after the completion of the turnaround

and ending immediately prior to the next scheduled turnaround. The amortization of deferred turnaround and

chemical catalysts costs are presented in “depreciation and amortization” in our consolidated financial statements.

Impairment of Long-Lived Assets. We account for impairment of long-lived assets in accordance with SFAS No.

144, Accounting for the Impairment of Disposal of Long-Lived Assets. In evaluating our assets, long-lived assets

and certain identifiable intangible assets are reviewed for impairment whenever events or changes in circumstances

indicate that the carrying amount of such assets may not be recoverable. Recoverability of assets to be held and used

is measured by a comparison of the carrying value of an asset to future net cash flows expected to be generated by

the asset. If the carrying value of an asset exceeds its expected future cash flows, an impairment loss is recognized

based on the excess of the carrying value of the impaired asset over its fair value. These future cash flows and fair

values are estimates based on our judgment and assumptions. Assets to be disposed of are reported at the lower of

the carrying amount or fair value less costs of disposition.

Deferred Income Taxes. Income taxes are accounted for under the asset and liability method. Deferred tax assets

and liabilities are recognized for the future tax consequences attributable to differences between the financial

statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax

credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to

taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect

on deferred tax assets and liabilities of a change in tax rates is recognized as income in the period that includes the

enactment date.

Asset Retirement Obligations. Effective January 1, 2003, we adopted Statement No. 143, Accounting for Asset

Retirement Obligations, which established accounting standards for recognition and measurement of a liability for

an asset retirement obligation and the associated asset retirement cost. An entity is required to recognize the fair

value of a liability for an asset retirement obligation in the period in which it is incurred if a reasonable estimate of

fair value can be made. If a reasonable estimate of fair value cannot be made in the period the asset retirement

obligation is incurred, the liability should be recognized when a reasonable estimate of fair value can be made.

In order to determine fair value, management must make certain estimates and assumptions including, among

other things, projected cash flows, a credit-adjusted risk-free rate and an assessment of market conditions that could

significantly impact the estimated fair value of the asset retirement obligation. These estimates and assumptions are

subjective.

New Accounting Standards and Disclosures

In December 2004, the FASB issued Statement of Accounting Standards No. 123R, Share-Based Payment

(SFAS No. 123R), which requires expensing of stock options and other share-based compensation payments to

employees and supersedes SFAS No. 123, which had allowed companies to choose between expensing stock options

or showing pro forma disclosure only. This standard is effective as of January 1, 2006 and will apply to all awards

granted, modified, cancelled or repurchased after that date as well as the unvested portion of prior rewards. Because

we use the minimum value method of measuring equity share options for pro forma disclosure purposes under SFAS

No. 123, we will apply SFAS No. 123R prospectively to new awards and to awards modified, repurchased or

cancelled after January 1, 2006. The adoption of SFAS No. 123R is not expected to have a material effect on our

financial position or results of operations.

In November 2004, the FASB issued Statement No. 151, “Inventory Costs,” which clarifies the accounting for

abnormal amounts of idle facility expense, freight, handling costs, and wasted material, and requires that those items

be recognized as current-period charges. Statement No. 151 also requires that allocation of fixed production

overhead to the costs of conversion be based on the normal capacity of the production facilities. Statement No. 151

is effective for fiscal years beginning after June 15, 2005, and is not expected to affect our financial position or

results of operations.

In December 2004, the FASB issued Statement No. 153, “Exchanges of Nonmonetary Assets,” which addresses

the measurement of exchanges of nonmonetary assets. Statement No. 153 eliminates the exception from fair value

measurement for nonmonetary exchanges of similar productive assets, which was previously provided by APB

Opinion No. 29, “Accounting for Nonmonetary Transactions,” and replaces it with an exception for exchanges that

do not have commercial substance. Statement No. 153 specifies that a nonmonetary exchange has commercial

substance if the future cash flows of the entity are expected to change significantly as a result of the exchange.

Statement No. 153 is effective for nonmonetary asset exchanges occurring in interim periods beginning after June

15, 2005. The adoption of Statement No. 153 did not have a material effect on our financial position or results of

operations.

In May 2005, the FASB issued FASB Statement No. 154, “Accounting Changes and Error Corrections.”

Statement 154 establishes, unless impracticable, retrospective application as the required method for reporting a

change in accounting principle in the absence of explicit transition requirements specific to a newly adopted

accounting principle. This statement will be effective for all accounting changes and any error corrections occurring

after January 1, 2006.

In March 2005, the FASB issued FASB Interpretation No. 47, “Accounting for Conditional Retirement

Obligations,” or FIN 47, which requires companies to recognize a liability for the fair value of a legal obligation to

perform asset-retirement activities that are conditional on a future event, if the amount can be reasonably estimated.

We adopted FIN 47 at December 31, 2005. The impact of adoption had no effect on our consolidated financial

statements.

In December 2004 the FASB issued FASB Staff Position FAS 109-1, “Application of FASB Statement No. 109,

Accounting for Income Taxes, for the Tax Deduction Provided to U.S. Based Manufacturers by the American Jobs

Creation Act of 2004” (“Jobs Creation Act”) which requires a company that qualifies for the deduction for domestic

production activities under the Jobs Creation Act to account for it as a special deduction under FASB Statement No.

109, Accounting for Income Taxes, as opposed to an adjustment of recorded deferred tax assets and liabilities. We

have included the $1.1 million effects of this special deduction in our calculation of the deferred income tax

provision.

In September 2005, the Emerging Issues Task Force, (EITF) reached a consensus concerning the accounting for

linked purchase and sale arrangements in EITF Issue No. 04-13, “Accounting for Purchases and Sales of Inventory

with the Same Counterparty.” The EITF concluded that generally requires non-monetary exchanges of finished

goods inventory within the same line of business be recognized at the carrying value of the inventory transferred.

The consensus is to be applied to new buy/sell arrangements entered in reporting periods beginning after March 15,

2006. We do not expect the impact of this EITF Issue No. 04-13 consensus to have a material effect on our financial

position or results of operations.

Reconciliation of Amounts Reported Under Generally Accepted Accounting Principles

Reconciliation of Adjusted EBITDA to amounts reported under generally accepted accounting principles in

financial statements.

EBITDA represents earnings before minority interest, income tax expense, interest expense, depreciation and

amortization. Adjusted EBITDA represents EBITDA, exclusive of gain on disposition of assets. Adjusted EBITDA

is not a recognized measurement under GAAP; however, the amounts included in Adjusted EBITDA are derived

from amounts included in our consolidated financial statements. Our management believes that the presentation of

Adjusted EBITDA is useful to investors because it is frequently used by securities analysts, investors and other

interested parties in the evaluation of companies in our industry. In addition, our management believes that Adjusted

EBITDA is useful in evaluating our operating performance compared to that of other companies in our industry

because the calculation of Adjusted EBITDA generally eliminates the effects of minority interests, interest expense,

income taxes, gain on disposition of assets and the accounting effects of capital expenditures and acquisitions, items

which may vary for different companies for reasons unrelated to overall operating performance. EBITDA, is the

basis for calculating selected financial ratios as required in the debt covenants in our revolving credit agreement. See

“ — Liquidity and Capital Resources — Cash, Cash Equivalents and Short-Term Investment Position and

Indebtedness.”

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 minority stockholders 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 the EBITDA calculations of other companies in our

industry, limiting its usefulness as a comparative measure.

Because of these limitations, EBITDA and 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 EBITDA and Adjusted EBITDA only supplementally.

The following table reconciles net income to EBITDA and Adjusted EBITDA for the years ended December 31,

2005, 2004 and 2003, respectively:

For the Year Ended December 31,

2005 2004 2003

(dollars in thousands)

Net income...................................................................................................

$103,988 $25,132 $14,068

Minority interest..........................................................................................

5,792 2,565 681

Income tax expense .....................................................................................

65,518 18,315 9,105

Interest expense ...........................................................................................

19,326 23,704 16,284

Depreciation and amortization.....................................................................

20,935 19,064 18,262

EBITDA ......................................................................................................

215,559 88,780 58,400

Gain on disposition of assets .......................................................................

(38,591) (175) —

Adjusted EBITDA.......................................................................................

$176,968 $88,605 $58,400

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Quantitative and Qualitative Disclosure About Market Risk

Changes in commodity prices, purchased fuel prices and interest rates are our primary sources of market risk.

Our risk management committee oversees all activities associated with the identification, assessment and

management of our market risk exposure.

Commodity Price Risk

We are exposed to market risks related to the volatility of crude oil and refined product prices, as well as

volatility in the price of natural gas used in our refinery operations. Our financial results can be affected significantly

by fluctuations in these prices, which depend on many factors, including demand for crude oil, gasoline and other

refined products, changes in the economy, worldwide production levels, worldwide inventory levels and

governmental regulatory initiatives. Our risk management strategy identifies circumstances in which we may utilize

the commodity futures market to manage risk associated with these price fluctuations.

In order to manage the uncertainty relating to inventory price volatility, we have consistently applied a policy of

maintaining inventories at or below a targeted operating level. In the past, circumstances have occurred, such as

timing of crude oil cargo deliveries, turnaround schedules or shifts in market demand that have resulted in variances

between our actual inventory level and our desired target level. Upon the review and approval of our risk

management committee, we may utilize the commodity futures market to manage these anticipated inventory

variances.

We maintain inventories of crude oil, feedstocks and refined products, the values of which are subject to wide

fluctuations in market prices driven by world economic conditions, regional and global inventory levels and

seasonal conditions. As of December 31, 2005, we held approximately 1.8 million barrels of crude and product

inventories valued under the LIFO valuation method with an average cost of $30.04 per barrel. Market value

exceeded carrying value of LIFO costs by $52.2 million. We refer to this excess as our LIFO reserve. If the market

value of these inventories had been $1.00 per barrel lower, our LIFO reserve would have been reduced to $1.8

million.

In accordance with SFAS No. 133, all commodity futures contracts are recorded at fair value and any changes in

fair value between periods is recorded in the profit and loss section of our consolidated financial statements.

“Forwards” represent physical trades for which pricing and quantities have been set, but the physical product

delivery has not occurred by the end of the reporting period. “Futures” represent trades which have been executed on

the New York Mercantile Exchange which have not been closed or settled at the end of the reporting period. A

“long” represents an obligation to purchase product and a “short” represents an obligation to sell product.

The following table provides information about our derivative commodity instruments as of December 31,

2005:

Description

of Activity Contract

Volume

Wtd Avg

Purchase

Price

Wtd Avg

Sales

Price Contract

Value Fair

Value Gain

(Loss)

Futures-long.................................................................... — $ — $ — $ — $ — $ —

Futures-short................................................................... — — — — — —

Forwards-long (refined products)................................... 25,000 63.62 71.84 1,590 1,796 206

Forwards-short (refined products) .................................. — — — — — —

Interest Rate Risk

As of December 31, 2005, $100.0 million of our outstanding debt was at floating interest rates. This debt was

repaid in full on January 19, 2006.

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE.

The Consolidated Financial Statements and Schedule are included as an annex of this Annual Report on Form

10-K. See the Index to Consolidated Financial Statements and Schedule on page F-1.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND

FINANCIAL DISCLOSURE.

None.

ITEM 9A. CONTROLS AND PROCEDURES.

Included in this Annual Report on Form 10-K are certifications of our Chief Executive Officer and Chief

Financial Officer which are required in accordance with Rule 13a-14 of the Securities Exchange Act of 1934 (the

“Exchange Act”). This section includes the information concerning the controls and controls evaluation referred to

in the certifications.

Evaluation of Disclosure Controls and Procedures

Our management has evaluated, with the participation of our principal executive and principal financial officers,

the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as

of the end of the period covered by this report, and has concluded that our disclosure controls and procedures are

effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or

submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified

in the SEC’s rules and forms.

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting during the quarter ended December 31,

2005 that has materially affected, or is reasonably likely to materially affect, our internal control over financial

reporting.

ITEM 9B. OTHER INFORMATION.

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The information concerning our directors set forth under “Corporate Governance Matters — The Board of

Directors” in the proxy statement for our May 9, 2006 annual meeting of stockholders (the “Proxy Statement”) is

incorporated herein by reference. Certain information concerning our executive officers is set forth under the

heading “Business and Properties — Executive Officers of the Registrant” in Item 1 and 2 of this Annual Report on

Form 10-K, which is incorporated herein by reference. The information concerning compliance with Section 16(a)

of the Exchange Act set forth under “Section 16(a) Beneficial Ownership Reporting Compliance” in the Proxy

Statement is incorporated herein by reference.

The information concerning our audit committee set forth under “Corporate Governance Matters — Committees

of the Board and — Audit Committee” in the Proxy Statement is incorporated herein by reference.

The information regarding our Code of Ethics set forth under “ Corporate Governance Matters — Corporate

Governance Guidelines, Code of Business Conduct and Ethics and Committee Charters” in the Proxy Statement is

incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION.

The information set forth under “Executive Compensation,” “Compensation Committee Report on Executive

Compensation” and “Stockholder Return Performance Graph” in the Proxy Statement is incorporated herein by

reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND

RELATED STOCKHOLDER MATTERS.

The information set forth under “Security Ownership of Certain Beneficial Holders and Management” in the

Proxy Statement is incorporated herein by reference. The information regarding our equity plans under which shares

of our common stock are authorized for issuance as set forth under “Equity Compensation Plan Information” in the

Proxy Statement is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The information set forth under “Certain Relationships and Related Transactions” in the Proxy Statement is

incorporated herein by reference.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

The information set forth under “Independent Public Accountants” in the Proxy Statement is incorporated herein

by reference.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) The following documents are filed as part of this report:

(1) Consolidated Financial Statements and Schedule See Index to Consolidated Financial Statements and Schedule

on page F-1.

(2) Exhibits:

Reference is made to the Index of Exhibits immediately preceding the exhibits hereto, which index in

incorporated herein by reference.

Exhibit No. Description of Exhibit

3.1 Amended Restated Certificate of Incorporation of Alon USA Energy, Inc. (incorporated by

reference to Exhibit 3.1 to Form S-1/A, filed by the Company on July 7, 2005, SEC File No. 333-

124797).

3.2 Amended and Restated Bylaws of Alon USA Energy, Inc. (incorporated by reference to Exhibit 3.2

to Form S-1/A, filed by the Company on July 14, 2005, SEC File No. 333-124797).

4.1 Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to Form S-1/A, filed

by the Company on June 17, 2005, SEC File No. 333-124797).

10.1 † Area License Agreement, dated as of June 2, 1993, between Southwest Convenience Stores, Inc.

and The Southland Corporation (incorporated by reference to Exhibit 10.1 to Form S-1/A, filed by

the Company on July 7, 2005, SEC File No. 333-124797).

10.2 † Amendment to Area License Agreement and Consent to Assignment, dated as of December 20,

1996, between The Southland Corporation and Permian Basin Investments, Inc. d/b/a Southwest

Convenience Stores, Inc. (incorporated by reference to Exhibit 10.2.1 to Form S-1/A, filed by the

Company on July 7, 2005, SEC File No. 333-124797).

10.3 † Amendment No. 2 to Area License Agreement, dated as of August 14, 1997, between Southwest

Convenience Stores LLC and The Southland Corporation (incorporated by reference to Exhibit

10.2.2 to Form S-1/A, filed by the Company on July 7, 2005, SEC File No. 333-124797).

10.4 Trademark License Agreement, dated as of June 31, 2000, among Finamark, Inc., Atofina

Petrochemicals, Inc. and SWBU, L.P. (incorporated by reference to Exhibit 10.3 to Form S-1, filed

by the Company on May 11, 2005, SEC File No. 333-124797).

10.5 First Amendment to Trademark License Agreement, dated as of April 11, 2001, among Finamark,

Inc., Atofina Petrochemicals, Inc. and SWBU, L.P. (incorporated by reference to Exhibit 10.4 to

Form S-1, filed by the Company on May 11, 2005, SEC File No. 333-124797).

10.6 Pipeline Lease Agreement, dated as of January 22, 2001, between Chevron Pipe Line Company and

Fin-Tex Pipe Line Company (incorporated by reference to Exhibit 10.5 to Form S-1, filed by the

Company on May 11, 2005, SEC File No. 333-124797).

10.7 Pipeline Lease Agreement, dated as of February 21, 1997, between Navajo Pipeline Company and

American Petrofina Pipe Line Company (incorporated by reference to Exhibit 10.6 to Form S-1,

filed by the Company on May 11, 2005, SEC File No. 333-124797).

10.8 Contribution Agreement, dated as of January 25, 2005, among Holly Energy Partners, L.P., Holly

Energy Partners – Operating, L.P., T & R Assets, Inc., Fin-Tex Pipe Line Company, Alon USA

Refining, Inc., Alon Pipeline Assets, LLC, Alon Pipeline Logistics, LLC, Alon USA, Inc. and Alon

USA, LP. (incorporated by reference to Exhibit 10.7 to Form S-1, filed by the Company on May 11,

2005, SEC File No. 333-124797).

Exhibit No. Description of Exhibit

10.9 Pipelines and Terminals Agreement, dated as of February 28, 2005, between Alon USA, LP and

Holly Energy Partners, L.P. (incorporated by reference to Exhibit 10.8 to Form S-1, filed by the

Company on May 11, 2005, SEC File No. 333-124797).

10.10 Master Lease, dated as of October 1, 2002, between SCS Finance I, L.P. and Southwest

Convenience Stores, LP (incorporated by reference to Exhibit 10.9 to Form S-1, filed by the

Company on May 11, 2005, SEC File No. 333-124797).

10.11 Loan Agreement, dated as of October 1, 2002, between GE Capital Franchise Finance Corporation

and SCS Finance I, L.P. (incorporated by reference to Exhibit 10.10 to Form S-1, filed by the

Company on May 11, 2005, SEC File No. 333-124797).

10.12 Equipment Loan and Security Agreement, dated as of October 1, 2002, between GE Capital

Franchise Finance Corporation and SCS Finance I, L.P. (incorporated by reference to Exhibit 10.11

to Form S-1, filed by the Company on May 11, 2005, SEC File No. 333-124797).

10.13 Master Lease, dated as of October 1, 2002, between SCS Finance II, L.P. and Southwest

Convenience Stores, LP. (incorporated by reference to Exhibit 10.12 to Form S-1, filed by the

Company on May 11, 2005, SEC File No. 333-124797).

10.14 Loan Agreement, dated as of October 1, 2002, between GE Capital Franchise Finance Corporation

and SCS Finance II, L.P. (incorporated by reference to Exhibit 10.13 to Form S-1, filed by the

Company on May 11, 2005, SEC File No. 333-124797).

10.15 Equipment Loan and Security Agreement, dated as of October 1, 2002, between GE Capital

Franchise Finance Corporation and SCS Finance II, L.P. (incorporated by reference to Exhibit

10.14 to Form S-1, filed by the Company on May 11, 2005, SEC File No. 333-124797).

10.16 Amended and Restated Credit Agreement, dated as of January 14, 2004, among Alon USA, Inc., the

lenders listed therein and Credit Suisse First Boston (incorporated by reference to Exhibit 10.15 to

Form S-1, filed by the Company on May 11, 2005, SEC File No. 333-124797).

10.17 First Amendment, dated as of February 10, 2005, to the Amended and Restated Credit Agreement,

dated as of January 14, 2004, among Alon USA, Inc., the lenders listed therein and Credit Suisse

First Boston, and the Guarantee and Collateral Agreement, dated as of January 14, 2004, among

Credit Suisse First Boston, Alon USA, Inc., the subsidiaries of Alon USA, Inc. identified therein

and Alon USA, Inc. (incorporated by reference to Exhibit 10.17 to Form S-1, filed by the Company

on May 11, 2005, SEC File No. 333-124797).

10.18 Second Amendment, dated as of May 6, 2005, to the Amended and Restated Credit Agreement,

dated as of January 14, 2004, among Alon USA Energy, Inc., the lenders listed therein and Credit

Suisse First Boston (incorporated by reference to Exhibit 10.18 to Form S-1/A, filed by the

Company on June 17, 2005, SEC File No. 333-124797).

10.19 Guarantee and Collateral Agreement, dated as of January 14, 2004, among Credit Suisse First

Boston, Alon USA, Inc., the subsidiaries of Alon USA, Inc. identified therein and Alon USA

Energy, Inc. (incorporated by reference to Exhibit 10.16 to Form S-1, filed by the Company on May

11, 2005, SEC File No. 333-124797).

10.20 Amended Revolving Credit Agreement, dated as of January 14, 2004, among Alon USA, LP, the

guarantor companies and financial institutions identified therein and Israel Discount Bank of New

York (incorporated by reference to Exhibit 10.19 to Form S-1, filed by the Company on May 11,

2005, SEC File No. 333-124797).

10.21 First Amendment, dated as of February 10, 2005, to the Amended Revolving Credit Agreement,

dated as of January 14, 2005, among Alon USA, LP, the guarantor companies and financial

institutions identified therein and Israel Discount Bank of New York (incorporated by reference to

Exhibit 10.20 to Form S-1, filed by the Company on May 11, 2005, SEC File No. 333-124797).

Exhibit No. Description of Exhibit

10.22 Second Amendment, dated as of June 16, 2005, to the Amended Revolving Credit Agreement,

dated as of January 14, 2005, among Alon USA, LP, the guarantor companies and financial

institutions identified therein and Israel Discount Bank of New York (incorporated by reference to

Exhibit 10.20.1 to Form S-1/A, filed by the Company on June 17, 2005, SEC File No. 333-124797).

10.23 Amending Revolving Credit Agreement, dated as of February 15, 2006, among Alon USA, LP, the

guarantor companies and financial institutions named therein, Israel Discount Bank of New York

and Bank Leumi USA (incorporated by reference to Exhibit 10.1 to Form 8-K filed by the

Company on February 16, 2006, SEC File No. 001-32567).

10.24 Management and Consulting Agreement, dated August 1, 2003, among Alon USA, Inc., Alon Israel

Oil Company, Ltd. and Alon USA Energy, Inc. (incorporated by reference to Exhibit 10.21 to Form

S-1, filed by the Company on May 11, 2005, SEC File No. 333-124797).

10.25 Amendment, dated as of June 17, 2005, to the Management and Consulting Agreement, dated as of

August 1, 2003, among Alon USA, Inc., Alon Israel Oil Company, Ltd. and Alon USA Energy, Inc.

(incorporated by reference to Exhibit 10.21.1 to Form S-1/A, filed by the Company on June 17,

2005, SEC File No. 333-124797).

10.26 Registration Rights Agreement, dated as of July 6, 2005, between Alon USA Energy, Inc. and Alon

Israel Oil Company, Ltd. (incorporated by reference to Exhibit 10.22 to Form S-1/A, filed by the

Company on July 7, 2005, SEC File No. 333-124797).

10.27* Executive Employment Agreement, dated as of July 31, 2000, between Jeff D. Morris and Alon

USA GP, Inc., as amended on May 4, 2005 (incorporated by reference to Exhibit 10.23 to Form S-

1, filed by the Company on May 11, 2005, SEC File No. 333-124797).

10.28* Executive Employment Agreement, dated as of July 31, 2000, between Claire A. Hart and Alon

USA GP, Inc., as amended on May 4, 2005 (incorporated by reference to Exhibit 10.24 to Form S-

1, filed by the Company on May 11, 2005, SEC File No. 333-124797).

10.29* Executive Employment Agreement, dated as of February 5, 2001, between Joseph A. Concienne, III

and Alon USA GP, Inc., as amended on May 4, 2005 (incorporated by reference to Exhibit 10.25 to

Form S-1, filed by the Company on May 11, 2005, SEC File No. 333-124797).

10.30* Management Employment Agreement, dated as of October 1, 2002, between Harlin R. Dean and

Alon USA GP, LLC, as amended on May 4, 2005 (incorporated by reference to Exhibit 10.26 to

Form S-1, filed by the Company on May 11, 2005, SEC File No. 333-124797).

10.31* Amendment, dated as of October 1, 2003, to the Management Employment Agreement, dated as of

October 1, 2002, between Harlin Dean and Alon USA GP, LLC, as amended on May 4, 2005

(incorporated by reference to Exhibit 10.26.1 to Form S-1/A, filed by the Company on June 17,

2005, SEC File No. 333-124797).

10.32* Amendment to Executive/Management Employment Agreement, dated as of November 7, 2005,

between Harlin Dean and Alon USA GP, LLC (incorporated by reference to Exhibit 10.1 to Form

8-K, filed by the Company on November 8, 2005, SEC File No. 001-32567).

10.33+* Management Employment Agreement, dated September 1, 2000, between Yosef Israel and Alon

USA, GP, LLC.

10.34+* Amendment to Executive/Management Employment Agreement, dated May 1, 2005 between Yosef

Israel and Alon USA. GP, LLC.

10.35* Annual Cash Bonus Plan (incorporated by reference to Exhibit 10.27 to Form S-1, filed by the

Company on May 11, 2005, SEC File No. 333-124797).

10.36* Description of 10% Bonus Plan (incorporated by reference to Exhibit 10.28 to Form S-1, filed by

the Company on May 11, 2005, SEC File No. 333-124797).

Exhibit No. Description of Exhibit

10.37* Change of Control Incentive Bonus Program (incorporated by reference to Exhibit 10.29 to Form S-

1, filed by the Company on May 11, 2005, SEC File No. 333-124797).

10.38* Description of Director Compensation (incorporated by reference to Exhibit 10.30 to Form S-1,

filed by the Company on May 11, 2005, SEC File No. 333-124797).

10.39* Form of Director Indemnification Agreement (incorporated by reference to Exhibit 10.31 to Form

S-1, filed by the Company on May 11, 2005, SEC File No. 333-124797).

10.40* Form of Officer Indemnification Agreement (incorporated by reference to Exhibit 10.32 to Form S-

1, filed by the Company on May 11, 2005, SEC File No. 333-124797).

10.41* Form of Director and Officer Indemnification Agreement (incorporated by reference to Exhibit

10.33 to Form S-1, filed by the Company on May 11, 2005, SEC File No. 333-124797).

10.42 Liquor License Purchase Agreement, dated as of May 12, 2003, between Southwest Convenience

Stores, LLC and SCS Beverage, Inc. (incorporated by reference to Exhibit 10.34 to Form S-1/A,

filed by the Company on June 17, 2005, SEC File No. 333-124797).

10.43 Premises Lease, dated as of May 12, 2003, between Southwest Convenience Stores, LLC and SCS

Beverage, Inc. (incorporated by reference to Exhibit 10.35 to Form S-1/A, filed by the Company on

June 17, 2005, SEC File No. 333-124797).

10.44* Alon Assets, Inc. 2000 Stock Option Plan (incorporated by reference to Exhibit 10.36 to Form S-

1/A, filed by the Company on June 17, 2005, SEC File No. 333-124797).

10.45* Alon USA Operating, Inc. 2000 Stock Option Plan (incorporated by reference to Exhibit 10.37 to

Form S-1/A, filed by the Company on June 17, 2005, SEC File No. 333-124797).

10.46* Incentive Stock Option Agreement, dated as of July 31, 2000, between Alon Assets, Inc. and Jeff D.

Morris, as amended on June 30, 2002 (incorporated by reference to Exhibit 10.38 to Form S-1/A,

filed by the Company on June 17, 2005, SEC File No. 333-124797).

10.47 Shareholder Agreement, dated as of July 2000, between Alon Assets, Inc. and Jeff D. Morris, as

amended on June 30, 2002 (incorporated by reference to Exhibit 10.39 to Form S-1/A, filed by the

Company on June 17, 2005, SEC File No. 333-124797).

10.48* Incentive Stock Option Agreement, dated as of July 31, 2000, between Alon USA Operating, Inc.

and Jeff D. Morris, as amended on June 30, 2002 (incorporated by reference to Exhibit 10.40 to

Form S-1/A, filed by the Company on June 17, 2005, SEC File No. 333-124797).

10.49 Shareholder Agreement, dated as of July 31, 2000, between Alon USA Operating, Inc. and Jeff D.

Morris, as amended on June 30, 2002 (incorporated by reference to Exhibit 10.41 to Form S-1/A,

filed by the Company on June 17, 2005, SEC File No. 333-124797).

10.50* Incentive Stock Option Agreement, dated as of July 31, 2000, between Alon Assets, Inc. and Claire

A. Hart, as amended on June 30, 2002 and July 25, 2002 (incorporated by reference to Exhibit

10.42 to Form S-1/A, filed by the Company on June 17, 2005, SEC File No. 333-124797).

10.51 Shareholder Agreement, dated as of July 31, 2000, between Alon Assets, Inc. and Claire A. Hart, as

amended on June 30, 2002 (incorporated by reference to Exhibit 10.43 to Form S-1/A, filed by the

Company on June 17, 2005, SEC File No. 333-124797).

10.52* Incentive Stock Option Agreement, dated as of July 31, 2000, between Alon USA Operating, Inc.

and Claire A. Hart, as amended on June 30, 2002 and July 25, 2002 (incorporated by reference to

Exhibit 10.44 to Form S-1/A, filed by the Company on June 17, 2005, SEC File No. 333-124797).

10.53 Shareholder Agreement, dated as of July 31, 2000, between Alon USA Operating, Inc. and Claire

A. Hart, as amended on June 30, 2002 (incorporated by reference to Exhibit 10.45 to Form S-1/A,

filed by the Company on June 17, 2005, SEC File No. 333-124797).

Exhibit No. Description of Exhibit

10.54* Incentive Stock Option Agreement, dated as of February 5, 2001, between Alon Assets, Inc. and

Joseph A. Concienne, III, as amended on July 25, 2002 (incorporated by reference to Exhibit 10.46

to Form S-1/A, filed by the Company on June 17, 2005, SEC File No. 333-124797).

10.55 Shareholder Agreement, dated as of February 5, 2001, between Alon Assets, Inc. and Joseph A.

Concienne, III (incorporated by reference to Exhibit 10.47 to Form S-1/A, filed by the Company on

June 17, 2005, SEC File No. 333-124797).

10.56* Incentive Stock Option Agreement, dated as of February 5, 2001, between Alon USA Operating,

Inc. and Joseph A. Concienne, III, as amended on July 25, 2002 (incorporated by reference to

Exhibit 10.48 to Form S-1/A, filed by the Company on June 17, 2005, SEC File No. 333-124797).

10.57 Shareholder Agreement, dated as of February 5, 2001, between Alon USA Operating, Inc. and

Joseph A. Concienne, III (incorporated by reference to Exhibit 10.49 to Form S-1/A, filed by the

Company on June 17, 2005, SEC File No. 333-124797).

10.58* Agreement of Principles of Employment, dated as of July 6, 2005, between David Wiessman and

Alon USA Energy, Inc. (incorporated by reference to Exhibit 10.50 to Form S-1/A, filed by the

Company on July 7, 2005, SEC File No. 333-124797).

10.59* Alon USA Energy, Inc. 2005 Incentive Compensation Plan, as amended on November 7, 2005

(incorporated by reference to Exhibit 10.2 to Form 8-K, filed by the Company on November 8,

2005, SEC File No. 001-32567).

10.60* Agreement, dated as of July 6, 2005, by and among Alon USA Energy, Inc., Alon USA, Inc., Alon

USA Capital, Inc., Alon USA Operating, Inc., Alon Assets, Inc., Jeff D. Morris, Claire A. Hart and

Joseph A. Concienne, III (incorporated by reference to Exhibit 10.52 to Form S-1/A, filed by the

Company on July 7, 2005, SEC File No. 333-124797).

10.61* Form of Restricted Stock Award Agreement relating to Director Grants pursuant to Section 12 of

the Alon USA Energy, Inc. 2005 Incentive Compensation Plan (incorporated by reference to

Exhibit 10.1 to Form 8-K filed by the Company on August 5, 2005, SEC File No. 001-32567).

10.62* Form of Restricted Stock Award Agreement relating to Participant Grants pursuant to Section 8 of

the Alon USA Energy, Inc. 2005 Incentive Compensation Plan (incorporated by reference to

Exhibit 10.1 to Form 8-K filed by the Company on August 23, 2005, SEC File No. 001-32567).

10.63* Form II of Restricted Stock Award Agreement relating to Participant Grants pursuant to Section 8

of the Alon USA Energy, Inc. 2005 Incentive Compensation Plan (incorporated by reference to

Exhibit 10.3 to Form 8-K filed by the Company on November 8, 2005, SEC File No. 001-32567).

10.64 Purchase and Sale Agreements between Alon Petroleum Pipe Line, LP and Sunoco Pipelines, LP,

dated February 13, 2006 (incorporated by reference to Exhibit 10.1 to Form 8-K filed by the

Company on February 13, 2006, SEC File No. 001-32567).

21.1+List of Subsidiaries of Alon USA Energy, Inc.

23.1+Consent of KPMG LLP.

31.1+Certifications of Chief Executive Officer pursuant to §302 of the Sarbanes-Oxley Act of 2002.

31.2+Certifications of Chief Financial Officer pursuant to §302 of the Sarbanes-Oxley Act of 2002.

32.1+Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. §1350,

as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002.

____________

+ Filed herewith.

* Identifies management contracts and compensatory plans or arrangements.

† Filed under confidential treatment request.

ALON USA ENERGY, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE

Page

Audited Consolidated Financial Statements:

Report of Independent Registered Public Accounting Firm................................................................................ F-2

Consolidated Balance Sheets as of December 31, 2005 and 2004 ...................................................................... F-3

Consolidated Statements of Operations for the Years Ended December 31, 2005, 2004 and 2003 .................... F-4

Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2005, 2004 and 2003.... F-5

Consolidated Statements of Cash Flows for the Years Ended December 31, 2005, 2004 and 2003................... F-6

Notes to Consolidated Financial Statements........................................................................................................ F-8

ALON USA ENERGY, INC. (PARENT COMPANY ONLY)

INDEX TO CONDENSED FINANCIAL STATEMENTS AND SCHEDULE

Audited Condensed Financial Statements:

Report of Independent Registered Public Accounting Firm............................................................................... F-31

Alon USA Energy, Inc. (Parent Company Only) Condensed Balance Sheets as of December 31, 2005 and

2004.................................................................................................................................................................. F-32

Alon USA Energy, Inc. (Parent Company Only) Condensed Statements of Operations for the Years Ended

December 31, 2005, 2004 and 2003 ................................................................................................................. F-33

Alon USA Energy, Inc. (Parent Company Only) Condensed Statements of Cash Flows for the Years Ended

December 31, 2005, 2004 and 2003 ................................................................................................................. F-34

Alon USA Energy, Inc. (Parent Company Only) Notes to Condensed Financial Statements ............................ F-35

F-1

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Alon USA Energy, Inc.:

We have audited the accompanying consolidated balance sheets of Alon USA Energy, Inc. and subsidiaries (the

“Company”) as of December 31, 2005 and 2004, and the related consolidated statements of operations,

stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2005. These

consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to

express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board

(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about

whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,

evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the

accounting principles used and significant estimates made by management, as well as evaluating the overall

financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the

financial position of Alon USA Energy, Inc. and subsidiaries as of December 31, 2005 and 2004, and the results of

their operations, and their cash flows for each of the years in the three-year period ended December 31, 2005, in

conformity with U.S. generally accepted accounting principles.

As discussed in Note 11 to the consolidated financial statements, the Company adopted Statement of Financial

Accounting Standards No. 143, Accounting for Asset Retirement Obligations, in 2003.

/s/ KPMG LLP

Dallas, Texas

March 13, 2006

F-2

ALON USA ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands except share data)

As of December 31,

2005 2004

ASSETS

Current assets:

Cash and cash equivalents ............................................................................................... $136,820 $ 63,357

Short-term investments.................................................................................................... 185,320 —

Accounts and other receivables, net................................................................................. 89,529 69,328

Inventories ....................................................................................................................... 79,181 79,329

Prepaid expenses and other current assets ....................................................................... 6,264 2,441

Total current assets .................................................................................................. 497,114 214,455

Investment in HEP............................................................................................................... 22,754 —

Property, plant, and equipment, net..................................................................................... 211,410 236,228

Other assets.......................................................................................................................... 27,502 21,833

Total assets............................................................................................................... $758,780 $472,516

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable............................................................................................................. $157,076 $103,051

Accrued liabilities ............................................................................................................ 48,128 50,846

Current portion of deferred gain on disposition of assets ................................................ 11,427 —

Current portion of long-term debt.................................................................................... 4,487 16,115

Total current liabilities............................................................................................. 221,118 170,012

Other non-current liabilities................................................................................................. 18,345 19,436

Deferred gain on disposition of assets................................................................................. 52,433 —

Long-term debt.................................................................................................................... 127,903 171,591

Deferred income tax liability............................................................................................... 52,422 31,829

Total liabilities ......................................................................................................... 472,221 392,868

Commitments and contingencies (Note 19)

Minority interest in subsidiaries .......................................................................................... 7,066 8,176

Stockholders’ equity:

Preferred stock par value $0.01, 10,000,000 shares authorized; no shares issued and

outstanding..................................................................................................................... — —

Common stock, par value $0.01, 100,000,000 shares authorized; 46,809,857 and

35,001,120 shares issued and outstanding at December 31, 2005 and 2004 ................. 468 350

Additional paid-in capital................................................................................................. 181,108 8,379

Accumulated other comprehensive loss, net of income tax ............................................. (2,596) (2,261)

Retained earnings............................................................................................................. 100,513 65,004

Total stockholders’ equity........................................................................................ 279,493 71,472

Total liabilities and stockholders’ equity ................................................................. $758,780 $472,516

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

F-3

ALON USA ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands except per share data)

Year Ended December 31,

2005 2004 2003

Net sales................................................................................................. $2,328,507 $1,707,564 $1,410,766

Operating costs and expenses:

Cost of sales....................................................................................... 1,990,338 1,469,940 1,215,032

Direct operating expenses.................................................................. 93,843 75,742 66,113

Selling, general and administrative expenses .................................... 73,219 73,554 69,066

Depreciation and amortization........................................................... 20,935 19,064 18,262

Total operating costs and expenses................................................ 2,178,335 1,638,300 1,368,473

Gain on disposition of assets ................................................................. 38,591 175 —

Operating income .................................................................................. 188,763 69,439 42,293

Interest expense ..................................................................................... (19,326) (23,704) (16,284)

Equity earnings in HEP ......................................................................... 1,086 — —

Other income (expense), net.................................................................. 4,775 277 (1,819)

Income before income tax expense, minority interest in income of

subsidiaries, and accounting change.................................................... 175,298 46,012 24,190

Income tax expense ............................................................................... 65,518 18,315 9,105

Income before minority interest in income of subsidiaries and

accounting change ............................................................................... 109,780 27,697 15,085

Minority interest in income of subsidiaries ........................................... 5,792 2,565 681

Income before accounting change ......................................................... 103,988 25,132 14,404

Cumulative effect of adoption of accounting principle (Note 11)......... — — 336

Net income............................................................................................. $ 103,988 $ 25,132 $ 14,068

Earnings per share, basic and diluted..................................................... $ 2.61 $ .72 $ .40

Weighted average shares outstanding.................................................... 39,889 35,001 35,001

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

F-4

ALON USA ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(dollars in thousands)

Common

Stock

Additional

Paid-In

Capital

Accumulated

Other

Comprehensive

Loss Retained

Earnings Total

Balance at January 1, 2003................................. $ 350 $ 8,199 $ (1,225) $ 25,804 $ 33,128

Received for shares issued..................................... — 40 — — 40

Net income............................................................. — — — 14,068 14,068

Other comprehensive loss:

Minimum pension liability, net of income tax ... — — (313) — (313)

Total comprehensive income......................... 13,755

Balance at December 31, 2003............................ 350 8,239 (1,538) 39,872 46,923

Received for shares issued..................................... — 140 — — 140

Net income............................................................. — — — 25,132 25,132

Other comprehensive loss:

Minimum pension liability, net of income tax... — — (723) — (723

)

Total comprehensive income......................... 24,409

Balance at December 31, 2004............................ 350 8,379 (2,261) 65,004 71,472

Proceeds from sale of common stock, net ............. 118 172,729 — — 172,847

Dividends............................................................... — — — (68,479) (68,479)

Net income............................................................. — — — 103,988 103,988

Other comprehensive loss: — — — —

Minimum pension liability, net of income tax... — — (335) — (335)

Total comprehensive income......................... 103,653

Balance at December 31, 2005............................ $468 $181,108 $(2,596) $100,513 $279,493

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

F-5

ALON USA ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

Year Ended December 31,

2005 2004 2003

Cash flows from operating activities:

Net income.................................................................................................. $103,988 $ 25,132 $ 14,068

Adjustments to reconcile net income to cash provided by operating

activities:

Depreciation and amortization................................................................ 20,935 19,064 18,262

Stock option compensation..................................................................... 2,336 530 683

Deferred income tax expense.................................................................. 16,646 1,669 6,241

Minority interest in income of subsidiaries............................................. 5,792 2,565 681

Accrued interest on subordinated notes to stockholders......................... — 3,815 3,665

Gain on disposition of assets .................................................................. (38,591) (175) —

Cumulative effect of adoption of accounting principle .......................... — — 336

Changes in operating assets and liabilities:

Accounts and other receivables, net........................................................ (20,201) (9,514) 3,177

Inventories .............................................................................................. 148 (4,256) 8,970

Prepaid expenses and other current assets .............................................. (2,107) 2,575 1,816

Other assets............................................................................................. 1,279 1,871 1,158

Accounts payable.................................................................................... 52,895 17,245 9,653

Accrued liabilities................................................................................... (2,718) 17,902 3,454

Other non-current liabilities.................................................................... (2,507) (1,680) 4,009

Net cash provided by operating activities....................................... 137,895 76,743 76,173

Cash flows from investing activities:

Capital expenditures ................................................................................... (23,034) (27,301) (23,391)

Capital expenditures for turnarounds and catalysts .................................... (12,041) (2,322) (1,547)

Proceeds from disposition of assets............................................................ 118,000 317 274

Purchases of short-term investments, net.................................................... (185,320) — —

Acquisition of minority interest in subsidiary............................................. — (10,000) (10,000)

Acquisition of asphalt business................................................................... — (580) —

Dividends from investment in HEP (net of equity earnings in HEP) ......... 531 — —

Minority interest shares purchased.............................................................. (5,098) — —

Net cash used in investing activities ................................................ (106,962) (39,886) (34,664)

Cash flows from financing activities:

Proceeds from sale of common stock, net .................................................. 172,459 140 1,721

Dividends paid to minority interest shareholders ....................................... (6,134) — —

Dividends paid to shareholders................................................................... (68,479) — —

Deferred debt issuance costs....................................................................... — (1,885) —

Payments on revolving credit facilities, net................................................ — (19,600) (29,400)

Additions to long-term debt........................................................................ 2,936 100,671 1,546

Payments on long-term debt ....................................................................... (58,252) (60,082) (13,534)

Net cash provided by (used in) financing activities........................ 42,530 19,244 (39,667)

Net increase in cash and cash equivalents .................................................. 73,463 56,101 1,842

Cash and cash equivalents, beginning of period............................................. 63,357 7,256 5,414

Cash and cash equivalents, end of period................................................... $136,820 $ 63,357 $ 7,256

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

F-6

Year Ended December 31,

2005 2004 2003

Supplemental cash flow information:

Cash paid for interest, net of capitalized interest................................................. $18,736 $20,536 $15,196

Cash paid for income tax, net of tax refunds of $7,306 in 2003.......................... $44,523 $15,701 $(1,562)

Non-cash activities:

Investing activity — receipt of Class B HEP subordinated units as proceeds from

disposition of assets............................................................................................... $30,000 $ — $ —

Asphalt Business Acquisition:

Property, plant and equipment acquired .............................................................. $ — $ (3,917) $ —

Net working capital acquired (accounts and other receivables, net, inventories,

accounts payable)............................................................................................... — 817 —

Net debt assumed................................................................................................. — 2,520 —

Cash used in acquisition of asphalt business ................................................... $ — $ (580) $ —

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

F-7

ALON USA ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands except as noted)

(1) Description and Nature of Business

In this document, Alon may refer to Alon USA Energy, Inc. and its consolidated subsidiaries or to Alon USA

Energy, Inc. or an individual subsidiary.

Alon USA Energy, Inc. and its subsidiaries engage in the business of refining and marketing of petroleum

products, primarily in the Southwestern and South Central regions of the United States. Alon’s business consists of

two operating segments: (1) Refining and Marketing and (2) Retail.

Refining and Marketing Segment. Alon owns and operates a refinery in Big Spring, Texas. The refinery can

process a variety of crude oils, including regionally produced sour crude oil or Gulf Coast and imported crude oils

transported on the Amdel and White Oil crude pipelines, which connect the refinery to the Gulf Coast. Alon refines

crude oil into petroleum products including various grades of gasoline, diesel fuel, petrochemical feedstocks, asphalt

and specialty blended asphalts. Alon primarily markets gasoline and diesel under the FINA brand name at

approximately 1,250 locations in five states. Alon’s product distribution network includes seven product pipelines

and accesses six product terminals, which are owned or accessed through lease or long-term throughput agreements.

Retail Segment. Alon operates 167 branded 7-Eleven convenience stores in West Texas and New Mexico. These

convenience stores typically offer merchandise, food products and motor fuels under the 7-Eleven and FINA brand

names. Substantially all of the fuel sold by these stores is produced by Alon’s refinery and is transported to the

stores through Alon’s pipeline and terminal networks.

(2) Summary of Significant Accounting Policies

(a) Basis of Presentation

The consolidated financial statements include the accounts of Alon Energy and its subsidiaries. All significant

intercompany balances and transactions have been eliminated. Minority interest in Alon’s subsidiaries is reported

separately in the accompanying consolidated balance sheets. Minority interest in income of subsidiaries is reported

net of income taxes and after elimination of significant intercompany transactions.

On July 6, 2005, Alon (i) increased its authorized common shares to 100,000,000 and (ii) effected a 33,600-for-1

stock split of its common shares, resulting in 35,001,120 common shares outstanding. The earnings per share

information and all common share information have been retroactively restated for 2005 and prior periods presented

to reflect this stock split (Note 16).

(b) Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the

United States of America requires management to make estimates and assumptions that affect the reported amounts

of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial

statements and the reported amounts of revenues and expenses during the reporting period. Actual results could

differ from those estimates.

Revenues, net of applicable excise taxes, for products sold by both the refining and marketing segment and the

retail segment are recorded upon delivery of the products to their customers, which is the point at which title to the

products is transferred, the customer has assumed risk of loss, and when payment has either been received or

collection is reasonably assured. Transportation, shipping and handling costs incurred are reported in cost of sales.

Revenues include the sales of certain refined product buy/sell arrangements, which involve linked purchases and

sales related to refined product sales contracts entered into to address location, quality or grade requirements. The

results of these linked refined product buy/sell transactions are recorded in sales and cost of sales in the

F-8

ALON USA ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands except as noted)

accompanying statement of operations at fair value. In the ordinary course of business, logistical and refinery

production schedules necessitate the occasional sale of crude oil to third parties. All purchases and sales of crude oil

are recorded net, in cost of sales in the accompanying statement of operations. Such sales are infrequent and the

effects of the sales on operating results are not significant.

For the year’s ended December 31, 2005, 2004 and 2003, Alon recorded revenues related to linked refined

product sales of $35,924, $72,354 and $21,783, respectively. For the years ended December 31, 2005, 2004 and

2003, Alon recorded costs related to linked refined product sales of $36,418, $72,651 and $22,414, respectively.

(d) Cost Classifications

Refining and marketing cost of sales includes crude oil and other raw materials, inclusive of transportation costs.

Retail cost of sales includes cost of sales for motor fuels and for merchandise. Motor fuel cost of sales represents the

net cost of purchased fuel, including transportation costs and associated motor fuel taxes. Merchandise cost of sales

includes the delivered cost of merchandise purchases, net of merchandise rebates and commissions. Cost of goods

excludes depreciation and amortization, which is presented separately in the accompanying statement of operations.

Direct operating expenses, all of which relate to Alon’s refining and marketing segment, include costs associated

with the actual operations of the refinery, such as energy and utility costs, routine maintenance, labor, insurance and

environmental compliance costs. Environmental compliance costs, including monitoring and routine maintenance,

are expensed as incurred. All operating costs associated with Alon’s crude oil and product pipelines are considered

to be transportation costs and are reflected in the cost of sales in the accompanying statement of operations.

Selling, general and administrative expenses consist primarily of costs relating to the operations of the

convenience stores, including labor, utilities, maintenance and retail corporate overhead costs. Refining and

marketing segment corporate overhead and marketing expenses are also included in selling, general and

administrative expenses.

Interest expense consists of interest expense, letters of credit and financing fees, amortization of deferred debt

issuance costs less capitalized interest.

(e) Cash and Cash Equivalents

All highly-liquid instruments with a maturity of three months or less at the time of purchase are considered to be

cash equivalents. Cash equivalents are stated at cost, which approximates market value.

(f) Short-Term Investments

Short-term investments primarily consist of highly-rated auction rate securities (“ARS”). Although ARS may

have long-term stated maturities, generally 10 to 30 years, Alon has designated these securities as available-for-sale

and has classified them as current because it views them as available to support its current operations. ARS may be

liquidated at par on the rate reset date, which is in intervals of seven – 49 days, depending on the terms of the

security. These securities are carried at cost, which approximates market value.

(g) Accounts Receivable

The majority of accounts receivable are due from companies in the petroleum industry. Credit is extended based

on evaluation of the customer’s financial condition and in certain circumstances, collateral, such as letters of credit

or guarantees, are required. Credit losses are charged to reserve for bad debts when accounts are deemed

uncollectible. Historically such losses have been minimal. Reserve for bad debts is based on a combination of

current sales, historical charge-offs and specific accounts identified as high risk.

F-9

ALON USA ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands except as noted)

(h) Inventories

Crude oil, refined products and blendstocks for the refining and marketing segment are stated at the lower of cost

or market. Cost is determined under the last-in, first-out (LIFO) valuation method. Cost of crude oil, refined product,

and blendstock inventories in excess of market value are charged to cost of sales. Such charges are subject to

reversal in subsequent periods, not to exceed LIFO cost, if prices recover. Materials and supplies are stated at

average cost. Cost for the retail segment merchandise inventories is determined under the retail inventory method

and cost for retail segment fuel inventories is determined under the first-in, first-out (FIFO) method.

(i)Hedging Activity

Alon follows Statement of Financial Accountings Standards (SFAS) No. 133, Accounting for Derivative

Instruments and Hedging Activities, as amended, effective January 1, 2001. Alon considers all forwards, futures, and

option contracts to be part of its risk management strategy. Alon has elected not to designate derivative contracts as

cash flow hedges for financial accounting purposes. Accordingly, net unrealized gains and losses for changes in the

fair value on open derivative contracts are recognized in current cost of sales.

(j) HEP Investment

The investment in HEP consists of 937,500 of subordinated class B limited partnership units in HEP and is

accounted for under the equity method. These units maybe converted into common units after March 2010, or before

as described in the limited partnership agreement. The fair market value of 937,500 HEP common units as of

December 31, 2005 was $34,584.

(k) Property, Plant, and Equipment

The carrying value of property, plant, and equipment includes the fair value of the asset retirement obligation

and have been reflected in the accompanying consolidated balance sheets at cost, net of accumulated depreciation.

Property, plant, and equipment, net of salvage value, are depreciated using the straight-line method at rates based

on the estimated useful lives for the assets or groups of assets, beginning in the month following acquisition or

completion. Alon capitalizes interest costs associated with major construction projects based on the effective interest

rate on aggregate borrowings.

Leasehold improvements are depreciated on the straight-line method over the shorter of the contractual lease

terms or the estimated useful lives.

Expenditures for major replacements and additions are capitalized. Refining and marketing segment

expenditures for routine repairs and maintenance costs are charged to direct operating expense as incurred. Retail

segment routine repairs and maintenance costs are charged to selling, general and administrative expense as

incurred. The applicable costs and accumulated depreciation of assets that are sold, retired, or otherwise disposed of

are removed from the accounts and the resulting gain or loss is recognized.

(l) Impairment of Long-Lived Assets and Assets to Be Disposed Of

Long-lived assets and certain identifiable intangible assets are reviewed for impairment whenever events or

changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of

assets to be held and used is measured by a comparison of the carrying value of an asset to future net cash flows

expected to be generated by the asset. If the carrying value of an asset exceeds its expected future cash flows, an

impairment loss is recognized based on the excess of the carrying value of the impaired asset over its fair value.

Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. These future

cash flows and fair values are estimates based on management’s judgment and assumptions.

F-10

ALON USA ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands except as noted)

(m) Asset Retirement Obligations

Effective January 1, 2003, Alon adopted Statement No. 143, Accounting for Asset Retirement Obligations, which

established accounting standards for recognition and measurement of a liability for an asset retirement obligation

and the associated asset retirement costs. The provisions of this statement apply to legal obligations associated with

the retirement of long-lived assets that result from the acquisition, construction, development and/or normal

operation of a long lived asset (Note 11).

In March of 2005, the FASB issued FASB Interpretation No. 47, Accounting for Conditional Retirement

Obligations (“FIN 47”), which requires companies to recognize a liability for the fair value of a legal obligation to

perform asset-retirement activities that are conditional on a future event, if the amount can be reasonably estimated.

Alon adopted FIN 47 at the end of fiscal 2005. The impact of adoption had no effect on Alon’s consolidated

financial statements as all such asset-retirement activities are included in Alon’s asset-retirement obligation under

SFAS No. 143.

(n) Turnarounds and Chemical Catalyst Costs

Alon records the cost of planned major refinery maintenance, referred to as turnarounds, and chemical catalyst

used in the refinery process units, which are typically replaced in conjunction with planned turnarounds, in “other

assets” in Alon’s consolidated balance sheet. Turnaround and catalyst costs are currently deferred and amortized on

a straight-line basis beginning the month after the completion of the turnaround and ending immediately prior to the

next scheduled turnaround. Amortization of deferred turnaround and chemical catalyst costs are presented in

“depreciation and amortization” in Alon’s consolidated statement of operations.

(o) Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are

recognized for the future tax consequences attributable to differences between the financial statement carrying

amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit

carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable

income in the years in which those temporary differences are expected to be recovered or settled. The effect on

deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the

enactment date.

(p) Stock-Based Compensation

Alon accounts for stock-based compensation using the intrinsic value method prescribed in Accounting

Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations.

Accordingly, compensation cost for stock options is measured as the excess of the estimated fair value of the

common stock over the exercise price and is recognized over the scheduled vesting period on an accelerated basis.

Stock compensation expense is presented as selling, general and administrative expenses in the accompanying

statements of operations (Note 18).

Alon uses the minimum value method for calculating the fair value impact of SFAS No. 123, Accounting for

Stock-Based Compensation (SFAS No. 123). Accordingly, there is no significant pro forma impact on net earnings

and earnings per share from adoption of SFAS No. 123.

(q) Environmental Expenditures

Alon accrues for costs associated with environmental remediation obligations when such costs are probable and

can be reasonably estimated. Environmental liabilities represent the estimated costs to investigate and remediate

contamination at Alon’s properties. This estimate is based on internal and third-party assessments of the extent of

the contaminations, the selected remediation technology and review of applicable environmental regulations.

Accruals for estimated costs from environmental remediation obligations generally are recognized no later than

completion of the remedial feasibility study. Such accruals are adjusted as further information develops or

F-11

ALON USA ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands except as noted)

circumstances change. Costs of future expenditures for environmental remediation obligations are not discounted to

their present value. Recoveries of environmental remediation costs from other parties are recorded as assets when

the receipt is deemed probable (Note 10). Estimates are updated to reflect changes in factual information, available

technology or applicable laws and regulations.

(r) Earnings Per Share

Earnings per share is computed by dividing net income by the weighted average of the common shares

outstanding. Weighted average shares outstanding for all periods presented reflect the effect of the 33,600-for-one

stock split which was effected on July 6, 2005. The shares issued in our initial public offering are reflected in the

weighted average shares outstanding at December 31, 2005.

(s) Other Comprehensive Income

Comprehensive income consists of net income and other gains and losses affecting stockholders’ equity that,

under United States generally accepted accounting principles, are excluded from net income, such as minimum

pension liability adjustments and gains and losses related to certain derivative instruments. The balance in other

comprehensive loss, net of tax reported in Alon’s consolidated statements of stockholder’s equity consists solely of

minimum pension liability adjustments.

(t) Commitments and Contingencies

Liabilities for loss contingencies, including environmental remediation costs not within the scope of FASB

Statement No. 143, Accounting for Asset Retirement Obligations, arising from claims, assessments, litigation, fines,

and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of

the assessment and/or remediation can be reasonably estimated. Legal costs incurred in connection with loss

contingencies are expensed as incurred. Recoveries of environmental remediation costs from third parties, which are

probable of realization, are separately recorded as assets, and are not offset against the related environmental

liability, in accordance with FASB Interpretation No. 39, Offsetting of Amounts Related to Certain Contracts.

(u) New Accounting Standards and Disclosures

In December 2004, the FASB issued Statement of Accounting Standards No. 123R, Share-Based Payment

(SFAS No. 123R), which requires expensing of stock options and other share-based compensation payments to

employees and supersedes SFAS No. 123, which had allowed companies to choose between expensing stock options

or showing proforma disclosure only. This standard is effective for Alon as of January 1, 2006. Because, as a private

company, Alon used the minimum value method of measuring equity share options for pro forma disclosure

purposes under SFAS No. 123, Alon will apply SFAS No. 123R prospectively to new awards and to awards

modified, repurchased or cancelled after January 1, 2006. The adoption of SFAS No. 123R is not expected to have a

significant effect Alon’s financial position or results of operations.

In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities,an

Interpretation of ARB No. 51. This interpretation addresses the consolidation by business enterprises of variable

interest entities as defined in the interpretation. The interpretation applies immediately to interests in variable

interest entities created after December 31, 2003, and to interests in variable interest entities obtained after

December 31, 2003. The adoption of this interpretation in the first quarter of 2004 had no impact on Alon’s

consolidated financial statements.

In November 2004, the FASB issued Statement No. 151, Inventory Costs, which clarifies the accounting for

abnormal amounts of idle facility expense, freight, handling costs, and wasted material and requires that those items

be recognized as current-period charges. Statement No. 151 also requires that allocation of fixed production

overhead to the costs of conversion be based on the normal capacity of the production facilities. Statement No. 151

is effective for fiscal years beginning after June 15, 2005, and is not expected to affect Alon’s financial position or

results of operations.

F-12

ALON USA ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands except as noted)

In December 2004, the FASB issued Statement No. 153, Exchanges of Nonmonetary Assets, which addresses the

measurement of exchanges of nonmonetary assets. Statement No. 153 eliminates the exception from fair value

measurement for nonmonetary exchanges of similar productive assets, which was previously provided by APB

Opinion No. 29, Accounting for Nonmonetary Transactions, and replaces it with an exception for exchanges that do

not have commercial substance. Statement No. 153 specifies that a nonmonetary exchange has commercial

substance if the future cash flows of the entity are expected to change significantly as a result of the exchange.

Statement No. 153 is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15,

2005. The adoption of Statement No. 153 did not have a material effect Alon’s financial position or results of

operations.

In May 2005, the FASB issued FASB Statement No. 154, Accounting Changes and Error Corrections.

Statement 154 establishes, unless impracticable, retrospective application as the required method for reporting a

change in accounting principle in the absence of explicit transition requirements specific to a newly adopted

accounting principle. This statement will be effective for all accounting changes and any error corrections occurring

after January 1, 2006.

In March of 2005, the FASB issued FASB Interpretation No. 47, Accounting for Conditional Retirement

Obligations (“FIN 47”), which requires companies to recognize a liability for the fair value of a legal obligation to

perform asset-retirement activities that are conditional on a future event, if the amount can be reasonably estimated.

FIN 47 was adopted by Alon at December 31, 2005. The impact of adoption had no effect on Alon’s consolidated

financial statements.

In December 2004 the FASB issued FASB Staff Position (“FSP”) FAS 109-1, Application of FASB Statement

No. 109, Accounting for Income Taxes, for the Tax Deduction Provided to U.S. Based Manufacturers by the

American Jobs Creation Act of 2004 (“Jobs Creation Act”) which requires a company that qualifies for the

deduction for domestic production activities under the Jobs Creation Act to account for it as a special deduction

under FASB Statement No. 109, Accounting for Income Taxes, as opposed to an adjustment of recorded deferred tax

assets and liabilities. Alon has included the $1,111 effects of this special deduction in its calculation of the

December 31, 2005 income tax expense.

In September 2005, the Emerging Issues Task Force, (EITF) reached a consensus concerning the accounting for

linked purchase and sale arrangements in EITF Issue No. 04-13, Accounting for Purchases and Sales of Inventory

with the Same Counterparty. The EITF concluded that non-monetary exchanges of finished goods inventory within

the same line of business be recognized at the carrying value of the inventory transferred. The consensus is to be

applied to new buy/sell arrangements entered in reporting periods beginning after March 15, 2006. Such buy/sell

transactions will be recorded as net sales in the statement of operations beginning January 1, 2006. The adoption of

EITF Issue No. 04-13 consensus is not expected to have a material effect on Alon’s financial position or results of

operations.

(3) Initial Public Offering of Alon

On August 2, 2005, Alon USA Energy, Inc. completed an initial public offering of 11,730,000 shares of its

common stock at a price of $16.00 per share for an aggregate offering price of $187,680. Alon received

approximately $172,158 in net proceeds from the initial public offering after payment of expenses, underwriting

discounts and commissions of approximately $15,522, or $1.32 per share. The initial public offering represented the

sale of a 25.1% interest in Alon.

Alon’s use of proceeds from the initial public offering included the distribution of dividends to pre-offering

stockholders of record, the prepayment of debt and general corporate purposes (Notes 13, 16 and 21).

F-13

ALON USA ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands except as noted)

(4) Sale of Pipelines and Terminals

HEP Transaction. On February 28, 2005, Alon completed the contribution of the Fin-Tex, Trust and River

product pipelines, the Wichita Falls and Abilene product terminals and the Orla tank farm to Holly Energy Partners,

LP (“HEP”). In exchange for this contribution, which is referred to as the HEP transaction, Alon received $120,000

in cash, prior to closing costs of approximately $2,000, and 937,500 subordinated Class B limited partnership units

of HEP (“Units”).

Simultaneously with this transaction, Alon entered into a Pipelines and Terminals Agreement with HEP

providing continued access to these assets for an initial term of 15 years and three additional five year renewal terms

exercisable at Alon’s sole option. Pursuant to the Pipelines and Terminals Agreement, Alon has committed to

transport and store minimum volumes of refined products in these pipelines and terminals. The tariff rates applicable

to the transportation of refined products on the pipelines are variable, with a base fee which is reduced for volumes

exceeding defined volumetric targets. The agreement provides for the reduction of the minimum volume

requirement under certain circumstances. The service fees for the storage of refined products in the terminals are

initially set at rates competitive in the marketplace.

The entire cash consideration of $120,000 was financed by high-yield debt issued by HEP with a 10-year

maturity (“HEP Debt”). Alon Pipeline Logistics, LLC, a majority-owned subsidiary of Alon (“Alon Logistics”)

entered into an agreement with the general partner of HEP providing for Alon Logistics to indemnify the general

partner for cash payments such general partner has to make toward satisfaction of the principal or interest under the

HEP Debt following a default by HEP (provided that such cash payments exceed the difference between the amount

of HEP Debt over the indemnity amount). The initial indemnity amount was limited to the lower of (a) $110,850 or

(b) the outstanding amount of HEP Debt. The indemnity terminates at such time as Alon Logistics no longer holds

any HEP units and subject to other terms described in the indemnification agreement. The indemnification amount

may be reduced from time to time per terms described in the indemnification agreement. The indemnification

obligation is specific to Alon Logistics and does not extend to other Alon entities, even if the HEP units are

transferred to such other entities. The fair value of this debt guarantee of $1,075 is recorded in other non-current

liabilities in the December 31, 2005 consolidated balance sheet.

The HEP transaction was recorded as a partial sale for accounting purposes resulting in a pre-tax gain of

$102,461, net of transaction costs and the fair value of the indemnity to the general partner of HEP. Alon recognized

an initial pre-tax gain of $26,742. The remaining $75,719 of the gain was deferred. As the HEP units received in the

transaction are accounted for under the equity method of accounting for investments in limited partnerships, $6,715

of the pro rata gain was deferred and subtracted from the carrying value of the investment in the HEP units. The

remaining deferred gain will be recognized as the indemnification obligation is reduced, over a period of

approximately 12 years or less depending on circumstances described in the indemnification agreement. Alon

exercised its rights under the indemnification agreement to reduce the indemnity amount by $10,000, resulting in an

additional gain of $6,499, and a corresponding decrease in the deferred gain balance. The deferred gain is recorded

$11,427 as a current liability and $52,433 as a long-term liability in the December 31, 2005 consolidated balance

sheet.

(5) Segment Data

Alon’s revenues are derived from two operating segments: (i) Refining and Marketing and (ii) Retail. The

operating segments adhere to the accounting policies used for Alon’s consolidated financial statements as described

in Note 2. 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 on operating income.

(a) Refining and Marketing Segment

The refining and marketing segment includes a complex sour crude oil refinery, its crude oil and refined

products pipeline systems and its refined products terminalling operations. Alon’s refinery produces petroleum

products including various grades of gasoline, diesel fuel, jet fuel, petrochemical feedstocks, asphalt and other

F-14

ALON USA ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands except as noted)

petroleum based products. In addition, finished products are acquired through exchange agreements and third-party

suppliers. Alon primarily markets gasoline and diesel under the FINA brand name, through a network of

approximately 1,250 locations. Finished products and blendstocks are also marketed through sales and exchanges

with other major oil companies, state and federal governmental entities, unbranded wholesale distributors and

various other third parties.

(b) Retail Segment

Alon’s retail segment operates 167 owned and leased 7-Eleven branded convenience store sites operating

primarily in West Texas and New Mexico. These convenience stores typically offer various grades of gasoline,

diesel fuel, general merchandise and food and beverage products to the general public under the 7-Eleven and FINA

brand names.

(c)Corporate

Operations that are not included in either of the two segments are included in the category Corporate. These

operations consist primarily of corporate headquarter operating and depreciation expenses.

Segment data as of and for the years ended December 31, 2005, 2004 and 2003 is presented below.

Year ended December 31, 2005 Refining and

Marketing Retail Corporate Total

Net sales to external customers.............................................. $2,001,970 $ 326,537 $ — $2,328,507

Intersegment sales/purchases................................................. 145,420 (145,420) — —

Depreciation and amortization............................................... 14,464 4,557 1,914 20,935

Operating income (loss)......................................................... 188,243 2,925 (2,405) 188,763

Total assets ............................................................................ 676,750 69,794 12,236 758,780

Turnaround, chemical catalyst and capital expenditures ....... 31,121 3,484 470 35,075

Year ended December 31, 2004 Refining and

Marketing Retail Corporate Total

Net sales to external customers.............................................. $1,406,073 $ 301,491 $ — $1,707,564

Intersegment sales/purchases................................................. 117,777 (117,777) — —

Depreciation and amortization............................................... 13,392 4,192 1,480 19,064

Operating income (loss)......................................................... 68,611 2,897 (2,069) 69,439

Total assets ............................................................................ 389,830 69,949 12,737 472,516

Turnaround, chemical catalyst and capital expenditures ....... 25,877 3,134 612 29,623

Year ended December 31, 2003 Refining and

Marketing Retail Corporate Total

Net sales to external customers............................................... $1,132,577 $278,189 $ — $1,410,766

Intersegment sales/purchases.................................................. 92,468 (92,468) — —

Depreciation and amortization................................................ 12,636 4,078 1,548 18,262

Operating income (loss).......................................................... 42,020 2,443 (2,170) 42,293

Total assets ............................................................................. 304,046 73,747 9,189 386,982

Turnaround, chemical catalyst and capital expenditures ........ 17,716 6,613 609 24,938

Operating income for each segment consists of net revenues less cost of sales, direct operating expenses, selling,

general and administrative expenses, depreciation and amortization and gain on disposition of assets. Sales between

segments are transferred at current market prices. Consolidated totals presented are after intersegment eliminations.

Total assets of each segment consist of net property, plant and equipment, inventories, short-term investments,

cash and cash equivalents, accounts receivables and other assets directly associated with the segment’s operations.

Corporate assets consist primarily of corporate headquarters information technology and administrative equipment.

F-15

ALON USA ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands except as noted)

(6) Derivatives and Hedging Activities

(a) Fair Value of Financial Instruments

The carrying amounts of Alon’s cash and cash equivalents, short-term investments, receivables, payables and

accrued expenses approximate fair value due to the short-term maturities of these assets and liabilities. The reported

amounts of long-term debt approximates fair value. Derivative financial instruments are carried at fair value, which

is based on quoted market prices.

(b) Derivative Financial Instruments

Alon selectively utilizes commodity derivatives to manage its exposure to commodity price fluctuations and

interest rate-related derivative instruments to manage its exposure on its debt instruments. Alon does not enter into

derivative instruments for any purpose other than cash flow hedging purposes. Accordingly, Alon does not speculate

using derivative instruments. Alon has elected not to designate derivative instruments as cash flow hedges for

financial accounting purposes. Therefore, changes in the fair value of the derivative instruments are included in

income in the period of the change. There is not a significant credit risk on Alon’s derivative instruments which are

transacted through counterparties meeting established collateral and credit criteria.

Commodity Instruments

Alon occasionally uses crude oil and refined product commodity futures contracts to reduce financial exposure

related to price changes on anticipated transactions. Crude oil and refined product forward contracts are used to

facilitate the supply of crude oil to the refinery and the sale of refined products while managing price exposure.

At December 31, 2005, Alon held net forward contracts for purchases of 25 thousand barrels of refined products

at an average price of $63.62 per barrel with a fair value of $1,796. At December 31, 2004, Alon held net forward

contracts for sales of 5 thousand barrels of refined products at an average price of $48.38 per barrel with a fair value

of $232. These contracts were not designated as hedges for accounting purposes. Accordingly, net unrealized gains

of $206 and losses of $10 were recorded as an adjustment to net sales in the consolidated statement of operations for

the years ended December 31, 2005 and 2004, respectively.

In accordance with SFAS No. 133, all commodity futures contracts are recorded at fair value and any changes in

fair value between periods is recorded in the profit and loss section of Alon’s consolidated financial statements.

(7) Accounts Receivable

Financial instruments that potentially subject Alon to concentration of credit risk consist primarily of trade

accounts receivables. Credit risk is minimized as a result of the credit quality of Alon’s customer base and the large

number of customers comprising Alon’s customer base. Alon performs ongoing credit evaluations of its customers

and requires letters of credit, prepayments or other collateral or guarantees as management deems appropriate.

Alon’s allowance for doubtful accounts is reflected as a reduction of accounts receivable in the consolidated balance

sheets. The balance in the allowance account was $1,145 and $1,322 at December 31, 2005 and 2004, respectively.

For the three-year period ended December 31, 2005, no sales to a single customer accounted for more than 10% of

Alon’s net sales.

(8) Inventories

Alon’s inventories are stated at the lower of cost or market. Cost is determined under the last-in, first-out (LIFO)

method for crude oil, refined products, and blendstock inventories. Materials and supplies are stated at average cost.

Cost for convenience store merchandise inventories is determined under the retail inventory method and cost for

convenience store fuel inventories is determined under the first-in, first-out (FIFO) method.

F-16

ALON USA ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands except as noted)

Carrying value of inventories consisted of the following:

December 31,

2005 2004

Crude oil, refined products, and blendstocks.............................................................................. $57,822 $58,412

Materials and supplies ................................................................................................................ 5,880 5,570

Store merchandise....................................................................................................................... 12,977 12,860

Store fuel .................................................................................................................................... 2,502 2,487

Total inventories ..................................................................................................................... $79,181 $79,329

Crude oil, refined products and blendstock inventories totaled 1,819 barrels and 1,907 barrels as of December

31, 2005 and 2004, respectively. A reduction of inventory volumes during 2005 resulted in a liquidation of LIFO

inventory layers carried at lower costs which prevailed in prior years. The liquidation decreased cost of sales by

approximately $2,493 in 2005.

Market values of crude oil, refined products and blendstocks inventories exceeded LIFO costs by $52,198 and

$25,756 at December 31, 2005 and 2004, respectively.

(9) Property, Plant, and Equipment, Net

Property, plant, and equipment consisted of the following:

December 31,

2005 2004

Refining facilities ................................................................................................................ $171,346 $149,016

Pipelines and terminals........................................................................................................ 27,237 69,289

Retail ................................................................................................................................... 63,486 59,543

Other.................................................................................................................................... 10,691 9,323

Property, plant, and equipment, gross.............................................................................. 272,760 287,171

Less accumulated depreciation............................................................................................ (61,350) (50,943)

Property, plant, and equipment, net ................................................................................. $211,410 $236,228

The useful lives on depreciable assets used to determine depreciation expense were as follows:

Refining facilities ......................................................................................... 3 — 20 years; average 18 years

Pipelines and terminals................................................................................. 5 — 25 years; average 23 years

Retail ............................................................................................................ 5 — 40 years; average 18 years

Other............................................................................................................. 3 — 15 years; average 5 years

Alon capitalized interest of $927, $301, and $297 for the years ended December 31, 2005, 2004, and 2003,

respectively.

(10) Other Assets

Other assets consisted of the following:

December 31,

2005 2004

Receivable from FINA for environmental costs......................................................................... $ 3,257 $ 4,314

Deferred debt issuance costs....................................................................................................... 6,529 8,291

Deferred turnaround, chemical catalyst cost............................................................................... 9,865 2,399

Retail license fees....................................................................................................................... 3,429 3,429

Other........................................................................................................................................... 4,422 3,400

Total other assets..................................................................................................................... $27,502 $21,833

F-17

ALON USA ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands except as noted)

In connection with the acquisition of the refinery, pipeline and terminal assets from Atofina Petrochemicals, Inc.

(“FINA”) in August 2000, FINA agreed to indemnify Alon for the costs of environmental investigations,

assessments, and clean-ups of known conditions that existed at the acquisition date. Such indemnification is limited

to an aggregate of $20,000 over a ten-year period. Annual indemnification is limited to a ceiling of $5,000 except

that the ceiling may be increased by the amount (up to $5,000) in cases by which the previous year’s ceiling

exceeded actual costs. FINA retains liability for third-party claims received within ten years of the acquisition

alleging personal injury or property damage resulting from FINA’s use of the acquired assets prior to the

acquisition. Alon’s management does not expect expenditures for remediation of existing contamination to exceed

the indemnification limitations. Alon also has insurance coverage for amounts in excess of $20,000, up to $40,000

during the ten-year indemnification period. Accordingly, at December 31, 2005 and 2004, Alon has recorded a

current receivable of $1,750 and $3,000 and a non-current receivable of $3,257 and $4,314 from FINA, respectively,

and corresponding accrued environmental liabilities (Note 19).

Debt issuance costs are amortized over the term of the related debt using the effective interest method.

Amortization of deferred debt issuance costs is recorded as interest expense in the accompanying statements of

operations. Amortization of debt issuance costs was $1,883, $1,329, and $902 for the years ended December 31,

2005, 2004, and 2003, respectively.

(11) Accrued Liabilities

Alon’s current accrued liabilities and non-current other liabilities at December 31, 2005 and 2004 consisted of

the following:

December 31,

2005 2004

Accrued Liabilities — Current:

Taxes other than income taxes, primarily excise taxes............................................................... $21,206 $24,217

Income taxes payable.................................................................................................................. 7,239 828

Employee costs........................................................................................................................... 4,977 5,925

Other........................................................................................................................................... 14,706 19,876

Total accrued liabilities........................................................................................................... $48,128 $50,846

Accrued Liabilities — Non-Current:

Pension and other postemployment benefit liabilities, net (Note 12)......................................... $10,611 $11,792

Environmental accrual (Note 19)................................................................................................ 2,986 4,058

Asset retirement obligation......................................................................................................... 2,211 2,524

Other........................................................................................................................................... 2,537 1,062

Total other non-current liabilities............................................................................................ $18,345 $19,436

Alon adopted the Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement

Obligations (SFAS No. 143), on January 1, 2003 and recognized a $336 cumulative effect of adoption, net of $173

of income tax benefit in connection with future estimated costs for dismantling certain refinery and pipeline assets.

SFAS No. 143 requires that Alon record the fair value of liability associated with an asset retirement obligation. No

additional accrual was recorded under FIN 47. Alon’s asset retirement obligation relates to the removal of

underground storage tanks and debranding costs at Alon’s owned and leased retail sites and the dismantlement and

disposal of certain pipeline, terminal, and refinery assets. The asset retirement obligation for storage tank removal on

leased retail sites is accreted over the expected life of the underground storage tank which approximates the average

retail site lease term. The following table summarizes the activity relating to Alon’s asset retirement obligations for

the years ended December 31, 2005 and 2004:

December 31,

2005 2004

Balance at beginning of year ........................................................................................................ $2,524 $2,349

Accretion expense......................................................................................................................... 53 178

Retirements................................................................................................................................... (366) (28)

Additions ...................................................................................................................................... — 25

Balance at end of year .................................................................................................................. $2,211 $2,524

F-18

ALON USA ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands except as noted)

(12) Employee and Postretirement Benefits

Alon has two defined benefit pension plans covering substantially all of its refining and marketing segment

employees. The benefits are based on years of service and the employee’s final average monthly compensation.

Alon’s funding policy is to contribute annually not less than the minimum required nor more than the maximum

amount that can be deducted for federal income tax purposes. Contributions are intended to provide not only for

benefits attributed to service to date but also for those benefits expected to be earned in the future.

In addition to providing pension benefits, certain health care and life insurance benefits (other benefits) are

provided to active and certain retired employees who meet eligibility requirements defined in the plan documents.

The health care benefits in excess of certain limits are insured.

Alon’s retiree medical plan provides prescription drug benefits, which were affected by the Medicare

Prescription Drug Improvement and Modernization Act of 2003(the “Act”), signed into law in December 2003. The

Act introduces a prescription drug benefit under Medicare (“Medicare Part D”), as well as a federal subsidy to

sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare

Part D. In May 2004, the FASB issued FASB Staff Position No. 106-2 (“FSP 106-2”), Accounting and Disclosure

Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003, which

provides guidance for the accounting of the federal subsidy. Alon incorporated the effects of the Act into the regular

measurement of plan obligations as of December 31, 2004, which resulted in an immaterial reduction in the

accumulated postretirement benefit obligation.

The measurement dates used to determine pension and other postretirement benefit measures for the pension

plan and the postretirement benefit plan is December 31, 2005 and 2004. Financial information related to Alon’s

pension plans and other postretirement benefits is presented below.

Pension Benefits Postretirement Benefits

2005 2004 2005 2004

Change in projected benefit obligation:

Benefit obligation at beginning of year ............................. $ 31,772 $ 27,356 $ 1,852 $ 3,435

Service cost........................................................................ 1,694 1,326 75 160

Interest cost........................................................................ 2,068 1,826 112 222

Plan participants contributions........................................... — — — 28

Plan Amendments.............................................................. 127 — — (2,119)

Actuarial loss (gain)........................................................... 4,113 1,980 (111) 409

Benefits paid...................................................................... (674) (716) (174) (283)

Projected benefit obligations at end of year................... $ 39,100 $ 31,772 $ 1,755 $ 1,852

Change in plan assets:

Fair value of plan assets at beginning of period................. 20,114 16,172 — —

Actual gain on plan assets.................................................. 1,883 1,929 — —

Employer contribution....................................................... 3,354 2,729 174 255

Plan participants contributions........................................... — — — 28

Benefits paid...................................................................... (674) (716) (174) (283)

Fair value of plan assets at end of period....................... $ 24,677 $ 20,114 $ — $ —

Reconciliation of funded status:

Fair value of plan assets at end of year.............................. $ 24,677 $ 20,114 — —

Less benefit obligation at end of year................................ 39,100 31,772 1,755 1,852

Funded status at end of year........................................... (14,423) (11,658) (1,755) (1,852)

Unrecognized prior service costs....................................... 100 — (3,804) (4,117)

Unrecognized net actuarial loss ......................................... 11,983 8,300 1,005 1,183

Accrued benefit costs..................................................... $ (2,340) $ (3,358) $(4,554) $(4,786)

Amounts recognized in the consolidated balance sheets:

Accrued benefit liability..................................................... $ (6,656) $ (7,005) $(4,554) $(4,786)

Intangible asset .................................................................. 94 — — —

Accumulated other comprehensive loss............................. 4,222 3,647 — —

Accrued pension cost..................................................... $ (2,340) $ (3,358) $(4,554) $(4,786)

F-19

ALON USA ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands except as noted)

As of December 31, 2005 and 2004, the accumulated benefit obligation for each of Alon’s pension plans was in

excess of plan assets. The aggregate benefit obligation, accumulated benefit obligation and fair value of plan assets

for the pension plans were as follows:

December 31,

2005 2004

Projected benefit obligation........................................................................................................ $39,100 $31,772

Accumulated benefit obligation.................................................................................................. 31,333 27,118

Fair value of plan assets.............................................................................................................. 24,677 20,114

The weighted-average assumptions used to determine benefit obligations at December 31, 2005, 2004 and 2003

were as follows:

Pension Benefits Postretirement Benefits

2005 2004 2003 2005 2004 2003

Discount rate......................... 6.00% 6.00% 6.25% 6.00% 6.00% 6.25%

Rate of compensation

increase............................... 3.50% 3.00% 3.00% — — —

The weighted-average assumptions used to determine net periodic benefit costs for the years ended December

31, 2005, 2004 and 2003 were as follows:

Pension Benefits Postretirement Benefits

2005 2004 2003 2005 2004 2003

Discount rate......................... 6.00% 6.25% 6.75% 6.00% 6.25% 6.75%

Expected return on plan

assets................................... 9.00% 9.00% 9.00% — — —

Rate of compensation

increase............................... 3.00% 3.00% 3.00% — — —

Alon’s overall expected long-term rate of return on assets is 9.0%. The expected long-term rate of return is based

on the portfolio as a whole and not on the sum of the returns on individual asset categories. The return is based

exclusively on historical returns.

For measurement purposes, a 9.0% annual rate of increase in the per capita cost of covered health care benefits

was assumed for 2005. The rate was assumed to decrease gradually to 6.0% through 2009 and remain at that level

thereafter. The components of net periodic benefit cost for the years and periods are as follows:

Pension Benefits Postretirement Benefits

Year Ended December 31 Year Ended December 31

2005 2004 2003 2005 2004 2003

Components of net periodic

Benefit cost:

Service cost............................... $ 1,694 $ 1,326 $ 1,142 $ 75 $ 160 $231

Interest cost............................... 2,068 1,826 1,616 112 222 307

Amortization of prior service

costs ........................................ 27 — — (314) (157) (38)

Expected return on plan assets.. (1,996) (1,388) (1,326) — — —

Recognized net actuarial loss.... 544 563 262 67 29 3

Net periodic benefit cost....... $ 2,337 $ 2,327 $ 1,694 $ (60) $ 254 $503

F-20

ALON USA ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands except as noted)

Plan Assets

The weighted-average asset allocation of Alon’s pension benefits at December 31, 2005 and 2004 was as

follows:

Pension Benefits

Plan Assets

2005 2004

Asset Category:

Equity securities ....................................................................................................................... 82.0% 70.0%

Debt securities .......................................................................................................................... 8.0% 30.0%

Real estate................................................................................................................................. 0.0% 0.0%

Total...................................................................................................................................... 100.0% 100.0%

The investment policies and strategies for the assets of Alon’s pension benefits and postretirement benefits plans

is to provide returns in excess of the benchmark measured over a rolling five year period. The portfolio is expected

to earn long-term returns from capital appreciation and a stable stream of current income. This approach recognizes

that assets are exposed to risk and the market value of the plans’ assets may fluctuate from year to year. Risk

tolerance is determined based on Alon’s specific risk management policies. In line with the investment return

objective and risk parameters, the plans’ mix of assets includes a diversified portfolio of equity fixed-income and

real estate investments. Equity investments include a blend of domestic and international stocks of various sizes of

capitalization. The aggregate asset allocation is reviewed on an annual basis.

Cash Flows

Alon contributed $3,354 and $2,729 to the pension plan for the years ended December 31, 2005 and 2004,

respectively, and expects to contribute $2,900 to the pension plan in 2006. There were no employee contributions to

the plans.

The following benefits expected to be paid in each year 2006 — 2010 are $808; $1,078; $937; $1,021; and

$1,136, respectively. The aggregate benefits expected to be paid in the five years from 2011 — 2015 are $11,651.

The expected benefits are based on the same assumptions used to measure Alon’s benefit obligation at December

31, 2005 and include estimated future employee service.

During the period from January 1, 2003 through December 31, 2005, the return on plan assets and plan

contributions did not increase sufficiently to cover the increase in benefits to be paid to participants. This put the

plan into an unfunded accumulated pension obligation position and, in accordance with SFAS No. 87, Employer’s

Accounting for Pensions, Alon recorded an unfunded accrued pension cost of $575, $1,196 and $506 at December

31, 2005, 2004 and 2003, respectively. Of the unfunded pension cost $335, net of a $240 tax benefit, $723, net of a

$472 tax benefit and $313, net of a $193 tax benefit, was reflected as a component of comprehensive income for the

years ended December 31, 2005, 2004 and 2003, respectively.

The assumed health care cost trend rates used to determine the projected postretirement benefit obligation are as

follows:

December 31,

2005 2004

Health care cost trend rate for next year......................................................................................... 9.00% 10.00%

Rate to which the cost trend rate is assumed to decline.................................................................. 6.00% 6.00%

Year that the rate reaches the ultimate trend rate............................................................................ 2009 2009

F-21

ALON USA ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands except as noted)

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care and life

insurance plans. A one-percentage-point change in assumed health care cost trend rates could have the following

effects:

1% Increase 1% Decrease

Effect on total of service and interest components......................................................... $ 8 $(10)

Effect on post retirement benefit obligation ................................................................... 81 (91)

Alon sponsors a 401(k) plan in which employees of Alon’s retail segment may participate by contributing up to

15% of their pay after completing one year of service. Alon matches from 25% to 75% of the employee

contribution, depending on the employee’s years of service. This match is limited to 6% of employee pay with full

vesting of matching and contributions occurring after five years of service. Alon’s contribution for the years ended

December 31, 2005 and 2004 was $165 and $164, respectively.

(13) Long-Term Debt

A summary of Alon’s long-term debt follows:

December 31,

2005 2004

Secured term loan................................................................................................................ $100,000 $100,000

Revolving credit facility ...................................................................................................... — —

Retail mortgages and equipment loans................................................................................ 31,989 33,610

FINA deferred purchase price ............................................................................................. — 3,978

Subordinated notes payable................................................................................................. — 49,200

Other debt............................................................................................................................ 401 918

Total debt......................................................................................................................... 132,390 187,706

Less current portion............................................................................................................. (4,487) (16,115)

Total long-term debt......................................................................................................... $127,903 $171,591

(a) Secured Term Loan

On January 14, 2004 Alon entered into a senior secured term loan facility (secured term loan) in the aggregate

amount of $100,000 maturing in January 2009. The term loan accrues interest at LIBOR (4.37% at December 31,

2005 and 2.56% at December 31, 2004) plus 6.5% per year, but not less than 10% per annum, and is subject to a

minimum annual payment of $2,500 per year which can be increased under certain circumstances or declined by

lenders as defined in the agreement. This facility includes certain restrictions and covenants, including, among other

things, limitations on capital expenditures, dividend restrictions and minimum net worth and coverage ratios. On

January 19, 2006 the $100,000 principal was paid in full with available cash on hand (Note 21).

(b) Revolving Credit Facility

As of December 31, 2005, Alon had a revolving credit facility which provides for commitments of $141,600 for

a three-year term. In addition, Alon has a separate credit facility for the issuance of letters of credit for up to

$20,000. Subject to commitment amounts and terms, the revolving credit facility provides for the issuance of letters

of credit and up to $82,000 of which is available for revolving credit loans. The revolving credit facility is primarily

used for issuance of letters of credit (principally for crude oil purchases). Alon is charged various fees and expenses

in connection with this facility, including facility fees and various letter of credit fees. No amounts were outstanding

under this revolving credit facility at December 31, 2005. Amounts outstanding under this revolving credit facility

accrue interest at the Eurodollar plus 2.5%. This facility includes certain restrictions and covenants, including,

among other things, limitations on capital expenditures, dividend restrictions and minimum net worth and coverage

ratios.

On February 15, 2006 the above revolving credit facility was amended, increasing the facility to $240,000 with a

minimum of $160,000 and extending the term to January 2010. Amounts outstanding under this revolving credit

facility accrue interest at the Eurodollar rate plus 1.5% per year (Note 21).

As of December 31, 2005 and 2004, Alon had $131,727 and $100,676, respectively, of outstanding letters of

credit under the revolving credit facility and the other credit facility.

F-22

ALON USA ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands except as noted)

On October 1, 2002, Alon entered into a $35,000 term loan agreement. The agreement consists of a 20-year

$22,300 mortgage loan bearing a fixed interest rate of 8.06% per annum and a 10-year $12,700 equipment loan at a

fixed rate of 8.30% per annum, secured by certain property, plant, and equipment used in Alon’s retail segment.

These mortgages and equipment loans are to be repaid in monthly principal and interest installments of $346

beginning December 1, 2002, decreasing to $187 after December 1, 2012.

In 2003, Alon obtained $1,545 in mortgage loans to finance the acquisition of new retail locations. The interest

rates on these loans range between 5.5% and 9.7%, with 5 to 15 year payment terms.

(d) Atofina Deferred Purchase Price

Deferred payments due to FINA in connection with the acquisition of marketing assets in 2000 were paid in full

in August, 2005.

(e) Subordinated Notes Payable

As of December 31, 2004, Alon had unsecured subordinated notes payable to its parent company, Alon Israel

(“Alon Israel”) of $36,300, subordinated notes payable to former minority interest owners of $3,700, and

subordinated notes payable to certain members of executive management of $13. In 2005 Alon paid the outstanding

balances in full.

(f) Maturity of Long-Term Debt

The aggregate scheduled maturities of long-term debt for each of the five years subsequent to December 31,

2004 are as follows: 2006 — $4,487; 2007 — $4,590; 2008 — $4,795; 2009 — $94,714; 2010 — $2,406 and 2011

and thereafter — $21,398. At December 31, 2005, the debt maturities in 2006 through 2008 reflect the scheduled

$2,500 annual payments on the secured term loan and 2009 reflects the $92,500 final payment on the secured term

loan. The secured term loan was prepaid on January 19, 2006 (Note 21).

(g) Interest and Financing Expense

Interest and finance expense included in the accompanying statements of operations consisted of the following:

December 31,

2005 2004 2003

Interest expense ..................................................................................................... $15,422 $19,261 $12,868

Letters of credit and finance costs ......................................................................... 3,385 3,415 2,811

Amortization of debt issuance costs ...................................................................... 1,446 1,329 902

Capitalized interest ................................................................................................ (927) (301) (297)

Total interest expense......................................................................................... $19,326 $23,704 $16,284

(14) Income Taxes

Income tax expense included the following:

December 31,

2005 2004 2003

Current:

Federal.................................................................................................................. $41,886 $15,554 $2,336

State ...................................................................................................................... 6,986 1,092 528

Total current...................................................................................................... 48,872 16,646 2,864

Deferred:

Federal.................................................................................................................. 16,009 1,487 5,341

State ...................................................................................................................... 637 182 900

Total deferred.................................................................................................... 16,646 1,669 6,241

Income tax expense....................................................................................... $65,518 $18,315 $9,105

F-23

ALON USA ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands except as noted)

A reconciliation between the income tax expense computed on pretax income at the statutory federal rate and the

actual provision for income taxes is as follows:

December 31,

2005 2004 2003

Computed expected tax expense............................................................................... $61,481 $16,104 $8,349

State and local income taxes, net of federal benefit.................................................. 4,895 828 921

Deduction for qualified production income.............................................................. (1,111) — —

Other, net.................................................................................................................. 253 1,383 (165)

Income tax expense............................................................................................... $65,518 $18,315 $9,105

The following table sets forth the tax effects of temporary differences that give rise to significant portions of the

deferred tax assets and deferred tax liabilities.

December 31,

2005 2004

Current deferred income tax assets and liabilities:

Accounts receivable, allowance........................................................................................ $ 327 $ —

Deferred gain.................................................................................................................... 2,009 —

Accrued liabilities and other ............................................................................................. 205 —

Inventories ........................................................................................................................ (826) —

Current deferred income tax assets, net........................................................................ 1,715 —

Noncurrent deferred income tax liabilities and assets:

Deferred charges............................................................................................................... — (1,821)

Inventories ........................................................................................................................ — (1,510)

Property, plant, and equipment......................................................................................... (35,370) (34,619)

Other noncurrent............................................................................................................... (19,635) (111)

Post retirement benefits .................................................................................................... 1,742 3,722

Noncurrent accrued liabilities and other........................................................................... 841 2,510

Noncurrent deferred income tax liabilities, net............................................................. $(52,422) $(31,829)

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that

some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is

dependent upon the generation of future taxable income during the periods in which those temporary differences

become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable

income, and tax planning strategies in making this assessment. Based upon the level of taxable income and

projections for future taxable income, over the periods which the deferred tax assets are deductible, management

believes it is more likely than not that Alon will realize the benefits of these deductible differences in future periods.

(15) Related-Party Transactions

Alon and Alon Israel are parties to a consulting agreement whereby Alon Israel provides strategic planning and

management consulting services to Alon for an annual fee of $1,500 through September 30, 2003 and $4,000 a year

beginning October 1, 2003. In July 2005, the term of the agreement was extended until December 31, 2009 and

Alon’s payment obligations under the agreement were terminated in exchange for an aggregate payment to Alon

Israel of $6,000, $2,000 of which was paid and expensed in 2005 and the remainder of which was paid in the first

quarter 2006 and will be amortized over the remaining term of the contract. Alon Israel’s obligations to provide

consulting services under the amended agreement will remain in effect through the end of the term of the agreement.

At January 1, 2005, Alon had subordinated notes payable to Alon Israel, the former minority owners of Alon

USA Capital and certain members of executive management totaling $49,200, including accrued interest. All

balances outstanding under these notes were paid in full during 2005 (Note 13).

F-24

ALON USA ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands except as noted)

(16) Stockholders’ Equity

(a) Common and preferred stock

The authorized capital stock of Alon consists of 100,000,000 shares of common stock, $0.01 par value, and

10,000,000 shares of preferred stock, $0.01 par value. Issued and outstanding shares were 46,809,857 and

35,001,120 shares of common stock as of December 31, 2005 and 2004, respectively. There were no issued and

outstanding shares of preferred stock as of December 31, 2005 and 2004.

For the years ended December 31, 2005, 2004 and 2003, activity in the number of common stock was as follows:

Common

Stock

(in thousands)

Balance as of January 1, 2003 .............................................................................................................. 35,001

Balance as of December 31, 2003 ........................................................................................................ 35,001

Balance as of December 31, 2004 ........................................................................................................ 35,001

Sale of common stock........................................................................................................................... 11,730

Shares issued in connection with stock plans (Note 18)....................................................................... 79

Balance as of December 31, 2005 ........................................................................................................ 46,810

(b) Initial Public Offering

On August 2, 2005 Alon completed an initial public offering of 11,730,000 shares of its common stock at an

aggregate price of $187,680 (Note 3).

On July 6, 2005 Alon (i) increased its common stock to 100,000,000 and (ii) effected a 33,600-for-1 stock split

of its common shares, resulting in 35,001,120 common shares outstanding. The earnings per share information and

all common share information have been retroactively restated for all prior periods presented to reflect this stock

split (Note 2).

(d) Dividends

Upon the completion of Alon’s initial public offering on August 2, 2005 (Note 3), the board of directors of each

of Alon and Alon USA Operating, Inc. approved the payment of special dividends to pre-offering stock holders of

record. The applicable stock holders of record of Alon were paid aggregate cash dividends of $68,479 and the

minority interest stockholders of record of Alon USA Operating, Inc were paid aggregate cash dividends of $4,652.

On February 15, 2006, Alon announced a quarterly and special cash dividend (Note 21).

(17) Earnings per Share

Basic earnings per share is calculated as net income divided by the average number of shares of common stock

outstanding. Diluted earnings per share included the dilutive effective of restricted shares using the treasury stock

method.

December 31

2005 2004 2003

Net income............................................................................................................... $103,988 $25,132 $14,068

Average number of shares of common stock outstanding....................................... 39,889 35,001 35,001

Effect of dilutive restricted shares........................................................................... 19 — —

Average number of shares of common stock outstanding assuming dilution.......... 39,908 35,001 35,001

Earnings per share — basic ..................................................................................... $ 2.61 $ .72 $ .40

Earnings per share — diluted .................................................................................. $ 2.61 $ .72 $ .40

F-25

ALON USA ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands except as noted)

(18) Stock Based Compensation

Alon has two employee incentive compensation plans, (i) the 2005 Incentive Compensation Plan and (ii) the

2000 Incentive Stock Compensation Plan.

(a) 2005 Incentive Compensation Plan

The 2005 Incentive Compensation Plan was approved by the stockholders in November, 2005, and is a

component of Alon’s overall executive incentive compensation program. The Incentive Compensation Plan permits

the granting of awards 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 to Alon’s directors, officers and key employees. Other than the restricted share grants discussed below,

there have been no other awards granted under this program.

In August 2005, Alon granted an award of 10,791 shares of restricted stock to certain directors, officers and key

employees in connection with the initial public offering. The participants were allowed to acquire shares at a

discounted price of $12.00 per share with a grant date fair value of $16.00 per share. In November 2005, Alon

granted an award of 65,172 shares of restricted stock to certain directors, officers and key employees with a grant

date fair value of $20.42 per share. Non-employee directors are awarded an annual grant of Alon’s common stock

valued at $25,000. In 2005, 2,774 shares of restricted stock were awarded to two of Alon’s non-employee directors

with a stock grant date fair value of $18.03 per share. All restricted shares granted under the Incentive

Compensation Plan vest over a period of three years, assuming continued service at vesting.

Pursuant to SFAS No. 123, Accounting for Stock-Based Compensation, Alon has elected to account for its stock-

based compensation under APB Opinion No.

25. Under APB Opinion No. 25, Alon uses the intrinsic value method to account for compensation cost related to

stock awards. Accordingly, compensation expense is recorded over the vesting period based on the excess of the

estimated fair value of the common stock over the exercise price. Alon recognizes stock compensation expense

using the accelerated vesting method prescribed by FASB Interpretation No. 28. Such compensation expense

amounted to $388 for the year ended December 31, 2005, the first year such awards were available under the 2005

Incentive Compensation Program.

(b) 2000 Incentive Stock Compensation Plan

At August 1, 2000 (inception), Alon USA Operating, Inc. (“Alon Operating”) and Alon Assets, Inc (“Alon

Assets”), majority owned, fully consolidated subsidiaries of Alon, adopted a stock option plan (the “Plan”) pursuant

to which Alon’s board of directors may grant stock options to certain officers and executive management. The Plan

authorized grants of options to purchase up to 16,154 shares of common stock of Alon Assets and 6,066 shares of

common stock of Alon Operating. All authorized options were granted in 2000. All stock options have ten-year

terms. The options are subject to accelerated vesting and become fully exercisable if Alon achieves certain financial

performance and debt service criteria. Upon exercise, Alon will reimburse the option holder for the exercise price of

the shares and under certain circumstances the related federal and state taxes (gross up liability). This plan was

closed to new participants subsequent to August 1, 2000, the initial grant date. Total compensation expense

recognized under this plan was $2,336, $530, and $683 at December 31, 2005, 2004, and 2003, respectively.

F-26

ALON USA ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands except as noted)

The following table summarized the stock option activity for Alon Assets and Alon Operating for the years

ended December 31, 2005 and 2004:

Alon Assets Alon Operating

Number of

Options

Outstanding

Weighted

Average

Exercise

Price

Number of

Options

Outstanding

Weighted

Average

Exercise

Price

Outstanding at January 1, 2004 ................................................ 12,217 $100 4,587 $100

Granted..................................................................................... — — — —

Exercised .................................................................................. (1,212) 100 (455) 100

Forfeited and expired................................................................ (1,733) 100 (650) 100

Outstanding at December 31, 2004........................................... 9,272 100 3,482 100

Granted..................................................................................... — — — —

Exercised .................................................................................. (1,212) 100 (455) 100

Outstanding at December 31, 2005........................................... 8,060 $100 3,027 $100

At December 31, 2005, the number of options exercisable was 1,212 for Alon Assets and 455 for Alon

Operating.

At December 31, 2004, Discount Bank Corp. Inc. (“DBC”), the parent company of one of our lenders, held

warrants to purchase 1,435 shares of non-voting common stock of Alon Assets and 538 shares of non-voting

common stock of Alon Operating for an aggregate exercise price of $659. In 2005 DBC exercised its rights to

purchase shares of Alon Assets and Alon Operating and Alon reacquired the shares for an aggregate payment of

$3,040.

(19) Commitments and Contingencies

(a) Leases

Alon has long-term lease commitments for land, office facilities, retail facilities and related equipment and

various equipment and facilities used in the storage and transportation of refined products. In most cases Alon

expects that in the normal course of business, Alon’s leases will be renewed or replaced by other leases. Alon has

commitments under long-term operating leases for certain buildings, land, equipment, and pipelines expiring at

various dates over the next fifteen years. Certain long-term operating leases relating to buildings, land and pipelines

include options to renew for additional periods. At December 31, 2005, minimum lease payments on operating

leases were as follows:

Year ending December 31:

2006.............................................................................................................................................................. $12,469

2007.............................................................................................................................................................. 11,886

2008.............................................................................................................................................................. 10,803

2009.............................................................................................................................................................. 10,372

2010.............................................................................................................................................................. 7,050

2011 and thereafter....................................................................................................................................... 9,136

Total.......................................................................................................................................................... $61,716

Total rental expense was $11,235, $12,042, and $13,163 for the years ended December 31, 2005, 2004, and

2003, respectively. Contingent rentals and subleases were not significant.

(b) Other Commitments

In the normal course of business, Alon has long-term commitments to purchase services, such as natural gas,

electricity and water for use by its refinery, terminals, pipelines and retail locations. Alon is also party to various

F-27

ALON USA ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands except as noted)

refined product and crude oil supply and exchange agreements. These agreements are short-term in nature or provide

terms for cancellation.

Under the terms of the Pipelines and Terminals Agreement with HEP, Alon has committed to transport and store

minimum volumes of refined products in the pipelines and terminals acquired by HEP for an initial period of 15

years. Tariffs and services fees are set at competitive rates and the agreement provides for a reduction of the

minimum volume requirement under certain circumstances.

Alon is involved in various other claims and legal actions arising in the ordinary course of business. In the

opinion of management, the ultimate disposition of these matters will not have a material adverse effect on Alon’s

financial position, results of operations or liquidity.

Alon is subject to loss contingencies pursuant to federal, state, and local environmental laws and regulations.

These rules regulate the discharge of materials into the environment and may require Alon to incur future

obligations to investigate the effects of the release or disposal of certain petroleum, chemical, and mineral

substances at various sites; to remediate or restore these sites; to compensate others for damage to property and

natural resources and for remediation and restoration costs. These possible obligations relate to sites owned by Alon

and associated with past or present operations. Alon is currently participating in environmental investigations,

assessments, and cleanups under these regulations at service stations, pipelines, and terminals. Alon may in the

future be involved in additional environmental investigations, assessments, and cleanups. The magnitude of future

costs will depend on factors such as the unknown nature and contamination at many sites, the unknown timing,

extent and method of the remedial actions, which may be required, and the determination of Alon’s liability in

proportion to other responsible parties.

Environmental expenditures are expensed or capitalized depending on their future economic benefit.

Expenditures that relate to an existing condition caused by past operations and that have no future economic benefit

are expensed. Liabilities for expenditures of a non-capital nature are recorded when environmental assessment

and/or remediation is probable, and the costs can be reasonably estimated. Substantially all amounts accrued are

expected to be paid out over the next five to ten years. The level of future expenditures for environmental

remediation obligations is impossible to determine with any degree of reliability.

In connection with the HEP transaction, Alon entered into an Environmental Agreement with HEP pursuant to

which Alon agreed to indemnify HEP against costs and liabilities incurred by HEP to the extent resulting from the

existence of environmental conditions at the pipelines or terminals prior to February 28, 2005 or from violations of

environmental laws with respect to the pipelines and terminals occurring prior to February 28, 2005. Alon’s

environmental indemnification obligations under the Environmental Agreement expire after February 28, 2015. In

addition, Alon’s indemnity obligations are subject to HEP first incurring $0.1 million of damages as a result of pre-

existing environmental conditions or violations. Alon’s environmental indemnity obligations are further limited to

an aggregate indemnification amount of $20.0 million, including any amounts paid by Alon to HEP with respect to

indemnification for breaches of Alon’s representations and warranties under the Contribution Agreement. With

respect to any remediation required for environmental conditions existing prior to February 28, 2005, Alon has the

option under the Environmental Agreement to perform such remediation itself in lieu of indemnifying HEP for their

costs of performing such remediation. Pursuant to this option, Alon is continuing to perform the ongoing

remediation at the Wichita Falls terminal which is subject to Alon’s environmental indemnity from FINA. Any

remediation required under the terms of the Environmental Agreement is limited to the standards under the

applicable environmental laws as in effect at February 28, 2005.

In connection with the sale of the Amdel and White Oil Pipelines, on March 1, 2006, Alon entered into a

Purchase and Sale Agreement with Sunoco pursuant to which Alon agreed to indemnify Sunoco against costs and

liabilities incurred by Sunoco to the extent resulting from the existence of environmental conditions at the pipelines

prior to March 1, 2006 or from violations of environmental laws with respect to the pipelines occurring prior to

March 1, 2006. With respect to any remediation required for environmental conditions existing prior to March 1,

F-28

ALON USA ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands except as noted)

2006, Alon has the option under the Purchase and Sale Agreement to perform such remediation itself in lieu of

indemnifying Sunoco for their costs of performing such remediation.

Alon has accrued environmental remediation obligations of $4,736 ($1,750 current payable and $2,986 non-

current liability), at December 31, 2005 and $7,058 ($3,000 current payable and $4,058 non-current liability), at

December 31, 2004.

Alon completed the construction of a new $14,600 gasoline desulfurization facility in the fourth quarter 2003,

ensuring compliance with the small refiner status regulations mandated by the Federal Clean Air Act, which requires

a reduction of the sulfur content in gasoline by January 1, 2004. Alon continues to evaluate new Environmental

Protection Agency standards that will require a reduction in sulfur content in diesel fuel manufactured for on-road

consumption by 2010. Alon spent approximately $5,113 in 2005 and expects to spend approximately $25,300 over

the next five years to comply with these regulations.

Alon has elected to join the Voluntary Emission Reduction Permit program, sponsored by the Texas

Commission on Environmental Quality. This program allows facilities to permit grandfathered emission sources

through a phased installation of emission control equipment using ten-year Best Available Control Technology. To

qualify as a grandfathered source, the equipment must not have been modified since 1972. Alon’s emission control

installation plan ends in December 2006. As of December 31, 2005, Alon had spent approximately $11,151 and had

completed substantially all of the expenditures required to meet regulatory requirements under the Voluntary

Emission Reduction Permit program.

(20) Quarterly Information (unaudited)

Selected financial data by quarter is set forth in the table below:

Quarters

First Second Third Fourth Total Year

2005

Net sales................................................................... $407,974 $590,366 $648,135 $682,032 $2,328,507

Operating income .................................................... 44,278 49,475 44,232 50,778 188,763

Net income............................................................... 22,436 27,482 24,388 29,682 103,988

Earnings per share(1)(2).......................................... $ .64 $ .79 $ .57 $ .64 $ 2.61

Weighted average shares outstanding (1) ................ 35,001 35,001 42,821 46,731 39,889

2004

Net sales................................................................... $352,723 $440,179 $445,386 $469,276 $1,707,564

Operating income .................................................... 8,751 33,815 17,032 9,841 69,439

Net income............................................................... 1,497 15,288 6,100 2,247 25,132

Earnings per share ................................................... $ .04 $ .44 $ .17 $ .06 $ .72

Weighted average shares outstanding...................... 35,001 35,001 35,001 35,001 35,001

____________

(1) Weighted average shares outstanding and earnings per share for the periods presented reflect the effect of a

33,600-for-one split of Alon’s common shares which was effected on July 6, 2005. On August 2, 2005 Alon

completed an initial public offering 11,730,000 shares of its common stock. The shares issued in our initial

public offering are reflected in the number of weighted average shares outstanding for the quarters ended

September 30, 2005 and December 31, 2005, respectively, and for the year ended December 31, 2005.

(2) Alon granted awards of 78,737 shares of restricted stock under its 2005 Incentive Compensation Plan. There is

no dilutive effect on earnings per share.

F-29

ALON USA ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands except as noted)

(21) Subsequent Events

(a) Debt Prepayment

On January 19, 2006, Alon made a payment of approximately $103,900 in satisfaction of its outstanding

borrowings under the secured term loan agreement, including applicable accrued interest and prepayment premiums,

with available cash on hand. $100,000 represents a voluntary prepayment of the outstanding principal under the term

loan agreement, approximately $3,000 represents a prepayment premium and $900 represents accrued and unpaid

interest on the principal balance. Alon entered into the $100,000 term loan facility, on January 14, 2004. The term

loan facility matured in January 2009. The $3,000 prepayment premium and $3,894 of unamortized debt issuance

costs will be reflected as interest expense in the first quarter 2006 consolidated statement of operations.

(b) Dividend Announcement

On February 15, 2006 Alon’s Board of Directors announced a quarterly cash dividend of $0.04 per share on the

company’s common stock, payable on March 21, 2006 to stockholders of record at the close of business on March 1,

2006. The Board of Directors also announced a special cash dividend of $0.37 per share on the company’s common

stock, payable on March 21, to stockholders of record at the close of business on March 1, 2006. In connection with

Alon’s cash dividend payment to shareholders on March 21, 2006, Alon’s minority interest owners of Alon Assets

and Alon Operating will receive an aggregate cash dividend of approximately $1,088.

On February 15, 2006 Alon entered into an amended revolving credit agreement with its lenders. The total

commitment under the facility was increased from $141,600 to $240,000 and is for, among other things, working

capital, acquisitions and other general corporate purposes. The initial size of the facility is $160,000 with options to

increase the size to $240,000.

Under this amended facility, the term has been extended through January 2010; existing borrowing costs and

letter of credit fees have been reduced; most covenants have been eased; there are substantially no limitation on

incurrence of debt, distribution of dividends or investment activities absent existing or resulting default; and the

retail subsidiaries have been excluded from the facility. The facility is secured by cash, accounts receivable,

inventory and related assets. All fixed assets previously securing the facility have been released.

(d) Crude Oil Pipelines Disposition

On March 1, 2006 Alon sold its Amdel and White Oil pipelines, which had been inactive since December 2002,

to an affiliate of Sunoco Logistics Partners L.P., (“Sunoco”) for a total consideration of approximately $68,000. In

conjunction with the sale of the Amdel and White Oil pipelines, which had been inactive since December 2002,

Alon entered into a 10-year pipeline Throughput and Deficiency Agreement with Sunoco Logistics Partners L.P.,

with an option to extend the agreement by four additional thirty month periods. The Throughput and Deficiency

Agreement will allow Alon to maintain our physically integrated system by retaining crude oil transportation rights

on the pipelines from the Gulf Coast. Pursuant to the Throughput and Deficiency Agreement, Alon has agreed to

ship a minimum of 15,000 barrels per day on the pipelines during the term of the agreement.

F-30

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Alon USA Energy, Inc.:

Under date of March 13, 2006, we reported on the consolidated balance sheets of Alon USA Energy, Inc. and

subsidiaries as of December 31, 2005 and 2004, and the related consolidated statements of operations, stockholders’

equity, and cash flows for each of the years in the three-year period ended December 31, 2005. Our report refers to a

change in the method of accounting for asset retirement obligations in 2003. In connection with our audits of the

aforementioned consolidated financial statements, we also audited the related consolidated financial statement

schedule. This financial statement schedule is the responsibility of the Company’s management. Our responsibility

is to express an opinion on this financial statement schedule based on our audits.

In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial

statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

/s/ KPMG LLP

Dallas, Texas

March 13, 2006

F-31

ALON USA ENERGY, INC. (PARENT COMPANY ONLY)

CONDENSED BALANCE SHEETS

(dollars in thousands)

1. (b) SCHEDULES TO THE FINANCIAL STATEMENTS (PARENT ONLY) — SCHEDULE I

December 31,

2005 December 31,

2004

ASSETS

Current assets............................................................................................................... $ 89,298 $ 2,126

Investment in subsidiary.............................................................................................. 190,355 111,558

Total assets............................................................................................................... $279,653 $113,684

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities......................................................................................................... $ — $ 511

Long-term debt............................................................................................................ — 41,701

Long-term liabilities .................................................................................................... 160 —

Total liabilities............................................................................................................. 160 42,212

Shareholders’ equity:

Shareholders’ investment......................................................................................... 181,576 8,729

Accumulated other comprehensive loss................................................................... (2,596) (2,261)

Retained earnings..................................................................................................... 100,513 65,004

Total stockholders’ equity........................................................................................ 279,493 71,472

Total liabilities and stockholders’ equity ................................................................. $279,653 $113,684

F-32

ALON USA ENERGY, INC. (PARENT COMPANY ONLY)

CONDENSED STATEMENTS OF OPERATIONS

(dollars in thousands)

For the Year Ended December 31,

2005 2004 2003

Interest income .............................................................................................. $ 1,086 $ — $ —

General and administrative expenses............................................................. (248) (3) (7)

Interest expense ............................................................................................. (1,082) (2,946) (2,728)

Other income, net .......................................................................................... — — 20

Loss before income tax benefit and equity earnings in subsidiary ................ (244) (2,949) (2,715)

Income tax benefit ......................................................................................... 101 1,165 1,045

Loss before equity earnings in subsidiary...................................................... (143) (1,784) (1,670)

Equity earnings in subsidiary......................................................................... 104,131 26,916 15,738

Net income..................................................................................................... $103,988 $25,132 $14,068

F-33

ALON USA ENERGY, INC. (PARENT COMPANY ONLY)

CONDENSED STATEMENTS OF CASH FLOWS

(unaudited, dollars in thousands)

December 31,

2005 2004 2003

Cash flows from operating activities:

Net income.................................................................................................. $ 103,988 $ 25,132 $ 14,068

Stock compensation.................................................................................... 388 — —

Adjustments:

Accrued interest on subordinated notes to stockholders......................... — 18 2

Equity earnings in subsidiary, net........................................................... (104,131) (26,916) (15,738)

Changes in operating assets and liabilities:

Other assets............................................................................................. (222) — —

Other non-current liabilities.................................................................... 160 — —

Accounts payable and accrued liabilities................................................ (558) (1,321) (366)

Net cash used in operating activities ............................................... (375) (3,087) (2,034)

Cash flows from investing activities:

Purchase of short-term investments............................................................ (29,400) — —

Dividends received from subsidiary ........................................................... 25,000 — —

Net cash provided by investing activities.................................................... (4,400) — —

Cash flows from financing activities:

Stock issuance and payments from stockholders........................................ 172,459 140 40

Dividends paid............................................................................................ (68,479) — —

Additions to long-term debt........................................................................ 2,826 2,727 —

Payments on long-term debt ....................................................................... (44,527) — —

Net cash provided by financing activities............................................ 62,279 2,867 40

Net increase in cash and cash equivalents .................................................. 57,504 (220) (1,994)

Cash and cash equivalents, beginning of period............................................. 44 264 2,258

Cash and cash equivalents, end of period................................................... $ 57,548 $ 44 $ 264

F-34

ALON USA ENERGY, INC. (PARENT COMPANY ONLY)

NOTES TO CONDENSED FINANCIAL STATEMENTS

(unaudited, dollars in thousands, except share and per share data)

(1) Basis of Presentation

At December 31, 2005, the agreements governing indebtedness of certain direct and indirect subsidiaries of

Alon, such subsidiaries are restricted from making dividend payments, loans or advances to Alon. These restrictions

result in restricted net assets (as defined in Rule 4-08(e)(3) of Regulation S-X) of Alon’s direct and indirect

subsidiaries exceeding 25% of the consolidated net assets of Alon and its subsidiaries. Upon the prepayment of the

secured term loan on January 19, 2006 and the amendment of the revolving credit facility on February 15, 2006,

these restrictions are no longer in effect.

The accompanying condensed financial statements summarize Alon’s unaudited financial position as of

December 31, 2005 and December 31, 2004 and the unaudited results of operations and cash flows for the years

ended December 31, 2005, 2004 and 2003.

The Alon USA Energy, Inc. (Parent Company Only) condensed financial statements should be read in

conjunction with the consolidated financial statements of Alon and Subsidiaries included elsewhere herein.

(2) Initial Public Offering

On August 2, 2005, Alon completed an initial public offering of 11,730,000 shares of its common stock at a

price of $16.00 per share for an aggregate offering price of $187,680. Alon received approximately $172,158 in net

proceeds from the initial public offering after payment of expenses, underwriting discounts and commissions of

approximately $15,522, or $1.32 per share. The initial public offering represented the sale of a 25.1% interest in

Alon (Note 3 of the consolidated financial statements).

(3) Long-Term Debt

As of December 31, 2004, Alon had unsecured subordinated notes payable to its parent company, Alon Israel, of

$36,300. Alon retired $25,000 of the subordinated debt in February 2005, with the cash received in the form of a

dividend from its wholly-owned subsidiary, Alon USA, Inc. The remaining principal and related accrued interest

totaling $20,709 was paid in full on August 2, 2005 with proceeds received in Alon’s initial public offering of

common stock (Notes 3 and 13 of the consolidated financial statements).

(4) Dividends Paid

In August 2005, Alon paid $68,479 in the form of a cash dividend to its pre-offering stockholders of record. The

dividend represented a portion of the proceeds from the initial public offering (Notes 3 and 16 of the consolidated

financial statements).

(5) Dividends Received

In February 2005, Alon received $25,000 in the form of a cash dividend from its wholly-owned subsidiary, Alon

USA, Inc. The dividend represented a portion of the proceeds Alon USA, Inc., through its subsidiaries, received as a

result of the HEP transaction (Note 4 of the consolidated financial statements).

F-35

SIGNATURES

Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the registrant has duly caused

this report to be signed on its behalf by the undersigned, thereunto duly authorized.

By: /s/ Jeff D. Morris

Date: March 14, 2006 Jeff D. Morris

Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, the following persons on behalf of the

registrant and in the capacities and on the dates indicated have signed this report below.

Date: March 14, 2006 By: /s/ David Wiessman

David Wiessman

Executive Chairman

Date: March 14, 2006 By: /s/ Jeff D. Morris

Jeff D. Morris

President, Chief Executive Officer and

Director

Date: March 14, 2006 By: /s/ Shai Even

Shai Even

Chief Financial Officer and Treasurer

Date: March 14, 2006 By: /s/ Ron W. Haddock

Ron W. Haddock

Director

Date: March 14, 2006 By: /s/ Itzhak Bader

Itzhak Bader

Director

Date: March 14, 2006 By: /s/ Shaul Gliksberg

Shaul Gliksberg

Director

Date: March 14, 2006 By: /s/ Avraham Baiga Shochat

Avraham Baiga Shochat

Director

Date: March 14, 2006 By: /s/ Yeshayahu Pery

Yeshayahu Pery

Director

Date: March 14, 2006 By: /s/ Zalman Segal

Zalman Segal

Director

Exhibit 31.1

CERTIFICATIONS

I, Jeff D. Morris, certify that:

1. I have reviewed this Annual Report on Form 10-K of Alon USA Energy, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a

material fact necessary to make the statements made, in light of the circumstances under which such statements were

made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report,

fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as

of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure

controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be

designed under our supervision, to ensure that material information relating to the registrant, including its

consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in

which this report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this

report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the

period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that

occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an

annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal

control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal

control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of

directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over

financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,

summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant

role in the registrant’s internal control over financial reporting.

Date: March 14, 2006

/s/ Jeff D. Morris

Jeff D. Morris

President and Chief Executive Officer

Exhibit 31.2

CERTIFICATIONS

I, Shai Even, certify that:

1. I have reviewed this Annual Report on Form 10-K of Alon USA Energy, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a

material fact necessary to make the statements made, in light of the circumstances under which such statements were

made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report,

fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as

of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure

controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be

designed under our supervision, to ensure that material information relating to the registrant, including its

consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in

which this report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this

report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the

period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that

occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an

annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal

control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal

control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of

directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over

financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,

summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant

role in the registrant’s internal control over financial reporting.

Date: March 14, 2006

/s/ Shai Even Shai Even

Vice President, Chief Financial Officer

and Treasurer

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. §1350,

AS ADOPTED PURSUANT TO §906

OF THE SARBANES-OXLEY ACT OF 2002

In connection with the filing of the Annual Report on Form 10-K of Alon USA Energy, Inc., a Delaware

corporation (the “Company”), for the period ended December 31, 2005, as filed with the Securities and Exchange

Commission on the date hereof (the “Report”), each of the undersigned officers of the Company certifies, pursuant

to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that, to such officer’s

knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of

1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and

results of operations of the Company as of the dates and for the periods expressed in the Report.

Date: March 14, 2006

/s/ Jeff D. Morris

Jeff D. Morris

President and Chief Executive Officer

/s/ Shai Even

Shai Even

Vice President, Chief Financial Officer

and Treasurer

Refining

Refining is the critical link between crude oil and the

fuel that consumers purchase and use in everyday life.

Our refinery in Big Spring, Texas, has a capacity of 70,000

barrels per day (BPD) and is especially suited to the

processing of lower-cost sour crude into fuel and other

products providing us a significant competitive advantage.

Wholesale Marketing

We market fuel products to more than 1,200 FINA-

branded stores in six states. Reflecting our commitment

to integration, almost half of these stores are physically

integrated with our refinery. In addition, we market

unbranded fuels and other refined products.

Retail Marketing

Southwest Convenience Stores, our retail subsidiary, is

the largest 7-Eleven licensee in the country. Through it,

we operate 167 convenience stores under the FINA and

7-Eleven brands in West Texas and New Mexico.

Asphalts and Solvents

We produce 23 different grades of asphalt including

high-value, high-performance grades for paving. We

also produce a range of aromatic solvents for customers

in the oil and chemical industries.

Giving Back

We believe in giving back to the communities we serve.

From individual events like the American Heart Walk

to ongoing programs like United Way and Communities

in Schools, we donate time, money and talent to support

a diverse range of programs that benefit everyone in

the community.

Alon USA Energy, Inc. is an independent

refiner and marketer of petroleum products

operating primarily in the Southwestern and

South Central regions of the United States.

Committed to an integrated business strategy,

the company owns and operates a refinery,

markets and sells gasoline and diesel products,

operates convenience stores in West Texas

and New Mexico, and is a leading supplier of

asphalts and solvents. Headquartered in Dallas,

Texas, the company employs more than

1,400 individuals.

WhatWho

ALON USA CORPORATE INFORMATION

Headquarters

Alon USA Energy, Inc.

7616 LBJ Freeway, Suite 300

Dallas, TX 75251-1100

Stock Exchange Listing

New York Stock Exchange

Ticker Symbol: ALJ

Annual Meeting

Tuesday, May 9th 9:00 a.m.

at the Frontiers of Flight Museum

Love Field

6911 Lemmon Ave

Dallas, TX 75209

Auditors

KPMG LLP

Dallas, TX

Transfer Agent

Mellon Investor Services, LLC

85 Challenger Road

Ridgefield Park, NJ 07660

(886)-683-2969

Form 10-K

The company’s annual report on

Form 10-K, which is filed with the

Securities and Exchange Commission,

is available upon request and may

be obtained by writing:

Investor Relations

Alon USA Energy, Inc.

7616 LBJ Freeway, Suite 300

Dallas, TX 75251-1100

OFFICERS AND DIRECTORS

Officers

David Wiessman

Executive Chairman of the Board

Jeff D. Morris

President and Chief Executive Officer

Claire A. Hart

Senior Vice President

Shai Even

Vice President, Chief Financial Officer

and Treasurer

Harlin R. Dean

Vice President, General Counsel

and Secretary

Joe A. Concienne

Vice President of Refining and Transportation

Joseph Israel

Vice President of Mergers and Acquisitions

Jimmy C. Crosby

Vice President of Supply and Planning

Joseph Lipman

President and Chief Executive Officer of

Southwest Convenience Stores

Directors

David Wiessman

Jeff D. Morris

Pinchas Cohen

Boaz Biran

Ron Haddock

Itzhak Bader

Yeshayahu Pery

Zalman Segal

Avraham Shochat

Shaul Gliksberg

Alon USA Energy, Inc.

7616 LBJ Freeway, Suite 300

Dallas, TX 75251-1100

www.alonusa.com

ALON USA

A unique

combination of

refiner and

retailer

ALON USA 2005 ANNUAL REPORT

33865_Alon_cvr_r3 K 3.97 M 396A4F3F E36A 4B6C B911 143217C8B7F2 2005 Annual Report

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