June 10, 2005
via U.S. Mail
Jeff D. Morris
Chief Executive Officer
Alon USA Energy, Inc.
7616 LBJ Freeway, Suite 300
Dallas, Texas 75251
Re: Alon USA Energy, Inc.
Registration Statement on Form S-1
Filed May 11, 2005
File No. 333-124797
Amendment No. 1 to Registration Statement on
Form S-1
File No. 333-124797
Filed June 2, 2005
Dear Mr. Morris:
We have reviewed your filings and have the following
comments.
Where indicated, we think you should revise your document in
response
to these comments. If you disagree, we will consider your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
information so we may better understand your disclosure. After
reviewing this information, we may raise additional comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
Form S-1
General
1. Where comments on a section also relate to disclosure in
another
section, please make parallel changes to all affected disclosure.
This will eliminate the need for us to repeat similar comments.
2. Please be advised that we are in the process of reviewing the
confidential treatment request submitted on June 2, 2005. The
processing of the confidential treatment request will be a
precondition to the effectiveness of the registration statement.
Counsel identified in the confidential treatment request will
receive
any communications from the staff under a separate cover letter
during the course of our review.
3. We note that you omit information required by Regulation S-K,
not
all of which is related to information that may be omitted as
specified by Rule 430A of Regulation C. For example, information
is
missing on the cover page, pages 5, 21, 22, 88, 91, 92 and 97.
Please revise to fill in such missing information throughout the
document.
4. Please provide us with a list of the board of directors and
executive officers of Alon Israel Oil Company, Ltd.
5. Provide updated disclosure in each amendment. For example,
include any new information regarding the proposed listing by the
New
York Stock Exchange and the proposed stock split.
Cover Page
6. Please provide disclosure regarding the amount of shares being
offered and the estimated price range of the shares as required by
Item 501(b) of Regulation S-K.
Prospectus Summary, page 1
7. Please revise the disclosure to place less emphasis on the
background and activities of your parent company. For example,
remove the references to your parent company`s ownership of
exclusive
franchise rights for the Pizza Hut and KFC brands in Israel as it
does not appear to be relevant to an understanding of your
company`s
business or general background. Also, on page 3, under the
heading
"Competitive Strengths-Experienced Leadership", you make reference
to
your parent company`s level of growth and its "proven track
record."
Please revise so that you explain how the experience and track
record
of your parent company is a competitive strength to your company
or
remove such disclosure.
8. In describing the acquisition of assets from Atofina
Petrochemicals, Inc., here and in the business section, please
revise
the disclosure to define the "mid-stream assets" and "downstream
assets" acquired.
9. Given the complexity of the organizational structure of the
company and affiliated companies and in light of the fact that the
company is organized as a holding company, please include
disclosure
in this section and in more detail in the business section that
delineates the background and operations of any subsidiary that is
material to an understanding of your business taken as a whole.
For
example, explain the background and importance of Alon Assets
Inc.,
Alon USA Operating Inc., Alon USA Capital Inc. and Southwest
Convenience Stores, LLC.
10. Rather than stating that your refinery has a Nelson complexity
rating of 10.2, provide an explanation of the relevance and
significance of the score. Further, when was such rating achieved
and how often are refineries rated? Please revise your disclosure
accordingly.
11. Provide us with objective support for statements you make
throughout your disclosure. For example, you state:
* "Our parent company is the largest services and trade company in
Israel;"
* "Our Big spring refinery has a Nelson complexity rating of
10.2;"
* "Our Big Spring refinery ranks in the second quartile of all
refineries in the United States in terms of net cash margin per
barrel;" and,
* "For the year ended December 31, 2004, our retail margins were
approximately...5% above the national average."
12. Please advise us of the reason for the anticipated stock-
split.
We may have further comments.
13. Where you disclose EBITDA, please refer the reader to your
non-
GAAP reconciliation of EBITDA under footnote (c) on page 7.
Risk Factors, page 11
Risks Relating to our Business and Our Industry, page 11
14. As noted on page 49, please provide a risk factor that
delineates
the risk the company faces with respect to its access to its
credit
facilities in the event of specified events of default. For
example,
specify the risk should Mr. Wiessman cease to be chairman and Mr.
Morris cease to be involved in the management and operations of
the
company and an acceptable successor is not appointed within 180
days.
15. Please disclose, if material, the risks associated with the
regulation of pipelines owned by the company by regulatory
agencies,
such as the Federal Energy Regulatory Commission and the
Department
of Transportation. In this regard, we note disclosure on page 69
that indicates the impact and risks associated with new
regulations
promulgated by the state of Texas and the Department of
Transportation.
"The prices of crude oil, feedstocks and refined products...,"
page
11
16. Please tailor the discussion in this risk factor to include a
specific discussion of the risk associated with the fact that you
hold substantial quantities of crude oil and refined product
inventories. As disclosed on page 32, provide a specific example
of
how you were negatively impacted due to changes in the value of
inventories held.
"We may incur significant costs and liabilities with respect to
environmental lawsuits...," page 13
17. Please specify the dollar amount expended or estimated to be
spent in connection with environmental lawsuits, proceedings and
the
investigation and remediation of existing and future environmental
conditions.
"Our insurance policies do not cover all losses...," page 14
18. Provide us with a schedule that shows the insurance coverage
you
currently have. Also, please file your insurance policies as
exhibits to the registration statement. We may have further
comments.
"A substantial portion of our refining workforce is unionized...,"
page 15
19. Advise us of any recent labor disputes involving the company
and
its unionized employees. Moreover, describe to us whether you
anticipate any significant difficulties in the renegotiation of
the
collective bargaining agreement that is set to expire in March
2006.
We may have further comments.
Use of Proceeds, page 21
20. We note you intend to pay an aggregate dividend to your
stockholders of record immediately prior to this offering. Since
this planned distribution to owners is not reflected in the latest
balance sheet, please present a pro forma balance reflecting the
distribution accrual (but not giving effect to the offering
proceeds)
along side the historical balance sheet in the filing, as
contemplated by SAB Topic 1B.3. In addition, since this
distribution
is to be paid out of proceeds of the offering rather than from the
current year`s earnings, present pro forma per share data (for the
latest year and interim period only) giving effect to the number
of
shares whose proceeds would be necessary to pay the dividend (but
only the amount that exceeds current year`s earnings) in addition
to
historical earnings per share.
Dividend Policy, page 21
21. You indicate your intention to pay dividends immediately prior
to
the offering. However, you also reference the limitations imposed
by
your senior credit facility with respect to your ability to pay
dividends. Please revise your disclosure and elaborate so that
you
clarify under what circumstances a dividend payment will occur.
Capitalization, page 22
22. Please remove the Cash and cash equivalents line item in your
capitalization table.
Management`s Discussion and Analysis of Financial Condition and
Results of Operations, page 30
23. Throughout this section, you utilize a significant amount of
technical terms or jargon. Although terms such as "crack spread",
`sweet/sour spread" are defined in the appendix, the disclosure
would
be improved if you minimized the usage of such terms. Instead,
define the terms in a concise and simple manner to facilitate a
reader`s understanding of your disclosure. Please revise your
disclosure accordingly.
History, page 30
24. It appears that certain of your directors and officers have
indirect interests in, or are affiliated with, the minority
investors
with which you completed the minority interest acquisition
transaction. Please clarify the disclosure here and in the
section
entitled "Certain Relationships and Related Transactions," so that
you elaborate and clarify, as applicable, the dollar amount
received
by each director or officer or any company affiliated with such
director or officer as a consequence of the minority acquisition
interest transaction. We may have further comments.
Market Trends, page 32
25. You state that a "[h]igh demand for refined products and a
strengthening economy resulted in increased crack spreads in 2004
compared to 2003." As noted in a prior comment, avoid the usage
of
technical jargon and restate so that you provide meaningful
insight
into market trends affecting your company.
26. Please provide information regarding the business done by your
subsidiaries as required by Item 101(c) of Regulation S-K. As
noted
in our prior comment, the disclosure provided should reference
information that is material to an understanding of your business
taken as a whole.
27. Please confirm whether or not your refining and marketing
segment
is dependent upon any one customer or a few customers, the loss of
which would be material to your operations. See Item 101(c)(vii).
Results of Operations
28. Disclose the effect that changes in prices as opposed to
changes
in volume have had on your revenues from one period to the next.
Please provide this information by segment. Refer to Item
303(a)(3)(iii) of Regulation S-K.
Liquidity and Capital Resources, page 46
Revolving Credit Facility, page 49
29. A significant amount of your operations is funded through your
reliance on debt. Revise the disclosure in this section so that
you
provide an accurate summary of all the material covenants of your
debt agreements. For example, rather than stating that your debt
agreements contain provisions that you believe are "customary for
financings of this kind," delineate the material terms of each
debt
agreement to facilitate an investor`s understanding of the terms
with
which you must comply.
30. Please ensure that you provide an accurate and complete
summary
of the material terms of the agreements filed as exhibits. In
this
regard, we note the summary of terms of the Revolving Credit
Facility
provided on page 49 is inconsistent with the terms in the
agreement
itself with respect to the percentage of ownership Alon Israel
must
retain in order for there not to be deemed a change in control.
We
refer you to the definition of "Change of Control" in exhibit
10.19.
Please advise or revise your description accordingly.
Business, page 57
Branded Transportation Fuel Marketing, page 61
31. Please explain to us the basis of your belief that
"transitioning
to [y]our own brand would [not] materially affect [y]our business
or
operations." We may have further comments.
32. Please correct the inconsistency in the disclosure on pages 65
and 69 relating to the amount of damages HEP must first incur
before
you would be required under the environmental indemnity, to
indemnify
HEP. Further, please provide us with a copy of the executed
version
of the agreement referenced in section 2.2 (e) of the Contribution
Agreement.
Management, page 72
33. Please inform us of whether any of your directors and officers
are non-US residents. We may have further comments.
Executive Compensation, page 76
34. The employment agreements filed as exhibits to the
registration
statement contain different base salary amounts than the salary
disclosed in the prospectus for Messrs. Morris, Concienne, Dean
and
Hart. Please explain this discrepancy and revise the disclosure
in
the compensation table and elsewhere in the prospectus,
accordingly.
Compensation Committee Interlocks and Insider Participation, page
80
35. You state on page 80 that Mr. Wiessman`s compensation is
"determined by Alon Israel." Given that Mr. Wiessman is also the
Chief Executive Officer, President and director of Alon Israel,
please explain to us in detail, the procedures in place regarding
how
Alon Israel makes decisions regarding the compensation awarded to
Mr.
Wiessman.
Principal Stockholders, page 81
36. Provide the information required by Item 403 of Regulation S-
K.
Certain Relationships and Related Party Transactions, page 84
37. There is a significant amount of disclosure in the document
regarding various direct and indirect relationships between the
company and its directors, officers and their affiliates. This
information, however, is not presented in a manner that
facilitates
an investor`s complete understanding of the extent of the related
party transactions and relationships. For example, rather than
include material disclosure regarding Mr. Wiessman`s compensation
arrangements and intended compensation arrangements in a footnote
reference to the table on page 82, move such disclosure to the
main
text of the disclosure. Specify what the "maintenance and utility
costs" of $17,524 were, delineate the new compensation
arrangements
that, subject to board approval, will be provided to Mr. Wiessman,
and indicate what the terms of the termination of such
compensation
arrangements prior to December 31, 2009, would be. Further,
indicate
the related party transactions that involve Mr. Wiessman due to
his
ownership in or control of affiliated companies, including the
parent
company in the main text of the disclosure.
38. Please specify in your disclosure, the amount Mr. Wiessman
will
be reimbursed for "maintenance and utility costs" under the terms
of
the anticipated agreement. Has the company paid any such costs to
Mr. Wiessman to date? If so, please disclose all such amounts
paid
to date. Finally, include a complete description of all items
that
comprise such costs. We may have further comments.
39. Please clarify the nature of the relationships between
entities
doing businesses with the company that are partially, wholly,
directly or indirectly owned by the directors and officers of the
company. In this regard, we note disclosure on page 86 regarding
Mr.
Morris` transactions, through SCS Beverage Inc., with the company.
Please advise us of the relationship between Southwest Convenience
Stores LLC, SCS Beverage LLC , and Mr. Morris. Also, we note the
consulting arrangements between the company and Rosebud Medical
Ltd.,
and Africa Israel Investments Ltd. both of which are partially
owned
by directors or officers in the company. Also, as noted in a
prior
comment, clarify the benefits received indirectly by your
directors
and officers due to their affiliations with companies from which
you
purchased the 40% minority interest in Alon USA Capital, Inc.
Significantly revise your disclosure in this section so that the
nature of such related party transactions is clarified. We may
have
further comments.
SCS Beverage, page 86
40. Were the terms of the SCS Beverage, Inc. agreement between Mr.
Morris and the company terms that would have been obtained between
the company and an unaffiliated third party? If not, please
disclose
how material terms differed due to the relationship of Mr. Morris
and
the company.
41. Consistent with the requirements of Item 601 of Regulation S-
K,
please file the SCS Beverage Inc. agreement as an exhibit to the
registration statement. We may have further comments.
Underwriting, page 97
42. You indicate that a prospectus in electronic format may be
made
available on the websites maintained by one or more of the
underwriters. Identify the underwriters and the websites. If
agreements exist outlining these arrangements, provide us a copy
of
such agreements and describe their material terms. If you
subsequently enter into any arrangements with a third party to
host
or access your preliminary prospectus on the Internet, promptly
supplement your response and update your disclosure. We may have
further comments.
43. You indicate that you intend to conduct a "directed share
offering." Please indicate the number of shares and percentage
of
shares being reserved for issuance pursuant to the directed share
program. Further, provide us with any material you have sent or
intend to send to these potential purchasers such as a "friends
and
family letter." Please inform us of when you first sent materials
or
intend to send materials to these potential purchasers. Inform us
of
whether the sale will be handled by you directly or by the
underwriting syndicate. Explain to us the procedures you or the
underwriter will employ in making the offering and how you will
assure that this offer will meet the requirements of Section 5 of
the
Securities Act and Rule 134. We may have further comments.
44. If the underwriters will engage in an electronic offer, sale
or
distribution of the shares, please describe their procedures to
us.
45. Disclose whether your underwriters have any present intent to
release the lock-ups early. If so, please disclose the factors to
be
considered in making such determination.
Financial Statements
Consolidated Statements of Operations, page F-4
46. It appears from your disclosures that you have not included
depreciation relating to property, plant and equipment in your
determination of Gross margin. Although the guidance in SAB Topic
11:B accommodates the separate presentation of multiple components
attributable to cost of sales, it is not permissible to similarly
report a measure of gross margin excluding such amounts. Any
depreciation and amortization expense that is related to cost of
sales may be displayed on a separate line item, however this item
must appear before presenting gross margin and be reflected in
that
metric. Please modify your presentation accordingly.
47. We note your use of the line item "Net income per share" in
your
Consolidated Statements of Earnings and your use of "Earnings per
share, basic and diluted" in the other financial data located
within
the registration statement. Please tell us the difference between
these two line items.
Note (3) Description and Nature of Business, page F-7
(b) Revenue Recognition, page F-8
48. We note that you engage in certain buy/sell refined product
arrangements, presented on a gross basis in your Consolidated
Statements of Operations and that you believe these arrangements
are
"not significant." Please revise your disclosure to address the
Sample Letter Sent to Participants in the Oil and Gas Industry by
Carol A. Stacey, Chief Accountant, Division of Corporation
Finance,
dated February 11, 2005
(http://www.sec.gov/divisions/corpfin/guidance/oilgas021105.htm).
This letter asks registrants to separately identify on the face of
the statements of operations the proceeds and costs associated
with
buy/sell and comparable arrangements reported on a gross basis for
all periods presented, either as separate line items, or within
parenthetical notations next to the captions that include these
amounts. If the amounts are not material enough for disclosure on
the face of the statements of operations, the letter asked
registrants to disclose the amounts in a footnote.
(14) Stockholders` Equity, page F-25
(b) Stock-Based Compensation
49. Please provide us the following information in tabular form
for
stock option grants and other equity-related transactions in
August
2000 and continue to provide us with updates to the requested
information for all equity-related transactions subsequent to this
request through the effective date of the registration statement.
* The type of equity related instrument;
* The date of grant/issuance;
* Description/name of option or equity holder;
* The reason for the grant or equity related issue;
* The number of options or equity instruments granted or issued;
* The exercise price or conversion price;
* The fair value of underlying shares of common stock;
* The total amount of compensation deferred, beneficial conversion
feature and expense recognized, reconciled to your financial
statement disclosures;
* The magnitude and timing of the amortization expense; and
* Reference the authoritative accounting guidance relied upon for
each non-option grant equity transaction.
Tell us how you determined the value of each grant. Provide any
reports that you prepared in conjunction with your valuations, and
any additional information necessary to understand your
methodology
and the underlying assumptions.
50. Please support your statement that "Had compensation expense
been
determined as prescribed by SFAS No. 123 using the minimum value
method, the Company`s net income would not have been significantly
impacted for any of the three periods ended December 31, 2004."
Note (2) Sale of Pipelines and Terminals, page F-33
51. Please tell us the accounting literature you relied upon to
treat
the transaction with HEP as a partial sale for accounting
purposes.
Schedule I - Condensed Financial Information, page II-4
52. Please tell us how you have complied with Article 12-04(a) of
Regulation S-X, which requires descriptions of significant
provisions
of long-term obligations, mandatory dividend or redemption
requirements of redeemable stocks, and guarantees to be provided,
along with a five-year schedule of maturities of debt.
Closing Comments
As appropriate, please amend your registration statement in
response to these comments. You may wish to provide us with
marked
copies of the amendment to expedite our review. Please furnish a
cover letter with your amendment that keys your responses to our
comments and provides any requested supplemental information.
Detailed cover letters greatly facilitate our review. Please
understand that we may have additional comments after reviewing
your
amendment and responses to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings reviewed by the staff to
be
certain that they have provided all information investors require
for
an informed decision. Since the company and its management are in
possession of all facts relating to a company`s disclosure, they
are
responsible for the accuracy and adequacy of the disclosures they
have made.
Notwithstanding our comments, in the event the company
requests
acceleration of the effective date of the pending registration
statement, it should furnish a letter, at the time of such
request,
acknowledging that
* should the Commission or the staff, acting pursuant to delegated
authority, declare the filing effective, it does not foreclose the
Commission from taking any action with respect to the filing;
* the action of the Commission or the staff, acting pursuant to
delegated authority, in declaring the filing effective, does not
relieve the company from its full responsibility for the adequacy
and
accuracy of the disclosure in the filing; and
* the company may not assert this action as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in connection with our review of
your
filing or in response to our comments on your filing.
We will consider a written request for acceleration of the
effective date of the registration statement as a confirmation of
the
fact that those requesting acceleration are aware of their
respective
responsibilities under the Securities Act of 1933 and the
Securities
Exchange Act of 1934 as they relate to the proposed public
offering
of the securities specified in the above registration statement.
We
will act on the request and, pursuant to delegated authority,
grant
acceleration of the effective date.
We direct your attention to Rules 460 and 461 regarding
requesting acceleration of a registration statement. Please allow
adequate time after the filing of an amendment for further review
before submitting a request for acceleration. Please provide this
request at least two business days in advance of the requested
effective date.
You may contact Jennifer Goeken at (202) 551-3721 or in her
absence, Barry Stem, Senior Assistant Chief Accountant at (202)
551-
3763 if you have comments on the financial statements and related
matters. Please contact Mellissa Campbell Duru, at (202) 551-3757
or
me at (202) 551-3745 with any other questions.
Sincerely,
H. Roger Schwall
Assistant Director
cc: via facsimile
Mark Betzen, Esq.
Jones Day
(214) 969-5100 (fax)
T. Richter
B. Stem
J. Goeken
M.Duru
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Mr. Morris
Alon USA Energy, Inc.
June 10, 2005
page 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-0405
DIVISION OF
CORPORATION FINANCE
MAIL STOP 04-05